Opinion
16277-16L
06-16-2023
KEVIN J. MIRCH AND MARIE C. MIRCH, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda, Judge
Petitioners, Kevin and Marie Mirch, initiated this collection due process (CDP) case pursuant to sections 6320 and 6330 in response to a notice of determination issued by the Internal Revenue Service (IRS) Office of Appeals. The notice upheld the filing of a notice of federal tax lien (NFTL) with respect to their 2004, 2006, and 2008 unpaid federal income tax liabilities. [Doc. 1 at 1.] After concessions, the parties' dispute focuses solely on the collection action as it relates to the 2006 tax year. [Doc. 59 at 3-4.]
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar.
On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001(a), 133 Stat. 981, 983 (2019). As the events in this case predate that change, we use the name in effect at the times relevant to this case, i.e., the Office of Appeals.
The Commissioner has conceded that the Mirches' underlying tax liability for tax year 2006 is properly at issue because the Mirches never received the statutory notice of deficiency that the IRS attempted to deliver to them. See I.R.C. § 6330(c)(2)(B); Montgomery v. Commissioner, 122 T.C. 1, 7- 8 (2004).
The Mirches assert, inter alia, that the underlying notice of deficiency for 2006 was invalid and that the three-year statute of limitations had run before the IRS assessed their tax liability. The Commissioner moves for partial summary judgment as to the notice's validity, contending that this Court has previously resolved the issue in his favor and that various species of preclusion, including collateral estoppel, apply. The Commissioner further contends that this conclusion also dictates that the assessment was timely, based upon the mechanical operation of the Code.
We conclude that collateral estoppel applies, but that a genuine dispute of material fact exists with respect to the propriety of the assessment. We accordingly will grant the Commissioner's motion in part and deny it in part.
Background
The following facts are derived from the parties' pleadings, motion papers, and declarations and exhibits attached thereto. They are stated solely for the purpose of deciding the motion for partial summary judgment before us and not as findings of fact in this case. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). We also take judicial notice of the proceedings before this Court in Docket No. 15305-11. See Fed. R. Evid. 201; Leyshon v. Commissioner, T.C. Memo. 2015-104 at *14-17 (taking judicial notice of records of prior proceeding concerning same petitioner), aff'd, 649 Fed.Appx. 299 (4th Cir. 2016).
I. Preliminaries
Kevin and Marie Mirch are attorneys who were living in California at the time of the filing of the petition. [Doc. 1; Doc. 127 at 203.] The Mirches received an extension of time to file their 2006 tax return until October 15, 2007, with the IRS receiving this return (with signatures dated October 15, 2007 [Doc. 24 at 445]) on October 17, 2007. [Doc. 127 at 125.] The IRS subsequently issued a notice of deficiency dated June 29, 2010, determining a federal income tax deficiency of $99,862 for the Mirches' 2006 tax year. [Id. at 48-74.] The notice of deficiency was addressed to "Kevin J & Marie C Mirch, 1257 Moana Drive, San Diego CA 92107-3910" [id. at 48], and the IRS sent a separate copy to each of the Mirches at the same address [id. 134-35]. Both notices went unclaimed [id.], and the IRS assessed the Mirches 2006 income tax deficiency on December 20, 2010 [id. at 9].
II. Dismissal of Deficiency Case (Docket No. 15305-11)
On June 28, 2011, the Mirches filed a petition in this Court (Docket No. 15305-11) contesting, inter alia, the Commissioner's deficiency determinations for tax year 2006. [Doc. 127 at 75-78.] The Commissioner filed a motion to dismiss for lack of jurisdiction on timeliness grounds, and this Court held an evidentiary hearing to consider the motion. [Id. at 149-260.]
During the evidentiary hearing, the Commissioner explained that the Court's jurisdiction hinged on a "valid notice issued to a taxpayer at their last-known address" and the filing of "a timely petition . . . with respect to that deficiency notice or other determination." [Doc. 127 at 155.] To establish the issuance of a valid notice, the Commissioner relied on a dated notice of deficiency, certified mail envelopes individually addressed to Kevin and Marie Mirch at their San Diego address, and a matching Postal Service Form 3877, Firm Mailing Book for Accountable Mail, which reflected that the notices had been sent by certified mail to the Mirches' San Diego address on June 29, 2010. [Id. at 159-161.] Although the Mirches conceded under oath that the notice of deficiency "was sent to [the Mirches'] last known address" [id. at 169], they questioned the mailing of the notice from Las Vegas [id. at 169] and suggested that the signatures on certain extension forms (relating to 2004 [id. at 189]) might have been falsified [id. at 181].
We dismissed the Mirches' petition for lack of jurisdiction, "find[ing] that [the Commissioner] mailed to [the Mirches] a valid notice of deficiency and [they] did not timely file a petition contesting [the Commissioner's] determinations in the notice of deficiency." [Doc. 127 at 276.] In reaching this conclusion, we noted that the Mirches "conceded that [the Commissioner] mailed the notice of deficiency to their last known address," and that the "record contains no credible evidence to rebut the presumption of actual mailing." [Id.] We also observed that the Commissioner had introduced copies of the notice of deficiency and Form 3877, as well as certified mail envelopes bearing tracking numbers that corresponded to the certified mail tracking numbers on the Form 3877. [Id.] And we detailed that the envelopes "show that USPS left notice for each petitioner on June 30, 2010, and again on July 10, 2010, and that USPS ultimately returned the envelopes to the sender as 'unclaimed' on July 16, 2010." [Id.] The U.S. Court of Appeals for the Ninth Circuit later affirmed this ruling. Mirch v. Commissioner, 604 Fed.Appx. 564 (9th Cir. 2015), aff'g No. 15305-11 (Jan. 7, 2013).
III. CDP Proceedings
To collect the Mirches' tax liabilities, the IRS issued a notice to the Mirches informing them of the filing of an NFTL with respect to their unpaid federal income tax liabilities. [Doc. 127 at 7-13.] The Mirches timely requested a CDP hearing, asserting "[u]nderlying amounts are not valid" and "assessments were made outside statute of limitations." [Id. at 15.] The IRS subsequently issued a notice of determination sustaining the NFTL filing [Id. at 17-23], and the Mirches then initiated this CDP action. [Doc. 1.]
In their petition, the Mirches asserted that they "did not receive timely notice of deficiency" and that the "[s]tatute of limitations on the notice of deficiency . . . were sent late." [Doc. 1 at 2.] Throughout the pendency of this litigation, the Mirches have identified as issues: (1) "Whether [the Mirches] were served a valid Statutory Notice of Deficiency" and (2) "Whether the assessments were barred by the statutes of limitations." [Doc. 71 at 3; see also, e.g., Docs. 48, 86, 100.]
Discussion
I. Summary Judgment Standard
We may grant summary judgment (or partial summary judgment regarding an issue) if there is no genuine dispute of material fact and a decision may be rendered as a matter of law. See Rule 121(a); see also Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). The moving party bears the burden of proving that there is no genuine issue of material fact, and 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.
A "declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the . . . declarant is competent to testify on the matters stated." Rule 121(c)(4). The Mirches argue that the Commissioner's declaration fails this requirement because the declarant (the Commissioner's trial counsel) lacked personal knowledge and was not competent to testify to the matters stated. [Doc. 141 at 13-14.] In her declaration, however, the Commissioner's counsel explained that she was "competent to testify as to formal matters involved in this case because the Commissioner's administrative and legal files for both the instant collection due process case and the underlying deficiency case had come into [her] custody and control." [Doc. 127 at 2.] The declaration passes muster under Rule 121(c)(4), as her custody and control plainly gave her both the personal knowledge and competence to testify to the documents in the Commissioner's administrative and legal file.
Even if we were to determine that the declaration did not satisfy our Rules, the material in the declaration pertinent to deciding the issue of collateral estoppel stems from the record documents in this case and in the Mirches' previous deficiency case. As explained in the context of Rule 56 of the Federal Rules of Civil Procedure, on which our Rule 121 is based, the "court and the parties have great flexibility with regard to the evidence that may be used in a [summary judgment] proceeding." 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2721 (4th ed. 2016). "[A]lthough the court is required only to consider the materials cited by the parties, it has discretion to consider other materials in the record when making its determination." Id. Moreover, "[t]he doctrine of judicial notice applies to [summary judgment] motions," and we "may take judicial notice of other cases involving the same subject matter or presenting issues of a related nature between the same parties." Id. § 2723.
II. Challenge to the Validity of the 2006 Notice
In his motion for partial summary judgment, the Commissioner asserts that multiple doctrines (collateral estoppel, res judicata, and judicial estoppel) apply to prohibit the Mirches' challenge to the validity of the 2006 notice of deficiency. Our analysis begins and ends with collateral estoppel.
Collateral estoppel precludes a party from relitigating an issue (either of fact or law) where certain requirements are met. See Atkinson v. Commissioner, T.C. Memo. 2012-226, at *12 (citing Blanton v. Commissioner, 94 T.C. 491, 495 (1990)). For this doctrine to apply, "(1) the issue in the second suit must be identical in all respects with the one decided in the first suit; (2) there must be a final judgment rendered by a court of competent jurisdiction; (3) the party against whom collateral estoppel is asserted must have been a party to the first suit or a privy to a party; (4) the parties must have actually litigated the issues and the resolution of these issues must have been essential to the prior decision; and (5) the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation." Kaebel v. Commissioner, T.C. Memo. 2021-109, at *12 (citing Peck v. Commissioner, 90 T.C. 162, 166-67 (1988), aff'd, 904 F.2d 525 (9th Cir. 1990)).
Each of these requirements has been met. In the deficiency action, we "f[ou]nd that [the Commissioner] mailed to [the Mirches] a valid notice of deficiency," the same issue that they seek to dispute in their current CDP suit. And, of course, the Mirches were parties to both actions.
Moreover, the dismissal of the Mirches' deficiency case for lack of jurisdiction constitutes a final decision for purposes of collateral estoppel. See Kaebel, T.C. Memo 2021-109 at *13 ("A dismissal for lack of jurisdiction precludes relitigation of issues essential in ruling on the jurisdictional question") (citations omitted). As the U.S. Court of Appeals for the Seventh Circuit has explained, "a judgment on the merits precludes relitigation of any ground within the compass of the suit, while a jurisdictional dismissal precludes only the relitigation of the ground of that dismissal . . . and thus has collateral estoppel (issue preclusion) effect rather than the broader res judicata effect that nowadays goes by the name of claim preclusion." Okoro v. Bohman, 164 F.3d 1059, 1063 (7th Cir. 1999).
We likewise conclude that the parties actually litigated the validity of the notice of deficiency in Docket No. 15305-11 and that the resolution of that issue was essential to our prior decision that the case should be dismissed for lack of jurisdiction on timeliness grounds. As we understood during the previous case, "[i]f we conclude that the notice of deficiency is invalid, we must dismiss this case on that basis and not for lack of a timely filed petition." Lee v. Commissioner, T.C. Memo. 2011-129, 2011 WL 2271722, at *2; see also Occean v. Commissioner, T.C. Memo. 1991-439, 1991 WL 171704, at *2 (citing Pietanza v. Commissioner, 92 T.C. 729, 735-36 (1989), aff'd without published opinion 935 F.2d 1282 (3rd Cir. 1991)). We accordingly heard from the parties as to the validity of the notice, with the Commissioner presenting evidence (notices, certified mail envelopes, and a matching Form 3877) that the notice was mailed on June 29, 2010, to each of the Mirches at an address that they later acknowledged to be their last known address in San Diego. For their part, the Mirches were given the opportunity to testify and to present any evidence or argument that the notice was invalid. Our finding that the IRS sent a valid notice of deficiency thus was both the product of actual litigation between the parties and a prerequisite to deciding the issue that resolved the case.
Finally, we conclude that the controlling facts and applicable legal rules remain unchanged from those in the deficiency litigation. "If the evidence submitted by [the taxpayer] in this case was not available to him in the prior proceeding and would tend to alter the controlling facts as they were found in that proceeding, the doctrine of collateral estoppel is not applicable because the controlling facts have changed." Sidoran v. Commissioner, T.C. Memo. 1982-197, 43 T.C.M. (CCH) 1067, 1069 (citation omitted); accord Herrera v. Commissioner, T.C. Memo. 2015-251, at *5 (citations omitted). Whether such evidence is considered "available" in a prior proceeding depends on whether it could have been procured by "due diligence." Sidoran, 43 T.C.M. (CCH) at 1070; accord Herrera, T.C. Memo 2015-251, at *5 (citations omitted). "Because the doctrine of collateral estoppel is an affirmative defense, the burden of proof on this issue is on respondent." Sidoran, 43 T.C.M. (CCH) at 1069-70 (citation omitted).
Construing the Mirches' opposition to the Commissioner's motion broadly, they identify two facts that might not have been before us during Docket No. 15305-11: (1) the Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for the Mirches' 2006 tax year, which features an entry of "ADDITIONAL TAX ASSESSED BY EXAMINATION AGREED AUDIT DEFICIENCY PRIOR TO 30 OR 60 DAY LETTER" in connection with the $99,862 assessment on December 20, 2010 [Doc. 141 at 19; Doc. 127 at 129], and (2) a 2015 email from the settlement officer stating that notice of deficiency was "issued separately to [the Mirches] to their last known address in Las Vegas, Nv" [Doc. 141at 17-18; accord Doc. 116 at 73]. Neither shows a change in the controlling facts. The first relates to assessment and has no bearing on the validity of the notice. The second contains no substantive information that might cast doubt on the conclusion compelled by the notices, certified mail envelopes, and the Form 3877 that the notice was sent to the Mirches' last known address in San Diego.
In short, the doctrine of collateral estoppel applies to the issue of the validity of the 2006 notice. Our conclusion on this point is not inconsistent with our earlier rulings, [Docs. 35, 118], denying summary judgment (to each party), which focused on the evidence to establish validity or invalidity of the notice, rather on whether this point was precluded based on collateral estoppel.
III. Timeliness of Tax Assessment
Having concluded that the notice was valid, we consider the timeliness of the December 20, 2010, assessment. Generally, the Commissioner has three years to assess tax after the filing of a return. I.R.C. § 6501(a). That period, however, is suspended after the issuance of a notice of deficiency for 90 days, I.R.C. § 6213(a), and, if no petition is timely filed in this Court, for an additional 60 days thereafter, I.R.C. § 6503(a)(1). The Commissioner may tack any days remaining onto the three-year limitations period when that period was suspended by the issuance of a deficiency notice. See, e.g., Ripley v. Commissioner, 105 T.C. 358, 362-63 (1995), rev'd on other grounds, 103 F.3d 332 (4th Cir. 1996) (citations omitted); Bales v. Commissioner, 22 T.C. 355, 358-59 (1954).
At first blush, it appears that the assessment was timely. Viewing the facts in the light most favorable to the Mirches, they filed their tax return on October 15, 2007, and 110 days remained in the limitations period when the IRS issued the notice of deficiency on June 29, 2010. Tacking this 110 days onto the 150 days derived from sections 6213(a) and 6503(a)(1) means that the assessment was required to take place on or before March 16, 2011. According to the Form 4340, the IRS assessed $99,862 on December 20, 2010, well before the expiration of that period. [Doc. 107 at 11, 42; Doc. 127 at 9.]
The Mirches, however, point out that the entry notation on the Form 4340 for the assessment of December 20, 2010, states "AGREED AUDIT DEFICIENCY PRIOR TO 30 OR 60 DAY LETTER." [Doc. 141 at 19.] This observation is of a piece with the Mirches' long-standing argument that the wording in the Form 4340 betokens some fatal irregularity or defect with the assessment, as they never agreed to any audit deficiency. [Doc. 106 at 20.] Although the Commissioner acknowledges that the assessment was not based on an agreed audit deficiency, his conclusory response (up to this point) has been that any inconsistency or error in this regard is of no moment. [Doc. 110 at 5-7.] Without more, we are unable to agree, and we accordingly will deny summary judgment on this ground.
Considering the foregoing, it is
ORDERED that the Commissioner's motion for partial summary judgment, filed April 21, 2023, is granted in part in that the Mirches are precluded, under the doctrine of collateral estoppel, from arguing that the June 29, 2010, notice of deficiency was invalid. It is further
ORDERED that the Commissioner's motion for partial summary judgment, filed April 21, 2023, is denied in part in that summary judgment is not appropriate for deciding whether the Commissioner's December 20, 2010, assessment was timely.