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Seven W. Enterprises, Inc. v. Commissioner of Internal Revenue

United States Court of Appeals, Seventh Circuit

July 24, 2013

Seven W. Enterprises, Inc. and Subsidiaries and Highland Supply Corporation and Subsidiaries, Petitioners-Appellants,
v.
Commissioner of Internal Revenue, Respondent-Appellee.

Argued February 12, 2013

Appeals from the United States Tax Court. Nos. 13594-08, 13595-08

Before Ripple and Tinder, Circuit Judges, and Zagel, District Judge. [*]

Ripple, Circuit Judge.

Seven W. Enterprises, Inc. and Subsidiaries ("Seven W") and Highland Supply Corporation and Subsidiaries ("Highland") (collectively "the Taxpayers") filed petitions for redetermination with the United States Tax Court. The petitions were consolidated for trial, and the Tax Court issued a decision with respect to each petition. Those decisions, however, inadvertently attributed Seven W's tax liability to Highland, and Highland's tax liability to Seven W. The Commissioner of the Internal Revenue Service ("Commissioner") later discovered the errors and filed motions to vacate the prior decisions. The Tax Court granted the motion, vacated its initial decisions and issued new, corrected decisions. The Taxpayers moved for reconsideration. Their motion was denied, and they timely appealed. For the reasons set forth in the following opinion, we vacate the new decisions of the Tax Court and remand with instructions to reinstate and correct its original decisions.

I

BACKGROUND

On June 4, 2008, Seven W and Highland filed petitions for redetermination with the Tax Court based on notices of deficiency that had been issued on March 7, 2008.[1] The cases were consolidated for trial, and a trial was conducted on April 28, 2009. The Tax Court issued opinions on June 7, 2011. With respect to Seven W, a calendar-year taxpayer, the Tax Court rejected the deficiency for calendar year 2000, but affirmed the deficiencies for the years 2001 through 2003. With respect to Highland, a fiscal-year taxpayer, the Tax Court affirmed deficiencies for the fiscal years ending on April 30, 2003, and April 30, 2004. Although the Tax Court's opinions correctly identified the taxpayer with its respective tax liability, the Tax Court's decisions, entered on June 8, 2011, incorrectly stated that Seven W was responsible for deficiencies in fiscal years ending on April 30, 2003, and April 30, 2004, and that Highland was responsible for deficiencies for calendar years 2001 through 2003.

The Commissioner subsequently discovered the clerical error and, on December 8, 2011, sought leave from the Tax Court to file a motion to vacate the Tax Court's June 8, 2011 decisions.[2] According to the Commissioner, the Tax Court "ha[d] no jurisdiction" over the years purportedly covered by the decisions.[3] The Commissioner argued that our decision in Michaels v. Commissioner, 144 F.3d 495, 496-97 (7th Cir. 1998), authorized the Tax Court to "vacate or correct the Decision, notwithstanding that more than 90 days ha[d] passed since the Decision was entered, and that the Decision . . . otherwise ha[d] become final under section 7481."[4]

The Taxpayers did not object to the Tax Court correcting the errors; they did object, however, to the vacatur of the original decisions. The Taxpayers observed that, in Michaels, a case that also involved a clerical error in the decision, the Tax Court had not vacated the earlier decision, but simply had issued an order correcting the prior decision. "The error in the present case, " the Taxpayers urged, "is identical to the error in Michaels. Therefore, the most appropriate remedy in this case is to deny the motion to vacate but enter an order correcting the decision . . . ."[5]

On February 3, 2012, the Tax Court, "for the reasons set forth in [the Commissioner's] motion for leave, " vacated its June 8 decisions and entered new decisions correctly setting forth the respective deficiencies of Seven W and Highland.[6] The Taxpayers moved for the Tax Court to reconsider and to vacate this new decision. According to the Taxpayers, the Tax Court's original decisions, issued on June 8, 2011, had become final on September 6, 2011. Absent fraud on the court, they maintained, the Tax Court lacked the authority to vacate a decision that had become final.[7] The Tax Court denied the Taxpayers' motion without opinion on March 16, 2012, and the Taxpayers timely appealed.

II

ANALYSIS

In the present appeal, we are called upon to determine whether the Tax Court had the authority to grant the Commissioner's motion to vacate, which is a question of law that we review de novo. See ...


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