Opinion ID: 609750
Heading Depth: 2
Heading Rank: 1

Heading: jurisdiction

Text: 19 The Tax Court is a court of limited jurisdiction, and may only exercise such jurisdiction pursuant to a specific legislative enactment. § 7442; Knapp v. Commissioner, 867 F.2d 749, 753 (2d Cir.1989) (citing Taylor v. Commissioner, 258 F.2d 89, 93 (2d Cir.1958)). The pertinent statute in this case is § 6512, which governs petitions to the Tax Court for the redetermination of a deficiency after notice of that deficiency by the Commissioner. The governing provision of § 6512 provides in pertinent part: 20 [I]f the Tax Court finds that there is no deficiency and further finds that the taxpayer has made an overpayment of income tax for the same taxable year ... in respect of which the Secretary determined the deficiency, or finds that there is a deficiency but that the taxpayer has made an overpayment of such tax, the Tax Court shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Tax Court has become final, be credited or refunded to the taxpayer. 21 § 6512(b)(1) (emphasis added). 3 22 We see nothing in this language to compel, or indeed support, the contention of the Commissioner that the application of an overpayment in satisfaction of a separate assessment for a different taxable year divests the Tax Court of jurisdiction with respect to that overpayment in addressing the taxable year for which the court's jurisdiction is invoked by a taxpayer petition. The Commissioner argues for a narrow reading of this provision. In our view, however, any plausible reading must yield the conclusion that the Tax Court is implicitly but unmistakably directed to determine the existence and amount of any overpayment for the taxable year brought before it for decision. The prior application of an overpayment to an assessment or liability for another taxable year would then be taken into account with respect to the mandate of § 6512(b)(1) that the overpayment shall, when the decision of the Tax Court has become final, be credited or refunded to the taxpayer. Assuming that the prior application of the overpayment was legitimate, it would then be deemed to have been credited to the taxpayer within the meaning of the statutory mandate, and that credit would be a valid defense to any motion by the taxpayer for a refund of the overpayment pursuant to § 6512(b)(2). See supra note 3. 23 As will appear when we address the merits of the overpayment application in this case, this analysis should impose no practical burden or confusion in the administration of the tax laws. A valid IRS assessment will ordinarily provide a proper basis for the application of an overpayment in satisfaction of the assessment, so the Tax Court will not be obliged to weigh or determine the merits of the asserted liability underlying that assessment, and therefore will not be drawn into conflict with any other tribunal before which the validity of that assessment is being litigated. Further, the position adopted by the Tax Court and pressed by the Commissioner on this appeal would preclude any inquiry by the Tax Court even if the application of the overpayment by the IRS constituted a manifest and blatant error, and whether or not any litigation had been commenced elsewhere with respect to it. These considerations reinforce our view that a prior application of the overpayment to satisfy an independent assessment does not countermand the straightforward mandate of § 6512(b)(1) that the Tax Court find[ ] ... [whether] the taxpayer has made an overpayment ... [and] determine the amount of such overpayment. 24 The Commissioner confronts this seemingly clear mandate with two arguments. The first of these contentions is premised upon § 6402(a), which authorizes the IRS to credit any overpayment ... against any liability in respect of an internal revenue tax on the part of the person who made the overpayment. This provision, the Commissioner maintains, operates to remove from the jurisdiction of the Tax Court any overpayment that is so credited against another tax liability. The short answer to this claim is that it is a non sequitur. It does not follow from the terms of § 6402(a) or § 6512(b)(1), or from any persuasive implication that can be derived from those provisions. Further, it is at odds with the statutory framework provided for the Tax Court's performance of its core functions. 25 Section 7422(e) provides the Tax Court with plenary jurisdiction over a taxable year with respect to which a petition is filed in response to an IRS notice of deficiency, specifying that if a refund suit is pending in the district court or the United States Claims Court regarding that taxable year, the district court or the United States Claims Court, as the case may be, shall lose jurisdiction of taxpayer's suit to whatever extent jurisdiction is acquired by the Tax Court of the subject matter of taxpayer's suit for refund. Section 6213(a), in language parallel to that of § 6703(c)(1) at issue in this action, bars (with exceptions not relevant here) any assessment, levy, or proceeding in court with respect to a tax that is the subject of a Tax Court proceeding until the decision of the Tax Court becomes final, and authorizes the proper court, including the Tax Court, to enjoin such activity. Section 6214(b) empowers the Tax Court to consider such facts with relation to the taxes for other years ... as may be necessary correctly to redetermine the amount of [the deficiency for the year at issue before the Tax Court], but in doing so, [the Tax Court] shall have no jurisdiction to determine whether or not the tax for any other year ... has been overpaid or underpaid. 26 These provisions, taken together with § 6512(b)(1), authorize the Tax Court definitively to determine the amount of any deficiency and overpayment for a taxable year brought before it by a taxpayer petition, and provide for the court to take into account any prior § 6402(a) application of that overpayment as a credit envisioned by § 6512(b)(1), but militate strongly against an interpretation that a prior § 6402(a) application of the overpayment divests the Tax Court of jurisdiction to perform its § 6512(b)(1) obligation to determine the amount of the overpayment. All the foregoing is subject to the § 6214(b) caveat that the Tax Court has no jurisdiction to determine whether or not the tax for any other year ... has been overpaid or underpaid. As will appear, however, our resolution of the merits issue on this appeal avoids any significant conflict with this prohibition. 27 The Commissioner's second, and primary, argument on the jurisdictional issue is premised upon the apprehension that the § 6214(b) prohibition will in fact be violated; i.e., that the Tax Court's consideration of Belloff's claim of a 1986 overpayment will draw the Tax Court into conflict with the district court's authority to resolve the issues presented in the § 6700 refund suit. With regard to his 1986 overpayment claim, however, Belloff does not actually contest his liability under § 6700. Rather, Belloff challenges the authority of the Commissioner to apply his overpayment against his § 6700 assessment before a final determination of liability by the district court. Hence, while Belloff raises arguments relating to his § 6700 liability, he does so only in the context of an asserted overpayment claim that falls squarely within the jurisdiction of the Tax Court. 28 Belloff presents at least a colorable claim that in cases under § 6700, the Commissioner lacks the § 6402(a) setoff authority that is generally available to the Commissioner with regard to other tax assessments. The resolution of this question is necessary to the determination of the overpayment issue. Thus, in order for the Tax Court to resolve the question of the 1986 overpayment, as § 6512(b)(1) plainly empowers it to do, the court was required to address the issue of the Commissioner's § 6402(a) authority to apply Belloff's 1986 overpayment to the 1982 § 6700 assessment. 29 Similarly, the contention that the district court's exclusive jurisdiction over the § 6700 refund action displaces Tax Court jurisdiction in this case is also misplaced. The question of Belloff's liability for those penalties is not at issue here, and was properly resolved in the district court litigation. Regardless of ultimate liability, however, the point in time when that liability arose sufficiently for the Commissioner to exercise his setoff authority is a separate question, with independent legal consequences. 30 We are not persuaded to a contrary view by Morse v. United States, 494 F.2d 876 (9th Cir.1974), cited to us by the Commissioner, or by Shillman v. Commissioner, 48 T.C.M. (CCH) 1483, 1984 WL 15206 (1984), aff'd mem., 803 F.2d 721 (6th Cir.1986), and White v. Commissioner, 33 T.C.M. (CCH) 652, 1974 WL 2199 (1974), upon which both the Commissioner and the Tax Court rely. These cases were decided before the Tax Court was authorized in 1988, by the enactment of § 6512(b)(2), to order a refund of any overpayment, see supra note 3, and were substantially influenced by this limitation upon the court's power to deal conclusively and comprehensively with overpayments. 31 The Commissioner points to a statement in Morse that the Tax Court has no jurisdiction ... to resolve disputes as to a right to a refund that may hinge upon some contingency beyond mere overpayment. Robbins Tire and Rubber Co., Inc., 53 T.C. 275, 279, 1969 WL 1678 (1969); see Empire Ordnance Corp. v. Harrington, 102 U.S.App.D.C. 14, 249 F.2d 680, 682 (1957). Morse, 494 F.2d at 879. In Robbins, the Tax Court declined to decide whether the refund to the taxpayer of an agreed overpayment was barred by certain offers in compromise in view of the absence of any statutory authority for the Tax Court to order a refund. See 53 T.C. at 279. Empire Ordnance similarly noted the absence of any Tax Court jurisdiction to order the refund of an overpayment in the course of declining to mandamus the Commissioner to pay refunds that the Commissioner sought to offset against tax liabilities of corporations assertedly related to the litigating taxpayers. 249 F.2d at 681-82. Neither Morse, Robbins, nor Empire Ordnance, in our view, provides authority to deny the Tax Court jurisdiction to determine the existence and amount of Belloff's 1986 overpayment, especially in light of the intervening enactment of § 6512(b)(2). 32 In the opinion from which this appeal is taken, the Tax Court stated that Belloff's overpayment has been applied to the 1982 penalty, and accordingly it is no longer a part of this proceeding. If petitioner has a claim respecting the application of the 1986 overpayment, he must seek it in another forum. 62 T.C.M. at 275 (citing Shillman and White ). Concededly, both Shillman and White declined to review the Commissioner's application of an overpayment to a year other than the one at issue before the Tax Court. With the enactment of § 6512(b)(2), see supra note 3, however, a taxpayer would now be entitled to move in the Tax Court for an order directing the refund of such an overpayment. It seems inescapable that the Commissioner would then be compelled to respond that the overpayment had been validly applied against another tax liability of the applicant taxpayer, and the Tax Court would have jurisdiction to resolve the dispute thus presented. We accordingly conclude that Shillman and White should not be followed on this issue in the aftermath of the enactment of § 6512(b)(2). 33 In conclusion, we hold that the Tax Court should have exercised jurisdiction to determine whether Belloff made a 1986 overpayment, and if so, the amount of such overpayment. Having decided this uncontested issue, the court would then have been obliged to address the credit or refund of the conceded overpayment, and thus the issue whether the Commissioner properly applied the 1986 overpayment against the 1982 § 6700 assessment. We proceed to consider that question. 34