Tax Court Petitioners in Transferee Cases Cannot Extract Themselves from the Case Once the Petition is Filed

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Section 7459 contains an important feature of Tax Court that gets little attention. In Schussel v. Commissioner, 149 T.C. No. 16, the Court provided another glimpse at the importance of this section. Here, as in earlier cases involving section 7459, the Court must determine whether its jurisdiction over transferee liability cases invokes the restriction on dismissal contained in that section. In Schussel, a case of first impression, the Tax Court finds that transferee cases like deficiency cases, and generally unlike cases in which the Tax Court’s jurisdiction comes through a notice of determination, require a decision regarding the amount of the liability which prevents a taxpayer from voluntarily dismissing the case in hopes of starting over later or starting elsewhere.

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We have previously discussed this issue in the context of collection due process (CDP).   CDP cases start with a notice of determination. In Wagner v. Commissioner, 118 T.C. 330 (2002), the Tax Court held that a taxpayer who brings a CDP petition can request a dismissal of the case without having the Court reach a decision. The Wagner case distinguished Estate of Ming, 62 T.C. 519 (1974), which held that a taxpayer petitioning the Tax Court under IRC 6213 may not withdraw the petition in order to avoid the entry of decision. In other words, once a taxpayer is properly in a Tax Court case caused by a notice of deficiency, the only door out of the Court is a door that says how much the taxpayer owes.

Over the years, I have had a number of taxpayers rejoice at the dismissal of their case because they thought dismissal meant that did not owe any taxes. In the Tax Court, in a deficiency case, it means just the opposite. If jurisdiction attaches and the Tax Court dismisses the case, the taxpayer owes the full amount of the deficiency. This result may seem harsh or counterintuitive, but it puts the taxpayer in the same place the taxpayer would be if the taxpayer did not file a Tax Court petition. The result comes directly from the language of IRC 7459 which provides:

If a petition for redetermination of a deficiency has been filed by the taxpayer, a decision of the Tax Court dismissing the proceeding shall be considered as a decision that the deficiency is the amount determined by the Secretary. An order specifying such amount shall be entered in the records of the Tax Court unless the Tax Court cannot determine such amount from the record in this proceeding, or unless the dismissal is for lack of jurisdiction.

The decision of the Tax Court in Wagner holding that section 7459 did not apply in CDP cases was extended to stand alone innocent spouse cases, in Davidson v. Commissioner, 144 T.C. 273 (2015), and to whistleblower award cases, in Jacobson v. Commissioner, 148 T.C. 4 (Feb. 8, 2017). Mr. Schussel argued that the Tax Court’s jurisdiction under IRC 6901(a) for transferee liability cases more closely resembled the cases finding section 7459 inapplicable than it did deficiency cases.

Section 6901(a) provides that:

The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred:

  • Income, estate, and gift taxes.-
  • – The liability, at law or in equity, of a transferee of property –
  • Of a taxpayer in the case of a tax imposed by subtitle A (relating to income taxes),
  • Of a decedent in the case of a tax imposed by chapter 11 (related to estate taxes), or
  • Of a donor in the case of a tax imposed by chapter 12 (related to gift taxes),

In respect of the tax imposed by subtitle A or B.

(b) Liability. – Any liability referred to in subsection (a) may be either as to the amount of tax shown on a return or as to any deficiency or underpayment of any tax.

(f) Suspension of Running of Period of Limitations. – The running of the period of limitations upon the assessment of the liability of a transferee or fiduciary shall, after the mailing to the transferee or fiduciary of the notice provided for in section 6212 (relating to income, estate, and gift taxes), be suspended for the period during which the Secretary is prohibited from making the assessment in respect of the liability of the transferee or fiduciary (and, in any event, if a proceeding in respect of the liability is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for 60 days thereafter.

The language of the statute and the language of the regulations under the statute make transferee cases very much like deficiency cases. The Court also cited several cases going back to 1930 holding that the review in transferee cases is similar to the review in deficiency cases. The history of transferee liability places in back in time to the creation of the Tax Court, unlike the types of jurisdiction given to the Tax Court in 1998 and 2006, with respect to the types of cases that do not implicate section 7459.

The Court rejected petitioner’s argument that the parties had reached an agreement regarding the amount of his transferee liability which allowed the parties to move on without the need for a Tax Court decision. The Court stated that “it is incumbent upon them [the parties] to stipulate a decision reflecting that amount.”  The decision here places transferee cases on the same footing with deficiency proceedings.  If a taxpayer timely files a petition in a deficiency or a transferee case such that the Tax Court has jurisdiction over the case, the taxpayer must recognize that the end result of filing that petition will be a decision document determining the taxpayer’s liability, or lack of liability, with respect to the periods at issue in the case.

Conclusion

The importance of IRC 7459 in the Tax Court’s responsibility toward cases coming before it has importance in determining what is jurisdictional. We have blogged before about cases in which the Harvard Tax Clinic argues that time periods for filing Tax Court petitions are not jurisdictional but are claims processing rules. The cases in which Harvard has made this argument have been CDP cases and stand alone innocent spouse cases where section 7459 does not apply. If section 7459 applies, the dismissal of a case can have immediate tax consequences for a taxpayer. The Seventh Circuit case, Tilden v. Commissioner, which examined the Supreme Court legislation regarding time periods and applied it sua sponte to a deficiency case, did not mention this issue. Before arguing that the time period for filing a petition after receipt of a notice of deficiency or a notice of transferee liability is not jurisdictional but only a claims processing rule, the petitioner must carefully think through the implications of section 7459 on the outcome of the cases in which the Tax Court finds no basis for equitably tolling the statute.

 

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