Lardas v. Comm'r of Internal Revenue, 29363–89

• Decision Date: 22 October 1992
• Docket Number: No. 29363–89,30368–89.,29363–89
• Citation: 99 T.C. 490,99 T.C. No. 25
• Parties: John A. and Shirley R. LARDAS, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.Angelo A. and Janet M. LARDAS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

99 T.C. 490

99 T.C. No. 25

John A. and Shirley R. LARDAS, Petitioners,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.Angelo A. and Janet M. LARDAS, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 29363–89

30368–89.

United States Tax Court

Oct. 22, 1992.

Steven B. Wolf and Albert L. Grasso, for petitioners.

Marjory A. Gilbert and William T. Derick, for respondent.

OPINION

HALPERN, Judge:

Respondent, by means of several notices of deficiency, determined deficiencies in income tax, additions to tax, and increased interest, as follows:

John A. and Shirley R. Lardas--Docket No. 29363“89                                Additions to Tax and Increased Interest                               Sec.                Sec.         Sec.           Year     Deficiency         6653(a)(1)             6661        6621(c)1983       $    69,295        $  1 3,464.75       $    17,324     21985            49,043           1 2,452.15            11,603     2Angelo A. and Janet M. Lardas--Docket No. 30368“89                                Additions to Tax and Increased Interest                               Sec.                Sec.         Sec.     Sec.Year     Deficiency         6653(a)(1)             6661        6621(c)  6651(a-                                                                         )(1)1983       $    14,857        $       1 743       $     3,714     2       n/a1984            19,642                1 982             4,911     2       n/a1985            47,766              1 2,388            11,942     2       n/a1986            23,048             3 17,319        n/a            2     $4,385      1Plus 50 percent of the interest payable with respect to the entire        deficiency under sec. 6653(a)(2).                                      2     Respondent determined the entire deficiency to be a substantial        underpayment attributable to a tax-motivated transaction, for purposes        of computing interest.                                                 3     For the 1986 taxable year, sec. 6653(a)(1)(A) is applicable instead of        sec. 6653(a)(1), and respondent also determined that sec. 6653(a)(1)(B)        is applicable, which would add 50 percent of the interest payable with        respect to the entire deficiency.                                      

Unless otherwise noted, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

The sole question ¹ for our decision is whether respondent's deficiency notices are untimely with respect to 1983 and 1985 to the extent that any assessments of deficiencies resulting from the disallowance of losses from property held in trust are barred because of the expiration of the period for making assessments. More specifically, we consider whether the relevant periods for making assessments are other than those applicable to petitioners.

The parties have submitted this case fully stipulated and there is no material dispute about the facts. All petitioners had their legal residence at Newport Beach, California, at the time of the filing of the petitions herein.

At the time the notices of deficiency were mailed to each set of petitioners, the period for assessment had not expired with respect to their individual income tax returns, because petitioners had consented to an extension of such period. At that time, more than 3 years had passed since the filing of information returns on behalf of the trusts in question. The details of those ultimate findings are set forth the appendix, which is attached to this opinion and incorporated herein. During the taxable years here under consideration, the trusts in question were so-called “grantor trusts” (grantor trusts).²

Discussion

I. Introduction

Section 6501(a), in pertinent part, provides that generally “the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed”. (Emphasis added.) The parties disagree as to which return is referenced by section 6501(a), where the taxpayer challenges a deficiency attributable solely to his investment by way of a grantor trust for which an information return must be filed pursuant to section 1.671–4(a), Income Tax Regs.³ More generally, the question is whether the return referenced by section 6501(a) is that of the taxpayer or that of some “source entity” from which the taxpayer's disputed tax items derive. If the taxpayer's return is that referenced by section 6501(a), as respondent argues, then respondent will prevail, because the period for assessment had not, at the time the notices of deficiency were issued, expired as to petitioners' individual tax returns. If, however, the return referenced by section 6501(a) is that of the source entity—in this case the source entities are two grantor trusts—then petitioners argue that they should prevail, because the period for assessing those trusts had expired at the time the notices of deficiency were issued. ⁴

II. The Tax Court Position

We have held that the relevant return for determining whether, at the time a deficiency notice was issued, the period for assessment had expired under section 6501(a) “is that of petitioner against whom respondent has determined a deficiency”. Fehlhaber v. Commissioner, 94 T.C. 863, 868 (1990) (Court reviewed), affd. 954 F.2d 653 (11th Cir.1992). We have maintained that position consistently, without regard to the nature of the source entity involved. See id., Bufferd v. Commissioner, T.C.Memo. 1991–170, affd. 952 F.2d 675 (2d Cir.1992), cert. granted 505 U.S. 1203, 112 S.Ct. 2990 (1992), and Kelley v. Commissioner, T.C.Memo. 1986–405, revd. and remanded 877 F.2d 756 (9th Cir.1989) (subchapter S corporations); Siben v. Commissioner, T.C.Memo. 1990–435, affd. 930 F.2d 1034 (2d Cir.1991) (partnerships); Stahl v. Commissioner, T.C.Memo. 1990–320 and 96 T.C. 798 (1991), and Fendell v. Commissioner, 92 T.C. 708 (1989), revd. 906 F.2d 362 (8th Cir.1990) (complex trust); Bartol v. Commissioner, T.C.Memo. 1992–141 (grantor trust).

Recently, we reaffirmed our view that “ ‘the relevant return for purposes of determining the statute of limitations is the return of the taxpayer against whom the tax is sought.’ ” Bartol v. Commissioner, supra (quoting Bufferd v. Commissioner, 952 F.2d 675, 678 (2d Cir.1992), affg. T.C.Memo. 1991–170, cert. granted 505 U.S. 1203, 112 S.Ct. 2990 (1992)). After consideration, we continue to hold that view.⁵

III. Does the Golsen Doctrine Require a Different Result?

Petitioners argue that, under the doctrine of Golsen v. Commissioner, 54 T.C. 742, 756–757 (1970), affd. 445 F.2d 985 (10th Cir.1971), the Ninth Circuit's holding in Kelley v. Commissioner, 877 F.2d 756 (9th Cir.1989), revg. and remanding T.C.Memo. 1986–405, is controlling. Before reviewing the Ninth Circuit's holding in Kelley v. Commissioner, supra, we will briefly outline the history and theory underlying the Golsen doctrine.

A. Background: The Lawrence Doctrine

Prior to enunciating the Golsen doctrine, we had considered what we should do when an issue comes before us a second time: after a Court of Appeals has reversed a prior Tax Court decision on the same point. In Lawrence v. Commissioner, 27 T.C. 713, 716–717 (1957), revd. 258 F.2d 562 (9th Cir.1958), we determined that, while certainly we should seriously consider the reasoning of the reversing Court of Appeals, we ought not follow its decision if we believe it incorrect.

if still of the opinion that its original result was right, a court of national jurisdiction to avoid confusion should follow its own honest beliefs until the Supreme Court decides the point. The Tax Court early concluded that it should decide all cases as it thought right. [ Id.; fn. refs. omitted.]

We continued:

The Commissioner of Internal Revenue, who has the duty of administering the taxing statutes of the United States throughout the Nation, is required to apply these statutes uniformly, as he construes them. The Tax Court, being a tribunal with national jurisdiction over litigation involving the interpretation of Federal taxing statutes which may come to it from all parts of the country, has a similar obligation to apply with uniformity its interpretation of those statutes. That is the way it has always seen its statutory duty and, with all due respect to the Courts of Appeals, it cannot conscientiously change unless Congress or the Supreme Court so directs. [ Id. at 719–720.]

B. Criticism of Lawrence and Emergence of the Golsen Doctrine

The Lawrence doctrine has little to recommend it, however, where a case in the Tax Court is appealable to a Court of Appeals that previously has taken a position on precisely the same issue. In such a case, it would appear a virtual certainty that the nonprevailing party will appeal and secure a reversal from the Court of Appeals. In such a circumstance, the application of the Lawrence doctrine would ensure the waste of substantial resources, both of the taxpayer and of the court system, and, ultimately, achieve nothing.

Accordingly, we created, in Golsen v. Commissioner, supra, a narrow exception to the Lawrence doctrine. We there reasoned that, where a reversal would appear inevitable, due to the clearly established position of the Court of Appeals to which an appeal would lie, our obligation as a national court does not require a futile and wasteful insistence on our view.

Notwithstanding a number of the considerations which originally led us to * * * [the Tax Court's position], it is our best judgment that better judicial administration requires us to follow a Court of Appeals decision which is squarely in point where appeal from our decision lies to that Court of Appeals and to that court alone. [ Id. at 757; emphasis added; fn. refs. omitted.]

It should be emphasized that the logic behind the Golsen doctrine is not that we lack the authority to render a decision inconsistent with any ...