Hemmings v. Comm'r of Internal Revenue
| Decision Date | 06 February 1995 |
| Docket Number | No. 9710–90.,9710–90. |
| Citation | 104 T.C. No. 9,104 T.C. 221 |
| Parties | Isaac C. HEMMINGS and Mary Sue Hemmings, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Robert I. White and Lawrence Sherlock, for petitioner Isaac C. Hemmings.
Bruce Locke, for petitioner Mary Sue Hemmings.
John P. Jankowski, for respondent.
Ps filed a refund suit in District Court for an overpayment of their 1984 tax, asserting that they were entitled to deductions which had not been claimed on their original income tax return and which related to commodity trading performed through C, a brokerage firm. The court entered summary judgment against Ps. R subsequently issued a notice of deficiency for the taxable years 1983 and 1984, determining that Ps were not entitled to deductions which had been claimed on their original income tax returns relating to trading activity with C. Ps moved for partial summary judgment, contending that the doctrine of res judicata prevented further litigation of the 1984 taxable year. Held: The prior refund suit does not bar subsequent determination and litigation of a deficiency for the same taxable year. Ps' motion for partial summary judgment will be denied.
This case was assigned to Special Trial Judge Carleton D. Powell pursuant to section 7443A(b)(4) and Rules 180, 181 and 183.1 The Court agrees with and adopts the opinion of the Special Trial Judge which is set forth below.
POWELL, Special Trial Judge:
This case is before the Court on petitioners' motion 2 for partial summary judgment on the ground that respondent is barred by res judicata from determining a deficiency for the taxable year 1984 because a final judgment has been entered in the District Court on a refund suit for the same taxable year.
Respondent issued a notice of deficiency on February 16, 1990, to petitioners determining Federal income tax deficiencies and additions to tax as follows:
+-----------------------------------------+
¦ ¦ ¦Additions to Tax ¦
+----+----------+-------------------------¦
¦Year¦Deficiency¦Sec. 6653(a)(1)¦Sec. 6661¦
+----+----------+---------------+---------¦
¦1983¦$560,882 ¦$28,044 ¦$140,221 ¦
+----+----------+---------------+---------¦
¦1984¦87,362 ¦4,368 ¦21,841 ¦
+-----------------------------------------+
Respondent also determined additions to tax under section 6653(a)(2) in amounts equal to 50 percent of the interest due on the underpayment of tax attributable to negligence for 1983 and 1984.
Petitioners were residents of West Palm Beach, Florida, when they timely filed their petition in this case.
For purposes of the motion, the facts are summarized as follows. In 1981 petitioners opened a trading account with the Houston, Texas, office of ContiCommodity Services, Inc. (Conti), a futures commission merchant. When the office closed in May 1984, Conti filed suit against several customers, including petitioners, to recover alleged deficit equity balances in their accounts. The defendant customers filed counterclaims alleging, among other things, that many of the trades giving rise to the alleged deficit balances were misallocated, prearranged, or fictitious. All litigation relating to Conti's Houston office was consolidated for purposes of discovery in a multidistrict litigation (MDL) proceeding pursuant to 28 U.S.C. section 1407 (1988). These proceedings were assigned to the Honorable William T. Hart in the U.S. District Court for the Northern District of Illinois.
At about this time, respondent began investigating the trading performed at Conti's Houston office. By notice of deficiency respondent disallowed certain deductions claimed by petitioners on their 1981 and 1982 Federal income tax returns. Petitioners filed petitions with the Tax Court. Those cases are currently pending under docket Nos. 14273–86 and 32570–86.
In 1986 the Tax Court approved a procedure proposed by petitioners and other similarly situated taxpayers whereby all issues involving the Conti trading, including the tax issues, allegedly would be resolved in the MDL. As part of that procedure, petitioners filed a tax refund claim in the amount of $104,027 for the 1984 taxable year based on deductions for losses and expenses related to the Conti trading that they had not reported on their original return. Respondent disallowed the claim, and petitioners brought a refund suit in the U.S. District Court for the Southern District of Florida. The case was then transferred to the Northern District of Illinois and consolidated with the MDL.
In the amended complaint, petitioners alleged:
many of the trades made by Conti for the Plaintiffs' accounts were legitimate trades that gave rise to real economic and tax consequences for the Plaintiffs. These consequences included realizing gain and loss on the disposition of the property traded, and realizing interest income and incurring interest expense during the period the property was held and financed.
The Government denied the allegation in its answer to the amended complaint. Further, the Government asserted that the complaint failed to state a claim upon which relief could be granted and that the complaint was so vague and ambiguous that it was unable to frame a proper responsive pleading.
The Government moved for summary judgment on the tax refund, which Judge Hart granted in a Memorandum Opinion and Order dated January 11, 1990, as follows:
As regards their claims against Conti and other parties, the taxpayers take the position that the trades were all “bad.” As regards the tax suits, they must take the position that they were pursuing a legitimate business or making legitimate investments and therefore must contend the trades were “good.” The government argues the taxpayers cannot pursue these two inconsistent positions. That issue, however, need not be decided. Even if the taxpayers can plead in the alternative, in response to a motion for summary judgment they must present evidence to support each alternative pursued. The taxpayers present insufficient evidence to support that they have any legitimate losses or deductions. The only thing that can even be construed as trying to make such a showing are their references to Conti pleadings and the taxpayers' claims for refund.
A party cannot respond to a motion for summary judgment simply by citing its own pleadings. As for the Conti pleadings, they may be admissible against the Conti parties as admissions by a party-opponent, but they are not admissible against the government under that exception. Since the allegations of the complaint are not based on personal knowledge, they cannot be used as evidence in opposition to a motion for summary judgment. * * * [Conti's pleadings] contain nothing specifying losses or interest expenses incurred in 1981 or 1984, the only years involved in the refund suits. Further, while losses are referred to, there are no facts alleged to show the trading was profit-motivated. The pleadings cited are lacking in the specificity required in response to a motion for summary judgment.
The taxpayers also present the Conti parties' response to expert witness interrogatories. The expert's statement must also contain specific facts for it to create a factual dispute preventing summary judgment. * * * There is a summary of account balances as of October 31, 1984, but nothing to show balances at the beginning of 1984 or to identify any balances to specific customers. A $27,000,000 loss is referred to as occurring in April and May 1984, as well as a net loss of $50,000,000 for calendar year 1984, but that is a total for all customers and other parts of the answer state the Brown and Hemmings group was allocated profitable trades by David Ragan. It is stated that the Brown and Hemmings group still had a substantial deficit in their accounts, but when the losses occurred is not specified and what losses the particular members of the group had is not specified. There is also no discussion of whether Brown and Hemmings were engaged in legitimate profit-motivated trades. The response to expert interrogatories does not contain specific facts necessary to defeat summary judgment.
Since the taxpayers have failed to show they are entitled to any refunds on their claims against the government, the government is entitled to summary judgment dismissing the claims against it. [ In re ContiCommodity Services, Inc., 733 F.Supp. 1555, 1574–1575 (N.D.Ill.1990); citation omitted.]
Petitioners filed a motion for reconsideration on January 26, 1990, which Judge Hart denied on February 26, 1990. Judgment on the MDL tax refund issue was entered on October 5, 1990, nunc pro tunc to January 11, 1990, granting the Government's motion for summary judgment and dismissing petitioners' cause of action with prejudice. The Order rendering judgment indicated that Petitioners did not appeal from the judgment of the District Court.3
Respondent issued the notice of deficiency upon which this case is based on February 16, 1990, for petitioners' 1983 and 1984 taxable years, determining that petitioners were not entitled to any deductions related to the Conti trading claimed on their 1983 and 1984 Federal income tax returns. Petitioners filed their petition on May 16, 1990, alleging, inter alia, that the 1984 taxable year was barred by res judicata due to the MDL judgment on the refund claim. Respondent filed an answer alleging, inter alia, that collateral estoppel precluded petitioners from litigating the issues previously litigated in the MDL. Petitioners subsequently filed this motion for partial summary judgment, claiming that further litigation concerning their 1984 taxable year is barred.
OPINIONSummary judgment is intended to expedite litigation and avoid unnecessary and expensive...
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