Opinion
Case No. CV-00-679-S-BLW
August 31, 2001
JUDGMENT
The Court has before it a Report and Recommendation filed by the United States Magistrate, Judge Larry M. Boyle. The defendant, the Government, filed an objection to the Report. The Court examined the Report under the de novo standard of review set out in 28 U.S.C. § 636 (b)(1)(C). On the basis of that review, the Court shall adopt the Report except its findings that die second and third mitigation provisions were met in this case as set forth in 26 U.S.C. § 1311.(b)(1)(A) and 1312, respectively. Because Plaintiff George W. Anthony failed to meet these provisions as a matter of law, Internal Revenue Codc (I.R.C.) § 6512 applies, thereby depriving the Court of subject-matter jurisdiction over plaintiff's claim.]"be Court will, therefore, grant the Government's Motion to Dismiss for lack of subject-matter jurisdiction. The Court shall provide additional rationale for reaching this decision, but will not repeat the facts of this case, which were accurately set forth in the Report.
ANALYSIS
A. Standard for Rule 12(b)(1) Motion to Dismiss
The Report and Recommendation accurately sets forth Ninth Circuit Court of Appeals' law regarding the standard for ruling on a Rule 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction. In summary, the facts of this case require the Court to usc a summary judgment standard under Rule 56 to determine whether the Court has subject-matter jurisdiction. Using that standard, the Court concludes as a matter of law that the Plaintiff failed to qualify for an exception to the application of I.R.C. § 6512; therefore, the Court does not have subject-matter jurisdiction.
B. Law and Application
Section 65 12(a) of the Internal Revenue Code states:
If the taxpayer files a petition with the Tax Court within the time prescribed . . . no credit or refund of income tax for the same taxable year . . . in respect of which the Secretary has determined the deficiency shall be allowed or made and no suit by the taxpayer for the recovery of any part of the tax shall be instituted in any court.26 U.S.C. § 6512 (a) (1989).
The Ninth Circuit has interpreted this section broadly, such chat the mere filing of the petition in the tax court deprives the district court of subject-matter jurisdiction to hear a subsequent suit for refund. See First National Bank of Chicago v. United States, 792 P.24 954, 955-56 (9th Cir. 1985) (citing United States v. Wolf, 238 F.2d 447, 449 (9th Cir. 1956)). This is the proper rule even where the issue brought before the district court was not litigated in the tax court. See id. at 956 ("'It is not the decision which the Tax Court makes but the fact that the taxpayer has resorted to that court which ends his opportunity to litigate in the District Court his tax liability for the year in question.'") (quoting Elbert v. Johnson, 164 F.2d 421, 424 (2nd Cir. 1947)).
To avoid the potentially harsh effect of I.R.C. § 6512, Congress adopted the mitigation provisions. See 26 U.S.C. § 1311-14. The mitigation provisions provide a limited exception whereby a district court can retain subject-matter jurisdiction even though the taxpayer has filed a petition in tax court. See Beaudry Motor Co. v. United States, 98 F.3d 1167, 1168 (9th Cir. 1996); Schwartz v. United States, 67 F.3d 838. 839-40 (9th Cir. 1995). The provisions apply to a number of different scenarios, but for simplicity sake, the Court will explain the purpose and application of the provisions as related to the facts of this case.
The provisions were designed to prevent the IRS from taking one position on a tax issue in one year and then changing its position on that same issue with respect to the same taxpayer once the statute of limitations runs, thereby making it impossible for the taxpayer to have the second position applied to the closed tax year. Cocchiara v. United States, 779 F.2d 1108, 111 (5th Cir. 1986); see also John A. Lynch, Jr., Income Tax Statute of Limitations: Sixty Years of Mitigation — Enough, Already!!, 51 S.C.L. Rev. 62, 63-77 (Fall 1999) (discussing the purpose and application of the mitigation provisions). Without such a provision, the IRS could take advantage of die taxpayer by causing him or her to rely on its first position and then changing that position to the taxpayer's detriment. The effect on the taxpayer is that he or she would end up being penalized twice. See Cocchiara, 779 R2d at 1111. The mitigation provisions allow the taxpayer to have the subsequent IRS position applied to the closed tax year under limited circumstances. See Id.
In order to invoke the mitigation provisions, a claimant must meet three requirements. The Ninth Circuit has consistently held that the mitigation provisions must be construed narrowly. See Beaudry Motor, 98 F.3d at 1168; Schwartz v. United States, 67 F.3d at 839-40. The First requirement is that there must be a final determination in which the alleged error took place. See Beaudty Motor, 98 F.3d at 1168. Both parties agree chat this requirement has been met, and the Court so finds.
The second requirement is that the IRS must have maintained a position contrary to that taken by the taxpayer, and the tax court must have adopted the IRS's position. See Cocchiara, 779 Rid at 1111 (5th Cir. 1986). Under the agreed upon facts of this case, this requirement is not met. The Plaintiff does not contend that his position was inconsistent with the position of the IRS when they were before the Tax Court. On the contrary, the Plaintiff recognizes that the parties' positions were consistent with one another because they had entered into an agreement. It was this agreement which the Tax Court adopted.
The Plaintiff attempts to expand the meaning of the second requirement to encompass situations where the parties do not hold inconsistent positions until after the final determination has been made. The Plaintiff, however, has presented neither case law nor legal theory supporting this expanded reading, and the Court finds the mitigation provisions do not support such a reading.
The third factor is that "the error fall within one of the specified circumstances of adjustment." See Beaudry Motor, 98 F.3d at 1168. In this case, the Plaintiff claimed there was a "double inclusion of an item of gross income." 26 U.S.C. § 1312 (1). This circumstance of adjustment "requires the inclusion in gross income of an item which was erroneously included in the gross income of the taxpayer for another taxable year or in the gross income of a related taxpayer." Id. (emphasis added). The Plaintiff would like to apply this provision to errors discovered after the tax court determination and within the same tax year. The Plaintiff argues that a strict reading of the term "another taxable year" is too hypertechnical, even under a strict reading. The Court disagrees. The mitigation provisions provide limited tax relief in the current year to an otherwise strict application of the statute of limitations to a tax year in the past. The mitigation provisions were simply not designed to apply to a situation like the Plaintiff's. See Beaudry Motor, 98 F.3d at 1168 (the "determination must be "inconsistent' with a determination made in another [read, priori year" (brackets in the original)).
Because the mitigation provisions do not apply, § 6512(a) operates in full, denying the Court subject-matter jurisdiction. The Plaintiff also argues that the Court may claim subject-matter jurisdiction because the issue being litigated is different from the issue litigated in the Tax Court; therefore, § 6512(a) and res judicata do not apply. The Court disagrees. The Plaintiff is essentially arguing that there was a mistake made in the agreement between the IRS and the Plaintiff and that the mistake then became a part of the Tax Court's final judgment. Whether the mistake may be corrected is up to the Tax Court and will not be addressed here. In order to preserve judicial resources and to reach finality for the benefit of the parties, public policy dictates that this is an appropriate situation to apply § 6512(a) and the doctrine of res judicata. Accordingly,
NOW THEREFORE IT IS HEREBY ORDERED, that the Report and Recommendation (Docket No. 24) shall be, and the same is hereby, ADOPTED IN PART, AND REJECTED TN PART, as the decision of the District Court. The Court declines to adopt the analysis of the second and third mitigation factors.
IT IS FURTHER ORDERED, that Defendant's Motion to Dismiss for lack of subject. matter jurisdiction (Docket No. 10) shall be, and the same is hereby, GRANTED, and that this action be DISMISSED IN ITS ENTIRETY.