Florida Peach Corp.. v. Comm'r of Internal Revenue

Decision Date12 April 1988
Docket NumberDocket No. 6548-82.
Citation90 T.C. No. 41,90 T.C. 678
PartiesFLORIDA PEACH CORPORATION, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

P was a debtor in a bankruptcy proceeding having filed a voluntary petition for reorganization (chapter 11) on March 11, 1980. R filed a proof of claim in that proceeding for income tax liabilities of P for the taxable years ended March 31, 1974 through March 31, 1977. A notice of deficiency was issued on December 31, 1981 for the same tax liabilities. The Bankruptcy Court entered a judgment on February 8, 1982 allowing the claim of the United States and on February 22, 1982 the bankruptcy proceeding was dismissed. A timely petition was filed with this Court on March 24, 1982.

HELD, the Bankruptcy Court had authority to decide the tax claims asserted and R is a party in privity with the United States, the party which filed a claim in the bankruptcy proceeding. McQuade v. Commissioner, 84 T.C. 137 (1985). HELD FURTHER, that while section 349(b)(2) of the Bankruptcy Code provides that a dismissal of the bankruptcy case has the effect of vacating certain orders or judgments, a judgment under section 505 of the Bankruptcy Code is not an action enumerated under section 349(b)(2); accordingly, the dismissal of the bankruptcy case did not vacate the judgment under section 505 allowing the claim made by the United States for corporate tax liabilities. HELD FURTHER, R's Motion for Summary Judgment is granted since the doctrine of res judicata precludes P from relitigating the tax liabilities previously allowed by the Bankruptcy Court. Robert Lurie, (an officer) for the petitioner.

Paul Horn and Francis C. Mucciolo, for the respondent.

OPINION

FEATHERSTON, JUDGE:

This case was heard by Special Trial Judge Peter J. Panuthos pursuant to the provisions of section 7456 of the Code. 1 The Court agrees with and adopts the Special Trial Judge's opinion, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, SPECIAL TRIAL JUDGE:

This case is before the Court on respondent's Motion for Summary Judgment, filed pursuant to Rule 121. The issue for decision is whether the doctrine of res judicata applies so as to preclude petitioner from litigating the deficiencies determined by respondent in this Court.

Respondent, in his notice of deficiency, dated December 31, 1981, determined deficiencies and additions to tax as follows:

+-------------------------------------------------------+
                ¦             ¦            ¦Additions to tax2           ¦
                +-------------+------------+----------------------------¦
                ¦TYE Mar. 31--¦Deficiency  ¦Sec. 6651(a)(1)¦Sec. 6653(a)¦
                +-------------+------------+---------------+------------¦
                ¦1974         ¦$959,400.82 ¦0              ¦$47,970     ¦
                +-------------+------------+---------------+------------¦
                ¦1975         ¦1,330,652.97¦$66,533.00     ¦66,533      ¦
                +-------------+------------+---------------+------------¦
                ¦1976         ¦1,386,240.87¦0              ¦69,312      ¦
                +-------------+------------+---------------+------------¦
                ¦1977         ¦14,397.70   ¦2,879.54       ¦0           ¦
                +-------------------------------------------------------+
                

A timely petition was filed on March 24, 1982. 3

The facts are not in dispute. Petitioner, Florida Peach Corporation, is the same entity as was the debtor in a bankruptcy proceeding entitled In Re Florida Peach Corp., Case No. 80-111-BK-J- GP (Bankr. M.D. Fla., filed March 11, 1980). On March 2, 1981, the United States filed an amended proof of claim in the Bankruptcy proceeding. Included in the amended claim were corporate tax liabilities of petitioner for the taxable years ending March 31, in each of the years 1974 through 1977. On or about May 19, 1981, petitioner filed an objection to the claim of the United States. On or about August 10, 1981, respondent filed a new amended proof of claim. 4 Among other liabilities, the amended proof of claim asserted income tax liabilities against petitioner as follows:

+---------------------------+
                ¦TYE Mar. 31-- ¦Tax due     ¦
                +--------------+------------¦
                ¦1974          ¦$9,400.82   ¦
                +--------------+------------¦
                ¦1975          ¦1,330,652.97¦
                +--------------+------------¦
                ¦1976          ¦1,386,240.87¦
                +--------------+------------¦
                ¦1977          ¦5  14,397.00¦
                +---------------------------+
                

On February 8, 1982, the Bankruptcy Court entered a judgment under section 505 of the Bankruptcy Code dismissing petitioner's objection to the income tax claim of the United States and allowing the claim in full. This judgment was based on findings of fact which stated in part as follows:

10. The United States filed timely claims for income taxes in these proceedings, with amendments thereto, claiming $959,400.82 due in income taxes for fiscal year ending March 31, 1974, $1,330,652.97 due for fiscal year ending March 31, 1975, $1,386,240.87 due for fiscal year ending March 31, 1976 and $14,397.70 6 due for fiscal year ending March 31, 1977, plus pre-petition interest.

The conclusions of law stated as follows:

6. The United States is entitled to an order dismissing the Debtor's objections and allowing the income tax claim, with costs charged to the Debtor, both by virtue of the failure of the Debtor to sustain its objections and by virtue of Rule 737 of the Rules of Bankruptcy Procedure, as a sanction for the Debtor's willful failure to obey the Order of November 12, 1981.

On February 22, 1982, the Bankruptcy Court entered a wholly separate order dismissing the case and lifting the automatic stay imposed by 11 U.S.C. section 362 (1982).

OPINION

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Shiosaki v. Commissioner, 61 T.C. 861, 862 (1974). Summary judgment is not a substitute for trial, in that disputes over factual issues are not to be resolved in such proceedings. Naftel v. Commissioner, 85 T.C. 527 (1985); Espinoza v. Commissioner, 78 T.C. 412, 416 (1982). Rule 121 provides that either party may move for a summary judgment in his favor upon all or any part of the legal issues in controversy. The Rule further provides that a decision shall be rendered if the pleadings, answers to interrogatories, depositions, admissions and any other acceptable materials, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.

There does not appear to be any dispute as to a material fact here. Accordingly, our task is to determine whether petitioner is prohibited from litigating its Federal tax liabilities in this Court due to the prior proceeding in the Bankruptcy Court. Thus, we must determine whether the doctrine of res judicata is applicable here.

We initially look to the landmark case of Commissioner v. Sunnen, 333 U.S. 591 (1948). In that case, the Supreme Court stated as follows:

It is first necessary to understand something of the recognized meaning and scope of res judicata, a doctrine judicial in origin. The general rule of res judicata applies to repetitious suits involving the same cause of action. It rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations. The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound ‘not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.‘ * * * The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment. »Commissioner v. Sunnen, supra at 597; citations omitted.

In applying the concept of res judicata to the field of Federal income tax, the Supreme Court further stated as follows:

These same concepts are applicable in the federal income tax field. Income taxes are levied on an annual basis. Each year is the origin of a new liability and of a separate cause of action. Thus if a claim of liability or non-liability relating to a particular tax year is litigated, a judgment on the merits is res judicata as to any subsequent proceeding involving the same claim and the same tax year. But if the later proceeding is concerned with a similar or unlike claim relating to a different tax year, the prior judgment acts as a collateral estoppel only as to those matters in the second proceeding which were actually presented and determined in the first suit. * * * »Commissioner v. Sunnen, supra at 598.

Florida Peach Corporation, petitioner herein, is the same entity that was the debtor in the Bankruptcy Court proceeding. We are satisfied that while respondent was not a named party in the bankruptcy proceeding, he is a party in privity with the United States, the party who filed an income tax claim in that proceeding. McQuade v. Commissioner, 84 T.C. 137 (1985). 7 Furthermore, there is no question but that the Bankruptcy Court had authority to decide the tax claims asserted. See 11 U.S.C. section 505(a)(1) (1982); McQuade v. Commissioner, supra at 145. It is also not disputed that the tax liabilities at issue here involve the same claim and tax years presented in the earlier proceeding.

The question which arises then is whether the judgment of the Bankruptcy Court allowing the tax claim of the United States in full is a final judgment on the merits so as to bar relitigation. This issue was addressed in In Re Saco Local Development Corp., 711 F.2d 441 (1st Cir. 1983), where the court found ‘that a 'final judgment, order, or decree’ under 28 U.S.C. section 1293(b) includes an order that conclusively determines a separable dispute over a creditor's claim or priority.‘ In Re Baco Local Development Corp., supra at 445- 446. The court based its...

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