Source: https://law.justia.com/cases/federal/appellate-courts/F2/612/166/410340/
Timestamp: 2020-05-27 07:08:55
Document Index: 498216085

Matched Legal Cases: ['§ 2041', '§ 7422', '§ 2041', '§ 2041', '§ 813', '§ 65', '§ 7422']

John F. Finley, Executor of the Estate of Mildred B.whitlock, Plaintiff-appellee, v. United States of America, Defendant-appellant, 612 F.2d 166 (5th Cir. 1980) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Fifth Circuit › 1980 › John F. Finley, Executor of the Estate of Mildred B.whitlock, Plaintiff-appellee, v. United States o...
John F. Finley, Executor of the Estate of Mildred B.whitlock, Plaintiff-appellee, v. United States of America, Defendant-appellant, 612 F.2d 166 (5th Cir. 1980)
U.S. Court of Appeals for the Fifth Circuit - 612 F.2d 166 (5th Cir. 1980) Feb. 20, 1980
This appeal arises from a refund suit in which the district court determined that the value of a trust, over which taxpayer's decedent held a general testamentary power of appointment, could not be included under I.R.C. § 2041(a), (b) (1) in decedent's taxable estate since she had been mentally incompetent and therefore legally incapable of exercising that power throughout her possession of it. We decide, however, that under I.R.C. § 7422(e)1 the district court lost jurisdiction over the issue when taxpayer filed a petition in the Tax Court for redetermination of an additional disputed deficiency in the estate's tax payment.
Appellee taxpayer, executor of the estate of Mildred B. Whitlock, timely filed a federal estate tax return showing a tax liability of $116,020 on a gross estate of $653,147. The inclusion of a trust valued at $395,342 accounted for well over half of the gross estate and most of the resultant tax liability. The Internal Revenue Service had included the trust in decedent's estate under I.R.C. § 2041(a) (2) because it had been subject to her general testamentary power of appointment. Taxpayer disputed the inclusion of the trust, however, on the ground that decedent had been legally incapable of using her power since she had been mentally incompetent, lacking testamentary capacity, for as long as she had held the power. Thus, appellee argued, that power had been neither legally nor actually "exercisable" by the decedent and, therefore, was not within the definition of a "general power of appointment" includible in her federal taxable estate. I.R.C. § 2041(b) (1).
In federal tax litigation one's total income tax liability for each taxable year constitutes a single, unified cause of action, regardless of the variety of contested issues and points that may bear on the final computation. Commissioner v. Sunnen, 333 U.S. 591, 598, 68 S. Ct. 715, 92 L. Ed. 898 (1948). As in any other area, res judicata bars subsequent litigation of a previously adjudicated cause of action, including those claims and defenses that could have been, but were not, raised in the earlier proceeding. Id. All such issues are considered to have merged into the prior judgment. Accordingly, when during the course of a refund suit a taxpayer petitions the Tax Court in response to an additional disputed deficiency for the same tax year, the Tax Court acquires jurisdiction over the entire cause of action, necessarily including all possible issues controlling the determination of the amount of tax liability for the year in question whether or not raised by the deficiency notice. The district court is then divested of jurisdiction over all such issues under section 7422(e). United States v. Joe Graham Post No. 119, American Legion, 340 F.2d 474, 476-77 (5th Cir.), Cert. denied, 382 U.S. 824, 86 S. Ct. 55, 15 L. Ed. 2d 70 (1965); Russell v. United States, 592 F.2d 1069, 1071-72 (9th Cir.), Cert. denied, --- U.S. ----, 100 S. Ct. 308, 62 L. Ed. 2d 315 (1979). See, e. g., Fairchild Ind., Inc. v. United States, 590 F.2d 343 (Ct. Cl. 1978) (text at 78-2 U.S.T.C. (CCH) P 9755).
Taxpayer relies for his argument that even a Tax Court redetermination of a deficiency based on the state death tax credit issue should not under section 7422(e) divest a district court hearing a refund suit of its jurisdiction over broader questions of the estate's general tax liability on Rosamond Gifford Charitable Corp. v. United States, 170 F. Supp. 239 (N.D.N.Y.1958), the only case prior to this to consider the issue. There, as here, the taxpayer improperly claimed the credit for state death taxes in the original estate tax return, knowing the state tax had not actually been paid as required by the federal law. After taxpayer commenced a refund action in the district court, disputing the inclusion in the taxable estate of a large charitable bequest, the Internal Revenue Service notified the taxpayer of a deficiency in the amount of the credit based on the nonpayment of the state tax. In response, the taxpayer petitioned the Tax Court for a redetermination of that deficiency, pending the outcome of the refund suit in which the size of the taxable estate and, derivatively, the actual state tax liability and allowable federal credit would be determined. The district court concluded that section 7422(e) would not operate to divest its jurisdiction on the basis of this particular Tax Court petition.
It is at least arguable, however, that the taxpayer in Rosamond Gifford was forced to claim the credit in the original estate tax return. The enactment of section 2011(c) (3), allowing one to claim the credit within sixty days after a refund suit, was at that time still pending in Congress.2 In order to receive the credit a taxpayer engaged in a refund suit was required under existing law to claim it within the same statutory period as those taxpayers not engaged in any litigation that is, within four years after the filing of the estate tax return. Internal Revenue Code of 1939, ch. 3, § 813(b), 53 Stat. 125. That administrative and judicial refund proceedings could exceed that period was a very real possibility. Both the parties and the court in Rosamond Gifford viewed the claiming of the credit in the original return and the filing of the narrow Tax Court petition as simply a method of preserving the status quo, salvaging taxpayer's rights, in the face of a deficient statutory scheme.3 170 F. Supp. at 243. To the extent that the result in Rosamond Gifford reflects that court's solution for the quandary of the taxpayer, it is now obviated or supervened by the statutory mechanism of section 2011(c) (3). Insofar as the court's decision rests simply on the unique nature or "separability" of the credit issue, it is contrary to the general judicial rule that all issues bearing on the estate's tax liability comprise a single cause of action, and we, therefore, reject it.
Section 2011(c) (3) was enacted Pub. L. 85-866, § 65(a), 72 Stat. 1657 (1958)
In enacting § 7422(e) Congress not only failed to provide for the consequences of a court's not properly staying its proceedings, it fostered such noncompliance by failing to provide any mechanism for, or allocating the burden to either party of, notifying the trial court of the existence of a deficiency notice. It is the view of this court that, as the initiator of the deficiency notice and the party most benefited by the stay, the government should bear the burden of notifying the trial court in the form of a motion to stay under Fed. R. Civ. P. 7