                  T.C. Summary Opinion 2010-61



                      UNITED STATES TAX COURT



            DEAN L. AND KATHY DANIEL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8055-08S.              Filed May 13, 2010.



     Lawrence G. Sirhall, Jr., for petitioners.

     John Davis, for respondent.



     GERBER, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and



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

this opinion shall not be treated as precedent for any other

case.    Respondent determined deficiencies in petitioners’ Federal

income taxes and section 6662(a) accuracy-related penalties for

tax years 2004, 2005, and 2006 as follows:2

                                               Accuracy-
                                            Related Penalty
     Year             Deficiency             Sec. 6662(a)

     2004              $26,954                 $5,390.80
     2005               30,639                  6,127.80
     2006               21,175                  4,235.00

The questions for our consideration are:      (1) Whether income

earned from a real estate sales activity is petitioner husband’s

self-employment income, and (2) whether respondent is estopped

from determining that said income is self-employment income.

                            Background3

     Petitioners resided in Idaho at the time their petition was

filed.    Petitioner Dean L. Daniel (petitioner) was licensed in

Idaho as a real estate agent during 2004 and through 2006.

Throughout those same taxable years, petitioner personally

contracted with Holland Realty (Holland) to perform services as a

real estate agent for Holland.      Petitioner’s contract with


     2
      The parties have stipulated that if the Court decides that
petitioners are liable for the income tax deficiencies, then they
are also liable for the sec. 6662(a) penalties respondent
determined.
     3
      The parties submitted this case fully stipulated.
Petitioners unsuccessfully attempted to supplement the record
after the case was submitted and awaiting consideration by the
Court.
                               - 3 -

Holland provided that petitioner was an independent contractor

and not an employee of Holland “for Federal, State or    local tax

purposes.”

      Holland issued Forms 1099 to petitioner for 2004, 2005, and

2006 in the amounts of $112,788, $175,274, and $103,330,

respectively, in connection with the sales he made as a real

estate agent for Holland.   Petitioner did not report any of the

Holland Form 1099 income as earnings from self-employment on his

Schedules C, Profit or Loss From Business, attached to

petitioners’ Forms 1040, U.S. Individual Income Tax Return, for

2004, 2005, and 2006.   Petitioner, in each of the referenced tax

years, assigned the real estate commissions from Holland to his S

corporation, Daniel Investments, Inc. (Daniel).   Petitioners did

not include the Holland real estate commissions as part of their

income on their 2004, 2005, or 2006 income tax return.

     Daniel included the assigned Holland real estate commissions

as income on its 2004, 2005, and 2006 corporate income tax

returns.   Daniel issued Forms W-2, Wage and Tax Statement,

reporting wages paid to petitioner of $26,000, $10,000, and

$3,000 for his 2004, 2005, and 2006 tax years, respectively.

Daniel also deducted the amounts shown on the Forms W-2 as wages

paid to petitioner.   Petitioner’s wages deducted by Daniel were

part of the commissions he earned and assigned to Daniel.     In

addition, Daniel issued Schedules K-1, Shareholder’s Share of
                                - 4 -

Income, Deductions, Credits, etc., to petitioner reflecting

passthrough income of $40,530, $133,626, and $61,800 for the

2004, 2005, and 2006 tax years, respectively.   Petitioners

reported the above passthrough income on Schedules E,

Supplemental Income and Loss, of their income tax returns for

2004, 2005, and 2006.   On their 2005 Schedule E, petitioners

claimed a $27,249 passthrough section 179 deduction from Daniel.

     For 2004, 2005, and 2006 Daniel claimed business deductions

equal to the difference between the total Holland commission

income petitioner assigned and the amounts Daniel deducted as

wages.   In effect, only the Form W-2 wage portion of the Holland

Form 1099 commissions shown by Daniel became taxable wage or

self-employment income reported by petitioners.

     On January 14, 2008, the same date as respondent’s issuance

of petitioners’ notice of deficiency, respondent issued a Notice

of Determination of Worker Classification (notice of

determination) to Daniel for the 2004, 2005, and 2006 tax years

determining that petitioner was an employee of Daniel with

respect to all of the real estate commission revenue from Holland

and that Daniel owed employment taxes of $37,473.89, $56,461.10,

and $47,826.53, respectively.   Daniel filed a petition with this

Court on April 4, 2008, challenging the January 14, 2008, notice

of determination at docket No. 8054-08S (employment tax case).
                               - 5 -

     Because Daniel had paid wages to petitioner for 2004 through

2006, respondent decided that the January 14, 2008, notice of

determination had been erroneously issued and on October 1, 2008,

moved this Court to dismiss Daniel’s employment tax case for lack

of jurisdiction.   In its response to respondent’s motion to

dismiss, Daniel agreed to the dismissal under certain

circumstances.   On November 20, 2008, this Court dismissed

Daniel’s employment tax case for lack of jurisdiction.   As to the

conditions set forth in Daniel’s response to respondent’s motion

to dismiss, respondent’s counsel has informed petitioners’

counsel that petitioners “will not be double-taxed” on the

Holland income for 2004, 2005, and 2006 and that Daniel’s

employment tax assessment will be abated if respondent is

successful in this case.

     Petitioners have conceded that they are liable for the

section 6662(a) accuracy-related penalties if this Court agrees

with respondent’s determination.   The parties have agreed on

petitioner’s income and deductions, and respondent concedes that

petitioners are entitled to a $26,888 section 179(a) deduction

for their 2005 tax year if the Court decides that respondent’s

determination is correct in this case.   Finally, if the Court

decides that respondent’s determination is correct, the amount of

Form W-2 wages petitioner reported for 2004, 2005, and 2006 shall

be deducted from the amount of income finally determined.
                                - 6 -

                             Discussion

     There can be little doubt that petitioner earned the real

estate commissions from Holland and that his assignment of the

commissions to Daniel does not relieve him of their tax

consequences.   That is the basis upon which respondent has

determined that petitioners are liable for income and self-

employment taxes and the primary basis for the income tax

deficiencies set forth in the notice of deficiency.   Petitioners,

however, do not argue that the substance of respondent’s

determination is in error.   Instead, they argue that respondent

should be estopped from determining tax deficiencies and/or that

respondent’s determination represents double taxation.

Petitioners also argue that, under section 7491, the burden of

proof has shifted to respondent.

     Petitioners’ section 7491 argument is unfounded because the

parties submitted this case fully stipulated under Rule 122 with

a sufficient factual predicate to support their legal arguments.

There is no need to consider petitioners’ section 7491 argument

because the parties, by means of a stipulation of facts, a

supplemental stipulation of facts, and exhibits presented

sufficient facts to support their legal arguments.    Accordingly,

we hold that petitioners’ section 7491 argument that the burden

is shifted is of no consequence and does not affect the outcome

of this case.
                               - 7 -

     Petitioners generally argue that “Respondent should not be

allowed to assess self-employment tax on the same amounts that

* * * [he] has already reclassified as ‘wage’ and assessed Daniel

Inc.”.   Petitioners base their argument on several factors,

including:   (1) Respondent unequivocally represented to this

Court that the issue in the Daniel employment tax case was a

recharacterization of corporate distributions as “wages” because

there was no dispute that petitioner had been treated as an

“employee” of Daniel; (2) respondent did not disregard Daniel’s

S corporation status; and coupled with the determination that

petitioner was an employee of Daniel, respondent should be

estopped from now arguing that the very same corporate

distributions should be treated as self-employment income; and

(3) imposition of self-employment taxes constitutes double

taxation because respondent has already assessed Daniel with the

maximum amount of employment taxes.

     Respondent addressed petitioners’ double taxation argument

by stating that respondent’s assessment of employment taxes

against Daniel is a protective alternative position and that the

assessment will be abated if respondent is successful in this

case involving the self-employment tax deficiencies.

Accordingly, petitioners’ double taxation argument is without

substance and need not be further addressed.
                               - 8 -

     Concerning petitioners’ estoppel argument, respondent

contends that he is entitled to take alternative protective

positions and that doing so in this case did not result in any

form of estoppel with respect to the determination of

deficiencies.   Respondent further contends that the circumstances

in the prior Daniel employment tax case did not give petitioners

a basis to assert that respondent is estopped to determine the

self-employment taxes in this case.

     Generally, the doctrine of collateral estoppel, or issue

preclusion, is used to preclude a party from relitigating issues

actually and necessarily litigated and decided in a final prior

judgment by a court of competent jurisdiction.   It applies to

issues of fact, issues of law, and mixed issues of fact and law.

Meier v. Commissioner, 91 T.C. 273, 282-283 (1988).

     A three-pronged test has been used for determining the

application of collateral estoppel:

     First, whether the issues presented in the subsequent
     litigation are in substance the same as those in the
     first case; second, whether controlling facts or legal
     principles have changed significantly since the first
     judgment; and third, whether other special
     circumstances warrant an exception to the normal rules
     of preclusion. * * * [(Id. at 283 (citing Montana v.
     United States, 440 U.S. 147, 155 (1979)).]

     In order for collateral estoppel to apply to an issue, the

parties must have litigated the issue and a final judgment must

have been rendered by a court of competent jurisdiction.     Blanton

v. Commissioner, 94 T.C. 491, 495-496 (1990); Peck v.
                                - 9 -

Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d 525 (9th

Cir. 1990).   Also, the nonmoving party must have had a full and

fair opportunity to litigate the issue in the prior proceeding.

Hudson v. Commissioner, 100 T.C. 590, 593 (1993).

     Although the issues presented in this case are, in essence,

the same as those that were involved in the Daniel employment tax

case, collateral estoppel cannot apply in this case because the

issue was not litigated and no judgment was rendered by this

Court in the Daniel case.   Respondent erroneously made an

employment classification determination that petitioner was an

employee of Daniel.   If Daniel had not shown petitioner as an

employee, the adjudication of respondent’s employee

classification determination would have been within the

jurisdiction of this Court.   However, Daniel had shown petitioner

as an employee, and the only issue to decide was how much of the

amounts paid to petitioner was wages and how much was a

distribution of profits.    This Court does not have jurisdiction

over disagreements about such issues in a worker classification

case.   Accordingly, when respondent discovered the mistake, he

moved to dismiss the Daniel employment tax case for lack of this

Court’s jurisdiction over the subject matter.

     We granted respondent’s motion and dismissed the Daniel case

for lack of jurisdiction over the subject matter.   This Court

made no factual findings about petitioner’s employment status,
                                 - 10 -

Holland’s payments to petitioner, or whether the payments from

Holland to petitioner constituted self-employment income.      It is

for that reason that petitioners cannot rely on collateral

estoppel to preclude respondent from determining that petitioners

have self-employment tax deficiencies.

     Another form of estoppel, judicial estoppel, focuses on the

relationship between a party and the courts, as distinguished

from equitable estoppel, which focuses primarily on the

relationship between the parties.     Judicial estoppel is intended

to prevent a party from successfully asserting a position before

a court and thereafter asserting a completely contradictory

position before the same or another court merely because it is

then in that party’s interest to do so.     Huddleston v.

Commissioner, 100 T.C. 17, 26 (1993).

     Judicial estoppel, however, requires acceptance by a court

of the prior position, either as a preliminary matter or as part

of a final disposition.    Id.   In the circumstances here, this

Court did not adjudicate the parties’ positions in the Daniel

employment tax case, as we lack jurisdiction to do so.      Our

dismissal of the Daniel case was our acceptance of the fact that

we lacked subject matter jurisdiction.    To reach that conclusion

we relied on the parties’ allegations of circumstances that

supported the dismissal.   One of those allegations was that

petitioner was an employee of Daniel.     That allegation could be
                               - 11 -

inconsistent with a finding that petitioner had self-employment

income, but the possibilities are not mutually exclusive.    In

other words, petitioner could be an employee of Daniel and still

have earned self-employment income.

     Respondent issued alternative determinations to Daniel and

to petitioners on the same day.   In one determination, respondent

took the position that the payments from Holland were self-

employment income and that petitioners therefore had self-

employment tax deficiencies.   In the other, respondent determined

that petitioner was an employee of Daniel and that the payments

from Holland that petitioner assigned to Daniel were wage income

from Daniel to petitioner.   The axis of those alternative

determinations was the question of whether the payments from

Holland had, for tax purposes, been successfully assigned to

Daniel.

     After respondent discovered that this Court lacked

jurisdiction to hear an employee classification issue with

respect to Daniel, the case involving that determination was

dismissed and respondent assessed additional employment tax

against Daniel, essentially for the difference between the amount

Daniel paid to petitioner and the larger amount petitioner earned

from Holland.   Those circumstances do not warrant the application

of judicial estoppel.
                              - 12 -

     It has long been established that the Commissioner may take

protective inconsistent alternative positions.

          Pending resolution of a tax dispute, the
     Commissioner is permitted to make inconsistent
     assessments against more than one taxpayer for the same
     tax liability if there is an accepted legal basis for
     each assertion. See Gerardo v. Commissioner, 552 F.2d
     549, 555-56 (3d Cir. 1977); Cannon v. Commissioner, 533
     F.2d 959, 962 (5th Cir. 1976) (Clark, J., dissenting),
     cert. denied, 430 U.S. 907, 97 S.Ct. 1177, 51 L.E.2d
     583 (1977); Estate of Goodall v. Commissioner, 391
     F.2d 775, 782-84 (8th Cir.), cert. denied, 393 U.S.
     829, 89 S.Ct. 96, 21 L.Ed.2d 100 (1968). By invoking
     this procedure, the Commissioner acts, in effect, as a
     stakeholder. When the controversy is resolved,
     overpayments are returned to the proper parties, with
     interest to compensate them for the Government's
     interim use of the money. As long as resolution of the
     legal issues is consistent for all, and only one tax
     liability is ultimately retained, the Commissioner is
     justified in protecting the treasury. [Brown v. United
     States, 890 F.2d 1329, 1347-1348 (5th Cir. 1989)]

     Respondent’s alternative positions hinge upon whether the

assignment of income to Daniel should be respected for tax

purposes.   If it is not respected, then petitioner earned the

real estate commissions from Holland as an independent self-

employed agent and, hence, petitioner would be responsible for

self-employment tax.   That is the case, and we need not decide

the merits of respondent’s alternative position underlying his

assessment of additional employment taxes against Daniel.    We
                              - 13 -

accordingly hold that respondent’s deficiency determination in

this case is not in error.4

     To reflect the foregoing and concessions of the parties,


                                        Decision will be entered

                                   under Rule 155.




     4
      We reach our conclusion and holding in this case in view of
respondent’s agreement and obligation to abate the assessment of
employment taxes against Daniel Investments, Inc. That agreement
also obviates petitioners’ double taxation argument.
