UNITED STATES TAX COURT

T.C. Memo. 2002-311

UNITED STATES TAX COURT

FRED ALLNUTT, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6133-00.

Filed December 26, 2002.

Fred Allnutt, pro se.

Bradley C. Plovan, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge:

Respondent determined deficiencies in

petitioner’s Federal income tax and additions to tax as follows:

- 2 Year

Deficiency

1987

1988

1989

1990

1992

1993

1994

1995

1996

1997

$1,197,033

274,146

10,253

112,208

82,632

1,744

17,581

19,992

16,702

20,177

Additions to tax and penalties

Sec. 6653(a)

Sec. 6651

Sec. 6662

$63,143

16,379

––––––––-

$269,331.98

61,682.50

2,307.20

25,247.25

18,592.68

–––––-

--$2,050.60

22,441.60

26,526.40

354.80

3,516.20

3,998.40

3,340.40

4,035.40

This case is before the Court to decide the following

issues:

1.

Whether respondent timely issued the notice of

deficiency to petitioner for tax years 1987-90 and 1992-95.

Resolution of that issue depends on whether petitioner filed his

1987-90 and 1992-95 Federal income tax returns when he hand

delivered those returns to respondent’s offices at 31 Hopkins

Plaza, Baltimore, Maryland, on February 21, 1997.

We hold that

his delivery of the returns on that date did not constitute

filing and that the notice of deficiency was timely issued.

2.

Whether petitioner is barred by res judicata from

carrying forward net operating losses from 1981-86 to the years

in issue.

3.

We hold that he is.

Whether to grant petitioner’s motion to dismiss this

case and to impose sanctions on respondent under Rule 104(c).

will deny petitioner’s motion.

We

- 3 Further trial is necessary to resolve the remaining issues

in this case.

Unless otherwise specified, section references are

to the Internal Revenue Code in effect for the applicable years,

and Rule references are to the Tax Court Rules of Practice and

Procedure.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

A.

Petitioner

Petitioner resided in Maryland when he filed the petition.

An accounting firm prepared petitioner’s tax returns for 1981-95.

B.

Petitioner’s Delivery of Tax Returns to Respondent’s Offices

On February 20, 1997, petitioner signed income tax returns

for 1981-95 (original returns with original signatures).

After

he signed those returns, he photocopied them and signed them in

blue ink over his photocopied signatures (photocopied returns

with original signatures).

Petitioner prepared a letter of transmittal addressed both

to Paul M. Harrington (Harrington), Baltimore’s District

Director, and Elizabeth S. Henn (Henn), in the Baltimore office

of District Counsel.

Petitioner’s letter stated:

Dear Mr. Harrington and Mrs. Henn,

I am delivering to District Counsel with this

letter original filings of 1040 tax returns for the

year 1981 and for each year thereafter up through and

including 1995. My attorney, Mr. Jeffrey Dickstein,

- 4 has spoken with Mr. Gregory S. Hrebiniak, Department of

Justice, who instructed him to have me file said

returns with District Counsel.

Petitioner delivered the original returns with original

signatures for 1981-95, accompanied by the letter of transmittal,

to Henn’s secretary at the Baltimore, Maryland, Office of

District Counsel, 200 St. Paul Place, Suite 2602, at about 11:25

a.m. on February 21, 1997.

At that time, petitioner intended

those to be his filed returns, and he believed that he had filed

those returns by delivering them to the office of District

Counsel.

Henn’s secretary date stamped and signed a copy of the

transmittal letter.

Petitioner then went to respondent’s offices at 31 Hopkins

Plaza, Baltimore, which included the office of the Baltimore

District Director.

Petitioner entered the building at about

11:45 a.m. and asked a security guard for directions to

Harrington’s office.

The guard told petitioner that Harrington

was at lunch and directed petitioner to a second person.

Petitioner asked that person for directions to Harrington’s

office.

That second person told petitioner that Harrington was

at lunch and that he (the second person) could hold the package

and give it to Harrington when Harrington returned from lunch.

Petitioner asked the second person if he had authority to accept

documents on Harrington’s behalf, and the second person said that

he did.

Petitioner wrote “Attn:

Paul Harrington” on the

- 5 envelope containing the letter of transmittal and the photocopied

returns with original signatures for 1981-95.

Petitioner closed

the flap on the envelope that contained those returns and secured

the metal clasp.

Petitioner did not show or identify the

contents of the envelope to the second person.

Petitioner gave

the envelope to the second person.

C.

Respondent’s Processing of the Returns

1.

Respondent’s Procedures

In 1997, deliveries for Harrington were usually processed by

Susan Arczynski (Arczynski), the assistant district director’s

secretary.

Her usual practice was to stamp the time and date

when she received an item and to use the director’s routing stamp

on the item if there was room to do so.

If there was no room for

the director’s routing stamp, Arczynski’s usual practice was to

staple to the item a small routing slip containing the same

information as the routing stamp.

She always used a routing slip

instead of the stamp if the item was a tax return.

Arczynski was at work on February 21, 1997.

At trial, she

could not remember whether she had received Allnutt’s package of

returns for the years 1981-95.

Personnel in the District Director’s office usually directed

persons who asked where to file tax returns to the walk-in area

of the taxpayer services office on the first floor.

- 6 2.

Processing of the Returns Delivered to District Counsel

Respondent’s District Counsel’s office did not place any

identifying marks or stamps on the returns for the years in issue

that petitioner delivered to Henn’s secretary on February 21,

1997 (i.e., the original returns with original signatures).

Those returns were forwarded to the Baltimore Special Procedures

Office of the District Director, which stamped them received on

March 10, 1997.

Someone wrote on the top of the first page of

each of those returns “Copy of Return Secured [or Received] by

Examination.

3.

5/1/97”.

Processing of the Returns Delivered to 31 Hopkins Plaza

Respondent did not place a date received stamp on or make

any other record showing when respondent received the photocopied

returns with original signatures for the years in issue.

An unidentified person (or persons) in respondent’s

Philadelphia Service Center stamped the following on the front

page of each photocopied return with original signature for the

years in issue:

(1) “IRS Received from District 052197”; (2)

“Postmark 050997” and “Received 051497; and (3) “Delinquent

Original Cleared for Processing by 285” on June 16, 1997, and

“Resort Received” on June 27, 1997.

Someone from an unidentified

IRS office stamped on the bottom left corner of the front page of

each photocopied return with original signature for the years in

issue “POS sorted for statute review, 5-14-97”.

However, that

- 7 stamped information was marked through in an attempt to make it

unreadable.

On a date not specified in the record, an

unidentified person acting for respondent added a document

locator number to the upper right corner of the first page of

each photocopied return with original signature for the years in

issue.

Respondent mailed the notice of deficiency to petitioner for

tax years 1987-90 and 1992-97 on March 6, 2000.

D.

Allnutt v. Commissioner

Petitioner previously filed a petition in this Court seeking

our review of the Commissioner’s determination of deficiencies in

petitioner’s income tax for 1981-86.

Allnutt v. Commissioner,

T.C. Memo. 1991-6 (Allnutt I), affd. without published opinion

956 F.2d 1162 (4th Cir. 1992), cert. denied 506 U.S. 816 (1992).

In Allnutt I, we granted the Commissioner’s motion to dismiss the

case for failure to state a claim because petitioner made only

frivolous allegations.

We also sustained the Commissioner’s

determination relating to deficiencies in petitioner’s income tax

for 1981-86 and decided that petitioner had the following amounts

of taxable income:

Year

Amount

1981

1982

1983

1984

1985

1986

$433,059

409,575

386,090

342,223

298,355

1,913,176

- 8 Id.

In Allnutt I, we also (1) sustained additions to tax under

section 6654 as determined by the Commissioner; (2) granted the

Commissioner’s motion for summary judgment as to fraud under

section 6653(b)(1); and (3) granted the Commissioner’s motion for

imposition of a penalty under section 6673.

Id.

Our decision in

Allnutt I is final.

OPINION

A.

Whether Respondent Timely Issued the Notice of Deficiency to

Petitioner for Tax Years 1987-90 and 1992-95

1.

Contentions of the Parties

We first decide whether respondent timely issued the notice

of deficiency for petitioner’s tax years 1987-90 and 1992-95.

Generally, the Commissioner must assess tax within 3 years after

the due date of a timely filed return or the filing of the

return.

Sec. 6501(a).

March 6, 2000.

The notice of deficiency was sent on

If petitioner filed returns for those years

before March 6, 1997, the assessment of deficiencies for 1987-90

and 1992-95 is barred by the statute of limitations.1

Id.

If

petitioner’s returns were not filed before March 6, 1997, the

notice of deficiency was timely issued.

1

Respondent does not contend that petitioner omitted more

than 25 percent of his gross income, see sec. 6501(e), that he

consented to an extension of the time to assess tax, or that

there are any other circumstances that would lengthen the usual

3-year period for assessment of tax.

- 9 Petitioner contends that (1) on February 21, 1997, he

delivered the photocopied returns with original signatures for

the years in issue to the Baltimore District Director’s office,

and (2) his delivery of that set of returns constitutes filing of

those returns.2

Respondent contends that petitioner’s returns

for the years in issue were filed on March 10, 1997, when the

Baltimore District’s Special Procedures Office stamped them

received.

2.

Whether Petitioner Delivered the Photocopied Returns

With Original Signatures for the Years in Issue to 31

Hopkins Plaza on February 21, 1997

We next decide whether, as petitioner contends, he delivered

to 31 Hopkins Plaza in Baltimore on February 21, 1997, the

photocopied returns with original signatures for the years in

issue.

The cover letter petitioner delivered on February 21, 1997,

to the office of District Counsel shows that he intended to file

his original returns with the office of District Counsel, and

intended to deliver a copy of those returns to the District

Director.

Petitioner testified that, on February 21, 1997, he

delivered an envelope containing his photocopied returns with

original signatures for 1981-95 to an individual in the office of

2

Petitioner concedes that delivery of his original returns

with original signatures to respondent’s office of District

Counsel does not constitute filing of those returns.

- 10 the District Director who told petitioner that he had the

authority to accept deliveries for the District Director.

Respondent contends that petitioner’s testimony is not

credible.

We disagree.

We decide whether a witness is credible

on the basis of objective facts, the reasonableness of the

testimony, and the demeanor of the witness.

Quock Ting v. United

States, 140 U.S. 417, 420-421 (1891); Wood v. Commissioner, 338

F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964); Pinder

v. United States, 330 F.2d 119, 124-125 (5th Cir. 1964); Concord

Consumers Hous. Coop. v. Commissioner, 89 T.C. 105, 124 n.21

(1987).

Petitioner consistently and repeatedly described the

steps he took to deliver the photocopied returns with original

signatures.

A Philadelphia Service Center stamp “IRS Received from

District 052197” appears on the front page of each photocopied

return with original signature for the years in issue.

Petitioner contends that the stamp shows that the Baltimore

District Director received the photocopied returns for the years

in issue and sent them to the Philadelphia Service Center, which

received the returns on May 21, 1997.

Respondent offered no

explanation of the stamp, and no argument to the contrary.

The

stamp tends to support petitioner’s claim that he delivered the

photocopied returns with original signatures for the years in

issue to the Baltimore District Director because it apparently

- 11 shows that the Philadelphia Service Center received those returns

from a district office.

Arczynski, the secretary in Harrington’s office who

processed deliveries to Harrington on February 21, 1997, was

respondent’s only witness.

She described routine procedures at

her office but had no knowledge of the facts of this case.

We find that petitioner hand delivered the photocopied

returns with original signatures for the years in issue to

someone in the building containing the District Director’s

offices on February 21, 1997.

3.

Whether Delivery of the Returns for the Years in Issue

to 31 Hopkins Plaza Constituted Filing of Those Returns

An individual taxpayer must file his or her return in the

internal revenue district in which the legal residence or

principal place of business of the individual is located, or at

the service center serving that district, as the Secretary may by

regulations designate.

regulations provide:

Sec. 6091(b)(1)(A).

The applicable

- 12 §1.6091-2.

*

*

Place for filing income tax returns.-*

*

*

*

*

(a) Individuals, estates and trusts.–-(1) Except

as provided in paragraph (c) of this section, income

tax returns of individuals, estates, and trusts shall

be filed with the district director for the internal

revenue district in which is located the legal

residence or principal place of business of the person

required to make the return, or, if such person has no

legal residence or principal place of business in any

internal revenue district, with the District Director

at Baltimore, Md. 21202.

*

*

*

*

*

*

*

(c) Returns filed with service centers.-Notwithstanding paragraphs (a) and (b) of this section,

whenever instructions applicable to income tax returns

provide that the returns be filed with a service

center, the returns must so be filed in accordance with

the instructions.

(d) Hand-carried returns.–-Notwithstanding

paragraphs (1) and (2) of section 6091(b) and paragraph

(c) of this section-(1) Persons other than corporations.--Returns

of persons other than corporations which are filed

by hand carrying shall be filed with the district

director (or with any person assigned the

administrative supervision of an area, zone or

local office constituting a permanent post of duty

within the internal revenue district of such

director) as provided in paragraph (a) of this

section.

Thirty-one Hopkins Plaza is a permanent post of duty for the

Baltimore District Director.

To be a return for statute of limitations purposes, the

document “must honestly and reasonably be intended as such” by

the taxpayer.

Florsheim Bros. Drygoods Co. v. United States, 280

- 13 U.S. 453, 462 (1930); Friedmann v. Commissioner, T.C. Memo. 2001207 (documents not treated as filed returns where nothing in the

record shows that the taxpayer intended his delivery of documents

to an agent to constitute filing of returns).

A taxpayer may

not, by his or her own ambiguous conduct, even if unintentional,

secure the benefit of the limitations period.

See Lucas v.

Pilliod Lumber Co., 281 U.S. 245, 249 (1930).

Petitioner did not

intend the returns that he delivered to the District Director to

be his filed returns.

Petitioner did not treat the photocopied

returns with original signatures enclosed in the envelope that he

gave to an unidentified employee at 31 Hopkins Plaza as returns

he intended to file.

He did not indicate that the envelope

contained his tax returns, he did not request a receipt, and he

did not ask that a copy of the cover letter be date-stamped, as

he had done at District Counsel’s offices.

Petitioner’s February

21, 1997, transmittal letter said he intended the original

returns with original signatures, which he delivered to

respondent’s office of District Counsel, to be his filed returns.

Thus, petitioner did not file his returns for 1987-90 or 1992-95

by hand delivering photocopies of his original returns with

original signatures to 31 Hopkins Plaza on February 21, 1997.

Petitioner’s returns were filed on March 10, 1997, when the

Baltimore Special Procedures Office of the District Director

- 14 stamped them received.

Thus, respondent timely issued the notice

of deficiency to petitioner for tax years 1987-90 and 1992-95.3

B.

Whether Petitioner May Carry Forward Net Operating Losses

From 1981-86 to the Years in Issue

1.

Contentions of the Parties

Petitioner contends that his deductions for 1981-86 exceeded

his income and thus generated net operating losses, and that he

may carry forward those losses to the years in issue.

Respondent contends that res judicata bars petitioner from

contending that his deductions exceeded his income in 1981-86

because we decided his tax liability for 1981-86 in a prior case.

Petitioner contends that res judicata does not apply because,

according to petitioner, section 6214(b) and several cases he

cites allow him to calculate the proper amount of tax for closed

years.

2.

We agree with respondent for reasons stated next.

Effect of Allnutt I on Petitioner’s Attempt To Litigate

His Deductions for 1981-86 in This Case

Under the doctrine of res judicata, when a court of

competent jurisdiction has entered a judgment on the merits of a

cause of action, the parties to the suit and their privies are

3

In support of respondent’s contention that the notice of

deficiency was timely issued, respondent moved to reopen the

record after the trial to offer into evidence (1) returns that

respondent contends are petitioner’s photocopied returns with

original signatures for 1981-86, and (2) the envelope that

respondent contends petitioner used to mail those returns to

respondent’s Philadelphia Service Center. In light of our

conclusion that respondent timely issued the notice of

deficiency, we will deny respondent’s motion as moot.

- 15 bound by every matter that was or could have been offered and

received to sustain or defeat the claim.

Commissioner v. Sunnen,

333 U.S. 591, 597 (1948); Calcutt v. Commissioner, 91 T.C. 14, 21

(1988).

Res judicata applies to tax cases.

Commissioner v.

Sunnen, supra; Calcutt v. Commissioner, supra.

In Commissioner

v. Sunnen, supra at 598, the Supreme Court said:

Income taxes are levied on an annual basis. Each year

is the origin of a new liability and of a separate

cause of action. Thus if a claim of liability or nonliability relating to a particular tax year is

litigated, a judgment on the merits is res judicata as

to any subsequent proceeding involving the same claim

and the same tax year. * * *

Res judicata applies to all matters which were or might have

been offered in the prior case.

Nevada v. United States, 463

U.S. 110, 129-130 (1983); Federated Dept. Stores, Inc. v. Moitie,

452 U.S. 394, 398 (1981); Commissioner v. Sunnen, supra at 597.

Issues which affect the computation of tax liability that were or

could have been litigated in a prior case are part of the cause

of action which are barred if res judicata applies.

Boyd v.

Commissioner, 101 T.C. 365, 371 (1993); Trost v. Commissioner, 95

T.C. 560, 566 (1990).

Three requirements must be satisfied for res judicata to

preclude relitigation of a taxpayer’s tax liability.

these requirements are that:

Two of

(1) The parties in the second case

must be the same as or in privity with the parties in the first

case, and (2) the first case must have resulted in a final

- 16 judgment on the merits by a court of competent jurisdiction.

Commissioner v. Sunnen, supra; see Nevada v. United States,

supra; Federated Dept. Stores, Inc. v. Moitie, supra.

The first

requirement is met here because the parties are identical in both

cases.

The second requirement is met because Allnutt I resulted

in a final judgment on the merits.4

This is so because a

decision based on a party’s failure to state a claim on which

relief may be granted is a decision on the merits with full res

judicata effect.

State Farm Mut. Auto. Ins. Co. v. Dyer, 19 F.3d

514, 518 n.8 (10th Cir. 1994); Winslow v. Walters, 815 F.2d 1114,

1116 (7th Cir. 1987).

The third requirement is that the cause of action, i.e., the

tax liability, in the second case must be the same as in the

prior case.

Petitioner contends that the third requirement is

not met because net operating loss carryforwards at issue in the

instant case were not at issue in Allnutt I.

Petitioner’s

argument is an attempt to sidestep well-settled principles of res

judicata.

To prevail on a net operating loss carryforward claim,

petitioner must show that (1) he had a loss in a prior year;

i.e., that his deductions, losses, or credits exceeded his

taxable income in a prior year; and (2) the prior year’s loss may

be applied against income in a later year.

4

Sec. 172.

Obviously,

Petitioner does not dispute that the first and second

requirements are met. Petitioner is attempting in substance to

reopen closed years.

- 17 the second of these points was not decided in Allnutt I.

However, the first point was decided:

we decided that he had

taxable income in the 1981-86 years.

Thus, he did not have

losses in those years.

That decision is now final.

bars petitioner from relitigating that issue here.

Res judicata

We conclude

that the third requirement is met, and that petitioner is barred

by res judicata from arguing that he has losses in 1981-86 which

he can carry forward to the years in issue.

3.

Section 6214(b)

Petitioner contends that section 6214(b)5 permits him to

deduct net operating losses for 1981-86 in this case because it

requires us to consider facts from other years to correctly

redetermine a deficiency.

We disagree.

Section 6214(b) provides that we shall consider facts from

other years as may be necessary to redetermine correctly

deficiencies in the years before us.

However, petitioner’s 1980-

86 tax years were at issue in Allnutt I, and res judicata bars

5

Sec. 6214(b) provides:

SEC. 6214(b). Jurisdiction Over Other Years and

Quarters.--The Tax Court in redetermining a deficiency

of income tax for any taxable year or of gift tax for

any calendar year or calendar quarter shall consider

such facts with relation to the taxes for other years

or calendar quarters as may be necessary correctly to

redetermine the amount of such deficiency, but in so

doing shall have no jurisdiction to determine whether

or not the tax for any other year or calendar quarter

has been overpaid or underpaid.

- 18 reconsideration of issues that could have been litigated in that

case.

Thus, we reject petitioner’s contention that section

6214(b) overrides res judicata.

4.

Barenholtz v. United States, Springfield St. Ry. Co. v.

United States, Robarts v. Commissioner, Hamilton

Indus., Inc. v. Commissioner, and Budd Co. v.

Commissioner

Petitioner contends that, on the basis of the holdings in

Barenholtz v. United States, 784 F.2d 375, 380-381 (Fed. Cir.

1986); Springfield St. Ry. Co. v. United States, 160 Ct. Cl. 111,

312 F.2d 754, 757-759 (1963); Robarts v. Commissioner, 103 T.C.

72 (1994), affd. without published opinion 56 F.3d 1390 (11th

Cir. 1995); Hamilton Indus., Inc. v. Commissioner, 97 T.C. 120,

127-128 (1991); and Budd Co. v. Commissioner, 33 T.C. 813 (1960),

he is not precluded by res judicata from disputing whether he may

deduct net operating losses from 1981-86 in the years in issue

because those cases allowed consideration of facts from closed

tax years.

We disagree.

The courts in those cases allowed the

parties to consider facts from years closed by the statute of

limitations in calculating tax liabilities for the years before

the court.

However, those cases do not control here because they

did not involve years that were litigated and barred by res

judicata.

- 19 5.

Conclusion

We conclude that res judicata bars petitioner from disputing

the amounts of his deductions for 1981-86.

Thus, petitioner may

not deduct net operating losses carried forward from 1981-86 to

the years in issue.

C.

Whether To Grant Petitioner’s Motion To Dismiss and Impose

Sanctions

After trial and briefing, petitioner moved to dismiss this

case and to impose sanctions on respondent under Rule 104(c).

Petitioner contends that he sought discovery of Forms 895, Notice

of Statute Expiration, for tax years 1987-98 and that respondent

failed to give him those forms until December 28, 2001.

Petitioner contends that the Forms 895 “indisputably prove” that

he filed his returns in February 1997.

Petitioner contends that

we should have a hearing if we deem it necessary.

A hearing is

not necessary.

Petitioner points out that the Forms 895 include an entry

which states:

“Statute Date:

022000”.

Petitioner contends (and

respondent does not deny) that respondent uses the Forms 895 to

track the date that the period of limitations expires, that

“statute date” refers to the statute of limitations, and that

“022000” means February 20, 2000.

Petitioner points out that he

signed and dated his returns on February 20, 1997, 3 years before

February 20, 2000.

Thus, petitioner contends that the Forms 895

establish that he filed the returns for the years in issue on

- 20 February 21, 1997.

We disagree.

A Form 895 does not establish

when a taxpayer’s returns were filed; filing of a return is

established by facts showing proper delivery or mailing of a

return with the intent to file it as a return.

See sec.

6091(b)(1)(A); Lucas v. Pilliod Lumber Co., 281 U.S. at 249;

Florsheim Bros. Drygoods Co. v. United States, 280 U.S. at 462;

sec. 1.6091-2(d)(1), Income Tax Regs.

Petitioner filed a motion asking that we dismiss this case

and impose sanctions on respondent under Rule 104(c).

Petitioner

contends that respondent withheld the Forms 895 in bad faith and

points out that we have considerable discretion to impose

sanctions, citing Fox v. Commissioner, 718 F.2d 251 (7th Cir.

1983).

Respondent contends that the Forms 895 were provided to

petitioner several months before trial.

As the moving party,

petitioner bears the burden of proof under the normal evidentiary

rule imposing proof obligations on the moving party.

United

States v. Rexach, 482 F.2d 10, 16 (1st Cir. 1973); see Pietanza

v. Commissioner, 92 T.C. 729, 736 (1989), affd. without published

opinion 935 F.2d 1282 (3d Cir. 1991); S. Cal. Loan Association v.

Commissioner, 4 B.T.A. 223 (1926).

Petitioner has not met the

burden of proving that respondent withheld the Forms 895 or that

- 21 respondent violated any order.6

We will deny petitioner’s motion

to dismiss his case and to seek sanctions under Rule 104(c).

Accordingly,

An appropriate order

will be issued.

6

Petitioner relies on United States v. OMNI Intl. Corp.,

634 F. Supp. 1414 (D. Md. 1986), and other cases involving

prosecutorial misconduct. That reliance is misplaced because

those cases involved sanctions for prosecutorial conduct in

criminal prosecutions.