Abrams v. C.I.R., 85-1966

Citation787 F.2d 939
Decision Date09 April 1986
Docket NumberNo. 85-1966,85-1966
Parties-1130, 54 USLW 2531, 86-1 USTC P 9325 Richard L. ABRAMS, Wesley A. Aikens, Fred W. Aldrich, John J. Alford, Park O. Ames, Joseph C. Anderson, Theo V. Anderson, V.R. Barnhouse, Jr., James L. Baumdel, Alfredo J. Bayardo, William L. Becker, Jeremiah Benzvi, Don Bilsborough, Leo D. Borin, Andres Borruel, Robert G. Brown, Paul C. Campbell, Fred J. Canizales, Jay F. Cano, Kent Carper, Kishore Chokshi, Gordon W. Clancy, Julian R. Coles, Norman C. Cross, Jr., James W. Deggendorf, John C. Dolson, Steven E. Donley, J.G. Edsall, Robert E. Elms, Jr., Anthony C. Ernest, George P. Foster, Clinton R. Fuhrmann, Wayne L. Garden, R.A. Gaska, John A. Gauthier, Steven P. and Tracey Gesiriech, Eric J. Gobler, John F. Gray, Julius Griffin, Thomas Hardin, Paul E. Harris, R.W.E. Harrison, Jr., Henry K. Hasserjian, Joseph S. Howard, Isaac-Foster Insurance Agency, Randal L. Jackson, Jeff A. Johnson, Jay Jurkowitz, Robert A. Kemmerer, Susan B. Kennedy, Clement Lambert, Peter B. Lambert, Terry L. Lesley, Rodrick K. Leung, Carl E. Lindstrom, Charles H. Logan, Nicholas D. Mamalis, Richard L. Marks, Richard T. McAller, Arthur McDonough, Robert L. McLeroy, Mikhan, Inc., Carroll G. Miller, Stephen K. Mills, Henry H. Modrak, Richard J. Moore, Dona A. Nafziger, R. Wayne Neal, Richard L. Neal, Dennis L. Nichols, Kenneth W. Nyborg, Lewis L. Patrick, Ken Peet, Darol O. Petersen, Fred L. Picklesimer, Jon H. Purberry, Richard D. Raines, William W. Ramsey, Dean D. Reavie, William R. Reid, Michael J. Renfro, Rickie R. Richey, David G. Ritchie, James Ritchie, R. Clio Robertson, Russell D. Robinson, John P. Shirley, H.R. Slack, Kirk M. Smith, Thomas L. Smith, James Sobba, Robert E. Spann, W.M. Spector, W.L. Storey, James M. Stokes, Stringham Lumber Co., Denise C. Suek, Paul D. Swanson, Everett F. Telljohann, James P. Thies, Allan W. Thompson, William F. Trackler, James Melvin Treese, Ivan Van Dyke, Stephen F. Welsh, John J. Wendling, Ray Wicker, and Lawrence M. Zolot, Plaintiffs, and Telford S. Eggleston, Jr.
CourtU.S. Court of Appeals — Fourth Circuit

Martin A. Schainbaum (Kathleen A. Miller, San Francisco, Cal., James E. Ritchie on brief) for appellants.

Gary D. Gray (Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup; Richard Farber, Washington, D.C., on brief), for appellee.

Before WIDENER, MURNAGHAN, and WILKINSON, Circuit Judges.

MURNAGHAN, Circuit Judge:

Converting a sow's ear into a silk purse is acknowledgedly difficult. Seeking to convert into a notice of deficiency an Internal Revenue Service letter warning the petitioners that an attempt to utilize, for income tax purposes, a specific "tax shelter" would result in a redetermination leading to an assessment of a deficiency or a reduction or elimination of a refund amounts to an effort of equal audacity and equal futility.

I.

A large number of taxpayers invested in a so-called tax shelter known as the "Liberty Financial 1983 Government Securities Trading Strategy." They took the "tax shelter" into account in preparing and filing 1983 federal income tax returns. The Internal Revenue Service, in letters dated November 2, 1984, informed the taxpayers that it believed that deductions derived from investments in Liberty Financial were not allowable, and additionally remarked that taxpayers making use of the tax shelter who might already have filed their returns might wish to file amended returns. The Internal Revenue Service letter came after filing in most if not all cases had taken place.

The letter read:

Re: Liberty Financial 1983 Government Securities Trading Strategy

Dear Taxpayer:

Our information indicates that you invested in the above tax shelter during the above tax year. Based upon our review of that promotion, we believe that the purported tax deductions and/or credits are not allowable.

We plan to review your return to determine whether you claimed such deductions and/or credits. If you did so, we will examine your return and reduce the portion of any refund due to you which is attributable to the above tax shelter promotion. If an examination results in adjustments to your return, you will be afforded the opportunity to exercise your appeal rights. The Internal Revenue Code provides, in appropriate cases, for the application of the negligence penalty under section 6653(a), the overvaluation penalty under section 6659 and/or the substantial understatement of income tax penalty under section 6661 of the Internal Revenue Code and other appropriate penalties. Our examination will determine whether these penalties are appropriate. See the back of this letter for an explanation of these penalties.

If you claimed deductions and/or credits on a return already filed, you may wish to file an amended tax return....

On January 25, 1985, the appellants herein joined with 108 other taxpayers in filing a consolidated petition in the United States Tax Court for redetermination of the purported deficiencies allegedly asserted in the letters received from the IRS. The Commissioner moved to dismiss the petition for lack of jurisdiction on the ground that the letters were not notices of deficiency, and that the issuance of a notice of deficiency is a precondition to Tax Court jurisdiction. The Tax Court granted the Commissioner's motion and dismissed the petition, 84 T.C. 1308. Taxpayers Eggleston, Embree, and Getz appeal from that dismissal. 1

II.

The United States Tax Court is a court of limited jurisdiction. 26 U.S.C. Sec. 7442. A notice of deficiency is a prerequisite of tax court jurisdiction. Rule 13, Rules of Practice and Procedure of the United States Tax Court, 26 U.S.C. Sec. 7453; Commissioner v. Gooch, 320 U.S. 418, 420, 64 S.Ct. 184, 88 L.Ed. 139 (1943); Magness v. Commissioner, 334 F.2d 759 (4th Cir.1964); DaBoul v. Commissioner, 429 F.2d 38 (9th Cir.1970).

To qualify as a notice of deficiency, while a document need not assume any particular form, Commissioner v. Forest Glen Creamery Co., 98 F.2d 968, 971 (7th Cir.1938), cert. denied, 306 U.S. 639, 59 S.Ct. 487, 83 L.Ed. 1039 (1939); Olsen v. Helvering, 88 F.2d 650, 651 (2d Cir.1937), nevertheless, it must meet certain substantial requirements. There must be a statement...

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