S-K Liquidating Co.  v. Comm'r of Internal Revenue

• Decision Date: 30 July 1975
• Docket Number: Docket No. 1798-74.
• Citation: 64 T.C. 713
• Parties: S-K LIQUIDATING CO. (FORMERLY SKAGIT CORPORATION AND SUBSIDIARY), PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

64 T.C. 713

S-K LIQUIDATING CO. (FORMERLY SKAGIT CORPORATION AND SUBSIDIARY), PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 1798-74.

United States Tax Court

Filed July 30, 1975.

James Wm. Johnston, William R. Smith, and Dwight J. Drake, for the petitioner.

Matthew W. Stanley, Jr., for the respondent.

Rule 120, Tax Court Rules of Practice and Procedure.— Held, that a Tax Court stipulated decision with respect to a deficiency determined for petitioner's failure to withhold income tax on income earned by a nonresident alien for the calendar years 1968 and 1969, under neither I.R.C. sec. 6212(c) nor the doctrine of res judicata, bars respondent from asserting another deficiency against the same petitioner for corporate income tax for its fiscal year ended Oct. 31, 1969.

OPINION

HALL, Judge:

Respondent determined a deficiency of $384,677 for S-K Liquidating Co.‘s taxable year ended October 31, 1969. This matter is before us on petitioner's preliminary motion for judgment on the pleadings pursuant to Rule 120, Tax Court Rules of Practice and Procedure. The immediate issue for resolution is whether respondent is precluded from asserting the current deficiency because of an earlier Tax Court decision which petitioner contends conclusively determined petitioner's income tax liability for the year at issue.

Petitioner S-K Liquidating Co., formerly Skagit Corp. and subsidiary (S-K), had its principal place of business in Sedro Woolley, Wash., when it filed its petition herein. Petitioner filed its corporate income tax return for its taxable year ended October 31, 1969, with the Internal Revenue Service Center in Ogden, Utah.

Respondent mailed the present notice of deficiency to S-K on December 13, 1973. It alleges that petitioner sold shares of Skagit Corp. Land Division to the Humboldt Co. for less than fair market value, and that since both petitioner and Humboldt are controlled by the same shareholders a section 482 allocation increasing S-K's income is required.

Respondent had also mailed S-K a notice of deficiency on April 7, 1972. In that earlier notice he determined that petitioner failed to comply with its withholding responsibilities under section 1441¹ for the calendar years 1968 and 1969, and that therefore petitioner was liable under section 1461 ² for the tax it had failed to withhold. S-K filed a petition with this Court in response to that earlier statutory notice, seeking a redetermination of those asserted deficiencies. The case was docketed, and thereafter the parties settled the case. The decision reflecting S-K's stipulated liability of $600 for each calendar year at issue was entered by this Court on March 15, 1973.

Petitioner alleges that respondent is precluded from successfully asserting the current deficiency on two distinct grounds, both arising from petitioner's claim that the Tax Court decision respecting failure to withhold entered March 15, 1973, conclusively determined petitioner's income tax liability for the tax year ended October 31, 1969:

(1) That respondent is prevented under section 6212(c) from issuing a second notice of deficiency. That subsection provides in part that ‘If the Secretary or his delegate has mailed to the taxpayer a notice of deficiency as provided in subsection (a), and the taxpayer files a petition with the Tax Court * * * the Secretary or his delegate shall have no right to determine any additional deficiency of income tax for the same taxable year.’ Here both deficiencies were for ‘income tax’ in that they were imposed under subtitle A (Income Tax of title 26, United States Code; in both cases petitioner is the ‘taxpayer’ entitled to file a petition in the Tax Court; and in both cases petitioner is personally liable for the tax. Moreover, the taxable year of the corporation ending October 31, 1969, is entirely within the 2 calendar years for which the first deficiency notice was issued.

(2) That the first Tax Court decision is res judicata and an absolute bar to the current deficiency.

Respondent counters petitioner's initial argument by contending that the two deficiencies herein arise from different returns, and that section 6211(a) ³ contemplates deficiencies based on a taxpayer's return. Respondent draws a distinction between deficiencies arising from a return filed in conjunction with section 11(a), which authorizes the imposition of tax on corporate income, and a deficiency arising from a return filed pursuant to a withholding agent's responsibility to withhold tax on nonresident aliens. Respondent also reasons that a withholding agent's liability for a withholding tax is conceptually separate and distinct from a corporation's tax liability on income it has earned.

Respondent, answering S-K's second argument, claims that res judicata does not apply herein because the taxes underlying the two deficiencies were based on unrelated theories and the deficiencies arose in different taxable periods.

We agree with respondent.

I

Section 6212(a) authorizes respondent, once he has determined that there is a ‘deficiency,‘ to send notice of the deficiency to the taxpayer. The term ‘deficiency’ can best be described by the following formula: Deficiency = correct tax - (tax assessed per return . proper additional assessments - rebates).⁴ Joseph T. Miller, 23 T.C. 565, 568 (1954), affd. 231 F.2d 8 (5th Cir. 1956); Morris Kurtzon, 17 T.C. 1542, 1548 (1952).

Once a taxpayer has filed his petition in the Tax Court, respondent is precluded from asserting additional notices of deficiency for the same taxable year. Sec. 6212(c). Finality was the end sought with section 6212(c). S. Rept. No. 52, 69th Cong., 1st Sess. (1926), 1939-1 C.B. (Part 2) 332, 351.

The two statutory notices of deficiency here in question are based on two separate returns, the returns cover different taxable periods, and the asserted liabilities originate from taxes enacted for different purposes.

Section 11(a) imposes a tax on taxable income earned by a corporation. The corporate income tax is based on an annual accounting period of 12 months, and t e corporation may elect either a calendar year or fiscal year. Sec. 441 and accompanying regulations. Petitioner elected a taxable year ending October 31.

Every corporation subject to taxation under subtitle A must file a return. Sec. 6012(a)(2). S-K's corporate income tax return (Form 1120) for the taxable year ended October 31, 1969, was filed with the District Director for the Internal Revenue District wherein petitioner had its principal place of business (Sedro Woolley, Wash.).

Respondent was given legislative authority to prescribe rules for filing returns by any person made liable for any tax imposed by title 26, United States Code, or for the collection thereof. Sec. 6011. Pursuant to his authority, respondent promulgated requirements for withholding tax returns. The regulations⁵ accompanying section 1461 detail the return and payment requirements for withholding agents.⁶ Returns are to be filed by withholding agents on or before March 15 for the previous calendar year. The withholding tax return (Form 1042) is filed with the Director of International Operations, Internal Revenue Service, Washington, D.C. Secs. 1.1461-2(b)(1) and 1.6091-3(g), Income Tax Regs. The different type of return and the different filing locations of the withholding tax return and the withholding agent's own income tax return emphasize the distinct nature of the two taxes and the two returns. Further, section 6212(c) refers to deficiencies ‘for the same taxable year.’ S-K filed its corporate income tax return for the fiscal year ended October 31, 1969. It was required to file withholding tax returns for the calendar years 1968 and 1969. The notices of deficiencies covered these different taxable years. ‘The jurisdiction of this Court is limited by statute to consideration of the taxable years covered by the notice of deficiency (citation omitted), and we have made it plain that such jurisdiction does not embrace any periods other than the precise ones for which the Commissioner determined deficiencies.’ Atlas Oil & Refining Corp., 22 T.C. 552, 558 (1954).

On previous occasions we have ruled that a determination of a taxpayer's earlier liability for taxes on another's income will not prevent respondent from issuing to that taxpayer a notice of deficiency for the very same taxable year for tax liability on his own income. See Edward Michael, 22 B.T.A. 639 (1931), affd. per curiam 75 F.2d (2d Cir. 1935), cert. denied 296 U.S. 579 (1935), where we concluded that the taxpayer's earlier transferee liability for 1922, sustained by the Board of Tax Appeals, did not preclude the issuance of a notice of deficiency for the taxpayer's direct liability for 1922 for taxes on income he had earned. We reasoned that ‘The two liabilities are separate and distinct, arise from different states of fact and are based upon entirely different theories. They present two distinct causes of action upon either of which it would naturally be assumed proceedings might be maintained independently.’ 22 B.T.A.at 642.

While we based our decision in that case on our conclusion that notices to transferees were not deficiency notices as defined in section 274(a)⁷ and that as a transferee petitioner was not a ‘taxpayer’ as used in section 280, ⁸ we believe that the underlying concept of that case is applicable to our facts, and that the case supports our conclusion allowing the second notice of deficiency where the first notice received by S-K applied to tax liability on income earned by another.

We recognize that as a withholding agent, petitioner is a ‘taxpayer’ for purposes of a petition to the Tax Court contesting its liability for withheld taxes. Houston Street Corp. v. Commissioner, 84 F.2d 821 (5th Cir. 1936), revg. a Memorandum Opinion of this Court; see also Enochs v. Green, 270 F.2d 558, 561 (5th Cir. 1959). However, the withholding agent is entitled to a...