U.S. Auto Sales, Inc. v. Comm'r
| Decision Date | 28 October 2019 |
| Docket Number | Docket No. 20050-12.,153 T.C. No. 5 |
| Parties | U.S. AUTO SALES, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
R issued to P an 11-page document purporting to be a notice of deficiency, dated May 15, 2012 (May notice), for P's taxable years ending (TYE) June 30, 2003 and 2007, wherein R purportedly determined deficiencies of $24,480 and $30,668, respectively. The first four pages of the May notice identify P as the taxpayer, while the last seven pages identify a separate corporation, related to P, as the taxpayer. On Aug. 10, 2012, P timely petitioned this Court with respect to the May notice.
R issued to P a second notice of deficiency, dated Aug. 2, 2012 (August notice), for TYE June 30, 2007 and 2008, wherein R determined income tax deficiencies of $3,371,690 and $2,995,911, respectively, and penalties under I.R.C. sec. 6662. On Sept. 13, 2012, P timely petitioned this Court at docket No. 22908-12 with respect to the August notice.
R has moved to dismiss this case for lack of jurisdiction. R contends that the May notice failed to identify a particular taxpayer as responsible for the deficiencies determined therein. P objects, stating that the May notice made a deficiency determination and identified years and amounts at issue and thus is valid to confer jurisdiction on this Court.
Held: Under this Court's Opinion in Dees v. Commissioner, 148 T.C. 1 (2017), the May notice is ambiguous on its face because it identifies two taxpayers as potentially liable for the deficiencies determined therein.
Held, further, under Dees P must prove that the May notice reflects a determination as to P. P has failed to prove that the May notice reflects a determination as to P; and copies of P's returns introduced by R establish that the May notice does not reflect a determination as to P.
Held, further, the May notice is invalid because it does not reflect a deficiency determination as to P.
Joseph C. Mandarino, Anthony J. Rollins, and John Phillip Tyler, for petitioner.
Anita Goklaney, Carolyn L. Rountree, and Gwendolyn C. Walker, for respondent.
MARVEL, Judge: This case is before the Court on respondent's motion to dismiss for lack of jurisdiction. The issue presented by respondent's motion is whether the notice of deficiency underlying this case is invalid because it does not reflect that respondent made a deficiency determination as to petitioner within the meaning of section 6212(a).1
Petitioner is a corporation whose principal place of business was in Georgia when it petitioned the Court. Petitioner and U.S. Auto Finance, Inc. (U.S. Auto Finance), are related entities which share a mailing address and are represented by the same counsel. Petitioner and U.S. Auto Finance filed separate income tax returns for taxable years ending (TYE) June 30, 2003, 2007, and 2008.
On May 15, 2012, respondent issued a set of documents purporting to be a notice of deficiency (May notice). The May notice encompasses: (1) a cover letter dated May 15, 2012, addressed to petitioner and stating that respondent determined deficiencies in petitioner's Federal income tax accounts of $24,480 and $30,668 for TYE June 30, 2003 and 2007, respectively; (2) a Form 4089, Notice of Deficiency--Waiver, also addressed to petitioner, listing identical deficiencies for TYE June 30, 2003 and 2007, and no deficiency for TYE June 30, 2008; (3) a Form 5278, Statement--Income Tax Changes, showing U.S. AutoFinance, not petitioner, as the taxpayer and stating the same deficiencies for TYE June 30, 2003 and 2007, and zero deficiency for TYE June 30, 2008; and (4) a Form 886-A, Explanation of Adjustments, showing U.S. Auto Finance as the taxpayer and purporting to explain the adjustments shown on the Form 5278. The Form 886-A within the May notice states that respondent disallowed part of U.S. Auto Finance's claimed $748,314 and $1,063,792 deductions for rent expense for TYE June 30, 2007 and 2008, respectively.2
On August 2, 2012, respondent issued to petitioner a second purported notice of deficiency (August notice). The August notice determines the following deficiencies3 and section 6662(a) penalties:
| TYE 6/30 |
| Deficiency |
| Penalty |
| sec. 6662(a) |
| 2007 |
| $3,371,690 |
| $674,338 |
| 2008 |
| 2,995,911 |
| 599,182 |
On August 10, 2012, eight days after respondent had mailed the August notice to petitioner, petitioner timely filed a petition with respect to the May notice. In that petition, petitioner admitted that proposed deficiencies "on their face are applicable to U.S. Auto Finance Inc., a separate and distinct corporation." Petitioner alleged that the May notice was erroneous, arbitrary and capricious, and that respondent should bear the burden of proof as to all items. On September 13, 2012, petitioner filed a petition from the August notice at docket No. 22908-12.
Respondent moved to dismiss this case for lack of jurisdiction, alleging that the May notice is invalid because respondent failed to make a determination as to petitioner as required by section 6212(a). Petitioner filed an opposition to respondent's motion in which petitioner contended that the May notice is valid because it identifies petitioner in its opening pages and sets forth deficiencies for two tax years.4 We subsequently held a hearing on the motion, at whichrespondent's counsel provided copies of petitioner's Forms 1120, U.S. Corporation Income Tax Return, for TYE June 30, 2007 and 2008. The returns respondent introduced, as well as petitioner's concessions in its petition and in its briefing, establish that the determination in the May notice did not relate to petitioner.5
On February 2, 2017, this Court issued its Opinion in Dees v. Commissioner, 148 T.C. 1 (2017), clarifying the standard we apply when determining whether an ambiguous notice of deficiency is valid. We subsequently ordered the parties to file memoranda of law discussing the impact of Dees on the pending motion to dismiss for lack of jurisdiction, and both parties filed supplemental memoranda in support of their positions.
This Court is a court of limited jurisdiction, and it exercises its jurisdiction only as explicitly authorized by statute. See Naftel v. Commissioner, 85 T.C. 527, 529 (1985). In a deficiency case, this Court's jurisdiction requires a valid notice of deficiency and a timely petition, see sec. 6213; Rule 13(a), (c), and this Court has jurisdiction to determine its jurisdiction, see LG Kendrick, LLC v. Commissioner, 146 T.C. 17, 27 (2016), aff'd, 684 F. App'x 744 (10th Cir. 2017). There is no dispute that petitioner filed a timely petition, so the only issue before this Court is whether the May notice is valid and confers jurisdiction.
Section 6212(a) authorizes the issuance of a notice of deficiency "to the taxpayer" when the Commissioner determines a deficiency as to that taxpayer. No particular form is required, and this Court considers the set of documents making up the notice as a whole. See Dees v. Commissioner, 148 T.C. at 4 (citing Saint Paul Bottling Co. v. Commissioner, 34 T.C. 1137, 1138 (1960)). This Court's recent reviewed Opinion in Dees sets forth the framework we apply when determining the validity of an ambiguous notice of deficiency.
Under the Dees analytical framework, we apply a two-part test. First, we determine whether, on an objective basis, a purported notice would inform a reasonable taxpayer that the Commissioner had determined a deficiency as to that taxpayer. (Dees step 1.) Dees v. Commissioner, 148 T.C. at 6. If the notice does so unequivocally, "our inquiry ends there; the notice is valid." Id. But if a notice is ambiguous, the party seeking to invoke our jurisdiction must establish both that: (1) "the Commissioner made a determination" as to the taxpayer and (2) "the taxpayer was not misled by the ambiguous notice." (Dees step 2.) Id. Failure to meet either test results in a conclusion that the notice is invalid. Id.
Under Dees step 2, we may consider evidence from outside the four corners of the purported notice to establish whether the Commissioner made a taxpayer-specific determination. Ordinarily, we presume that the Commissioner made a taxpayer-specific determination if "[t]here is no indication in * * * [the notice] that * * * [the Commissioner] failed to consider information that related to * * * [the taxpayer]." (Campbell presumption.) Campbell v. Commissioner, 90 T.C. 110, 113 (1988); see also Dees v. Commissioner, 148 T.C. at 6-7 (quoting Campbell v. Commissioner, 90 T.C. at 113). A party may then rebut the Campbell presumption with extrinsic evidence, including tax returns. Dees v. Commissioner, 148 T.C. at 6-7;6 Campbell v. Commissioner, 90 T.C. at 112-113; accord Morrison v. Amway Corp., 323 F.3d 920, 924 n.5 (11th Cir. 2003).
We start our inquiry by asking whether the May notice, on its face, would unambiguously "put a reasonable taxpayer on notice that the Commissioner determined a deficiency in tax for a particular year and amount." Dees v. Commissioner, 148 T.C. at 6. To do so, the May notice must "advise the person who is to pay the deficiency that the Commissioner means to assess him". Id. ().
We conclude that the May notice is ambiguous. Though the May notice is consistent throughout as to the amounts of the deficiencies and the years at issue, it is fatally inconsistent as to the identity of the taxpayer against whom the deficiencies are determined. The cover letter and the Form 4089 identify petitioner, while the Form 5278 statement of changes and the Form 886-A explanation of changes identify U.S. Auto Finance, a related but separate entity, asthe taxpayer. Although the documents making up the May notice indicate that a determination has been made, it is not possible to...
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