Kroh v. Comm'r of Internal Revenue
| Citation | 98 T.C. No. 29,98 T.C. 383 |
| Decision Date | 02 April 1992 |
| Docket Number | 7250-88.,Docket No. 36295-87 |
| Parties | CAROLYN S. KROH, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Petitioner (P) and her husband (H) filed joint income tax returns. H was adjudicated bankrupt. Subsequently, respondent (R) issued deficiency notices to P and H. P filed petitions in the Tax Court. R and H's bankruptcy trustee settled all of H's tax liabilities. The bankruptcy court approved the settlement agreement but did not adjudicate the claim on its merits. P did not participate in the bankruptcy proceeding in any manner. R subsequently assessed H's tax deficiencies and additions to tax pursuant to the settlement agreement. The bankruptcy trustee paid the deficient taxes and interest.
P
filed E, 98 T.C. 384>>filed a motion to amend her petitions and a motion for partial summary judgment. In the partial summary judgment motion, P alleged that H's settlement of his tax liabilities with R in the bankruptcy court should bind her directly to the judgment and, alternatively, that the doctrines of res judicata and collateral estoppel should preclude R from proceeding against P for the full amount of the deficiencies and additions to tax set forth in the deficiency notices.
1. HELD: P's motion to amend her petitions will be granted.
2. HELD, FURTHER, P was not actually, or by implication, a debtor or a party to her husband's bankruptcy case. Thus, R did not settle her tax liabilities on that basis, HELD, FURTHER, a prior assessment against H does not have the effect of reducing the deficiencies as to P merely because H and P filed joint returns. Dolan v. Commissioner, 44 T.C. 420 (1965). HELD, FURTHER, because R's claims against P and H constitute two separate causes of action and because P was not a party or a privy of her husband in the bankruptcy court, res judicata does not preclude R from litigating the full amount of P's alleged tax deficiencies and additions to tax. Dolan v. Commissioner, supra; Tavery v. United States, 897 F.2d 1032, 1033 (10th Cir. 1990); United States v. Mendoza, 464 U.S. 154 (1984). HELD, FURTHER, because a settlement agreement does not meet the requirement that there be an adjudication on the merits, collateral estoppel does not preclude R from litigating the full amount of P's alleged tax deficiencies and additions to tax. United States v. International Building Co., 345 U.S. 502 (1953). HELD, FURTHER, P's motion for partial summary judgment will be denied.
Keith A. Greiner, for petitioner.
Alan M. Jacobson, for respondent.
This matter is before the Court on petitioner's motion to amend her petitions pursuant to Rule 41 1 and petitioner's motion for partial summary judgment pursuant to Rule 121. Petitioner's motions, and respondent's objections to them, raise the following issues: (1) Whether petitioner should be permitted to amend her petitions to include new defenses and supportive facts pertaining to her motion for partial summary judgment, her husband's bankruptcy case, and her assertion that she qualifies for “innocent spouse” relief under section 6013(e) for a portion of her alleged tax deficiencies; (2) whether respondent is barred as a matter of law from proceeding against petitioner for the full amount of petitioner's alleged tax deficiencies and additions to tax because petitioner's husband, with whom she had filed joint returns, was adjudicated a bankrupt and settled and paid his assessed tax liabilities for the years in issue in the bankruptcy proceeding; (3) whether the principles of res judicata or collateral estoppel bar respondent from litigating tax deficiencies against petitioner in amounts greater than those awarded to respondent in the bankruptcy case of petitioner's husband; and (4) if respondent is limited in litigating petitioner's tax deficiencies by the principles of collateral estoppel or res judicata, whether petitioner may nonetheless litigate the additions to tax determined by respondent. We assume the following facts as submitted by the parties in their pleadings, memoranda, and supporting documents.
Petitioner Carolyn S. Kroh and her husband, George P. Kroh, filed joint income tax returns for 1979, 1980, and 1982. On August 12, 1987, a joint statutory notice of deficiency was issued to petitioner and Mr. Kroh for their 1979 and 1980 tax years. On January 13, 1988, a second notice of deficiency was issued solely to petitioner for 1982. In the notices, respondent determined deficiencies in, and additions to, petitioner's income tax as follows:
On November 10, 1987, petitioner filed a petition seeking a redetermination of her tax deficiencies and additions to tax for 1979 and 1980. On April 12, 1988, petitioner filed a second petition seeking a redetermination of her tax deficiency and addition to tax for 1982. She was residing in Mission Hills, Kansas, at the time the petitions were filed.
Petitioner's husband, Mr. Kroh, was adjudicated bankrupt pursuant to a petition he voluntarily filed on January 29, 1987, under the Bankruptcy Code, 11 U.S.C., in the U.S. Bankruptcy Court for the Western District of Missouri. The bankruptcy court denied Mr. Kroh's application for a discharge from personal liability for his debts. David Achtenberg was appointed the trustee in Mr. Kroh's bankruptcy case.
On June 4, 1987, respondent filed a proof of claim in Mr. Kroh's bankruptcy case claiming a total of $860,542.91 in liabilities from Mr. Kroh for the taxable years 1977, 1979, 1980, and 1982. Respondent increased the claim to $1,399,543.96 by an amended proof of claim dated October 28, 1988.
On November 28, 1989, respondent's counsel and the bankruptcy trustee executed an agreement entitled “Compromise, Settlement Agreement and Stipulation” in which the alleged tax liabilities of Mr. Kroh set forth in respondent's proofs of claim were compromised. The caption of the agreement names “George P. Kroh” as the “debtor” and further provides as follows:
+---------------------------------------------------+
¦Year ¦Income tax ¦Interest to 1/29/87 ¦Penalty ¦
+------+------------+---------------------+---------¦
¦1977 ¦$1,870.00 ¦$2,695.78 ¦ ¦
+------+------------+---------------------+---------¦
¦1979 ¦5,385.34 ¦4,987.59 ¦$269.27 ¦
+------+------------+---------------------+---------¦
¦1980 ¦64,585.00 ¦67,119.33 ¦ ¦
+------+------------+---------------------+---------¦
¦1982 ¦156,570.00 ¦94,216.54 ¦39,142.50¦
+------+------------+---------------------+---------¦
¦TOTAL ¦228,410.34 ¦169,019.24 ¦39,411.77¦
+---------------------------------------------------+
It is hereby stipulated that the following statement shows the debtor's federal income tax liabilities for 1977, 1979, 1980 and 1982:
It is further stipulated that under 11 U.S.C. section 1129(a)(9)(C) interest at 11 percent per annum is due, on the above income tax and interest, from January 11, 1989 to November 30, 1989 in the amount of $39,904.46, plus interest of $119.77 per day after November 30, 1989, until said income tax and interest to January 29, 1987 is paid. In the event that the income tax and interest to January 24, 1987 is paid before November 30, 1989, interest in the amount of $119.77 per day will be deducted for each day prior to November 30, 1989 that the income tax and interest to January 29, 1987 is paid.
It is further stipulated that the Trustee consents to the assessment of the income tax, interest and penalties.
It is further stipulated that the income tax, interest to petition date and interest under 11 U.S.C. section 1129(a)(9)(C) will be paid on November 30, 1989 to the Internal Revenue Service, or such other date as ordered by the Court.
It is further stipulated that the penalties in the amount of $39,411.77 will be allowed and paid as an unsecured claim not entitled to priority.
The bankruptcy court, in an order filed on November 28, 1989, approved the settlement agreement, confirming the priority status of the taxes and interest portion of respondent's claims, and allowing the additions portion as an unsecured claim. Subsequently, respondent assessed Mr. Kroh's tax liabilities as approved by the bankruptcy court. On November 30, 1989, the bankruptcy trustee paid the taxes and the interest on Mr. Kroh's liabilities as set forth in the settlement agreement. Neither the bankruptcy trustee nor Mr. Kroh has paid any portion of the additions to tax named in the settlement agreement.
Petitioner was not a party in her husband's bankruptcy case and did not participate in the proceedings in any way.
Petitioner filed a motion for partial summary judgment pursuant to Rule 121 on the grounds that respondent's settlement, assessment, and collection of her bankrupt husband's tax liabilities now bars respondent in these cases from proceeding against her for all, or at least a portion of, the tax deficiencies and additions to tax as determined in the deficiency notices. Petitioner also filed a motion to supplement and amend the petitions pursuant to Rule 41. Respondent filed objections to each of petitioner's motions, and a hearing was held on petitioner's motions in Kansas City, Missouri, during which petitioner submitted her proposed amendments to the petitions. At the hearing the parties were ordered to file supplemental briefs in support of their positions on the partial summary judgment motion, which they have done.
We must first decide whether to grant petitioner's motion to supplement and amend her original petitions...
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