Pesch v. Comm'r of Internal Revenue
| Decision Date | 25 January 1982 |
| Docket Number | Docket Nos. 16609-79,16715-79. |
| Citation | 78 T.C. 100 |
| Parties | DONNA S. PESCH, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENTDAVID E. BRADSHAW, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
78 T.C. 100
DONNA S. PESCH, PETITIONER
v.
COMMISSIONER of INTERNAL REVENUE, RESPONDENTDAVID E. BRADSHAW, PETITIONER
v.
COMMISSIONER of INTERNAL REVENUE, RESPONDENT
Docket Nos. 16609-79
16715-79.
United States Tax Court
Filed January 25, 1982.
B sustained an NOL for 1972 and filed an application for a quick refund for 1971 under sec. 6411, I.R.C. 1954. Respondent disallowed the application but, at B's request, reconsidered it. Respondent then allowed the application and made the refund, but only after 90 days from the date on which it was originally filed. Respondent subsequently determined a deficiency for 1971 primarily attributable to the disallowance of the 1972 NOL carryback. Held, respondent may recover the quick refund through the deficiency procedures; his remedy is not limited to a suit to recover an erroneous refund. Secs. 6211(a) and (b)(2), 6411(a) and (b), I.R.C. 1954.
In 1969, P and B had net long-term capital gain of $2,002,486, taxable income of $991,472, and an ordinary income loss of $9,771. Their tax liability for that year was computed under the alternative method. In 1972, B incurred a net operating loss. He carried this loss back to 1969, but because it could not be utilized for that year, he carried it over to 1970 and 1971. In the alternative, P and B seek to reduce the amount of capital gain in 1969 by the carryback of the 1972 NOL for purposes of the second step of the computation of the alternative tax. Held, the carryback of the 1972 NOL was completely absorbed by the capital gain in 1969, and, therefore, could not be carried over to either 1970 or 1971. Secs. 172(b)(2) and 1201(b), I.R.C. 1954; United States v. Foster Lumber Co., 429 U.S. 32 (1976). Held, further, an individual is not entitled to reduce the amount of capital gain by an NOL carryback for purposes of the second step of the computation of the alternative tax. Sec. 1201(b), I.R.C. 1954.
Immediately prior to their divorce, P and B entered into a settlement agreement which allegedly provided that P would be solely liable for any deficiency for 1971 (a year for which they filed a joint return) attributable to the carryback of B's separate NOLs to that year. Held, B cannot avoid liability through the medium of an agreement to which respondent is not a party. Sec. 6013(d)(3), I.R.C. 1954.
P and B computed their tax liability for 1971 under the alternative method. Virtually all of the capital gain for that year was allegedly attributable to P. Held, B is jointly and severally liable for the entire deficiency determined for that year and not just the part thereof which is proportionate to his capital gain. Sec. 6013(d)(3), I.R.C. 1954.
The deficiency for 1971 is attributable to the disallowance of the carryback of B's NOL from 1972 and to the partial disallowance of the carryback of his NOL from 1973. P and B filed a joint return for 1971 but filed separate returns for 1972 and 1973. Held, this Court lacks jurisdiction to relieve P from liability for the deficiency for alleged equitable reasons.
Petitioners received a quick refund under sec. 6411 by reason of the carryback of their NOL from 1974 to 1971. Respondent subsequently determined a deficiency for 1971. The deficiency, however, was not attributable to that carryback. At the time the statutory notice was issued, the period of limitation on assessment for 1974 had been extended by agreement. Held, the statute of limitations does not bar assessment of the deficiency for 1971. Sec. 6501(m), I.R.C. 1954.
[78 T.C. 101]
Lynne E. McNown and Larry D. Blust, for the petitioner in docket No. 16609-79.
Steven D. Lustig, for the petitioner in docket No. 16715-79.
Lawrence C. Letkewicz and Tommy F. Thompson, for the respondent.
Petitioners, formerly husband and wife, filed separate petitions disputing the following deficiencies determined by respondent in their Federal income taxes:
+----------------------------+
¦Taxable year ¦Deficiency ¦
+---------------+------------¦
¦ ¦ ¦
+---------------+------------¦
¦1969 ¦$280 ¦
+---------------+------------¦
¦1971 ¦63,972 ¦
+----------------------------+
[78 T.C. 102]
These cases were consolidated for purposes of trial, briefing, and opinion. Respondent has conceded the deficiency for 1969. Accordingly, the issues for decision, all of which affect only 1971, are as follows:
(1) Whether a refund made pursuant to the provisions of section 6411 1 but after 90 days from the date on which the application for a tentative carryback adjustment was filed is recoverable through the deficiency procedures or whether respondent's sole remedy is by suit to recover an erroneous refund.
(2) Whether the carryback of a net operating loss by an individual is absorbed by capital gain as well as ordinary income in a year in which the tax liability for the carryback year was computed under the alternative method prescribed by section 1201(b).
(3) In the absence of ordinary income, whether an individual is entitled to reduce the amount of capital gain by a net operating loss carryback for purposes of the second step of the computation of the alternative tax under section 1201(b).
(4) Whether a taxpayer can avoid liability for a deficiency in respect of a year for which he filed a joint return through the medium of an agreement to which respondent is not a party.
(5) Whether a taxpayer who files a joint return and computes his tax liability under the alternative method is liable for the entire deficiency determined for that year or only for the part thereof which is proportionate to his capital gain.
(6) Whether this Court has jurisdiction to relieve a taxpayer from liabiliity for a deficiency attributable to the disallowance of the carryback of another taxpayer's NOLs.
(7) Whether a quick refund for 1971 by reason of a carryback of an NOL from 1974, a year for which the period of limitation on assessment has been extended by agreement, serves to
[78 T.C. 103]
extend the assessment period for 1971 when the deficiency for that year is not attributable to the carryback.
These cases were submitted fully stipulated pursuant to Rule 122.2 The stipulation of facts and joint exhibits are incorporated herein by reference. The pertinent facts are summarized below.
At the time that they filed their petitions with this Court, petitioner Donna S. Pesch (hereinafter referred to individually as Pesch) resided in Lake Forest, Ill., and petitioner David E. Bradshaw (hereinafter referred to individually as Bradshaw) resided in Glenview, Ill. During 1969 through 1974, the operative period in these cases, petitioners were married. On January 4, 1975, they were divorced.
Petitioners filed the following joint and separate Federal income tax returns 3 for the taxable years 1969 through 1974 on the indicated dates:
+------------------------------------------------------------------+
¦ ¦ ¦ ¦Separate ¦
+----+-------------------+-----------------------------------------¦
¦ ¦Joint ¦Pesch ¦Bradshaw ¦
+----+-------------------+-------------------+---------------------¦
¦Year¦Original1 ¦Amended¦Original1 ¦Amended¦Original1 ¦Amended ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦1969¦4/15/70 ¦--- ¦--- ¦--- ¦--- ¦--- ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦1970¦5/20/71 ¦--- ¦--- ¦--- ¦--- ¦--- ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦1971¦4/15/72 ¦6/15/72¦--- ¦--- ¦--- ¦--- ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦1972¦--- ¦--- ¦6/22/73 ¦2 ¦7/18/73 ¦1/2/75 ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦1973¦--- ¦--- ¦6/17/74 ¦2 ¦7/18/74 ¦1/2/75 ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦1974¦7/21/75 ¦--- ¦--- ¦--- ¦--- ¦--- ¦
+----+-----------+-------+-----------+-------+-----------+---------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
+------------------------------------------------------------------+
Petitioners' correct taxable income and correct tax liability for 1969, 1970, and 1971, before allowance of any net operating loss carrybacks or investment credit carrybacks, are as follows:
+-------------------------------------------------------+
¦Year ¦Correct taxable income ¦Correct tax liability ¦
+------+------------------------+-----------------------¦
¦ ¦ ¦ ¦
+------+------------------------+-----------------------¦
¦1969 ¦$991,472 ¦$550,613.00 ¦
+------+------------------------+-----------------------¦
¦1970 ¦15,616 ¦1 3,605.20 ¦
+------+------------------------+-----------------------¦
¦1971 ¦668,105 ¦461,768.00 ¦
+------+------------------------+-----------------------¦
¦ ¦ ¦ ¦
+-------------------------------------------------------+
[78 T.C. 104]
Petitioners' correct tax liability for 1969, before allowance of any net operating loss carrybacks or investment credit carrybacks, is computed as follows:
+------------------------------------------------+
¦ ¦1969 ¦
+---------------------------------------+--------¦
¦ ¦ ¦
+---------------------------------------+--------¦
¦Alternative tax ¦$500,622¦
+---------------------------------------+--------¦
¦Plus: Tax surcharge (10%) ¦50,062 ¦
+---------------------------------------+--------¦
¦Plus: Investment credit recapture ¦17 ¦
+---------------------------------------+--------¦
¦Total ¦550,701 ¦
+---------------------------------------+--------¦
¦Less: Investment credit ¦88 ¦
+---------------------------------------+--------¦
¦Correct tax liability before carrybacks¦550,613 ¦
+------------------------------------------------+
Petitioners' alternative tax for 1969 is computed as follows:
+-----------------------------------------------------------------------------+
¦¦(a) Correct taxable income ¦$991,472 ¦
++------------------------------------------------------------------+---------¦
¦¦(b) Less: 50% of excess of net long-term capital gain over net ¦1,001,243¦
¦¦short-term capital loss ¦ ¦...To continue reading
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