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Nick's Cigarette City, Inc. v. United States

July 2, 2008

NICK'S CIGARETTE CITY, INCORPORATED, PLAINTIFF-APPELLANT,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 05 C 123-Rudy Lozano, Judge.

The opinion of the court was delivered by: Ripple, Circuit Judge.

ARGUED JANUARY 8, 2008

Before FLAUM, RIPPLE and MANION, Circuit Judges.

Nick's Cigarette City, Inc. ("Cigarette City") brought this action in the United States District Court for the Northern District of Indiana. It sought a refund of federal corporate income taxes that it had paid for the taxable years of 1997 and 1998. The district court concluded that it lacked jurisdiction and dismissed the complaint. For the reasons set forth in this opinion, we affirm the judgment of the district court.

I. BACKGROUND

Cigarette City is one of several small businesses owned by Nick Kikalos and his wife, Helen Kikalos. For many years, the Kikaloses have been involved in a "protracted struggle with the Internal Revenue Service," Kikalos v. United States, 408 F.3d 900, 900 (7th Cir. 2005). The IRS has audited their business and personal tax returns and has assessed substantial deficiencies and penalties. The present appeal involves the 1997 and 1998 corporate income tax returns for Cigarette City.

A.

For the 1997 taxable year, Cigarette City filed a federal corporation income tax return, Form 1120, with the IRS center in Cincinnati, Ohio. Based upon this return, it paid $3,234 in income taxes. On October 21, 1999, the IRS' Merrillville, Indiana office began an audit of this return. The auditors discovered numerous discrepancies, and, on February 17, 2001, the IRS issued an examination report proposing more than ten adjustments to Cigarette City's 1997 tax return.

On March 8, 2001, Cigarette City's counsel responded to the examination report on behalf of Cigarette City by providing some documentation and disputing the proposed adjustments. Nevertheless, on March 13, 2001, the IRS issued a notice of deficiency to Cigarette City in which it assessed an additional $23,326 in income taxes owed and $4,665.20 in penalties. Cigarette City ultimately paid $36,570.64 in additional income taxes, penalties and interest for the 1997 taxable year on account of this deficiency assessment.

On September 3, 2002, Cigarette City filed an amended federal corporation income tax return, Form 1120X, with the IRS center in Cincinnati, Ohio, in which it requested a refund of $36,571. Page 2 of the form required the taxpayer to specify its reason for the requested amendment.*fn1 Cigarette City stated only: "ATTACHED 'NOTICE OF DEFICIENCY' WAS ASSESSED DESPITE THE TAXPAYERS [sic] VERIFICATION OF ALL ITEMS IN QUESTION. THE ORIGINAL FILING WAS CORRECT." R.1, Ex. B at 2. Cigarette City enclosed the IRS notice of deficiency, but it attached no other explanation or documentation to the refund claim.

On April 22, 2003, the IRS sent a notice to Cigarette City explaining that it had denied Cigarette City's claim for a refund. R.1, Ex. C. The letter stated, in pertinent part:

A review of the case showed a statutory notice was issued per Internal Revenue Code Section 6212, and since you failed to petition the United States Tax Court or respond, the tax was assessed per Internal Revenue Code Section 6213.

If you want to appeal our decision to disallow your claim, you must provide a brief written statement of the issues you don't agree with. The facts contained in the written statement should be detailed and complete, including names, amounts, locations, etc.

Id. Cigarette City did not file an internal appeal.

B.

Similar events occurred in connection with the filing of Cigarette City's corporate tax return for the 1998 tax year. Cigarette City timely filed Form 1120 and paid $5,437 in corporate income tax. The IRS began auditing this 1998 return on November 16, 1999. On May 21, 2001, Cigarette City filed an amended return in anticipation of the forthcoming audit report. ...


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