Midland Mortg. Co. v. Comm'r of Internal Revenue

• Citation: 73 T.C. 902
• Decision Date: 26 February 1980
• Docket Number: Docket No. 6742-78.
• Parties: MIDLAND MORTGAGE CO., PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: United States Tax Court

73 T.C. 902

MIDLAND MORTGAGE CO., PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 6742-78.

United States Tax Court

Filed February 26, 1980.

The statutory notice of deficiency upon which this case is based is solely attributable to determined income tax deficiencies resulting from the disallowance of a tentative carryback adjustment erroneously refunded pursuant to sec. 6411, I.R.C. 1954, for the same taxable years for which the corporation filed a previous petition and for which the Tax Court entered a decision which became final before the issuance of the present notice. Held: Upon discovering the erroneous allowance of a tentative carryback adjustment under sec. 6411, respondent generally has the option to issue a notice of deficiency under sec. 6212, to bring a suit for an erroneous refund, or to assess a deficiency as if it were a mathematical error under sec. 6213(b). Fine v. Commissioner, 70 T.C. 684 (1978). Here, however, pursuant to sec. 6212(c), the prior Tax Court proceedings involving the same taxable years foreclosed the issuance of a second statutory notice of deficiency. Accordingly, the Tax Court has no jurisdiction to entertain this case because the present petition was filed in response to the issuance of an invalid statutory notice of deficiency. Timothy M. Larason and Joseph G. Shannonhouse IV, for the petitioner.

Donald W. Geerhart, for the respondent.

OPINION

DAWSON, Judge:

This case was assigned to Special Trial Judge Francis J. Cantrel for the purpose of conducting the hearing and ruling on respondent's “Motion to Determine Jurisdiction,” filed herein on November 14, 1979. After a review of the record, we agree with and adopt his opinion which is set forth below ¹

OPINION OF THE SPECIAL TRIAL JUDGE

CANTREL, Special Trial Judge:

Petitioner, a corporation organized under the laws of the State of Oklahoma, had its principal office at Midland Center, 134 Robert S. Kerr Ave., Oklahoma City, Okla., on the date its petition was filed herein.

On March 20, 1978, respondent issued the notice of deficiency upon which this case is based. In this notice, respondent determined deficiencies in petitioner's Federal income taxes for the taxable years ended July 31, 1971, and July 31, 1972, in the amounts of $28,769.60 and $4,071.60, respectively. These deficiencies are exclusively attributable to the disallowance of claimed net operating loss and investment credit carrybacks from the year ended July 31, 1974, which previously resulted in an erroneous refund from an application for a tentative carryback allowance under section 6411.² In response to this notice of deficiency, petitioner timely filed its petition for the present case with this Court on June 20, 1978. The immediate issue for resolution is whether sections 6212(c) and 6213(b) prohibit the issuance of a valid notice of deficiency to recapture a tentative carryback allowance erroneously refunded under section 6411 to years for which petitioner has previously petitioned and docketed a case in which the Tax Court has entered a final decision.³

Respondent issued a notice of deficiency to petitioner on September 13, 1974, for the taxable years ended July 31, 1967, July 31, 1970, July 31, 1971, and July 31, 1972, in which notice he determined deficiencies in petitioner's Federal income taxes for those years in the respective amounts of $27,097, $64,703, $19,140, and $17,381. This notice was petitioned and assigned docket No. 9667-74. A stipulated decision was entered on December 22, 1976, which became final on March 22, 1977. Sec. 7481 and 7483. The decision in docket No. 9667-74 contains no reference to the net operating loss and investment credit carrybacks from the year ended July 31, 1974. Nowhere did respondent expressly reserve the right to make any further assessments for the taxable years ended July 31, 1971 and 1972, in the event that the net operating loss and investment credit carrybacks should be reduced upon audit of the loss year.

On or about June 30, 1975, petitioner filed its tax return for the taxable year ended July 31, 1974, together with an application for a tentative allowance based on carrybacks of both a net operating loss and an investment credit from the taxable year ended July 31, 1974, to the taxable years ended July 31, 1971 and 1972, pursuant to section 6411(a). Shortly thereafter, respondent granted this application by payment of the amounts claimed.

Subsequent to the entry of the Court's decision in docket No. 9667-74, respondent completed an examination of petitioner's tax return for the year ended July 31, 1974. Respondent notified petitioner by letter in February 1977 of his determination that the net operating loss and investment credit carrybacks to 1971 and 1972 should be disallowed, and petitioner executed a timely consent (Form 872) extending the period of assessment for the year ended July 31, 1974, until June 30, 1978.

Respondent filed his “Motion to Determine Jurisdiction” in order to prevent a recurrence of the situation faced in Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978). In that case, the taxpayer successfully moved for special leave to file a motion to vacate a decision entered by the Tax Court more than 1 year prior to the filing of the motion on the ground that the Court lacked jurisdiction in the original proceeding. Although the motion to vacate was later denied on its merits, the Court held that there is an exception to the finality rule where no jurisdiction existed and stated, “we have jurisdiction to determine if we have jurisdiction at any time, be it before or after final decision is entered.” Brannon's of Shawnee, Inc. v. Commissioner, 71 T.C. 108, 111-112 (1978). “(Q)uestions of jurisdiction which go to the root of all subsequent action * * * and should be disposed of at the threshold * * * must be dealt with by the Tax Court, like other tribunals, on its own motion even if not raised by either party.” National Committee to Secure Justice, Etc. v. Commissioner, 27 T.C. 837, 839 (1957). Accordingly, it is appropriate for us to decide this jurisdictional question at this time.

The present deficiencies for the years ended July 31, 1971 and 1972, resulted because, upon audit of petitioner's return for the year ended July 31, 1974, respondent determined that the tentative allowance of the carryback loss and investment credit under section 6411 from the year ended 1974 to the years ended 1971 and 1972 was erroneous. The Code provisions on the tentative allowance of carryback adjustments and the manner in which any erroneous allowances are to be adjusted are specific and detailed. Section 6411(a) provides that a “taxpayer may file an application for a tentative carryback adjustment of the tax for the prior taxable year affected by a net operating loss carryback provided in section 172(b), (and) by an investment credit carryback provided in section 46(b).” Section 6411(b) contemplates that within 90 days from the filing of an application for a tentative carryback adjustment, the Internal Revenue Service will make a “limited examination of the application” and determine “the amount of the decrease in the tax attributable to such carryback upon the basis of the application and the examination.”⁴ The Code is equally explicit in stating how the Internal Revenue Service should proceed if, on audit, it finds that the tentative allowance of carryback adjustments was erroneous. Three remedies are provided: (1) Suit for erroneous refund where a refund actually has been made, sections 7405 and 6532(b); (2) assessment as a mathematical error of a deficiency for the year to which the tentative carryback adjustment was applied, section 6213(b)(2) (now sec. 6213(b)(3)); or (3) assessment pursuant to a notice of deficiency under section 6212 of any deficiency for the year to which the tentative carryback adjustment was applied.⁵ Fine v. Commissioner, 70 T.C. 684, 687-688 (1978). None of these remedies is exclusive. Fine v. Commissioner, supra; see Polachek v. Commissioner, 22 T.C. 858, 863-865 (1954) (mathematical error procedure held not to be exclusive); Neri v. Commissioner, 54 T.C. 767, 770 (1970) (suit-for-erroneous-refund procedure held not to be exclusive).

Thus, upon discovering that a tentative carryback adjustment was erroneously allowed under section 6411, respondent is generally free to pursue the third remedy, the issuance of a notice of deficiency under section 6212, as he did in the present case. See Fine v. Commissioner, supra; S-K Liquidating Co. v. Commissioner, 64 T.C. 713 (1975);⁶ Krieger v. Commissioner, 64 T.C. 214, 216 (1975); Neri v. Commissioner, supra. However, unlike these earlier cases considered by this Court, petitioner in this case previously filed a petition in response to a previous notice of deficiency issued by respondent on September 13, 1974, for the same taxable years and the same taxes and the same returns as are involved in the present notice of deficiency (issued Mar. 20, 1978) upon which this case is based.

The jurisdiction of this Court is governed by statute. Sec. 7442. In general, Tax Court jurisdiction exists only if there has been issued a valid statutory notice of deficiency (respondent's third option for an erroneous allowance of a tentative carryback adjustment) and a timely petition filed therefrom. Secs. 6212 and 6213; Rules 13 and 20, Tax Court Rules of Practice and Procedure. It is uncontroverted that petitioner timely filed a petition under section 6213(a) within 90 days after the issuance of the notice of deficiency upon which the present case is based.⁷ However, a valid petition may not be filed in the Tax Court without the issuance of a valid statutory notice of deficiency, sometimes referred to as a “ticket to the Tax Court.” Baron v. Commissioner, 71 T.C. 1028, 1034 (1979); Jones v. Commissioner, 62 T.C. 1, 2 (1974); Corbett v. Frank, 293 F.2d 501 (9th Cir. 1961).

Section 6212(a) authorizes ...