InverWorld, Ltd. v. C.I.R.

• Decision Date: 24 November 1992
• Docket Number: No. 92-1058,92-1058
• Citation: 979 F.2d 868
• Parties: , 71 A.F.T.R.2d 93-327, 92-2 USTC P 50,594 INVERWORLD, LTD., Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. District of Columbia Circuit
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 868

979 F.2d 868

298 U.S.App.D.C. 319, 71 A.F.T.R.2d

93-327, 92-2 USTC P 50,594

INVERWORLD, LTD., Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 92-1058.

United States Court of Appeals,

District of Columbia Circuit.

Argued Oct. 13, 1992.

Decided Nov. 24, 1992.

Appeal from a Decision of the United States Tax Court.

T. Barry Kingham, New York City, with whom Samuel Rosenthal, Washington, D.C., was on the brief, for appellant.

Kenneth L. Greene, Attorney, Dept. of Justice, with whom Shirley D. Peterson, Asst. Atty. Gen., and Gary R. Allen, Atty., Dept. of Justice, Washington, D.C., were on the brief for appellee.

Before MIKVA, Chief Judge, WALD and EDWARDS, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

Opinion concurring in part and concurring in the judgment filed by Chief Judge MIKVA.

WALD, Circuit Judge:

InverWorld, Ltd. ("InverWorld"), a Cayman Islands corporation, appeals a decision of the Tax Court denying leave to amend its petition to redetermine tax deficiencies in order to specifically contest corporate income tax deficiencies for 1984, 1985, and 1986. Because InverWorld's motion was made after the expiration of the statutory period in which a new claim could be filed in the Tax Court, that court could only allow the amendment if InverWorld's original petition had already put the corporate income tax claims at issue. The Tax Court found no objective indication in InverWorld's original petition that the corporate taxes had been disputed and accordingly denied InverWorld's motion to amend, thereby effectively denying InverWorld's claim as to those taxes. We affirm.

I. BACKGROUND

While the substantive interstices of the Internal Revenue Code are daunting indeed, its procedure for the collection of most taxes is prosaically straightforward. If the Commissioner of Internal Revenue (the "Commissioner") determines that a taxpayer has not paid all taxes owed, she mails a notice of deficiency to the taxpayer. See 26 U.S.C. § 6212(a). The taxpayer then has 90 days from the date of the notice (or 150 days if the notice is mailed to an address outside the United States) to contest the Commissioner's action by petitioning the Tax Court to "redetermine" the deficiency. See 26 U.S.C. § 6213(a). In general, the Commissioner may not collect any money during this 90 day period or after a timely filed petition has been filed with the Tax Court. See id. Unless a taxpayer timely petitions the Tax Court for redetermination of a specific deficiency, however, the Tax Court has no jurisdiction over the taxpayer's claim, and the Commissioner is free to collect the taxes. ¹ See id.; see also TAX CT. R. 41(a) ("No amendment shall be allowed after expiration of the time for filing the petition ... which would involve conferring jurisdiction on the Court over a matter which otherwise would not come within its jurisdiction under the petition as then on file.").

Pursuant to this scheme, the Commissioner mailed, under separate cover, two deficiency notices to InverWorld on September 7, 1990. One of the notices (the "First Notice") began: "In accordance with the provisions of existing internal revenue laws, notice is given that the determination of your liability for withholding of income tax as source for the taxable years ended December 31, 1984, December 31, 1985 and December 31, 1986, discloses a deficiency of $8,071,168.00, $16,697,809.00 and $21,610,869.00, respectively." This same First Notice also contained several other references to withholding taxes. On the "Statement-Income Tax Changes," a table in the notice which showed how the Commissioner tallied the total alleged deficiency, the Commissioner alluded to Form 1042, the withholding tax return form. An "Explanation of Adjustments" accompanying the Statement also alleged that InverWorld "had received gross income in the form of interest from sources within the United States for nonresident aliens," and noted that additional penalties were imposed for failure to file "Annual Withholding Tax Returns."

The other notice (the "Second Notice") that the Commissioner mailed to InverWorld opened as follows: "We have determined that there is a deficiency (increase) in your income tax...." The Second Notice referred throughout to corporate income tax matters. The accompanying Statement-Income Tax Changes referred to Form 1120F, the foreign corporation income tax return. And the Explanation of Adjustments advised InverWorld that penalties had been assessed for failure to file "Income Tax Returns."

Asserting that it owed no taxes because it did not engage in a trade or business within the United States, InverWorld petitioned the Tax Court for a redetermination of deficiencies on December 3, 1990. For unexplained reasons, however, InverWorld's petition referred only to the First Notice and the amounts alleged as deficiencies therein. ² Only the First Notice was attached as an exhibit to the petition. Throughout the petition, however, InverWorld referred to the alleged deficiencies not as ones relating to failure to withhold income taxes owed by third parties but rather in more general fashion as involving a dispute over "income tax." See, e.g., Petition at p 3 ("The deficiencies as determined by the Commissioner are for income tax....").

Because InverWorld's petition was silent on the subject of the corporate income tax deficiencies alleged in the Second Notice, the Commissioner assumed that the corporate income tax deficiencies--as opposed to the withholding tax deficiencies--were not in contest. Thus, on February 6, 1991, after the statutory period had run, he issued three Notices of Assessment demanding payment of some $900 million in corporate income taxes--the amounts set out in the Second Notice plus additionally accrued interest and penalties.

Predictably, InverWorld reacted quickly to seek protection from immediate collection of this nine-digit sum. On February 19, 1991, it filed a motion in the Tax Court to amend its original redetermination petition to include the corporate income tax deficiencies for which the Commissioner now demanded payment. ³ On January 27, 1992, the Tax Court denied InverWorld's motion to amend its petition. Because it was too late for InverWorld to add a new claim at this point, the Tax Court had to decide whether the original petition had already invoked the court's jurisdiction over the corporate income tax issue. While the Tax Court announced a policy in favor of construing the original petition liberally, it stated that the petition still must "contain objective facts indicating that a specific deficiency determination is contested before it is treated as a petition with respect to that determination." A petition could invoke Tax Court jurisdiction over a particular deficiency only if, at a minimum, it indicated: (1) the amount of the deficiencies the Commissioner determined the taxpayer owed; (2) the amount of that debt the taxpayer was contesting; and (3) the years in dispute. Because InverWorld's petition did not even mention the Second Notice much less contest any of the deficiencies alleged therein, the Tax Court decided that InverWorld's original petition could not meet this test as to the corporate income tax deficiencies. The Tax Court also found InverWorld's allusion to "income taxes" in its original petition insufficient to manifest an intent to contest the Second Notice's determinations.

The Tax Court's refusal to allow InverWorld to amend precludes any further action in that forum on the corporate income tax claims. InverWorld's withholding tax claim is still pending before the Tax Court, however. InverWorld is now attempting to appeal the denial of its motion to amend, asserting that its original petition contained sufficient objective indications of an intent to dispute the corporate tax deficiencies to vest the Tax Court with jurisdiction over those claims.

II. ANALYSIS

A. Jurisdiction

Before getting to InverWorld's substantive claims, we must address the threshold question of our own jurisdiction to hear this appeal. Although neither party challenged our jurisdiction, we raised the issue sua sponte and requested briefing on it by the parties because several of our sibling circuits are split on whether parties may appeal Tax Court orders which dispose of one or more but not all joined claims. Compare Wilson v. Commissioner, 564 F.2d 1317, 1318 (9th Cir.1977) (per curiam) (finding appealable a Tax Court order denying taxpayer's motion to amend petition to contest a deficiency in an additional year), cert. denied sub nom. Mercer v. Commissioner, 439 U.S. 832, 99 S.Ct. 110, 58 L.Ed.2d 127 (1978) with Schrader v. Commissioner, 916 F.2d 361, 362-63 (6th Cir.1990) (per curiam) (holding that court lacked jurisdiction to review Tax Court's grant of motion to dismiss one year of a multiyear petition) and Estate of Yaeger v. Commissioner, 801 F.2d 96, 98 (2d Cir.1986) (holding that court lacked jurisdiction to review Tax Court's grant of taxpayer's motion to dismiss affecting one year of a multiple year dispute because the Tax Court had not disposed of the "entire case"). Ultimately, but not effortlessly, we come down on the side of the Ninth Circuit and find that we have jurisdiction over such an appeal.

Our jurisdiction in this context is governed by 26 U.S.C. § 7482(a)(1), which states in relevant part:

The United States Courts of Appeals ... shall have exclusive jurisdiction to review the decisions of the Tax Court ... in the same manner and to the same extent as decisions of the district court in civil actions tried without a jury.

Several courts have held that § 7482(a)(1) provides jurisdiction over all final decisions of the Tax Court. See, e.g., Ryan v. Commissioner, 680 F.2d 324, 326 (3d Cir.1982) ("Numerous cases hold that a court of appeals may consider an appeal as long as it arises out of a final decision of the Tax Court."); Estate of Dixon v. Commissioner, 666...