Smith v. U.S.
| Decision Date | 16 April 2003 |
| Docket Number | No. 02-20640.,02-20640. |
| Citation | 328 F.3d 760 |
| Parties | Frank W. SMITH; Janice M. Smith, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Thomas E. Redding (argued), Sallie W. Gladney, Teresa Jean Womack, Redding & Associates, Houston, TX, for Plaintiffs-Appellants.
John A. Nolet (argued), David English Carmack, U.S. Dept. of Justice, Tax Div., Washington, DC, for Defendant-Appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before KING, Chief Judge, DAVIS, Circuit Judge, and VANCE, District Judge.1
Plaintiffs-Appellants Frank and Janice Smith appeal the district court's order granting the Defendant-Appellee United States's motion for summary judgment and denying their motion for summary judgment. We affirm in part, reverse in part, and remand.
This case centers on whether Frank and Janice Smith ("the Smiths") are subject to penalties and interest due to their underpayment of income taxes for tax years 1983 and 1984. The parties agree on the following facts.
The Smiths were limited partners in Barrister Equipment Associates Series 166 ("Barrister 166"), a publishing business. Barrister 166 was one of 124 similar Barrister partnerships. In 1983 and 1984, Barrister 166 reported ordinary losses. For 1983 and 1984, the Smiths claimed a portion of the Barrister 166 losses and a portion of Barrister 166's bases in property to receive a tax credit.2
The Internal Revenue Service ("IRS") began investigating the Barrister partnerships. Though the statutes of limitations for assessing 1983 and 1984 taxes ran in 1987 and 1988, a Barrister 166 representative agreed to extend the statute of limitations. In 1989, the IRS sent a "Notice of Final Partnership Administrative Adjustment," informing Barrister 166 that it was disallowing its partnership losses and bases in property subject to investment tax credit ("ITC") for 1983 and 1984.
Several partners in the Barrister partnerships, including Barrister 166, filed petitions in United States Tax Court to contest the disallowances. The Smiths were parties to the Barrister 166 Tax Court proceedings.3 The Barrister 115 case was tried as a test case. In 1995, the Tax Court ruled that the IRS correctly disallowed Barrister 115's 1983 and 1984 losses and bases in investment tax credit property. This decision was not appealed. The Tax Court then entered agreed decisions in the other Barrister cases, including Barrister 166, disallowing all losses and bases in property subject to the ITC.
On February 22, 1996, the IRS sent the Smiths a letter indicating the tax, penalties, and interest due as a result of the Tax Court's decision. The letter indicated that the IRS used the increased rate of interest provided for in 26 U.S.C. § 6621(c)4 for substantial underpayments attributable to tax-motivated transactions. As for the amount of penalties due, the letter stated:
Please note that there are two penalty reports enclosed reflecting both the Government's settlement position and litigating position being proposed for all Barrister investors. We ask that you sign the penalty report for the settlement position as this would provide both you and the Government with a fair method of resolving this matter. If you choose not to [accept] the settlement position or if we do not hear from you within 30 days from the date of this letter, we will have no alternative other than to issue a Statutory Notice of Deficiency to you asserting the Government's litigating position.5
The settlement and litigation penalty amounts were set forth on four Forms 870, which are titled "Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment." Form 870 states:
I consent to the immediate assessment and collection of any deficiencies (increases in tax and penalties) and accept any overassessment (decrease in tax and penalties) shown above, plus any interest provided by law. I understand that by signing this waiver, I will not be able to contest these years in the United States Tax Court, unless additional deficiencies are determined for these years.
The IRS's instruction accompanying Form 870 states:
Your consent will not prevent you from filing a claim for refund (after you have paid the tax) if you later believe you are so entitled. It will not prevent us from later determining, if necessary, that you owe additional tax; nor extend the time provided by law for either action.
. . .
If you later file a claim and the Service disallows it, you may file suit for refund in a district court or in the United States Claims Court, but you may not file a petition with the United States Tax Court.6
The Smiths signed the two "settlement position" forms and returned them to the IRS on March 20, 1996. The letter the Smiths' attorney sent with the forms stated:
In accordance with your solicitation, Mr. and Mrs. Smith have agreed to waive the restrictions on assessment and collection relative to the proposed penalty under I.R.C. Sec. 6659 on the understanding that by entering into this waiver, the Internal Revenue Service will not issue a notice of deficiency for additional penalties.
. . .
Although my clients have agreed to the Forms 870, we remain unclear as to certain aspects of this case and are requesting further documentation from you.... [W]e do not believe that the increased interest rate under Code Sec. 6621(c) should apply nor that there is actually any basis in the decision for the assertion of any penalties in this case. If you are in possession of any documentation that indicates that those penalties are appropriate, I would appreciate your return of that documentation by return mail.
My client[s] recognize[] that, notwithstanding our continuing concerns, under the terms of the Forms 870, the Government may proceed with the assessment of the penalt[ies] and interest thereon set out in the Forms 870 and that they will not have an opportunity to file a petition with the Tax Court to contest th[ose] penalt[ies].
On April 2, 1996, the IRS, unaware that the Smiths had sent the signed forms, issued the Smiths a notice of deficiency for the 1983 and 1984 tax years, asserting the penalties referenced in the "litigation position" forms. On April 15, the Smiths' attorney sent a letter to the IRS referencing the Smiths' March 20 letter and asking the IRS to withdraw the deficiency notices. The IRS responded with a letter on May 13 stating it had not yet received the Smiths' March 20 letter but that the "settlement position" forms the Smiths signed would be processed and the deficiency notices would not apply.
The Smiths paid the assessments due according to the "settlement position" Forms 870 and filed refund claims with the IRS. Once the IRS disallowed the Smiths' claims, the Smiths filed a refund suit in federal district court.
The Smiths filed suit in federal district court to recover federal income tax, penalties, and interest they paid for the tax years 1983 and 1984. The Smiths argued that: (1) the statute of limitations barred the IRS's collection of taxes, penalties, and interest; (2) the Smiths are not liable for § 6659 valuation overstatement penalties; (3) the Smiths are not liable for § 6621(c) interest; (4) the IRS incorrectly calculated the interest due under Avon Products, Inc. v. United States, 588 F.2d 342 (2d Cir. 1978); and (5) the IRS cannot make investment tax credit adjustments because it did not send the Smiths a statutory notice of deficiency as § 6230(a)(2)(A)(i) requires.
Both the Smiths and the United States moved for summary judgment. The United States argued that: (1) the Smiths waived the statute of limitations; (2) the IRS and the Smiths had reached an informal settlement agreement that made the Smiths liable for the § 6659 penalties and § 6621(c) interest; (3) the interest was correctly calculated because Avon Products does not apply; and (4) a statutory notice of deficiency was not required because the IRS's disallowance was a computational adjustment pursuant to the Tax Court's decision.
In their motion for summary judgment, the Smiths abandoned several of their claims and argued only that: (1) they had not reached a settlement with the IRS; and (2) they should not be liable for § 6659 penalties and § 6621(c) interest on the merits.
The district court granted the United States's motion for summary judgment and denied the Smiths' motion for summary judgment. The district court found that the Smiths conceded several issues so that the only issues remaining were whether the Smiths were liable for penalties and interest under §§ 6659 and 6621(c). The district court then found that the Smiths settled their liability for § 6659 penalties. The district court rejected the Smiths' argument that the Form 870 represented only a waiver of their right to contest penalties in Tax Court and held that the Smiths also waived their right to file a refund action. The district court then found that imposition of § 6621(c) penalty interest was warranted because the Smiths agreed to liability for § 6659 valuation overstatement penalties, and a valuation overstatement is by definition a tax-motivated transaction.
The Smiths appealed. They now argue that: (1) the district court erred in finding that the Smiths settled with the IRS on § 6659 penalties and, on the merits, § 6659 penalties are inappropriate; (2) the district court erred in finding that § 6621(c) interest is due, and, on the merits, § 6621(c) interest is inappropriate; (3) the district court erred in finding they had conceded two of their other three arguments, and that, on the merits, the IRS incorrectly calculated interest under Avon Products and the IRS failed to issue a notice of deficiency under 26 U.S.C. § 6320(a)(2)(A)(i).
We review a grant of summary judgment de novo,...
To continue reading
Request your trial
-
Gaddis v. U.S.
...the argument, because a "party's concession of an issue means the issue is waived and may not be revived." Smith v. United States, 328 F.3d 760, 770 (5th Cir.2003). But even if one joins the majority in ignoring the appellees' concession, the majority's first "alternative" holding is manife......
-
In re Parkway Sales and Leasing, Inc.
...is an affirmative defense, see Rule 8(c), and the burden of proof on the issue of estoppel is on the Defendants. See Smith v. U.S., 328 F.3d 760 (5th Cir.2003) (the burden of proof on the issue of estoppel is on the party asserting Here, the Defendants' estoppel argument arises from the Cha......
-
Black v. North Panola School District
...summary judgment motion. "A party's concession of an issue means the issue is waived and may not be revived." Smith v. United States, 328 F.3d 760, 770 (5th Cir.2003). By conceding the issues in the district court and failing to address them, Black waived any argument regarding the third an......
-
Wallach v. Eaton Corp.
...Excel Willowbrook, L.L.C. v. JP Morgan Chase Bank, Nat'l Ass'n , 758 F.3d 592, 597 (5th Cir. 2014) (quoting Smith v. United States , 328 F.3d 760, 767 (5th Cir. 2003) ), the court went on to identify those very principles by citing directly to the Restatement of Contracts, id. at 597 n.8.14......