Larkin v. Commissioner (T.C. Memo. 2020-70)

Posted on May 28, 2020

On May 28, 2020, the Tax Court issued a Memorandum Opinion in the case of Larkin v. Commissioner (T.C. Memo. 2020-70). The underlying issue before the court in Larkin v. Commissioner was whether the petitioners provided substantial, credible evidence to support their deductions claimed on their returns for the years at issue. Although there are a number of sub-issues, the entry of arguments and evidence into the record through pleading and briefs is the primary lesson of this case.

**A Harsh Lesson – If You Want the Tax Court to Consider an Issue, Plead it then Brief It!**

The Larkins’ opening brief challenges some (but not all) of the IRS’s determinations in the statutory notice of deficiency (SNOD). The Tax Court will not consider any issue or argument that the petitioners did not advance on brief as having been abandoned. See Mendes v. Commissioner, 121 T.C. 308, 312-13 (2003); Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001); Rybak v. Commissioner, 91 T.C. 524, 566 n.19 (1988).

The Tax Court Petition – A Primer in Larkin v. Commissioner

A petition for redetermination must be complete to enable the Tax Court to ascertain the issues that the petitioner intends to be present. Tax Court Rule 34(a)(1). The petition shall, among other things, contain assignments of each and every error which the petitioner alleges to have been committed by the IRS in the determination of the deficiency (clearly and concisely). Any issue not raised in the assignments of error is deemed to be conceded. Tax Court Rule 34(b)(4); see also Foley Mach. Co. v. Commissioner, 91 T.C. 434, 441 (1988) (holding that the Court does not consider issues which are not raised by the pleadings).

In certain circumstances, an issue not raised by the pleadings may be tried by consent of the parties and treated in all respects as if they had been raised in the pleadings.” Tax Court Rule 41(b)(1). The Tax Court has held, however, that when a party is not aware of an issue at trial, he cannot be held to have expressly or impliedly consented to the trial of that issue, as required for application of Tax Court Rule 41(b). See Markwardt v. Commissioner, 64 T.C. 989, 998 (1975).

Rejection of Post-Trial Brief Theories

Of the “new” issues raised in the petitioners’ brief but not pled was their entitlement to Schedule A deductions for mortgage interest, investment interest, and State and local tax deductions for 2008 are not at issue. The petitioners first contended that they should be allowed additional Schedule A deductions for 2008 (other than those allowed in the SNOD) was in their post-trial brief. Because the post-trial contentions as to Schedule A deductions for 2008 were neither pleaded nor tried by consent, they are not properly considered in the opinion. Similarly, the first time the petitioners raised Schedule E losses for 2008 was in their post-trial brief–too late to try the issue in this case.

Although the petitioners raised the foreign tax credit issue globally in their petition and brief, they made statements during trial which suggested that they were only wishing to pursue it for 2009. I can see where the petitioners may be excused, as the judge was terribly obtuse: “Is the dispute about foreign tax credit for 2009 only,” he asks. The reply was equally cryptic, “Yes, your honor.” The petitioners raised the contention 2008 foreign tax credit first in their post-trial brief, which contention the Tax Court declined to “entertain” the issue which conflicted with statements made during trial and in the pleadings.

Attempting to Submit Evidence After Trial

Whether to reopen the record to receive additional evidence is a matter within the discretion of the trial court. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331 (1971); Butler v. Commissioner, 114 T.C. 276 (2000), abrogated on other grounds by Porter v. Commissioner, 132 T.C. 203, 206-208 (2009). A motion to reopen the record will not be granted unless, among other requirements, the evidence relied on (1) is not merely cumulative or impeaching, (2) is material to the issues involved, and (3) probably would change the outcome of the case. Butler, 114 T.C. at 287.

In reviewing a motion to reopen the record, the Tax Court also takes into account other factors, including the effect of granting the motion. See Purvis v. Commissioner, T.C. Memo. 2020-13, *30. If the effect of granting the motion would be unfair to the nonmoving party, since it would allow documents to come into the record after the nonmoving party litigated an entire case through trial and post-trial briefing, and there is no substantial countervailing interest of justice, the motion will be denied. Id. at *30-*31.

(T.C. Memo. 2020-70) Larkin v. Commissioner