Tanne et al v. Commissioner of Internal Revenue Service
MEMORANDUM DECISION AND ORDER adopting in part and overruling in part 66 Report and Recommendations, and denying Plaintiffs' 63 Motion for Leave to File a Supplemental Claim. Because no other claims remain, the Clerk of Court is ordered to close the case. Case Closed. Signed by Judge Robert J. Shelby on 2/12/2018. (eat)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
JAMES S. TANNE and MEGAN M.
MEMORANDUM DECISION AND
ORDER ON PLAINTIFFS’
OBJECTION TO REPORT AND
COMMISSIONER OF INTERNAL
Case No. 2:15-cv-296
Judge Robert J. Shelby
This case arises out of a dispute over tax refunds for James and Megan Tanne
(collectively, the Tannes). The Tannes requested leave from the court to file a supplemental
claim addressing the penalty and interest amount applied to their 2005 tax return.1 The case was
referred to Magistrate Judge Evelyn J. Furse pursuant to 28 U.S.C. Section 636(b)(1)(B). Before
the court is Judge Furse’s Report and Recommendation,2 which recommends denying the
Tannes’ Motion for Leave to File a Supplemental Claim.
The Tannes’ supplemental claim arises from a deficiency as to their 2005 taxes. The
Tannes applied a refund from their 2012 tax year to partially cover the 2005 deficiency. In
March 2013, the Tax Court issued an Order stating that the Tannes had a deficiency of $1,080
from the 2005 tax year. The Order also stated that an accuracy-related penalty would not apply
and that the parties “stipulated that interest will accrue and be assessed as provided by law on the
deficiency due from petitioners.”3
The Tannes filed a Complaint with this court in April 2015, seeking refunds for
overpayments from the 2004 and 2005 tax years. After the court dismissed their claims, the
Tannes submitted a Motion for Leave to File a Supplemental Claim regarding interest and a
failure-to-pay penalty assessed for the 2005 tax year.4 Judge Furse denied the Motion in a
Report and Recommendation, stating the court lacks jurisdiction over the supplemental claim, or,
alternatively, res judicata bars the claim.5 Judge Furse also concluded that, if the jurisdictional
bar did not apply, the supplemental claim would not have been time barred.6 The Tannes
objected, arguing the court has jurisdiction over the supplemental claim and it is not barred by
The court reviews the portions of the Report and Recommendation to which the Tannes
object under a de novo standard.7 The court applies a “clearly erroneous” standard to portions
with no objection.8 Under the “clearly erroneous” standard, the court affirms the Magistrate
Judge’s ruling unless, after reviewing all the evidence, the court “is left with the definite and firm
conviction that a mistake has been committed.”9
The Tannes argue that in her Report and Recommendation Judge Furse erroneously
denied their Motion on the bases of res judicata and jurisdiction. The IRS did not object to the
Dkt. 63, Ex. E.
Fed. R. Civ. P. 72(b)(3).
Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir. 1988).
Report and Recommendation, but argued in its opposition to the Tannes’ Objection that, contrary
to Judge Furse’s conclusion, the supplemental claim is also time barred. The court addresses
these issues in turn.
The Tannes argue Judge Furse erroneously concluded that the Tannes’ stipulation in the
Tax Court Order barred their claim through res judicata.
The doctrine of res judicata provides that “when a court of competent jurisdiction has
entered a final judgment on the merits of a cause of action, the parties to the suit and their privies
are thereafter bound” to the judgment.10 Where parties stipulate to a Tax Court judgment, the
stipulation “has the full effect of final judgment and binds the parties as to all aspects of the
taxpayer’s liability for the time period in question.”11
The Tannes stipulated in the Tax Court judgment “that interest will accrue and be
assessed as provided by law on the deficiency due from petitioners.”12 They also stipulated that
an accuracy-related penalty would not apply but did not address the issue of a failure-to-pay
Because the Tannes stipulated to the accrual and assessment of interest, they cannot now
assert that interest should not have accrued on their deficiency.13 However, the Tannes did not
stipulate to the failure-to-pay penalty. Res judicata does not apply where the court has not
entered a final judgment on the merits and the parties have not stipulated to the judgment. The
Comm’r of Internal Revenue v. Sunnen, 333 U.S. 591, 597 (1948).
Tanne v. Comm’r of Internal Revenue Serv., No. 2:15-CV-00296-RJS-EJF, 2016 WL 5900192, at *7 (D. Utah
June 27, 2016), report and recommendation adopted, No. 2:15-CV-00296-RJS, 2016 WL 5173243 (D. Utah Sept.
21, 2016) (internal quotation marks omitted).
Dkt. 63, Ex. E.
Erickson v. United States, 309 F.2d 760, 764 (Ct. Cl. 1962) (barring claim for refund of interest where taxpayer
had stipulated to its collection).
failure-to-pay penalty was not part of the stipulation, and there is no evidence the issue of a
failure-to-pay penalty was in front of the Tax Court at all, much less adjudicated on the merits.
Especially where the application of penalties involves some amount of discretion on the part of
the IRS,14 the court concludes that it would be unreasonable to require plaintiffs to address all
possible penalties or face the risk of their arguments being barred by res judicata.
The court concludes the Tannes’ claim for a refund of interest is barred by their
stipulation, but the claim for a refund of the failure-to-pay penalty is not.
Whether the Tannes had the ability to raise arguments about the penalty before the Tax
Court is also relevant to the jurisdictional question presented.
Judge Furse held the Tannes’ claim was also barred by 26 U.S.C. Section 6512(a), which
states “if the taxpayer files a petition with the Tax Court . . . 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.” This provision is jurisdictional and “generally prohibits a taxpayer from
instituting an action against the government once he has petitioned to the Tax Court.”15
The Tannes argue that penalties and interest are separate from tax and therefore should
not be barred by Section 6512(a). Courts have split on how to resolve this issue. While the
Court of Federal Claims held that “failure-to-pay penalties are treated as tax” under Section
See § 26 U.S.C. 6651(a)(2) (excusing penalty in cases where “such failure is due to reasonable cause and not due
to willful neglect”).
Solitron Devices, Inc. v. United States, 862 F.2d 846, 848 (11th Cir. 1989).
6512(a) and therefore barred,16 several other courts have stated that claims solely for interest and
penalties are not jurisdictionally barred.17
However, the court is aware of no case in which a court has held that Section 6512(a)
bars a refund claim for interest or penalties from a plaintiff who received the IRS’s notice for
interest and penalties only after the Tax Court decision.18 To bar a claim that a taxpayer had no
opportunity to present to the Tax Court for decision would raise serious due process issues.
In this case, the Tax Court entered its order in March 2013 and the Tannes received
notice of the amounts due for interest and the failure-to-pay penalty in May 2013. As noted
above, the Tannes addressed the issue of interest in their stipulation, so that issue was before the
Tax Court and the Tannes were able to raise any arguments they had about accrual or assessment
of interest at that time. But because the failure-to-pay penalty was not addressed in the
stipulation, there is no evidence that the issue was ever presented to the Tax Court or that the
Tannes had an opportunity to raise arguments about the penalty. Thus, the court concludes that
the Tannes’ claim for a refund of the failure-to-pay penalty is not jurisdictionally barred.
The Report and Recommendation also addressed whether the supplemental claim was
Cheesecake Factory v. United States, 111 Fed. Cl. 686, 695 (2013).
See, e.g., Britton v. United States, 532 F. Supp. 275, 277–78 (D. Vt. 1981), aff’d, 697 F.2d 288 (2d Cir. 1982)
(holding “tax” in Section 6512(a) did not include penalties and interest); First Nat’l Bank of Chicago v. United
States, 792 F.2d 954, 956 (9th Cir. 1986) (contrasting case where plaintiff was seeking recomputation of underlying
tax liability with case where plaintiff was “concerned with the assessment and refund of interest,” and suggesting
Section 6512(a) would not bar the latter).
Cf. Cheesecake Factory, 111 Fed. Cl. at 688–89 (barring claim where IRS assessed interest and penalty payments
three years before Tax Court decision); Ishler v. United States, 115 Fed. Cl. 530, 540 (2014) (barring claim related
to underlying tax liability, not later-assessed penalties).
Under 26 U.S.C. Section 6511(a), a taxpayer must file a claim for a refund “within 3
years from the time the return was filed or 2 years from the time the tax was paid,” whichever is
later. An amount paid “as estimated income tax for any taxable year shall be deemed to have
been paid on the last day prescribed for filing the return.”19
The Tannes are seeking a refund for their 2005 claim. They filed their 2005 return in
October 2009 but did not pay their 2005 penalty and interest assessments at that time. Rather,
those assessments were later offset from a refund due on the Tannes’ 2012 tax return. The 2012
tax return was due in April 2013, and the Tannes filed it in February 2014. The Tannes did not
seek a refund for 2005 until August 2015.
Although the 2005 amount was paid through the 2012 refund, the timing of the 2012 tax
refund is not relevant for purposes of Section 6511. Applying Section 6511’s timing
requirements, the Tannes were required to file their 2005 refund claim by October 2012 (three
years after the 2005 return was filed) or April 2015 (two years after they paid the tax due for
2005). Because the Tannes filed their claim for a refund several months after the latest deadline
in Section 6511, their claim was untimely. Thus, the supplemental claim is barred on that basis.
The court ADOPTS IN PART and OVERRULES IN PART Judge Furse’s Report and
Recommendation.20 The court holds the Tannes’ supplemental claim for a refund of interest is
barred by res judicata but the part of the claim addressing the failure-to-pay penalty is not. The
court also holds that the claim for a refund of the penalty is not jurisdictionally barred. However,
the supplemental claim is time barred and thus allowing the claim would be futile. Therefore,
26 U.S.C. § 6513(b)(2).
the court denies the Tannes’ Motion to File a Supplemental Claim.21 Because no other claims
remain, the Clerk of Court is ordered to close the case.
SO ORDERED this 12th day of February, 2018.
BY THE COURT:
ROBERT J. SHELBY
United States District Judge
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