                        T.C. Memo. 2009-152



                      UNITED STATES TAX COURT



                  ALAN F. BEANE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6529-05.                 Filed June 25, 2009.



     William S. Gannon, for petitioner.

     Lydia A. Branche, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined a deficiency of

$3,080,430 in petitioner’s Federal income tax for 1998.    After

concessions, the issues for decision are the extent to which, if

at all, the deficiency for 1998 may be reduced or an overpayment

may be determined as a result of erroneously reported self-

employment tax for 1998, assessed additions to tax for 1998, loss
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carrybacks from subsequent years, and an overpayment of tax for

1999.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

                          FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in Florida at the time he filed his petition.

Petitioner’s Employment With AAVID

     Before October 14, 1993, petitioner was a founder and chief

executive at AAVID Engineering, Inc.   In 1993, AAVID Thermal

Technologies, Inc., a Delaware corporation, was formed to acquire

AAVID Engineering, Inc.   On or about September 25, 1993, AAVID

Thermal Technologies, Inc., acquired AAVID Engineering, Inc., and

was the sole shareholder.   Subsequently, on a fully diluted

basis, petitioner became the largest individual shareholder in

AAVID Thermal Technologies, Inc.

     On October 14, 1993, AAVID Thermal Technologies, Inc., and

AAVID Engineering, Inc. (collectively, AAVID), and petitioner

entered into an employment agreement for petitioner to continue

his duties as chief executive officer (CEO) and as a member of

the board of directors of AAVID.
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     AAVID and petitioner modified the employment agreement on

September 25, 1995.    The resulting amended agreement reflected

modifications that were required by the underwriters of AAVID’s

planned initial public offering.

     The employment agreement provided for petitioner to be CEO

for an initial term of 3 years, and, thereafter, to be renewed

automatically for 1-year terms unless either party to the

employment agreement gave notice of intent not to renew, and the

amended agreement incorporated these terms.    During the initial

3-year term, petitioner gave notice of intent not to renew, and

the employment agreement was not renewed.    Therefore, petitioner

ceased to be CEO but continued as a director and consultant to

management.

     Petitioner was on the board of directors of AAVID until his

resignation from this position on January 3, 1998, thereafter

continuing as an adviser.    In his capacity as a board member and

adviser, petitioner was an employee of AAVID during 1998 and

received a 1998 Form W-2, Wage and Tax Statement, that reported

wages from AAVID of $95,144.35.

     In connection with his employment as CEO of AAVID petitioner

received options to purchase 1,518,000 shares of AAVID stock at

or about the same time he executed the original employment

agreement.    The options were nonstatutory and were granted to
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petitioner on October 14 and 16, 1993.   The options were

scheduled to vest and become exercisable over a

4-year period with 25-percent vesting each year.   AAVID had its

initial public offering on January 29, 1996.   At that time, the

options converted to warrants to purchase shares of AAVID’s

common stock.   As of July 22, 1997, all of the options that

petitioner had received were fully vested.   Petitioner exercised

the options received from AAVID in 1997, 1998, and 1999 and then

sold the underlying shares in 1997, 1998, 1999, and 2000.

Petitioner’s Options Transactions and Reporting

     In 1997, petitioner exercised options and acquired a total

of 225,000 shares of AAVID’s common stock at a cost of $42,660.

The shares had a total fair market value of $4,830,000, resulting

in gain of $4,787,340.   AAVID did not provide petitioner with a

Form W-2 with respect to the exercise of the options in 1997.

Petitioner did not report income regarding the exercise of the

options on his originally filed 1997 tax return.   On an amended

1997 tax return that petitioner filed on or about August 16,

1999, he reported $2,087,657 as ordinary income from the exercise

of the 1997 options.   Petitioner underreported income from the

exercise of the options by $2,699,683.   Petitioner’s amended

return was processed by the Internal Revenue Service (IRS), and

he received an erroneous refund of $829,991 as a result.
                                - 5 -

     In 1998, petitioner exercised options and acquired a total

of 1,025,000 shares at a cost of $2,208,936.    The shares had a

total fair market value of $24,090,625, resulting in gain of

$21,886,688.   AAVID did not provide petitioner with a Form W-2

with respect to the exercise of the options in 1998.    Petitioner

reported $13,511,014 of the $21,886,689 of income from the

exercise of the options in 1998 on the Schedule C, Profit or Loss

From Business, of his 1998 tax return.

     With respect to petitioner’s exercise of the options in

1997, 1998, and 1999 AAVID did not withhold taxes for

petitioner’s contribution pursuant to the Federal Insurance

Contributions Act (FICA).    On his 1998 tax return petitioner

treated the income realized from the exercise of the options as

income subject to the Self-Employment Contributions Act (SECA)

and reported SECA taxes.    Petitioner reported a SECA tax

liability of $264,877 and claimed a deduction of 50 percent, or

$132,439.

     In 1999, petitioner exercised options and acquired a total

of 268,000 shares at a cost of $588,956.    The shares had a total

fair market value of $5,527,500, resulting in a gain of

$4,938,543.    Petitioner reported $10,139,696 in income from the

exercise of options as self-employment income on his 1999 tax

return.
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       Petitioner sold the option stock and sustained the following

capital gains and losses in 1997 through 2000:

Year        Shares        Proceeds        Basis          Gain/loss

1997        200,000      $4,495,250     $4,303,299         $191,951
1998        305,000       7,412,601      9,423,763       (2,011,162)
1999        305,000       5,089,143      7,182,609       (2,093,466)
2000        708,000      18,021,645     13,548,488        4,473,157

       If the proceeds of the sales of the option stock had been

correctly reported as capital gains and losses on Schedules D,

Capital Gains and Losses, to petitioner’s returns for 1998

through 2000, petitioner’s net long-term and short-term capital

loss for 1998 would be $1,865,140, of which only $1,500 would be

used in 1998.

Petitioner’s Other Losses

       Petitioner has a 45.977-percent ownership interest in

Materials Innovation, Inc. (Innovation), an S corporation.

Petitioner also has a 45.977-percent profit-sharing interest and

a 100-percent loss-sharing interest in a partnership called MII

Technologies, LLC (Technologies), formerly known as MII Sensors.

       Innovation and Technologies sustained gains and losses as

follows:

            Year       Innovation         Technologies

            1996         $16,374          ($1,087,759)
            1997          53,122           (2,388,503)
            1998         401,176           (3,950,080)
            1999           5,062           (4,347,215)
            2000        (178,001)          (3,758,680)
            2001        (158,464)          (2,601,036)
            2002        (257,214)          (1,157,043)
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     On his tax returns for 1996 through 2002 petitioner

correctly reported the Innovation and Technologies income/losses.

Petitioner has sufficient basis in Innovation and Technologies to

claim the losses on his tax returns for 1996 through 2002.

                              OPINION

     The amounts set out in our findings of fact are based on

stipulations and calculations the parties presented.    We have

generally adopted respondent’s proposed findings because

petitioner’s briefs did not comply with Rule 151(e) and did not

assist the Court in making sense of a voluminous and confusing

record.   See Stringer v. Commissioner, 84 T.C. 693, 703-705

(1985), affd. without published opinion 789 F.2d 917 (4th Cir.

1986).

     Trial of this case commenced in Boston in April 2008 and was

suspended after petitioner testified and presented a series of

charts analyzing his options transactions.    The charts and

underlying documents had not previously been presented to

respondent but were useful in determining the correct amounts of

petitioner’s gains and losses from the transactions.    The trial

resumed in September 2008 after the parties had substantially

narrowed their disputes as to the options transactions and the

loss carryovers.   Petitioner’s brief acknowledges that after a

meeting on the day before trial resumed, “almost no factual

issues remained to be tried by this Court.”
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     The remaining disagreements concern the manner in which

agreed amounts of income and losses affect the decision to be

entered in this case, which is based solely on a notice of

deficiency for 1998.   Petitioner argues that

     Irrespective of how this Court rules on the other
     issues, the following conclusions are inescapable on
     the record: (a) Mr. Beane owes IRS $906,000 * * * for
     1998, exclusive of the overpayment/refund; (b) IRS owes
     Mr. Beane more than $2,505,000 on account of the 1999
     overpayment; and (c) on a net basis, IRS owes Mr. Beane
     $1,616,226, plus interest at the statutory rate until
     it refunds the overpayment.

Petitioner asserts that respondent’s proposed findings of fact

showing application of losses carried back to 1997 and 1998 from

1999 and 2000 are “irrelevant because they do not prove or tend

to prove how much Mr. Beane owes the IRS or how much it owes Mr.

Beane.”   Petitioner attempts to net against his tax liability for

1998 an overpayment for 1999 and to have the Court order a refund

of the net amount, with interest.

     Respondent contends that

     Although the Court may consider the capital gains and
     losses petitioner sustained in 1997 through 2000 and
     petitioner’s available [net operating losses] in those
     years in order to determine petitioner’s deficiency in
     1998, it has no jurisdiction to determine a refund in
     1999 or 2000.

Respondent also argues that (1) the erroneously reported and paid

self-employment taxes for 1998 (net after the deduction of 50

percent of those taxes on petitioner’s erroneously prepared
                               - 9 -

Schedule C) should be offset by the employee share of FICA taxes

not withheld and paid over by AAVID pursuant to section 6521(a),

and (2) this Court does not have jurisdiction to order or credit

a refund of the unabated late payment addition to tax assessed

under section 6651(a)(2) at the time petitioner’s 1998 return was

filed.

     Petitioner argues that the jurisdictional issues were

belatedly raised by respondent, but jurisdictional issues may and

must be raised at any time.   See, e.g., Normac, Inc. v.

Commissioner, 90 T.C. 142, 146-147 (1988); Kahle v. Commissioner,

88 T.C. 1063, 1063 n.3 (1987)(and cases cited therein).

     We conclude that respondent’s arguments are consistent with

the statutory provisions establishing and limiting our

jurisdiction and that petitioner confuses the determination of a

deficiency with an accounting for taxes owed, amounts assessed,

amounts paid, and net amounts due.     Computation and adjudication

of the net amounts owed by or to petitioner over a period of

years is well beyond the proper scope of this case.

Definition of a Deficiency

     This case was commenced in response to a notice determining

a deficiency in petitioner’s Federal income tax for 1998.    A

“deficiency” is defined in section 6211(a) as

     the amount by which the tax imposed * * * exceeds the
     excess of–-
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            (1) the sum of

                 (A) the amount shown as the tax by the
            taxpayer upon his return * * * plus

                  (B) the amounts previously assessed (or
            collected without assessment) as a deficiency,
            over–

            (2) the amount of rebates * * *

     Briefly, the deficiency in this case is the difference

between the tax due on petitioner’s taxable income for 1998 less

the tax he reported on the return filed for 1998.    As set forth

in the notice sent to petitioner, that amount was $3,080,430, or

the difference between $7,754,462 and $4,674,032.    The amount

will now be reduced because of respondent’s concessions as to

loss carryovers, and the final deficiency will be determined

under Rule 155, as described below.     Petitioner concedes that the

amount owed for 1998, i.e., the deficiency, will be at least

$906,000.

     The notice of deficiency was sent to petitioner under

section 6212, and the petition was filed under section 6213.

Section 6214(b) provides:

          SEC. 6214(b). Jurisdiction Over Other Years and
     Quarters.--
     The Tax Court in redetermining a deficiency of income
     tax for any taxable year * * * shall consider such
     facts with relation to the taxes for other years * * *
     as may be necessary correctly to redetermine the amount
     of such deficiency, but in so doing shall have no
     jurisdiction to determine whether or not the tax for
     any other year * * * has been overpaid or underpaid.
     Notwithstanding the preceding sentence, the Tax Court
     may apply the doctrine of equitable recoupment to the
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     same extent that it is available in civil tax cases
     before the district courts of the United States and the
     United States Court of Federal Claims.

Our jurisdiction to determine whether there has been an

overpayment is limited to the year for which a notice of

deficiency has been issued.    Menard, Inc. v. Commissioner, 130

T.C. 54, 60 (2008).

     Petitioner does not claim that the doctrine of equitable

recoupment referred to in section 6214(b) applies, and the

circumstances under which it does apply are not present here.

See Menard, Inc. v. Commissioner, supra at 62-63.     Because the

examination of petitioner’s returns showed that the amount

petitioner reported for 1999 exceeded the correct amount (by

$2,247,616), there was no deficiency for that year; no notice of

deficiency was sent for that year; and no right to petition this

Court existed for that year.   We have no jurisdiction in this

case to redetermine the amount of the overpayment for 1999 or to

determine the accrued interest on that overpayment,

notwithstanding petitioner’s insistence that he is entitled to

offset those amounts against the admitted deficiency for 1998.

Cf. Estate of Baumgardner v. Commissioner, 85 T.C. 445, 448

(1985); see also Vest v. Commissioner, T.C. Memo. 1995-188.      The

amount ultimately due to or from petitioner will not be known

until the decision is entered in this case and the correct

deficiency for 1998 is assessed.   Petitioner’s account will then
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reflect adjustments that have been made or agreed upon for other

years.

Section 6521(a)

     Petitioner erroneously reported his options transactions on

Schedule C of his return for 1998 and mistakenly reported self-

employment tax on the amount that he reported as gain.      The

parties now agree that petitioner was an employee during 1998 and

that FICA taxes should have been withheld and paid by his

employer.   Petitioner argues that respondent cannot recover the

amounts against petitioner because a claim against the employer

was not timely pursued, and petitioner seeks a refund of the

amount reported and paid for 1998.      Respondent seeks to offset

petitioner’s share of FICA taxes against credit for the amount of

self-employment taxes he reported and partially deducted on his

return for 1998.

     Respondent relies on section 6521(a), which provides as

follows:

          SEC. 6521(a). Self-Employment Tax and Tax on
     Wages.--
     In the case of the tax imposed by chapter 2 (relating
     to tax on self-employment income) and the tax imposed
     by section 3101 (relating to tax on employees under the
     Federal Insurance Contributions Act)--

                 (1) If an amount is erroneously treated as
            self-employment income, or if an amount is
            erroneously treated as wages, and

                 (2) If the correction of the error would
            require an assessment of one such tax and the
            refund or credit of the other tax, and
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               (3) If at any time the correction of the
          error is authorized as to one such tax but is
          prevented as to the other tax by any law or rule
          of law (other than section 7122, relating to
          compromises),

     then, if the correction authorized is made, the amount
     of the assessment, or the amount of the credit or
     refund, as the case may be, authorized as to the one
     tax shall be reduced by the amount of the credit or
     refund, or the amount of the assessment, as the case
     may be, which would be required with respect to such
     other tax for the correction of the error if such
     credit or refund, or such assessment, of such other tax
     were not prevented by any law or rule of law (other
     than section 7122, relating to compromises).

     Petitioner claims that the offset is not permitted because

FICA taxes have not been assessed against him, and, he contends,

the amount cannot be determined from the record.    His petition,

however, prevented assessment of amounts properly included in the

deficiency for 1998.   See sec. 6512(a).   The notice of deficiency

included an adjustment for self-employment tax, which is

therefore before the Court in this case.    Redetermination of

self-employment tax must take account of the offset provided

under section 6521(a) resulting from reclassification of his

income from self-employment income to wages subject to FICA

taxes.   The amount of income subject to FICA taxes will

necessarily be determined from the record in this case as part of

the Rule 155 computation described below.    Petitioner has

provided neither persuasive reason nor authority for not applying

section 6521(a) in the manner proposed by respondent.
                              - 14 -

Section 6651(a)(2)

     Petitioner contends that the Court should order a refund of

failure-to-pay penalties assessed in September 1999 after he

filed his 1998 return in August 1999.     He contends that his

reported tax liability was paid at that time and that he owes

nothing for 1998 “on a net basis”.     As explained above, his

liability for 1998 cannot be determined in this case “on a net

basis”.   Payment of the amount due for 1998 was due on April 15,

1999, and an addition to tax under section 6651(a)(2) applied

from that time until payment was made.     See Godwin v.

Commissioner, T.C. Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th

Cir. 2005); sec. 1.6081-4(b), Income Tax Regs. (granting by the

IRS of an automatic extension of time to file a return does not

operate to extend the time for payment of tax due on the return).

Rule 155 Computations

     Rule 155(a) provides for computations to be submitted by the

parties “pursuant to the Court’s determination of the issues,

showing the correct amount to be included in the decision.”      For

our purposes in this case, the amount to be included in the

decision will reflect the tax due for 1998 on the corrected

income that petitioner received during that year, reduced by the

loss carryovers from other years and other income, deduction, and

credit adjustments.   The tax due will reflect prior payments

petitioner remitted with his return for 1998, including a
                              - 15 -

recomputed credit for self-employment taxes paid.     There will

not, however, be an “overpayment” for 1998, because the taxes

paid for 1999 do not reduce the deficiency for 1998 as defined

above.   The Rule 155 computation ordered here, moreover, will not

be an invitation for petitioner to reargue his claims to refunds

arising in other years.   See Rule 155(c).

     We have considered the other arguments of the parties.

Petitioner repeatedly criticizes the results of the examination,

other positions of respondent, and delay in refunding his

overpayment for 1999.   Petitioner admits that the examination

“may have been accurate with respect to [his] revenues during

1998 and 1999” but complains that it was “inaccurate with respect

to the amounts due to and from the IRS.”     The unfortunate

circumstances of this case, however, resulted from petitioner’s

underreporting of his options income for 1998 and

mischaracterization of that income as self-employment income.      It

was his obligation to establish the carrybacks, not the

examiner’s obligation to search them out.     Once he presented

adequate substantiation of his basis in the options sold and his

net operating losses, respondent conceded them.     His

misunderstanding of the scope of this case extended the

proceedings unnecessarily.   The arguments not addressed in this

opinion are irrelevant to our decision or have even less merit

than those addressed.
                        - 16 -

To reflect the foregoing,


                                  Decision will be entered

                             under Rule 155.
