F I L E D United States Court of Appeals Tenth Circuit UNITED STATES COURT OF APPEALS NOV 6 2000 FOR THE TENTH CIRCUIT PATRICK FISHER Clerk
TIMOTHY JOHN MARTIN,
Petitioner-Appellant,
v. No. 99-9027 (T.C. No. 20034-88) COMMISSIONER OF INTERNAL (Petition for Review) REVENUE,
Respondent-Appellee.
ORDER AND JUDGMENT *
Before BRORBY, PORFILIO, and MURPHY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument.
* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3. Taxpayer Timothy John Martin requests review of a decision of the United
States Tax Court disallowing certain losses, deductions, and credits claimed from
his investment in a limited partnership tax shelter. On appeal, taxpayer asserts
that the Tax Court violated his due process rights by ruling against him without
affording him an evidentiary hearing. We have jurisdiction pursuant to 26 U.S.C.
§ 7482, and we affirm the decision of the Tax Court.
I. Background
In the early 1980’s, taxpayer formed R & M Partners, an entity he then used
to purchase a limited partnership interest in Durango Oil and Gas Associates
(Durango), an Electra/Hemisphere tax shelter. On his tax returns for the years
1980, 1981, and 1982, taxpayer claimed distributive losses, deductions, and tax
credits from the Durango interest. In 1988, the Commissioner sent taxpayer a
notice of deficiency disallowing the Durango losses, deductions, and tax credits
and assessing increased interest pursuant to 26 U.S.C. § 6621(c).
Taxpayer timely filed a petition in Tax Court for a redetermination of the
stated tax liabilities. The Tax Court issued taxpayer an order to show cause as to
why it should not enter a decision in his case in accordance with Krause v.
Commissioner , 99 T.C. 132 (1992), aff’d sub nom. Hildebrand v. Commissioner ,
28 F.3d 1024 (10th Cir. 1994), the test case in the Elektra/Hemisphere group of
Tax Court cases. After considering taxpayer’s response, the Tax Court entered an
-2- order upholding the Commissioner’s finding of income tax deficiencies for the
years in question and assessing increased interest pursuant to 26 U.S.C. § 6621(c).
Taxpayer seeks review of this order.
II. Discussion
We review Tax Court decisions “in the same manner and to the same extent
as decisions of the district courts in civil actions tried without a jury.” 26 U.S.C.
§ 7482(a)(1). Thus, we review purely factual issues under a clearly erroneous
standard, and we review purely legal questions de novo. See Twenty Mile Joint
Venture, PND, Ltd. v. Commissioner , 200 F.3d 1268, 1275 (10th Cir. 1999).
In Krause , following a fifteen-week hearing, the Tax Court issued a lengthy
and comprehensive decision, holding that Electra/Hemisphere partnerships lacked
a profit motive and upholding the Commissioner’s disallowance of losses and
assessments of increased interest. See 99 T.C. at 175-76. In an equally thorough
affirmance, this court upheld the decision of the Tax Court. See Hildebrand , 28
F.3d at 1028.
The Tax Court uses the show cause procedure in cases where, as here, the
decision on the instant case may be affected by a previously decided test case.
See Acierno v. Commissioner , 74 T.C.M. (CCH) 738 (1997) (citing example
cases), aff’d , 185 F.3d 861 (3d Cir. 1999) (table). In conformity with this
procedure, the Tax Court issued an order directing taxpayer to show cause as to
-3- why a decision in his case should not be entered in accordance with the Tax
Court’s decision in Krause , which also involved Elektra/Hemisphere cases. See
R. Order dated May 14, 1999. The court advised taxpayer that, if issues remained
which were not resolved by Krause , he needed to inform the Tax Court of those
issues. See id. In his response, taxpayer argued that if given the opportunity to
conduct discovery, he would be able to successfully distinguish his case from
Krause . He asserted that he had not started discovery due to “his attempt to
resolve the case” outside of litigation. 1 Id. Status Report dated July 15, 1999.
The Tax Court found his response insufficient and entered an order upholding the
Commissioner’s deficiency assessments.
On appeal, taxpayer argues that he was denied procedural due process when
the Tax Court failed to hold an evidentiary hearing prior to ruling in favor of the
Commissioner. Procedural due process requires notice and an opportunity to be
heard. See Mullane v. Central Hanover Bank & Trust Co. , 339 U.S. 306, 313-14
(1950) (holding that “at a minimum” due process “require[s] that deprivation of
1 Labeling the Tax Court’s settlement offers as “arbitrary” and “capricious,” taxpayer also asserted that he had not previously settled his case because he was not afforded the same favorable terms of settlement offered to other investors. R. Status Report dated July 15, 1999. The Tax Court did not address this contention in its order making the show cause order absolute. Because taxpayer did not raise this issue on appeal, the issue is deemed waived. See State Farm Fire & Cas. Co. v. Mhoon , 31 F.3d 979, 984 n.7 (10th Cir. 1994) (holding that failure to raise issue in opening brief waives the issue).
-4- life, liberty or property by adjudication be preceded by notice and opportunity for
hearing appropriate to the nature of the case”). However, a hearing is not
necessarily required in order to satisfy due process. See Cafeteria & Restaurant
Workers, Local 473 v. McElroy , 367 U.S. 886, 894-95 (1961). “An elementary
and fundamental requirement of due process in any proceeding which is to be
accorded finality is notice reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections.” Mullane , 339 U.S. at 314 (citations
omitted).
Here, taxpayer had notice of the court’s intent to decide his case pursuant
to Krause , and an opportunity to object to this disposition with enough specificity
to convince the court that his case may be distinguishable. Krause was decided in
1992, and affirmed by this court in 1994. The Tax Court’s order to show cause
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F I L E D United States Court of Appeals Tenth Circuit UNITED STATES COURT OF APPEALS NOV 6 2000 FOR THE TENTH CIRCUIT PATRICK FISHER Clerk
TIMOTHY JOHN MARTIN,
Petitioner-Appellant,
v. No. 99-9027 (T.C. No. 20034-88) COMMISSIONER OF INTERNAL (Petition for Review) REVENUE,
Respondent-Appellee.
ORDER AND JUDGMENT *
Before BRORBY, PORFILIO, and MURPHY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument.
* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3. Taxpayer Timothy John Martin requests review of a decision of the United
States Tax Court disallowing certain losses, deductions, and credits claimed from
his investment in a limited partnership tax shelter. On appeal, taxpayer asserts
that the Tax Court violated his due process rights by ruling against him without
affording him an evidentiary hearing. We have jurisdiction pursuant to 26 U.S.C.
§ 7482, and we affirm the decision of the Tax Court.
I. Background
In the early 1980’s, taxpayer formed R & M Partners, an entity he then used
to purchase a limited partnership interest in Durango Oil and Gas Associates
(Durango), an Electra/Hemisphere tax shelter. On his tax returns for the years
1980, 1981, and 1982, taxpayer claimed distributive losses, deductions, and tax
credits from the Durango interest. In 1988, the Commissioner sent taxpayer a
notice of deficiency disallowing the Durango losses, deductions, and tax credits
and assessing increased interest pursuant to 26 U.S.C. § 6621(c).
Taxpayer timely filed a petition in Tax Court for a redetermination of the
stated tax liabilities. The Tax Court issued taxpayer an order to show cause as to
why it should not enter a decision in his case in accordance with Krause v.
Commissioner , 99 T.C. 132 (1992), aff’d sub nom. Hildebrand v. Commissioner ,
28 F.3d 1024 (10th Cir. 1994), the test case in the Elektra/Hemisphere group of
Tax Court cases. After considering taxpayer’s response, the Tax Court entered an
-2- order upholding the Commissioner’s finding of income tax deficiencies for the
years in question and assessing increased interest pursuant to 26 U.S.C. § 6621(c).
Taxpayer seeks review of this order.
II. Discussion
We review Tax Court decisions “in the same manner and to the same extent
as decisions of the district courts in civil actions tried without a jury.” 26 U.S.C.
§ 7482(a)(1). Thus, we review purely factual issues under a clearly erroneous
standard, and we review purely legal questions de novo. See Twenty Mile Joint
Venture, PND, Ltd. v. Commissioner , 200 F.3d 1268, 1275 (10th Cir. 1999).
In Krause , following a fifteen-week hearing, the Tax Court issued a lengthy
and comprehensive decision, holding that Electra/Hemisphere partnerships lacked
a profit motive and upholding the Commissioner’s disallowance of losses and
assessments of increased interest. See 99 T.C. at 175-76. In an equally thorough
affirmance, this court upheld the decision of the Tax Court. See Hildebrand , 28
F.3d at 1028.
The Tax Court uses the show cause procedure in cases where, as here, the
decision on the instant case may be affected by a previously decided test case.
See Acierno v. Commissioner , 74 T.C.M. (CCH) 738 (1997) (citing example
cases), aff’d , 185 F.3d 861 (3d Cir. 1999) (table). In conformity with this
procedure, the Tax Court issued an order directing taxpayer to show cause as to
-3- why a decision in his case should not be entered in accordance with the Tax
Court’s decision in Krause , which also involved Elektra/Hemisphere cases. See
R. Order dated May 14, 1999. The court advised taxpayer that, if issues remained
which were not resolved by Krause , he needed to inform the Tax Court of those
issues. See id. In his response, taxpayer argued that if given the opportunity to
conduct discovery, he would be able to successfully distinguish his case from
Krause . He asserted that he had not started discovery due to “his attempt to
resolve the case” outside of litigation. 1 Id. Status Report dated July 15, 1999.
The Tax Court found his response insufficient and entered an order upholding the
Commissioner’s deficiency assessments.
On appeal, taxpayer argues that he was denied procedural due process when
the Tax Court failed to hold an evidentiary hearing prior to ruling in favor of the
Commissioner. Procedural due process requires notice and an opportunity to be
heard. See Mullane v. Central Hanover Bank & Trust Co. , 339 U.S. 306, 313-14
(1950) (holding that “at a minimum” due process “require[s] that deprivation of
1 Labeling the Tax Court’s settlement offers as “arbitrary” and “capricious,” taxpayer also asserted that he had not previously settled his case because he was not afforded the same favorable terms of settlement offered to other investors. R. Status Report dated July 15, 1999. The Tax Court did not address this contention in its order making the show cause order absolute. Because taxpayer did not raise this issue on appeal, the issue is deemed waived. See State Farm Fire & Cas. Co. v. Mhoon , 31 F.3d 979, 984 n.7 (10th Cir. 1994) (holding that failure to raise issue in opening brief waives the issue).
-4- life, liberty or property by adjudication be preceded by notice and opportunity for
hearing appropriate to the nature of the case”). However, a hearing is not
necessarily required in order to satisfy due process. See Cafeteria & Restaurant
Workers, Local 473 v. McElroy , 367 U.S. 886, 894-95 (1961). “An elementary
and fundamental requirement of due process in any proceeding which is to be
accorded finality is notice reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections.” Mullane , 339 U.S. at 314 (citations
omitted).
Here, taxpayer had notice of the court’s intent to decide his case pursuant
to Krause , and an opportunity to object to this disposition with enough specificity
to convince the court that his case may be distinguishable. Krause was decided in
1992, and affirmed by this court in 1994. The Tax Court’s order to show cause
was not issued until May 1999. 2 Taxpayer, therefore, had ample time and
opportunity to do the discovery he perceived necessary in order to support his
contention that his case was distinguishable from Krause. This he failed to do.
2 The record on appeal is unclear as to why this case languished in Tax Court from August 1988 until the decision was entered in September 1999. The Tax Court docket sheet indicates that an earlier order to show cause was issued in July 1992, amended in August 1992, and discharged in November 1992. The docket does not indicate further activity until the second order to show cause was issued in May 1999.
-5- Given these circumstances, we conclude that the Tax Court disposition of
taxpayer’s petition without a hearing did not violate due process. See, e.g .,
Knighten v. Commissioner , 702 F.2d 59, 61 (5th Cir. 1983) (holding if petitioner
fails to assert any factual dispute and all his legal arguments are clearly meritless,
“there is simply no point in having [a hearing]. The Constitution does not require
such futile exercises.”). The petition for review is GRANTED, and the decision
of the Tax Court is AFFIRMED.
Entered for the Court
Wade Brorby Circuit Judge
-6-