154 T.C. No. 11
UNITED STATES TAX COURT
AMANDA IRIS GLUCK IRREVOCABLE TRUST, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5760-19L. Filed May 26, 2020.
P was a direct and indirect partner in partnerships subject to the unified audit and litigation procedures of the Tax Equity and Fiscal Responsibility Act of 1982. See I.R.C. secs. 6221-6234 (as in effect for years before 2018). In 2012 one of the partnerships in which P held an indirect interest sold property and realized a large capital gain. P allegedly failed to report its entire distributive share of that gain.
R adjusted P’s 2012-2015 returns via “computational adjust- ments.” See I.R.C. sec. 6231(a)(6). These adjustments eliminated the net operating loss (NOL) P had claimed for 2012 and disallowed the NOL carryforward deductions P had claimed for 2013-2015, creating balances due for those years. R immediately assessed the resulting tax. See I.R.C. secs. 6222(c), 6230(a)(1).
R mailed a levy notice in an effort to collect P’s 2013-2015 tax, and P timely requested a collection due process (CDP) hearing. The settlement officer sustained the levy notice. P timely petitioned for -2-
review, seeking to challenge its underlying liabilities for 2012-2015. R moved to dismiss as to 2012 and 2013, noting that the 2012 tax year was never before the Court and that P’s 2013 liability had been fully satisfied by application of credits from other years. R moved for summary judgment as to 2014 and 2015.
1. Held: We lack jurisdiction with respect to P’s 2012 tax year.
2. Held, further, P properly invoked the Court’s jurisdiction under I.R.C. sec. 6330(d)(1) to review its tax liabilities for 2013- 2015. Although the Court generally lacks jurisdiction in a deficiency case to review computational adjustments, see I.R.C. sec. 6230(a)(1), our jurisdiction in a CDP case is not so limited. McNeill v. Commis- sioner, 148 T.C. 481 (2017), followed.
3. Held, further, P’s 2013 liability has been paid in full, so P’s challenge to the collection action for that year is moot.
4. Held, further, P was permitted to challenge its underlying liabilities for 2014 and 2015 because it had had no prior opportunity to do so. See I.R.C. sec. 6330(c)(2)(B). P properly raised an under- lying liability challenge during the CDP hearing by contending that R had improperly disallowed its NOL carryforward deductions for 2014 and 2015. Because genuine disputes of material fact exist as to P’s correct tax liabilities for those years, respondent’s motion for sum- mary judgment will be denied.
Bob G. Goldberg, for petitioner.
Marissa J. Savit and Thomas A Deamus, for respondent. -3-
OPINION
LAUBER, Judge: In this collection due process (CDP) case petitioner seeks
review pursuant to section 6330(d)(1)1 of a determination by the Internal Revenue
Service (IRS or respondent) to sustain collection action for tax years 2013, 2014,
and 2015. During 2012 petitioner was a direct and indirect partner in partnerships
that were subject to the unified audit and litigation procedures of the Tax Equity
and Fiscal Responsibility Act of 1982 (TEFRA). See secs. 6221-6234 (as in effect
for years before 2018). The IRS made a large “computational adjustment” to peti-
tioner’s 2012 return and assessed the resulting deficiency. See secs. 6230(a)(1),
6231(a)(6). That adjustment eliminated petitioner’s net operating loss (NOL) for
2012 and its NOL carryforwards to 2013-2015, creating the tax liabilities that are
the subject of this collection action.
Petitioner timely petitioned this Court, urging that we not sustain the collec-
tion action and determine that “no additional taxes are owed by the petitioner for
the 2012, 2013, 2014 and 2015 calendar years.” Respondent contends that we
lack jurisdiction with respect to 2012 because there was no collection action for
1 All statutory references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar. -4-
that year, and that the collection action for 2013 has become moot because that
liability has since been fully paid. Respondent has moved to dismiss with respect
to those two years; we agree and will grant that motion.
With respect to 2014 and 2015 respondent has moved for summary judg-
ment. We conclude that petitioner is entitled to challenge its underlying liabilities
for these years and that there are genuine disputes of material fact concerning the
existence and amounts of those liabilities. We will therefore deny respondent’s
motion for summary judgment.
Background
The following facts are derived from the parties’ pleadings and motion pa-
pers, including the attached declarations and exhibits. See Rule 121(b). These
facts are stated solely for the purpose of ruling on the pending motions, not as
findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518,
520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). Petitioner had a mailing address in
New York when it filed its petition.
In 2012 petitioner was a partner in Stellar GT Promote, LLC (Promote), a
partnership for Federal income tax purposes. Promote was a partner in two other
partnerships, Stellar GT, LLC (GT), and Stellar Member, LLC (Member). Mem-
ber was also a partner in GT. All three partnerships were subject to TEFRA. -5-
In 2012 GT recognized capital gain of $88,461,244. Promote’s distributive
share of that gain was allegedly $79,494,545. This allegedly consisted of
$48,580,162 from the interest that Promote held in GT directly, plus $30,914,383
from the interest that Promote held in GT indirectly through Member.
For 2012 Promote filed Form 1065, U.S. Return of Partnership Income. It
reported $79,494,545, its alleged distributive share of the gain, on Form 4797,
Sales of Business Property. But on Schedule K, Partner’s Distributive Share
Items, Promote reported only the $30,914,383 of gain allocated to it indirectly,
allegedly omitting the $48,580,162 of gain allocated to it directly.
Promote issued Schedules K-1, Partners’ Share of Income, Deductions,
Credits, etc., to its partners, including petitioner. These Schedules K-1 likewise
reported only the $30,914,383 of gain allocated to Promote indirectly. Neither
Promote nor any of its partners filed a Form 8082, Notice of Inconsistent Treat-
ment or Administrative Adjustment Request (AAR), with respect to the gain
recognized by GT.
For 2012 petitioner filed a return on Form 1041, U.S. Income Tax Return
for Estates and Trusts. On this return it allegedly failed to report its distributive
share of the gain that had been allocated to Promote directly. Because petitioner
did not notify the IRS of this apparent inconsistency, the IRS was permitted to ad- -6-
just petitioner’s return by “computational adjustment,” without issuing a notice
permitting a pre-assessment challenge. See secs. 6222(c), 6230(a)(1), 6231(a)(6).
On June 15, 2017, the IRS sent petitioner two Letters 4735, Notice of Com-
putational Adjustment. In the first letter the IRS adjusted upward, by $6,543,748,
petitioner’s distributive share of Promote’s capital gain for 2012, eliminating the
NOL petitioner had reported for that year. In the second letter the IRS disallowed
the NOL carryforwards from 2012 that petitioner had claimed as deductions for
2013, 2014, and 2015, creating a balance due for each year.
Each Letter 4735 explained that “[t]he adjustment is due to your inconsis-
tent treatment of a partnership item related to the section 1231 gain reported by a
partnership in which you have an indirect ownership.” Each letter informed peti-
tioner that, if it wished to dispute the computational adjustments, it would need to
pay the resulting liabilities and file a claim for refund. Petitioner did not do so.
The IRS thereafter assessed petitioner’s liabilities for 2013-2015. When
petitioner did not pay these liabilities upon notice and demand, the IRS issued, on
January 11, 2018, a Letter 1058, Final Notice of Intent to Levy and Notice of Your
Right to a Hearing (levy notice). As of the date of the levy notice, petitioner’s out-
standing liabilities for 2013-2015 exceeded $180,000. -7-
Petitioner timely requested a CDP hearing. It listed the tax years in issue as
2012-2015, although the levy notice concerned only 2013-2015. It asserted that it
had not received certain IRS notices because its “office moved location during
2017 and mail from IRS was not forwarded to [its] new location.” Petitioner re-
quested more information as to why its “2011 [sic] net operating losses” were
disallowed. It did not request a collection alternative.
Petitioner’s case was assigned to a settlement officer (SO) in the East Hart-
ford, Connecticut, Appeals Office. The SO confirmed that the tax liabilities for
2013-2015 had been properly assessed, that proper notice and demand for payment
was mailed to petitioner’s last known address, and that all other requirements of
applicable law and administrative procedure had been met. The SO noted that
petitioner had an outstanding liability for 2012 but that its 2012 liability was not a
subject of the levy notice.
The SO held a CDP conference with petitioner’s representative on February
13, 2019. Petitioner’s representative challenged its liability for 2012, urged that it
had had no prior opportunity to dispute that liability, and asserted that it had no
liability for 2013, 2014, or 2015. Apart from contesting the disallowance of NOL
carryforwards from 2012, petitioner did not dispute the tax liabilities as shown on
its 2013-2015 returns. Nor did it seek a collection alternative. -8-
The SO called petitioner’s representative the next day and explained that he
lacked jurisdiction over petitioner’s 2012 taxable year and thus could not consider
an underlying liability challenge for that year. The SO did not explicitly address
during the hearing petitioner’s underlying liability challenge for 2013-2015, which
was predicated on the allegedly erroneous disallowance of NOL carryforward de-
ductions for those years. The SO offered petitioner another opportunity to pursue
a collection alternative, but its representative declined that option.
On February 27, 2019, the IRS issued petitioner a notice of determination
sustaining the proposed levy for 2013-2015, stating that petitioner was “precluded
from raising the underlying liability during this hearing.” The notice explained
that petitioner’s liabilities were based on the computational adjustments set forth
in the Letters 4735 issued June 15, 2017. Those letters informed petitioner that it
could dispute these adjustments by paying the tax and filing a claim for refund.
Concluding that petitioner had thus had, but neglected to take advantage of, a prior
opportunity to dispute its 2013-2015 tax liabilities, the SO determined that peti-
tioner could not challenge them during the CDP hearing.
Petitioner timely petitioned this Court. On October 24, 2019, respondent
moved to dismiss as to 2012 and 2013, noting that the 2012 tax year was never
before the Court and that petitioner’s 2013 liability had been fully satisfied by -9-
application of credits from other years. Respondent moved for summary judgment
with respect to 2014 and 2015. Petitioner opposed both motions.
Discussion
I. 2012 and 2013 Tax Years
This Court is a court of limited jurisdiction, see Naftel v. Commissioner, 85
T.C. 527, 529 (1985), and we may exercise jurisdiction only to the extent express-
ly authorized by statute, see Breman v. Commissioner, 66 T.C. 61, 66 (1976).
Jurisdiction must be shown affirmatively. As the party invoking the Court’s juris-
diction, petitioner bears the burden of establishing that jurisdiction exists. See
David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 270 (2000), aff’d, 22
F. App’x 837 (9th Cir. 2001).
Section 6330(a) requires the IRS, before making a levy, to send a written
notice to the taxpayer notifying him of his right to a CDP hearing. We have juris-
diction to review a notice of determination issued to a taxpayer following comple-
tion of that hearing if a timely petition is filed. Sec. 6330(d). The IRS had not
issued petitioner, at the time it filed its petition, a notice of determination regard-
ing any collection action with respect to its 2012 tax year. We thus lack juris-
diction in this case to consider any challenge to collection action for 2012. See
Gallagher v. Commissioner, T.C. Memo. 2018-77, 115 T.C.M. (CCH) 1433 (citing - 10 -
Pietanza v. Commissioner, 92 T.C. 729, 735 (1989), aff’d, 935 F.2d 1282 (3d Cir.
1991), Pyo v. Commissioner, 83 T.C. 626, 632 (1984), and Anson v. Commis-
sioner, T.C. Memo. 2010-119, 99 T.C.M. (CCH) 1504, 1506).
Petitioner’s liability for 2013 was properly before the SO. However, the
IRS subsequently applied available credits from other tax years to satisfy in full
petitioner’s outstanding liability for 2013. Petitioner concedes that its 2013 tax
liability was “satisfied on April 23, 2018.” Because there no longer exists an un-
paid liability for 2013 upon which collection action could be based, this collection
review proceeding is moot with respect to that year. See Greene-Thapedi v. Com-
missioner, 126 T.C. 1 (2006). “Inasmuch as the proposed levy is moot, petitioner
has no independent basis to challenge the existence or amount of * * * [its]
underlying tax liability in this proceeding.” Id. at 8. We will accordingly grant
respondent’s motion to dismiss for lack of jurisdiction as to 2012 and to dismiss
on grounds of mootness as to 2013.
II. 2014 and 2015 Tax Years
A. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly,
time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90
T.C. 678, 681 (1988). The Court may grant summary judgment when there is no - 11 -
genuine dispute as to any material fact and a decision may be rendered as a matter
of law. Rule 121(b); Sundstrand Corp., 98 T.C. at 520. In deciding whether to
grant summary judgment we construe factual materials and inferences drawn from
them in the light most favorable to the nonmoving party. Sundstrand Corp, 98
T.C. at 520. The nonmoving party, however, may not rest upon mere allegations
or denials of his pleadings but must set forth specific facts showing that there is a
genuine dispute for trial. Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.
B. Standard of Review
Section 6330(d)(1) does not prescribe the standard of review that this Court
should apply in reviewing an IRS administrative determination in a CDP case.
But our case law tells us what standard to adopt. Where the taxpayer’s underlying
tax liability is properly before us, we review the SO’s determination de novo. Go-
za v. Commissioner, 114 T.C. 176, 181-182 (2000). In other respects we review
the IRS action for abuse of discretion. Id. at 182. Abuse of discretion exists when
a determination is “arbitrary, capricious, or without sound basis in fact or law.”
Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.
2006); Holloway v. Commissioner, T.C. Memo. 2007-175, 94 T.C.M. (CCH) 25,
28, aff’d, 332 F. App’x 421 (6th Cir. 2008). - 12 -
C. Underlying Tax Liabilities
A taxpayer may challenge the existence or amount of its underlying liability
in a CDP proceeding only if it “did not receive any statutory notice of deficiency
for such tax liability or did not otherwise have an opportunity to dispute such tax
liability.” Sec. 6330(c)(2)(B). Petitioner did not receive a statutory notice of
deficiency with respect to its 2014 or 2015 tax liability. Rather, the IRS assessed
both liabilities on the basis of “computational adjustments.” See secs. 6222(c),
6231(a)(6).
The SO declined to consider petitioner’s underlying liability challenge, rea-
soning that it had had a prior opportunity to dispute its 2014 and 2015 liabilities,
after receiving the Letters 4375, by paying the tax and filing refund claims. Re-
spondent now concedes (correctly) that the SO’s rationale was erroneous. When
section 6330(c)(2)(B) refers to a prior “opportunity to dispute such tax liability,” it
means an opportunity to dispute the liability in a prepayment posture. See Credit-
Guard of Am., Inc. v. Commissioner, 149 T.C. 370, 375 (2017); Sugarloaf Fund
LLC v. Commissioner, 141 T.C. 214, 217 n.2 (2013); Greene-Thapedi, 126 T.C.
at 20. Because petitioner did not have a prior opportunity to dispute its 2014 and
2015 liabilities in a prepayment posture, the CDP route was available to it. - 13 -
The liabilities at issue arose from computational adjustments to petitioner’s
2014 and 2015 returns, which the IRS believed necessary to make those returns
consistent with the reporting by the partnerships in which petitioner held interests.
We generally lack jurisdiction to review computational adjustments in deficiency
proceedings. See sec. 6230(a)(1). But our review in CDP cases is not so limited.
In CDP cases involving assessable penalties (viz., penalties not subject to
deficiency procedures), we have jurisdiction to review a taxpayer’s underlying
liability for the penalty provided that he raised during the CDP hearing a proper
challenge thereto. See Yari v. Commissioner, 143 T.C. 157, 162 (2014) (ruling
that section 6330(d)(1) “expanded the Court’s review of collection actions * * *
where the underlying tax liability consists of penalties not reviewable in a defi-
ciency action”), aff’d, 669 F. App’x 489 (9th Cir. 2016); Callahan v. Commis-
sioner, 130 T.C. 44, 49 (2008). Applying the same reasoning we have held that
we may, in a CDP case, review underlying liabilities arising from adjustments to
partnership items of TEFRA partnerships, even though such items would not have
been subject to our review in a deficiency setting. See McNeill v. Commissioner,
148 T.C. 481, 489 (2017).
Petitioner’s underlying liabilities for 2014 and 2015 arise from computa-
tional adjustments made to conform its return to partnership items of TEFRA - 14 -
partnerships. Petitioner did not have a prior opportunity to challenge these liabil-
ities. It was thus entitled to challenge them before the SO even though they were
assessed on the basis of items over which we would lack jurisdiction if this were a
deficiency case.
A taxpayer entitled to dispute its underlying liability must nevertheless pre-
sent a proper challenge before the SO in order to preserve that challenge for judi-
cial review. See Thompson v. Commissioner, 140 T.C. 173, 178 (2013) (“A tax-
payer is precluded from disputing the underlying liability if it was not properly
raised in the CDP hearing.”); Giamelli v. Commissioner, 129 T.C. 107, 113-114
(2007) (same); sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs. During
the CDP hearing petitioner contended that the IRS had improperly disallowed its
NOL for 2012 and as a consequence had erroneously determined its 2014 and
2015 liabilities by disallowing its NOL carryforward deductions. See sec. 172(a).
Although the NOL originated in 2012, the deductions in question were claimed for
2014 and 2015. Petitioner thus mounted a proper challenge to its tax liabilities for
those two years.
Respondent seeks to defend, on an alternative ground, the SO’s refusal to
consider petitioner’s challenge to its 2014 and 2015 liabilities. In respondent’s
view petitioner was actually disputing its tax liability only for 2012, seeking to - 15 -
create a putative overpayment for that year and then offset that overpayment
against its liabilities for 2014 and 2015. Respondent urges that the SO was not
required to consider this argument because petitioner did not have an available
credit for 2012, only a disputable claim to a credit.
In so contending, respondent cites a line of cases holding that this Court
may consider facts and issues from other tax years to the extent they are “relevant
in evaluating a claim that an unpaid tax has been paid.” Freije v. Commissioner,
125 T.C. 14, 27 (2005). In determining whether the tax for a CDP year has been
paid, rendering collection action for that year inapt, we may consider “whether a
credit available from another tax year should be applied to the taxpayer’s liability
for the year before the Court.” Del-Co W. v. Commissioner, T.C. Memo. 2015-
142, 110 T.C.M. (CCH) 119, 120. But we may do this only if that other credit “in-
disputably exists.” Ibid.; see Weber v. Commissioner, 138 T.C. 348, 366 (2012);
Murphy v. Commissioner, T.C. Memo. 2019-72, at *10. Because petitioner does
not have a credit from 2012 that indisputably exists, respondent urges that the
SO’s bottom line, if not his reasoning, was correct.
We disagree. Although petitioner might have articulated its position a bit
more clearly, its basic contention was not that it had a credit from 2012 sufficient
to eliminate its liabilities for subsequent years. Rather, it was contending that the - 16 -
IRS erred in disallowing the NOL carryforward deductions that it had claimed for
2014 and 2015. The situation is no different in principle from one in which the
IRS has disallowed (say) business expense deductions for the CDP year. In both
scenarios the taxpayer is challenging his underlying tax liability for the CDP year
by disputing the disallowance of deductions he had claimed for that year.
The fact that the source of the deductions petitioner claimed for 2014 and
2015 was an NOL that allegedly arose in 2012 does not change the analysis. In
any case where a taxpayer claims an NOL carryforward or carryback deduction,
“[w]e have jurisdiction to consider such facts related to years not in issue as may
be necessary for redetermination of tax liability for the period before the Court.”
Keith v. Commissioner, 115 T.C. 605, 621 (2000); see Lone Manor Farms, Inc. v.
Commissioner, 61 T.C. 436, 440 (1974) (“It is well settled that we may determine
the correct amount of * * * net operating loss for a year not in issue * * * as a pre-
liminary step in determining the correct amount of a net operating loss carryover
to a taxable year in issue.”), aff’d, 510 F.2d 970 (3d Cir. 1975); cf. sec. 6214(b).
This reasoning applies with equal force in a CDP case where we are seeking to
determine the taxpayer’s underlying liability. See, e.g., Gaunt v. Commissioner,
T.C. Memo. 2018-78, at *22-*23 (analyzing in a CDP case a taxpayer’s entitle-
ment to an NOL carryforward deduction for the CDP year). Indeed, in determin- - 17 -
ing the allowability of an NOL carryforward or carryback deduction, we may con-
sider facts from the original loss year even though the period of limitations for that
year is closed. See Calumet Industries, Inc. v. Commissioner, 95 T.C. 257, 274
(1990).
In short, we find that petitioner properly challenged its underlying tax liabil-
ities for 2014 and 2015 during the CDP hearing and that this issue is properly be-
fore us. We review this issue de novo. Goza, 114 T.C. at 181-182. Petitioner
bears the burden of establishing both the existence of an NOL for 2012 and the
amount of the NOL that may properly be carried to 2014 and 2015. See Rule
142(a); Keith, 115 T.C. at 621.
Petitioner advances several arguments with respect to its entitlement to
NOL carryforward deductions for 2014 and 2015. It alleges (among other things)
that Promote for 2012 did not improperly omit $48,580,162 of gain from its Form
1065 or from the Schedule K-1 that it furnished petitioner. Rather, petitioner al-
leges that Promote “was allocable both a gain and a loss in connection with its in-
vestment in * * * GT,” that “this gain and loss were not reported separately but
were netted on [its] 2012 tax return,” and that the Schedule K-1 issued to petition-
er “reflected this netted amount.” If these allegations are correct, respondent’s
computational adjustments may have been erroneous. - 18 -
As far as the record discloses, the SO did not address these factual ques-
tions, and respondent has not yet addressed them either. Construing all facts and
inferences therefrom in the light most favorable to petitioner as the nonmoving
party, we find that genuine disputes of material fact exist and preclude summary
adjudication at this time. See Rule 121(b); Sundstrand Corp., 98 T.C. at 520.
To reflect the foregoing,
An appropriate order will be issued.