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Notice of deficiency held invalid when two separate, but related, corporations identified

Notice of deficiency held invalid

The U.S. Tax Court today in a “reviewed opinion” found that a notice of deficiency was invalid because it did not reflect that the IRS made a deficiency determination as to the taxpayer (petitioner) in this case pursuant to the requirements of section 6212(a).

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The case is: U.S. Auto Sales, Inc. v. Commissioner, 153 T.C. No. 5 (October 28, 2019). Read the Tax Court’s opinion [PDF 157 KB] that includes concurring and dissenting opinions.

Background

The IRS in May 2012 issued to the taxpayer (petitioner) an 11-page document purporting to be a notice of deficiency for tax years ending June 30, 2003, and June 30, 2007. The IRS determined deficiencies of $24,480 and $30,668, respectively.

The first four pages of the May 2012 notice identified the taxpayer, but the last seven pages identify a separate, related corporation as the taxpayer. The taxpayer timely petitioned the Tax Court with respect to the May 2012 notice.

The IRS then issued a second notice of deficiency in August 2012 for the tax years ending June 30, 2007, and June 30, 2008. The IRS determined income tax deficiencies of about $3.37 million and $3 million, respectively, and penalties under section 6662. The taxpayer timely petitioned the Tax Court with respect to the August 2012 notice.

The IRS moved to dismiss for lack of jurisdiction, contending that the May 2012 notice failed to identify a particular taxpayer as being responsible for the deficiencies. The taxpayer opposed the motion to dismiss, asserting that the May 2012 notice made a deficiency determination and identified years and amounts at issue and thus was valid to confer jurisdiction on the Tax Court.

Tax Court decision

The majority opinion of the Tax Court concludes that the May 2012 notice was “ambiguous on its face” because it identified two taxpayers as potentially liable for the deficiencies and further that:

  • The taxpayer failed to prove that the May 2012 notice reflected a determination as to this taxpayer (petitioner).
  • Copies of the taxpayer’s returns (introduced by the IRS) established that the May 2012 notice did not reflect a determination as to the taxpayer (petitioner).
  • The May 2012 notice was invalid because it did not reflect a deficiency determination as to the taxpayer (petitioner).

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