    12-3956 (L)
    DeCrescenzo v. Comm’r of Internal Revenue


                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                        SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

            At a stated term of the United States Court of Appeals for the Second Circuit, held at the
    Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
    30th day of April, two thousand fourteen.

    PRESENT:
                JOHN M. WALKER, JR.,
                PETER W. HALL,
                      Circuit Judges,
                J. GARVAN MURTHA,*
                      District Judge.
    _____________________________________

    Joseph DeCrescenzo,

                               Petitioner-Appellant,

                      v.                                                12-3956(L), 13-509 (Con)

    Commissioner of Internal Revenue,

                               Respondent-Appellee.
    _____________________________________

    FOR PETITIONER-APPELLANT:                            Joseph DeCrescenzo, pro se, Mount
                                                         Vernon, NY.




             *
             Judge J. Garvan Murtha, of the United States District Court for the District of Vermont,
    sitting by designation.
FOR RESPONDENT-APPELLEE:                              Thomas J. Clark, Joseph B. Syverson, for
                                                      Kathryn Keneally, Assistant Attorney
                                                      General, Department of Justice,
                                                      Washington, D.C.

       Appeal from orders of the United States Tax Court (Marvel, J., Kerrigan, J.).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the orders of the Tax Court are AFFIRMED.

       Joseph DeCrescenzo, pro se, a self-employed accountant, did not file tax returns in 2005

or 2006. The Internal Revenue Service mailed notices of deficiency to DeCrescenzo, and he

petitioned the tax court to contest the deficiencies. The issues on appeal are whether: (1) the

notices of deficiencies were timely and contained sufficiently particularized determinations of

the taxes DeCrescenzo owed; (2) the tax court properly imposed a failure-to-pay penalty; and (3)

DeCrescenzo was entitled to a certain deduction from his self-employment income (the “net

operating loss carryforward”). We assume the parties’ familiarity with the underlying facts, the

procedural history of the case, and the issues on appeal.

       This Court reviews a tax court’s conclusions of law de novo, its findings of fact for clear

error, and its application of its procedural rules for abuse of discretion. Sunik v. Comm'r, 321

F.3d 335, 337 (2d Cir. 2003); 26 U.S.C. § 7482(a)(1) (tax court decisions reviewed in same

manner as decisions from district courts in civil cases).

       a.      Notices of Deficiency

        Relying heavily on Scar v. Comm'r, 814 F.2d 1363 (9th Cir. 1987), DeCrescenzo argues

that the IRS failed to “determine” his 2005 and 2006 deficiencies as required by I.R.C. §

6212(a). In Scar, the taxpayers received notices of deficiency that “contained an explanation of



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a tax shelter completely unrelated to their return, contained no adjustments to tax based on their

return as filed, and stated affirmatively that the taxpayers’[] return is ‘unavailable at this time.’”

Id. at 1366. Holding that the IRS had failed to “determine” the deficiency within the meaning of

§ 6212(a), the Ninth Circuit concluded that the IRS “must consider information that relates to a

particular taxpayer before it can be said that [it] has ‘determined’ a ‘deficiency’ in respect to that

taxpayer.” Id. at 1368.

          By contrast, the IRS did so here. The notices of deficiency were calculated based on

information from third parties’ Forms 1099 regarding payments made to DeCrescenzo during

2005 and 2006. Scar is therefore inapposite. See Sunik, 321 F.3d at 336-37 (distinguishing Scar

where IRS determined deficiency on the basis of information reported to the IRS by taxpayers’

state tax agency); Andrew Crispo Gallery, Inc. v. Comm’r, 16 F.3d 1336, 1340-41 (2d Cir. 1994)

(distinguishing Scar because the IRS had examined the taxpayer’s return for the tax year at

issue).

          DeCrescenzo challenges the notices of deficiency as untimely. He is incorrect. It is

undisputed that he failed to file tax returns in 2005 and 2006. The Internal Revenue Code

unequivocally states that, if a taxpayer fails to file a return, the tax may be assessed at any time.

I.R.C. § 6501(c)(3); see also § 6213(a) (stating that no assessment of deficiency shall be made

until “such notice has been mailed to the taxpayer”).

          b.     Failure-to-Pay Penalty

          Further, DeCrescenzo argues that I.R.C. § 6651(a)(2) (providing for a penalty for failure

“to pay the amount shown as tax on [a tax return]”) was inapplicable to him because he did not

file tax returns. The penalty applied because the IRS completed returns for him for 2005 and


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2006, and those returns are “treated as the return[s] filed by the taxpayer for purposes of

determining” the penalty under § 6651(a)(2). I.R.C. § 6651(g)(2).

       c.      Net Operating Loss Carryover

       DeCrescenzo raises three arguments regarding net operating loss carryovers: (1) the

parties stipulated to a net operating loss carryover deduction in the 2006 case, so the IRS was

collaterally estopped from challenging the deduction in the 2005 case; (2) the IRS untimely

raised the issue of whether he could reduce his 2006 self-employment income with the net

operating loss carryover; and (3) § 1402(a)(4) (which excludes net operating loss carryovers

from the calculation of self-employment income) was inapplicable to his case.

       The 2006 stipulation did not collaterally estop the IRS. In it, the parties stipulated that,

“for purposes of computing [DeCrescenzo’s] income tax liability for the year 2006,” his income

was reduced by a net operating loss carryover. The stipulation was expressly “for settlement

purposes only and without examination” by the IRS. Generally, “a fact established in prior

litigation by stipulation, rather than by judicial resolution, has not been ‘actually litigated’” for

collateral estoppel purposes. Uzdavines v. Weeks Marine, Inc., 418 F.3d 138, 146 (2d Cir.

2005). However, “where parties intend a stipulation to be binding in future litigation, issues to

which the parties have stipulated will be considered ‘actually litigated.’” Id. Here, the net

operating loss carryover stipulation was clearly not intended to be binding in future litigation: it

expressly noted that it was “for settlement purposes only.” Further, the stipulation stated that the

net operating loss carryforward deduction applied “for purposes of computing [his] income tax

liability for the year 2006” – that is, his income tax, not his self-employment tax.




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       DeCrescenzo argues that the IRS did not timely raise the issue of whether he could

reduce his 2006 self-employment income with the net operating loss carryover. The tax court

generally may “refuse[] to consider an untimely raised issue when the opposing party is unfairly

surprised and prejudiced because his defense against the issue requires the presentation of

evidence different from the evidence relevant to the identified issues in the case.” Rolfs v.

Comm’r, 135 T.C. 471, 484 (2010). The tax court did not abuse its discretion in holding that

DeCrescenzo was not unfairly surprised or prejudiced because he agreed to litigate the net

operating loss carryover issue when the parties filed their stipulation of settled issues.

       Finally, DeCrescenzo argues that I.R.C. § 1402(a)(4) does not apply to him. That section

provides that the deduction for net operating losses “shall not be allowed” when calculating net

earnings from self employment. He argues that the exclusion applies only to partnerships

because the following paragraph in the section (§ 1402(a)(5)) concerns partnerships. Each

numbered paragraph of § 1402(a) contains a separate rule for computing net earnings from self

employment. Section 1402(a)(4) is a stand-alone provision, and expressly excludes net

operating loss carryovers from the calculation of self-employment income. See, e.g., Laney v.

Comm’r, No. 24510-90, 74 T.C.M. (CCH) 507, at *1 n.3 (T.C. 1997), aff’d, 168 F.3d 482 (4th

Cir. 1999) (noting that “for purposes of self-employment taxes [§ 1402(a)(4)] expressly

disallows net operating loss deductions in computing net earnings from self-employment”).

       Accordingly, we AFFIRM the orders of the Tax Court.

                                               FOR THE COURT:
                                               Catherine O’Hagan Wolfe, Clerk




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