Phillips Petroleum Co. v. Comm'r of Internal Revenue

• Decision Date: 04 May 1989
• Docket Number: Docket No. 34019-87.
• Citation: 92 T.C. No. 55,92 T.C. 885
• Parties: PHILLIPS PETROLEUM COMPANY AND AFFILIATED SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

92 T.C. 885

92 T.C. No. 55

PHILLIPS PETROLEUM COMPANY AND AFFILIATED SUBSIDIARIES, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 34019-87.

United States Tax Court

Filed May 4, 1989.

Respondent determined in his notice of deficiency that petitioner was not entitled to a claimed deduction for insurance premiums. Petitioner had previously paid Federal excise taxes under sec. 4371, I.R.C. 1954, on the payments, having claimed the deductions with respect to an insurance policy issued by a foreign insurer. In its petition, petitioner claimed an offset against the deficiencies for Federal excise taxes paid.

HELD: This Court lacks jurisdiction to consider (1) whether petitioner is entitled to an overpayment of sec. 4371, I.R.C. 1954, excise taxes and (2) petitioner's claim under the doctrine of equitable recoupment. Thus, we cannot consider whether there should be an offset of sec. 4371, I.R.C. 1954, excise tax paid against the deficiency.

HELD FURTHER: Respondent's motion to dismiss for lack of jurisdiction and to strike petitioner's claim with respect to excise taxes is granted. Stephen D. Gardner and Ann E. Purintun, for the petitioner.

Val J. Albright, for the respondent.

OPINION

SCOTT, JUDGE:

This case was heard by Special Trial Judge Peter J. Panuthos pursuant to the provisions of section 7443A of the Code.¹ The Court agrees with and adopts the Special Trial Judge's opinion, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, SPECIAL TRIAL JUDGE:

This case came before the Court on respondent's Motion to Dismiss for Lack of Jurisdiction and to Strike as to Petitioner's Claim for Refund, Credit or Offset of Federal Excise Taxes Allegedly paid Pursuant to I.R.C. Section 4371. The issue presented by respondent's motion is whether petitioner is entitled to offset section 4371 excise taxes paid against a deficiency in Federal income tax. The deficiency arose from the disallowance of deductions for insurance expense claimed for insurance premiums on which petitioner had previously paid excise taxes under section 4371.²

In his notice of deficiency, dated July 20, 1987, respondent determined deficiencies in income tax for the taxable years 1975 through 1978 as follows:

+-------------------+
                ¦Year¦Deficiency    ¦
                +----+--------------¦
                ¦1975¦$3,842,229.12 ¦
                +----+--------------¦
                ¦1976¦14,706,626.78 ¦
                +----+--------------¦
                ¦1977¦31,148,144.82 ¦
                +----+--------------¦
                ¦1978¦45,755,365.67 ¦
                +-------------------+
                

Petitioner timely filed its petition. At the time the petition was filed, petitioner's principal office was in Bartlesville, Oklahoma.

On its Federal income tax returns for the years in issue, petitioner claimed deductions for amounts paid to Walton Insurance Limited (Walton), its wholly owned foreign subsidiary, as insurance expenses. Petitioner paid excise taxes under section 4371 on the amounts paid to Walton as insurance premiums. In his notice of deficiency, respondent disallowed the claimed deductions, determining that the amounts were not paid for insurance.

Paragraph 5.G. of the petition states:

The Commissioner erroneously failed to offset against the deficiencies in income tax as determined by him federal excise tax payments on insurance premiums paid to Walton Insurance Limited for the taxable years 1975, 1976, 1977 and 1978.

In paragraph 6.G., petitioner states:

(i) During the taxable years 1975, 1976, 1977 and 1978, pursuant to section 4731 of the Internal Revenue Code, federal excise taxes in the amounts of $200,014.88, $145,167.75, $164,808.00 and $175,268.02, respectively, were paid by Phillips and its affiliates with respect to insurance premiums paid to Walton; and

(ii) If the Commissioner's positions with respect to the issues described in subparagraphs A. through F. of paragraph 5. above are sustained in whole or in part, any resulting deficiencies must be reduced by the amount of such excise taxes paid to the Commissioner.

(iii) The Commissioner has failed to provide for such offset in his Notice of Deficiency.

In his motion to dismiss for lack of jurisdiction and to strike, respondent argues that section 4371 appears in chapter 34 of the Code, and that the deficiency notice procedures provided by section 6212 do not apply to the excise tax imposed by section 4371. Respondent further contends that the deficiency notice did not determine a deficiency in excise taxes, and that petitioner is, in effect, claiming an overpayment of the excise tax imposed by section 4371.

Petitioner argues that it has not claimed an overpayment of section 4371 excise taxes, but simply seeks a determination of its income tax liability. According to petitioner, the deductions for insurance premiums were properly claimed. Petitioner argues, however, that if the premiums were not paid for insurance, then its income tax must be reduced by the amount of section 4371 excise tax paid with respect to the disallowed premiums under the doctrine of equitable recoupment. Petitioner also argues that respondent is bound by his ruling in Priv. Ltr. Rul. 8552005 (Aug. 29, 1985), although it was issued to another taxpayer. The ruling held that the taxpayer was entitled to file a claim for refund of income tax under the doctrine of equitable recoupment to the extent of a barred overpayment of excise tax paid pursuant to section 4371 after deductions claimed for insurance expense were disallowed.

This Court has repeatedly stated that its jurisdiction is strictly limited by statute and that it is without authority to enlarge upon that statutory grant of jurisdiction. Estate of Meyer v. Commissioner, 84 T.C. 560 (1985); Estate of Young v. Commissioner, 81 T.C. 879, 881 (1983); Medeiros v. Commissioner, 77 T.C. 1255, 1259 (1981); Breman v. Commissioner, 66 T.C. 61, 66 (1976). We may therefore exercise jurisdiction only to the extent expressly provided by Congress.

Sections 7442 and 6213 confer jurisdiction on the Tax Court to redetermine deficiencies in income, estate and gift and certain excise taxes. Our jurisdiction is dependent upon the issuance of a notice of deficiency. Secs. 6211-6214. Notices of deficiency are to be issued with respect to deficiencies determined in taxes imposed by subtitle A (income and excess profits taxes), subtitle B (estate and gift taxes), and chapters 41, 42, 43, 44 and 45 (certain excise taxes, not including the excise tax imposed by section 4371 of chapter 34). Sec. 6212.

In addition, there are other limited circumstances where the Internal Revenue Code grants jurisdiction to this Court. For example, the Court is authorized to enter declaratory judgments with respect to certain specific matters. See secs. 7428, 7476, and 7478. The Court also has jurisdiction in cases commenced by a notice of liability as a transferee or fiduciary and disclosure actions. See secs. 6901 and 6110 and Rules 13, 210(c), and 220(c). Finally, we have jurisdiction in actions for readjustment or adjustment of partnership items. See secs. 6226 and 6228 and Rule 240. Nowhere is it provided, however, that we have jurisdiction to determine a deficiency or overpayment of the excise tax imposed by section 4371 of chapter 34.

Even though petitioner argues that it does not seek an overpayment of section 4371 excise taxes in this proceeding, it in effect asks that we determine overpayments of section 4371 excise taxes and redetermine deficiencies in its Federal income tax with reference to the overpayments of section 4371 excise taxes. The Tax Court's jurisdiction to determine an overpayment is prescribed by section 6512(b)(1).³ As provided in section 6512(b)(1), this Court's jurisdiction to determine an overpayment parallels its jurisdiction to redetermine a deficiency. Thus, we may determine overpayments only of income tax, gift tax, estate tax, or the excise taxes imposed by chapters 41, 42, 43, 44, and 45, and we may not determine an overpayment of the excise tax imposed by section 4371, as petitioner effectively requests that we do.

Nevertheless, petitioner maintains it is entitled to an offset for the excise taxes paid under section 4371 under the doctrine of equitable recoupment; otherwise, it contends, it will be subjected to a ‘double‘ tax. The doctrine of equitable recoupment allows the Government to offset a correct tax which cannot now be imposed against the refund of a tax erroneously collected, or permits a taxpayer to offset a tax collected under an incorrect theory against a tax that was properly imposed.

Numerous cases hold that the Tax Court is without jurisdiction to apply the doctrine of equitable recoupment. See, e.g., Commissioner v. McCoy, 484 U.S. 3 (1987); Commissioner v. Gooch Milling & Elevator Co., 320 U.S. 418 (1943); Continental Equities, Inc. v. Commissioner, 551 F.2d 74 (5th Cir. 1977), affg. on this issue and revg. on another issue a Memorandum Opinion of this Court; Estate of Van Winkle v. Commissioner, 51 T.C. 994 (1969). Although petitioner distinguished several such cases factually, they are all grounded on the Tax Court's lack of general equitable jurisdiction. In Gooch Milling & Elevator Co., the Supreme Court held that the Tax Court was without jurisdiction to apply the doctrine of equitable recoupment because to do so would have required the Tax Court to determine an overpayment in a year not before it, a determination beyond the scope of its statutory authority. See also Commissioner v. McCoy, supra. Here, application of the doctrine of equitable recoupment would require us to determine that...