Dees v. Comm'r, 148 T.C. No. 1

CourtUnited States Tax Court
Writing for the CourtBUCH, Judge
PartiesTIMOTHY M. DEES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Decision Date02 February 2017
Docket Number148 T.C. No. 1,Docket No. 29397-15.

TIMOTHY M. DEES, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

148 T.C. No. 1
Docket No. 29397-15.

UNITED STATES TAX COURT

February 2, 2017


P claimed a refundable credit under I.R.C. sec. 36B on his 2014 income tax return. R determined that P was not entitled to the refundable credit and issued a notice of deficiency to P. That notice showed a deficiency of zero on the first page. The attached computation pages stated that there was a decrease to refundable credits but erroneously computed a tax deficiency of ".00". P timely filed a petition to challenge R's disallowance of his refundable credit. The Court ordered R to show cause why this case should not be dismissed for lack of jurisdiction, questioning the validity of the notice of deficiency.

Held: When determining whether a notice of deficiency is valid, we review the notice objectively to determine whether it is adequate to inform a reasonable taxpayer that the Commissioner has determined a deficiency. If that test is satisfied the notice of deficiency is valid, and we do not look beyond the notice.

Page 2

Held, further, if a notice of deficiency is ambiguous as to whether the Commissioner has determined a deficiency, then the party seeking to establish our jurisdiction bears the burden of proving that the Commissioner has determined a deficiency and that the taxpayer was not misled by the ambiguous notice of deficiency.

Held, further, R has shown that he determined a deficiency and that P was not misled by the notice of deficiency.

Zachary G. VandeKamp, for petitioner.

Michael Skeen, Linda E. Mosakowski, and Peter Riley, for respondent.

OPINION

BUCH, Judge: The Commissioner issued a notice of deficiency to Timothy M. Dees that showed a deficiency of zero but also stated that Mr. Dees was not entitled to a claimed refundable credit. Although the notice is ambiguous as to whether the Commissioner determined a deficiency, the Commissioner argues that the notice was sufficient because it identified the adjustment and because Mr. Dees made clear in his petition that he was not misled by the ambiguous notice. Although this notice was ambiguous as to whether the Commissioner had determined a deficiency in tax, the Commissioner showed that he had made a determination and that Mr. Dees was not misled by the ambiguity in the notice.

Page 3

Accordingly, the notice of deficiency is valid, and we have jurisdiction over this case.

Background

Mr. Dees filed a Form 1040, U.S. Individual Income Tax Return, for taxable year 2014. On his return he claimed a credit pursuant to section 36B.1 Section 36B provides a refundable credit for a portion of premiums paid by a taxpayer under a qualified health plan and was enacted as part of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, sec. 1401(a), 124 Stat. at 213 (2010).

The Commissioner determined that Mr. Dees was not entitled to the premium tax credit and on September 8, 2015, issued a notice of deficiency for the 2014 taxable year to Mr. Dees and withheld his refundable credit.2 The first text sentence of the notice stated: "We determined that there is a deficiency in your income tax which is listed above." Above that sentence the notice stated: "Deficiency: $.00". The Commissioner included with the notice a tax deficiency

Page 4

computation which decreased refundable credits but erroneously computed a bottom-line deficiency of ".00 ". Elsewhere, the document states: "A decrease to refundable credit results in a tax increase."

While residing in California, Mr. Dees timely filed a petition with our Court to challenge the disallowance of the refundable credit. In his petition, he specifically argued that the Commissioner erred in denying his premium tax credit and asserted that he had documents showing he was entitled to the credit.

The Court ordered the Commissioner to explain whether the deficiency determined against Mr. Dees was for "$.00". The Commissioner responded that there was a "clerical error in the notices of deficiency issued by the Atlanta campus disallowing section 36B premium tax credit and incorrectly reflecting a deficiency in tax of $0.00 on the first page of the notices." The Commissioner explained that despite this error the "notice of deficiency disallows the refundable premium tax credit in the amount of $484.00" because "[t]he computations for the disallowed credit are attached to the letter portion of the notice of deficiency in which the deficiency is the amount of the disallowed credit."

The Court then issued an order to show cause why this case should not be dismissed for lack of jurisdiction on the ground that the Commissioner failed to determine a deficiency. The Commissioner filed a response stating that he had

Page 5

determined a deficiency and that this was a clerical error that did not invalidate the notice. The Commissioner argued that Mr. Dees was not misled because he filed a petition and challenged the disallowance of his premium tax credit. Finally, the Commissioner explained that, in the interim, he had obtained information from the Health Insurance Marketplace showing that Mr. Dees was, in fact, entitled to the claimed credit. The Commissioner prepared settlement documents to send to Mr. Dees.

We must resolve whether we have jurisdiction before we can proceed.

Discussion

Our jurisdiction in a deficiency case is predicated on the Commissioner's issuing a valid notice of deficiency and the taxpayer's timely filing a petition with our Court to challenge the notice. Secs. 6212, 6213, 7442; Rules 13, 20; see, e.g., Midland Mortg. Co. v. Commissioner, 73 T.C. 902, 907 (1980). There is no dispute that Mr. Dees timely filed a petition. To determine whether we have jurisdiction over the case, we must decide whether the notice of deficiency is valid.

I. General Requirements for a Valid Notice of Deficiency

Although section 6212(a) authorizes the Commissioner to send a notice of deficiency, the Code does not specify the form of the notice. Jarvis v.

Page 6

Commissioner, 78 T.C. 646, 655 (1982). Section 7522(a) provides that the notice must "describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and assessable penalties included in such notice." But even an inadequate description does not invalidate a notice. Id. Generally, all we have required is that the notice "provide a formal notification that a deficiency in taxes has been determined." Pietz v. Commissioner, 59 T.C. 207, 213-214 (1972). We have previously explained that "the notice must (1) fairly advise the taxpayer that the Commissioner has, in fact, determined a deficiency and (2) specify the year and amount." Foster v. Commissioner, 80 T.C. 34, 229-230 (1983), aff'd in part, vacated in part, 756 F.2d 1430 (9th Cir. 1985). Further, when deciding whether a notice of deficiency is valid, we look at the notice and all of the attachments as a whole. See Saint Paul Bottling Co. v. Commissioner, 34 T.C. 1137, 1138 (1960).

II. Challenges to the Validity of a Notice

We have often addressed questions regarding the validity of notices of deficiency. We have at times characterized our review of the sufficiency of a notice as an objective test. But our caselaw shows that an objective review is used to establish prima facie validity of a notice of deficiency. When that objective review has led us to conclude that a notice was ambiguous, we have looked

Page 7

beyond the notice to determine whether the Commissioner made a determination and whether the taxpayer knew or should have known that the Commissioner determined a deficiency.

This approach is evident in Miles Prod. Co. v. Commissioner, 96 T.C. 595 (1991), aff'd, 987 F.2d 273 (5th Cir. 1993), a case in which the Commissioner issued a notice of deficiency determining deficiencies in the taxpayer's windfall profits tax on a calendar year basis, even though the taxpayer filed its returns on a fiscal year basis. As to the should-have-known part of the analysis, the Court explained:

We do not hold that we would necessarily find jurisdiction if the statutory notice were not so detailed and traceable to the forms filed by the taxpayer or if the forms filed by the taxpayer were for improper taxable periods. But here, the taxpayer encounters no difficulty in ascertaining the specific NIL computation that is being adjusted in the statutory notice of deficiency.

Id. at 604. The Court went further and also determined that the notice was sufficient because the taxpayer was not misled. Id. Referring to another similar case, the Court explained:

In holding that we had jurisdiction in Burford v. Commissioner * * * [, 76 T.C. 96, 100 (1981), aff'd without published opinion, 786 F.2d 1151 (4th Cir. 1986),] we pointed out that the taxpayer was not misled by the statutory notice. We make the same observation in the

Page 8

instant case. Under the rationale of the case law which we discussed above we hold that we have jurisdiction in this case.

Id.

Indeed, in Burford v. Commissioner, 76 T.C. 96, 100 (1981), aff'd, 786 F.2d 1151 (4th Cir. 1986), the Court determined that the notice was valid, in part, because "[p]etitioner has not been misled as to the period covered by the notice of deficiency. In fact, petitioner specifically addressed the adjustments for each of the transactions in his petition." See also McCarthy Co. v. Commissioner, 80 F.2d 618, 622 (9th Cir. 1935) ("The Board further found that it was 'quite evident that the taxpayer was in no way misled by the notice and clearly understood it to be one in respect to its tax liability for the years in question.'"); Scruggs v. Commissioner, 29 B.T.A. 1102, 1104 (1934) ("[P]etitioner took a timely appeal from what she knew to be a notice in deficiency in tax asserted to be due from the estate of which she was the administratrix. Petitioner was not misled by the error made by the respondent in the deficiency notice in describing Horne [erroneously] as administrator."). In...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT