Deihl v. Comm'r of Internal Revenue

• Decision Date: 23 February 2010
• Docket Number: No. 22897–08.,22897–08.
• Citation: 134 T.C. No. 7,134 T.C. 156
• Parties: Sari F. DEIHL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

134 T.C. 156
134 T.C. No. 7

Sari F. DEIHL, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 22897–08.

United States Tax Court.

Feb. 23, 2010.

[134 T.C. 156]

In 2004 P and her husband litigated three consolidated cases before the Court concerning their 1996, 1997, and 1998 tax years. P's attorney raised the issue of relief from joint and several liability under sec. 6015, I.R.C., in the petition for 1996 but not 1997 or 1998. The request did not invoke any specific subsection of sec. 6015, I.R.C. P then withdrew her claim for relief from joint and several liability in the stipulation of facts for the consolidated cases. P's husband died after the opinion in the consolidated cases was filed but before decisions were entered. After decisions were entered, P filed an administrative claim for relief from joint and several liability with R for 1996, 1997, and 1998. R determined P did not qualify for relief under sec. 6015(b), (c), or (f), I.R.C., and that P's claim was barred by sec. 6015(g)(2), I.R.C., regardless.

Held: Sec. 6015(g)(2), I.R.C., applies because the Court entered final decisions for 1996, 1997, and 1998.

Held, further: P did not participate meaningfully in the prior proceeding.

Held, further: Relief from joint and several liability was raised only in the pleadings for 1996. Therefore, for 1997 and 1998 sec. 6015, I.R.C., relief from joint and several liability was not an issue in the prior proceeding.

Held, further: Relief from joint and several liability under sec. 6015(b) and (f), I.R.C., for 1996 was an issue in the prior proceeding.

Held, further: For purposes of sec. 6015(g)(2), I.R.C., an election under sec. 6015(c), I.R.C., shall not be deemed to have been an issue in a prior proceeding where the requesting spouse's original request for relief under sec. 6015, I.R.C., did not specifically invoke sec. 6015(c), I.R.C., and the requesting spouse was ineligible to make an election under sec. 6015(c), I.R.C., at the time because the requesting spouse's husband was alive. Accordingly, an election under sec. 6015(c), I.R.C., for 1996 was not an issue in the prior proceeding.

Held, further: Sec. 6015(g)(2), I.R.C., bars P from claiming relief from joint and several liability for 1996 under sec. 6015(b) and (f), I.R.C.

Held, further: The exception in sec. 6015(g)(2), I.R.C., applies to, and P is not barred from electing, relief from joint and several liability under sec. 6015(c), I.R.C., for 1996 and relief

[134 T.C. 157]

from joint and several liability under sec. 6015(b), (c), and (f), I .R.C., for 1997 and 1998.

Tim A. Tarter and Kirk A. McCarville, for petitioner.

Anne W. Durning, for respondent.

OPINION VASQUEZ, Judge:

Petitioner seeks review of respondent's determination that she is not entitled to relief from joint and several liability under section 6015(b), (c), and (f) ¹ with respect to her joint Federal income tax liabilities for 1996, 1997, and 1998. Our jurisdiction to review petitioner's request for relief is conferred by section 6015(e). The only issue for decision is whether petitioner is precluded by the doctrine of res judicata as set forth in section 6015(g)(2) from raising the issue of relief from joint and several liability for the years in issue.²

Background

Petitioner and her husband (Mr. Deihl) were the taxpayers in three cases previously litigated in the Tax Court in 2004: Docket Nos. 11136–02 (1996), 16293–02 (1998), and 1024–03 (1997). The cases were consolidated for trial, briefing, and opinion (the consolidated cases). The consolidated cases concerned the substantiation of business expense deductions claimed by Mr. Deihl and petitioner in 1996, 1997, and 1998 related to their S corporation.

Mr. Deihl hired Donald MacPherson (Mr. MacPherson) to represent him and petitioner in the consolidated cases. Robert Hartmann (Mr. Hartmann) assisted Mr. MacPherson with the representation.³ Petitioner was not involved in the

[134 T.C. 158]

hiring of Mr. MacPherson and did not sign the engagement letter for the consolidated cases.

Mr. MacPherson signed and filed the three petitions in the consolidated cases; petitioner did not sign them. The petition in docket No. 11136–02 (the 1996 petition) raised the issue of relief from joint and several liability. It states:

Under Sec. 6013(e) and 6015, PETITIONER SARI F. DEIHL was/is an innocent spouse for the year at issue in the statutory NOD. Considering all of the facts and circumstances, it would be unfair to hold SARI responsible for the understatement of tax, if any, and related penalties and interest, if any.

The petitions in docket Nos. 16293–02 (1998) and 1024–03 (1997) did not raise the issue of relief from joint and several liability.⁴

On October 21, 2004, the parties submitted their stipulation of facts in the consolidated cases. Paragraph 20 thereof (paragraph 20) states that “Petitioner Sari F. Deihl no longer seeks innocent spouse relief for the taxable years 1996, 1997 or 1998”. Relief from joint and several liability was not discussed at trial in the consolidated cases (the 2004 trial).

The Tax Court filed its opinion in the consolidated cases on December 15, 2005. See Deihl v. Commissioner, T.C. Memo.2005–287 (Deihl I). The Court generally sustained the Commissioner's determinations of deficiencies in tax, additions to tax, and penalties against petitioner and Mr. Deihl for 1996, 1997, and 1998 and instructed that decisions would be entered under Rule 155. Mr. Deihl died on February 5, 2006, 52 days after Deihl I was filed but before the final decisions in the consolidated cases were entered.

Petitioner served as personal representative for the estate of Mr. Deihl from March 20, 2006, to July 30, 2007. She sought new counsel after receiving advice from Mr. MacPherson and Mr. Hartmann with which she disagreed. On or about March 16, 2006, petitioner retained Martha Patrick, whose representation of petitioner ended on or around April 24, 2006. Soon thereafter, on April 27, 2006, petitioner retained Terence D. Woolston (Mr. Woolston) and Tim A.

[134 T.C. 159]

Tarter of Woolston & Tarter P.C. to represent her and the estate of Mr. Diehl.

Mr. Woolston and counsel for the Commissioner worked together to finalize the Rule 155 computations in the consolidated cases.

The Court entered its decision in docket No. 11136–02 on September 12, 2006, and in docket Nos. 16293–02 and 1024–03 on October 3, 2006. ⁵ Neither side appealed.⁶

On or about March 6, 2007, petitioner filed Form 8857, Request for Innocent Spouse Relief, requesting relief under section 6015(b), (c), and (f) for 1996, 1997, and 1998. On August 22, 2008, respondent sent petitioner a notice of determination denying petitioner's request for relief from joint and several liability for each of those years. On September 16, 2008, petitioner timely filed a petition for review of respondent's determination. Petitioner resided in Arizona at the time she filed the petition in this case.

Discussion

Respondent argues that res judicata as delineated in section 6015(g)(2) bars petitioner from claiming relief from joint and several liability for 1996, 1997, and 1998 because the Court entered final decisions for those years. Respondent further argues that the exception to res judicata in section 6015(g)(2) does not apply because relief from joint and several liability was an issue in the consolidated cases and petitioner participated meaningfully therein.

Petitioner argues that the exception to res judicata in section 6015(g)(2) applies because relief from joint and several liability was not an issue in the consolidated cases and she did not participate meaningfully therein. She also argues that res judicata should not apply to her election under section 6015(c) because she could not have raised it in the consolidated cases. ⁷

[134 T.C. 160]

I. Section 6015(g)(2)

Section 6015(g)(2) codifies the application of res judicata with respect to claims for relief from joint and several liability under section 6015.

A. Res Judicata in General

Under the judicial doctrine of res judicata, when a court of competent jurisdiction enters a final judgment on the merits of a cause of action, the parties to the action are bound by every matter that was or could have been offered and received to sustain or defeat the claim. Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 92 L.Ed. 898 (1948); see also Gustafson v. Commissioner, 97 T.C. 85, 91, 1991 WL 137844 (1991). The doctrine of res judicata “serves to promote judicial economy and the repose of disputes” by precluding repetitious lawsuits. Gustafson v. Commissioner, supra at 91.

Because Federal income taxes are determined on an annual basis, each year is a separate cause of action, and res judicata is applied to bar subsequent proceedings involving the same tax year. Commissioner v. Sunnen, supra at 597–598; Calcutt v. Commissioner, 91 T.C. 14, 21, 1988 WL 71262 (1988). As a general rule, where the Tax Court has entered a decision for a taxable year, both the taxpayer and the Commissioner (with certain exceptions) are barred from reopening that year. Burke v. Commissioner, 105 T.C. 41, 47, 1995 WL 440433 (1995); Hemmings v. Commissioner, 104 T.C. 221, 233, 1995 WL 44587 (1995).

A stipulated judgment is a judgment on the merits for purposes of res judicata. Baker v. IRS, 74 F.3d 906, 910 (9th Cir.1996) (and cases cited thereat). It follows that, for res judicata purposes, the decision incorporates those elements that the parties have settled by stipulation as well as those that have been redetermined by the Court. See Lincir v. Commissioner, T.C. Memo.2007–86.

Although the general outlines of res judicata are relatively straightforward, the details applicable in certain cases may be quite intricate. See, e.g., the discussion in Hemmings v. Commissioner, supra at 230–235. In addition, Congress sometimes enacts legislation that overrides or modifies res judicata. See, e.g., Burke v. Commissioner, supra at 47.

[134 T.C. 161]

B. The...