Raheja v. C.I.R., No. 82-1241

• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Writing for the Court: Before CUDAHY, COFFEY and FLAUM; CUDAHY
• Citation: 725 F.2d 64
• Parties: 84-1 USTC P 9145 Bhagwan D. RAHEJA and Krishna K. Raheja, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Docket Number: No. 82-1241
• Decision Date: 12 September 1983

Page 64

725 F.2d 64 84-1 USTC P 9145 Bhagwan D. RAHEJA and Krishna K. Raheja, Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 82-1241. United States Court of Appeals,
Seventh Circuit. Submitted Sept. 12, 1983. ^*
Decided Jan. 11, 1984.

Page 65

Bhagwan D. Raheja, pro se.

Farley P. Katz and Ann Belanger Durney, Dept. of Justice, Tax Div., Washington, D.C., for respondent-appellee.

Before CUDAHY, COFFEY and FLAUM, Circuit Judges.

CUDAHY, Circuit Judge.

Petitioners-appellants appeal pro se from the decision of the Tax Court sustaining a deficiency determination. We affirm.

I.

In 1980, the Internal Revenue Service issued a statutory notice of deficiency of $349.76 for petitioners' 1974 federal income tax return. This amount represented the net effect of adjustments for partnership distributable income and a partnership capital loss (Mrs. Raheja was a financial partner in a travel agency, Skylab Travel), and the disallowance of a portion of a home office deduction. Petitioners do not contest the correctness of these adjustments. They argue instead that the notice of deficiency should be declared null and void because petitioners were selected for audit in violation of their Fifth Amendment right of due process.

In the petition filed before the Tax Court, petitioners presented three arguments in support of their constitutional claim: their return was not selected for audit by either the Discriminant Function System (DIF) ¹ or the Taxpayer Compliance

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Measurement Program (TCMP) ² computer programs (petitioners' brief on appeal therefore identifies the audit as an illegal search in violation of the Fourth Amendment); petitioners were not notified in advance in writing that their return was selected for audit; and petitioners were subjected to "personal vendetta and discrimination" by the IRS. Only the first two issues were pursued before the Tax Court, and both were rejected by Judge Fay. On appeal, petitioners continue to argue that they had a right to be selected by computer for audit, and should have received advance notification of the audit. Much of petitioners' brief, however, is devoted to the argument that the audit was based on evidence illegally obtained through "outrageous and malicious conduct" by IRS personnel. The brief requests $500,000 punitive damages as well.

Aside from the home office deduction question, petitioners' problems with the IRS apparently arose because of their association with Skylab Travel. According to the Rahejas, the managing partner of Skylab converted partnership assets to personal use, and refused to provide the Rahejas with the partnership financial information necessary for completing their 1974 tax return. The Rahejas therefore requested an extension of time for filing the 1974 return (due April 15, 1975) until October 15, 1975; the earliest document in the record is an August 15, 1975 letter to the IRS expressing thanks for the extension. In this and several subsequent letters to the IRS, the Rahejas urged the IRS to investigate the managing partner of Skylab. The Rahejas assert that an audit of Skylab did eventually take place.

A May 1976 IRS "Referral Report to Audit" form states that the Rahejas had "been contacted several times with no success in securing returns" for 1974 and 1975. ³ This is the only indication in the record of acrimony between petitioners and the IRS. ⁴ The two returns were finally filed in August 1977 along with a letter describing continuing difficulties with Skylab, and promising an amended return when the partnership information became available. An amended return was filed in April of 1978, and included a tax payment reflecting the Skylab income. The audit initiated in 1976 apparently continued, and resulted in the notice of deficiency issued May 22, 1980. Although the notice refers to Skylab and home office information not reflected on the original return, it appears that the $349.76 deficiency assessed reflects only the home office deduction change, the tax attributable to Skylab having been paid in 1978.

II.

As a general rule, the Tax Court will not look behind the notice of deficiency to examine the evidence used or the propriety of the Commissioner's motives or of his administrative policy or procedure in making his determinations. Proesel v. Commissioner, 73 T.C. 600, 605 (1979); Greenberg's Express v. Commissioner, 62 T.C. 324, 327 (1974); Suarez v. Commissioner, 58 T.C. 792, 813 (1972). The rationale for this rule is that the Tax Court proceeding is de novo. Greenberg's Express, 62 T.C. at 328.

An exception to the rule against "looking behind"...