                       T.C. Memo. 2001-273



                     UNITED STATES TAX COURT



         LIMITED GAMING OF AMERICA, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3370-99.                Filed October 9, 2001.



     Thomas G. Potts, for petitioner.

     Osmun Latrobe, for respondent.


                       MEMORANDUM OPINION

     DINAN, Special Trial Judge:   This matter is before the Court

on petitioner’s Motion for Partial Summary Judgment and Brief in

Support and Addendum to Petitioner’s Motion for Partial Summary

Judgment and Brief in Support, pursuant to Rule 121(a).1



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

Respondent filed a Notice of Objection to Petitioner’s Motion for

Partial Summary Judgment and Respondent’s Memorandum of

Authorities.   Petitioner filed Petitioner’s Reply to Respondent’s

Notice of Objection to Petitioner’s Motion for Partial Summary

Judgment.   As explained more fully below, we will deny

petitioner’s Motion for Partial Summary Judgment.

                             Background

     By a notice of deficiency mailed to petitioner on July 1,

1998, respondent determined deficiencies in Federal income taxes

due from petitioner for the fiscal years ended February 28, 1993

and 1994 in the amounts of $217,280 and $126,017, respectively.

     Petitioner timely filed a petition in this case on February

19, 1999, and respondent timely answered on April 12, 1999.

     Limited Gaming of America, Inc., hereinafter referred to as

LGA or petitioner, is a Colorado corporation originally formed on

May 5, 1991.   LGA is a “C” corporation; it has a fiscal year

ending on February 28.

     On or about January 4, 1994, LGA caused to be formed Sunrise

Island Timber Company, hereinafter referred to as Sunrise, a

Florida general partnership, for the purpose of holding real

property consisting of an island located in the Mississippi

River.   Sunrise was subsequently converted to a Florida limited

partnership in February 1995.
                               - 3 -

     For the fiscal year ended February 28, 1993, LGA filed its

Federal Corporate Income Tax Return, reporting taxable income,

before net operating loss deduction and special deductions, in

the amount of $2,053,385.   From that amount, LGA deducted a net

operating loss of $974,231, reducing its taxable income to

$1,079,154 and reported tax due in the amount of $839,766.

     For the fiscal year ended February 28, 1994, LGA filed its

Federal Corporate Income Tax Return, reporting taxable income in

the amount of $3,224,801 and reported tax due in the amount of

$649,738.

     During 1995, Mr. Robert Lobato acquired ownership and

control of LGA.

     On February 7, 1996, both LGA and Sunrise filed Chapter 11

bankruptcy petitions with the Bankruptcy Court for the Northern

District of Oklahoma.

     On or about November 21, 1995, Mr. Lobato caused to have LGA

prepare a Corporation Application for Tentative Refund (Form

1139), carrying back losses incurred by LGA during its fiscal

year ended February 28, 1995, to its fiscal years ended February

28, 1993, and February 28, 1994.   LGA claimed refunds for its

fiscal years ended February 28, 1993 and 1994 in the amounts of

$216,074 and $649,738, respectively.   The claimed refunds were

primarily based upon Mr. Lobato’s decision to substantively

consolidate both LGA and Sunrise for Federal income tax purposes.
                              - 4 -

     In 1996, following receipt of the Form 1139 from LGA,

respondent began an examination of LGA’s fiscal years 1993 and

1994 Federal income tax returns.   Respondent denied LGA’s refund

claims for the fiscal years ended February 28, 1993 and 1994 and

determined deficiencies in Federal income tax for those years in

the amounts of $217,280 and $126,017, respectively.   The denial

of the claimed refunds and the determination of deficiencies for

the fiscal years 1993 and 1994 were premised, in part, on

respondent’s determination that LGA and Sunrise were separate

legal entities during the fiscal year ended February 28, 1994.

     During the pendency of its Chapter 11 proceeding, LGA argued

that Sunrise should be disregarded, as a “sham” entity.   LGA

contended that Sunrise should be disregarded for Federal income

tax purposes and that LGA was entitled to substantial Federal

income tax refunds for the fiscal years ended February 28, 1993

and 1994.

     After LGA and Sunrise filed their petitions in bankruptcy on

February 7, 1996, an order was entered by the Bankruptcy Court

setting May 31, 1996, as the deadline for filing proofs of claim.

     On March 27, 1996, the IRS filed a proof of claim for unpaid

taxes in the amount of $73,500.    The content of the claim was as

follows:
                                   - 5 -

     Taxable Year            Type of Tax           Amount of Tax

           1994         Corporate income   tax        $5,000
           1995         Corporate income   tax         5,000
           1995         3rd quarter FICA   taxes      25,000
           1995         4th quarter FICA   taxes      25,000
           1995         4th quarter FUTA   taxes       1,000
           1996         1st quarter FICA   taxes      12,500
              Total                                   73,500

     On April 14, 1997, after review of LGA’s tax returns, the

IRS determined that LGA owed neither the FICA nor the FUTA taxes

set forth in the above-mentioned proof of claim and filed a

pleading entitled “Notice of Withdrawal”.

     In June 1996, the IRS commenced an audit of petitioner’s

1993-1995 corporate income tax returns.        The audit was completed

on May 6, 1997, and it was determined that LGA owed additional

Federal income taxes for the fiscal years ended 1993 and 1994, as

follows:

     Year             Type of Liability               Amount of Tax

     1993          Corporate income tax                 $1,023.00
     1993          Interest on unpaid income tax           253.65
     1994          Corporate income tax                301,660.00
     1994          Interest on unpaid income tax        49,530.28
        Total                                          352,466.93

     On May 26, 1997, the IRS prepared an amended proof of claim,

showing total deficiencies in taxes and interest in the total

amount of $352,466.93 for the fiscal years 1993 and 1994.          The

IRS filed a motion for leave to reinstate and amend its

erroneously withdrawn proof of claim to claim the total tax

liabilities for the years 1993 and 1994 in the amount of
                                - 6 -

$352,466.93.   After a hearing on the motion, the Bankruptcy Court

ruled in its Memorandum Opinion filed October 1, 1997:

          The Motion is granted in part and denied in part.
     The Withdrawn Claim will be reinstated as to the
     corporate income taxes of LGA in its original amount of
     $5,000.00. The IRS will not be allowed to amend the
     claim to reflect the increase which it seeks, nor will
     the IRS be allowed to file a completely new claim out
     of time for either the 1993 or 1994 income taxes of
     LGA.

                             Discussion

     Summary judgment is appropriate “if the pleadings, answers

to interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law.”   Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd.

17 F.3d 965 (7th Cir. 1994); Naftel v. Commissioner, 85 T.C. 527,

529 (1985).    Summary judgment is intended to expedite litigation

and avoid unnecessary and expensive trials.   See Fla. Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988); Espinoza v.

Commissioner, 78 T.C. 412, 415-416 (1982).    The moving party

bears the burden of proving that there is no genuine issue of

material fact, and factual inferences will be made in a manner

most favorable to the party opposing summary judgment.   See

Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).

Petitioner’s Contentions:
                               - 7 -

     Petitioner’s contentions, as contained in its motion for

partial summary judgment filed November 8, 1999, may be

summarized as follows:

     Petitioner asserts that its motion for partial summary

judgment encompasses the doctrine of collateral estoppel.   In

support of this contention, petitioner cites to a Memorandum

Opinion filed by the Bankruptcy Court for the Northern District

of Oklahoma on October 1, 1997, and a Memorandum Opinion filed by

the Bankruptcy Court on December 18, 1998.   Petitioner argues

that the October 1, 1997, Memorandum Opinion determined that

there were no income tax deficiencies for the fiscal year ended

February 28, 1993, and that there was an income tax deficiency

for the fiscal year ended February 28, 1994, in the amount of

$5,000.   Petitioner also appears to argue that the December 18,

1998, Memorandum Opinion2 regarding the confirmation plans of


     2
          On December 18, 1998, the Bankruptcy Court filed an
Order Confirming Plan in which the Court ordered, inter alia:

     that in accordance with the terms of the Third Amended
     Plan of Reorganization the estates of Limited Gaming of
     America, Inc., Case No. 96-00395-M, and Sunrise Island,
     Ltd., Case No. 96-00396-M, be, and the same hereby are,
     substantively consolidated.

     It Is Further Ordered that all pleadings and papers
     related to the Sunrise Island Ltd. matter, Case. No.
     96-00396-M, shall from the date of this Order be filed
     under Case No. 96-00395-M.

     We also note that in paragraph 6y of its petition, the
petitioner averred:
                                                   (continued...)
                              - 8 -

reorganization submitted by LGA somehow determined that Sunrise

was not a separate entity.

Respondent’s Contentions:

     Respondent’s contentions, as contained in Respondent’s

Memorandum of Authorities, may be summarized as follows:

     Respondent notes that the parties’ disagreement is based

upon petitioner’s erroneous premise that a bankruptcy court’s

determination as to the collectibility of a debtor’s claim is the

same as the determination of a deficiency in income tax.

Respondent posits that petitioner’s position is that respondent

is collaterally estopped “from asserting any claims against

Petitioner for additional deficiencies in corporate income tax

and interest for the fiscal years ended February 28, 1993 and

February 28, 1994.”

     Respondent states:

          The respondent is in complete agreement with this
     conclusion. The respondent agrees that it is


     2
      (...continued)
          On December 18, 1998, the Bankruptcy Court for the
     Northern District of Oklahoma issued an Order
     Confirming Plan * * *. In these documents the
     bankruptcy court substantively consolidated LGA and the
     Sunrise Island Timber Company general and limited
     partnership into one entity. In so doing the Court
     recognized the “sham” nature of the partnership and the
     fraudulent acts of self-dealing as well as asset
     transfers performed by Bleidt and Lobato-Bleidt.
     Therefore, the entity should be consolidated with LGA
     as a single entity in computing the federal corporate
     income tax liability of LGA for the years in issue.
                                 - 9 -

     collaterally estopped from collecting additional
     deficiencies in income taxes from the petitioner for
     the taxable years 1993 and 1994.

          If that is the sum of petitioner’s argument, then
     the dispute as to that issue is concluded.

     Respondent observes that, unfortunately, that does not

appear to be the ultimate aim of petitioner’s argument.

     Respondent notes that petitioner filed a Form 1139 claim

with the IRS, applying for a refund of allegedly overpaid 1993

and 1994 Federal income taxes, based upon claimed losses in the

taxable year 1995.   The factual or legal grounds for the alleged

loss were not indicated on the Form 1139.

     Subsequently, on July 1, 1998, during LGA’s bankruptcy

proceeding, respondent issued the notice of deficiency for the

taxable years 1993 and 1994, which notice is the basis for this

case pending before the Court.    Petitioner argues that

petitioner’s claim for overpayments (not yet proved) is to be

applied, not against its actual tax liability for the taxable

years 1993 and 1994, but only against the de minimis claim which

respondent was allowed to collect in the bankruptcy proceeding.

     Respondent submits that such an argument, as advanced by

petitioner, is wholly contrary to established law.

     Respondent also disputes petitioner’s contention, inferred

from petitioner’s arguments that in substantively consolidating

LGA’s and Sunrise’s bankruptcy proceedings, the Bankruptcy Court
                               - 10 -

determined that Sunrise was not a separate entity.   We agree with

respondent.

     In Bachner v. Commissioner, 109 T.C. 125, 130-131 (1997),

affd. without published opinion 172 F.3d 859 (3d Cir. 1988), we

stated:

          Under the principles established by the Supreme
     Court in Lewis v. Reynolds, 284 U.S. 281 (1932), a
     taxpayer’s claim for refund must be reduced by the
     amount of the correct tax liability for the taxable
     year, regardless of the fact that the Commissioner can
     no longer assess any deficiency for the taxable year.
     In Lewis v. Reynolds, supra, the taxpayer filed a claim
     for refund alleging that certain deductions had been
     improperly disallowed by the Commissioner after the
     period of limitations on additional assessment had
     expired. The Commissioner agreed with the taxpayer
     that the period of limitations had expired but denied a
     refund on the basis that the correct computation of tax
     resulted in additional tax. The taxpayer argued that
     the Commissioner lacked the authority to redetermine
     the tax after the period of limitations had expired.
     The Supreme Court disagreed.

          While no new assessment can be made, after
          the bar of the statute has fallen, the
          taxpayer, nevertheless, is not entitled to a
          refund unless he has overpaid his tax. * * *

               *     *     *      *     *   *   *

          An overpayment must appear before refund is
          authorized. Although the statue of
          limitations may have barred the assessment
          and collection of any additional sum, it does
          not obliterate the right to the United States
          to retain payments already received when they
          do not exceed the amount which might have
          been properly assessed and demanded. [Lewis
          v. Reynolds, supra at 283.]

          The doctrine established in Lewis v. Reynolds,
     supra, has been applied by this Court in the
     determination of an overpayment. See Connecticut Light
                              - 11 -

     & Power Co. v. Commissioner, 40 T.C. 597, 654-655
     (1963), vacated and remanded pursuant to stipulation
     (2d Cir., Feb. 15, 1965) (holding that the decision in
     Lewis v. Reynolds, supra, was controlling and allowing
     a reduction in an overpayment claimed by the taxpayer);
     Estate of Carruth v. Commissioner, 28 T.C. 871, 880
     (1957). Applying the doctrine of Lewis v. Reynolds,
     supra, to this case, we find that even though
     assessment and collection of petitioner’s tax liability
     is now barred by the statute of limitations, respondent
     has the right to retain prior timely payments to the
     extent they do not exceed the amount of petitioner’s
     actual tax liability. [Footnotes omitted.]

     Our above-mentioned holding in Bachner is equally applicable

to the facts in this case.   The Bankruptcy Court did not

determine LGA’s tax liability for the taxable years 1993 and

1994.   That is abundantly clear from a review of the record in

this case.   We hold that respondent is not collaterally estopped

from determining petitioner’s correct tax liabilities for taxable

years 1993 and 1994 in order to determine if there are tax

overpayments in those years because of a net operating loss

carryback from the taxable year 1995.

     From our review of the record, we also find that the

question of whether or not LGA and Sunrise were separate entities

for tax purposes was not litigated by the Bankruptcy Court.    The

bankruptcy order confirming petitioner’s third amended plan and

consolidating the bankruptcy estates of petitioner and Sunrise

makes no reference to the determination of Federal taxes.

Petitioner’s third amended plan did not specifically state that

the substantive consolidation of the estates of petitioner and
                             - 12 -

Sunrise would allow petitioner to determine its Federal income

taxes on a consolidated basis with Sunrise.   The Bankruptcy

Court’s opinion does not state that substantive consolidation

would permit petitioner to report its income taxes on a

consolidated basis with Sunrise.   The Bankruptcy Court limited

substantive consolidation to the combining of assets and the

cancellation of debts between the consolidated debtors.   In re

Ltd. Gaming of America, 228 Bankr. 275, 286 (Bankr., N.D. Okla.

1998).

     We hold that respondent is not collaterally estopped from

determining petitioner’s Federal income taxes as a separate

taxable entity.

     Accordingly, for the reasons stated above, the Court will

deny petitioner’s Motion for Partial Summary Judgment.

                                         An appropriate order

                                    will be issued.
