Court Opinion

ID: 4472293
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:22:09.652638+00
Date Added: 2024-06-11T14:53:43.713297
License: Public Domain

Chabot, J., dissenting: The majority hold that this Court is authorized to apply the doctrine of equitable recoupment. However, they fail to consider whether equitable recoupment could be applied within the confines of our statutory jurisdiction, and they fail to consider the differences between this Court’s work and the work of the refund fora that now apply the doctrine. I. Tax Court’s Jurisdiction “The Tax Court and its divisions shall have such jurisdiction as is conferred on them by this title” [i.e., title 26] and other statutes. Sec. 7442.1  The Tax Court has “jurisdiction to redetermine the correct amount of a deficiency”.2 Sec. 6214(a). “Deficiency” is a defined term. Sec. 6211. It depends generally on the relationship between the amount of the tax imposed on the taxpayer and the amount the taxpayer showed as the tax on the tax return. The amount of the tax imposed depends on a variety of factors, involving the nature of the tax. The instant case is an estate tax case, and the tax involved is imposed by subtitle B. The amount of the tax imposed is affected by inclusions, exclusions, deductions, and credits, all of which are specified by statute. In this instance, as we said at the start of our opinion in Estate of Mueller v. Commissioner, T.C. Memo. 1992-284, “The sole issue for decision is the date-of-death fair market value of the 8,924 shares of common stock of the Mueller Co. (the company) included in the gross estate of Bessie I. Mueller (decedent).” (Emphasis added.) The majority do not reveal to us where in subtitle B, or anywhere else in the Internal Revenue Code, is the element of petitioner’s tax that might be affected by possible application of equitable recoupment. Obviously, equitable recoupment does not affect the amount shown as the tax on the taxpayer’s tax return. It appears that the doctrine of equitable recoupment does not affect what we have already described as the “sole issue for decision” in the instant case, or any other element of the Internal Revenue Code that is to be taken into account in determining the amount of any deficiency in the instant case. Thus, the majority appear to ignore both the structure and the letter of the Internal Revenue Code in their attempt to advise the parties that we have jurisdiction to apply equitable recoupment in the instant case. II. Refund Fora’s Jurisdiction The majority appear to analyze the problem of this Court’s jurisdiction by reference to the general objective of the doctrine of equitable recoupment and the fact that the doctrine is applied in certain courts in refund cases. This Court’s jurisdiction focuses on redetermining a “deficiency”, which compares (1) the tax imposed by the appropriate Code provision with (2) the tax shown on the tax return. In contrast, a refund suit before a District Court or the Court of Federal Claims depends on a showing that the tax collector has money which should be paid back to the taxpayer. The following description from Junghans & Becker, Federal Tax Litigation; Civil Practice and Procedure, par. 18.01 (2d ed. 1992), is a useful brief description of the situation. ¶ 18.01 THEORY OF TAXPAYER’S CASE Tax refund suits brought by a taxpayer against the tax collector have long been recognized in the law1 as actions in the nature of a suit for money had and received.2 As stated by the Supreme Court, “[An] action, brought to recover a tax erroneously paid, although an action at law, is equitable in its function. It is the lineal successor of the common count indebitatus assumpsit for money had and received.”3  The ultimate issue in a tax refund suit is whether the taxpayer has overpaid his taxes for the period in issue.4 The Supreme Court has said that taxes are considered to have been overpaid whenever the taxpayer has made any payment in excess of that which is properly due. Such an excess payment may be traced to an error in mathematics or in judgment or in interpretation of facts or law. And the error may be committed by the taxpayer or by the revenue agents. Whatever the reason, the payment of more than is rightfully due is what characterizes any overpayment.5  Thus, the taxpayer has a different burden of proof in a tax refund suit from that in a case filed in the Tax Court.6 Unlike a Tax Court case, a tax refund suit is not, strictly speaking, a judicial review of the determination of an administrative agency. Rather, it is a suit in which the taxpayer must establish that the government has money that it should refund to him.7 Accordingly, in a tax refund suit, the taxpayer must not merely prove that the Internal Revenue Service (the Service) improperly made an assessment; he must go further and establish the correct amount of his tax liability for the periods in issue.8 It is only when the court can ascertain the amount of tax that the taxpayer should have paid that it can ascertain whether there was an overpayment of tax and that a refund is due.9 In sum, in a tax refund suit, the taxpayer’s theory is that he can prove he overpaid his true tax liability for the taxable periods in issue. In the context of considering whether the tax collector should refund to the taxpayer any specific amount of money that the taxpayer has paid to the tax collector, there has developed the concept of equitable recoupment as a doctrine that affects the “oughtness” of any such refund. Thus, it may be more productive of understanding to say that equitable recoupment fits into the refund jurisdiction of certain fora, and not that those fora have equitable recoupment jurisdiction. In contrast, this Court does not have jurisdiction to determine obligations to pay. Rather, this Court has jurisdiction to determine whether, and in what amount, there is a deficiency — a limited, statutorily defined term of art. With exceptions not relevant to the instant case, payments are not taken into account in determining the amount of a deficiency. E.g., Logan v. Commissioner, 86 T.C. 1222, 1227-1230 (1986). The question of whether the taxpayer “ought” to make more payments does not arise under our deficiency jurisdiction. Thus, it is not a matter of this Court’s not having equitable recoupment jurisdiction, but rather of equitable recoupment not fitting into the deficiency jurisdiction that the Congress has given to this Court. III. Other Considerations (A) In their opinion, the majority state that equitable recoupment, “as an affirmative defense, * * * comes within our jurisdiction to redetermine petitioner’s estate tax deficiency.” Majority op. p. 553. The majority do not explain what element in the calculation of the deficiency under section 6211 would be altered by any decision to apply the doctrine of equitable recoupment. (B) In their opinion, the majority refer us to Naftel v. Commissioner, 85 T.C. 527, 533 (1985), for the proposition that “when a taxpayer petitions this Court for a redetermination of a deficiency, we take jurisdiction over the entire tax liability, not just the items determined to be erroneous by the Commissioner in the notice of deficiency.” Majority op. p. 556. Although this appears to be a reasonable description of what we said in Naftel, Naftel does not support the position of the majority in the instant case, but rather Naftel illustrates why the majority are wrong. In Naftel, we dealt with the Commissioner’s motion for summary judgment that we did not have jurisdiction to rule on the taxpayer’s contentions regarding refund checks issued by the Commissioner but not received by the taxpayer. We denied the motion, because we believed that resolution of the refund check question could affect the amount of the taxpayer’s overpayment under section 6512(a), and we had jurisdiction to determine the amount, if any, of any such overpayment. In the instant case, by contrast, the majority make no effort to show how equitable recoupment would affect the amount of the deficiency otherwise resulting from our determination in Estate of Mueller v. Commissioner, T.C. Memo. 1992-284, and the majority appear to expressly negate the possibility of equitable recoupment effecting any overpayment. Majority op. p. 552.3  Similarly, in Powerstein v. Commissioner, 99 T.C. 466 (1992), we relied on Naftel in granting a taxpayer’s motion to enjoin assessment pursuant to the authority expressly granted to this Court by the last two sentences of section 6213(a). As part of our analysis, we held that if a taxpayer’s amended tax return clearly indicates that the taxpayer is protesting and not admitting the amount shown as the tax on the amended tax return, then this amount does not constitute “the amount shown as the tax by the taxpayer upon his return,” within the meaning of section 6211(a)(1)(A). In coming to this conclusion, we relied on section 301.6211-l(a), Proced. & Admin. Regs. Id. at 474-475. In contrast, in the instant case, the majority do not suggest any basis in the Internal Revenue Code, or the regulations, or the case law for concluding that equitable recoupment would affect the amount of any deficiency to be entered. (C) In their opinion, the majority state that they “find affirmative support * * * in sections 7422(e), 6512(a), and 7481.” Majority op. p. 557. None of these sections provides a clue as to how application of the doctrine of equitable recoupment affects the amount of petitioner’s deficiency in the instant case. (D) Finally, it has been suggested that equitable recoupment might play a part in the definition of deficiency in that the amount to be equitably recouped — in the instant case, presumably the amount paid by the trust on an understanding of the facts inconsistent with this Court’s holding in Estate of Mueller v. Commissioner, T.C. Memo. 1992-284— may be taken into account under section 6211(a)(1)(B). We have interpreted the wonderfully detailed definition of deficiency in section 62114 by giving effect to each element of that statutory definition.5 E.g., Patronik-Holder v. Commissioner, 100 T.C. 374, 381 (1993); Kroh v. Commissioner, 98 T.C. 383, 392-397 (1992);6 Baldwin v. Commissioner, 97 T.C. 704 (1991); White v. Commissioner, 95 T.C. 209 (1990). These recent opinions, two of them Court reviewed, make it clear that, in a deficiency case, it is not enough that there is a general desire to resolve real disputes between the Commissioner and a taxpayer; the dispute in question must fit into the detailed definition of the word “deficiency”. IV. Conclusion Because the equitable recoupment dispute between the parties does not fit into our deficiency jurisdiction, apparently cannot fit into our overpayment jurisdiction, and has not been suggested as fitting into any of our miscellaneous jurisdictions (see supra note 2), I would grant respondent’s motion to dismiss petitioner’s equitable recoupment affirmative defense. From the majority’s decision to deny that motion, I respectfully dissent. Hamblen, Parker, Cohen, and Whalen, JJ., agree with this dissenting opinion.   Unless indicated otherwise, all section references are to sections of the Internal Revenue Code of 1986 as in effect for the date the petition was filed in the instant case; except that references to sec. 6211 and other provisions affecting the amount of the deficiency are to sections of the Internal Revenue Code of 1986 as in effect for the date of decedent’s death.    The Tax Court has, and has had, many other categories of jurisdiction (e.g., declaratory judgment, sec. 6621(c), litigation costs, administrative costs, TEFRA partnership and subchapter S litigation, and overpayments) specifically granted by statute, but the instant case apparently involves only redetermination of a deficiency.    In the United States, tax refund suits were being litigated long before the creation of the Service. See, e.g., Bend v. Hoyt, 38 US 263 (1839).    An action in assumpsit for money had and received is equitable in character and lies, in general, whenever a defendant has received money that in equity and good conscience he ought to pay to plaintiff. Black’s Law Dictionary 112 (5th ed. 1979).    Stone v. White, 301 US 532, 534 (1937).    Note that under Section 6402(a), only the Commissioner is allowed to refund overpayments of tax. See Reinecke v. Spalding, 280 US 227, 232-233 (1930).    Jones v. Liberty Glass Co., 332 US 524, 531 (1947); see also IRC §§ 6401, 6403 for Code definition of “overpayment,” and note what [that?] it leaves open the possibility of other payments being treated as overpay-ments.    See infra ¶ 18.03[1] and compare with ¶ 12.01.    Taylor v. Comm’r, 70 F2d 619, 620-621 (2d Cir. 1934), affd sub nom. Helvering v. Taylor, 293 US 507 (1935).    United States v. Janis, 428 US 433 (1976); Taylor v. Comm’r, supra note 7; Lewis v. Reynolds, 284 US 281 (1932); Compton v. United States, 334 F2d 212 (4th Cir. 1964); Forbes v. Hassett, 124 F2d 925 (1st Cir. 1942).   Decker v. Korth, 219 F2d 732, 737 (10th Cir. 1955); Hodoh v. United States, 153 F.Supp. 822 (ND Ohio 1957).    Compare the instant case with Barton v. Commissioner, 97 T.C. 548, 554-555 (1991), where we explained how we could have authority to deal with some matters under our overpayment jurisdiction even though we held in White v. Commissioner, 95 T.C. 209 (1990), that we did not have authority to deal with the same matters under our deficiency jurisdiction.    Sec. 6211 provides as follows: SEC. 6211. DEFINITION OF A DEFICIENCY. (a) In General. — For purposes of this title in the case of income, estate, and gift taxes imposed by subtitles A and B and excise taxes imposed by chapters 41, 42, 43, 44, and 45 the term “deficiency” means the amount by which the tax imposed by subtitle A or B, or chapter 41, 42, 43, 44, or 45 exceeds the excess of— (1) the sum of (A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus (B) the amounts previously assessed (or collected without assessment) as a deficiency, over— (2) the amount of rebates, as defined in subsection (b)(2), made. (b) Rules for Application of Subsection (a). — For purposes of this section— (1) The tax imposed by subtitle A and the tax shown on the return shall both be determined without regard to the payments on account of estimated tax, without regard to the credit under section 31, without regard to the credit under section 33, and without regard to any credits resulting from the collection of amounts assessed under section 6851 (relating to termination assessments). (2) The term “rebate” means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by subtitle A or B or chapter 41, 42, 43, 44, or 45 was less than the excess of the amount specified in subsection (a)(1) over the rebates previously made. (3) The computation by the Secretary, pursuant to section 6014, of the tax imposed by chapter 1 shall be considered as having been made by the taxpayer and the tax so computed considered as shown by the taxpayer upon his return. (4) For purposes of subsection (a)— (A) any excess of the sum of the credits allowable under sections 32 and 34 over the tax imposed by subtitle A (determined without regard to such credits), and (B) any excess of the sum of such credits as shown by the taxpayer on his return over the amount shown as the tax by the taxpayer on such return (determined without regard to such credits), shall be taken into account as negative amounts of tax. (5) The amount withheld under section 4995(a) from amounts payable to any producer for crude oil removed during any taxable period (as defined in section 4996(b)(7)) which is not otherwise shown on a return by such producer shall be treated as tax shown by the producer on a return for the taxable period. (6) Any liability for any amounts required to be withheld under section 4995(a) shall not be treated as a tax imposed by chapter 45. [The subsequent amendments of this provision by sec. 10713(b)(2)(B) of the Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-203, 101 Stat. 1330, 1330-470 (effective Dec. 22, 1987), and by secs. 1941(b)(2)(B)(i), 1941(b)(2)(B)(ii), 1941(b)(2)(C), and 1941(b)(2)(D) of the Omnibus Trade and Competitiveness Act of 1988, Pub. L. 100-418, 102 Stat. 1107, 1322-1323 (effective Aug. 23, 1988), do not affect the instant case.] [Although decedent died in 1986, the above text reflects the amendment made by sec. 1015(r)(2) of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, 102 Stat. 3342, 3572-3573. This 1988 Act amendment is taken into account because it applies to notices of deficiency mailed after Nov. 10, 1988, and the notice of deficiency in the instant case was mailed Nov. 9, 1989.]    As we noted in Murphree v. Commissioner, 87 T.C. 1309 (1986), some parts of the definition of deficiency may have been placed by the Congress outside sec. 6211; in Murphree, the definitional element appeared in what was then sec. 46(a)(10)(C)(ii). In White v. Commissioner, 95 T.C. 209 (1990), we held in effect that an element of the definition of a deficiency appeared in sec. 6601(e)(1).    Note that the dissent in Kroh v. Commissioner, 98 T.C. 383 (1992), goes only to the question of res judicata (id. at 404-413), and does not dispute the majority’s conclusion that assessments against the taxpayer’s husband do not affect the amount of the deficiency against the taxpayer, and that “we may adjudicate the correctness of * * * [the taxpayer’s] tax deficiencies and additions to tax, in their entirety, as those amounts appear in the deficiency notices.” Id. at 397.