Leon S. Malachinski v. Commissioner of Internal Revenue

that Bliss secondary meaning and quired Ge- source. product’s about the confusion likely is hand, of the same mark designate World’s use marks, on the other neric than in or near rather about source themselves cause confusion products Sunmark, maker, descriptive marks and Inc. v. Ocean See particular Wilmette. won’t) (but (7th distinc- acquire Inc., usually Cranberries, might 64 F.3d 1055 Spray Stores, Inc. v. Sa- L’Oréal, Wal-Mart Cir.1995); tiveness. v. Designs cf. Zazú 205, 212-13, Brothers, Inc., U.S. Cir.1992). mara S.A., 979 (2000), L.Ed.2d 182 S.Ct. AFFIRMED. (and ap- approach general approved this dress) insisting while plied it to trade they if were actually he distinctive

marks “inherently distinctive” qualify

category. “de- choose between the

A cannot categories “suggestive” and

scriptive” Friendly’s Judge dictionary; basis of functional, placement is continuum MALACHINSKI, Petitioner- Leon S. why we This is functional too. be must Appellant, Mortgage Corp. in Platinum Home held Group, 149 F.3d Financial Platinum (7th Cir.1998), “plati- word OF INTERNAL COMMISSIONER suggestive rather than descriptive num” REVENUE, Respondent- Plati- industry. financial-services Appellee. num, “gilt-edged,” suggests phrase like 99-3323. No. elegance, or issuers high quality may choose mortgage loans cards or credit Appeals, Court of States United upper with the the association because of it Circuit. Seventh the word is crust; linguistic sense in this many firms But so because suggestive. Feb. Argued color) (and for financial the word use 4, 2001. Decided Oct. inherently distinc- it cannot products, no more tive; contrary, it is quite card” or “born “gold than a

distinctive Func- spoon in his mouth.” a silver

with therefore, go had to the word

tionally, “Tide” deter- descriptive category. (it sug- suggestive linguistically

gent water), but action of the cleansing

gests sugges- legally mark is and remains distinc- it has retained only because

tive identifier. product as a

tiveness Bliss hair market glut on the are

marks not They are care.

styling beauty

distinctive, belong does so word If Bliss cubbyhole. Salon “suggestive” litigation, in this anywhere get

wants ac- mark that its prove have to

will tax court in 1984. The to the IRS

remitted IRS; of the found ruled favor on the consent Malachinski’s It further concluded genuine. form to determine it lacked was to Dr. entitled Malachinski whether $20,400 For the remittance. for the credit following opinion, in the set forth reasons tax court. of the affirm the decision we I

BACKGROUND Facts A. now ex-wife and his

Dr. Malachinski May in were married Superson Wynne in- joint federal couple filed 1980. April on year for the tax return come 1983, the early or 15, In 1981. late regarding Malachinskis contacted the IRS return, and Dr. Malachinski tax Arnone, his of Vincent sought the advice The Malachinskis preparer. return and attorney to Arnone power of granted IL, Chicago, (argued), Michael C. Goode in March Eugene LaPorte attorney Petitioner-Appellant. for 1983. (argued), Tamara McLaughlin Teresa in March Superson filed for divorce Div., Justice, Ashford, Tax Dept, of W. until Dr. Malachinski tell did not but DC, Section, for Washington, Appellate 23, 1983, agent May IRS later. On month Respondent-Appellee. a letter addressed sent Neubauer Alan sign that asked them Malachinskis POSNER, and COFFEY Before A, “Special Consent return Form 872 and RIPPLE, Judges. Circuit Tax,” with to Assess the Time Extend income taxes. to their 1980 respect RIPPLE, Judge. Circuit the time to extend IRS permitted the form deter- Revenue Service The Internal any defi- had to it assess which period deficient Malachinski was mined that Leon about June On or ciencies. taxes of his federal income form, been had which received the IRS con- year 1980. pur- 1, 1983, what and bore June dated States in the United tested the assessment Dr. of both signatures to be the ported (1) that his He contended Tax Court. offi- An IRS Superson. Malachinski extend form to on a consent on June the form countersigned cial had on assessment of limitations statute 1983. (2) deficiency if forged been later, June days on Three credit assessed, he was entitled were another Superson granted had Malachinski $20,400 previously he power attorney to John Ostrand and Dr. Malachinski’s 1982 individual tax ac- Mack, Stephen public certified accoun- count. October for reasons not power attorney record, tants. The original- indicated in the the IRS refunded ly May $20,400 prepared Superson, interest; on plus Dr. Ma- $902 however, separate power claims, however, issued of attor- lachinski that he never 1, 1983, ney September naming as her money. received the The IRS does not representatives attorneys, Anthony two a copy have of the refund check nor does it Petrarca, Scariano and Justino and a certi- any supporting documentation. It is accountant, public Moxley. fied Michael policy destroy the IRS’ such records years. after six The Malachinskis were divorced March in 1984. Also March Dr. Dr. power Malaehinski executed a fourth separate Malaehinski filed a tax attorney return for in December authorizing year April, his taxable 1982. In acting attorney Boylan represent Michael to him advisors, advice from one of his he sent Boylan before the IRS. wrote to the IRS $20,400 the IRS a August reduce in informing the agency that any potential obligations tax for 1980. The Dr. Malaehinski had not been able to se- prepared IRS received the funds and Superson’s approval cure proposed of a voucher; the voucher contained a hand- settlement. entry

written that described the In late Superson began to com- Further, as a “cash bond.” a section of plain bitterly about Dr. Malaehinski to a checked, the voucher was indicating that co-worker, friend and Claudine Mellerke.1 the amount was an “Advance on Mellerke became Superson concerned that deficiency.” The voucher did not have a might carry out the various threats she separate section to indicate that the remit- against had made her ex-husband’s life. tance was in the nature of a cash bond or These concerns came to the attention of deposit. police, local Superson ultimately was

Mack, Dr. representative, Malachinski’s violating convicted of 18 U.S.C. use 29,1984. met with Neubauer on June of interstate commerce facilities in the subsequently (Dr. IRS issued an examination commission of murder for hire. Mala- report to Dr. Superson Malaehinski and chinski was the intended victim Super- indicated, scheme.) that part, relevant that son’s At the time of trial in two had a deficiency matter, income tax of Superson was incarcerated in $91,086 year 1980. Dr. Malachin- Chicago and awaiting sentencing. ski power then executed a third of attor- 3, 1994, May On the IRS issued a notice ney, naming Acquino, Glenn a certified of deficiency to Dr. Malaehinski and Su- public accountant, as representative. person taxes, regarding their 1980 and Dr. Acquino duly protest filed a with the IRS timely Malaehinski petition filed a on the Malachinskis’ behalf. tax court. He later filed an peti- amended April 1988,

In the IRS transferred the tion that asserted that the statute limi- $20,400 joint remittance from the 1980 ac- tations on expired assessment had before count of Dr. Superson Malaehinski and to the notice deficiency was mailed. He divorce, however, 1. After their following year, Malachinskis were appellate court involved custody in an acrimonious child con- custody granted reversed the award of test. Dr. Malaehinski had filed for sole custo- custody full of the children to Dr. Malachin- children, dy of the two Malaehinski but Su- ski. person custody was awarded in 1986. The addition, opin- my 1983. June on the form that his maintained wrote both individual same ion that the limitations extend purported that dates of “6/1/83.” presumably forged, had been period de- counsel Malachinski’s Superson. Ex.24. case, she re- but in this Superson

posed trial attempted at citing her any questions, to answer fused for her factual basis elicit Marsh self-incrimination. privilege form, signed had that he conclusion questions objected that IRS but the Proceedings B. Tax Court scope of beyond the information solicited that the IRS’ testified sustained trial, The court report. Dr. Malachinski' At testimony form nor Marsh’s consent objection and restricted signed had not he written He until contained form material had he seen explained signed it had Superson either documentation. believed 143(f) it, provides that his name Rule sign else Tax Court had someone or form the data, facts, analysis do so her to had authorized he never but admis- are attorney expert’s conclusion for an power basis her given had he nor they are set the extent argu- only to sible To bolster these him. to act for report. a written testi- forth in the ments, offered Malachinski Dr. co- and Mend Superson’s former mony of Dr. permitted nonetheless The court that Su- Mellerke,

worker, testified who testimony proffer additional Malachinski done “she had her that told person had rea- the basis and regarding Marsh from Dr. with Malachin- get even” something proffer, In the conclusion. for her sons and had IRS the ski; “contacted she had the let- about her concerns Marsh related several for Dr. Malachinski reported questioned signature. ter formations done, also she and he had not things that of characteristics she noted Specifically, shortly to the IRS a document provided “L” Dr. Malachinski’s the of loop the on not that he was they were divorced before of the name, the bottom angle of the first According to at 116. R.48 name, aware of.” of and the absence middle in his “S” the docu- Mellerke, that Superson claimed signature. his loop at the end a Dr. that Malachin- damaging was so ment report the offered the response, IRS itof for the effects “feeling ski would Davidson, also testimony of James Al- Id. at 116-17. life.” rest his the examin- document forensic board-certified Mel- objected to the Commissioner though Document Questioned er and chief hearsay, testimony as Ierke’s Investigation IRS Criminal of the Section admissibility. on its ruling reserved Laboratory Forensic National Division’s ex- sig- compared introduced also Davidson Chicago. Dr. Malachinski Marsh, known a board-certi- form 26 of Diana consent report on the pert nature After signature. examiner. document Dr. Malachinski’s exemplars fied forensic Mala- cat- exemplars of Dr. fell into twenty exemplars examining noted that He the fol- writ- “quickly made were signature, exemplars Marsh chinski’s egories: 13 names;” report: were in written last lowing conclusion ten abbreviated defi- distinct letter with “formally written docu- all the examination After an “shortened, quick- nition;” three were submitted, my opinion ments at 2-3. Ex.AA signatures.” ly written name write the did exemplars found Davidson at document “L.S. Malachinski” “minimal were categories two the first dated Form issue, IRS Consent value” in making the comparison lachinski required then was to show that signature on the agreement invalid, consent form was was a difficult task because, most similar to category. noted, the third Id. at the court an individual’s was, however, signature 3. He on a document prima unable determine facie evidence that the individual actually whether signed on the form was it. genuine; opinion, his signa- three

tures in the third category were “not Although Dr. Malaehinski attempted had enough representative of a sample of the to overcome this statutory presumption by writer for [him] make determina- presenting Marsh’s testimony that sig- tions.” Id. forged, nature was the court found that report Marsh’s did not adequately set $20,400 Regarding remittance, Dr. forth the facts and supporting reasons Malaehinski testified he had never Marsh’s conclusions. The court also noted requested to be transferred that no showing had been made that the to his account for 1982 or refunded. He failure to include these materials in the also having denied received refund of report cause; to good due it conclud- that payment in 1988. On cross-examina- ed, therefore, that allowing pro- Marsh to tion, he indicated that he had never vide additional direct testimony would checked his bank records to determine unduly prejudiced the ability IRS’ whether he had deposited similar amount cross-examine her. It accordingly sus- at the time because he had not understood tained objection the IRS’ and restricted that it was the IRS’ contention that the Marsh’s testimony direct to the material payment had been refunded. Mala- set forth in her report. written witness, Mellerke, chinski’s testified that The tax explained court also that David- Superson had told her that she had re- son, the expert, Commissioner’s had deter- ceived a refund from the IRS that was mined that exemplars the were not suffi- intended for her ex-husband but that she ciently representative permit to him to had kept cashed and money. the The render an opinion regarding the authentic- objected Commissioner to this testimony ity of the signature. After considering as hearsay, but the court again reserved both expert opinions and scrutinizing the ruling on its admissibility. itself, documents the court found that the In a opinion memorandum filed af signature forgery. was not a The court trial, ter the tax court determined that the thus concluded that Dr. Malaehinski had notice of deficiency was by not barred the not overcome the statutory presumption statute of limitations. Because the notice that he signed the consent form. had been mailed years more than 10 after In making finding its on genuineness the the 1980 return was filed—and the statute of signature, the court also based its of limitations on assessment is typically conclusion on pieces various of circumstan- years three from the filing of the return— tial evidence. For example, the court not- the court concluded that Dr. Malaehinski ed that Dr. Malaehinski had argued first had prima made a facie showing that the that signature his had been forged in notice was untimely. burden, there years twelve after the form was signed. fore, fell on the IRS to establish that the The court did not that, believe during bar was inapplicable. view, In the court’s years twelve that followed alleged the IRS had met that by burden producing waiver of the limitations, statute of none of a facially valid Form 872 A indicating a Dr. Malachinski’s four professional sets of waiver of period. the limitations Dr. Ma- advisors had consulted with him about the attorney attorney Boylan, to his power a of Rather, the court the waiver. vabdity of court, time the and the advisors of record Dr. Malachinski’s that believed signature validity of the question that of from him learned so and had done had form; other- was first raised. consent signed the had he to terminate sought wise, they would have argued that Although immediately. proceedings animosity to- enough Superson possessed Mala- view, of [Dr. “conduct court’s forgery of the to motivate the ward him plainly is thus and his advisors ehinski] large in hatred evidenced consent form'—a con- the claim with inconsistent in a murder —for part by involvement her R.56 at 13. forged.” sent was him—the court con- hire scheme Moreover, portions of atten- animosity “too typewritten that such was cluded support advisors Ostrand attorney too remote time” power uated and Malachinski indicated that Dr. Malachinski’s forged Mack that she finding accountants had contacted at 14- Superson Id. consent document. name 23,1983. was execut- The consent May criminal in- Superson’s 15. Evidence later, Dr. and, days 1,1983, ten ed on June after years arose six volvement pow- signed Superson Malachinski a bitter after form was executed and “un- deemed it attorney. The court er The court place. had taken custody battle her hus- forge would Superson likely” too, reached the noted, that it would have days a consent form signature band’s on it had considered even if same conclusion hiring ad- him in with cooperating before testimony in this re- proffered Mellerke’s them; “duplicity her represent visors not reach IRS’ court did gard. The easily uncovered.” have too been would testi- objection because Mellerke’s hearsay Id. vague and inconclusive mony was “too determining -evidentiary value in Dr. Malachin- court also noted Malachinski’s] [Dr. whether advisors, ski, made urging at the at 15. forged.” Id. the consent lia- $20,400 respect to 1980 payment with made the April He bility it lacked also held The tax limitations for 1980 period after Dr. Ma- whether to determine a valid unless waiver expired would credit was entitled lachinski effect; professionals, competent in were its explained It $20,400 payment. court, client not advise a “would opined the determination limited to the jurisdiction is respect to a tax with to make overpayments, and certain of deficiencies Id. not be collected.” liability which could did not Dr. Malachinski’s that Dr. Mala- further observed The court category. fall into either conducted additional advisors had chinski’s aas characterized was better the Commissioner’s with discussions bond, con- the court of a cash the nature and, even part of in the latter agents tax court cluded, payment over which sent Dr. Malachin- after the Commissioner jurisdiction.2 not does a lia- proposing Superson a letter ski $90,000, the advisors of more than bility II collection suggestion no made ANALYSIS Finally, the the taxes was time-barred. appeal on argues Dr. Malachinski years passed seven that almost court noted (1) that determining erred the tax court granted the time

between hearsay on the Commissioner's dined rule no that it had determined 2. Because the court (cid:127) testimony. remittance, objection to Mellerke's it de- jurisdiction to address he consented to extend the statute of limi- Dr. Malachinski argues that agree- (2) tations for assessment and ment extend the statute of limitations is did not have to deter- invalid because he never signed the con- mine whether he was entitled to a credit sent form. speculates, instead, He that his $20,400 remittance. forged ex-wife his signature. To overcome

the presumption that a signature on a A. Signature Genuineness of authentic, document is § see I.R.C. presented Malachinski at trial the ex- 6501(a)of Section the Internal Revenue pert report and testimony Marsh, of Diane (“the Code”) Code provides that the IRS a board-certified forensic document exam- years has three date a return is iner. He now appeal maintains on that the filed to assess deficiencies. period This tax court abused its discretion in curtailing extended, can however, if both the Marsh’s testimony. “Secretary and the taxpayer have consent- ed in writing to its assessment after such 143(f)(1) Tax Court Rule requires 6501(c)(4). time.” I.R.C. that an expert’s opinion written be submit ted at least 30 days in advance of trial. asserting statute of limita The report must not only set forth the defense, tions a taxpayer prima makes a opinions witness’ but also include the facie case showing that the notice “facts or data on which that opinion is deficiency was not mailed within the three- based” “reasons for the conclusion.” year period. time See Adler v. Commis Testimony is “excluded altogether” for: sioner, 535, 540, 85 T.C. 1985 WL 15397 failure to comply (1985). provisions -with the If the IRS produces a consent to this paragraph, unless the failure extend period limitations that is valid shown to be due to good face,3 cause and its the burden then shifts back to unless the failure does not unduly preju- the taxpayer to show that the consent is dice the opposing party, such by sig- invalid. See id. at 540-41. The ultimate nificantly impairing the opposing party’s proof burden of on the limitations defense ability to expert cross-examine the wit- always rests on taxpayer. See id. at or by ness denying the 540; opposing party see also Feldman the reasonable opportunity to obtain 1128, 1132 evi- Cir.1994). dence expert rebuttal to the witness’ case, In this Dr. Malachinski filed testimony. tax return for year 1980 on April 143(f)(1). Tax Court Rule 8,1983, June prior On to the expira- tion of the three-year statute of limita- agree We with the tax court that tions, a representative of the Commission- report Marsh’s written does satisfy er form, executed a consent 143(f)(1). purportedly Rule report is terse and signed by Dr. Malachinski and Superson, conclusory, indicating only opinion Marsh’s agreed that to extend indefinitely the stat- that Dr. Malachinski signed had not his ute of limitations on assessment for 1980. name to the form consent and that the IRS, relying consent, on that issued same individual had written the date on the notice of deficiency at issue here in signature both lines. Marsh does ex May 1994. plain her conclusions nor does she denote 3. A consent valid on its face if it existing identifies of the period. limitations See Kim v. taxpayer, the signature, bears his Commissioner, identifies (CCH) (1996). 71 T.C.M. 2530 year, the prior and is dated to the expiration

505 on the entire reviewing court Moreover, Dr. when the it. supporting facts the firm definite is left with the evidence the failure that has not shown Malachinski has been commit that mistake conviction good to was due information include to Commissioner, F.3d 16 v. on ted.” Coleman view, the tax court was In our cause. (internal (7th Cir.1994) 821, quotation 825 permitting concluding that ground solid omitted). evi “must view the We marks have undu testimony would additional light record the entire dence in to cross- ability IRS’ ly prejudiced finding.” to the is most favorable IV which Investors Diego See Marsh. examine 1308, Commissioner, 100 F.3d (CCH) 753, v. Pittman Commissioner, 58 T.C.M. v. Cir.1996) (7th Tripp v. Com (quoting 1313 purpose of (1989) (noting “[o]ne that 763 432, missioner, 434 Cir. to facilitate reports is expert exchanging 1964)). by the other effective cross-examination v. Friedberg Estate see also

party”); of objects Although 3080, (CCH) Commissioner, 63 T.C.M. judg its own of substitution to the court’s (“[Wjhen (1992) party one seeks court expert, for that of ment may which testimony, expert introduce to The court just that. to do permitted for and difficult complex exceedingly be the overall “evaluate to discretion broad understand, readily to layperson Estate expert’s analysis.” each of cogency time given sufficient must be party other 530, Commissioner, 110 T.C. v. Davis of obstacles.”). The use those overcome (1998) (citation and WL the discretion testimony is within expert omitted). reject, in can It marks quotation Investors, 58 Diego see judge, the trial testimony of part, reports inor whole evi (CCH) see no and we at T.C.M. inde of its own in favor expert witnesses its abused discre the tax court that dence the evidence evaluation pendent direct Dr. curtailing Malachinski’s tion v. National Gro Helvering See record. Marsh. examination 294-95, Co., S.Ct. 304 U.S. cery report, Com- (1938); Marsh’s Shep rebuttal see also 82 L.Ed. and testi- report 376, 390, presented Commissioner, missioner 115 T.C. herd Davidson, also certified (“We mony (2000) of James may be 2000 WL examined Davidson examiner. an part document in our use selective sig- of Dr. Malachinski’s exemplars Thus, various court the tax opinion.”). expert’s samples that concluded nature and as independent undertook apparently for him enough representative See, Bybee were not e.g., signature. of the sessment forgery. was a (CCH) 607, signature find 72 T.C.M. conclusions of account the Taking ex (1996) (after handwriting into studying examined the tax experts, two concluded tax court emplars, its own conclu- itself reach exemplars sig petitioners’ by “handwriting reflected genuine. joint sion that the and 1984 on their natures the court argues now appears Malachinski income tax returns Federal de- making this error in clear committed handwriting reflected identical termination. the Form signatures petitioners’ to the indicates no credible evidence matter, we note initial As an contrary”). in burden faces a difficult Malachinski Dr. maintains Dr. also Malachinski findings. factual the tax court’s contesting circum- court drew inferences standard clearly erroneous Under the reasonable. were evidence “only stantial review, is reversed finding of fact 506

For example, the tax part court in based in fested her attempt to hire someone to its determination on the failure Dr. (six of Ma- kill him—was too far removed in time professionals lachinski and his tax years to raise after the execution of the consent form) issue of consent until 12 years after to support the forgery theory. Al signed.4 form was Dr. though Malachinski marshals evidence argués that he received a letter from the to the contrary (Superson secretly had in advising IRS 1990 him that the divorce; 1980 tax filed for the two had been em dispute resolved; had been he had no rea- in battle; broiled a heated custody Mel- son, therefore, pursue the issue of con- lerke testified that Superson had made sent. He also asserts that he relied on his suspicious statements; several Superson lawyers to defend the tax return and did was convicted of attempting to hire some not even know that forged waiver ex- Malachinski; one to kill and, Dr. in a isted. deposition case, related to Superson answer, refused to on self-incrimination Again, however, we per are not grounds, questions relating to whether she suaded that the clearly in mak erred forged Dr. signature), Malachinski’s re we ing its findings. factual As we have noted view the record in the light most favorable previously, the existence of evidence to tax and, findings court’s as indicated support an inference contrary to that previously, defer to those findings when by drawn the trier of fact does not mean there permissible are two views of the the findings were clearly erroneous. evidence. See United States v. Harda Harper City See Chicago Heights, 223 mon, (7th Cir.1999). 188 F.3d 848 F.3d Cir.2000), 600 denied, cert. 531 U.S. 121 S.Ct. 148 L.Ed.2d B. Remittance (2001); see also Malkin v. United States, (2d Cir.2001) (rejecting petitioner’s contention that Malachinski sent the IRS a remit- evidence was $20,400 insufficient to tance of support April 1984 in anticipa- district court’s finding that tion signed he income tax liability for 1980. Nota- agreement to extend bly, the statute limita at time Dr. Malachinski made this assessment). tions on payment, A fact finder’s the IRS had not defined choice between permissible liability two for inferences 1980. Although the taxes were from audit, evidence cannot clearly under no erro report examination propos- neous. See ing Anderson v. a deficiency City, Bessemer had prepared. been In- 564, 574, deed, U.S. the deficiency S.Ct. was not determined (1985). L.Ed.2d 518 until ten years later. the IRS transferred the to Dr. Malachin- Dr. Malachinski also takes issue with the ski’s individual 1982 income tax account. tax court’s determination that his ex-wife The money, plus interest, $902 was re- did not forge signature. conclude, We funded the IRS six months later. however, that the court was well within its province when it found that Superson’s Dr. Malachinski argues that he did not hostility toward Dr. Malachinski—as mani- request either the credit of the funds to his (CCH) 4. Cf. Kim v. question T.C.M. validity for [form] an ex- (1996) (emphasizing the taxpayer's long time, period tended taxpayer] [the has period of silence in rejecting taxpayer's accepted effect it as taxpayer] [The valid. argument that her on an IRS docu- failed to show that the notice of deficiency ment forged: was "Certainly, by sent.”). failure to untimely

507 held at 667-68. We See id. payment. or a of that refund or the year taxable 1982 ' deciding of whether purposes the that “for moreover, denies, that he He amount. tax, formal payment a of was a remittance refund; speculates he the received ever to be consid only is one factor assessment check intercepted the Superson that Ewing v. Unit (quoting at 668 ered.” Id. Thus, if even he his endorsement. forged (4th Cir.1990), States, cert. F.2d 499 914 ed limita- statute of on the prevail does not denied, 114 111 S.Ct. 500 U.S. that defense, asserts Dr. Malachinski tions (1991)). factors to be 78 Other L.Ed.2d $20,400 against of to credit is entitled a he intent taxpayer’s the considered include 1980 tax on his deficiency he now owes remittance, the IRS how making upon return. upon receipt, treats was it that court determined tax See Mor liability tax is defined. when whether determine jurisdiction to without an, at 63 F.3d 668. to a credit entitled was court deficiency. The the 1980 Moran, we also took In was ini- that, when reasoned discussion, we view, that without extended a toward made, a it not tially was a de under these factors ought to assess ought to be therefore liability and 1980 Further reflec review. standard of novo pay- a rather than deposit a considered a deferential us that has convinced tion liability. tax satisfy particular a ment Recent appropriate. standard more Dr. funds to Later, applied the the IRS national in our growth have seen years and, in the liability tax Malachinski’s appropriate standard on the jurisprudence that determining the extent course legal princi application for of review these funds liability, returned The Su fact-specific questions. ples to court did the tax Because overpayment. plena it that made clear Court has preme Malachin- jurisdiction over not a relevant when appropriate ry review action, the liability this 1982 tax ski’s meaning and given principle can be legal the correctness could not review application of only through clarified with re- the funds disposition of IRS’ particu aof circumstances rule to the Therefore, time at the year. to that spect particularly are there lar case and when to the 1980 apply the funds asked to craft the courts for important reasons within no funds there were liability, tax future rules that ensure set of defined apply court’s important rights involving determinations liability. v. Unit Ornelas accurately. See made are 690, 697-98, States, 116 S.Ct. 517 U.S. ed (1996); also see 134 L.Ed.2d Indus., Tool Inc. v. Leatherman Cooper of the reviewing the determination

In Inc., 121 S.Ct. U.S. Group, deter- court, its first to initial we turn (2001). Howev 1685-88, 149 L.Ed.2d receipt that, time of their at mination considerations, a er, special absent such deposit IRS, funds were of trial and roles proper allocation taxes. the 1980 payment on than a rather specific fact counsels that appellate courts States, F.3d 663 v. United Moran susceptible of useful easily signifi- questions (7th Cir.1995), joined circuit deferentially by reviewed generalization concluding circuits in number other cant & Gell Cooter See appellate courts. facts look to the a court must 399-405, 496 U.S. Corp., Hartmarx case to de- individual of an circumstances (1990); L.Ed.2d 359 110 S.Ct. ais a remittance whether termine Underwood, Pierce v. 557-63, Further, U.S. the IRS apparently treated the (1988). 108 S.Ct. 101 L.Ed.2d 490 remittance aas cash bond. itWhen refund- application The of the “facts and remittance, circum ed the it included in in- $902 stances” test we embraced in Moran terest —-a reflection of the accrual of inter- indicated strongly that ought we est review months six the money was in the determination of the tax court on this the 1982 account and not for the total four question deferentially. point years On and-a-half this the IRS had the money. —the applicable standard payment of review—our lan only interest for the time guage to the contrary in money Moran posted is overr was to the 1982 uled.5 -account indicates that the IRS treated the

payment as cash a bond for year 1980.7 Applying a deferential standard of 3.

review to the determination of the tax case, court in this we see no reason to Although the tax court jurisdiction disturb that court’s conclusion. The rec to determine deposit whether a payment is ord adequately supports the conclusion applicable particular a deficiency, see that the tax court correctly determined the Hays (CCH) 71 T.C.M. case, in this at the time it was (1996), here, the court was made, deposit. was a As already we have never asked to determine whether the de- noted, Dr. Malachinski’s payment posit was in question could be attributed to the made in April well any before liabili year 1980 tax any at prior time to the IRS’ ty was defined. time, At that application his 1980 tax of those funds to the 1982 tax return being audited, was but no report account in 1988. Whether those funds proposing deficiency prepared was were properly until allocated to the 1982 tax later, 15 months and the deficiency account was a matter not properly before not determined until years the tax later. court in this proceeding because amount of the bore, remittance the court did not over the court, words of the tax 1982 tax “no perceptible 6214(b). account. See I.R.C. At relationship” to the first glance, 6512(b) amount section deficien seemingly cy proposed in might provide jurisdictional examination report per- hook to (more $90,000). mit than the tax court to R.56 at 20. reach question. this Malachinski, That additionally, section states: did not indicate that the remittance payment; constituted a [I]f the Tax Court finds that there is no rather, he recalled making it to halt the deficiency and further finds that the tax- accrual of interest.6 payer has made an overpayment of in- opinion This has been among circulated all remittance” made before the proposal written judges of regular this court in active service. liability of a will be "treated by the Service as judge No favored rehearing en banc on the in the nature of a cash bond.” Rev. question of whether language this from Mor- 82-51, Proc. 1982-2 C.B. 839. ought to be overruled. 7.Although prepared the voucher by the IRS 6. We note that the IRS specifically approves contains a indicating checked section that the procedure accepts deposits for this payment'on was an advance defi- purpose. 82-51, See Rev. Proc. 1982-2 C.B. ciency, it also bears the legend handwritten superseded 84-58, by Rev. Proc. 1984-2- the "remarks” section C.B. original 501. The provision (applicable is, served as a cash bond. The remittances made voucher before there- Oct. 1984-the fore, here) case inconclusive. indicates that "undesignated if Dr. Malachinski’s remittance year ... Even the same taxable come tax for rather Secretary payment be considered a than deter- could in respect which deposit when it was transferred and or finds that there deficiency, mined the 6512(b)(4) account, § taxpayer has deficiency that the credited to 1982 is a but tax, the court prevents of such nevertheless tax overpayment made an jurisdiction de- exercising jurisdiction to over the remittance. Tax shall Court overpay- recently termine the amount such This added subsection I.R.C. shall, ment, § and such amount when as follows: 65128reads has of the Tax Court become decision (4) Regarding Denial of Jurisdiction final, credited or refunded to Certain Credits and Reductions.—The taxpayer. jurisdiction no un- Tax Court shall have 6512(b) § I.R.C. der to restrain or review this subsection by any credit or reduction made provision read this as cannot We under 6402.9 Secretary section court to determine permitting the tax $20,400 deposit ought to be whether the Report explains The Senate that the ad- 1980 tax attributed to Dr. Malachinski’s the Tax dition “clarifies that Court does 6512(b) First, § refers to over- deficiency. jurisdiction validity not have over the or held, and, just with re payments, as we or that reduce merits of the credits offsets year, tax spect to eliminate the which tax- or refund pay not deposit is a at issue here payer Rep. was otherwise entitled.” S. Although “over-payment” the term ment. 105-33, Cong., 1st 105th Sess. defined, statutorily see Estate is nowhere (1997). juris- Although the tax court Commissioner, 85 T.C. Baumgardner v. of an diction to determine amount (1985), 445, 449, the Su WL 6512(b)(1), § it overpayment, see I.R.C. overpayment defined preme Court has jurisdiction direct does not have that which is “any payment excess of overpayment when that disposition of an Co., Liberty properly due.” Jones v. Glass against has been credited another 524, 531, 229, 92 L.Ed. 68 S.Ct. U.S. 6402(a) § pursuant year’s assessment (1947) (defining overpayment as used a tax commencement of prior 6512(b), § statutory predecessor 6512(b)(4); § I.R.C. Sav- proceeding. See Code). § there to be 322 of the 1939 For Commissioner, 46, 48-51, 112 T.C. age overpayment, taxpayer an first must (1999). 1999WL 71571 payment. have made a See Bachner 125, 129, 1997WL 109 T.C. Conclusion (1997), published without aff'd. (3d Cir.1998). it clearly tax err when Be court did opinion, 172 F.3d 859 signa- that Dr. Malachinski’s determined

cause Dr. Malachinski has not made genuine. form was ture on the consent year, for the 1980 tax follows the tax court lacked overpay agree also have made an We he could not Dr. Ma- to determine whether him within brought ment that would have 6512(b). to a credit for the § was entitled lachinski purview § 6512(b)(4) the Commissioner § Code 9. Under I.R.C. 8. was added to the I.R.C. to credit the amount of expressly authorized Taxpayer Relief Act of Pub.L. against any liability of the overpayment 105-34, 1451(b), § 111 Stat. 6402(a). taxpayer. I.R.C. See $20,400 remittance. Accordingly, we af- deficiency and the refusal to credit his firm the decision of the tax court. it, separate file two suits: one in the Tax Court litigate his defi

AFFIRMED. ciency and a second a federal district POSNER, court or the Judge, Circuit U.S. Court concurring in of Federal Claims (28 part 1346(a)(2), §§ dissenting part. 1491(a)(1); U.S.C. see States, Tosello v. 1125, United 210 F.3d agree I with the majority’s analysis and (9th Cir.2000)) 1128 to force the IRS to disposition of the taxpayer’s ground first deposit. return his See Rosenman v. appeal and with its conclusion anent the States, 658, United 536, U.S. 323 65 S.Ct. ground second that the remittance to the (1945); 89 L.Ed. 535 Ertman v. United a deposit IRS was and not a States, 204, (2d 165 Cir.1999); I taxes. also agree that the Tax Court’s York New States, Ins. Co. v. United Life determination that it deposit was a should (Fed.Cir.1997). 118 F.3d 1555-58 novo,” is, be reviewed “de that without deference to the Tax Court’s view of the Nothing compels so proce inefficient a matter, though I think say we could a bit for disputes dure litigating deposits over more subject. on that But I disagree with against potential deficiencies. The motive majority’s holding that the Tax Court taxpayer’s for a depositing money with the jurisdiction lacked apply to the taxpayer’s IRS is his realization that poten there ais deposit toward his deficiency let —and (in tial tax deficiency words, other that he begin me with this issue. may taxes) have underpaid his coupled majority points

The out that the Tax with a stop desire to interest penalties and jurisdiction Court’s is limited to the resolu- from accruing. VanCanagan See v. Unit tion of disputes deficiencies, States, over 26 ed (Fed.Cir. 231 F.3d 6213(a), is, §§ U.S.C. 2000); 6214-that underpay- Callaway Commissioner, v. ments —but power that its (2d resolve such F.3d Cir.2000); 113 n. 11 IRS disputes power includes the to determine Rev. 5.01, Proc. 84-58 § 1984-2 C.B. whether taxpayer a is entitled to a § refund 5.01. Should a deficiency eventually be payments made in excess of a assessed, deficien- deposit is then used pay it cy, 6512(b), § is, U.S.C. to a refund off. 4.02(2), (3); §§ See id. Michael I. of an overpayment. far, so good. Saltzman, So But IRS Practice and Procedure taxpayer when a deposit against makes 6.02[3][a][ii], (2d ed.1991). p. 6-15 possible liability, so that there only is a determining a taxpayer’s net deficiency, potential deficiency, the majority therefore, holds Court, the Tax as a matter of that the Tax jurisdiction Court has no elementary judicial economy, ought to be apply deposit against the deficiency able to determine -the deposit. status of a even if determines, the court later it did That has been the court’s practice, steady case, that, in this yes, there see, is a deficiency e.g., Hays T.C. which the could be credited 1996-18, (U.S. Memo 1996 WL 20554 Tax to reduce the taxpayer’s net deficiency. 22, 1996), Court Jan. from which it unac The consequence of my colleagues’ position countably departed in this with an case is time the IRS refuses to ac- unelaborated case, citation to an irrelevant knowledge that a taxpayer against whom it Savage Commissioner, 112 T.C. has assessed deficiency had (1999). made a de- WL 71571 power which I for posit against that deficiency, the taxpayer am arguing is entirely with consistent must, if he wishes to challenge both limitation of the jurisdiction Tax Court’s in its (and cite section 6402 overpay- even bother over deficiencies disputes brief, matter section or for that original therewith), with in connection ments 6512(4)(b). more, apparent as is What law, sense. with common and case 6512(4)(b) comparison of section from the Tax not whether question 6402(b) (c), from the with sections deposit.” It over a “jurisdiction has Court 6512(4)(b),see history of section legislative amount to determine has 1st 302- S.Rep. Cong., No. 105th Sess. only by can be done This deficiencies. (1997); H.R.Rep. Cong., 105th No. owed and sub- of taxes the amount taking (1997), section was 1st Sess. them. No toward tracting any payments Tax prevent the Court enacted in order to the Tax Court say that would one determi- second-guessing the IRS’s just payment”; a tax “jurisdiction over amount of a refund nation to reduce compute the amount uses due payments child-support payments or disputes how owed, if are about there to do nothing It has loans. government on Tax must the Court paid has been much deposits. with if the same is true them. The resolve of proper standard Turning now to the but payment a of tax is not finding that a remit- review of a appellate potential tax against a deposit a instead a deposit rather than tance was a liability. outset, taxes, the I as I said at agree, of colleagues make two my this Against clearly-erroneous the it should be that deposit cannot is that a The first points. (no defer- the de novo and not standard because, “for there overpayment an be States, ence) of Moran v. United standard taxpayer first the overpayment, be Cir.1995). (7th It 663, 63 F.3d isn’t payment.” made a That must adopted that that the court noting worth ordinary my usage, and a matter of as true and elaboration in Moran without position why it no reason opinion gives colleagues’ citation beyond a bare explanation without way. you If interpreted this should something entirely says a that case lamp, purchase the a deposit a on make irrelevant, which completely and different price the turns price, and knowing the not is de summary judgment is that review the seller deposit, the less than to be out (7th 1169, IRS, 8 F.3d v. novo. Hefti you’ve “over- refund the will Cir.1993). summary a difference — Moran also by my col- point made The second paid.” the case, possible it is and judgment 6512(4)(b), § to 26 U.S.C. relates leagues in- novo was review de it to reference “to Tax Court restrain forbids the what which than say nothing more tended to by reduction or made said, spe- review credit though the (correctly) or had Hefti i.e., Treasury, Secretary [of this against of Moran language cific 6402(a) 6402.” Section es- under section contentions “All these interpretation: IRS] overpay- credit an IRS to whether hinge on one issue: sentially authorizes in 1985 year against Morans by one tax made of taxes for ment remittances deposits taxpay- tax or payments paid were deficiency taxes and 1986 payments inapplica- into so is the IRS converted and year, in another er (over- the district 1991. We review September, this case because ble de legal question of a on account court’s made decision was not payment) be, the Sixth may all this However year for which novo.” year from different Moran, after Circuit, decided assessed; in a case deposit was deficiency was conclusion, Gabelman opposite reached year. It is for that taxes against assessed (6th 609, Commissioner, 86 F.3d didn’t government surprising Cir.1996), and so we have a split, Seafoods, circuit Inc. Worthington, 475 U.S. 709, 711-14, 106 which us to 1527, behooves revisit Moran. See S.Ct. 89 L.Ed.2d 739 (1986); Carlos-Colmenares, Hill, United States v. 806, United States v. 196 F.3d (7th (7th 276, Cir.2001). Cir.1999); Cook v. City 277-78 Chica (7th go, Cir.1999); 192 F.3d 696-97 significance usual of the distinction Frederick, States v. United 182 F.3d between the depos taxes and (7th Cir.1999); 499-500 United States v. potential is, deficiency as in Industries, Inc., Rule 878 F.2d itself, 666-67, 670; Moran 63 F.3d at Ert (1st Cir.1989), 541-42 with reference States, man v. supra, United 165 F.3d at review such determinations in tax 206; States, v. United Blatt 34 F.3d cases, Williams v. 1 F.3d (4th Cir.1994), get that to back Cir.1993), where we noted an overpayment you of taxes must file a question because “a about proper suit, (in refund there are limitations application (real) of a legal standard to the cluding sue), how much time one has to see ... requires facts judgment based on the 26 U.S.C. applicable that are not idiosyncratic particular facts of a case (or claims for the return crediting) of de rather than the of a general formulation posits. question So the of classification is rule, it is one best to the confided first-line significant if, believe, even I my col judicial subject officer to only light appel leagues are wrong to think jurisdic it has late review.” A ruling in this ease that tional significance in this case. Malachinski’s payment a deposit majority points out, As the which ani- precedential no significance, because there mal—tax or deposit particular will never —a be a case with the same facts. depends remittance is on “the facts and The that overpayments rule and deposits case,” circumstances of an individual in- are differently treated in tax law genu is a cluding such facts as “the taxpayer’s intent law; ine rule of the “rule” that Malachin- upon making remittance, how the IRS ski loses this case is not. treats the upon receipt, and There is an analogy jury’s to a or a trial (This when the tax liability is defined.” judge’s finding of negligence. Even if the has been dubbed “the ‘facts circum- facts undisputed, are the inference from stances’ test.” States, Ertman v. United them that the defendant was or was not supra, 207; 165 at see F.3d also Gabelman negligent is drawn trier of fact and Commissioner, v. 613.) supra, 86 at deferentially. reviewed The Supreme

When a legal conclusion is based aon Court so held in McAllister v. United kaleidoscope determinations, of factual ap- States, 19, 6, 348 U.S. 75 99 S.Ct. L.Ed. 20 pellate generally courts review it under the (1954); see 9A Charles A. Wright & Ar- clearly-erroneous standard, recognizing Miller, thur R. Federal Practice and Pro- that the trier fact position better 2590, (2d cedure pp. ed.1995); than appellate judges to up weigh see also Cooter & Gell v. Corp., Hartmarx various facts and that primary appel- 402; supra, 496 U.S. at Halek v. United late role is to assure legal uniformity, an States, (7th 481, 178 F.3d Cir.1999); 485 goal unattainable when dispositive is- King, 602, (7th Mucha v. 792 F.2d 605 case-specific. See, sue is e.g., v. Cir.1986); Ogden v. 244 Buford States, 59, United 532 U.S. 121 (5th S.Ct. Cir.2001) curiam). F.3d 970 (per (2001); 149 L.Ed.2d 197 Cooter Gell v. & inference that Malachinski’s remittance Hartmarx Corp., 401-04, 496 U.S. 110 was a rather than a tax S.Ct. (1990); L.Ed.2d 359 Icicle would likewise be for the Tax Court to the Tax the case remand if therefore by us even review light subject draw intent, Court. facts—Malachinski’s underlying check, so did with the IRS what stipulated.

forth —were to the true, exceptions are, it is

There facts, inferences legal

principle rulings commonly called more are what

or fact” or lawof questions “mixed fact,” re are to be questions “ultimate KEPPLE, II, Plaintiff- C. Gerard exceptions error. for clear viewed Appellant, issues sensitive do with mainly v. see, e.g., jurisdiction, law or constitutional Industries, v. Leatherman Inc. Cooper Acting MASSANARI, Com Larry G. 424, 121 Inc., S.Ct. 532 U.S. Group, Tool Security, missioner Social (2001); 1685-86, L.Ed.2d Defendant-Appellee. States, 517 U.S. v. United Ornelas 01-1155. No. L.Ed.2d 116 S.Ct. 696-99, here. Cf. (1996), inapplicable are and so Appeals, States Court of United Frederick, supra, States United Circuit. Seventh Inc. 499-500; Systems, Door F.3d at 20, 2001. Sept. Argued Inc., 126 F.3d Systems, Door Pro Line Cir.1997). Although there Oct. Decided 1028, 1031 uniformity in the lack a regrettable courts, pointed out appellate practice Frederick, supra, 182 States v.

in United opinion); (concurring see 503-04

F.3d at Welch, F.3d v.

also Witkowski (3d Cir.1999), has adhered circuit

n. 7 e.g., steadily see, principle quite — earlier, In re Ro cited cases besides Cir.1999); (7th 867, 870-71

vell, Frederick, supra, 182 States

United Corp. Con 499; Steel

F.3d at Mars N.A., 880 F.2d Bank

tinental banc) fully Cir.1989) (en — and case. present

applicable if conceded

The government apply did have

Tax Court deficiency, his deposit taxpayer’s IRS con- be remanded.

case must it returned

tends that of course right if that is then

taxpayer, credit it entitled

he is not question is a factual But that

deficiency. I would to answer. Tax Court

Case Details

Case Name: Leon S. Malachinski v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Seventh Circuit

Date Published: Oct 4, 2001

Citation: 268 F.3d 497

Docket Number: 99-3323

Court Abbreviation: 7th Cir.