t c no united_states tax_court larry g and maria a walton mitchell petitioners v commissioner of internal revenue respondent docket no filed date p-w received distributions during made pursuant to a qdro after her ex-husband retired from the u s air force ps did not include the distribution in income when they filed their joint federal tax_return r issued a notice_of_deficiency in which he determined that ps were liable for income_tax on the distribution held distributions received by p-w are income to p-w and are includable in petitioners’ taxable_income larry g and maria a walton mitchell pro_se michael r skutley for respondent opinion goeke judge respondent determined a deficiency of dollar_figure in petitioners’ federal tax for the issue for decision is whether dollar_figure received by petitioner maria a walton mitchell petitioner for her interest in her former husband’s military retired pay is includable in her gross_income for the reasons stated herein we hold that it is background the following facts are stipulated or are not disputed by the parties the parties’ stipulation of facts and the accompanying exhibits are incorporated herein by this reference petitioners resided in california at the time that the petition was filed before her marriage to larry g mitchell petitioner was married to bobbie leon walton at the time of their marriage mr walton was on active_duty in the u s air force usaf mr walton and petitioner separated in pursuant to a final judgment entered by the superior court of the state of california superior court their divorce became final on date on date mr walton retired from the usaf after years on active_duty and began receiving military retired pay petitioner subsequently petitioned the superior court with 1this case was reassigned to judge joseph r goeke by order of the chief_judge respect to her interest in mr walton’s military retired pay on date the superior court entered an order order which stated in pertinent part servicemember mr walton retired from the united_states air force on date with fully vested retirement rights and benefits a portion of which are community_property of servicemember and of servicemember’s former spouse petitioner is now entitled to an order dividing the military retirement to the extent same was earned by servicemember during the marriage to her petitioner shall be awarded as her sole and separate_property one-half of the community_property interest in servicemember’s net disposable military retirement pay as set forth in the california case of mansell v mansell decided by the u s supreme court on date wherein the net disposable military retirement pay is defined as the net after deducting a amounts owned sic by the military member to the united_states b required_by_law to be deducted from total pay including employment_taxes and fines and forfeitures ordered by courts-martial c properly deducted from federal state and sic income taxes d withheld pursuant to other provisions under the internal_revenue_code e deducted to pay government life_insurance premiums and f deducted to create an annuity for the former spouse u s c a - - a - f the community_property interest in the servicemember’s net disposable retirement pay is determined to be petitioner’s interest in servicemember’s net disposable retirement pay is determined to be attached to the order was a factsheet titled direct payments from u s air force retired pay pursuant to the uniformed_services former spouses’ protection act factsheet the factsheet stated in pertinent part j taxes may be held only from the air force retiree’s pay funds may not be held for taxes from the ex-spouses portion for further information we refer you to the nearest internal_revenue_service office sometime in petitioner began receiving monthly payments from the defense finance and accounting service dfas for her interest in mr walton’s military retired pay pursuant to the order for the taxable_year she received payments from dfas in the aggregate amount of dollar_figure dfas issued to petitioner a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc for the taxable_year which reported both the gross distribution and the taxable_amount as dollar_figure and the amount of federal_income_tax withheld as zero petitioners timely filed a joint form_1040 u s individual_income_tax_return for but did not report the dollar_figure distribution that petitioner received from dfas on date respondent issued to petitioners a notice_of_deficiency for the taxable_year in the notice respondent determined that petitioners failed to report the dollar_figure in their gross_income on date petitioners filed an imperfect petition on date petitioners filed an amended petition alleging that taxes were to be taken into account before petitioner was issued her share of mr walton’s retirement benefits and that if petitioner’s share were taxed it would be subject_to double_taxation a trial was held on date in los angeles california discussion petitioners argue that taxes should have been withheld on the entire amount of the pension payments disbursed to mr walton before petitioner was paid her share petitioners maintain that if petitioner is required to pay federal_income_tax on her share then mr walton’s pension is being subject_to double_taxation both on disbursement to mr walton and again when petitioner receives her share respondent argues that tax was withheld only on mr walton’s share of the military pay not on petitioner’s share petitioner’s interest in the military retired pay was determined according to the laws of the state of california in the state of california community_property principles apply in 2on date this court issued an opinion in mitchell v commissioner t c summary opinion that dealt with a substantially_similar issue for petitioners’ tax_year respondent also raised collateral_estoppel several weeks before trial relying on that case because this case was tried and presents a legal issue on the basis of largely uncontested facts we decide the case on the merits and do not reach respondent’s collateral_estoppel argument divorce proceedings consistent with these principles each spouse is considered to have a one-half ownership_interest in all property earned by either spouse during the marriage see cal fam code sec west in 453_us_210 the supreme court held that the federal statutes then governing military retirement pay prevented state courts from treating military retirement pay as community_property in response to mccarty congress enacted in the department of defense authorization act publaw_97_252 96_stat_730 which added section to title of the united_states_code under u s c sec c a state court may treat disposable military retired pay in a divorce proceeding either as property solely of the servicemember or as property of the military retiree and his or her spouse in accordance with the law of the jurisdiction of the court if a divorce was effective before date only the disposable retired pay which is the total monthly retired pay to which a member is entitled less inter alia amounts properly withheld for federal state or local_income_taxes may be treated as the property of the member and his spouse u s c sec a national defense authorization act for fiscal_year ndaa publaw_101_510 e 104_stat_1569 under california law post-mccarty military retirement benefits earned during marriage are community_property casas v thompson p 2d cal see gillmore v gillmore p 2d cal while state law determines the nature of a property interest federal_law determines the federal taxation of that property interest 403_us_190 furthermore the tax_liability for income from property attaches to the owner of the property eatinger v commissioner tcmemo_1990_310 citing 309_us_331 300_us_5 282_us_101 and 281_us_111 as a general_rule the internal_revenue_code imposes a tax on the taxable_income of every individual see sec_1 for purposes of calculating taxable_income sec_61 defines gross_income as all income from whatever source derived unless otherwise specifically excluded gross_income specifically includes amounts derived from pensions sec_61 military retired pay constitutes a pension within the meaning of that section see eatinger v commissioner supra a military retirement pension like other pensions is simply a right to receive a future income stream from the retiree’s employer sec_1_61-2 income_tax regs sec_1_61-11 income_tax regs pensions and retirement allowances paid either by the government or by private persons constitute gross_income unless excluded by law see also u s c a defining the department of defense military retirement fund under sec_402 a pension distribution is normally taxed to the distributee pursuant to sec_402 the spouse or former spouse is treated as the distributee with respect to distributions allocated to that spouse pursuant to a qualified_domestic_relations_order qdro and such distributions therefore become taxable_income to that spouse the spouse receiving the distribution pursuant to the qdro is also known as an alternate_payee sec_402 sec_414 a domestic_relations_order dro qualifies as a qdro only if it creates or recognizes the existence of an alternate payee’s right to or assigns to an alternate_payee the right to receive all or a portion of the benefits payable with respect to a participant under a plan clearly specifies facts required by sec_414 and does not alter the amount or form of the plan benefits sec_414 - in addition the dro must be presented to the plan_administrator who must determine whether it is a qdro sec_414 finally under sec_402 an alternate_payee is treated as the distributee of a distribution from a qualifying plan only if the distribution is made to the alternate_payee under a qdro the parties do not dispute that the order constitutes a qdro and we agree that the order satisfies the requirements of sec_414 nonetheless even if the superior court order had not constituted a qdro under sec_414 petitioner’s interest in the military retired pay would be taxable_income to her on the basis of community_property law see 101_tc_489 eatinger v commissioner supra petitioners do not dispute that the superior court awarded petitioner a community_property interest in mr walton’s military retired pay and that she received dollar_figure pursuant to the qdro instead petitioners argue that the payments petitioner received for her interest in mr walton’s military retired pay are not subject_to income_tax because the qdro specified that all taxes should have been withheld from the military retirement pay before it was divided and distributed petitioner draws support for this argument from a paragraph in the factsheet attached to the qdro which stated in pertinent part i the amount payable to a spouse or former spouse under this law is limited to percent of the disposable retired pay please see u s c sec a c and e emphasis added the qdro defined net disposable military retirement pay as the net after deducting properly deducted federal state and sic income taxes this definition is consistent with the plain language of u s c sec a c as it was in effect when the superior court entered both the final judgment and the qdro congress recognized that subtracting tax withholdings from the computation of disposable retired pay created unfairness to the service member’s spouse h rept pincite accordingly congress amended the definition of disposable retired pay such that the disposable retired pay is not reduced by income taxes withheld u s c sec a supp iii ndaa sec_555 e this amendment however is effective only for divorces entered into on or after date which is after both petitioner’s final judgment and the qdro and is therefore not applicable in the instant case see u s c sec a supp iii ndaa sec_555 e the calculation of disposable retired pay however does not mean that petitioner’s allotment is not taxable nor does it mean that petitioner’s allotment is exempt from tax because tax was already withheld on mr walton’s allotment title u s c sec a merely defines petitioner’s property rights in the military retired pay not the tax consequences of her receipt of the benefit because the state of california is a community_property_state petitioner is treated as having earned the distributions she is currently receiving accordingly petitioner is liable for tax on those distributions regardless of the terms of the qdro petitioner essentially argues that her disbursement is being subjected to double_taxation petitioner however did not produce any evidence and the record is void of any evidence that double_taxation occurred petitioner did not provide any evidence about the amount of the pension which was included in mr walton’s taxable_income moreover there is nothing in the qdro stating that petitioner’s interest in mr walton’s military retired pay is not taxable or has already been subject_to tax as indicated above the factsheet provides in pertinent part that taxes may be held only from the air force retiree’s pay funds may not be held for taxes from the ex-spouses sic portion this supports respondent’s argument that taxes were not withheld on petitioner’s portion of the military retired pay on the basis of the law as it was in effect on the date of petitioner’s final judgment and the date of the qdro petitioner’s interest is calculated on mr walton’s military retired pay less income_tax withheld petitioner provided no evidence that income taxes were withheld from her portion of the military retired pay as explained earlier petitioner’s interest is taxable accordingly we conclude that the dollar_figure petitioner received in for her interest in mr walton’s military retired pay is includable in petitioners’ gross_income to reflect the foregoing decision will be entered for respondent reviewed by the court colvin cohen wells foley vasquez gale thornton marvel haines wherry kroupa gustafson and paris jj agree with this majority opinion morrison j did not participate in the consideration of this opinion holmes j concurring dear reader--if you have made it this far you may reasonably ask where’s the beef why did the tax_court assemble in conference to decide unanimously that payments under a divorce agreement were taxable_income to maria mitchell--a question already resolved on a nearly identical record for the immediately preceding tax_year tucked away in footnote is the answer a solid majority of the court does not wish to address the question of whether our decision in a small_tax_case collaterally estops future litigation of the same issue between the same parties in a later- filed regular_tax case our opinion today technically avoids the issue but in doing so throws into question at least three summary opinions two of our rules and one memorandum opinion3 where we have given or said we would give s-case decisions collateral-estoppel effect it should i think be construed by those who read and rely on our opinions as standing for the proposition that half our court’s caseload--cases leading to see voss v commissioner t c summ op pincite collateral_estoppel in no way conflicts with the ‘no precedent’ provisions of sec_7463 wilkerson v commissioner t c summ op pincite n sec_7463 doesn’t necessarily preclude application of the doctrines of res_judicata and collateral_estoppel gilmore v commissioner t c summ op pincite n applying collateral_estoppel despite sec_7463 rule sec_50 c ginalski v commissioner tcmemo_2004_104 decisions in s cases--are like a restricted railroad ticket good for this day and train only all agree that the code makes s-case decisions nonprecedential but today’s opinion may suggest more radically that they are without effect on future litigation at all i write separately to explain the issue that we are avoiding today and how i think it should have been resolved i the facts in this case were largely undisputed and as the trial judge who heard the case i do not disagree with the majority’s recitation of them here but the case doesn’t really begin with mitchell’ sec_2001 taxes mitchell began receiving the pension payments due under the qdro in she consistently reported none of them on her tax returns until when the irs sent her a notice_of_deficiency challenging her failure to report the payments on her tax_return mitchell began a case in our court and chose for it to be a small_tax_case s_case under sec_7463 one of our court’s special trial judges heard mitchell’s s_case and as the majority’s footnote mentions we issued the opinion as mitchell 321_us_649 roberts j dissenting see 544_us_40 to the extent that the individual judge disagrees with his colleagues he is free to file a dissenting opinion repeating or borrowing from his initial decision v commissioner t c summ op mitchell i in language strikingly similar to that used by the majority today we held that the qdro didn’t actually say that mitchell’s portion of walton’s retirement pay was nontaxable only that her share of it was to be computed after walton’s own taxes on the full amount were withheld finding nothing in the code that would have excluded the payments from mitchell’s gross_income we concluded then as now that mitchell had to pay tax on them when mitchell filed her joint income_tax return with her second husband which i want to note she filed well before we issued mitchell i she again did not include the pension payments that she had received under the qdro after receiving another notice_of_deficiency she again filed a petition with this court this time she specifically designated her case a regular one under sec_7453 subject_to the full set of rules procedures and appeal rights as all other regular cases once the decision in mitchell i became final the commissioner amended his answer in this case and asserted collateral_estoppel as an affirmative defense this squarely placed at issue a question left open more than a quarter century ago by sherwood v commissioner t c memo does our court’s decision in an s_case collaterally estop the losing party in later litigation a bit of research showed that we had addressed the issue before in summary opinions and at least obliquely in one memorandum opinion and we seemed to have answered the question by rule when it came to s cases decided by bench opinions or dispositive orders it seemed reasonable to view this second mitchell case as a good opportunity to provide citable precedent on the collateral-estoppel effect of s cases decided by summary opinion we asked both parties to brief the issue and gave the commissioner’s counsel enough time to seek review from the irs national_office to make certain that the views he presented reflected the irs’s considered opinion the transcript of the trial consists of pages only of which show testimony or the receipt of evidence the only really important question was the first one the court now are there any differences between this tax_year which is for and the tax_year that the special_trial_judge wrote about mr mitchell the only thing i think that may have changed is there may be a little slight difference in the amount that she received but i don’t think so ii a i begin by outlining the key characteristics of s cases one of the most important is that s status is voluntary when mitchell filed her first petition in our court she used a form we had specifically designed for small cases but with a box that she had only to check to choose regular-case status either party may also ask that we remove this designation any time before trial rule c but if the case remains an s_case all the way to a final_decision neither party is allowed to appeal it to a united_states court_of_appeals as he could if it were a decision in a regular case sec_7481 congress considered this point carefully before giving taxpayers the option of choosing s-status for their cases the s designation has benefits for taxpayers who choose it--they get relaxed rules of evidence and procedure a longer list of cities from which to choose a place of trial and usually a speedier decision see s rept pincite 1969_3_cb_423 and each of these features makes access to the court system easier and less costly for taxpayers with small claims a category into which most tax_court cases currently fall but increasing access to tax_court for these taxpayers increases the likelihood that sometimes unforeseen but we recently adopted a new form that requires a taxpayer to choose between small-case and regular-case procedures if he doesn’t the default rule is to designate his case a regular one tax_court form_2 date we also must remove the s designation after trial begins but before the decision becomes final if the case no longer meets the jurisdictional requirements sec_7463 and rule b now requires the commissioner to file an answer in s cases which also increases the probability that we will notice small cases raising novel legal issues and move them to a regular-case track under sec_7463 complicated questions of tax law might be decided incorrectly especially when the volume of cases increases and they are not often tried on both sides by professionals by enacting sec_7463 congress chose to balance these competing effects on accuracy and cost by allowing easier access for taxpayers and eliminating the right of appeal--making the stakes lower for the irs by eliminating any precedential effect an s_case might otherwise have see id pincite c b pincite but any increase in the probability of error is reduced by our rules apart from the elimination of the right of appeal and precedential effect we decide s cases very much like regular cases in an s_case just as in a regular case the judge has to prepare an oral or written summary of the facts and reasons for the proposed disposition of the case rule sec_182 sec_152 a summary opinion like the one in mitchell i is submitted to the chief_judge or his designee for review before decision is entered rule a this review gives time for the chief_judge to direct that such report shall be reviewed by the tax_court sec_7460 if so the opinion would be considered and voted on by all the court’s presidentially appointed judges in active_service and whether the opinion in an s_case is written or oral the decision in the case becomes final days after it is entered sec_7481 during this time either party may file a motion to vacate or a motion to revise the decision rule b issue preclusion or collateral_estoppel is a doctrine with deep roots in our legal system the doctrine is easy to state when an issue of fact or law is actually litigated and determined by a valid and final judgment and the determination is essential to the judgment the determination is conclusive in a subsequent action between the parties whether on the same or different claim restatement judgment sec_2d sec_27 it stems from the understandable policy that a dispute once resolved should stay resolved it promotes judicial economy and if justice consists in part of reaching the same result in similar cases it is also an instrument of justice in 90_tc_162 affd 904_f2d_525 9th cir we listed the requirements for applying collateral_estoppel the issue in the second suit must be identical in all respects with the one decided in the first suit there must be a final judgment rendered by a court of competent jurisdiction collateral_estoppel may be invoked against parties and their privies to the prior judgment the parties must actually have litigated the issues and the resolution of these issues must have been essential to the prior decision the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation see 440_us_147 listing similar elements mitchell i seems to have them all the issue is the same the decision in mitchell i is final the parties are identical the issue was actually litigated and was essential to the outcome and neither the terms of the qdro nor the relevant law changed from one year to the next the supreme court told us just earlier this year that t he preclusive effect of a federal-court judgment is determined by federal common_law taylor v sturgell 128_sct_2161 n we look to caselaw the restatement and treatises for sources of that law and as with most common-law doctrines there are exceptions to the general_rule against relitigation of a decided issue one that is relevant here denies estoppel when t he party against whom preclusion is sought could not as a matter of law have obtained review of the judgment in the initial action restatement judgment sec_2d sec_28 the ninth circuit--the circuit to which this case is appealable--has construed the availability of review specifically to mean the possibility of a chain of appellate review 175_f3d_692 9th cir citation omitted if collateral_estoppel applied in cases with no possibility of appellate review the court reasoned it would be too easy for a party to become bound by an arbitrary or incorrect decision not just in that specific case but in any future litigation as well id and a leading treatise on the subject flatly states that inability to obtain appellate review does prevent preclusion moore moore’s federal practice par k i pincite 3d ed this means that the commissioner has a problem--congress by enacting sec_7463 has shattered whatever chain of appellate review might otherwise have been available to the mitchells after our court decided mitchell i and it might conceivably be argued that sec_7463's prohibition on treating decisions in s cases as a precedent itself somehow bars using those decisions as the basis for defenses of collateral_estoppel or res_judicata or law of the case i will therefore sort the possible objections8 to giving collateral-estoppel effect to our decisions in s cases into three parts sec_7463 the absence of appealability and the peculiar problem of applying collateral_estoppel in a case appealable to the ninth circuit because of wehrli iii a sec_7463 states that a decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court and shall not be treated as a precedent for any other case this language is prominently the majority’s stated explanation is that it won’t address the commissioner’s collateral-estoppel defense because this case was tried and presents a legal issue majority op note neither of these is very persuasive collateral_estoppel is an affirmative defense not a defect in pleading of the sort that’s waived if not raised before trial cf fed r civ p h it’s also a defense that can be raised for the first time on appeal during oral argument even in a supplemental appellate brief--so long as it is raised at the first reasonable opportunity after the rendering of the decision having the preclusive effect 968_f2d_707 8th cir nor should the fact that the key issue is a question of law rather than a question of fact make any difference collateral_estoppel applies when an issue of fact or law is actually litigated and determined by a valid and final judgment restatement judgment sec_2d sec_27 emphasis added and we have said the same thing ourselves 103_tc_501 91_tc_273 quoted in every summary opinion we issue putting both parties on notice that they can’t appeal but what exactly does the phrase shall not be treated as a precedent for any other case mean one possible reading is to look at sec_7436 which provides that our decisions in s cases at the end of proceedings to determine employment status shall not be treated as precedent for any other case not involving the same petitioner and the same determinations and then one might consider the language of local rules in many circuit courts that prohibit citation of unpublished or nonprecedential opinions at least for cases decided before the ninth circuit’s rule c is typical unpublished dispositions and orders of this court issued before date may not be cited to the courts of this circuit except in the following circumstances i they may be cited to this court or to or by any other court in this circuit when relevant under the doctrine_of law of the case or rules of claim preclusion or issue preclusion federal rule_of appellate procedure restricts courts from forbidding the citation of unpublished or nonprecedential opinions however the advisory committee noted that this rule does not say anything about the precedential weight of such opinions see cooper citability and the nature of precedent in the courts of appeals a response to dean robel ind l rev one might argue on the principle of inclusio unius est exclusio alterius or the duty to refrain from reading into the statute a phrase that congress has left out that this makes the best reading of sec_7463 one that would make our summary opinions uncitable even for purposes of res_judicata collateral_estoppel law of the case or the other purposes listed by the ninth circuit i think such a reading is wrong first barring something unusual in the context or the structure of the code legal terms like precedent --even when used in the internal revenue code-- should be read as having their ordinary meaning to lawyers 527_f3d_443 5th cir and treating a case as precedent means to a lawyer not a prohibition on citing it altogether but on citing it as stating a point or principle of law decided or settled by the ruling of a competent court in a case in which it is directly and necessarily involved black’s law dictionary 8th ed or considering the case as furnishing a rule or authority for the determination of an identical or similar case afterwards arising or of a similar question of law id pincite see 464_us_16 also saying that where congress has included a phrase in one section of a statute that it omitted in another we should presume that it acted intentionally in the disparate inclusion or exclusion a good illustration of this is our opinion in ginalski v commissioner t c memo 2004-dollar_figure in that case the taxpayer filed an s_case to contest the commissioner’s determination_of_a_deficiency in her and taxes she lost for reasons explained in a summary opinion the commissioner came to collect and she demanded a collection_due_process_hearing the commissioner argued that she was barred from again challenging her underlying liability at the hearing but she thought she could trump him by citing sec_7463 we disagreed summary opinions of this court contain the caveat the case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority petitioner has mistakenly interpreted that caveat to mean that the outcome of her tax_court proceeding involving the same taxable years and is not binding with respect to her proceeding under sec_6320 and sec_6330 although this court’s decision for petitioner’s and tax years is not precedential for any other case it is final and determinative as it relates to petitioner’s liability for those years it appears that petitioner believes that the limitation on citing summary opinions as precedent deprives them of the effect of res_judicata id consider as well the third circuit’s rule on citing nonprecedential opinions which seems to be unique among the see also gilliam v u s ct_cl 578_f2d_1389 an unpublished decision noting that res_judicata bars relitigation of a claim decided in an s_case in our court circuit courts13 in stating only that t he court by tradition does not cite to its not precedential opinions as authority such opinions are not regarded as precedents that bind the court 3d cir int op proc that court too gave little time to an argument that a refusal to treat an unpublished opinion as precedent meant that it couldn’t be relied on in later litigation between the same parties we recognize that an unpublished opinion has no precedential value and should not be cited as authority in a subsequent case the reference made here is necessary however to record the law of this case 814_f2d_125 n 3d cir see also green v commissioner 201_f3d_447 10th cir noting in dicta that sec_7463 does not alter traditional principles of collateral_estoppel affg without published opinion tcmemo_1998_274 there would also be some perverse consequences of construing the phrase not be treated as a precedent in sec_7463 as a bar on subsequent citation for purposes of res_judicata collateral_estoppel and law of the case sec_6512 generally deprives other federal courts of jurisdiction over refund cases for tax years that have been the subject of deficiency cases in our court but there are exceptions sec_6512 for cooper supra note pincite example allows a refund claim for the same year as to any amount collected in excess of an amount computed in accordance with the decision of the tax_court which has become final are courts to read sec_7463 as prohibiting the use of our decisions in s cases to establish this jurisdictional prerequisite when those decisions are explained by summary opinions the answer is no sec_7463 has no effect on rules of collateral_estoppel and res_judicata because they are rules about the finality of judgments not rules on the weight or binding authority of precedent and this leads to a point making the majority’s reluctance to decide the issue even odder two of our own rules parallel pretty closely the noncitation rules of the circuit courts--with no exclusion for s cases rule g prohibits treating dispositive unpublished orders as precedents and rule c does the same for unpublished oral opinions except for purposes of the application of the doctrine_of res_judicata collateral_estoppel or law of the case the quotation is from rule c rule g puts the list in a different order and throws rule expressly governs cases where a special_trial_judge is authorized to make the decision of the court pursuant to code section 7443a b and sec_7443a refers to any proceeding under section 7463--precisely the section that describes our s cases rule c also doesn’t distinguish between oral opinions in regular and s cases--it encompasses both with the phrase opinions stated orally in accordance with paragraph a of this rule in or other similar doctrine even if we silently rue the adoption of those rules they remain in effect--leaving today’s opinion to throw into question only the use of our written-and- released-on-the-internet summary opinions--presumably the most thoughtfully constructed s-case decisions--as a basis for collateral estoppeldollar_figure but even if sec_7463 is no bar to applying collateral_estoppel to decisions in s cases explained by summary opinions would the principles of federal common_law balk at using mitchell i to collaterally estop mitchell when she had no right to appeal our decision b consider how the result today might affect a case like ginalski the commissioner in that case had to show that ginalski had had a prior opportunity to contest her deficiency one way would be to show a certified mailing list of notices of deficiency with her name on it another would be to put on a credible eyewitness to testify that ginalski had actually received the notice but a perfectly reasonable and much more efficient way ought to be by showing via citing a summary opinion that ginalski had actually litigated a deficiency case for the tax_year in question--there being no way to start a deficiency case without actually receiving a notice_of_deficiency and that seems to have been what the commissioner was doing thus our reference to ginalski’s having received a deficiency_notice filed a petition and had a final_decision entered against her ginalski t c memo in ginalski where the taxpayer was contesting the same liability for the same tax_year the legal pigeonhole was res_judicata i can’t see any reason we should treat collateral_estoppel differently as i’ve already noted one of the exceptions to the general_rule giving earlier judgments collateral-estoppel effect in later litigation is if t he party against whom preclusion is sought could not as a matter of law have obtained review of the judgment in the initial action restatement judgment sec_2d sec_28 that leads to three related questions when those authorities ask whether a party could not as a matter of law obtain review do they mean that a party choosing a procedure without a right of appeal cannot be collaterally estopped are there exceptions to the restatement’s requirement of reviewability that are analogous to our s cases does reviewability mean the same as appealability because our court hasn’t answered these questions before we should be looking to analogous procedures in other areas of law where simplified litigation often comes attached to limited rights of appeal most of these spring from arbitration and administrative law begin with arbitration cases discussing the collateral- estoppel effect of arbitration awards are especially interesting because arbitration awards like our decisions in s cases are typically not appealable learning whether they give rise to collateral_estoppel may well answer the first question that we posed can a party choosing a procedure without a right of appeal be collaterally estopped in answering this question courts generally look at what the parties intended this is no surprise since most arbitration agreements are creature s of contract and participants in them voluntarily accept limited judicial review over the issues they agree will be arbitrated convalescent ctr inc v dept of income maint a 2d conn courts reason that when the parties themselves agree that a decision will be final the decision should be given the same weight as a court-rendered judgmentdollar_figure corey v avco-lycoming div a 2d conn see also 869_f2d_107 2d cir collateral_estoppel of arbitration decision allowed in part because parties agreed to the procedures there is an important exception to this default rule the courts have sometimes denied collateral_estoppel when a party tries to use an unappealed arbitration award to preclude a federal statutory civil-rights claim see eg 415_us_36 466_us_284 no collateral_estoppel over claim this is only true however in future litigation between the same parties because of the informal nature of arbitration nonmutual collateral estoppel--where a nonparty uses the prior decision against one of the parties to that decision--is generally not available for arbitration decisions e g vandenberg v superior court p 2d cal brought under u s c section but see 473_us_614 arbitration presumptively competent to resolve certain other statutory claims such cases remind us that rules about preclusion are usually judge-made default rules--rules that can be upended when congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue id pincite courts follow a similar approach in cases analyzing the collateral-estoppel effect of administrative-agency decisions there the same principle applies collateral_estoppel of a decision with limited or nonexistent judicial review should be allowed only when the parties voluntarily decide to submit their dispute to the agency for decision see convalescent center a 2d pincite these cases strongly suggest that petitioners who choose s-case status should be treated the same as parties who opt to arbitrate disputes or take them to an administrative agency--it is their choice that deprives them of the right to seek appellate review not to use the restatement’s careful formulation a matter of law seen with this parallel in mind s-case petitioners like mitchell should not be able to defeat the affirmative defense of collateral_estoppel because they themselves chose to give up their right of appeal what makes this analogy less than perfect is that the choice of s-case status is left up to the petitioner and not the mutual agreement of the petitioner and the commissioner our rules do give the commissioner the right to move for an order deleting the s-case designation rule c and of course in this case it is the petitioner against whom the doctrine_of collateral_estoppel is being urged but in wehrli the election of an administrative hearing was likewise the free choice of the party against whom collateral_estoppel was later invoked wehrli f 3d pincite so while i think we should view the voluntary choice of s- case status as a strong argument in favor of allowing decisions in s cases to collaterally estop later litigation it’s not necessarily a clinching one i’d therefore move on to the second question are there exceptions to the restatement’s requirement of reviewability for situations analogous to our s cases the comments to the restatement make the scope of this requirement seem quite broad there is a need for an exception to the rule_of preclusion when the determination of an issue is plainly essential to the judgment but the party who lost on that issue is for some other reason disabled as a matter of law from obtaining review by appeal or where appeal does not lie by injunction extraordinary writ or statutory review procedure restatement judgment sec_2d sec_28 cmt a dollar_figure see 451_fsupp2d_1092 e d cal writ of mandamus is continued in a gentle criticism of this comment however a leading treatise distinguished between decisions of a sort that ordinarily cannot be appealed and decisions that are ineligible for appeal only because of some special circumstance eg a particular case’s becoming moot while on appeal quite different calculations attend the question whether issue preclusion can rest on a judgment that falls into a category that cannot generally be appealed although it is tempting to suggest a broad general principle that preclusion is never appropriate and here the treatise cites to the restatement the matter is not so simple at most the unavailability of appeal may count as an important factor in contemplating preclusion and even that view must be approached with caution 18a wright miller federal practice and procedure jurisdiction 2d sec pincite fn refs omitted the treatise gives two counterexamples to the broad general principle of the restatement the first is peculiar to a very small set of cases--those within the original jurisdiction of the supreme court though collateral_estoppel might not be exactly the right pigeonhole in which to put that court’s deference to its own previous findings_of_fact a recognition of the benefits of rules of finality means that t his court does not reopen an continued satisfactory method of review 271_fsupp2d_576 s d n y judicial review of arbitration award for legality and general fairness is adequate adjudication in an original action to reconsider whether initial factual determinations were correctly made 460_us_605 the second counterexample--though flowing from the same spring of judicial desire for finality and consistency--is closer to what we have here in the old case of 152_us_252 the supreme court faced a question exceptionally similar to ours wharton had won a judgment against the johnson company for infringing its patent but the johnson company had no right to appeal because the amount_involved was under a jurisdictional limit when wharton sued again--this time for a larger amount--and tried to use the first judgment to collaterally estop the johnson company from challenging the fact of infringement the johnson company squawked that the absence of even the possibility of appellate review in the first case made estoppel improper the supreme court disagreed the doctrine_of collateral_estoppel so essential to an orderly and effective administration of justice would lose much of its value if it were held to be inapplicable to those judgments in the circuit courts of the united_states which by reason of the limited amount_involved could not be reviewed by this court nor can the possibility that a party may legitimately or properly divide his causes of action so as to have the matter in dispute between him and his adversary adjudged in a suit that cannot after judgment and by reason of the limited amount_involved be carried to a higher court affect the application of the general_rule id pincite see 574_f2d_46 2d cir johnson co still good law we thus answer the second question that we posed by concluding that there are indeed situations where the full chain of appellate review is not necessary to give an earlier decision collateral-estoppel effect but we don’t rest entirely on this old and not-very-often- cited precedent nor on mitchell’s voluntary choice of s-case status for mitchell i we rely as well on the peculiar nature of our court’s internal system for reviewing the work of individual judges s cases--even though not appealable--are reviewable sec_7443a authorizes special trial judges to issue decisions subject_to such conditions and review as the court may provide long ago chief_judge drennen issued general order no t c vi exercising his authority under section one must recognize that despite its antiquity johnson co is a supreme court precedent that is on point i’d therefore follow it even if the restatement disagreed--in matters of federal common_law higher-court caselaw is the law we have to follow c to create a small_tax_case division to have supervision of commissioners of the court the order went on to delegate to the judge in charge of the small_tax_case division the authority to review and in his discretion approve the proposed findings_of_fact and opinion in any small_tax_case in which the trial is conducted by a commissioner of the court and to sign in his name the decision to be entered therein over the years of course commissioners became special trial judges and our chief judges received and promptly exercised the power to delegate to them the authority to enter decisions in s cases see delegation_order no t c vii but the parallel treatment of summary opinions and reports from the regular divisions continued delegation_order no directed except in cases decided by bench opinion that decisions be made only after the special_trial_judge prepares a summary of the facts and reasons for the proposed disposition of the case and submits said summary to the chief_judge or to another judge designated by the chief_judge our current rule directs the summary to be submitted in exactly the same way all this seems to be very similar to the procedure in regular cases or s cases tried by regular judges cf sec_7459 in that the report is submitted before the decision is entered given general order no 2's creation of a small tax_division under sec_7444 the most straightforward reading of the relevant provisions is that a report in the form of a summary opinion like a report in the form of a memorandum opinion or proposed division opinion in a regular case can be referred to the court for review in any event the purpose of reviewing summary opinions whether drafted by special or regular or senior judges surely is the same as the purpose of reviewing regular_tax court opinions --more eyes to check for typos or infelicities of expression or bits of illogic of the oh-of-course-how-could-i-have-overlooked- it variety and very occasionally for suggestions of legal questions to refer to the full court to increase the uniform and accurate application of tax law in the countrydollar_figure we thus answer the third question that we posed by concluding that appealability is not synonymous with reviewability mitchell i was not appealable that’s true but its nonappealability as in the arbitration cases was a choice made some s cases have even produced t c opinions see eg 89_tc_676 decision on motion to reinstate s designation 57_tc_542 relation back of amended petition to original filing_date 56_tc_210 denying commissioner’s request to have s designation removed these opinions are certainly not appealable given sec_7463’s proscription on review by any other court their rarity suggests that our system for filtering out of the s-case channel any cases with keen precedential significance set up decades ago by our ancestors in office has actually worked pretty well by a party and not imposed by law mitchell i was also not reviewable by a higher court said by the restatement to be a requirement for collateral_estoppel but if reviewability by a higher court is a requirement it’s a requirement with some exceptions one of which--supported by some seemingly good precedent--is the absence of appealability because of jurisdictional limits imposed by statute on the appellate courts and mitchell i or any of our s cases was even if not appealable still reviewable see sec_7443a sec_7460 unlike much of tax law with its detailed if tangled skein of statute regulation and administrative procedure the rules of collateral_estoppel in federal courts are generally fashioned by judges guided by reasonableness and precedent though the majority opinion ensures there will continue to be no precedent quite on point i don’t think that the absence of appealability by itself should prevent the decision in an s_case from collaterally estopping relitigation of the same issue c even if the majority had gone along with me this far there still would have been one last obstacle wehrli’s plain statement that preclusion requires the availability of appellate review wehrli f 3d pincite the case before us is appealable to the ninth circuit and under 54_tc_742 affd 445_f2d_985 10th cir we do not enter decisions that will surely be reversed 99_tc_490 but i am confident that wehrli would have been distinguishable the ninth circuit was particularly concerned about the possible arbitrariness of an unreviewable administrative decisionmaker individual hearing officers are capable of occasional arbitrary action even if they are judges wehrli f 3d pincite but there was nothing in the administrative process that wehrli chose that is remotely similar to the review of reports in our court already described at length in the previous section that is an effective check on arbitrariness and as the ninth circuit also emphasized the decision in wehrli was the decision of an administrative agency id the rules of preclusion are somewhat different for decisions of administrative agencies and one significant way they are different is the importance of judicial review as a check on agency arbitrariness see 384_us_394 mitchell i was in contrast itself a decision of a court exercising judicial not executive legislative or administrative power 501_us_868 another difference is that the decision discussed in wehrli was the result of a very informal process--the hearing involved was not even recorded courts have often held that there must be a record whether of administrative or judicial decisionmaking for there to be preclusion in later litigation this requirement developed out of the supreme court caselaw setting the minimum requirements for an administrative decision to have collateral- estoppel effect the agency must have acted in a judicial capacity the issues decided must have been properly before the agency and the parties must have had an adequate opportunity to litigate those matters utah constr mining co u s pincite part of the adequate-opportunity-to-litigate requirement is that there be some sort of review of the decision which in turn requires a record of the proceedings wehrli f 3d pincite the record need not be written--a tape recording is enough 451_fsupp2d_1092 e d cal --but it does need to exist so that there is some way for a reviewer to review and of course for a court in a later case to figure out exactly what issues were decided and how our s cases come with a complete record of the proceedings every s_case starts with a petition listing the issues in dispute if an s_case goes to trial there is a transcript rule a the parties might even submit briefs rule a and no matter how small every decision in an s_case is explained by a judge who must prepare a summary of his reasoning sec_7463 this means that every s_case has a record enabling the judge in a later case to easily see what issues were actually litigated and how they were decided i would conclude from this that wehrli is distinguishable and would use this case to hold that decisions in s cases collaterally estop relitigation holding to the contrary only encourages duplication of effort and although there may be some case some day that would warrant an exception to the usual rule against that vice giving preclusive effect to our decisions in s cases would be more consistent with precedents in other areas and similarly conserve--if only at the margin--judicial resources iv our tax system requires an annual reporting of income and deductions and for most people this requires annual reporting for each calendar_year separately but there are many questions that answered for one year might affect many later years--are payments from an ex-spouse made under a divorce decree deductible_alimony or a nondeductible property settlement is the interest on a bond issued by a public authority tax exempt or taxable what is the depreciable cost of a particular capital_asset this gives rise to cases like jacobs v commissioner t c summ op resolving issue for and tax years followed by jacobs v commissioner tcmemo_1977_1 deciding the same issue the same way again for the and tax years plus deciding a new issue followed by jacobs v commissioner tcmemo_1980_308 deciding that no-longer-so-new issue from the second case the same way it had already been decided for the and tax years followed by jacobs v commissioner tcmemo_1982_198 shutting another revisitation of the same issues from the prior cases for the and tax years by using collateral estoppel--and by that point sec_6673 followed by jacobs v commissioner tcmemo_1983_490 applying collateral_estoppel yet again on the same issues decided in the preceding cases for and again imposing damages under sec_6673 for abuse of judicial resources there’s no reason to encourage this sort of thing as the supreme court has repeatedly noted a fundamental precept of common-law adjudication embodied in the related doctrines of collateral_estoppel and res_judicata is that a ‘right question or fact distinctly put in issue and directly determined by a court of competent jurisdiction cannot be disputed in a subsequent suit between the same parties or their privies ’ montana u s pincite quoting 168_us_1 these doctrines come with general rules limited by exceptions but the presumption in our system is that a party can’t keep trying the same issue over and over again this case gave us a chance to fit the estoppel effect of our summary opinions into the already quite extensive caselaw on the effect of judgments generally we should have taken it halpern j agrees with this concurring opinion


internal_revenue_service number release date index number ---------------------- --------------------- ------------------------------------------ --------------------------- ------------------------------------ legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------ telephone number ---------------------- refer reply to cc fip b01 plr-115461-15 date date taxpayer ------------------------------------------------------------ ----------------------------------------- subsidiary state advisor company court court month year a b c d ------------------------------- -------------- ---------------- --------------------------------------------- --------------------------------------- ----------------------------------- ---------- ------- -- -- ---- ---- plr-115461-15 dear --------------------- this letter responds to your letter dated date requesting a ruling on behalf of taxpayer regarding the u s federal_income_tax treatment of proposed changes to certain debt instruments issued by taxpayer specifically you have requested the following rulings the payment of the consent payment as defined below to one or more noteholders as defined below is a modification of the terms of the notes as defined below that must be tested for significance under sec_1 e to determine whether the consent payment results in a significant modification within the meaning of the general facts_and_circumstances_test of sec_1_1001-3 taxpayer should compare the go-forward yield to the original yield of each outstanding note if the excess of the go-forward yield over the original yield is not more than the greater of i dollar_figure percent or ii percent of the original yield the modification does not result in a significant modification within the meaning of sec_1_1001-3 if the consent payment does not result in a significant modification the payment is a positive adjustment within the meaning of sec_1_1275-4 equal to the amount of such payment the combination of the consent payment and a modification to the notes that would not alone result in a significant modification of the notes under sec_1_1001-3 is not a significant modification under sec_1_1001-3 facts taxpayer is a publicly traded and widely held corporation and the parent of an affiliated_group_of_corporations for u s federal_income_tax purposes taxpayer operates and owns interests in a broad range of subsidiaries and companies engaged in the video and online commerce industries taxpayer has a series of publicly traded common_stock subsidiary a state limited_liability_company is wholly-owned by taxpayer and is an entity disregarded as separate from taxpayer under sec_301_7701-3 subsidiary has b series of publicly traded exchangeable debentures each of which is a contingent_payment_debt_instrument as defined in sec_1_1275-4 each a note and collectively the notes the notes are issued pursuant to an indenture the indenture each outstanding note is subject_to the noncontingent_bond_method of sec_1_1275-4 taxpayer represents that interest_expense with respect to each of taxpayer’s outstanding notes is being accrued by reference to a comparable yield and plr-115461-15 projected payment schedule pursuant to sec_1_1275-4 the comparable yield on the notes ranges from c to d percent taxpayer intends to effect a spin-off transaction pursuant to which i certain businesses and other assets currently owned directly or indirectly by subsidiary will be contributed to a newly formed corporation the spinco ii subsidiary will distribute all of the stock of spinco to taxpayer and iii taxpayer will distribute all of the stock of spinco to the holders of certain classes of its common_stock in redemption of such stock collectively the current spinoff the current spinoff is intended to be tax-free under sec_355 and sec_368 of the internal_revenue_code prior to an earlier spinoff of assets to taxpayer’s shareholders prior spinoff a dispute arose between the holders of the notes the noteholders and taxpayer regarding whether prior spinoff would violate a provision in the indenture that prohibits taxpayer from transferring substantially_all of its assets unless among other things the entity to which the assets are transferred assumes taxpayer’s obligations under the indenture the successor provision this dispute over the successor provision resulted in litigation between the noteholders and taxpayer in court and court taxpayer prevailed in the litigation and prior spinoff was consummated however this process delayed prior spinoff and was costly to taxpayer who was also required to pay the noteholders’ attorneys’ fees in light of the previous litigation taxpayer believes that in connection with the current spinoff a similar dispute could arise between the noteholders and taxpayer taxpayer believes that any such litigation would be without merit and has represented that it would oppose such a challenge in order to avoid the cost and distraction that could unduly delay the consummation of the current spinoff taxpayer would like the ability to negotiate with the noteholders to receive the explicit consent of the requisite number of noteholders to a modification of the successor provision under the indenture that will permit the current spinoff to proceed without the threat of noteholder litigation by providing a one-time cash payment to consenting noteholders the consent payment the amount of the consent payment would be negotiated between taxpayer and representatives of the noteholders the consent payment would not otherwise affect the amounts that noteholders are entitled to receive under the terms of the notes taxpayer completed a similar spinoff of company in month of year prior spinoff in anticipation of prior spinoff taxpayer obtained a private_letter_ruling similar to the one requested herein the noteholders did not challenge prior spinoff and therefore it was unnecessary to make a consent payment in connection with that transaction with respect to the current spinoff however taxpayer may need to make a consent payment plr-115461-15 taxpayer represents that it understands based upon conversations with advisor that the successor provision is a standard covenant found in the vast majority of investment grade and high yield deals distributed by advisor taxpayer also represents that it does not expect that the current spinoff will result in a change in payment expectations within the meaning of sec_1_1001-3 with respect to the notes further taxpayer represents that there have been no prior modifications as defined in sec_1_1001-3 to any of the notes law and analysis sec_1001 provides rules for the computation and recognition of gain_or_loss from a sale_or_other_disposition of property for purposes of sec_1001 sec_1_1001-1 generally provides that gain_or_loss is realized upon an exchange of property for other_property differing materially either in_kind or in extent in 499_us_554 cb the court concluded that under section a an exchange of property gives rise to a realization event so long as the exchanged properties are ‘materially different’--that is so long as they embody legally distinct entitlements sec_1_1001-3 states that sec_1_1001-3 provides rules for determining whether a modification of the terms of a debt_instrument results in an exchange for purposes of sec_1_1001-1 sec_1_1001-3 applies to any modification of a debt_instrument regardless of the form of the modification for example sec_1_1001-3 applies to an exchange of a new instrument for an existing debt_instrument to an amendment of an existing debt_instrument or to a modification of a debt_instrument that the issuer and holder accomplish indirectly through one or more transactions with third parties sec_1_1001-3 defines a modification as any alteration including any deletion or addition in whole or in part of a legal right or obligation of the issuer or a holder of a debt_instrument whether the alteration is evidenced by an express agreement oral or written conduct of the parties or otherwise sec_1_1001-3 states that for purposes of sec_1_1001-1 a significant modification of a debt_instrument within the meaning of sec_1_1001-3 results in an exchange of the original debt_instrument for a modified instrument that differs materially either in_kind or in extent a modification that is not a significant modification is not an exchange for purposes of sec_1_1001-1 sec_1_1001-3 sets forth as a general_rule that a modification is a significant modification if based on all facts and circumstances the legal rights or obligations that are altered and the degree to which they are altered are economically significant in making a determination under sec_1_1001-3 all modifications to the debt_instrument other than modifications subject_to paragraphs e through e plr-115461-15 of sec_1_1001-3 are considered collectively so that a series of such modifications may be significant when considered together although each modification if considered alone would not be significant paragraphs e through e of sec_1_1001-3 address specific circumstances in which modifications are not considered economically significant sec_1_1001-3 provides that in general a change in the yield of a debt_instrument is a significant modification if the yield computed under sec_1 e iii varies from the annual yield on the unmodified instrument determined as of the date of the modification by more than the greater of a of one percent basis points or b percent of the annual yield of the unmodified instrument dollar_figure x annual yield however sec_1_1001-3 states that such change in yield rule only applies to debt instruments that provide for only fixed payments debt instruments with alternative payment schedules subject_to sec_1_1272-1 debt instruments that provide for a fixed yield subject_to sec_1_1272-1 such as certain demand loans and variable rate debt instruments whether a change in the yield of other debt instruments for example a contingent_payment_debt_instrument is a significant modification is determined under the general facts and circumstances rule_of sec_1_1001-3 sec_1_1001-3 provides that the yield computed under sec_1 e iii is the annual yield of a debt_instrument with an issue_price equal to the adjusted_issue_price of the unmodified instrument on the date of the modification increased by any accrued but unpaid interest and decreased by any accrued bond_issuance_premium not yet taken into account and increased or decreased respectively to reflect payments made to the issuer or to the holder as consideration for the modification and payments equal to the payments on the modified debt_instrument from the date of the modification sec_1_1001-3 states that a modification that adds deletes or alters customary accounting or financial covenants is not a significant modification sec_1_1001-3 states that modifications of different terms of a debt_instrument none of which separately would be a significant modification under paragraphs e through of sec_1_1001-3 do not collectively constitute a significant modification sec_1_1275-4 states that the noncontingent_bond_method applies to contingent payment debt instruments that have an issue_price determined under sec_1_1273-2 sec_1_1275-4 states that generally under the noncontingent_bond_method interest on a debt_instrument must be taken into account whether or not the amount of any payment is fixed or determinable in the taxable_year the amount of interest that is taken into account for each accrual_period is determined by constructing a projected payment schedule for the debt_instrument and applying rules similar to plr-115461-15 those for accruing oid on a noncontingent debt_instrument if the actual amount of a contingent payment is not equal to the projected amount appropriate adjustments are made to reflect the difference under sec_1_1275-4 if the amount of a contingent payment is more than the projected amount of the contingent payment the difference is a positive adjustment on the date of the payment if the amount of a contingent payment is less than the projected amount of the contingent payment the difference is a negative adjustment on the date of the payment or on the scheduled date of the payment if the amount of the payment is zero in the instant case the consent payment will result in the noteholders receiving money to which they had not been previously entitled under the terms of the indenture thus the consent payment will be an alteration of the legal rights or obligations of the holders and issuer of the notes which is a modification under sec_1_1001-3 because the consent payment will result in the holders of the notes receiving more money than they otherwise would have under the terms of the note it will change the yield on the notes for debt instruments that are not contingent payment debt instruments whether a change in yield results in a significant modification of a debt_instrument is normally tested under the change in yield rule_of sec_1_1001-3 however because the notes are contingent payment debt instruments whether the consent payment results in a significant modification is instead tested under the general facts_and_circumstances_test of sec_1_1001-3 here because the noncontingent_bond_method of accounting provides the notes with interest that accrues by reference to a comparable yield and a projected payment schedule pursuant to sec_1_1275-4 and the consent payment will result in a one-time payment to the holders of the notes and will not otherwise alter the amounts that the holders of the notes will receive it is appropriate to apply a test similar to the change in yield test in sec_1_1001-3 therefore to determine whether the consent payment results in a significant modification within the meaning of the general facts_and_circumstances_test of sec_1_1001-3 taxpayer should compare the go-forward yield to the original yield of each outstanding note the go-forward yield is the yield of a hypothetical debt_instrument having i an issue_date on the date the notes are modified ii an issue_price equal to the adjusted_issue_price of the applicable note as of that date reduced by the amount of the consent payment and iii a projected payment schedule consisting of the remaining payments on the applicable note’s original projected payment schedule the original yield is the comparable yield of each note determined under sec_1_1275-4 as of the issue_date of each note if the excess of the go-forward yield over the original yield is not more than the greater of i dollar_figure percent or ii percent of the original yield the modification will not result in a significant modification within the meaning of sec_1_1001-3 plr-115461-15 under the noncontingent_bond_method in sec_1_1275-4 payments received by a holder of a contingent_payment_debt_instrument are generally compared against the projected payment schedule to the extent payments exceed the amounts that had been projected such payments are treated as a positive adjustment to the extent payments are less than the amounts that had been projected such payments are treated as a negative adjustment because the consent payment was not originally reflected on the projected payment schedule it is akin to an amount received in respect of a projected payment of zero thus it is a payment in excess of the projected payment and it is appropriate to treat it as a positive adjustment under sec_1 b i if the consent payment is not a significant modification to the extent the consent payment does not result in a significant modification under the test described above and any other modification made to the terms of the notes does not individually result in a significant modification under sec_1 e such modifications will not collectively result in a significant modification of the notes under sec_1_1001-3 conclusion we hereby rule as follows the payment of the consent payment to one or more noteholders is a modification of the terms of the notes that must be tested for significance under sec_1_1001-3 to determine whether the consent payment results in a significant modification within the meaning of the general facts_and_circumstances_test of sec_1_1001-3 taxpayer should compare the go-forward yield to the original yield of each outstanding note if the excess of the go-forward yield over the original yield is not more than the greater of i dollar_figure percent or ii percent of the original yield the modification does not result in a significant modification within the meaning of sec_1_1001-3 if the consent payment does not result in a significant modification the payment is a positive adjustment within the meaning of sec_1_1275-4 equal to the amount of such payment the combination of a consent payment that does not result in a significant modification and a modification that is not a significant modification of the notes under sec_1_1001-3 will not be considered a significant modification under sec_1_1001-3 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or plr-115461-15 referenced in this letter specifically no opinion is expressed regarding the spinoff transaction additionally we express no opinion on whether the modification waiver or amendment of the successor provision is a significant modification of the notes under sec_1_1001-3 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the provisions of a power_of_attorney on file we are sending a copy of this ruling letter to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely andrea m hoffenson branch chief branch office of associate chief_counsel financial institutions products cc


t c summary opinion united_states tax_court albert lawrence bomer jr petitioner v commissioner of internal revenue respondent docket no 27711-08s filed date albert lawrence bomer jr pro_se alicia a mazurek for respondent armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure and an accuracy-related_penalty under sec_6662 and b of dollar_figure the issues for decision are whether petitioner is entitled to an earned_income_credit and whether petitioner is liable for the accuracy-related_penalty we hold that petitioner is not entitled to an earned_income_credit and that petitioner is liable for the accuracy-related_penalty background all of the facts have been stipulated and they are so found we incorporate by reference the parties’ stipulation of facts and accompanying exhibits petitioner resided in the state of michigan when the petition was filed throughout petitioner was incarcerated at the standish maximum correctional facility in standish michigan petitioner has been incarcerated since and is serving a 40-year sentence while incarcerated petitioner filed his federal_income_tax return reporting wages of dollar_figure and claiming an earned_income_credit of dollar_figure respondent’s records do not indicate that petitioner had wages in petitioner is unable to disclose how the income reported on his federal_income_tax return was earned but asserts that the income was not from work completed within the prison in a notice_of_deficiency respondent determined that petitioner is not entitled to an earned_income_credit respondent also determined that petitioner is liable for the accuracy-related_penalty based on negligence or disregard of rules or regulations i earned_income_credit discussion an eligible_individual is allowed an earned_income_credit for the taxable_year in an amount equal to the credit percentage of so much of the taxpayer’s earned_income as does not exceed the earned_income amount sec_32 earned_income includes wages salaries tips and other employee compensation sec_32 however sec_32 excludes certain items from the definition of earned_income specifically sec_32 provides that no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account in determining a taxpayer’s earned_income petitioner contends that income he reported on his federal_income_tax return was not earned for work completed within the prison regardless of petitioner’s contention the sole inquiry is whether a taxpayer earned_income while he was an inmate at a penal institution other factors such as the source of the income are irrelevant rogers v commissioner tcmemo_2004_245 in construing a statute courts generally seek the plain and literal meaning of its language see 471_us_84 310_us_534 wilson v commissioner tcmemo_2001_139 under the plain and literal language of sec_32 it makes no difference whether a taxpayer performed services at a location inside or outside the penal institution rogers v commissioner supra because petitioner was an inmate at a penal institution throughout all of his income is excluded from the computation of the earned_income_credit therefore we hold that petitioner is not entitled to the earned_income_credit ii sec_6662 penalty sec_6662 and b imposes a penalty equal to percent of the amount of any underpayment attributable to negligence or disregard of rules or regulations the term negligence includes any failure to make a reasonable attempt to comply with tax laws and disregard includes any careless reckless or intentional disregard of rules or regulations sec_6662 the commissioner bears the burden of production sec_7491 but if satisfied the taxpayer then bears the ultimate burden of persuasion 116_tc_438 respondent has met his burden therefore the burden is on petitioner sec_6664 provides an exception to the imposition of the accuracy-related_penalty if the taxpayer establishes that there was reasonable_cause for and the taxpayer acted in good_faith with respect to the underpayment sec_6664 sec_1 a income_tax regs the determination of whether the taxpayer acted with reasonable_cause and in good_faith is made on a case- by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs after considering the totality of the facts and circumstances we are satisfied that petitioner did not have reasonable_cause to believe that he was entitled to the earned_income_credit and did not act in good_faith within the meaning of sec_6664 accordingly we hold that petitioner is liable for the accuracy-related_penalty under sec_6662 conclusion we have considered all of the arguments made by petitioner and to the extent that we have not specifically addressed them we conclude that they are irrelevant or without merit to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court timothy d nelson petitioner v commissioner of internal revenue respondent docket no 4831-09s filed date timothy d nelson pro_se lesley hale for respondent armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure the sole issue for decision is whether petitioner is liable for the 10-percent additional tax imposed by sec_72 on an early distribution received in from a sec_401 plan background some of the facts have been stipulated and they are so found we incorporate by reference the parties’ stipulation of facts and accompanying exhibits petitioner resided in the state of california when the petition was filed during pincite years of age petitioner received a distribution of dollar_figure from a sec_401 plan 401_k_plan when petitioner enrolled in the 401_k_plan he requested that percent of any withdrawal be withheld as federal_income_tax therefore when petitioner received his distribution dollar_figure was withheld for federal_income_tax petitioner used the net funds distributed to pay a balance due for equipment purchased for use in his line of work petitioner timely filed a form 1040ez income_tax return for single and joint filers with no dependents on the return petitioner reported the 401_k_plan distribution on the line for wages salary and tips and claimed and received a refund of dollar_figure tax withheld of dollar_figure less tax reported of dollar_figure petitioner did not report the 10-percent additional tax on an early distribution under sec_72 believing that the federal_income_tax withheld from the distribution was sufficient to cover any_tax owed in a notice_of_deficiency respondent determined that petitioner is liable for the 10-percent additional tax on the early distribution pursuant to sec_72 discussion in general the commissioner’s determination as set forth in the notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is in error see rule a 290_us_111 pursuant to sec_7491 the burden_of_proof as to factual matters shifts to the commissioner under certain circumstances petitioner has neither alleged that sec_7491 applies nor established his compliance with its requirements accordingly petitioner bears the burden_of_proof see rule a sec_72 imposes an additional tax on an early distribution from a qualified_retirement_plan equal to percent of the portion of the amount that is includable in gross_income regardless of whether the additional tax under sec_72 is a penalty or an additional_amount to which sec_7491 applies and regardless of whether the burden of production with respect to this additional tax would be on respondent respondent has satisfied any burden of production with respect to the distribution see h conf rept pincite 1998_3_cb_747 a qualified_retirement_plan includes a 401_k_plan see sec_401 k c the 10-percent additional tax is intended to discourage premature distributions from retirement plans 106_tc_337 see also s rept pincite c b supp the 10-percent additional tax does not apply to certain distributions including distributions to an employee age or older or to an employee after separation_from_service after attainment of age sec_72 v petitioner does not dispute that the dollar_figure distribution from hi sec_401 plan was an early distribution from a qualified_plan indeed petitioner properly included the distribution in gross_income when petitioner received the distribution from the 401_k_plan he wa sec_46 years of age petitioner used the funds withdrawn from the 401_k_plan to pay a balance due for equipment purchased for use in his line of work regrettably for petitioner no exception applies for that purpose therefore petitioner’s distribution remains subject_to the 10-percent additional tax accordingly we must sustain respondent’s determination that petitioner is liable for the sec_72 percent additional tax finally regarding petitioner’s statements concerning the accrual of interest any claim_for_abatement is not cognizable in an action for redetermination of deficiency see sec_6404 h rule b see also 13_f3d_54 2d cir tax_court ordinarily lacks jurisdiction to consider interest on a deficiency in the context of an action for redetermination of deficiency 107_tc_249 same conclusion we have considered all of the arguments made by petitioner and to the extent that we have not specifically addressed them we conclude that they do not support a result contrary to that reached herein to reflect the foregoing decision will be entered for respondent


co-woe oe internal_revenue_service ie ‘he department of easury i pp-eb tu legend be washington dc contact person telephone number in reference to dale dear sir or madam this is in response to your letter dated date in which you requested certain rulings with respect to the proposed transter of the net assets of c and d all of to b b c and d are exempt under section so1l c of the internal_revenue_code and are classified as private_foundations under sec_509 a b's directors have had differences of opinion as b can best be achieved charitable objectives of directors propose to distribute all of b's assets to that both will receive approximately fifty percent assets subject_to adjustment to reflect distributions made to charitable organizations directly by b prior to distribution and 1d will continue to pursue the exempt purposes of the transfer the control of directors of c and d will be in the hands of c and d of b b -after so b's c the to how the therefore the b represents that the transfers to c and d will consideration and will not day after the transfer of tmternal revenue service of foundation status pursuant to sec_507 its assets a ll of be from current income be without at least one b will notify the its intent to terminate its private of the code at ‘ h time as b notifies the service of such intent it will have poy perey ta fey assets ie b represents that it does not have any outstanding grants with respect to which it responsibility under sec_4945 of the code is required to exercise expenditure b has not notified the service that it intends to terminate its private_foundation_status nor has b ever received notification that its status as terminated acts or failures to act or to act giving rise to of a willful and flagrant act or failure a termination pursuant to sec_507 a furthermore b has not committed willful repeated a private_foundation has been the code sec_507 of the code which provides for the voluntary that except for transfers described in section and involuntary termination of private_foundation_status provides in part b an organization's private_foundation_status will be terminated only if its intent to terminate or repeated acts or failure to act giving rise to liability for tax under chapter there has been either willful or failures to act the organization notifies the service of or a willful and flagrant act sec_507 of the code provides that when a private_foundation transfers assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a new organization sec_1_507-1 of the income_tax regulations provides all of the assets of that neither a transfer of foundation nor a significant disposition of assets in sec_1_507-3 by a private_foundation whether or not any portion of such significant disposition of assets is made to another private_foundation shall be deemed to result termination of a elects to terminate pursuant to sec_507 a the code unless the transferor private_foundation the transferor private_foundation under section is applicable as defined a private section in_a of cr sec_1_507-3 of the regulations provides that a the transfere organization in the case of of the code transferee organization in section dollar_figure b benefit of amount of such aggregate tax_benefit of erganization multiplied by the such transferee and the value of fair market of the assets of transtere denominator the a fraction the numerate of which the assets less encumbrances transterred ta which less meumbs s the fit wmavke a transfer described in shall succeed to the aggregate tax an amount equar to the the transfer immediately before the transfer at the time of transfer fair_market_value is determined sec_1_507-3 of the regulations provides that except as provided in sec_1_507-3 which only relates to b transfers where all net assets are transferred to one or more controlled private_foundations a private_foundation is required to meet the distribution_requirements of sec_4942 of the code for any taxable_year in which it makes a sec_507 transfer of all or part of private_foundation satisfaction of the requirements to the extent the amount transferred meets the requirements of sec_4942 such transfer shall itself be counted toward its net assets to another sec_1_507-3 i jand iii of the regulations provides a private_foundation transfers all of that if another private_foundation that is effectively controlled within the meaning of sec_1_482-1 of the regulations by the same or persons who effectively controlled the transferor private_foundation the transferee shall be treated as transferor for purposes of chapter and sec_507 through of the code its net assets to it were the if sec_1_507-3 of the regulations provides that in order for a transfer of assets pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization not an organization described in sec_501 organization described in sec_509 or treated as described in sec_501 under sec_4947 a taxable_expenditure it must be other than an to be to sec_4940 of the code imposes a tax on the net_investment_income of private_foundations sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4942 of the code defines a qualifying a any amount_paid to accomplish one or more distribution as purposes described in sec_170 c b other than any contribution to oroone or which l not pravided or jireer ly seet ion lpo toh tap tid an operating_foundation except as otherwise b any amount_paid to acquire an asset used oearrying out an organization controlled by the foundation a private foundatior more disqualified persons or more purposes described in one or ii ino sec_4944 of the code imposes certain taxes on investments jeopardizing a private foundation's charitable purposes sec_4945 of the code imposes a tax on the foundation on of the code provides that for purposes of this each taxable_expenditure as defined in sec_4945 sec_4945 section the term taxable_expenditure means any amount_paid or incurred by unless or of sec_509 foundation as defined in sec_4940 or foundation exercises expenditure_responsibility with respect to such grant in accordance with subsection h such organization is described in paragraph a private_foundation as is an exempt operating an organization the private a grant to a b or sec_4945 of the code provides that expenditure_responsibility referred to private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures the grant is spent solely for the purpose for which made and detailed reports with respect to such expenditures and to make full and detailed reports to the secretary in subsection d means that the to obtain full to see that sec_53_4945-5 i of the foundation and similar excise_taxes regulations refers to the rules relating to the extent to which the expenditure_responsibility_rules contained in sec_4945 of assets described in sec_507 b and this section apply to transfers h and based upon the above facts to b c and d will allow c and d of charitable purpose and activities previously conducted by b and d will be controlled by the same directors that controlled b to continue the same c the transfer of the net assets because b is not terminating its existence and because thee has been no willful repeated or flagrant act giving rise to liability under chapter b unde section sec_507 and d the transfer of assets from b no tax will be imposed on a result of as to because b will not notify the service of terminate its private_foundation_status until after the transfer of accomplished section s c7 a transfers foundation status is being terminated under section so7 ai the code powill net sect ron therefore the transfer of result of the service has not notified b that its intent at the code will not in the code c and d has been the imposition of b's assets to b's assets to a terminat least one s07 fo also all al to of of of fax nde apply to tn its privet sf ann because c and d are controlled by b for purposes of chapter of the code and sec_507 through of c and d will be treated subsequent to the transfer of all of b's assets in the proportion which the fair_market_value as of the fair_market_value of b's assets immediately before the transfer if each were b the assets less encumbrances transferred to each bears to less encumbrances the code because the transfers of b's assets to of transfers described in sec_507 aggregate tax_benefit of proportions determined in accordance with sec_1 a c and d will be the code b should be carried over to of the regulations the i c and d in as the code because b an organization described in sec_501 c is not a disqualified_person with respect to either of c or c and d will not constitute acts of self-dealing within the meaning of sec_4941 of the code the transfers of assets to d because the proposed transfers of assets to c and d will be made to accomplish the exempt purposes of not constitute investments for purposes of sec_4944 of code under sec_4944 of the code will not apply to the transfer of assets from b the excise_taxes imposed on jeopardizing investments the transfers will the c and d thus to b because c and d should be treated as if they are b for the purposes of chapter will not impose tax under sec_4940 of investment_income under sec_4940 of as the income of to each c and d the code will be treated in proportion to the assets transferred the code b's net the transfer of assets from b to c and d because b has no outstanding grants with respect to which it is required to exercise expenditure_responsibility b will not be obligated to satisfy the expenditure_responsibility requirement of sec_4945 c and d will not the code a taxable_expenditure under sec_4945 of and the transfer of assets to the code be of because al of the assets of b will be transferred to c and in d which are private_foundations effectively controlled by the same versons who control b were b assets market thee fbr fet motorman dosti dbabict peanippements of seetton of less encumbrances transferred to each bears to the value of c and d should be treated as fair_market_value of the proportion which the therefore b would not less eneunbrances fee reanired to meet b's assets the if each the immediately befor the code for fair s its assets and for c and d's distributable the year in which it transfers all of on the same basis subsequent years amount for such taxable_year should be increased by their respective pro_rata share of b's distributable_amount for the year of the transfer and all qualifying distributions made by in the year of as having been made by c and d all responsible for reporting their respective pro_rata share of undistributed_income for the year of the transfer as determined in accordance with sec_4942 of the transfer should be treated on moreover c and d would be the code a pro_rata basis b accordingly based on the information furnished we rule as follows the transfer of all of b's assets to c and d will constitute a transfer of assets described in sec_507 of the ‘code and will not result in the imposition of tax pursuant to sec_507 a termination of the code provided that b notifies the service of its intention to terminate private_foundation_status pursuant to sec_507 a of the code at least one day after the transfer of all of b's assets to sec_507 c preparation and or filing by b documents required by state law in winding up dissolution and termination will result in imposition of tax under sec_507 c of of the code will be zero and neither the then the amount of termination_tax under of any final accounting or other the code c and d for purposes of chapter of the code and sec_507 c and d will be treated subsequent to through of the code the transfer of proportion which the fair_market_value of the assets less encumbrances transferred to each bears to the fair_market_value of b's assets less encumbrances immediately before the transfer if each were b of b's assets in the all as - the aggregate tax_benefit defined in sec_507 i of the code will be carried over to determined in accordance with sec_1_507-3 of regulations in proportions the c and d 5s the transfer of b's assets to c and d will not constiti self dealing under sec_4941 of the code the transfer of b's assets to c and d will not constituls a jeopardizing investment within the meaning of sec_4944 the code of b's assets to c and d will not result in the transfer of tax under sec_4940 of the code the transfer of b's assets to c and d will not constitute taxable_expenditures within the meaning of sec_4945 of code and b will have no expenditure_responsibility as in sec_4945 transfers with respect to these and h the set forth b will not be required to comply with the record-keeping requirements of sec_4942 b the transfers subsequent to the transfer of all of c and d of the code with respect to its assets to for the taxable_year of the proposed transfer and any subsequent year minimum distribution_requirements of sec_4942 with respect to the proposed transfer of assets be required to comply with the b will not ll c and dp will assume all obligations with respect to any of the code for the taxable_year of b's undistributed_income within the meaning of section of c in proportions determined in accordance with sec_1 also succeed a proportions determined in accordance with sec_1 the regulations to b's excess qualifying a distributions for any the taxable_year of as determined in sec_4942 the proposed transfer of the code the regulations and c and d will i of of 1n if the proposed transfer we are informing the ohio ep eo key district_office of this action organization's permanent records please keep a copy of this ruling with your this ruling is directed only to the organization that sec_6110 of the code provides that it requested it may not be used or cited as precedent - sincerely beato v sacak gerald v chief sack exempt_organizations technical branch ne