Opinion ID: 3050656
Heading Depth: 2
Heading Rank: 5

Heading: Tax Court’s Calculation of 1996 and 1997 Income

Text: Before trial, the Commissioner stipulated that Sparkman’s income from Mercury Solar PTO for 1996 and 1997 “did not exceed” $74,985 and $70,062, respectively, figures drawn from Sparkman’s original income tax returns. Sparkman now contends that these returns were in error, that a portion of each is properly characterized as a “return of principal,” and that the real amounts of income, reflected on Mercury Solar PTO’s amended form K-1 for those years, are $45,788 and $54,727, respectively. [11] The Commissioner contends that Sparkman failed to raise this issue properly in the Tax Court below. Absent exceptional circumstances, this court will not consider an argument that was not first raised in the Tax Court. Comm’r v. Ewing, 439 F.3d 1009, 1014 (9th Cir. 2006); Monetary II Ltd. P’ship v. Comm’r, 47 F.3d 342, 347 (9th Cir. 1995). “Generally, in order for an argument to be considered on appeal, the argument must have been raised sufficiently for the trial court to rule on it.” A-1 Ambulance Serv., Inc. v. County of Monterey, 90 F.3d 333, 338 (9th Cir. 1996). The only reference to this alleged bookkeeping error in the Tax Court came in Sparkman’s testimony, when he testified: A: Well, one of the major problems Mercury Solar has had is finding a competent accountant, bookkeeper and CPA. And these initial years they reported repayment of my principal as income that I put into Mercury Solar. And in preparing for the audit . . . this mistake was found. And it was corrected to reflect my actual income as separate from my return of principal. So they reduced my distribution from Mercury Solar from I don’t know what it was originally but it was 70, something 70,000 to 45,000. 16184 SPARKMAN v. CIR ... Q: Okay. Well, have you likewise had to amend your tax returns? A: Yes, I had to. I had to amend my 1996, ’97 and ’98 returns to reflect the change in the income. No reference to the error, or any required adjustment from the sum the Commissioner sought, appeared in Sparkman’s opening or answering briefs to the Tax Court. The only other mention of this adjustment in income appears in Sparkman’s Computation for Entry of Decision filed pursuant to Tax Ct. R. 155:8 Sparkman’s 1996 (Ex 64-P) and 1997 (Ex 67-P) tax returns were amended to comply with the Mercury amended 1996 (Ex 12-J) and 1997 (Ex 13-J) tax returns that was [sic] filed in September 2003 and based upon the amended K-1 issued to Sparkman for those years. In that filing, Sparkman made no reference to his testimony regarding the reason for the amendment. [12] On these facts, we hold that Sparkman did not properly raise this issue before the Tax Court. Because Sparkman failed to raise this matter in his briefs to the Tax Court, and made only one reference to it in testimony, it is difficult to see how that court could have ruled on it.9 This circuit has held 8 Tax Court Rule 155(b) allows litigants to “file with the Court a computation of the deficiency, liability, or overpayment believed by such party to be in accordance with the Court’s findings and conclusions.” The Tax Court has held that this rule “does not allow arguments as to any other issues beyond the issues litigated in respect of the ultimate bottom-line deficiency, liability, or overpayment for the years at issue.” Bankamerica Corp. v. Comm’r, 109 T.C. 1, 10 (1997) (second emphasis added). 9 Even if Sparkman’s reference to his 1996 and 1997 returns contained in his Rule 155 Recalculation filing had been more specific, it would have SPARKMAN v. CIR 16185 that it may, at its discretion, hear appeals on issues not raised before the Tax Court if the issue “is purely one of law and either does not depend on the factual record developed below, or the pertinent record has been fully developed.” Bolker v. Comm’r, 760 F.2d 1039, 1042 (9th Cir. 1985). In this case, however, the record is far from developed—we can only guess what led to the recalculation by Sparkman and his accountants, or the precise character of the “return of principal” (proceeds from sale of assets? Repayment of loan principal?) that his accountants are supposed to have discovered.10 Because Sparkman did not properly address the issue before the Tax Court, we deem the issue waived.