OPINION
HAMBLEN, Judge:
This matter is before the Court on petitioner's motion to amend her petitions pursuant to Rule 411 and petitioner's motion for partial summary judgment pursuant to Rule 121. Petitioner's motions, and respondent's objections to them, raise the following issues: (1) Whether petitioner should be permitted to amend her petitions to include new defenses and supportive facts pertaining to her motion for partial summary judgment, her husband's bankruptcy case, and her assertion that she qualifies for “innocent spouse” relief under section 6013(e) for a portion of her alleged tax deficiencies; (2) whether respondent is barred as a matter of law from proceeding against petitioner for the full amount of petitioner's alleged tax deficiencies and additions to tax because petitioner's husband, with whom she had filed joint returns, was adjudicated a bankrupt and settled and paid his assessed tax liabilities for the years in issue in the bankruptcy proceeding; (3) whether the principles of res judicata or collateral estoppel bar respondent from litigating tax deficiencies against petitioner in amounts greater than those awarded to respondent in the bankruptcy case of petitioner's husband; and (4) if respondent is limited in litigating petitioner's tax deficiencies by the principles of collateral estoppel or res judicata, whether petitioner may nonetheless litigate the additions to tax determined by respondent. We assume the following facts as submitted by the parties in their pleadings, memoranda, and supporting documents.
Petitioner Carolyn S. Kroh and her husband, George P. Kroh, filed joint income tax returns for 1979, 1980, and 1982. On August 12, 1987, a joint statutory notice of deficiency was issued to petitioner and Mr. Kroh for their 1979 and 1980 tax years. On January 13, 1988, a second notice of deficiency was issued solely to petitioner for 1982. In the notices, respondent determined deficiencies in, and additions to, petitioner's income tax as follows:
Docket No. 36295-87
Addition to tax
Year Deficiency sec. 6653(a)
1979 $216,001.16 $10,800.06
1980 64,585.00 3,229.25
Docket No. 7250-88
Addition to tax
Year Deficiency sec. 6661
1982 $432,820 $108,205
On November 10, 1987, petitioner filed a petition seeking a redetermination of her tax deficiencies and additions to tax for 1979 and 1980. On April 12, 1988, petitioner filed a second petition seeking a redetermination of her tax deficiency and addition to tax for 1982. She was residing in Mission Hills, Kansas, at the time the petitions were filed.
Petitioner's husband, Mr. Kroh, was adjudicated bankrupt pursuant to a petition he voluntarily filed on January 29,1987, under the Bankruptcy Code, 11 U.S.C., in the U.S. Bankruptcy Court for the Western District of Missouri. The bankruptcy court denied Mr. Kroh's application for a discharge from personal liability for his debts. David Achtenberg was appointed the trustee in Mr. Kroh's bankruptcy case.
On June 4, 1987, respondent filed a proof of claim in Mr. Kroh's bankruptcy case claiming a total of $860,542.91 in liabilities from Mr. Kroh for the taxable years 1977, 1979, 1980, and 1982. Respondent increased the claim to $1,399,543.96 by an amended proof of claim dated October 28, 1988.
On November 28, 1989, respondent's counsel and the bankruptcy trustee executed an agreement entitled “Compromise, Settlement Agreement and Stipulation” in which the alleged tax liabilities of Mr. Kroh set forth in respondent's proofs of claim were compromised. The caption of the agreement names “George P. Kroh” as the “debtor” and further provides as follows:
It is hereby stipulated that the following statement shows the debtor's federal income tax liabilities for 1977, 1979, 1980 and 1982:
Year Income tax Interest to 1 /29 /87 Penalty
1977 $1,870.00 $2,695.78
1979 5,385.34 4,987.59 $269.27
1980 64,585.00 67,119.33
1982 156,570.00 94,216.54 39,142.50
TOTAL 228,410.34 169,019.24 39,411.77
It is further stipulated that under 11 U.S.C. §1129(a)(9)(C) interest at 11 percent per annum is due, on the above income tax and interest, from January 11, 1989 to November 30, 1989 in the amount of $39,904.46, plus interest of $119.77 per day after November 30, 1989, until said income tax and interest to January 29, 1987 is paid. In the event that the income tax and interest to January 24, 1987 is paid before November 30, 1989, interest in the amount of $119.77 per day will be deducted for each day prior to November 30, 1989 that the income tax and interest to January 29, 1987 is paid.
It is further stipulated that the Trustee consents to the assessment of the income tax, interest and penalties.
It is further stipulated that the income tax, interest to petition date and interest under 11 U.S.C. §1129(a)(9)(C) will be paid on November 30, 1989 to the Internal Revenue Service, or such other date as ordered by the Court.
It is further stipulated that the penalties in the amount of $39,411.77 will be allowed and paid as an unsecured claim not entitled to priority.
The bankruptcy court, in an order filed on November 28, 1989, approved the settlement agreement, confirming the priority status of the taxes and interest portion of respondent's claims, and allowing the additions portion as an unsecured claim. Subsequently, respondent assessed Mr. Kroh's tax liabilities as approved by the bankruptcy court. On November 30, 1989, the bankruptcy trustee paid the taxes and the interest on Mr. Kroh's liabilities as set forth in the settlement agreement. Neither the bankruptcy trustee nor Mr. Kroh has paid any portion of the additions to tax named in the settlement agreement.
Petitioner was not a party in her husband's bankruptcy case and did not participate in the proceedings in any way.
Petitioner filed a motion for partial summary judgment pursuant to Rule 121 on the grounds that respondent's settlement, assessment, and collection of her bankrupt husband's tax liabilities now bars respondent in these cases from proceeding against her for all, or at least a portion of, the tax deficiencies and additions to tax as determined in the deficiency notices. Petitioner also filed a motion to supplement and amend the petitions pursuant to Rule 41. Respondent filed objections to each of petitioner's motions, and a hearing was held on petitioner's motions in Kansas City, Missouri, during which petitioner submitted her proposed amendments to the petitions. At the hearing the parties were ordered to file supplemental briefs in support of their positions on the partial summary judgment motion, which they have done.
Petitioner's Motion to Supplement and Amend the Petitions
We must first decide whether to grant petitioner's motion to supplement and amend her original petitions. In her motion, petitioner requests the Court's permission to amend her petitions by asserting: (1) Two alternative defenses which are the subject of her motion for partial summary judgment; (2) that petitioner had reasonable cause and acted in good faith as to any understatements of income on her tax returns, that there was substantial authority for the tax treatment of those items on the returns for which respondent determined deficiencies, and that respondent erred in applying section 6661 providing for an addition to tax for the substantial understatement of income tax for 1982; (3) facts including petitioner's tax identification number and facts pertaining to the bankruptcy case of petitioner's husband, George Kroh; (4) that petitioner acted reasonably and in good faith in reporting her income on her tax returns since she had only nominal income in her own right; was not engaged in any of her husband's businesses, worked only as a housewife, mother, and volunteer worker for civic organizations during the years in issue; and believed that her husband totally relied on competent tax advisers and accountants in preparing their joint tax returns; and (5) facts supporting petitioner's status as an innocent spouse under section 6013(e), in particular that petitioner received no benefit from the omitted income in the 1982 transaction involving a complicated exchange of stock and debt for real estate because respondent's reallocation of the transaction under section 482 resulted in a constructive dividend for petitioner's husband rather than the receipt of actual income or property.
Petitioner argues that respondent would not be prejudiced by the amendments to her petitions since respondent's attorney, who is the same Government attorney who handled the tax liability settlement in the bankruptcy case of petitioner's husband, has been aware of petitioner's additional defenses and facts for some time. Petitioner further argues that her additional defenses are well supported by relevant facts.
Respondent does not object to paragraph (1) of petitioner's motion pertaining to the defenses which are the subject of petitioner's motion for partial summary judgment or to paragraph (3) pertaining to the bankruptcy case of petitioner's husband. However, respondent does object to paragraphs (2), (4), and (5) because, according to respondent, they contain conclusions and allegations of facts which are the subject of respondent's request for documents and interrogatories that petitioner has refused to provide. Respondent argues that, because petitioner's failure to comply with the discovery process has hindered the stipulation process and prevented respondent from properly preparing for trial, petitioner should not be permitted to amend her petitions with those new matters.
Rule 41(a) provides that, once respondent serves an answer to a petition, a petition may only be amended:
by leave of Court or by written consent of the adverse party, and leave shall be given freely when justice so requires. No amendment shall be allowed after expiration of the time for filing the petition, however, which would involve conferring jurisdiction on the Court over a matter which otherwise would not come within its jurisdiction under the petition as then on file. * * *
Rule 34(b)(5) provides that a petition shall contain “Clear and concise lettered statements of the facts on which petitioner bases the assignments of error”.
We note that some of petitioner's proposed “factual” amendments to her petitions border on being legal conclusions or allegations, rather than factual assertions. Nonetheless, because petitioner's cases are not presently calendared for trial and respondent has sufficient time to file responsive pleadings, we grant petitioner's motion to supplement and amend the petitions in their entireties. We admonish petitioner that, as she has invoked the jurisdiction of this Court, she must now comply with this Court's Rules pertaining to discovery and with any subsequent standing pretrial order issued in these cases. However, her failure to answer respondent's request for interrogatories and documents to date does not require the denial of her motion to supplement and amend her petitions.
Wq find that none of the defenses or factual assertions contained in paragraphs (2), (4), and (5) above would cause undue prejudice to respondent. The assertions petitioner proposes to add to her petitions are ones that respondent could reasonably expect petitioner to argue at trial. Accordingly, petitioner's motion to supplement and amend her petitions will be granted.
Petitioner's Motion for Partial Summary Judgment
We must next decide whether to grant petitioner's motion for partial summary judgment. A decision will be rendered on a motion for partial summary judgment if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. Rule 121(b).2 A fact is material if it “tends to resolve any of the issues that have been properly raised by the parties.” Wright, Miller & Kane, 10A Federal Practice and Procedure: Civil, sec. 2725, at 93 (2d ed. 1983).
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials of phantom factual questions. Cox v. American Fidelity & Casualty Co., 249 F.2d 616, 618 (9th Cir. 1957); Shiosaki v. Commissioner, 61 T.C. 861, 862 (1974). Since the effect of granting a motion for summary judgment is to decide an issue against a party without allowing him an opportunity for trial, such action is a “drastic remedy” to be used cautiously and sparingly after a consideration of the case reveals that the requirements for summary judgment have clearly been met. Espinoza v. Commissioner, 78 T.C. 412, 416 (1982).
The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact. Weinberger v. Hynson, Westcott & Dunning, 412 U.S. 609, 621-622 (1973); Adickes v. Kress & Co., 398 U.S. 144, 158-159 (1970). The party opposing the motion is to be afforded the benefit of all reasonable doubt, and the underlying facts contained in the record must be viewed in a light most favorable to the opposing party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
In her motion, petitioner asserts that respondent's settlement of Mr. Kroh's tax liabilities in Mr. Kroh's bankruptcy case, and respondent's subsequent assessment and collection of those compromised amounts, now bars respondent as a matter of law from litigating petitioner's tax deficiencies and additions to tax as set forth in the deficiency notices issued to her. Petitioner argues, in the alternative, that the principles of res judicata and collateral estoppel bar respondent from litigating taxes, interest, and additions to tax in excess of the amounts that the bankruptcy court awarded to respondent in her husband's bankruptcy case. Finally, petitioner contends that, if respondent is collaterally estopped from litigating petitioner's tax deficiencies, she should nonetheless be permitted to litigate the additions to tax set forth in the deficiency-notices.
Respondent argues that the tax liability of petitioner and her husband is joint and several, and although Mr. Kroh's bankrupt estate has paid a portion of petitioner's alleged tax liabilities, neither that fact, nor Mr. Kroh's court-approved tax settlement agreement, precludes respondent from proceeding against petitioner separately or from arguing the correctness of respondent's determinations of petitioner's total tax deficiencies and additions to tax. Respondent further argues that the doctrines of res judicata and collateral estoppel do not apply since petitioner was neither a party in her husband's bankruptcy proceeding nor his privy with respect to it. For the reasons set forth below, we will deny petitioner's motion for partial summary judgment.
Section 6013(d)(3) provides that the tax liability of a husband and wife who file a joint income tax return shall be joint and several. Because the statute nowhere spells out the consequences of joint and several liability, it has been held that Congress intended the common law rules to apply. United States v. Wainer, 211 F.2d 669, 673 (7th Cir. 1954); Dolan v. Commissioner, 44 T.C. 420, 426 (1965); see Hanover Bank v. Commissioner, 369 U.S. 672, 687 (1962). The central principle of joint and several liability, characteristic of joint return responsibility, is that the obligee, respondent herein, may, at her option, proceed against the obligors separately and obtain separate judgments against each. Sessions v. Johnson, 95 U.S. 347 (1877); Tavery v. United States, 897 F.2d 1032, 1033 (10th Cir. 1990); Dolan v. Commissioner, supra at 427, 436; 2 Restatement, Judgments 2d, sec. 49 & comment a (1982); 2 Williston, Contracts, sec. 328 (3d ed. 1959).
In the seminal case, Dolan v. Commissioner, supra, we interpreted section 6013(d)(3), section 6211(a), and the meaning of joint and several liability as they apply to joint return filers. In that case we held that, in the case of a joint return, the determination as to whether there is a tax deficiency must be made separately for each spouse and prior assessments against one spouse do not. bar the Commissioner from proceeding against the other spouse with respect to the same deficiencies, nor are the prior assessments to be considered in making the computation of the other spouse's tax deficiencies. Dolan v. Commissioner, supra at 426, 429, 431. We find that petitioner's situation is factually analogous to Dolan v. Commissioner, supra, and that our holdings in that case control, if not reject outright, most of the legal arguments and issues raised in petitioner's motion for partial summary judgment.
In Dolan, the husband and wife filed joint income tax returns for 1957 and 1958. In June 1962, Mr. Dolan executed a Form 870, wherein he waived the restrictions on assessments and collection of deficiencies in income taxes and additions to tax for the years 1957 and 1958. On August 31, 1962, the deficiencies and additions to tax were assessed against Mr. Dolan. Subsequently, the Commissioner issued a notice of deficiency to Mrs. Dolan for 1957 and 1958 income taxes and additions to tax in amounts identical to those previously assessed against Mr. Dolan. The assessments made against Mr. Dolan were still outstanding at the time the deficiency notice was mailed to Mrs. Dolan. Mrs. Dolan filed a petition in the Tax Court arguing, among other things, that her alleged tax deficiencies could not exist after the Commissioner had assessed the same deficiencies against her husband. In our opinion, we stated that “we may consider an assessment entered by respondent as equivalent to a judgment, since both permit an obligee to enforce the collection of the obligation by seizure and sale of the obligor's property.” Dolan v. Commissioner, supra at 427; see Bull v. United States, 295 U.S. 247, 259-260 (1935) (“The assessment is given the force of a judgment, and if the amount assessed is not paid when due, administrative officials may seize the debtor's property to satisfy the debt.”).3 We further stated that section 6013(d)(3) and section 1.6013-4(b), Income Tax Regs., provide very strong support for the proposition that a husband and wife remain separate taxpayers even though they file a joint return. Our preliminary holding was that Mr. Dolan, as a separate arid distinct taxpayer, had an absolute right to separately waive the restrictions on assessment and collection contained in section 6213(a). We stated that the Commissioner could not have made a valid assessment simultaneously against Mrs. Dolan since she had not signed any waiver, but that her choice not to waive the restrictions on assessment did not affect the validity of the tax assessment made against Mr. Dolan.
We then addressed the “primary issue” in the Dolan case, that is, whether the Commissioner's assessment of deficiencies against Mr. Dolan barred the Commissioner from proceeding in the Tax Court against Mrs. Dolan with respect to the same deficiencies. Employing the following analysis, we held that the Commissioner was not so barred:
Essentially, the issue turns on whether deficiencies, as defined by section 6211(a), could exist as to petitioner after respondent had assessed the same deficiencies against John [Mr. Dolan].
Under section 6211(a)(1)(B), the amount of what would otherwise be a deficiency must be reduced by “the amounts previously assessed (or collected without assessment) as a deficiency.” It is arguable that in computing the amount of a deficiency in the tax of one of two spouses who made a joint return, such deficiency should be reduced by amounts assessed as a deficiency against the other spouse. Nevertheless, we are of the opinion that it is far more logical and more consistent with the statutory scheme to give credit under section 6211(a)(1)(B) only for amounts previously assessed against the taxpayer with respect to whom the computation of a deficiency is being made.
In the first place, it seems apparent from the language of section 6203 and the regulations thereunder that an assessment is intended to have significance only with respect to the taxpayer whose liability is assessed. John [Mr. Dolan] and petitioner [Mrs. Dolan] are separate taxpayers. We see no reason to construe section 6211(a) as reducing the deficiencies in the tax of one taxpayer by assessments made against a different taxpayer, especially where there is no evidence that such a construction was intended by Congress.
Our conclusion is not altered by the fact that, under the parenthetical phrase in section 6211(a)(1)(B), the deficiencies in petitioner's tax would have been reduced by any amounts collected from John prior to the mailing of the statutory notice to petitioner. The reason for this provision is that, even though John and petitioner are jointly and severally liable for any deficiencies with respect to their joint returns, there is only one obligation for each year. Respondent is entitled to only one satisfaction of that obligation. Since payment by either spouse effects a pro tanto extinguishment of the obligation, the parenthetical phrase in section 6211(a)(1)(B) is wholly consistent with the joint and several liability of the spouses. To 'hold, however, that an assessment against John also had the effect of reducing the deficiency as to petitioner would be inconsistent with the principles of joint and several liability. This is because, as we have already pointed out, an assessment is comparable to a judgment; and an unsatisfied judgment against one obligor does not discharge a coobligor who is jointly and severally liable. 2 Williston, Contracts, sec. 328; Restatement, Contracts, sec. 119(3).
A further indication that the statute contemplates an assessment which is effective against one party to a joint return but does not hamper enforcement of the liability of the other spouse, is found in section 6871(a). Section 6871(a) requires the immediate assessment of any unassessed deficiency in income, estate, or gift taxes of taxpayers in respect of. whom certain bankruptcy or receivership proceedings have been instituted. The assessment is to be made despite the restrictions imposed by section 6213(a); there is no express provision allowing similar assessment against the spouse of such a taxpayer. It hardly seems likely that Congress would have required, in section 6871(a), immediate assessment against a bankrupt taxpayer, if Congress had believed that such an assessment would, under section 6211(a), have prevented respondent from proceeding against the spouse of the bankrupt.
Accordingly, we hold that, in the case of a joint return, the determination as to whether there is a deficiency within the meaning of section 6211(a) must be made separately for each spouse, and prior assessments against one spouse are not to be considered in making the computation with respect to the other spouse. * * *
[Dolan v. Commissioner, 44 T.C. at 429-431; fn. refs, omitted; emphasis added.]
As in Dolan, respondent could not have made a valid assessment of petitioner's tax liability at the time respondent assessed the tax liability of Mr. Kroh. It is undisputed that the bankruptcy court had jurisdiction under the Bankruptcy Code, 11 U.S.C. sec. 505(a)(1) and (2) (1978), to determine the tax liability of the debtor, Mr. Kroh.4 It is well established, however, that a bankruptcy court has no jurisdiction to decide controversies between third parties that do not involve the debtor or his property. Johnson v. First Nat. Bank, 719 F.2d 270, 273 (8th Cir. 1983) (“a bankruptcy court possesses only the jurisdiction and powers expressly or by necessary implication conferred by Congress”);5 Richmond v. United States, 456 F.2d 458, 463 (3d Cir. 1972); Evarts v. Eloy Gin Corp., 204 F.2d 712 (9th Cir. 1953); Nixon v. Michaels, 38 F.2d 420 (8th Cir. 1930).6
We observe that several Courts of Appeals recognize an exception to the general rule, that bankruptcy courts have no jurisdiction to determine third-party disputes, where administration of the bankruptcy proceeding would be impossible without determining the third party's controversy. O'Dell v. United States, 326 F.2d 451 (10th Cir. 1964); In re International Power Securities Corp., 170 F.2d 399 (3d Cir. 1948); In re Burton Coal Co., 126 F.2d 447 (7th Cir. 1942). However, these cases are inapplicable here, where petitioner has made no showing that her husband's title 11 proceedings could not be administered without having the bankruptcy court determine her tax liability.
In Richmond v. United States, supra, the nonbankrupt wife had filed joint income tax returns with her husband, the debtor. During her husband's bankruptcy proceeding, the wife consented to the bankruptcy referee's determination of ownership of assets over which she had more than colorable claim, which the Government's jeopardy assessment had frozen, and which were not in possession of the bankruptcy court. The U.S. Court of Appeals for the Third Circuit held that, where there was no showing that title 11 proceedings could not be administered without having the referee determine the debtor's wife's tax liability, the bankruptcy referee did not have jurisdiction to determine the income tax liability of the debtor's wife, who was not herself a bankrupt and who had filed joint returns with the debtor. The court stated that the wife's “tax liability may be seen as separate and distinct from the tax liability of her husband, even though both liabilities result from filing the same joint return.” Richmond v. United States, supra at 463. The court held that the bankrupt estate could be administered notwithstanding the fact that the wife contended that the jeopardy assessment prevented effectuation of terms of compromise, upon which termination of her husband's title 11 proceeding depended. Richmond v. United States, supra at 463-464.
We are not persuaded that the facts in petitioner's case present any stronger basis for the bankruptcy court's jurisdiction to determine her tax liability than that of the debtor's wife in Richmond v. United States, supra. To the contrary, we find that petitioner's case is weaker. . There was virtually no showing as to petitioner's ownership of property, and her attorney admitted at the hearing of this motion that she did not participate in the bankruptcy proceeding in any way, Thus, petitioner's tax liability is a controversy between herself and the Government and, under the general rule stated above, the bankruptcy court had no jurisdiction to decide that controversy merely because she signed joint returns with her husband. Petitioner has also failed to persuade us that respondent negotiated petitioner's tax liability, in addition to Mr. Kroh's, when respondent signed the settlement agreement. This contention is contrary to the facts. First, there is no evidence that respondent "negotiated” petitioner's tax liability along with Mr. Kroh's since there was no actual adjudication on the merits of Mr. Kroh's tax liability. Secondly, the settlement agreement executed by the trustee in bankruptcy and respondent does not, on its face, purport to bind petitioner to its terms. Certainly, if the parties who executed the settlement document wanted the terms of the document to establish or evince petitioner's tax liability, in addition to the debtor's, they would have thought it prudent to say so in the document, or at least to refer to petitioner personally. Here, the settlement document refers only to the tax liability of the “debtor”, Mr. Kroh. Neither petitioner's name, nor the fact that she is the debtor's wife, appears on the settlement document. A person becomes a “debtor” under the Bankruptcy Code only by filing a petition in bankruptcy. 11 U.S.C. secs. 101(13), 301, 302(a); see also S. Rept. 95-989 (1978), Notes of Committee on the Judiciary. Once the petition is filed, the debtor is entitled to certain protections under the Bankruptcy Code. Goldsby v. United States, 135 Bankr. 611 (Bankr. E.D. Ark. 1992); In re Hall, 123 Bankr. 441, 444 (Bankr. N.D. Ga. 1990).
In the instant case, only Mr. Kroh chose to file a bankruptcy petition. Petitioner chose not to file a petition and, therefore, was not a “debtor” in her husband's title 11 bankruptcy case. 11 U.S.C. secs. 101(13), 301, 302(a); see also S. Rept. 95-989 (1978), Notes of Committee on the Judiciary. Since we have already established that petitioner's tax liability was not within the purview of the bankruptcy court's jurisdiction by virtue of her having filed joint tax returns with her husband, Richmond v. United States, supra, respondent cannot be deemed to have negotiated petitioner's tax liability when respondent executed the settlement document which was subsequently approved by the bankruptcy court. Therefore, we find that respondent had no choice but to proceed against petitioner and her husband, Mr. Kroh, separately and to obtain separate judgments against each of them. Accordingly, absent the efficacy of res judicata or estoppel, the settlement agreement executed by the bankruptcy trustee and respondent, and subsequently approved by the bankruptcy court, is not binding on petitioner, and respondent is not barred from proceeding against petitioner for the full amounts of the deficiencies and additions to tax as determined in petitioner's deficiency notices. Dolan v. Commissioner, 44 T.C. 420, 430 (1965).
Petitioner next argues that, because respondent is entitled to have the obligation satisfied only once, petitioner's tax deficiencies as determined by respondent must be deemed extinguished, or at least diminished, by the bankruptcy trustee's payments to respondent pursuant to Mr. Kroh's bankruptcy settlement agreement. As we stated in Dolan v. Commissioner, supra at 430, full payment of a joint and several obligation by one obligor extinguishes the liability of all the joint obligors. See 2 Restatement, Judgments 2d, sec. 50(2) & comment c (1982). In these cases, the bankruptcy trustee's payments to respondent were made after respondent issued petitioner's deficiency notices. Even if the payments had been made earlier, they would not “extinguish” petitioner's liabilities since they amount to only a portion of them. Thus, we may adjudicate the correctness of respondent's proposed determinations of petitioner's tax deficiencies and additions to tax, in their entirety, as those amounts appear in the deficiency notices. Because respondent is entitled to have the joint obligation of petitioner and Mr. Kroh satisfied only once, petitioner is potentially liable for paying only those amounts in excess of the taxes paid by the trustee in the bankruptcy case of her husband.
The third issue that petitioner asks us to determine is whether respondent is barred by the principles of res judicata and collateral estoppel from litigating petitioner's tax deficiencies that exceed the amounts awarded to respondent in the bankruptcy case of her husband. Respondent argues that, since petitioner was not a party to her husband's bankruptcy suit or his privy with respect to it, the doctrines of res judicata and collateral estoppel do not restrict respondent in litigating and subsequently assessing the full amounts of petitioner's tax deficiencies and additions to tax as those amounts appear in her deficiency notices.
The general principle of “res judicata applies to repetitious suits involving the same cause of action. It rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations.” Commissioner v. Sunnen, 333 U.S. 591, 597 (1948). The rule provides that, once a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are bound as to each matter that sustained or defeated the claim and as to any other admissible matter that could have been offered for that purpose. Commissioner v. Sunnen, supra at 597 (citing Cromwell v. County of Sac, 94 U.S. 351, 352 (1876)). The judgment puts an end to the cause of action, which cannot again be litigated between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment. Commissioner v. Sunnen, supra at 597.
But where the second action between the same parties is upon a different cause or demand, the estoppel principle applies much more narrowly. Thus, under the doctrine of collateral estoppel, a judgment in a prior suit precludes, in a second cause of action, litigation of issues actually litigated and necessary to the outcome of the first action. Collateral estoppel serves the dual purpose of protecting litigants from the burden of relitigating identical issues and of promoting judicial economy by preventing unnecessary or redundant litigation. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5 (1979). For the following reasons, we hold that neither the doctrines of res judicata nor collateral estoppel applies so as to bar respondent from proceeding against petitioner in these cases.
In order for the doctrine of res judicata to apply, petitioner must prove that each of the requirements has been met. Rule 142(a). Specifically, petitioner must show that: (1) The cause of action in the prior bankruptcy case of petitioner's husband is the same cause of action as in the instant proceeding, (2) petitioner qualifies as a party or a privy of her husband with respect to his bankruptcy case, and (3) the approval by the bankruptcy court of Mr. Kroh's settlement agreement with respondent constitutes a final judgment on the merits of the single cause of action.7 Montana v. United States, 440 U.S. 147, 153 (1979); Commissioner v. Sunnen, supra at 597.
Based on the facts before us, the decision of the U.S. Court of Appeals for the Tenth Circuit, and our own Court precedent in Dolan v. Commissioner, 44 T.C. 420 (1965), we find that respondent's cause of action against Mr. Kroh in the prior bankruptcy proceeding is different from the cause of action being considered in this proceeding. As discussed above, section 6013(d)(3) imposes joint and several liability upon a husband and wife who file a joint return. When interpreting this provision in light of the statutory scheme, we observed in Dolan that “joint and several liability necessarily implies the existence of at least two entities” and that both the tax statute and the case law support “treating as separate ‘taxpayers’ a husband and wife who have filed a joint return.” Dolan v. Commissioner, supra at 428 (emphasis added). We held in Dolan that, “in the case of a joint return, the determination as to whether there is a deficiency within the meaning of section 6211(a) must be made separately for each spouse, and prior assessments against one spouse are not to be considered in making the computation with respect to the other spouse.” Dolan v. Commissioner, supra at 431 (emphasis added). Clearly, our holding necessitates, in its application, separate causes of action for each spouse on a joint return since the prior assessments (which we equated with final “judgments” of tax liabilities in Dolan) of one spouse are to be deemed irrelevant to the determination and computation of the other spouse's tax deficiencies and assessments. A determination that respondent's claim in the bankruptcy court and respondent's claim in the instant proceeding constitute a single cause of action would, in effect, contravene Congress' statutory scheme as we interpreted it in our analysis in Dolan of section 6013(d)(3), providing for the joint and several liability of a husband and wife who file a joint return; of section 6211(a), which defines the term “deficiency”; as well as related sections and regulations. Dolan v. Commissioner, supra at 428-432. The meaning of the term “deficiency” under section 6211(a) is nonsensical unless a husband and wife who file joint returns are deemed to have separate causes of action in successive litigation over their separate tax liabilities. Dolan v. Commissioner, supra at 429-430. Moreover, as we stated in Dolan: “It hardly seems likely that Congress would have required, in section 6871(a), immediate assessment against a bankrupt taxpayer, if Congress had believed that such an assessment would, under section 6211(a), have prevented respondent from proceeding against the spouse of the bankrupt.” Dolan v. Commissioner, supra at 431.
A decision on a factually similar case in the Tenth Circuit Court of Appeals supports our view. In Tavery v. United States, 897 F.2d 1032, 1033 (10th Cir. 1990), the Tenth Circuit stated that “claims against joint obligors are generally regarded as separate and distinct for res judicata purposes.* * * The same is true with respect to the joint and several obligation of spouses filing a joint income tax return.” See generally 2 Restatement, Judgments 2d, sec. 49 & comment a (1982). In light of the above authorities, we are persuaded that the deficiencies determined by respondent which were settled in, and approved by, the bankruptcy court, and subsequently assessed against Mr. Kroh, constitute a cause of action that is different from the cause of action in the instant proceeding for res judicata purposes. Thus, the first prerequisite to the application of res judicata is not fulfilled.
We also observe that in the present case petitioner was not actually, or by implication, a party to her husband's bankruptcy proceeding. Petitioner must therefore show that she is in privity with her husband in order to invoke the principles of res judicata (or collateral estoppel) as to that proceeding. The issue of whether joint and several liability provided by section 6013(d)(3) creates privity, for purposes of res judicata and collateral estoppel, between a husband and wife who file a joint return was decided by the Tenth Circuit in Tavery v. United States, supra at 1033-1034 (quoting Rodney v. Commissioner, 53 T.C. 287, 307 (1969)). In an “alternative holding”, the Tenth Circuit stated that such privity does not exist. Having determined that the first two prerequisites for the application of res judicata (i.e., the same claim and privity with respect to the prior litigation) are absent, we hold that the doctrine of res judicata does not apply so as to preclude respondent from proceeding against petitioner for the full amounts of the deficiencies as determined in the deficiency notices.
Under the doctrine of collateral estoppel, or issue preclusion, the judgment in the prior suit only precludes, in the second cause of action, litigation of issues actually litigated and necessary to the outcome of the first action. Thus collateral estoppel is used to foreclose an adversary from relitigating an issue the adversary previously litigated unsuccessfully in a different action.
In all cases, therefore, where it is sought to apply the estoppel of a judgment rendered upon one cause of action to matters arising in a suit upon a different cause of action, the inquiry must always be as to the point or question actually litigated and determined in the original action, not what might have been thus litigated and determined. Only upon such matters is the judgment conclusive in another action.
United States v. International Building Co., 345 U.S. 502, 505 (1953) (quoting Cromwell v. County of Sac, 94 U.S. at 352-353).
We conclude that the judgment entered by the bankruptcy court was only a pro forma acceptance by the bankruptcy court of an agreement between respondent and Mr. Kroh's trustee in bankruptcy. Therefore, because petitioner has failed to show that the bankruptcy court actually decided any disputed issue with respect to the merits of her claim, collateral estoppel does not apply. United States v. International Building Co., supra at 505-506.
Furthermore, we have held that collateral estoppel may only be invoked against parties and their privies to a prior judgment. Peck v. Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d 525 (9th Cir. 1990); Gammill v. Commissioner, 62 T.C. 607, 614-615 (1974). As we determined above, petitioner cannot be deemed either a party or a privy of her husband with respect to his bankruptcy court case simply because the two of them filed joint returns.
We reject petitioner's contention that only respondent's privity is relevant to her motion for partial summary judgment, and that she need not be deemed either a party or in privity with her husband with respect to the bankruptcy case in order for respondent to be estopped from proceeding against her in this Court. By making that argument, petitioner seeks to offensively use nonmutual collateral estoppel8 against the Government. We recognize that the Supreme Court, in recent years, has broadened the scope of collateral estoppel beyond its common-law limits by abandoning the requirement of mutuality of parties. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971). In Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979), the Supreme Court conditionally approved the “offensive” use of collateral estoppel by a plaintiff who was not a party to the prior lawsuit.9 However, the Supreme Court subsequently held in United States v. Mendoza, 464 U.S. 154, 162 (1984), that “nonmutual offensive collateral estoppel simply does not apply against the Government”.
The Supreme Court also indicated in Mendoza that, for the same reasons, mutuality of parties is a' prerequisite to the application of res judicata against the Government. “The doctrine of res judicata, of course, prevents the Government from relitigating the same cause of action against the parties to a prior decision, but beyond that point principles of non-mutual collateral estoppel give way to the policies just stated.” United States v. Mendoza, supra at 163 (fn. ref. omitted).
We find petitioner's reliance on McQuade v. Commissioner, 84 T.C. 137 (1985), as support for her position, to be misplaced. In that case, the bankruptcy court had determined the tax liability of both the husband-debtor and his wife even though only the husband had filed a petition in bankruptcy. The Tax Court was faced with the question of whether the taxpayer-wife should be deemed a “party” in the prior bankruptcy proceeding, even though she was not named as a debtor, so as to collaterally estop respondent in the Tax Court from litigating tax deficiencies against the taxpayer-wife pertaining to issues already litigated by the bankruptcy court. We held that the taxpayer-wife, who was not a named party in the prior bankruptcy proceeding, should nevertheless be considered bound by the proceeding because she was named by respondent individually as the surviving wife and executrix of her husband's estate in the notice of deficiency and directed the course of litigation of the bankruptcy suit. McQuade v. Commissioner, supra at 145-146. Petitioner, in the case before us, did not assist in the prosecution or defense of her husband in the bankruptcy court and her attorney admitted at the hearing on this motion that she did not participate in the bankruptcy proceeding in any manner. Thus, petitioner has failed to show that she was a “party” in the bankruptcy case of her husband and, under Tavery v. United States, 897 F.2d 1032 (10th Cir. 1990), she is not his “privy” with respect to it.
Accordingly, as the prerequisites for the application of res judicata and collateral estoppel are not fulfilled, these doctrines do not preclude respondent from disputing any rights, issues, and facts previously determined by the bankruptcy court in Mr. Kroh's case.
The final issue raised in petitioner's partial summary judgment motion is whether she may litigate her additions to tax in the event we determine that respondent is collaterally estopped in litigating tax deficiencies greater than the amounts recovered from petitioner's bankrupt husband. We do not need to decide this final issue because we have held that the principles of res judicata and collateral estoppel do not apply in the instant cases and that respondent is not precluded from litigating the full amount of the tax deficiencies. We, therefore, will not address this question.
We have found that nothing arising out of Mr. Kroh's bankruptcy case precludes respondent in these cases from litigating the correctness of petitioner's tax deficiencies and additions to tax as those amounts were set forth by respondent in petitioner's deficiency notices. Since the deficiency notices and the petitions were properly and timely filed in these cases, the parties are entitled to our adjudication of the correctness of respondent's determinations, without regard to the payments made to respondent after petitioner's deficiency notices were issued. Sec. 6213(a). We have considered petitioner's other arguments and have found them to be unpersuasive and without merit. In the event we uphold respondent's position on the substantive tax issues at trial, respondent will then be entitled to collect only those amounts that exceed the amounts collected in the bankruptcy case of petitioner's husband, the joint signer on petitioner's tax returns.
To reflect the foregoing,
An appropriate order will be issued.
Reviewed by the Court.
Nims, Chabot, Parker, Shields, Clapp, Swift, Jacobs, Gerber, Wright, Parr, Wells, Ruwe, Whalen, Halpern, and Beghe, JJ., agree with the majority opinion.