Sharpe v. Comm'r of Internal Revenue
| Decision Date | 18 October 1977 |
| Docket Number | Docket No. 10490-76. |
| Citation | 69 T.C. 19 |
| Parties | CHARLES N. SHARPE, JR., PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
On Apr. 26, 1976, petitioner filed a voluntary bankruptcy petition in the District Court. The next day he was adjudicated a bankrupt and a receiver was appointed. The first meeting of creditors was held on June 7, 1976, and the last date for filing proofs of claims was fixed at Dec. 7, 1976. Respondent mailed petitioner a notice of deficiency on Aug. 28, 1976, covering income tax deficiencies for the years 1966 through 1969 and an addition to tax under sec. 6651 (a), I.R.C. 1954, for 1969. On Nov. 22, 1976, respondent filed a proof of claim in the bankruptcy proceeding for the income tax deficiencies, but not for the addition to tax. On Nov. 30, 1976, petitioner filed his petition in the Tax Court seeking redetermination of the deficiencies and addition to tax. Respondent answered the petition on Jan. 21, 1977. Respondent made an immediate assessment under sec. 6871(a) of the deficiencies and addition to tax on Jan. 25, 1977, and filed an amended proof of claim in the bankruptcy proceeding on Jan. 27, 1977, to reflect interest on the claimed deficiencies. On Feb. 14, 1977, respondent filed a motion to dismiss this case for lack of jurisdiction and petitioner filed objections thereto. Held:
1. The Tax Court lacks jurisdiction to redetermine the income tax deficiencies. Prather v. Commissioner, 50 T.C. 445 (1968), followed on this issue.
2. The Tax Court lacks jurisdiction to redetermine the addition to tax under sec. 6651 (a), I.R.C. 1954. King v. Commissioner, 51 T.C. 851 (1969), not followed. Prather v. Commissioner, 50 T.C. 445 (1968), and Izen v. Commissioner, 64 T.C. 919 (1975), not followed on this issue. J. Glenn Hahn and David E. Bass, for the petitioners.
Jeffry L. Millward, for the respondent.
This matter is before the Court on respondent's motion to dismiss for lack of jurisdiction. Petitioner has filed objections to the motion.
We are confronted with two issues: (1) Whether this Court lacks jurisdiction under section 6871(b), Internal Revenue Code of 19541 to redetermine income tax deficiencies for prebankruptcy years where the petitioner filed a petition with the bankruptcy court prior to filing the Tax Court petition and where the Commissioner filed a timely proof of claim for the tax deficiencies in the bankruptcy proceeding; and (2) whether this Court lacks jurisdiction under section 6871(b) to redetermine an addition to tax under section 6651(a) for a prebankruptcy year where the petitioner filed a petition with the Tax Court and where the bankruptcy court has sole jurisdiction to redetermine the underlying income tax deficiency.
The pertinent facts may be summarized as follows:
On April 26, 1976, petitioner herein filed a voluntary petition in bankruptcy in the United States District Court for the Western District of Missouri. On April 27, 1976, petitioner was adjudicated a bankrupt and a receiver was appointed. On or about May 10, 1976, the District Court issued its order setting the first meeting of creditors on June 7, 1976, and thereby fixing the last date on which to file claims as December 7, 1976. Such order was served on all creditors named in the bankruptcy petition including respondent herein.
On August 28, 1976, respondent issued to petitioner a statutory notice of deficiency setting forth the following income tax deficiencies for the taxable years 1966 through 1969 and an addition to tax for the year 1969:
+--------------------------------------------------+
¦Year ¦Deficiency ¦Addition to tax Sec. 6651(a) ¦
+------+------------+------------------------------¦
¦ ¦ ¦ ¦
+------+------------+------------------------------¦
¦1966 ¦$278,589.64 ¦ ¦
+------+------------+------------------------------¦
¦1967 ¦79,556.02 ¦ ¦
+------+------------+------------------------------¦
¦1968 ¦177,411.54 ¦ ¦
+------+------------+------------------------------¦
¦1969 ¦83,662.23 ¦$8,366.22 ¦
+--------------------------------------------------+
On November 22, 1976, respondent filed a timely proof of claim in petitioner's bankruptcy proceeding, scheduling as priority items the amounts set forth above as income tax deficiencies. The addition to tax for the year 1969 was not scheduled on the proof of claim.
On November 30, 1976, a petition captioned in the name of Charles N. Sharpe, Jr., was filed with the Tax Court seeking a redetermination of the income tax deficiencies and the addition to tax for the years in issue.
On January 21, 1977, respondent filed an answer to the Tax Court petition.
On January 25, 1977, pursuant to section 6871(a) of the Code, respondent made an immediate assessment against the petitioner of income tax deficiencies for the years 1966 through 1969 and the addition to tax for 1969.
On January 27, 1977, an amended proof of claim was filed in petitioner's bankruptcy proceeding for the income taxes due and owing for the years 1966 through 1969 to reflect interest on the claimed deficiencies to April 26, 1976, and to reflect the date upon which the deficiencies were assessed. The addition to tax for the year 1969 was not scheduled on the January 27, 1977, amended proof of claim.
On January 27, 1977, Form L-296 was sent to the petitioner, in care of the trustee in petitioner's bankruptcy proceeding, advising that the income tax deficiencies and the addition to tax were being assessed under the provisions of section 6871(a) for the years 1966 through 1969. The amount of income tax deficiencies stated thereon was the same as set forth in the amended proof of claim, the initial proof of claim, and the statutory notice of deficiency. The amount of the addition to tax for the year 1969 set forth in the Form L-296 letter was the same as set forth in the statutory notice of deficiency.
On July 25, 1977, the trustee and the petitioner (bankrupt) jointly filed an objection to the respondent's proof of claim as not timely filed.
The usual procedures for the redetermination and assessment of income tax deficiencies are set forth in sections 62122 and 6213.3 These sections provide that if the Secretary or his delegate determines a deficiency, he must send notice of deficiency to the taxpayer. The taxpayer has 90 days in which to appeal that determination to the Tax Court. As a general rule, no assessment of the deficiency may be made prior to the issuance of the notice of deficiency, during the 90-day period, or, if a petition is filed, until the decision of the Tax Court becomes final.
However, in the case of a taxpayer who is adjudicated a bankrupt, section 68714 prescribes an entirely different procedure. Section 6871(a) provides that after the adjudication in bankruptcy, the Commissioner shall immediately assess any deficiency which has not theretofore been assessed. Section 6871(b) provides, in part, that no petition for redetermination of the deficiency may be filed with the Tax Court after the petitioner has been adjudicated a bankrupt in any liquidating bankruptcy proceeding.
The voluntary filing of a petition by an individual in a liquidating bankruptcy proceeding operates as an adjudication with the same force and effect as a decree of adjudication. Since this petitioner filed a voluntary petition in a liquidating bankruptcy, the provisions of section 6871 are applicable. The petition filed with the Tax Court in this case falls squarely within the prohibition of section 6871(b).
The petitioner seeks to avoid this result by arguing that the issuance of the notice of deficiency on August 28, 1976, constitutes an “election” by respondent, so that concurrent jurisdiction would lie in the bankruptcy court and in this Court. The argument is erroneous because section 6871(b) makes reference to the petition, not the notice of deficiency; the controlling language being “no petition * * * shall be filed with the Tax Court” after the filing of the petition in bankruptcy. The instant case is distinguishable from cases where concurrent jurisdiction has been found to exist, e.g., Fotochrome, Inc. v. Commissioner, 57 T.C. 842 (1972), because the petition herein postdated the petition in bankruptcy. And petitioner's reliance on King v. Commissioner, 51 T.C. 851 (1969), and Orenduff v. Commissioner, 49 T.C. 329 (1968), is clearly misplaced since in the instant case the respondent made an assessment and filed a proof of claim in the bankruptcy proceeding, while in King and Orenduff the respondent did not take such action. Thus, this petitioner has been afforded the opportunity to litigate in the bankruptcy proceeding, and the administrative inadvertence resulting in the issuance of the notice of deficiency on August 28, 1976, does not, in our judgment, provide any basis to alter the established rule that this Court is without jurisdiction to redetermine deficiencies in taxes for prebankruptcy years where the petitioner is adjudicated a bankrupt prior to the filing of a petition with the Tax Court and where a timely proof of claim for the tax deficiencies has been filed in the bankruptcy proceeding. This situation is controlled on this issue by our prior opinions in Prather v. Commissioner, 50 T.C. 445 (1968), and Izen v. Commissioner, 64 T.C. 919 (1975). It is manifestly clear under these circumstances that this Court lacks jurisdiction to redetermine the income tax deficiencies for the years 1966 through 1969.
The second issue is more complicated. We must decide whether this Court also lacks jurisdiction with respect to the addition to tax under section 6651(a) for the late filing of the petitioner's Federal income tax return for the year 1969.
In two cases, Prather v. Commissioner, supra, and Izen v. Commissioner, supra, this Court...
To continue reading
Request your trial
-
Tatum v. Comm'r of Internal Revenue
...reasons.SIMPSON, J., dissenting: This opinion was approved by the Court at the same time as it approved the opinion in Sharpe v. Commissioner, 69 T.C. 19 (1977). For the reasons set forth in my dissenting opinion in the Sharpe case, I also must dissent in this case. However, there is an add......
-
In re Sharpe
...assessments made by the IRS, but the Tax Court dismissed for lack of jurisdiction in October, 1977. Sharpe v. Commissioner of Internal Revenue, 69 T.C. 19, 1977 WL 3727 (1977). Having filed objections to the pre-petition claim, the Trustee and the Debtor filed for summary judgment in the Ba......
-
Graham v. Comm'r of Internal Revenue
...in Orenduff v. Commissioner, 49 T.C. 329 (1968), is still viable in view of the rationale of our more recent opinions in Sharpe v. Commissioner, 69 T.C. 19 (1977); Tatum v. Commissioner, 69 T.C. 81 (1977), affd. 612 F.2d 193 (5th Cir. 1980); Baron v. Commissioner, 71 T.C. 1028 (1979). Secti......
-
U.S. v. Arthur Andersen & Co.
...authority of the bankruptcy court to "determine" tax questions is concerned, the authorities cited by Good Hope, such as Sharpe v. Commissioner, 69 T.C. 19 (1977), and Tatum v. Commissioner, 69 T.C. 81 (1977), merely recognize a lack of jurisdiction in the Tax Court to decide tax questions ......