                                           MICHAEL C. WINTER AND LAUREN WINTER, PETITIONERS v.
                                                   COMMISSIONER OF INTERNAL REVENUE,
                                                              RESPONDENT
                                                        Docket No. 5035–05.                     Filed August 25, 2010.

                                                  P, as an employee of a subch. S bank, received a bonus that
                                               was repayable in part if he quit or was fired for cause. P
                                               reported the full amount of the bonus but now argues that
                                               part was a nontaxable loan. P, as a shareholder, reported his
                                               share of the company’s earnings from its regulatory financial
                                               filings and not from the Schedule K–1 which the bank pre-
                                               pared for him. P did not notify R of this inconsistent
                                               reporting; and only after the issuance of the notice of defi-
                                               ciency did R assess the income tax resulting from this incon-
                                               sistent treatment. R contends: (1) The entire bonus was tax-
                                               able income in the year received, (2) P should have reported
                                               his shareholder income consistently with the bank’s Schedule
                                               K–1, and (3) P failed to include some dividend, interest, and
                                               gambling income on his return. R issued a notice of deficiency
                                               determining a deficiency and imposing an accuracy-related
                                               penalty under sec. 6662(a), I.R.C. P has conceded R’s adjust-
                                               ments relating to dividend, gambling, and interest income. P
                                               and R agree that this Court has jurisdiction to decide all
                                               issues. However, the Court raises the question of whether
                                               secs. 6037(c) and 6213(b)(1), I.R.C., remove the adjustment
                                               relating to P’s inconsistently reported shareholder income
                                               from our jurisdiction. This Opinion addresses only that ques-
                                               tion. Held: R’s failure to assess the amount of the deficiency
                                               attributable to the amount reported inconsistently with the
                                               Schedule K–1 before issuing the notice of deficiency does not
                                               exclude this amount of tax from the deficiency as defined in
                                               sec. 6211, I.R.C., and we have jurisdiction to redetermine R’s
                                               adjustment.

                                        John B. Beery, Joseph M. Laub, and John J. Scharkey III,
                                      for petitioners.
                                        Kathleen C. Schlenzig and Julie A. Jebe, for respondent.

                                      238




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                                      (238)                         WINTER v. COMMISSIONER                                           239


                                                                                  OPINION

                                         GOEKE, Judge: Michael Winter owned stock in the sub-
                                      chapter S bank where he worked. The bank paid him a large
                                      bonus in 2002 but then fired him and demanded part of the
                                      bonus back in 2003. On his 2002 Federal income tax return
                                      Winter reported the full amount of his bonus and his share
                                      of the bank’s income and deductions—not as those items
                                      were reported by the bank but from his own estimates of
                                      what they were.
                                         The parties have argued mostly about the consequences of
                                      Winter’s failure to report his income from the bank in a
                                      manner consistent with the bank’s reporting on its return
                                      and about the taxability of his bonus in the year he received
                                      it. We ourselves question whether we have jurisdiction over
                                      these issues because the Internal Revenue Code provides
                                      that adjustments arising from inconsistencies between the
                                      return of a taxpayer and that of an S corporation in which
                                      the taxpayer has an ownership interest should be treated as
                                      math errors. The parties tell us that this has no effect on our
                                      jurisdiction. This Court agrees with the parties.

                                                                               Background
                                         Builders Bank (Builders), a corporation wholly owned by
                                      Builders Financial Corp. (BFC), hired Winter in 2001 to be its
                                      chairman and CEO and granted him a large number of stock
                                      options. Winter exercised these options, and by 2002 he
                                      owned over 26 percent of BFC. Builders also paid Winter a $5
                                      million bonus that was repayable in part if he quit or were
                                      fired for cause. BFC was an S corporation.
                                         Within a year Builders grew dissatisfied with Winter. It
                                      fired him on December 26, 2002, and claimed the firing was
                                      a termination for cause. In early 2003 it demanded repay-
                                      ment of the unearned portion of the bonus, which by that
                                      time was a bit more than $4 million. Winter refused to pay,
                                      and he and Builders took their dispute to State court, where
                                      Winter argued that Builders had no cause to fire him. The
                                      case seems to have been settled, because it was dismissed in
                                      January 2004 without opinion.
                                         But before then, in 2003, Winter needed to figure out how
                                      much income he had and how to report it on his 2002 income




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                                      tax return. S corporations 1 are required to send their share-
                                      holders Schedules K–1, Shareholder’s Share of Income,
                                      Credits, Deductions, etc., listing the amounts of passthrough
                                      income or loss they should report on their individual income
                                      tax returns.
                                         On its 2002 tax return 2 BFC deducted about $1 million of
                                      Winter’s bonus payment as a salary expense. BFC split the
                                      remaining $4 million—reporting $2 million as prepaid com-
                                      pensation and reducing retained earnings by the same
                                      amount, neither of which it deducted against income for
                                      2002. BFC included a copy of each shareholder’s Schedule K–
                                      1 in the 2002 return that it filed, including one for Winter
                                      that showed $820,031 in ordinary passthrough income and
                                      $5,062 as his share of BFC’s charitable contributions. The
                                      Internal Revenue Service (IRS) later audited BFC’s return but
                                      ended up accepting it as filed.
                                         S corporation shareholders usually report their shares of
                                      the corporation’s items the same way those items are
                                      reported on the Schedules K–1, if only because they know S
                                      corporations send the information to the IRS. But Winter
                                      broke this pattern. Instead of using the information on the
                                      Schedule K–1, he looked up BFC’s regulatory financial state-
                                      ments on the FDIC Web site, took the net loss reported there,
                                      and multiplied it by his percentage ownership at the end of
                                      2001. (Winter owned 26.82 percent of BFC at the end of 2001
                                      and claims he was unaware of an equity distribution that left
                                      him with only 26.32 percent at the end of 2002.) This calcula-
                                      tion would probably work if BFC treated each item identically
                                      for both tax and regulatory reporting purposes. But BFC’s
                                      2002 regulatory statements showed a charge against
                                      earnings for the entire bonus paid to Winter, in contrast to
                                      its 2002 tax return on which it claimed a deduction for just
                                      one-fifth. Winter’s calculations—based on the regulatory
                                      report—therefore showed a total 2002 passthrough loss of
                                        1 If a business meets the requirements of sec. 1361, it may elect to become an ‘‘S corporation’’

                                      and pay no corporate tax. An S corporation’s income and losses, like a partnership’s, flow
                                      through to its shareholders, who then pay income tax.
                                        All section references in this Opinion are to the Internal Revenue Code in effect for the year
                                      at issue unless otherwise indicated. All Rule references are to the Tax Court Rules of Practice
                                      and Procedure.
                                        2 Builders and BFC filed consolidated Federal and State income tax returns and consolidated

                                      regulatory and financial statements. Under sec. 1361(b)(3) in certain circumstances an S cor-
                                      poration that wholly owns another company may elect to combine assets, liabilities, income, de-
                                      ductions, and credits for Federal income tax purposes.




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                                      about $1.2 million and not the passthrough income of about
                                      $820,000 that BFC had reported on Winter’s Schedule K–1.
                                      Winter also failed to claim his share of BFC’s charitable con-
                                      tributions reported on its tax return.
                                         Winter’s excuse for this deviation from normal reporting
                                      procedures was that he never received a Schedule K–1. The
                                      record shows, however, that Builders sent an overnight pack-
                                      age via FedEx to Winter on March 13, 2003. Builders claims
                                      that the package held a cover letter and Winter’s 2002
                                      Schedule K–1. Winter claims that he never got the package.
                                      We find that Builders used the correct name, street address,
                                      State, and ZIP Code but listed the wrong Chicago suburb
                                      (Highland Park instead of Deerfield) on the mailing label.
                                      There was another Michael Winter who lived in Highland
                                      Park, but his house number, street name, and ZIP Code were
                                      all different. The parties offer no evidence that this other
                                      Michael Winter received the package; and though FedEx did
                                      not obtain a signature, Builders did receive confirmation of
                                      delivery on March 14, 2003. Winter also never asked
                                      Builders or the IRS for another copy of the Schedule K–1.
                                         On February 24, 2006, respondent issued Winter a notice
                                      of deficiency, including respondent’s determination that
                                      Winter should have reported BFC income consistent with the
                                      income shown on the Schedule K–1. After the issuance of
                                      the notice of deficiency, respondent summarily assessed the
                                      amount of tax based upon the reporting inconsistent with the
                                      Schedule K–1.
                                         Winter was a resident of Illinois when he timely filed his
                                      petition, and he petitioned the Schedule K–1 disputed
                                      amount as well as other issues. Trial was set to begin in Chi-
                                      cago when the parties agreed to submit the case for decision
                                      under Rule 122 on March 13, 2006. In the course of drafting
                                      the Opinion, the Court identified a possible jurisdictional
                                      problem and asked the parties for their views. We therefore
                                      decide whether we have jurisdiction before addressing the
                                      substantive issues in a subsequent opinion.

                                                                                Discussion
                                        The issue is whether this Court has jurisdiction over the
                                      adjustment to Winter’s distributive share of S corporation
                                      income or whether respondent must assess the tax related to




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                                      the adjustment as a math error under section 6213(b)(1), pre-
                                      cluding the inclusion in the notice of deficiency of the
                                      increase in tax relating to that adjustment. The parties
                                      argue that the examination for petitioners’ 2002 tax year
                                      determined there was a deficiency, as defined in section
                                      6211(a), and that a notice of deficiency was therefore a
                                      proper way for the IRS to provide petitioners with respond-
                                      ent’s determination.
                                        The concern regarding our jurisdiction arises because
                                      Winter failed to comply with section 6037(c) by either
                                      reporting consistently with the Schedule K–1 as required by
                                      section 6037(c)(1) or notifying the IRS of the possibility of an
                                      inconsistency as required by section 6037(c)(2)(A). Section
                                      6037(c)(3) provides potential consequences of Winter’s failure
                                      to comply:
                                           (3) EFFECT    OF FAILURE TO NOTIFY.            * * *

                                                              *    *   *   *  *    *   *
                                      any adjustment required to make the treatment of the items by such
                                      shareholder consistent with the treatment of the items on the corporate
                                      return shall be treated as arising out of mathematical or clerical errors
                                      and assessed according to section 6213(b)(1). Paragraph (2) of section
                                      6213(b) shall not apply to any assessment referred to in the preceding sen-
                                      tence.

                                      Section 6213(b)(1) provides:
                                           SEC. 6213(b). EXCEPTIONS TO RESTRICTIONS ON ASSESSMENT.—
                                             (1) ASSESSMENTS ARISING OUT OF MATHEMATICAL OR CLERICAL
                                           ERRORS.—If the taxpayer is notified that, on account of a mathematical
                                           or clerical error appearing on the return, an amount of tax in excess of
                                           that shown on the return is due * * * such notice shall not be consid-
                                           ered as a notice of deficiency * * * and the taxpayer shall have no right
                                           to file a petition with the Tax Court based on such notice, nor shall such
                                           assessment or collection be prohibited * * *

                                      Reading the two sections together, our colleague suggests
                                      that when a deficiency arises from an inconsistency between
                                      a shareholder’s return and his S corporation’s return and the
                                      shareholder fails to report it, the IRS must issue a math-error
                                      notice and use summary-assessment procedures.
                                        That is not what happened here in the first instance.
                                      Instead of summarily assessing the tax arising from the
                                      inconsistent reporting and issuing a notice of deficiency for
                                      the rest, respondent originally issued a single notice of defi-




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                                      ciency for both the increase in tax due to inconsistent
                                      reporting and the much smaller increase in tax due to Win-
                                      ter’s failure to report income listed on some Forms 1099.
                                      Winter’s petition disputes the entire amount of the defi-
                                      ciency, and respondent summarily assessed the tax caused by
                                      the inconsistent reporting only after the jurisdiction issue
                                      was raised in this docketed case. This raises the question
                                      whether the failure of the IRS to summarily assess before the
                                      issuance of the notice of deficiency precludes our jurisdiction
                                      on the issue of the correct income from the S corporation.
                                          The parties agree with each other that we have jurisdiction
                                      over all issues and make four points. First, they say that sec-
                                      tion 6037 lets the Commissioner choose either to issue a
                                      notice of deficiency or to summarily assess. They also both
                                      argue more generally that because the notice of deficiency in
                                      this case undoubtedly gives us jurisdiction over some issues,
                                      it also gives us jurisdiction over all the other issues needed
                                      to redetermine Winter’s entire 2002 tax liability, including
                                      the portion resulting from his inconsistent reporting.
                                      Respondent also argues that the principles of res judicata
                                      and judicial economy also suffice to give us jurisdiction.
                                          The more direct answer to this jurisdiction issue is found
                                      in the definition of ‘‘deficiency’’. Section 6211(a) defines ‘‘defi-
                                      ciency’’ as the amount by which the correct tax imposed by
                                      the Code exceeds the amount of tax shown on the return plus
                                      the amount of tax previously assessed less any rebates. Here
                                      a notice of deficiency was issued. This is the traditional
                                      ‘‘ticket to the Tax Court’’ under section 6213(a). Robinson v.
                                      United States, 920 F.2d 1157, 1158 (3d Cir. 1990). The
                                      amount of tax resulting from the inconsistent treatment was
                                      included in the calculation of the deficiency, and the merits
                                      of this tax liability are before us by the parties’ pleadings.
                                          Section 6212 authorizes the mailing of a notice of defi-
                                      ciency and contains no restrictions prohibiting the inclusion
                                      of mathematical or clerical adjustments. Section 6213 gives
                                      the Tax Court jurisdiction to redetermine a deficiency when
                                      a petition is filed timely in response to a notice of deficiency.
                                      Such jurisdiction does not depend on whether the Commis-
                                      sioner’s determination in the notice of deficiency is correct as
                                      ‘‘it is not the existence of a deficiency but the Commissioner’s
                                      determination of a deficiency that provides a predicate for
                                      Tax Court jurisdiction.’’ Hannan v. Commissioner, 52 T.C.




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                                      787, 791 (1969). Once we have jurisdiction, it generally
                                      covers all items necessary to determine the correct tax. 3 Sec-
                                      tion 6214(a) gives the Tax Court jurisdiction to ‘‘redetermine
                                      the correct amount of the deficiency even if the amount so
                                      redetermined is greater than the amount * * * [in the
                                      notice]’’. Thus, even if the Schedule K–1 adjustment had not
                                      been in the notice of deficiency, section 6214 allows
                                      respondent to ask for an increased deficiency based on the
                                      Schedule K–1 adjustment.
                                         Section 6512(b) provides the Tax Court with jurisdiction to
                                      determine overpayments. Estate of Baumgardner v. Commis-
                                      sioner, 85 T.C. 445, 449 (1985). Petitioners are claiming an
                                      overpayment. Amended Pet. par. 5d and e. In order to deter-
                                      mine whether there is an overpayment, the Court must
                                      determine the correct tax that should have been paid. The
                                      correct tax for determining overpayments even includes
                                      unassessed tax, the assessment of which is barred by the
                                      statute of limitations. Bachner v. Commissioner, 109 T.C. 125
                                      (1997), affd. without published opinion 172 F.3d 859 (3d Cir.
                                      1998). These jurisdictional provisions of section 6512 provide
                                      the Tax Court with authority to decide all issues necessary
                                      to determine the correct amount of income tax for the taxable
                                      year in issue. Even if respondent made the adjustment based
                                      on the Schedule K–1 as a mathematical adjustment, as has
                                      now been done, the correctness of the adjustment can still be
                                      placed in issue, as can any other previously assessed tax in
                                      order to determine the correct amount of the deficiency or
                                      overpayment. 4 As stated in Russell v. United States, 592
                                      F.2d 1069, 1072 (9th Cir. 1979):
                                         There can be no question that when the taxpayer petitioned the Tax
                                      Court to redetermine the asserted deficiency, the Tax Court acquired juris-
                                      diction to decide the entire gamut of possible issues that controlled the
                                      determination of the amount of tax liability for the year in question. A
                                      party cannot, in such a case, by failing to raise an issue, or by asking the
                                      court not to consider it, escape the Res judicata effect of the decision. This
                                      is hornbook law.

                                           3 Neither
                                                  party raises any question about the validity of the notice of deficiency.
                                           4 Sec.
                                               6211(a) defines ‘‘deficiency’’ without tying it to the date of the notice of deficiency or
                                      any other particular date. Consequently, when the Tax Court pursuant to sec. 6214(a) redeter-
                                      mines the ‘‘correct amount of the deficiency’’, we apply sec. 6211(a) as of the date of our decision
                                      and compute the deficiency taking into account any amount assessed ‘‘previously’’; i.e., before
                                      the decision. After all, the effect of our decision is to allow the IRS to assess the deficiency.




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                                         Our colleague emphasizes that section 6037(c)(3) mandates
                                      that an adjustment thereunder ‘‘shall be * * * assessed
                                      according to section 6213(b)(1).’’ (Emphasis added.) We note,
                                      however, that even if this provision requires the IRS to make
                                      summary assessment, the IRS complied with this provision
                                      when it, timely, summarily assessed the tax after the notice
                                      of deficiency was issued and the petition was filed. Section
                                      6037(c) does not contain any ‘‘express restrictions’’ on our
                                      ‘‘jurisdiction’’. Section 6037 does not even mention the Tax
                                      Court or its jurisdiction. Rather, to read section 6037 as
                                      denying our jurisdiction requires inferences that we abandon
                                      the literal language of the jurisdictional provisions of the
                                      Code and the established caselaw regarding the scope of our
                                      jurisdiction.
                                         Section 6037 is unlike the provisions of the Tax Equity and
                                      Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97–248,
                                      sec. 402(a), 96 Stat. 648, which specifically provide a parallel
                                      scheme of jurisdiction in this Court for partnership cases.
                                      Sec. 6226. Congress originally included S corporations in the
                                      TEFRA unified audit procedures but eliminated them in 1996
                                      in adopting section 6037(c) in the Small Business Job Protec-
                                      tion Act of 1996, Pub. L. 104–188, sec. 1307(c), 110 Stat.
                                      1781. Congress specifically determined S corporations should
                                      not be treated the same as partnerships in adding section
                                      6037(c). 5 It is inconsistent with this legislative history to
                                      assume that Congress intended to eliminate S corporation
                                      items from the deficiency jurisdiction of this Court involving
                                      individual shareholders, because there is no provision for a
                                      separate judicial determination of the inconsistently reported
                                      item in the case of an S corporation. Thus, there is no neces-

                                           5 H.   Conf. Rept. 104–737, at 223 (1996), 1996–3 C.B. 741, 963, states:
                                      Present law

                                                        *         *         *         *        *         *         *
                                        In addition, the audit procedures adopted by the Tax Equity and Fiscal Responsibility Act of
                                      1982 (‘‘TEFRA’’) with respect to partnerships also apply to S corporations. Thus, the tax treat-
                                      ment of items is determined at the corporate, rather than individual level.
                                      House bill

                                                        *        *         *        *         *       *         *
                                        In addition, the House bill repeals the TEFRA audit provisions applicable to S corporations
                                      and would provide other rules to require consistency between the returns of the S corporation
                                      and its shareholders.




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                                      sity to defer the individual case for an action at the level of
                                      the corporation.
                                         As noted previously, respondent assessed the tax arising
                                      from the inconsistent reporting of the S corporation income
                                      after the Court raised this issue and respondent suspended
                                      collecting the assessment pending resolution of the jurisdic-
                                      tion issue. If there is any question whether respondent must
                                      summarily assess to raise the inconsistency issue, it is not
                                      before us, and we leave that question for future cases.
                                         In conclusion, we have jurisdiction over all of the issues in
                                      this case.
                                                                                 An appropriate order will be issued.
                                        Reviewed by the Court.
                                        COLVIN, WELLS, GALE, THORNTON, MARVEL, WHERRY,
                                      KROUPA, GUSTAFSON, PARIS, and MORRISON, JJ., agree with
                                      this majority opinion.



                                           HALPERN, J., concurring in the result only:
                                      I. The Majority
                                         Although I agree with the result the majority reaches, I
                                      find its analysis confusing because of the reservation in the
                                      penultimate paragraph. The majority states: ‘‘If there is any
                                      question whether respondent must summarily assess to raise
                                      the inconsistency issue, it is not before us, and we leave that
                                      question for future cases.’’ Majority op. p. 246.
                                         The majority concludes that we have jurisdiction to con-
                                      sider petitioner’s claim that his income from BFC was less
                                      than the amount reported on the Schedule K–1 he received
                                      from Builders. The majority so concludes principally on two
                                      alternative grounds. The first is that petitioner assigned
                                      error to the entire deficiency that respondent determined,
                                      and the alleged unreported income was one of respondent’s
                                      adjustments contributing to that deficiency. Majority op. p.
                                      243. The second is that, pursuant to our overpayment juris-
                                      diction (which petitioner has invoked), we have ‘‘authority to
                                      decide all issues necessary to determine the correct amount
                                      of income tax for the taxable year in issue.’’ Majority op. p.
                                      244. The majority points out that the correct amount of the




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                                      year’s tax even includes amounts that cannot be assessed
                                      because the period of limitations on assessment and collec-
                                      tion has expired. Majority op. p. 244.
                                         What is confusing about the reservation in the penultimate
                                      paragraph is that assessment plays no role in either of the
                                      majority’s principal grounds.
                                      II. The Dissent
                                         I do not agree with Judge Holmes, whose argument, I
                                      believe, rests on a doubtful premise. As Judge Holmes points
                                      out, following the repeal of the two-tier TEFRA audit provi-
                                      sions applicable to S corporations, Congress enacted section
                                      6037(c)(3), which applies the summary assessment rule to S
                                      corporation shareholders who report inconsistently. Section
                                      6037(c) was described as ‘‘[requiring] consistency between the
                                      returns of the S corporation and its shareholders.’’ S. Rept.
                                      104–281, at 51 (1996). In the case of an S corporation share-
                                      holder who fails to notify the Secretary of inconsistent treat-
                                      ment, section 6037(c)(3) undoubtedly allows the Commis-
                                      sioner to summarily assess any adjustment necessary to
                                      make his return consistent with that of the S corporation. I
                                      do not extract from that rule, however, a further rule that an
                                      S corporation shareholder can litigate an inconsistency
                                      between his return and the S corporation’s return only by
                                      ‘‘prepaying the tax and filing a claim for refund.’’ Dissenting
                                      op. p. 259.
                                         What if an S corporation shareholder’s only inconsistent
                                      reporting (which he does not identify for the Secretary) were
                                      his failure to claim a $100 deduction (like the charitable con-
                                      tribution deduction in this case)? The Commissioner would
                                      not (indeed, could not) because of that inconsistency assess
                                      any additional tax. Now assume that the Commissioner for
                                      the same year determines a $35 deficiency in the share-
                                      holder’s income tax on the ground that he failed to report a
                                      $100 taxable dividend from a source other than the S cor-
                                      poration. The shareholder petitions this Court and assigns
                                      error to the Commissioner’s determination solely on the
                                      ground that there is no deficiency because the omitted $100
                                      dividend (which he concedes) is exactly offset by the omitted
                                      $100 deduction (which, for the first time, he now claims) and
                                      his income tax liability is no greater than the liability shown




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                                      on his return. 1 The Commissioner thinks the deduction
                                      involves an unresolved question of fact and will not concede
                                      any offset. Judge Holmes, I suppose, would refuse to hear the
                                      shareholder’s offset claim and would send him off with a $35
                                      deficiency and, perhaps, the advice to pay it and sue for a
                                      refund. The shareholder’s refund claim would not, however,
                                      in Judge Holmes’ terms, dissenting op. p. 264, ‘‘fit snugly’’
                                      within section 6512(a)(2)—‘‘any amount collected in excess of
                                      an amount computed in accordance with the decision of the
                                      Tax Court’’—since the collection would equal (and not exceed)
                                      the deficiency we upheld. More importantly, nothing in sec-
                                      tion 6037(c) requires any such inefficient approach.
                                         The Internal Revenue Code is extraordinarily complex, and
                                      its parts do not always fit together well. The arguments and
                                      evidence that Judge Holmes assembles are insufficient to
                                      convince me that his reading is correct. Although a taxpayer
                                      who receives notification of inconsistent treatment cannot, in
                                      response to that notification, petition the Tax Court, a tax-
                                      payer who receives a statutory notice of deficiency is explic-
                                      itly so empowered. While undoubtedly there will be difficul-
                                      ties in harmonizing section 6037(c) with the deficiency proce-
                                      dures, I do not find in that section the wholesale restriction
                                      on our jurisdiction to redetermine deficiencies that Judge
                                      Holmes finds.
                                         GOEKE and GUSTAFSON, JJ., agree with part II of this
                                      concurring opinion.



                                         HOLMES, J., dissenting: No one disputes that Winter
                                      reported inconsistently with his S corporation’s return and
                                      that this forced the Commissioner to make adjustments. Sec-
                                      tion 6037(c) commands that ‘‘any adjustment required to
                                      make the treatment of the items by such shareholder con-
                                      sistent with the treatment of the items on the corporate
                                      return shall be * * * assessed according to section
                                      6213(b)(1). Paragraph (2) of section 6213(b) shall not apply to
                                      any assessment referred to in the preceding sentence.’’
                                        1 A deficiency is defined in part as the excess of ‘‘the tax imposed by subtitle A’’ (i.e., the tax-

                                      payer’s income tax liability) over ‘‘the amount shown as the tax by the taxpayer upon his re-
                                      turn’’. Sec. 6211(a). The taxpayer in the example in the text is arguing no deficiency on the
                                      ground that, taking into account the two adjustments (dividend and unclaimed deduction), the
                                      tax imposed by subtit. A is exactly equal to the tax shown on his return.




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                                         The majority doesn’t really wrestle with the meaning of
                                      this section, but instead pokes around in other corners of the
                                      Code to find support for its holding that we have jurisdiction
                                      to review the Commissioner’s adjustments to Winter’s return.
                                      But section 6037(c) doesn’t go away if we cite the Code’s
                                      more general jurisdictional sections. The result the majority
                                      reaches forces us to pretend that section 6037’s ‘‘shall make
                                      adjustments’’ using summary assessments really means ‘‘may
                                      make adjustments;’’ that section 6213(b)(1)’s command that
                                      taxpayers may not file a petition in our Court to contest such
                                      adjustments really means that they can file a petition with
                                      Tax Court to contest such adjustments; and that the phrase
                                      ‘‘any adjustment required to make the treatment of the items
                                      * * * consistent with the treatment of the items on the cor-
                                      porate return shall be * * * assessed according to section
                                      6213(b)(1)’’ really means that any such adjustment shall be
                                      assessed according to section 6213(b)(1) or section 6214 or
                                      section 6215, or refunded according to section 6512.
                                         I disagree.

                                                                                          I.

                                         Inconsistent reporting results when a taxpayer reports an
                                      item on his tax return differently than another entity or tax-
                                      payer reports the same item. Before 1982, inconsistent
                                      reporting between partners and their partnership, and
                                      between S corporation shareholders and their corporation,
                                      was a particularly difficult problem for the IRS. The Code
                                      doesn’t tax partnerships and S corporations at the entity
                                      level, and inconsistent reporting forced the IRS to fight part-
                                      nership or corporate issues with each individual partner or
                                      shareholder. This was burdensome, repetitive, and easily led
                                      to inconsistent results among similarly situated taxpayers.
                                         In 1982 Congress armed the IRS with a powerful weapon
                                      against inconsistency, the Tax Equity and Fiscal Responsi-
                                      bility Act of 1982 (TEFRA), Pub. L. 97–248, 96 Stat. 324.
                                      TEFRA’s purpose was ‘‘to promote increased compliance and
                                      more efficient administration of the tax laws,’’ H. Conf. Rept.
                                      97–760, at 600 (1982), 1982–2 C.B. 600, 662, or—in other
                                      words—to promote consistency. Blonien v. Commissioner, 118
                                      T.C. 541, 563 (2002) (citing Greenberg Bros. Pship. #4 v.
                                      Commissioner, 111 T.C. 198, 201 (1998), affd. sub nom.




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                                      Cinema ’84 v. Commissioner, 294 F.3d 432 (2d Cir. 2002)),
                                      supplemented by T.C. Memo. 2003–308. Congress created
                                      entity-level tax proceedings to determine the proper treat-
                                      ment of entity-level items in a single forum. It also stripped
                                      courts of their jurisdiction to hear entity-level disputes at the
                                      individual-taxpayer level. See, e.g., Subchapter S Revision
                                      Act of 1982, Pub. L. 97–354, sec. 4(a), 96 Stat. 1691 (adding
                                      sections 6241–6245); Blonien, 118 T.C. at 563. Partners or
                                      shareholders of those entities would then be bound by the
                                      determinations made in their entity’s case.
                                         Most S corporations were at first subject to these TEFRA
                                      procedures. But in 1996, Congress repealed the laws that
                                      created the S-corporation procedures and decreed that S cor-
                                      porations would no longer have to follow TEFRA. Small Busi-
                                      ness Job Protection Act of 1996 (SBJPA), Pub. L. 104–188, sec.
                                      1307(c)(1), 110 Stat. 1781. The sparse legislative history
                                      states only that Congress removed S corporations from the
                                      TEFRA procedures because it believed that entities with a lim-
                                      ited number of owners should not be subject to TEFRA. See,
                                      e.g., S. Rept. 104–281, at 51 (1996). 1 Congress did not how-
                                      ever, return to the status quo ante—it still wanted to solve
                                      the problem of inconsistent reporting. But the legislative his-
                                      tory says only that the Act had ‘‘other rules to require
                                      consistency between the returns of the S corporation and its
                                      shareholders.’’ Id.
                                         One of these ‘‘other rules’’ is section 6037(c), which
                                      requires shareholders to notify the Commissioner of any
                                      inconsistent reporting. If they don’t, section 6037(c)(3) pro-
                                      vides consequences:
                                           (3) EFFECT    OF FAILURE TO NOTIFY.            * * *

                                                              *    *   *   *  *    *   *
                                      any adjustment required to make the treatment of the items by such
                                      shareholder consistent with the treatment of the items on the corporate
                                      return shall be treated as arising out of mathematical or clerical errors
                                      and assessed according to section 6213(b)(1). Paragraph (2) of section
                                      6213(b) shall not apply to any assessment referred to in the preceding sen-
                                      tence.

                                      On its face, this requires a taxpayer to notify the Commis-
                                      sioner of inconsistent reporting or face assessment according
                                        1 There is an analogous exception for partnerships with a small number of partners. Sec.

                                      6231(a)(1)(B).




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                                      to section 6213(b)(1)—so-called summary assessment (i.e.,
                                      assessment without a notice of deficiency and chance for Tax
                                      Court review). It is this language that the parties and, I fear,
                                      my colleagues are trying to ignore. 2
                                         Everyone else involved in this case agrees that the Tax
                                      Court has jurisdiction over all the issues Winter raises. They
                                      do not agree on exactly why that should be so. The parties
                                      argue that section 6037 gives the Commissioner his pick of
                                      procedures. They also argue that because the notice in this
                                      case undoubtedly gives us jurisdiction over some issues, it
                                      gives us supplemental jurisdiction over all the other issues
                                      needed to redetermine Winter’s entire 2002 tax liability. And
                                      finally the Commissioner tacks on arguments that res judi-
                                      cata and judicial economy mandate our jurisdiction.
                                         The majority adopts some of these, but skips over the lan-
                                      guage of section 6037(c) to focus on more general provisions
                                      in the Code. It first says that the amount of any adjustment
                                      from inconsistent reporting is included in the definition of
                                      ‘‘deficiency’’ under section 6211, which means we have juris-
                                      diction under sections 6212 and 6213(a). In the alternative it
                                      agrees with the parties that we have supplemental jurisdic-
                                      tion under section 6214(a) because Winter was properly in
                                      Tax Court to argue about other items in the notice of defi-
                                      ciency. The majority also reasons that we have jurisdiction
                                      under section 6512(b) because Winter claims he overpaid his
                                      taxes. 3 The majority doesn’t bother parsing section 6037(c),
                                      but instead reasons that we had jurisdiction before Congress
                                      enacted TEFRA’s sections governing S corporations, section
                                      6037(c) doesn’t expressly remove that jurisdiction, and there-
                                        2 Similar language has since become popular with legislative draftsmen. See Jobs and Growth

                                      Tax Relief Reconciliation Act of 2003, Pub. L. 108–27, 117 Stat. 753 (enacting sec. 6429); Eco-
                                      nomic Growth & Tax Relief Recognition Act of 2001, Pub. L. 107–16, sec. 101(b), 115 Stat. 42
                                      (enacting sec. 6428, originally with regard to an acceleration of the 10-percent income tax rate
                                      bracket); Taxpayer Relief Act of 1997, Pub. L. 105–34, sec. 1222(a), 111 Stat. 1008 (enacting
                                      secs. 6246(c) and 6241(b)); id. sec. 1027(a), 111 Stat. 925 (enacting sec. 6034A(c)). Our decision
                                      today will likely subvert these other Congressional commands to the Commissioner to sum-
                                      marily assess.
                                        3 The majority cites paragraphs 5d and 5e of the amended petition to show that Winter is

                                      claiming an overpayment. Majority op. p. 244. But those paragraphs do not allege an overpay-
                                      ment of tax; they allege only an overreporting of income. In his amended petition Winter merely
                                      requests that this Court determine there is no deficiency and that the amount shown on his
                                      return should be reduced. A review of Winter’s tax records submitted by the Commissioner after
                                      this case was referred to conference shows that Winter substantially underpaid the taxes he re-
                                      ported on his return. No payment accompanied his return, and his withholding credit was so
                                      small as to trigger nearly $50,000 in underwithholding penalties. I do not think the record fairly
                                      read supports either an allegation or a finding of actual overpayment jurisdiction in this case.




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                                      fore the repeal must have revived it. And finally, the
                                      majority concludes that even if ‘‘shall’’ means ‘‘shall’’, the
                                      Commissioner did summarily assess inconsistency adjust-
                                      ments against Winter after he filed his petition, and that’s
                                      good enough.

                                                                                          A.

                                         I begin with the language of section 6037(c), which raises
                                      three questions. The first is the meaning of the phrase
                                      ‘‘adjustment required to make the treatment of the items by
                                      such shareholder consistent with the treatment of the items
                                      on the corporate return.’’ Section 6037 refers the reader to
                                      section 6213, which defines adjustments as changes in the
                                      correct amount of tax due. The best reading of section 6037
                                      would then be that ‘‘adjustments’’ to make a shareholder’s
                                      treatment of an item consistent with his corporation’s means
                                      adjustments to the amount of tax owed flowing from the
                                      inconsistency.
                                         The second question is the meaning of section 6037(c)
                                      when it says such consistency adjustments ‘‘shall be * * *
                                      assessed according to section 6213(b)(1)’’. Section 6213 again
                                      gives the answer: It means assessment on the ‘‘basis of what
                                      would have been the correct amount of tax but for’’ the
                                      inconsistency. The same section provides that any notice of
                                      such an assessment is not a notice of deficiency, the taxpayer
                                      receiving such a notice has no right to file a petition with the
                                      Tax Court based on such a notice, and assessments and
                                      collections of any tax due are not subject to the limits nor-
                                      mally imposed on the IRS between the time a taxpayer files
                                      a petition with us and the time our decision becomes final.
                                         The final question is: what does section 6037(c)(3)’s last
                                      sentence—‘‘Paragraph (2) of section 6213(b) shall not apply
                                      to any assessment referred to in the preceding sentence’’—
                                      mean? Just reading the words should be enough. Paragraph
                                      (2) tells a taxpayer how to respond to a math-error notice if
                                      he wants an abatement of the assessment followed by an
                                      attempt by the Commissioner to reassess. Any such reassess-
                                      ment must, the paragraph says, be subject to ‘‘deficiency
                                      procedures.’’ By making paragraph (2) inapplicable, section
                                      6037(c) is saying that a taxpayer has no right to abatement
                                      of a summary assessment for tax owed due to inconsistent




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                                      reporting, and no right to reassessment using ‘‘deficiency
                                      procedures prescribed by this subchapter.’’ Sec. 6213(b)(2)(A).
                                      (‘‘[T]his subchapter’’ means everything from section 6211 to
                                      section 6216, including section 6211’s definition of deficiency
                                      and section 6215’s provision for assessment of deficiencies
                                      found by the Tax Court.)
                                          If ‘‘shall’’ means ‘‘shall’’, this means that consistency
                                      adjustments have to be assessed under section 6213(b), not
                                      adjusted by assessment under sections 6212 and 6213(a) or
                                      readjusted under section 6214 or 6512 after a deficiency peti-
                                      tion is filed.
                                          I would therefore hold that we lack jurisdiction in a defi-
                                      ciency case to decide the amount of Winter’s passthrough
                                      income or loss from BFC. The Commissioner had no power to
                                      issue a notice of deficiency with respect to this item—and
                                      even though he issued one anyway, that doesn’t give our
                                      Court power to review the adjustments it makes. Congress
                                      could of course have written the Code to give the Commis-
                                      sioner more than one way to assess, and sometimes it has.
                                      Consider the procedure for correcting tentative carryback
                                      adjustments. This, too, is an exception to the restrictions on
                                      assessment in section 6213(a). Section 6213(b)(3) governs the
                                      problem, and says that the Secretary ‘‘may assess * * * the
                                      amount of the excess as a deficiency as if it were due to a
                                      mathematical or clerical error appearing on the return.’’
                                      (Emphasis added.) A related regulation provides that
                                      The method * * * to recover any amount applied, credited, or refunded in
                                      respect of an application for a tentative carryback adjustment which
                                      should not have been so applied, credited or refunded is not an exclusive
                                      method. Two other methods are available to recover such amount: (a) By
                                      way of a deficiency notice under section 6212; or (b) by a suit to recover
                                      an erroneous refund under section 7405. * * * [Sec. 301.6213–1(b)(2)(ii),
                                      Proced. & Admin. Regs.; emphasis added.]

                                      See generally Ron Lykins, Inc. v. Commissioner, 133 T.C. 87
                                      (2009). The difference in wording is obvious—section 6213
                                      uses the word ‘‘may’’, instead of section 6037’s ‘‘shall’’, and
                                      the related regulation leaves the choice of method up to the
                                      Commissioner. There’s no regulation like that one here, and
                                      so I have to conclude that section 6037(c) makes summary




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                                      assessment the exclusive procedure for the Commissioner to
                                      use to correct inconsistent reporting like Winter’s. 4
                                        Section 6201(a)(3), governing erroneous refunds sent to
                                      taxpayers who overstate the amount of their tax
                                      withholdings, is another example showing that Congress
                                      knows how to give the Commissioner a choice when it wants
                                      to. That section provides that an overstatement ‘‘may be
                                      assessed * * * in the same manner as in the case of a
                                      mathematical or clerical error’’ but also provides that ‘‘the
                                      provisions of section 6213(b)(2) * * * shall not apply.’’ Id.
                                      (emphasis added). This means that if the Commissioner
                                      chooses to summarily assess, the taxpayer has no right to
                                      demand an abatement and detour through the deficiency
                                      procedures. We looked at the consequences of this for our
                                      jurisdiction twenty years ago and concluded:
                                      although actual mathematical or clerical errors that are summarily
                                      assessed may become subject to the normal deficiency procedures after
                                      abatement, sec. 6213(b)(2)(A), this is not so for the deemed mathematical
                                      or clerical errors at issue here. Section 6201(a)(3) expressly provides that
                                      abatement is not available for summary assessments of overstated with-
                                      held taxes. [Schlosser v. Commissioner, 94 T.C. 816, 826 (1990).]

                                        These examples stand in stark contrast to section 6037(c)’s
                                      use of ‘‘shall’’. And section 6037(c) isn’t unique in limiting the
                                      Commissioner to summary assessment under section
                                      6213(b)(1). See secs. 6034A(c) (inconsistent reporting between
                                      trust or estate and beneficiary), 6428(f)(1) (adjustment for
                                      advance receipt of 2008 recovery rebate, originally enacted in
                                      2001 for an acceleration of ten-percent income tax rate
                                      bracket), 6429(d)(1) (adjustment for advance receipt of 2003
                                      child tax credit increase); cf. secs. 6246(c)(1) (rules ‘‘similar’’
                                      to section 6213(b)(1) shall apply to mathematical or clerical
                                      error on partnership return), 6241(b) (assessment of
                                      inconsistency on partner’s return is limited to math-error
                                      procedures). Some of these sections prohibit section
                                      6213(b)(2)’s channeling of disagreements into deficiency
                                      actions, see secs. 6034A(c), 6241(b), and some of them do not,
                                         4 And while we have held that ‘‘it is not the existence of a deficiency but the Commissioner’s

                                      determination of a deficiency that provides a predicate for Tax Court jurisdiction,’’ Hannan v.
                                      Commissioner, 52 T.C. 787, 791 (1969), the issue here is whether the Commissioner had the
                                      power to determine a deficiency that included adjustments to make Winter’s return consistent
                                      with BFC’s. ‘‘While a deficiency notice is a necessary requisite to the commencement of a case
                                      in this Court, this simply is a procedural precondition and in no way operates to confer jurisdic-
                                      tion upon us over substantive issues.’’ Bradley v. Commissioner, 100 T.C. 367, 371 (1993).




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                                      see secs. 6428(f)(1), 6429(d)(1). Section 6246(c)(1) has both—
                                      generally allowing abatement and deficiency procedures in
                                      subparagraph (A) but removing the taxpayer’s right in
                                      subparagraph (B) when the Commissioner’s adjustment is
                                      due to inconsistent reporting. The majority states that sec-
                                      tion 6212 doesn’t forbid the Commissioner from including a
                                      math-error adjustment in a notice of deficiency. Majority op.
                                      p. 243. That’s true, and when nothing in the Code says other-
                                      wise one could logically conclude that the Commissioner has
                                      his choice of procedures. But when the Commissioner makes
                                      a consistency adjustment to align a shareholder’s return with
                                      his S corporation’s, section 6037(c) governs. That section says
                                      the Commissioner shall assess according to section 6213(b)(1)
                                      if the taxpayer failed to file the required statement. In this
                                      case, section 6212’s silence cannot trump section 6037(c)’s
                                      command.

                                                                                          B.

                                         The majority implicitly disagrees with my view that this
                                      case forces us into a close reading of section 6037. It instead
                                      begins its analysis of the jurisdictional question by asserting
                                      that ‘‘[t]he more direct answer to this jurisdiction issue is
                                      found in the definition of ‘deficiency,’ ’’ majority op. p. 246,
                                      though it declines to enlighten us on what that direct answer
                                      is. If the majority is implying that the consistency adjust-
                                      ment is properly part of the original deficiency determined by
                                      the Commissioner simply by definition, then it should say so
                                      and explain how this is consistent with sections 6037(c) and
                                      6213(b)(1).
                                         This would be a very tough chore. For, if the majority is
                                      right that the consistency adjustment in this case is a defi-
                                      ciency by definition, simply because the Commissioner deter-
                                      mined it was, majority op. p. 243, then section 6213(a) would
                                      forbid the Commissioner from assessing or collecting it until
                                      our decision was final: ‘‘No assessment of a deficiency * * *
                                      shall be made, begun, or prosecuted * * * if a petition has
                                      been filed with the Tax Court, until the decision of the Tax
                                      Court has become final.’’ But section 6037(c)’s plain language
                                      commands that any adjustment due to inconsistent reporting
                                      ‘‘shall be * * * assessed according to section 6213(b)(1)’’ and
                                      ‘‘paragraph (2) of section 6213(b) shall not apply.’’ (Emphasis




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                                      added.) The general deficiency rules would, in other words,
                                      collide head on with section 6213(b)(1), which lifts those
                                      restrictions for summary assessments: ‘‘nor shall such assess-
                                      ment or collection be prohibited by the provisions of sub-
                                      section (a) of this section.’’ So, if the general deficiency rules
                                      apply to consistency adjustments, section 6213(a) commands
                                      that any resulting deficiency may not be assessed or collected
                                      while a case is pending in our Court, while section 6213(b)
                                      commands that assessment of such deficiencies shall not be
                                      prohibited. These provisions cannot simultaneously apply to
                                      the same adjustment. It stands to reason, then, that an item
                                      required to be assessed under section 6213(b)(1)—without
                                      resort to the escape hatch in section 6213(b)(2)—cannot be
                                      assessed as a run-of-the-mill deficiency.
                                        Yet, despite the plain meaning of the word ‘‘shall’’ and our
                                      repeated recognition of that word’s mandatory nature, see,
                                      e.g, Abdel-Fattah v. Commissioner, 134 T.C. 190, 207 (2010),
                                      the majority doesn’t hold the Commissioner to Congress’s
                                      command. Instead, the majority reads other general grants of
                                      jurisdiction as overriding section 6037(c)’s specific language.

                                                                                          C.

                                         The majority correctly notes that when we have jurisdic-
                                      tion over part of a taxpayer’s tax liability for a particular
                                      year, we generally have jurisdiction to decide all the issues
                                      necessary to determine the correct tax for that year. Majority
                                      op. p. 244. Section 6214 generally gives us jurisdiction over
                                      an increase in a deficiency if a petition is properly before us.
                                      And section 6512(b) generally gives us jurisdiction to deter-
                                      mine that a taxpayer has overpaid his taxes, again assuming
                                      a petition is properly before us. Quoting Russell v. United
                                      States, 592 F.2d 1069, 1072 (9th Cir. 1979), the majority
                                      says:
                                         There can be no question that when the taxpayer petitioned the Tax
                                      Court to redetermine the asserted deficiency, the Tax Court acquired juris-
                                      diction to decide the entire gamut of possible issues that controlled the
                                      determination of the amount of tax liability for the year in question. A
                                      party cannot, in such a case, by failing to raise an issue, or by asking the
                                      court not to consider it, escape the Res judicata effect of the decision. This
                                      is hornbook law. [Majority op. p. 244.]




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                                         Denying that there can be a question about our jurisdiction
                                      sort of assumes the answer about whether we have jurisdic-
                                      tion. The quoted passage is, nevertheless, an excellent
                                      starting point. The very next sentence in Russell, however,
                                      says: ‘‘We have held that there is an exception to the fore-
                                      going well established rule.’’ Id. at 1072 (discussing the Tax
                                      Court’s lack of equity jurisdiction); see also Domulewicz v.
                                      Commissioner, 129 T.C. 11, 22–23 (2007) (holding that we
                                      don’t have jurisdiction to hear partner-level defenses to pen-
                                      alties imposed in a partnership-level proceeding, even if we
                                      have jurisdiction over other items on the notice of deficiency),
                                      affd. in part and remanded on other grounds sub nom.
                                      Desmet v. Commissioner, 581 F.3d 297 (6th Cir. 2009).
                                         The majority doesn’t ask the seemingly inevitable next
                                      question of whether section 6037(c) slices out another excep-
                                      tion to these general grants of jurisdiction. It does assert that
                                      ‘‘to read section 6037 as denying our jurisdiction requires
                                      inferences that we abandon the literal language of the juris-
                                      dictional provisions of the Code and the established caselaw
                                      regarding the scope of our jurisdiction.’’ Majority op. p. 245. 5
                                      I certainly don’t suggest abandoning section 6213(a), 6214(a),
                                      or 6512(b), but rather would read them together with section
                                      6037(c), recognizing the basic principles of statutory
                                      construction that ‘‘ ‘a statute ought, upon the whole, to be so
                                      construed that, if it can be prevented, no clause, sentence, or
                                      word shall be superfluous, void, or insignificant,’ ’’ TRW, Inc.
                                      v. Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v.
                                      Walker, 533 U.S. 167, 174 (2001)), and that where two stat-
                                      utes conflict, specific laws govern general ones, Pilaria v.
                                      Commissioner, T.C. Memo. 2002–230 (citing Bulova Watch
                                      Co. v. United States, 365 U.S. 753, 758 (1961)).
                                         In Hinck v. United States, 550 U.S. 501 (2007), a taxpayer
                                      filed a claim in the United States Court of Federal Claims
                                      under section 6404(e)(1) for abatement of interest. Before
                                      1996, federal courts had held that these claims were not sub-
                                      ject to judicial review. But in 1996 Congress explicitly pro-
                                      vided for judicial review and additionally said that the Tax
                                        5 As Code sections go, section 6037 is still fairly new and neither it nor any of the even newer

                                      sections with identical or similar language, see supra note 2, have before now produced any
                                      caselaw that the majority, the parties, or I have found analyzing whether our jurisdiction ex-
                                      tends to items that Congress directs the Commissioner to summarily assess but which he in-
                                      stead includes in a notice of deficiency.




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                                      Court shall have jurisdiction over any action brought by tax-
                                      payers who meet certain net-worth thresholds. Id. at 503–04.
                                         Hinck recognized that the Code gave the Tax Court juris-
                                      diction in some circumstances, but argued that its silence
                                      about the jurisdiction of other courts should not be read as
                                      making our jurisdiction exclusive. He urged the Supreme
                                      Court to follow the Fifth Circuit’s opinion in Beall v. United
                                      States, 336 F.3d 419, 430 (5th Cir. 2003), which held that the
                                      Code’s new section, by providing an abuse-of-discretion
                                      review standard, meant that IRS decisions denying the abate-
                                      ment of interest were no longer standardless agency
                                      decisions necessarily unreviewable according to general prin-
                                      ciples of administrative law. The Fifth Circuit reasoned that
                                      district courts had always had jurisdiction and while the
                                      Code may have given the Tax Court jurisdiction of some spe-
                                      cific determinations, that didn’t mean other courts lacked
                                      concurrent jurisdiction. Id. at 428–29.
                                         The Supreme Court disagreed. In holding that we had
                                      exclusive jurisdiction, the Court said it was governed by ‘‘the
                                      well-established principle that, in most contexts, ‘‘ ‘a precisely
                                      drawn, detailed statute pre-empts more general remedies,’ ’’
                                      Hinck, 550 U.S. at 506 (quoting EC Term of Years Trust v.
                                      United States, 550 U.S. 429, 433 (2007)), and ‘‘guided by our
                                      past recognition that when Congress enacts a specific remedy
                                      when no remedy was previously recognized, or when previous
                                      remedies were ‘problematic,’ the remedy provided is gen-
                                      erally regarded as exclusive,’’ id. (citing Block v. N.D. ex rel.
                                      Bd. of Univ. & Sch. Lands, 461 U.S. 273, 285 (1983)).
                                         Similar reasoning should guide us here. TEFRA originally
                                      supplied the Commissioner with procedures to enforce con-
                                      sistent reporting among S-corporation shareholders,
                                      including corporate-level remedies for those taxpayers. But
                                      after several years, Congress found those remedies to be a
                                      problem for entities with a small number of affected share-
                                      holders. To fix this, it exempted S corporations from TEFRA,
                                      and enacted section 6037(c) in TEFRA’s place. Like the statute
                                      in Hinck, section 6037(c) is narrowly drawn—it affects only
                                      S-corporation shareholders who fail to notify the Commis-
                                      sioner of their inconsistent reporting of a subchapter-S item.
                                      And it requires assessment through section 6213(b)(1). In
                                      this case, because section 6037(c) does not allow a taxpayer
                                      to invoke deficiency procedures under section 6213(b)(2), a




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                                      taxpayer’s established remedy is prepaying the tax and filing
                                      a claim for refund.
                                         Following Hinck, I think we must reject the argument that
                                      silence overrides a limitation on a taxpayer’s remedy. Even
                                      if the Code’s general provisions would give us jurisdiction,
                                      where a specific section says otherwise we can’t justifiably
                                      argue that the general trumps the specific. Hinck points us
                                      in exactly the opposite direction—that section 6037(c)’s road
                                      to assessment is the only one open for the Commissioner for
                                      the particular class of adjustments at issue here. See id. at
                                      506.

                                                                                          D.

                                         The majority does argue that even if Congress meant what
                                      it said when it said the Commissioner ‘‘shall’’ assess
                                      according to section 6213(b)(1), the Commissioner satisfied
                                      that requirement because he did summarily assess Winter’s
                                      consistency adjustments, albeit after issuing the notice of
                                      deficiency. Majority op. p. 245. But does the Commissioner’s
                                      postpetition summary assessment somehow give us jurisdic-
                                      tion to readjust those items? The majority implicitly holds
                                      that it does—but its failure to analyze the question creates
                                      some serious problems in reconciling section 6213(a) and
                                      (b)(1).
                                         The problems harken back to the definition of deficiency.
                                      Recall that if the consistency adjustment is part of the defi-
                                      ciency, then the Commissioner cannot assess or collect it
                                      until our decision becomes final; but if it isn’t, then the
                                      Commissioner shall make an immediate assessment and
                                      demand payment. See Bregin v. Commissioner, 74 T.C. 1097,
                                      1102 (1980). There are only two possibilities. The first is that
                                      consistency adjustments are a ‘‘deficiency’’ (as the majority,
                                      remember, holds at the start of its analysis). But that would
                                      make this postpetition summary assessment invalid under
                                      the section 6213(a) ban on postpetition assessments. Which
                                      would mean the Commissioner still hasn’t complied with sec-
                                      tion 6037(c). The alternative possibility is that consistency
                                      adjustments are not a ‘‘deficiency’’. But then we don’t have
                                      jurisdiction to redetermine them, because their readjustment
                                      wouldn’t be a redetermination of a ‘‘deficiency’’.




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                                         The majority seems to avoid this problem by quoting the
                                      definition of ‘‘deficiency’’ as ‘‘the amount by which the correct
                                      tax imposed by the Code exceeds the amount of tax shown
                                      on the return plus the amount of tax previously assessed less
                                      any rebates.’’ Majority op. p. 243. This is almost right—sec-
                                      tion 6211(a) actually says it’s the amount ‘‘previously
                                      assessed (or collected without assessment) as a deficiency’’
                                      that is relevant. (Using a word in its definition is never help-
                                      ful, but we shouldn’t just lop off the whole phrase without
                                      mention.)
                                         We have never directly interpreted in our precedential
                                      caselaw what it means for something to be assessed ‘‘as a
                                      deficiency.’’ 6 In Heasley v. Commissioner, 45 T.C. 448, 458
                                      (1966), we suggested that an amount summarily assessed
                                      due to a math error could be considered either as an amount
                                      shown on a return, or as an ‘‘amount assessed as a deficiency
                                      for which no notice was required.’’ In Acme Steel Co. v.
                                      Commissioner, T.C. Memo. 2003–118, we suggested in dicta
                                      that a summary assessment is an assessment as a deficiency.
                                      But, in distinguishing between summary and deficiency
                                      assessments, the Seventh Circuit (where an appeal in this
                                      case would lie) has held that ‘‘unlike a summary assessment,
                                      a deficiency assessment requires the IRS to follow a number
                                      of statutory steps before it may undertake to collect the defi-
                                      ciency.’’ Murray v. Commissioner, 24 F.3d 901, 903 (7th Cir.
                                      1994). Under Murray, an amount assessed as a deficiency
                                      seems to be limited to an amount that was subject to the
                                      deficiency procedures. I don’t resolve this issue, but only
                                      point out that the majority’s assertion is sound only if a sum-
                                      mary assessment is not one assessed as a deficiency.
                                         A related difficulty is that section 6211(a) doesn’t specify
                                      from which date something is ‘‘previously assessed’’—the
                                      date of the notice of deficiency, the date of our decision, or
                                      some other date? The majority does address this problem and
                                      holds that we redetermine deficiencies as of the date of our
                                      decision, so ‘‘previously assessed’’ means assessed before our
                                      decision. Majority op. note 4. So, according to the majority,
                                      a deficiency would reflect any amounts summarily assessed
                                      after the petition is filed and while the case is pending. The
                                         6 In Lawless v. Commissioner, T.C. Summary Opinion 2001–178, we determined that an as-

                                      sessment not made in accordance with the deficiency procedures was not previously assessed
                                      ‘‘as a deficiency.’’ But because this was a Summary Opinion, we do not rely on it.




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                                      majority, however, then offhandedly notes that the effect of
                                      our decision is to allow the Commissioner to ‘‘assess’’ (by
                                      which I think it means ‘‘reassess’’ or ‘‘abate and reassess’’)
                                      the deficiency we just redetermined. Majority op. note 4.
                                         Reading ‘‘previously assessed’’ to mean ‘‘assessed before we
                                      enter a final decision’’ may look uncontroversial. But it may
                                      lead to some strange results if we’re not careful in analyzing
                                      whether the Commissioner’s summary assessment is an
                                      ‘‘[amount] previously assessed * * * as a deficiency.’’ The
                                      majority opinion is deeply ambiguous on this point. But con-
                                      sider the two alternatives. The first is that the summary
                                      assessment makes the consistency adjustments in this case
                                      ‘‘an amount of tax previously assessed as a deficiency.’’ But
                                      that would mean—because the Code excludes such amounts
                                      from section 6211(a)’s definition of deficiency—that we don’t
                                      have jurisdiction to redetermine it. 7
                                         The second alternative is that an amount that is sum-
                                      marily assessed is not ‘‘an amount of tax previously assessed
                                      as a deficiency.’’ This would solve the jurisdictional problem
                                      from the majority’s perspective—our decision would allow the
                                      Commissioner to assess the full deficiency we redetermine,
                                      as the majority puts it in note 4. But then what effect would
                                      a summary assessment have?
                                         Look at a simplified example. Recall the definition of defi-
                                      ciency. In algebraic form, d = t – (s + a), where deficiency (d)
                                      equals the actual tax imposed by the Code (t) less the total
                                      tax shown on the return (s) plus prior assessments as a defi-
                                      ciency (a). 8 See Estate of Branson v. Commissioner, 113 T.C.
                                      6, 37–38 (1999) (Beghe, J., concurring), affd. 264 F.3d 904
                                      (9th Cir. 2001). Imagine an S-corporation shareholder—let’s
                                      call her Spring. Assume the tax imposed by the Code on
                                      Spring’s income in 2002 is $1,000, but she only reported $400
                                      on her return. Of the remaining $600, $550 is due to incon-
                                      sistent reporting of her passthrough income from her S cor-
                                      poration and $50 is due to unreported dividend income.
                                         7 Things get even stranger if one imagines a case like Winter’s, except that the only contested

                                      items are consistency adjustments. The majority would presumably hold that we have jurisdic-
                                      tion once a petition is filed challenging consistency adjustments determined in a notice of defi-
                                      ciency. But would we then lose jurisdiction as soon as the Commissioner summarily assesses
                                      the precise amount at issue? Or would we be forced to enter a decision of no deficiency because
                                      a summary assessment would become—at any time before entry of decision—‘‘an amount of tax
                                      previously assessed as a deficiency?’’
                                         8 Winter’s case doesn’t involve any rebates or collections made without assessments, so I ex-

                                      clude them.




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                                      Spring neglected to file a Form 8082, Notice of Inconsistent
                                      Treatment or Administrative Adjustment Request, but the
                                      Commissioner issued a notice of deficiency instead of sum-
                                      marily assessing, and he included both the consistency
                                      adjustment and the dividend income. Spring timely peti-
                                      tioned the Tax Court. Later, but before our decision, the
                                      Commissioner summarily assessed the tax due to the
                                      inconsistently reported income.
                                         Thinking through the implications of the majority’s asser-
                                      tion that a summary assessment is an ‘‘amount previously
                                      assessed’’ if it’s made before the date of our decision—and if
                                      a summary assessment is considered an ‘‘amount previously
                                      assessed * * * as a deficiency,’’ Spring’s deficiency would be
                                      $50. Her true tax ($1,000) minus the sum of her self-reported
                                      tax ($400) plus any amount previously assessed as a defi-
                                      ciency ($550) is $50. In pure numbers: $1,000 – ($400 + $550)
                                      = $50. Not coincidentally, this is the same amount of tax due
                                      to her unreported dividend income which has not already
                                      been assessed. It also quite clearly does not include the $550
                                      amount summarily assessed. So if summary assessments are
                                      considered amounts previously assessed as a deficiency, then
                                      they are not part of the current deficiency and we don’t have
                                      jurisdiction to redetermine them. (And this dissent would be
                                      a concurrence.)
                                         If this is not true—if a summary assessment is not consid-
                                      ered an ‘‘amount previously assessed * * * as a deficiency’’—
                                      Spring’s deficiency would be $600. Her true tax ($1,000)
                                      minus the sum of her self-reported tax ($400) plus any
                                      amount previously assessed as a deficiency ($0) is $600.
                                      Again, in numbers: $1,000 – ($400 + $0) = $600. This sug-
                                      gests that both the consistency adjustment and the unre-
                                      ported dividend income are part of the deficiency and we
                                      have jurisdiction to redetermine both. (The majority’s
                                      holding, after all, is that we do have jurisdiction to redeter-
                                      mine the Commissioner’s summarily assessed consistency
                                      adjustments to Winter’s tax bill.)
                                         The problem here is that the majority says the effect of its
                                      holding is to allow the Commissioner to assess Spring’s
                                      newly determined deficiency of $600. This potentially leaves
                                      Spring with quite a tax bill. She has reported $400, which
                                      was undoubtedly assessed as required under section
                                      6201(a)(1), and the Commissioner summarily assessed $550




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                                      after she petitioned the Tax Court (thereby complying with
                                      the provision of section 6037), and now the Commissioner
                                      has permission to assess another $600. Although the actual
                                      tax imposed by the Code is $1,000, the majority’s reading
                                      would allow the Commissioner to assess $1,550. One might
                                      hope that, in his mercy, the Commissioner would not press
                                      the majority’s logic to its double-counting extreme and would
                                      provide some kind of relief if different parts of the bureauc-
                                      racy inadvertently acted to produce such a result. But I think
                                      it generally unwise to read the Code in a way in which a sen-
                                      sible result depends on the forbearance of one of the parties.
                                         One may also suggest that we have the authority under
                                      section 6213(a) to order the Commissioner to abate the sum-
                                      mary assessment or enjoin collection, but the Code removes
                                      that power when the Commissioner summarily assesses
                                      under section 6213(b)(1) (‘‘nor shall such assessment or
                                      collection be prohibited by the provisions of subsection (a) of
                                      this section’’). It would be best to avoid such a muddle.

                                                                                          E.

                                        Turning now to some arguments that the parties alone
                                      made, I first address the Commissioner’s argument that if
                                      summary assessment is his exclusive avenue under section
                                      6037, a shareholder’s only recourse is to sue for a refund in
                                      district court, which may lead to res judicata trouble. A
                                      problem might arise, he says, if the taxpayer has to bring
                                      two suits to redetermine liability for the same tax year: one
                                      in the Tax Court in response to the notice of deficiency and
                                      one in district court in response to a summary assessment.
                                      He argues that because the taxpayer’s 2002 tax year is a
                                      single cause of action, see Commissioner v. Sunnen, 333 U.S.
                                      591, 598 (1948), Winter must be able to bring all issues
                                      relating to the determination of his income tax liability
                                      before us or be forever barred from doing so.
                                        I disagree. Section 6212(c)(1) says that the IRS can’t issue
                                      a notice of deficiency for a tax year that is already the sub-
                                      ject of litigation in the Tax Court. A math-error notice, how-
                                      ever is, by definition, not a notice of deficiency. Secs.
                                      6212(c)(1), 6213(b)(1); cf. Jefferson Smurfit Corp. v. United
                                      States, 439 F.3d 448, 453 (8th Cir. 2006) (‘‘Congress intended
                                      to exclude * * * [the assessments listed in section 6212(c)(1)]




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                                      from the general policy of finality’’). The Code therefore
                                      allows the IRS to issue both a notice of deficiency and a math-
                                      error notice for the same tax year without the first barring
                                      the second. I think it unlikely that cases arising from section
                                      6037(c)—with its cross-reference incorporating math-error
                                      procedures under section 6213(b)(1)—would somehow end up
                                      being treated differently.
                                        The Code has a somewhat similar rule in section 6512(a).
                                      That section says that a taxpayer cannot petition our Court
                                      and then seek a refund for the same tax year in district
                                      court. But there is an exception: Section 6512(a)(2) allows a
                                      taxpayer to pursue a refund ‘‘as to any amount collected in
                                      excess of an amount computed in accordance with the deci-
                                      sion of the Tax Court which has become final.’’ See also sec.
                                      301.6512–1(e), Proced. & Admin. Regs. If the Commissioner
                                      were to summarily assess a consistency adjustment following
                                      a final decision of the Tax Court for the same tax year (but
                                      related to other items), anything that he collected as a result
                                      of the summary assessment would fit snugly within this
                                      provision. This is especially true if one reads section
                                      6512(a)(2) together with section 6213(b)(1)’s command that a
                                      math-error notice ‘‘shall not be considered as a notice of defi-
                                      ciency for the purposes * * * of section 6512(a)’’—meaning
                                      that a taxpayer who is issued a deemed math-error notice
                                      may still pay and then pursue a refund in a refund court. 9
                                        Section 7422(e) likewise prevents two courts from having
                                      jurisdiction over the same tax year at the same time. But in
                                      Hemmings v. Commissioner, 104 T.C. 221, 229 (1995), we
                                      said that this section ‘‘does not prohibit two actions involving
                                      the same taxable year from being litigated seriatim.’’
                                      Requiring the IRS to use summary assessment to adjust the
                                      portion of Winter’s tax liability arising from inconsistent
                                         9 There are also situations where the Tax Court can become a refund court. Section 6512(a)

                                      requires a taxpayer who has a potential refund claim and who has received a notice of deficiency
                                      and who wants to contest that notice in the Tax Court to file a case here that both contests
                                      the alleged deficiency and makes the case for a refund. But that’s not Winter’s case—he paid
                                      nothing after the summary assessment, and doesn’t allege that he overpaid before.
                                         Judge Halpern’s hypothetical consistency adjustment in a taxpayer’s favor—an overlooked
                                      flowthrough charitable deduction offsetting an uncontested increase in unreported and unrelated
                                      dividend income—hardly undermines this analysis. A consistency adjustment (or a net consist-
                                      ency adjustment of several items) in a taxpayer’s favor would not trigger an assessment, it
                                      would trigger a refund. Sec. 601.105(a), Statement of Procedural Rules. (Math errors in tax-
                                      payer’s favor trigger refunds.) The prohibition on a taxpayer’s use of deficiency procedures to
                                      contest such an assessment would not apply—section 6037(c)(3)’s last sentence refers only to
                                      ‘‘assessments,’’ not all possible deemed math errors.




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                                      reporting would square with both a plain reading of section
                                      6037(c) and the Code’s related procedural requirements. And
                                      our related caselaw agrees—we held in Trost v. Commis-
                                      sioner, 95 T.C. 560, 566 (1990), that res judicata does not
                                      block us from deciding an issue when a taxpayer could not
                                      have raised it in an earlier case because we lacked jurisdic-
                                      tion. See also Ron Lykins, 133 T.C. at 109; Vines v. Commis-
                                      sioner, T.C. Memo. 2009–267.

                                                                                          F.

                                         The Commissioner finally argues that it would be more
                                      efficient to consolidate in one proceeding all the issues that
                                      Winter is raising. I don’t necessarily disagree, 10 but some-
                                      times cracking one tax year into two cases is just what the
                                      Code requires. Our opinion in Tigers Eye Trading, LLC v.
                                      Commissioner, T.C. Memo. 2009–121, is an example. We
                                      described in Tigers Eye how Congress intentionally
                                      bifurcated penalty proceedings under TEFRA, giving us juris-
                                      diction to decide liability for the penalties at the partnership
                                      level, and shooing partners who say they have defenses
                                      against those penalties to separate refund suits, even when
                                      we have before us a partner-level case on other items related
                                      to the same year and the same taxpayer. Sec. 6221; sec.
                                      301.6221–1(c), Proced. & Admin. Regs. And jurisdiction splits
                                      aren’t limited to the partnership-partner context. See Hinck,
                                      550 U.S. at 509 (finding ‘‘nothing tellingly awkward’’ about
                                      sending interest abatement and refund claims to two dif-
                                      ferent courts ‘‘even if in some respects it ‘may not appear to
                                      be efficient’ ’’); Ron Lykins, 133 T.C. at 109 (finding a con-
                                      stellation of Code sections work together to permit a tax-
                                      payer to split his claim into two Tax Court proceedings as
                                      related to tentative carryback refunds); Odend’hal v.
                                      Commissioner, 95 T.C. 617, 622 (1990) (rejecting conven-
                                        10 Although the Commissioner argues that splitting the claim would not be efficient, in the

                                      past the IRS has noted how much more expensive it is for the Commissioner to maintain a defi-
                                      ciency case than to summarily assess. S. Rept. 94–938, at 375 (1976). In a deficiency case, for
                                      example, the taxpayer may get two prepayment bites at the apple—one following the notice of
                                      deficiency to establish the liability and another following a notice of determination after the
                                      Commissioner tries to collect. If the Commissioner summarily assesses, the taxpayer has to pre-
                                      pay to contest the liability, thus bypassing the collection trial, or alternatively will only be able
                                      to contest the collections without paying, thus bypassing the liability trial. So it’s not even clear
                                      that the benefits from a consolidated trial would outweigh the efficiency of summary assess-
                                      ment—especially in cases like this one where the items not subject to summary assessment were
                                      small and conceded.




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                                      ience-of-the-forum argument because the language of now-
                                      repealed section 6621(c)(4) gave the Tax Court only limited
                                      jurisdiction over interest determination). This might not be
                                      efficient, but policy can’t override plain language.

                                                                                          G.

                                         We do sometimes depart from a literal reading of a statute
                                      when the related legislative history shows clear but contrary
                                      legislative intent. See Domulewicz, 129 T.C. at 22 (citing
                                      Consumer Prod. Safety Commn. v. GTE Sylvania, Inc., 447
                                      U.S. 102, 108 (1980); United States v. Am. Trucking Associa-
                                      tions, 310 U.S. 534, 543 (1940)). But in its only argument
                                      explicitly mentioning section 6037(c), the majority looks to
                                      legislative history to find support for the plain meaning and,
                                      finding none, decides Congress could not have meant what it
                                      said.
                                         The majority contends that because Congress removed S
                                      corporations from TEFRA, it would be inconsistent with legis-
                                      lative history to ‘‘assume that Congress intended to eliminate
                                      S corporation items from the deficiency jurisdiction of this
                                      Court * * * because there is no provision for a separate
                                      judicial determination of the inconsistently reported item.’’
                                      Majority op. p. 245. The majority misreads my point—I don’t
                                      suggest that we reinstitute a corporate-level proceeding in
                                      the Tax Court for S corporations. Instead, section 6037(c)
                                      penalizes taxpayers who fail to file Form 8082 by stripping
                                      them of a prepayment forum (and consequently stripping us
                                      of jurisdiction). 11 The majority forgets that taxpayers who
                                      cannot petition our Court may still find relief by paying the
                                      disputed tax and petitioning a district court or the Court of
                                      Federal Claims—so there is a provision for a separate
                                      judicial determination of the inconsistently reported item, it’s
                                      just not with us. And this scheme would be consistent with
                                      the legislative history which demonstrated Congress’s desire,
                                      despite removing the entity-level proceeding, to ensure
                                         11 Winter might be able to petition our Court and contest his tax liability in one narrow cir-

                                      cumstance: In Perkins v. Commissioner, 129 T.C. 58 (2007), a taxpayer who received a math-
                                      error notice didn’t use the abatement procedures available to him. We held that he could chal-
                                      lenge the underlying tax liability at his later collection due process appeal to our Court because
                                      he had had no prior opportunity to contest it. Id. at 64–67. We need not now decide Perkins’s
                                      effect on Winter’s case.




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                                      consistency among S corporations and their shareholders.
                                      See S. Rept. 104–281, at 51.
                                        The majority also implies that section 6037(c) couldn’t be
                                      about our jurisdiction because it doesn’t use the word ‘‘juris-
                                      diction.’’ Majority op. p. 245. But when our jurisdiction
                                      depends on a notice of deficiency, we must look at statutes
                                      limiting the use of those notices as inherently about our
                                      jurisdiction.
                                        We’ve been through this before. In Ewing v. Commissioner,
                                      118 T.C. 494, 503–504 (2002), revd. 439 F.3d 1009 (9th Cir.
                                      2006), superseded by statute, Tax Relief and Healthcare Act
                                      of 2006, Pub. L. 109–432, sec. 408, 120 Stat. 3061, as recog-
                                      nized in Ware v. Commissioner, T.C. Memo. 2007–112, we
                                      reasoned that we had jurisdiction over innocent-spouse cases
                                      before the 2000 amendment to section 6015(e), that that
                                      amendment and its legislative history didn’t mention juris-
                                      diction, and so concluded that we still had jurisdiction after
                                      the amendment became effective. In Petaluma FX Partners,
                                      LLC v. Commissioner, 131 T.C. 84, 100 (2008), affd. in part
                                      and revd. in relevant part 591 F.3d 649 (D.C. Cir. 2010), we
                                      reasoned that we had jurisdiction despite literal language to
                                      the contrary, because we needn’t turn ‘‘a blind eye’’ to an
                                      easily answered question.
                                        This just doesn’t work out well for us. See Commissioner
                                      v. Ewing, 439 F.3d 1009, 1014 (9th Cir. 2006) (‘‘Tax Court
                                      simply has written the language out of the statute’’), revg.
                                      118 T.C. 494 (2002) and vacating 122 T.C. 32 (2004), super-
                                      seded by statute, Tax Relief and Healthcare Act of 2006, Pub.
                                      L. 109–432, sec. 408, 120 Stat. 3061, as recognized in Ware,
                                      T.C. Memo. 2007–112; Bartman v. Commissioner, 446 F.3d
                                      785, 787 (8th Cir. 2006) (same), affg. in part and vacating in
                                      part T.C. Memo. 2004–93, superseded by statute, Tax Relief
                                      and Healthcare Act of 2006, Pub. L. 109–432, sec. 408, 120
                                      Stat. 3061, as recognized in Ware, T.C. Memo. 2007–112; see
                                      also Petaluma FX Partners, LLC v. Commissioner, 591 F.3d
                                      at 655 (‘‘that a determination seems obvious or easy does not
                                      expand the court’s jurisdiction’’).
                                        And in other cases we have found statutes not using the
                                      magic word ‘‘jurisdiction’’ to still limit ours. For example, in
                                      New Millennium Trading, L.L.C. v. Commissioner, 131 T.C.
                                      275, 280 (2008), we read sections 6230 and 6221 together to
                                      mean that partners can challenge partnership-level penalties




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                                      only in refund actions, though neither of these sections uses
                                      the word ‘‘jurisdiction’’ in the relevant provisions. And in
                                      Domulewicz, 129 T.C. at 23, we even read these provisions
                                      to defeat our supplemental jurisdiction under section 6214(a).
                                      Like section 6230, section 6037(c) limits the parties involved
                                      to nondeficiency procedures—it first says the Commissioner
                                      shall assess according to section 6213(b)(1) (which doesn’t
                                      involve deficiency procedures), and then it says that a tax-
                                      payer can’t resort to section 6213(b)(2) to invoke deficiency
                                      procedures, either.
                                         To summarize, section 6037 governs the audit and litiga-
                                      tion procedures that replaced TEFRA for S corporations. It
                                      imposes duties on both the Commissioner and the share-
                                      holder. The shareholder who wants to avoid summary assess-
                                      ment and keep open his door to the Tax Court has a duty
                                      to either report subchapter S items consistently or file an
                                      extra form with his return telling the Commissioner he isn’t.
                                      None of our general grants of jurisdiction nullify this specific
                                      statute.

                                                                                          II.

                                         If we were to respect Congress’s choice of the word ‘‘shall’’,
                                      we would have to determine which items on Winter’s return
                                      were required to be summarily assessed. Although we’ve
                                      been discussing Winter’s passthrough income from BFC, the
                                      statute actually imposes a consistent reporting duty for any
                                      ‘‘subchapter S item.’’ Sec. 6037(c)(1). Section 6037(c)(4)
                                      defines a subchapter S item as ‘‘any item of an S corporation’’
                                      that the regulations say is ‘‘more appropriately determined at
                                      the corporation level than at the shareholder level.’’ So I
                                      would look to each contested item to determine if it meets
                                      that definition. The contested items include:
                                         •Winter’s passthrough income from BFC;
                                         •proper timing for BFC’s deduction of Winter’s bonus;
                                         •characterization and timing of Winter’s bonus;
                                         •Winter’s share of BFC’s charitable contributions; and
                                         •any related penalties.
                                      I’ll address them in order.




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                                      Winter’s Passthrough Income
                                         The relevant regulation tells us that subchapter S items
                                      include ‘‘[t]he S corporation aggregate and each shareholder’s
                                      share of * * * [i]tems of income, gain, loss, deduction, or
                                      credit of the corporation.’’ Sec. 301.6245–1T(a)(1), 12 Tem-
                                      porary Proced. & Admin. Regs., 52 Fed. Reg. 3003 (Jan. 30,
                                      1987). The regulation’s plain language therefore makes Win-
                                      ter’s overall passthrough income or loss from BFC a sub-
                                      chapter S item. I would therefore hold that we lack jurisdic-
                                      tion in a deficiency case to decide the amount of Winter’s
                                      passthrough income or loss from BFC.
                                      Proper Timing for BFC’s Deduction of Winter’s Bonus
                                         Whether BFC should have deducted Winter’s bonus in full
                                      on its 2002 return is an item of deduction of the corporation,
                                      and therefore it, too, is a subchapter S item. See id. If Winter
                                      was right and BFC was wrong, Winter’s remedy was to report
                                      it correctly on his return and file a Form 8082, alerting the
                                      Commissioner to BFC’s error and the inconsistency created by
                                      his correction. Winter didn’t do this, so I would leave this
                                      question to a refund forum as well.
                                      Characterization and Timing of Winter’s Bonus
                                        Winter was not only a shareholder of BFC but also an
                                      employee. When he filed his 2002 return, he reported his
                                      entire prepaid bonus as taxable employee income, which was
                                      consistent with the W–2 Builders sent to him. But now
                                      Winter claims only a portion of the bonus should be taxable
                                      in 2002 either because it was really a loan and not income
                                      (the characterization issue); or, if it was income, because he
                                      did not have unrestricted access to it and so should not be
                                      taxed on it until some later year (the timing issue).
                                        This item isn’t in the notice of deficiency, but that doesn’t
                                      matter. This is an instance where Winter argues that he
                                      overpaid his 2002 taxes, and section 6512(b) generally gives
                                      us jurisdiction over such claims. But unlike the majority I
                                      would take an additional step to ensure that this general
                                      power isn’t subject to a specific exception tucked into section
                                      6037(c). If the character or timing of Winter’s bonus is a sub-
                                        12 Section 6037(c)(4) was previously codified as section 6245, but this related temporary regu-

                                      lation was not renumbered.




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                                      chapter S item and he did not report consistently with BFC’s
                                      return, then I would hold that we don’t have jurisdiction over
                                      this issue either.
                                         The first step is to decide whether the character of the
                                      bonus (as compensation or a loan) is a subchapter S item. I
                                      look again to the regulation, which says that subchapter S
                                      items include:
                                        (5) Items relating to the following transactions, to the extent that a
                                      determination of such items can be made from determinations that the cor-
                                      poration is required to make with respect to an amount, [or] the character
                                      of an amount, * * * for purposes of the corporation’s books and records or
                                      for purposes of furnishing information to a shareholder.

                                                               *   *    *    *   *   *   *
                                        (c) Illustrations—(1) In general. This paragraph (c) illustrates the provi-
                                      sions of paragraph (a)(5) of this section. * * * The critical element is that
                                      the corporation is required to make a determination with respect to a
                                      matter for the purposes stated * * *.

                                                              *   *   *    *    *   *   *
                                        (3) Distributions. For purposes of its books and records, or for purposes
                                      of furnishing information to a shareholder, the S corporation must deter-
                                      mine:
                                        (i) The character of the amount transferred to a shareholder (for
                                      example, whether it is a dividend, compensation, loan, or repayment of a
                                      loan) * * *
                                        [Sec. 301.6245–1T, Temporary Proced. & Admin. Regs., supra.]

                                      So the regulation says if the S corporation has to determine
                                      the character of an item for its own purposes, then it’s a sub-
                                      chapter S item. The regulation gives us examples of what an
                                      S corporation has to decide for its own purposes—including
                                      the characterization of amounts transferred to shareholders.
                                      BFC was required to make a determination at the corporate
                                      level as to whether the payment to Winter was a loan or pre-
                                      paid compensation—and it did so by treating the amount as
                                      compensation. Thus the characterization of Winter’s bonus as
                                      a loan or compensation again fits within the definition of a
                                      subchapter S item. Winter thus had a duty to report this
                                      item consistently with BFC’s characterization or file a Form
                                      8082.
                                         But he did his duty. Winter and BFC each reported the
                                      bonus as compensation and not a loan. Although BFC didn’t
                                      claim a current deduction for the entire amount of the bonus,
                                      it treated the payment as a corporation should treat a par-




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                                      tially prepaid bonus (or so the IRS thought when it accepted
                                      BFC’s return as filed): by claiming the earned portion of the
                                      bonus as a deduction in 2002, reporting the rest as either
                                      prepaid wages or a decrease in retained earnings, and by
                                      reflecting the entire amount on Winter’s W–2. Winter like-
                                      wise reported the income as a cash-basis taxpayer should
                                      report a prepaid bonus—with the entire amount taxed in the
                                      year received, as reported on his W–2. Therefore, even
                                      though he now argues that he treated it incorrectly, Winter
                                      reported consistently with the way BFC did and did not lose
                                      his access to the Tax Court.
                                         If we find Winter’s bonus payment was income, we also
                                      must decide whether Winter reported the income in the
                                      appropriate year. And so again we must analyze whether
                                      Winter’s timing is a subchapter S item. Our trusty regulation
                                      tells us that even factors that affect the determination of
                                      subchapter S items are subchapter S items. It says: ‘‘The
                                      term ‘subchapter S item’ includes * * * the legal and factual
                                      determinations that underlie the determination of the exist-
                                      ence, amount, timing, and characterization of items of
                                      income, credit, gain, loss, deduction, etc.’’ Sec. 301.6245–
                                      1T(b), Temporary Proced. & Admin. Regs., supra (emphasis
                                      added). At least some of the legal and factual determinations
                                      we must consider in deciding when Winter’s bonus was tax-
                                      able to him correspond to factors dictating BFC’s treatment of
                                      the payment at the S corporation level (whether he had an
                                      unrestricted right to the money in 2002, for example). The
                                      timing of Winter’s payment is also a subchapter S item and
                                      section 6037(c) applies. 13
                                         But again Winter’s reporting was consistent with BFC’s
                                      return. Though Winter now contests it, both he (on his tax
                                      return) and BFC (in the W–2) originally reported the income
                                      as an unrestricted payment, taxable to him entirely in 2002.
                                      Therefore, Winter has met his consistent-reporting duty, and
                                      I would hold that we have jurisdiction over this issue.
                                         13 It may seem anomalous that the timing of an employee’s income recognition is a subchapter

                                      S item and thus considered more appropriately determined at the corporate level. The regulation
                                      is quite broad, however, and the proper timing for Winter’s receipt of the money hinges on its
                                      characterization. Its characterization could in turn affect BFC’s treatment of the payment, which
                                      is a determination in turn to be made at the corporate level.
                                         I also note that if Winter’s timing issue is not a subchapter S item, then he didn’t have a
                                      duty to report consistently and we would have jurisdiction anyway.




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                                      Winter’s Share of Charitable Contributions
                                         An S corporation can make charitable contributions, but it
                                      doesn’t deduct them when calculating its income. See sec.
                                      301.6245–1T(a)(1)(ii), Temporary Proced. & Admin. Regs.,
                                      supra. Instead, it notifies its shareholders of their pro-rata
                                      share so each may deduct his portion on their individual
                                      return, subject to each shareholder’s individual limits on
                                      charitable giving. See, e.g., sec. 170(b).
                                         On the K–1 that it sent to Winter, BFC listed $5,062 as his
                                      share of its charitable contributions. Winter did not claim
                                      this deduction on his return, and the Commissioner ques-
                                      tioned in his pretrial brief whether Winter should now be
                                      able to.
                                         The regulation tells us that each shareholder’s share of
                                      ‘‘expenditures by the corporation not deductible in computing
                                      its taxable income (for example, charitable contributions)’’ is
                                      a subchapter S item. Sec. 301.6245–1T(a)(1)(ii), Temporary
                                      Proced. & Admin. Regs., supra. Winter’s proper share of
                                      BFC’s charitable contributions is therefore a subchapter S
                                      item, but because he neither reported that item consistently
                                      with BFC’s return nor notified the Commissioner about his
                                      deviation, we should have no jurisdiction to decide this issue.
                                      Related Penalties
                                         The last issue we would need to resolve is whether Winter
                                      owes a penalty. The jurisdictional problem here makes this
                                      issue particularly murky. No one contests that we have juris-
                                      diction over the interest, dividend, and gambling income that
                                      Winter left off his return and therefore we have jurisdiction
                                      over any related penalty as well, see sec. 6665(a)—absent
                                      direction to the contrary of course, see Domulewicz, 129 T.C.
                                      at 23.
                                         If we didn’t find jurisdiction over Winter’s inconsistent
                                      reporting, however, we would still have to decide whether we
                                      have jurisdiction over the related penalties (whether for neg-
                                      ligence or substantial understatement). Looking first to the
                                      Code, section 6665(a) says:




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                                           Except as otherwise provided in this title—
                                        (1) [T]he additions to the tax, additional amounts, and penalties pro-
                                      vided by this chapter [14] shall be paid upon notice and demand and shall
                                      be assessed, collected, and paid in the same manner as taxes * * *.

                                      We have interpreted this section to mean that, absent some
                                      exceptions to the general rule, an addition to tax measured
                                      by a tax deficiency is subject to deficiency procedures. See
                                      Meyer v. Commissioner, 97 T.C. 555, 560 (1991); Estate of
                                      DiRezza v. Commissioner, 78 T.C. 19, 25–27 (1982). By con-
                                      trast, the Commissioner may summarily assess penalties or
                                      additions to tax measured by self-reported income on a tax-
                                      payer’s return—again unless the Code says otherwise. Meyer,
                                      97 T.C at 559; Estate of DiRezza, 78 T.C. at 29. The Third
                                      Circuit summarized it well:
                                      Thus, the Code logically provides that where the penalty is measured by
                                      a tax deficiency it is subject to the same procedure as the deficiency, for
                                      if the deficiency is revised by the Tax Court the penalty will be revised
                                      along with it. * * * If self-returned taxes are collected without the
                                      issuance of * * * [notices of deficiency], it follows simpliciter that none are
                                      required for delinquency penalties measured thereon. [United States v.
                                      Erie Forge Co., 191 F.2d 627, 630–31 (3d Cir. 1951). 15]

                                        We have usually addressed this issue in the context of pen-
                                      alties measured by a deficiency determined by the Commis-
                                      sioner (which are subject to deficiency procedures) versus
                                      penalties measured by self-reported taxes (which are sum-
                                      marily assessed). But Winter’s case is subtly different—what
                                      do we do with penalties measured by an asserted deficiency
                                      made by the Commissioner that is not subject to deficiency
                                      procedures?
                                        In Estate of DiRezza, the taxpayer agreed to the Commis-
                                      sioner’s adjustment but not an addition to tax 16 measured by
                                      that adjustment. Estate of DiRezza, 78 T.C. at 21–22. The
                                      Commissioner therefore sent a notice of deficiency that
                                      asserted an addition to tax but determined no underlying
                                        14 Section 6665 is in chapter 68, which includes the Commissioner’s asserted section 6662 pen-

                                      alties.
                                        15 Though the Third Circuit was construing the Internal Revenue Code of 1939, Congress

                                      wrote section 6659 in 1954 to ‘‘conform to the rules under existing law.’’ Estate of DiRezza, 78
                                      T.C. at 28 (reviewing relevant legislative history). Section 6659 later became section 6665.
                                        16 Section 6665(a) treats additions to tax and penalties identically so we compare the additions

                                      to tax in Estate of DiRezza to the penalties here. Estate of DiRezza later relies on section 6659(b)
                                      (now section 6665(b)), but this section by its terms relates only to additions to tax and so we
                                      won’t discuss it here.




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                                      deficiency. We nevertheless held that we had jurisdiction
                                      under section 6659 (a near identical predecessor to section
                                      6665), because the addition to tax was ‘‘attributable to a defi-
                                      ciency.’’ Id. at 25. We noted that ‘‘section 6659(a) sets forth
                                      the general rule that the deficiency procedures applicable to
                                      income * * * taxes are equally applicable to additions to
                                      tax.’’ Id. at 26 (emphasis added). This made sense at the time
                                      because we (and the legislative history we reviewed) con-
                                      templated a tax world divided into only two parts: tax
                                      assessed on income self-reported on a return and
                                      tax assessed after the Commissioner sent out a notice of defi-
                                      ciency. Id. at 27. We didn’t consider Winter’s situation, where
                                      an adjustment might not be subject to deficiency procedures.
                                         And it isn’t surprising that we didn’t discuss it—the Code
                                      sections that deny taxpayers access to deficiency procedures
                                      for such adjustments were enacted more than fourteen years
                                      after we decided Estate of DiRezza. See Taxpayer Relief Act
                                      of 1997, Pub. L. 105–34, sec. 1222(a), 111 Stat. 1008
                                      (enacting sections 6246(c) and 6241(b)); id. sec. 1027(a), 111
                                      Stat. 925 (enacting section 6034A(c)); SBJPA sec. 1307(c)(2),
                                      110 Stat. 1781 (enacting section 6037(c) in 1996). 17
                                         We also said in Estate of DiRezza, 78 T.C. at 29, that the
                                      legislative history showed ‘‘that Congress intended to exclude
                                      from the deficiency procedures only those additions which are
                                      attributable to the tax shown on the return.’’ In the light of
                                      the more recent statutory requirements for the Commissioner
                                      to summarily assess certain adjustments, however, I would
                                      now find that statement to be too narrow. When we read sec-
                                      tion 6665(a) as making deficiency procedures the default
                                      option when it comes to asserting penalties, we were implic-
                                      itly reading the word ‘‘deficiency’’ into the Code where it
                                      didn’t appear. Section 6665(a) actually says only that pen-
                                      alties will be assessed and collected in the same manner as
                                      taxes. And where there is more than one way to assess taxes,
                                      I would hold that the Code commands the Commissioner to
                                      assess and collect any penalty in the same manner as the
                                      related tax—whether by deficiency procedures or summary
                                        17 Section 6201(a)(3), allowing the Commissioner to summarily assess overstated withholdings

                                      and denying abatement procedures, was in place when we decided Estate of DiRezza. A few
                                      years before, however, we had decided that overstated withholdings aren’t deficiencies under
                                      section 6211, and so are not subject to deficiency procedures. Bregin v. Commissioner, 74 T.C.
                                      1097, 1105 (1980).




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                                      assessment. I see no reason why the logic regarding penalties
                                      related to self-reported income should not extend to other
                                      taxes required to be summarily assessed.
                                         Therefore, unless the Code says otherwise, I would hold
                                      that the jurisdiction for the penalty follows the jurisdiction
                                      for the related tax. This makes sense. For us to find neg-
                                      ligence or substantial understatements where we had no
                                      jurisdiction over the underlying issue would require us to
                                      improperly conclude that there was an understatement in
                                      the first place. And if we sustained a negligence penalty and
                                      Winter later pursued his case in a refund forum, our opinion
                                      would be merely advisory. Further, a substantial understate-
                                      ment penalty is purely computational and based on the
                                      amount of the total understatement, which in my view we
                                      have no jurisdiction to determine. See Petaluma FX Partners,
                                      591 F.3d at 655–56 (finding itself ‘‘unable to uphold’’ the pen-
                                      alty determinations in a Tax Court partnership proceeding
                                      where the penalties could not be computed without a sepa-
                                      rate partner-level proceeding). I would therefore hold that
                                      Winter’s penalties relating to his inconsistent reporting, like
                                      the inconsistently reported items themselves, are not subject
                                      to deficiency procedures; and it follows that we lack jurisdic-
                                      tion over them. Sec. 6213; Meyer, 97 T.C. at 562.
                                         My conclusion in this case might involve more work than
                                      the majority’s rolling of all issues into a single deficiency
                                      case, but I prefer to respect the plain language of the statute.
                                      Some may also find my reading harsh—it would require S
                                      corporation shareholders who fail to notify the Commissioner
                                      that they are taking a position inconsistent with their cor-
                                      porations to prepay their taxes before disputing them.
                                         But we live in a textualist world, and the text requires this
                                      result. A general grant of jurisdiction need not be specifically
                                      repealed, a limitation on jurisdiction need not be spe-
                                      cially noted in legislative history, we need not have to dis-
                                      cern some good policy reason or purpose in the words of the
                                      Code that—even inadvertently—limit our power in a par-
                                      ticular case or over a particular issue or (as here) over any
                                      ‘‘adjustment required to make the treatment of the items by




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                                      such shareholder consistent with the treatment of the items
                                      on the corporate return.’’ Sec. 6037(c).
                                        I respectfully dissent.

                                                                               f




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