Hopkins v. Comm'r of Internal Revenue

• Decision Date: 30 June 2003
• Docket Number: No. 363–01.,363–01.
• Citation: 120 T.C. 451,120 T.C. No. 17
• Parties: Marianne HOPKINS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

120 T.C. 451

120 T.C. No. 17

Marianne HOPKINS, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 363–01.

United States Tax Court.

June 30, 2003.

Taxpayer petitioned for review of IRS' denial of her request for innocent spouse relief, following bankruptcy court decision, affirmed by two appellate courts, that a closing agreement with IRS signed ten years before enactment of current innocent spouse relief statute, precluded her from asserting her claim for relief. The Tax Court, Ruwe, J., held that: (1) current statute applied to any tax liability remaining unpaid on its date of enactment, and (2) as a matter of first impression, doctrines of res judicata and collateral estoppel did not preclude taxpayer's claim for relief.

Decision for taxpayer.

See also, 146 F.3d 729.

Sandra G. Scott, for petitioner.

Thomas M. Rohall, for respondent.

RUWE, J.

P filed a request for relief under sec. 6015, I.R.C., with respect to her joint and several tax liabilities for 1982 and 1983. P and H reported loss deductions from a partnership on their returns for those years. In 1988, P and H signed a closing agreement under sec. 7121, I.R.C., in which they agreed to adjustments with respect to the partnership deductions. The adjustments to the partnership deductions resulted in tax deficiencies for 1982 and 1983, which R assessed. The tax liabilities for those years were the subject of a prior bankruptcy case involving P and H and the Government. In that case, P raised a claim for relief from joint and several liability under former sec. 6013(e), I.R.C. The bankruptcy court entered judgment holding that the closing agreement precluded P from asserting her claim for relief under sec. 6013(e), I.R.C. A Federal District Court and the Court of Appeals for the Ninth Circuit affirmed the bankruptcy court's judgment. See Hopkins v. United States ( In re Hopkins ), 146 F.3d 729 (9th Cir.1998). R argues that the closing agreement P signed precludes her assertion of a claim for relief under sec. 6015, I.R.C. R also argues that the doctrines of res judicata and collateral estoppel preclude her assertion of a claim for relief under that section.

Held: P is not precluded from claiming sec. 6015, I.R.C., relief because of her closing agreement. Sec. 6015, I.R.C., was enacted in 1998 in order to provide additional relief to taxpayers who had filed joint income tax returns. Sec. 6015, I.R.C., was made applicable to any tax remaining unpaid as of July 22, 1998. P signed the closing agreement in 1988, 10 years before the enactment of sec. 6015, I.R.C. Thus, when P signed the closing agreement, she never had the opportunity to request relief under sec. 6015, I.R.C., with regard to her 1982 and 1983 joint and several tax liabilities.

Held, further, the doctrines of res judicata and collateral estoppel do not preclude P's claim for sec. 6015, I.R.C., relief.

The issue for decision is whether a closing agreement entered into under section 7121 ¹ precludes the assertion of a claim for relief from joint and several liability under section 6015 where petitioner signed the closing agreement before the effective date of section 6015. We hold that it does not.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time of filing the petition, petitioner resided in Kentfield, California.

Petitioner was formerly married to Donald K. Hopkins.² Petitioner filed joint income tax returns with Mr. Hopkins from 1978 to 1997. Petitioner and Mr. Hopkins claimed deductions on their joint returns for 1982 and 1983, which related to a certain Far West Drilling partnership. They claimed a loss deduction of $83,402 on their joint return for 1982. They claimed a loss deduction of $91,086 and a depletion deduction of $2,126 on their joint return for 1983. Those deductions were erroneous.

Respondent audited the Far West Drilling partnership. In the course of respondent's examination, petitioner and Mr. Hopkins agreed to settle their tax liabilities relating to Far West Drilling. They signed a Form 906, Closing Agreement on Final Determination Covering Specific Matters, dated September 28, 1988. The closing agreement provides:

Under section 7121 of the Internal Revenue Code Donald K and Marianne Hopkins 111 Diablo DR., Kentfield, CA 94904 * * * and the Commissioner of Internal Revenue make the following closing agreement:

WHEREAS, the Taxpayers were investors in Far West Drilling Associates (the “Partnership”), beginning with the taxable year 1981.

WHEREAS, the Taxpayers have made cash contributions to the Partnership in the total amount of $67,500.00[.]

WHEREAS, the Taxpayers have claimed losses with respect to their interest in the Partnership on their Federal income tax return beginning in the year 1981, the allowance of which are contested by the Commissioner of Internal Revenue.

WHEREAS, the parties wish to resolve with finality the Federal income tax consequences of their investment in the Partnership.

NOW THEREFORE, it is hereby determined and agreed for Federal income tax purposes that:

1. The Taxpayers are entitled to an ordinary deduction in the amount of $50,625.00 for the taxable year ending December 31, 1981, with respect to their investment in the Partnership. Said amount represents 75% of their cash investment in the Partnership.

2. The Taxpayers shall be entitled to an ordinary deduction in any taxable year ending subsequent to 1981 equal to the amount of cash payments made by them during such taxable year, against their assumed portion of the Partnership debt to Mitchell Petroleum Technology Corporation, upon substantiation of such cash payments.

3. The Taxpayers' basis in the Partnership shall be $0 as of December 31, 1981. The Taxpayers will, however, be allowed an increase in their basis in the Partnership, equal in amount to any subsequent cash payment by Taxpayers made pursuant to their assumption of a portion of any debt of the Partnership to Mitchell Petroleum Technology Corporation.

4. The Taxpayers are not entitled to the investment tax credit with respect to their interest in the Partnership for any taxable year.

5. The Taxpayers are not entitled to any deductions in the taxable year ending December 31, 1981, or in any subsequent year, other than the deductions which are set forth in paragraphs “1” and “2” above.

6. Any release, discharge or forgiveness of any obligation with respect to the Taxpayers' investment in the Partnership in any year subsequent to the taxable year ending December 31, 1981 will not result in gross income to the Taxpayers in any taxable year.

7. No penalty shall be assessed against the Taxpayers for the taxable year ended December 31, 1981 or any subsequent taxable year by reason of the disallowance of any losses claimed as a result of their interest in the Partnership. The increased interest rate pursuant to I.R.C. § 6621(c) shall apply.

This agreement is final and conclusive except:

(1) the matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of material fact; (2) it is subject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions notwithstanding any other law or rule of law except Code section 7122; and

(3) if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to that tax period.

By signing, the above parties certify that they have read and agreed to the terms of this document.

Respondent accepted the closing agreement on October 13, 1988.

Respondent made adjustments to petitioner and Mr. Hopkins's 1982 and 1983 returns pursuant to the closing agreement. Those adjustments resulted in deficiencies for 1982 and 1983, which respondent assessed.³ Respondent filed notices of Federal tax lien with the county recorder of Marin County, California, relating to those assessments. The tax liabilities for 1982 and 1983 remain unpaid.

On February 8, 1995, petitioner filed a chapter 7 bankruptcy. She also filed an adversary complaint in the U.S. Bankruptcy Court for the Northern District of California, Santa Rosa Division, in which she sought to be relieved of her joint and several tax liabilities, and the related tax liens, for 1982 and 1983 under former section 6013(e). The Government filed a motion for summary judgment, arguing, inter alia, that petitioner was barred from seeking relief because she had executed a closing agreement under section 7121 with respect to the Far West Drilling adjustments. The bankruptcy court granted the Government's motion, concluding that petitioner was precluded by the closing agreement from asserting a claim for relief under section 6013(e). Petitioner appealed from that judgment to a Federal District Court. The District Court affirmed the bankruptcy court's decision. Hopkins v. United States ( In re Hopkins ), 79 AFTR 2d 97–2625, 97–1 USTC par. 50,446 (N.D.Cal.1997). Petitioner then appealed to the Court of Appeals for the Ninth Circuit, which also affirmed. Hopkins v. United States ( In re Hopkins ), 146 F.3d 729 (9th Cir.1998).

On May 24, 1999, petitioner filed a Form 8857, Request for Innocent Spouse Relief, with respondent for her 1982 and 1983 joint and several tax liabilities in which she requested relief under the recently enacted provisions of section 6015. On January 8, 2001, petitioner filed a petition for relief from joint and several liability with this Court. At the time of petitioner's filing the petition, respondent had not made a determination with respect to her request.

OPINION

We decide in this Opinion whether petitioner is precluded by her closing agreement from asserting a claim for relief from joint and several liability under section 6015. The closing agreement was signed before the effective date of section 6015, and the tax liabilities assessed pursuant...