Naftel v. Comm'r of Internal Revenue

• Citation: 85 T.C. 527,85 T.C. No. 30
• Decision Date: 30 September 1985
• Docket Number: Docket No. 28089-82.
• Parties: DONALD A. NAFTEL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: United States Tax Court

85 T.C. 527

85 T.C. No. 30

DONALD A. NAFTEL, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 28089-82.

United States Tax Court.

Filed September 30, 1985.

In his pleadings, P alleged that refund checks issued by R and due to P were misappropriated by P's attorney. R's deficiency computation takes into account the refunds issued to P. P argues that the deficiency should be reduced to the extent that refund checks were issued to him but never received by him. R filed a motion for partial summary judgment on the premise that the Court does not have jurisdiction to consider the question of whether the amount of the deficiency should reflect refunds issued by R and not received by P. HELD, it is within the Court's jurisdiction to consider the question of whether P should be credited with refunds issued by R in determination of a deficiency or overpayment. Accordingly, R's Motion for Partial Summary Judgment is denied. JOSEPH F. MOORE and JONATHAN B. COLE, for the petitioner.

DARREN M. LARSON, for the respondent.

OPINION

PANUTHOS, SPECIAL TRIAL JUDGE ¹:

This case is before the Court on respondent's Motion for Partial Summary Judgment filed pursuant to Rule 121. ² By his motion ³, respondent seeks a determination that this Court does not have jurisdiction to consider petitioner's contention that the deficiency determined against him should be credited to the extent of refund checks issued by respondent but not received by petitioner. For each of the years at issue petitioner claims that any refund check issued to him was cashed over his forged endorsement by his former attorney, Charles Berg. Respondent issued a statutory notice of deficiency on September 3, 1982. The notice determined deficiencies against petitioner as follows:

+----------------+
                ¦Year¦Deficiency ¦
                +----+-----------¦
                ¦1976¦$539       ¦
                +----+-----------¦
                ¦1977¦718        ¦
                +----+-----------¦
                ¦1978¦4,098      ¦
                +----+-----------¦
                ¦1979¦4,155      ¦
                +----+-----------¦
                ¦1980¦2,397      ¦
                +----------------+
                

In his notice of deficiency respondent determined that petitioner was not entitled to claimed investment credits and losses generated by a limited partnership known as Vandenburg Company. ⁴ The limited partnership was created to acquire and distribute master recordings. ⁵

Petitioner became a limited partner on the advice of his attorney, Charles Berg. At the time he became involved with the partnership, petitioner believed his participation would enable him to generate enough losses and credits in his first year so that he would receive refunds of taxes withheld and paid in previous years. Petitioner's tax returns for the years 1978, 1979, and 1980 were prepared by Berg, or persons connected with his office, and the address shown on the forms was attorney Charles Berg's address. The application for Tentative Refund (Form 1045) sought to carryback unused investment credits from the year 1979 to the years 1976, 1977 and 1978. The 1979 and 1980 Federal income tax returns claimed losses from Vandenburg Productions. Thus petitioner claimed overpayments for which respondent issued refund checks.

Petitioner never received some or all of the refund checks which he expected as a result of his participation in the limited partnership. Despite repeated attempts, petitioner was unsuccessful in receiving his refunds. Petitioner claims that Berg fraudulently endorsed and negotiated the refund checks and misappropriated the proceeds of the checks. ⁶

Rule 121 provides that a party may move for summary judgment upon all or any part of the legal issues in controversy so long as there is no genuine issue of material fact. ⁷ Rule 121(b) provides that ‘a decision shall * * * be rendered if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials * * * show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.‘ The Rule further provides that ‘partial summary adjudication may be made which does not dispose of all issues in the case. ‘ Elkins v. Commissioner, 81 T.C. 669, 674 (1983). The burden of proving that there is no genuine issue of material fact is on the moving party. Take v. Commissioner, 82 T.C. 630, 633 (1984); Graf v. Commissioner, 80 T.C. 944, 946 (1983); Espinoza v. Commissioner, 78 T.C. 412, 416 (1982). Therefore, respondent must prove that the Tax Court lacks jurisdiction to consider the question of petitioner's missing refund checks.

In addition, we must view the factual materials and inferences drawn therefrom in the light most favorable to the party opposing the motion. Estate of Gardner v. Commissioner, 82 T.C. 989, 990 (1984); Elkins v. Commissioner, supra; Jacklin v. Commissioner, 79 T.C. 340, 344 (1982). As a result, the facts set forth herein are taken from petitioner's pleadings, both admitted and denied, and from the petitioner's and attorney's affidavits in opposition to respondent's motion. The facts are viewed in the terms most favorable to petitioner. Estate of Gardner v. Commissioner, supra.

It is well settled that the Tax Court is a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent authorized by Congress. Section 7442; ⁸ Commissioner v. Gooch Milling & Elevator Co., 320 U.S. 418 (1943); Kluger v. Commissioner, 83 T.C. 309, 314 (1984); Medeiros v. Commissioner, 77 T.C. 1255, 1259 (1981). It is equally true that, generally, once a petitioner invokes the jurisdiction of the Court, jurisdiction lies with the Court and remains unimpaired until the Court has decided the controversy. Dorl v. Commissioner, 57 T.C. 720, 722 (1972), affd. 507 F.2d 406 (2d Cir. 1974). ⁹

The question of the Court's jurisdiction is fundamental and must be addressed when raised by a party or on the Court's own motion. See Estate of Young v. Commissioner, 81 T.C. 879, 880-881 (1983); Midland Mortgage Co. v. Commissioner, 73 T.C. 902, 905 (1980); Intervest Enterprises, Inc. v. Commissioner, 59 T.C. 91, 94 (1972); Goldstein v. Commissioner, 22 T.C. 1233, 1236 (1954). ¹⁰ If we find that we do not properly have jurisdiction to consider an issue, then despite a party's choice of the Tax Court as a forum to settle the dispute, we may not decide the issue. Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177, 179 (1960); Shelton v. Commissioner, 63 T.C. 193 (1974); Herbert Brush Manufacturing Co. v. Commissioner, 22 B.T.A. 646, 647 (1931).

In general, Tax Court jurisdiction exists only if a valid statutory notice of deficiency has been issued by the Commissioner and a timely petition has been filed therefrom. Sections 6212 and 6213; Rules 13 and 20; Midland Mortgage Co. v. Commissioner, supra at 907. ¹¹ It is not the actual existence of a deficiency on which the Court's jurisdiction is based, rather it is the Commissioner's determination of a deficiency which provides the basis for our jurisdiction. Hannan v. Commissioner, 52 T.C. 787, 791 (1969); Intervest Enterprises, Inc. v. Commissioner, supra at 95.

A deficiency is generally defined as an amount by which the income, gift, or estate tax due under the law exceeds the amount of such tax shown on the return. Section 6211; ¹² Bregin v. Commissioner, 74 T.C. 1097, 1102 (1980). A deficiency is neither a theory nor an intangible concept. Veeder v. Commissioner, 36 F.2d 342, 343 (7th Cir. 1929). ¹³ An instance in which the issuance of a statutory notice of deficiency does not confer jurisdiction on the Court occurs when a notice of deficiency is erroneously issued after payment of the tax. Bendheim v. Commissioner, 214 F.2d 26, 28 (2d Cir. 1954); Anderson v. Commissioner, 11 T.C. 841, 843 (1948). ¹⁴

We have jurisdiction to decide not only whether the Commissioner's determination of a deficiency was correct, but also whether a taxpayer's claim that he has overpaid is correct. Russell v. United States, 592 F.2d 1069, 1071 (9th Cir. 1979); Estate of Parshelsky v. Commissioner, 303 F.2d 14, 22 (2d Cir. 1962). Section 6512(b)(1) gives the Court jurisdiction to determine an overpayment. ¹⁵ Respondent argues that because Congress has developed a separate statutory scheme for recovery of stolen or forged refund checks, the Court cannot consider petitioner's claim of overpayment, even though excess withholding credits are included in the definition of an overpayment ¹⁶ and even though the Court has jurisdiction to determine an overpayment. We do not agree that our jurisdiction is barred by this separate statutory scheme.

In determining the amount of an overpayment for the year in which the Commissioner has determined a deficiency, we may take into account payments made by a taxpayer through withholding or by payment of estimated income tax. If these payments exceed the income tax liability for the year in controversy, then an overpayment exists. Keefe v. Commissioner, 15 T.C. 947, 955-956 (1950). In fact we recently held that our jurisdiction to determine an overpayment includes the power to consider interest as part of an overpayment. Estate of Baumgardner v. Commissioner, 85 T.C. ____ (filed Sept. 11, 1985).

We have previously faced a problem similar to the one presented in the instant case. See Bolnick v. Commissioner, 44 T.C. 245 (1965). In Bolnick, we held that we would consider the amount claimed by taxpayers on their return as an overpayment, despite the fact that respondent's records indicated a refund check had been issued. In that case, taxpayers maintained that they never received a refund of $778.90 for the taxable year for which respondent had determined a deficiency. We received evidence on the issue and ultimately concluded that there was an overpayment. For our purposes, the important fact is not that the Court decided that taxpayers had made an overpayment; instead, what is significant is the fact that the Court considered taxpayers' claim. ¹⁷ In reaching this conclusion we stated that:

Our jurisdiction is precisely circumscribed by ...