United States v. Beane

Decision Date23 November 2016
Docket NumberNo. 15-15444,15-15444
Citation841 F.3d 1273
Parties United States of America, Plaintiff–Appellant, v. Alan Francis Beane, Defendant–Appellee.
CourtU.S. Court of Appeals — Eleventh Circuit

Douglas Campbell Rennie, Teresa E. McLaughlin, U.S. Department of Justice, Chief Appellate Section Tax Division, Washington, DC, Arthur Lee Bentley, III, U.S. Attorney's Office, Tampa, FL, for PlaintiffAppellant.

William S. Gannon, William S. Gannon, PLLC, Manchester, NH, Christian B. Felden, Felden & Felden, Jacksonville, NC, for DefendantAppellee.

Before TJOFLAT and HULL, Circuit Judges, and MENDOZA,* District Judge.

HULL

, Circuit Judge:

Pursuant to a certification of direct appeal and an order of this Court, the government directly appeals the decision of the Bankruptcy Court regarding the interest due from Alan Francis Beane for the taxable year 1998. The government claims a prior Tax Court decision never addressed the interest issue. The government also disputes how and when interest on Beane's 1998 tax deficiency should be calculated. To understand the interest issue, we must recount in detail the procedural history of the case.

I. BACKGROUND
A. 2002 Notice of Deficiency

On May 9, 2002, the United States Internal Revenue Service (“IRS”) issued a Notice of Deficiency for 1998 and 1999 to Beane. The notice set out Beane's 1998 federal income tax deficiency in the amount of $3,080,430. This deficiency amount is the difference between the tax due on Beane's taxable income for 1998 and the tax he reported on the return filed for that year.1 On April 4, 2005, Beane filed a petition with the United States Tax Court to contest the Notice of Deficiency for 1998.

B. 2006 Bankruptcy Petition

On October 19, 2006, Beane filed a voluntary petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Middle District of Florida. On November 14, 2006, the IRS filed a Motion for Relief from the Automatic Stay. The Bankruptcy Court granted the Motion and allowed the IRS to continue the Tax Court proceeding against Beane.

C. June 25, 2009 Tax Court Decision

The case before the Tax Court involved the IRS's aforementioned notice of a tax deficiency sent to Beane regarding his 1998 federal income tax return. On June 25, 2009, the Tax Court entered a Memorandum Findings of Fact and Opinion in the case of Beane v. Commissioner of Internal Revenue, No. 6529–05. Beane v. Comm'r, 97 T.C.M. (CCH) 1846 (T.C. 2009)

. This Memorandum Opinion aimed to resolve multiple issues related to Beane's 1998 tax deficiency and directed the parties to file computations of Beane's deficiency pursuant to the Tax Court's determination of the issues therein. The issue before the Tax Court relevant to this appeal was “the extent to which, if at all, [Beane's tax] deficiency for 1998 may be reduced or an overpayment may be determined as a result of,” among other things, loss carrybacks from subsequent years.2 The government conceded that the amount owed by Beane for 1998 should be reduced by loss carrybacks.

The Tax Court noted that, under 26 U.S.C. § 6214(b)

, its jurisdiction to determine whether there has been an overpayment is limited to the year for which the notice of a deficiency was issued, which was 1998. As a result, the Tax Court had “no jurisdiction in this case to redetermine the amount of the overpayment for 1999 or to determine the accrued interest on that overpayment, notwithstanding [Beane's] insistence that he is entitled to offset those amounts against the admitted deficiency for 1998.”3 Because of the Tax Court's limited jurisdiction, [t]he amount ultimately due to or from [Beane] will not be known until the decision is entered in this [Tax Court] case and the correct deficiency for 1998 is assessed. [Beane's] account will then reflect adjustments that have been made or agreed upon for other years.”

The Tax Court determined that “the amount to be included in [its final] decision will reflect the tax due for 1998 on the corrected income that [Beane] received during that year, reduced by the loss carryovers from other years and other income, deduction, and credit adjustments” and that [t]he tax due will reflect prior payments [Beane] remitted with his return for 1998.”4 Notably, the Tax Court determined the amount of Beane's income for 1998 and the amount of taxes due on that income. The Tax Court, however, did not determine the interest due resulting from Beane's underpayment of the ultimate amount of the 1998 tax deficiency.

D. September 9, 2009 Tax Court Decision

On September 9, 2009, following the preparation of computations by both parties, the Tax Court entered its Order and Decision. The Tax Court adopted the IRS's computation and determined that there was a deficiency of $1,359,361 in the federal income tax due from Beane for the year 1998. The IRS's computation included, among other things, a reduction in Beane's 1998 income resulting from his carryback of a net operating loss for the year 2000. But the IRS did not consider the net operating loss carryback to have arisen until April 15, 2001, the date that the tax year 2000 return was due. In other words, while the carryback reduced Beane's pre-existing 1998 deficiency, the carryback was not earned until 2000 and thus was not in play, or effective, until April 15, 2001. The IRS and the Tax Court calculated the reduced 1998 tax deficiency but, once again, did not calculate the interest owed by Beane for underpaying his taxes in 1998.5

E. 2011 Bankruptcy Court Decision

Following the 2009 resolution of the Tax Court case and further proceedings in Bankruptcy Court, the IRS filed an accounting of Beane's taxes with the Bankruptcy Court that purported to include a “full accounting of all transactions affecting” Beane's taxes from 1998 to 2003. The IRS's accounting credited part of Beane's 1999 tax overpayment to his 1998 tax liability, effective April 15, 2000, which ensured “the balance of Beane's 1998 tax liability would be fully paid as of April 15, 2001, when a tax year 2000 net operating loss was applied.” The accounting also credited part of Beane's 1999 tax overpayment to his 2003 tax liability effective April 15, 2004, making the balance of Beane's 2003 tax liability fully paid as of that date. Even after offsetting those liabilities, Beane's overpayment of his 1999 and 2000 taxes resulted in the government delivering checks to Beane in the amounts of $963,823.55 and $105,009.43, respectively.

Beane filed objections to the IRS's accounting of his 19982003 taxes. Beane argued that the IRS had ignored the Tax Court's determination of his 1998 tax deficiency and pushed the tax effect of his 2000 net operating loss carryback to April 16, 2001 (the day after his 2000 tax return was due).

On February 10, 2011, the Bankruptcy Court sustained Beane's objections to the government's accounting with respect to the 1998 tax deficiency. The Bankruptcy Court found that it was “bound by the Tax Court decision ... that the deficiency in federal income tax due from petitioner for the taxable year 1998 is the amount of $1,359,361.” The Bankruptcy Court noted that the IRS, of its own accord, had further reduced the 1998 tax deficiency “to $1,340,664.” The Bankruptcy Court therefore ordered the government to file another accounting of the minimum net refund due to Beane and his bankruptcy estate. As a result, the IRS refunded Beane $433,941.14 in interest for 1998, but Beane's attorney was required to keep the funds in escrow until the conclusion of any appeals.

On February 24, 2011, the government appealed the Bankruptcy Court's February 10, 2011 Order to the District Court.6

F. 2012 District Court Decision

In a July 25, 2012 Memorandum and Opinion, the District Court affirmed the Bankruptcy Court. The District Court noted that the Tax Court's decision was a final judgment as there was no post-judgment motion for reconsideration and no appeal. In re Beane, No. 2:11–CV–213, 2012 WL 3041098, at *2 (M.D. Fla. July 25, 2012)

.7 A Recomputation Specialist from the Civil Tax Division, Office of Review, Department of Justice had prepared the accounting ordered by the Bankruptcy Court. Id. The District Court discussed the declaration of that specialist and explained that the “Recomputation Specialist decided—probably correctly—that the IRS calculations adopted by the Tax Court were wrong.” Id. at *3.

The District Court determined that that Tax Court had established “the deficiency after allowing the loss carryback without first calculating the interest on the total tax due during the period from April 15, 1999 (when the 1998 tax was due) to April 15, 2001 (when the loss carryback for 2000 became available).” Id.

The District Court concluded that this “effectively forgives a substantial portion of the interest obligation of the taxpayer that accrued on the unpaid deficiency during that period.”8

Id. The District Court described the government's argument: “the Government merely uses its present calculation of the total tax deficiency before allowing credit for the loss carryback in order to ‘correctly’ calculate and capture the interest obligation that the Tax Court did not account for in its computations.” Id. The District Court rejected that argument by the government as “an adroit but unpersuasive explanation.” Id. Instead, the District Court concluded:

The fact remains that the calculations, as candidly explained by the Recomputation specialist, employ a 1998 tax deficiency of $2,846,457 which is directly contrary to the Tax Court determination of $1,359,361 as the amount of 1998 tax deficiency. And the fact that the Tax Court calculations were probably wrong in the way they applied the carryback credit—or wrong in any other manner—is inconsequential. A final judgment by a court of competent jurisdiction, even if it is demonstrably incorrect, is binding on the parties unless set aside on appeal or through post judgment proceedings in the court that issued the judgment....

Id.

The District Court thus...

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