PRIOR TAX COURT DECISION BARS REFUND SUIT.

                 IN THE UNITED STATES DISTRICT COURT

FACTS

[2] Plaintiffs are Carl and Margaret Bauman, taxpayers who are contesting certain additional taxes, penalties, and interest assessed by the Internal Revenue Service. Defendants are the United States, the Commissioner of Internal Revenue (Commissioner), and J. Philip Self, an attorney who formerly represented the Baumans before the United States tax court.

[3] Plaintiffs filed federal income tax returns for the 1980, 1981, and 1982 income tax years. The IRS audited these returns and assessed additional taxes, penalties, and interest as a result of three separate investments by the Baumans in limited partnership ventures: Tennessee Partners, Ltd., Energy Resources, Ltd., and Dillon Oil Technology. The Baumans contested the proposed adjustments in two separate tax court proceedings. The Baumans and the IRS settled the Tennessee Partners and Dillon Oil Technology issues (with the precise computation of the additional tax and interest deferred until the remaining issues for the tax periods were resolved), leaving the Energy Resources issues unresolved. The tax court granted partial summary judgment in favor of the IRS on one of the central issues in dispute as to Energy Resources, Ltd., and held a trial on the remaining issues in 1994. In 1996, the tax court issued a memorandum opinion ruling against the Baumans and for the IRS. The parties then reached an agreement as to the correct amount of deficiencies to be entered by the tax court. The tax court entered its decisions in the two cases on September 24, 1996.

[4] In 1994, Self had sent a letter to the assistant district counsel at his Birmingham, Alabama, office address enclosing a proposed motion to withdraw as counsel of record for the Baumans. ² The proposed motion to withdraw was never finalized and filed. The tax clerk's office sent the two decisions in September of 1996 to the Baumans' attorney of record -- which was still Self -- who signed the certified mail receipt. Self received the decisions, but failed to notify the Baumans of the entry of the decisions. According to the Baumans, they were "keenly aware" that shortly after the decisions were entered, to avoid IRS collections efforts, they would either have to post a bond or pay the amounts due in full. The Baumans further contend that having received no copy from the Commissioner's counsel of the IRS computations or the proposed decision, "Bauman had no particular reason to inquire as to the status of the matter." ³ The Baumans did not file an appeal within 90 days after entry of the decisions.

[5] In early February of 1997, the Baumans grew concerned about the matter and inquired whether the Commissioner had ever filed the IRS computations. ⁴ The Baumans then learned for the first time that decisions had already been entered. Shortly after learning of the decisions, the Baumans paid the assessments pertaining to the decisions.

[6] On February 18, 1997, the Baumans filed a notice of appeal with the Ninth Circuit Court of Appeals, asserting that they had not learned of entry of the judgment until February 10, 1997. The IRS moved for a dismissal of the appeal as untimely. The Ninth Circuit granted the IRS's motion by order of April 24, 1997. The Baumans then filed a motion with the tax court seeking leave to file motions to vacate the decisions in the prior cases. By memorandum opinion served July 23, 1997, the tax court denied the motions to vacate on the grounds that it lacked authority to vacate the decisions at issue. No appeal was taken with respect to this decision either. The Baumans paid the additional tax, penalty, and interest due, in full, making the final payment on July 25, 1997.

[7] The Baumans have filed this cause of action in federal court claiming that the tax court memorandum opinion was wrong and that they are entitled to a new hearing because they did not receive timely notice of the entry of the decisions. The Baumans seek: (1) a declaration that Energy Resources, Ltd., was not a sham, (2) allowance of pass-through partnership losses which they claimed on their income tax returns, and (3) a refund of all taxes, penalties, interest, and extraordinary interest paid by the Baumans as regards Energy Resources Ltd. ⁵

[8] The United States moves to dismiss the Baumans' claims, arguing that the Baumans, complaint is barred both by the doctrine of res judicata and for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), Federal Rules of Civil Procedure. The Baumans argue that the tax court memorandum opinion of May 2, 1996, and the decisions entered thereon in September of 1996 are not entitled to res judicata effect as a result of (1) the lack of actual notice by the Baumans of the September 1996 decisions until February of 1997, after the time for appeal had expired, and (2) the lack of any judicial review or Article III court determination of the substantive federal tax issues involved.

DISCUSSION

[9] The first issue is whether res judicata bars plaintiffs' claims. The United States argues that the 1996 tax court decision has full res judicata effect with respect to the income tax liabilities for the tax years at issue. Plaintiffs argue that the lack of due process which prevented the Baumans from obtaining substantive review of the tax court decision should prevent the application of res judicata.

[10] The doctrine of res judicata ensures the finality of decisions, conserves judicial resources, and protects litigants from multiple lawsuits. McClain v. Apodaca, 793 F.2d 1031, 1032-33 (9th Cir. 1986). The Supreme Court has stated that res judicata consists of two preclusion concepts: issue preclusion and claim preclusion. Migra V. Warren City School Dist. Bd. Educ., 465 U.S. 75, 77 n.1 (1984). Under the claim preclusion doctrine, or res judicata, a final judgment on the merits bars further claims by parties or their privies based on the same cause of action. The Supreme Court explained the doctrine as follows:

     The rule provides that when a court of competent jurisdiction

[11] Here, the tax court rendered a final decision as to plaintiffs' tax liabilities in 1996. The decision was not appealed. To the extent that plaintiffs are attempting to relitigate their tax liability, their claims are barred by the doctrine of res judicata.

[12] Plaintiffs argue that the failure of the tax court proceedings to allow the Baumans the opportunity to show the merits of their claim of lack of notice renders the judgment of the tax court unfit for application of the doctrine of res judicata because of the failure to provide fundamental due process. Plaintiffs have made no showing of want of due process. Plaintiffs' designated counsel received the decision of the tax court. Plaintiffs could have appealed the judgment of the tax court.

[13] With respect to whether the United States has waived its sovereign immunity or whether this court lacks jurisdiction, these issues are moot in light of the court's conclusion that the doctrine of res judicata bars plaintiffs' claims in federal court. However, were the court to reach the issue of whether the plaintiffs' suit in tax court contesting the proposed tax adjustment bars the filing of suit in federal district court to determine the same taxes, defendants would prevail. A taxpayer can dispute a tax liability in either federal district court or in tax court. If the taxpayer chooses to proceed in tax court, however, he cannot proceed in any other court. 26 U.S. C. section 6512 (a). Once a taxpayer files a petition with the tax court, the tax court has exclusive jurisdiction to determine the existence of a deficiency or to award a refund. Commissioner v. Lundy, 516 U.S. 235, 246-47 (1996); see Solitron Devices, Inc. v. United States, 862 F.2d 846, 848 (11th Cir. 1989) (holding that district court lacked jurisdiction over taxpayer's claim to redetermine tax liability after taxpayer had litigated tax liability for subject year in tax court, even though issue to be litigated could not have been raised in prior litigation because it depended on post-litigation events). Because of plaintiffs' decision to proceed in tax court, they are precluded from filing suit in this court.

CONCLUSION

[14] The United States' motion to dismiss plaintiffs' claims is granted.

[15] DATED at Anchorage, Alaska, this 31st day of January, 2000.

                                    H. Russel Holland, Judge

² Complaint at 6, paragraph 18, Clerk's Docket No. 1.

³ Id. at 8, paragraph 27.

⁴ Id. at 9, paragraph 28.

⁵ This motion does not address the Baumans' fourth claim, that of an award against defendant Self for the damages (direct and consequential) caused by his breach of duty, breach of contract, breach of good faith and fair dealing, and breach of professional duties. END OF FOOTNOTES