Citing Kent Homes, Inc. v. Commissioner, 455 F.2d 316">455 F.2d 316 (10th Cir. 1972), revg. 55 T.C. 820">55 T.C. 820 (1971), G-B, Inc. v. United States, 302 F. Supp. 851">302 F. Supp. 851 (D. Colo. 1969), affd. per curiam 422 F.2d 1035">422 F.2d 1035 (10th Cir. 1970), and the dissenting opinion of Judge Skelton in Birchenough v. United States, 410 F.2d 1247">410 F.2d at 1252, the petitioners argue that payment of tax induced by a deficiency notice is not the kind of payment contemplated by section 1312(3)(A). However, both 455 F.2d 316">Kent Homes, Inc., supra at 318 n. 4, and 302 F. Supp. 851">G-B, Inc., supra at 853-854, recognized that payment of a deficiency followed by a refund suit in the district court is the kind of situation contemplated by section 1312(3)(A), and the majority in1978 U.S. Tax Ct. LEXIS 105">*120 Birchenough reached a similar conclusion with respect to payment of a deficiency followed by an action in the Court of Claims. 410 F.2d at 1251-1252. In addition, the regulations expressly adopt such position (sec. 1.1312-3(a)(2) example (1)(ii), Income Tax Regs.), and there are numerous cases in which payment of the deficiency followed by a refund suit has constituted a sufficient payment of tax to qualify under section 1312(3)(A). E.g., Karpe v. United States, 335 F.2d 454">335 F.2d 454, 335 F.2d 454">455-457 (Ct. Cl. 1964), cert. denied 379 U.S. 964">379 U.S. 964 (1965); 39 T.C. 170">Yagoda v. Commissioner, supra; Cory v. Commissioner, 29 T.C. 903">29 T.C. 903 (1958), 70 T.C. 415">*422 affd. 261 F.2d 702">261 F.2d 702 (2d Cir. 1958), cert. denied 359 U.S. 966">359 U.S. 966 (1959). Accordingly, the petitioners' argument is rejected.

Section 1311(b) provides in part:

(b) Conditions Necessary for Adjustment. --

(1) Maintenance of an inconsistent position. -- Except in cases described in paragraphs (3)(B) and (4) of section 1312, an adjustment shall be made under this part 1978 U.S. Tax Ct. LEXIS 105">*121 only if --

When the provisions now contained in sections 1311 through 1314 were enacted, the Senate Finance Committee report stated:

This section of the bill provides an equitable solution of certain classes of income-tax problems, now very numerous, which have caused much hardship to taxpayers and great difficulty to the Commissioner, the Board of Tax Appeals, and the courts. * * *

* * * *

In each case, under existing law, an unfair benefit would have been obtained by assuming an inconsistent position and then taking shelter behind the protective barrier of the statute of limitations. Such resort to the statute of limitations is a plain misuse of its fundamental purpose. The purpose of the statute of limitations to prevent the litigation of stale claims is fully recognized and approved. But it was never intended to sanction active exploitation, by the beneficiary of the statutory bar, of opportunities only open to him if he assumes a position diametrically opposed to that taken prior to the running of the statute. * * * [S. Rept. 1567, 75th Cong., 3d Sess. (1938), 1939-1 C.B. (Part 2) 779, 814-815; emphasis supplied.]

The facts of this case present the classic1978 U.S. Tax Ct. LEXIS 105">*123 situation for 70 T.C. 415">*423 application of the mitigation provisions. The Kappels did not report certain annuity income in either 1954 or 1955. In good faith, the Commissioner sought to tax such unreported income in 1955. Even though the Kappels had not included the item in their 1954 income, they contended in the district court that such item was not income in 1955 because it was income in 1954. In Kappel v. United States, 369 F. Supp. 267">369 F. Supp. at 276, the district court agreed with the Kappels, holding that the item was not income in 1955 because it was income in 1954, and that it "should have been included in the plaintiff's 1954 income tax return." In the light of such circumstances, there can be no reasonable dispute over the fact that the Kappels have maintained a position which was inconsistent with their erroneous treatment of the annuity income in another taxable year, and that such position was adopted in the determination. 410 F.2d 1247">Birchenough v. United States, supra; 335 F.2d 454">Karpe v. United States, supra; 66 T.C. 496">Chertkof v. Commissioner, supra.

Yet, the petitioners argue that they have 1978 U.S. Tax Ct. LEXIS 105">*124 consistently maintained that the annuity income was taxable in 1954, and not 1955, and that the Commissioner is being inconsistent since he first argued it was income in 1955 and now argues it is income in 1954. In the first place, it is clear that the Commissioner's argument, if made in good faith and if internally consistent, is irrelevant where it is not adopted in the determination and the adjustment under section 1311 is a claim for a deficiency. Sec. 1311(b)(1); secs. 1.1311(a)-1(b), 1.1311(b)-1(c)(1), Income Tax Regs.; Birchenough v. United States, 410 F.2d 1247">410 F.2d at 1251. In the second place, the petitioners misconstrue the requirement of section 1311(b)(1): The test is not whether the position maintained by them in the district court proceeding is consistent with the position maintained by them in this case; the test is whether the position maintained by them with respect to the open year is inconsistent with their treatment of the item in the closed year. In both the district court and here, the petitioners have been consistent in their argument, but what is important is that their argument is not consistent with their treatment of the annuity income1978 U.S. Tax Ct. LEXIS 105">*125 in 1954.

In support of their argument, the petitioners cite 302 F. Supp. 851">G-B, Inc. v. United States, supra, and 455 F.2d 316">Kent Homes, Inc. v. Commissioner, supra, but neither case supports their position. In G-B, Inc., the taxpayer treated certain transactions which occurred in 1959 as 70 T.C. 415">*424 nontaxable under section 351. The IRS, on the other hand, contended that the transactions did not meet the requirements of such section and issued a deficiency notice for 1960. The taxpayer paid the deficiency and brought suit in the district court for a refund. In such action, the taxpayer's primary position was that the transactions in 1959 met the requirements of section 351. In the alternative, it argued that if section 351 did not apply, any gain was realized in 1959. The taxpayer moved for summary judgment, and such motion, which was unopposed by the Government, was granted without the district court setting forth the basis for its action.

Subsequently, relying upon sections 1311 through 1314 to mitigate the statute of limitations, the Commissioner determined a deficiency for 1959. Again, the taxpayer paid the deficiency and filed suit1978 U.S. Tax Ct. LEXIS 105">*126 in the district court. The district court held that it had not adopted in its earlier decision an inconsistent position maintained by the taxpayer. The district court's decision was affirmed by the Tenth Circuit. 422 F.2d 1035">422 F.2d 1035 (1970). The courts treated the taxpayer's presentation of its alternative argument as merely calling those facts to the attention of the court in the first case, and clearly, if section 351 applied, the taxpayer's treatment of the transactions in 1959 was correct. Moreover, because the taxpayer maintained alternative positions in the first case, the courts refused to find that the first decision was based on an adoption of a position which was maintained by the taxpayer and which was inconsistent with the taxpayer's treatment of the transactions. No similar factual situation exists in the case now before us, and there is no uncertainty over the fact that the district court adopted a position which was maintained by the Kappels and which was inconsistent with their treatment of the annuity income in 1954. See Commissioner v. Goldstein's Estate, 340 F.2d 24">340 F.2d 24 (3d Cir. 1965), affg. a Memorandum Opinion1978 U.S. Tax Ct. LEXIS 105">*127 of this Court; Estate of SoRelle v. Commissioner, 31 T.C. 272">31 T.C. 272 (1958).

In Kent Homes, the Commissioner determined a gain was realized in 1958 and issued a notice of deficiency for such year. The taxpayer, who contended that the gain was not realized until 1963, paid the deficiency and filed for refund in the district court. In Kent Homes, Inc. v. United States, 279 F. Supp. 650">279 F. Supp. 650 (D. Kan. 1967), the district court held that the gain was not realized in 1958 because it was realized in 1959. Relying on sections 1311 70 T.C. 415">*425 through 1314, the Commissioner then issued a deficiency notice for 1959. The taxpayer filed a petition with this Court and argued that the statute of limitations was not mitigated because the district court had not adopted a position maintained by it. The Tax Court held that the district court did adopt a position maintained by the petitioner. 55 T.C. 820">55 T.C. 831-834. In reversing the Tax Court, the Tenth Circuit held that under these facts, the district court had not adopted a position maintained by the taxpayer. 455 F.2d 316">455 F.2d at 319. However, the 1978 U.S. Tax Ct. LEXIS 105">*128 Tenth Circuit did not disagree with the Tax Court's formulation of the legal principles; it only held that as a factual matter, the district court did not adopt a position maintained by the petitioner. See Chertkof v. Commissioner66 T.C. 496">66 T.C. 503-509. Here, it is clear that the district court adopted the petitioners' position that the annuity income was not income in 1955 because it was income in 1954.

Next, the petitioners contend that since the Commissioner has the burden of proving that sections 1311 through 1314 are applicable, he must produce the Kappels' 1954 tax return or reproduce it by secondary evidence, and that the Commissioner has failed to carry such burden because the only evidence submitted by him on this point is unauthenticated and inadmissible hearsay. The Commissioner, on the other hand, does not dispute that he bears the burden of proof with respect to the applicability of sections 1311 through 1314; he merely argues that such burden does not include proving the contents of the Kappels' 1954 tax return and that, in fact, the petitioners have the burden of disproving the deficiency determined by him.

Section 1311(a) provides:

(a) 1978 U.S. Tax Ct. LEXIS 105">*129 General Rule. -- If a determination (as defined in section 1313) is described in one or more of the paragraphs of section 1312 and, on the date of the determination, correction of the effect of the error referred to in the applicable paragraph of section 1312 is prevented by the operation of any law or rule of law, other than this part and other than section 7122 (relating to compromises), then the effect of the error shall be corrected by an adjustment made in the amount and in the manner specified in section 1314.

Section 1314(a) explains how the adjustment is to be computed. ⁵70 T.C. 415">*426 Section 1314(b) states the procedures to be used in assessing and collecting any increase in tax resulting from the adjustment as follows:

(b) Method of Adjustment. -- The adjustment authorized in section 1311(a) shall be made by assessing and collecting * * * the amount thereof in the same manner as if it were a deficiency determined by the Secretary with respect to the taxpayer as to whom the error was made * * * for the taxable year or years with respect to which an amount is ascertained under subsection (a), and as if on the date of the determination one year remained before the expiration1978 U.S. Tax Ct. LEXIS 105">*130 of the periods of limitation upon assessment or filing claim for refund for such taxable year or years. * * *

When these sections are read together, it is clear that the adjustment under section 1314 is a matter of mathematical computation to be done in the manner specified therein, and not a condition precedent to applying the mitigation provisions. The "if" clause of section 1311 (a) clearly sets forth the conditions precedent to invoking the mitigation provisions, and the "then" clause of section 1311(a) indicates that once those conditions are met, an adjustment under section 1314 is to be made.

1978 U.S. Tax Ct. LEXIS 105">*131 In addition, section 1314(b) expressly states that the adjustment is to be treated as a deficiency. When the predecessor of such provision was enacted, the legislative history makes clear that Congress intended to incorporate all of the rules and procedures generally applicable to deficiency determinations. The Senate Finance Committee report stated:

* * * [Sec. 1314(b)] prescribes the method of adjustment. If the amount of the adjustment * * * represents an increase in tax, it is to be considered as a deficiency for the taxable year with respect to which the error was made * * *. The amount of the adjustment considered as a deficiency * * * will bear interest to the extent provided by the internal-revenue laws for deficiencies * * * for the taxable year with respect to which the error was made. Likewise if the amount of the adjustment represents an increase in tax, any appropriate additions to the tax are also to be assessed and collected. By considering the amount of the adjustment as a deficiency * * * [sec. 1314(b)] permits the utilization of the procedural devices applicable to assessment, collection, refunding, etc., of deficiencies * * * [S. Rept. 1567, 75th Cong., 3d1978 U.S. Tax Ct. LEXIS 105">*132 Sess. (1938), 1939-1 C.B. (Part 2) 779, 817.]

70 T.C. 415">*427 Similarly, the Conference Committee report stated:

If the recomputation results in an increase over the tax previously determined, such increase is considered as a deficiency determined by the Commissioner and may be assessed and collected under the established procedure for the assessment and collection of deficiencies. The taxpayer may contest the deficiency before the Board or if he chooses may pay the deficiency and later file suit for refund. * * * [Conf. Rept. 2330, 75th Cong., 3d Sess. (1938), 1939-1 C.B. (Part 2) 817, 836.]

Thus, an analysis of the statutory provisions and a review of the legislative history both indicate that once the Commissioner has proved that the mitigation provisions of sections 1311 through 1314 are applicable, a deficiency determined by him under section 1314 is to be treated in the same manner as any other such deficiency, including the rule that the petitioner has the burden of disproving it. Rule 142(a), Tax Court Rules of Practice and Procedure; Welch v. Helvering, 290 U.S. 111">290 U.S. 111 (1933).

Moreover, such1978 U.S. Tax Ct. LEXIS 105">*133 conclusion is consistent with the established law in other similar situations. For example, when the Commissioner is required to and does prove fraud to avoid the applicability of the statute of limitations, the petitioner then has the burden of disproving any deficiency determined by the Commissioner. See Bryan v. Commissioner, 209 F.2d 822">209 F.2d 822 (5th Cir. 1954), affg. a Memorandum Opinion of this Court, cert. denied 348 U.S. 912">348 U.S. 912 (1955); Harris v. Commissioner, 174 F.2d 70">174 F.2d 70 (4th Cir. 1949), affg. per curiam a Memorandum Opinion of this Court; see also Birchenough v. Commissioner, 410 F.2d at 1249-1250; Karpe v. United States, 335 F.2d 454">335 F.2d at 458-459; Yagoda v. Commissioner, 39 T.C. 170">39 T.C. 179-180; Chertkof v. Commissioner, 66 T.C. 496">66 T.C. 499.

The petitioners rely upon Granquist v. Harvey, 258 F.2d 599">258 F.2d 599 (9th Cir. 1958), and Corson v. Commissioner, T.C. Memo. 1965-214, affd. per curiam 369 F.2d 367">369 F.2d 367 (3d Cir. 1966),1978 U.S. Tax Ct. LEXIS 105">*134 as authority for their argument. However, Granquist v. Harvey merely stands for the proposition that the Commissioner must produce the taxpayer's return or prove its contents by secondary evidence where the issue is whether the taxpayer filed a fraudulent return. Similarly, Corson v. Commissioner held that the Commissioner did not satisfy his burden of proving fraud by clear and convincing evidence when he relied on a revenue agent's report which was only admitted in evidence for the limited purpose of showing how the deficiency was computed. In both cases, the 70 T.C. 415">*428 burden of proving fraud was on the Commissioner and proof of the contents of the tax return was necessary for him to carry that burden. Clearly, these cases have no applicability here because there is no issue of fraud and the petitioners have the burden of proof once the Commissioner has established that the mitigation provisions apply. In conclusion, we hold that the Commissioner has carried his burden of proving that sections 1311 through 1314 are applicable, that the petitioners have the burden of disproving the deficiency determined by him, and that since they offered no evidence to refute the deficiency, 1978 U.S. Tax Ct. LEXIS 105">*135 they have failed to carry their burden. ⁶

The petitioners' final argument is that the deficiency in this case is barred by rule 13(a) of the Federal Rules of Civil Procedure, which provides:

(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of1978 U.S. Tax Ct. LEXIS 105">*136 whom the court cannot acquire jurisdiction. * * *

According to the petitioners, the deficiency should have been asserted in the district court proceeding as a compulsory counterclaim, and since the Government failed to do so, the claim is forever barred. Such argument is without merit.

A necessary condition to invoking the mitigation provisions is that there be a determination. A "determination" is defined by section 1313(a) to include a decision of a court of competent jurisdiction which has become final. Sec. 1313(a)(1); see secs. 1311(a), 1312(3)(A); secs. 1.1311(a) 1, 1.1313(a)-1(a), Income Tax Regs. The rationale behind such requirement is that it cannot be ascertained whether a party successfully maintained an inconsistent position until there is a determination which adopted such inconsistent position. As stated by the Senate Finance Committee report:

Inasmuch as an adjustment should not be made until the inconsistent position asserted by the taxpayer or the Commissioner has been successfully 70 T.C. 415">*429 maintained, * * * [section 1311] is not operative until there is a final "determination" which gives authoritative sanction to the inconsistent action. * * * [Section1978 U.S. Tax Ct. LEXIS 105">*137 1313] describes the types of determinations which are prerequisite to the operation of this section. [S. Rept. 1567, 1939-1 C.B. (Part 2) at 815.]

Similarly, the Conference Committee report stated:

* * * [These sections provide] for mitigation of some of the inequities under the income-tax laws caused by the statute of limitation and other provisions which now prevent equitable adjustment of various income-tax hardships. * * *

The * * * amendment would work as follows: It becomes operative if (1) after the effective date of this Act, there is a final "determination" under the income-tax laws which gives authoritative sanction to the inconsistent position presently maintained by the taxpayer or the Commissioner and indicates that the previous treatment of the item was erroneous under the applicable provisions of the internal-revenue laws; and (2) correction of the effect of such error is prevented by the operation of one or more provisions of the internal-revenue laws * * *

The types of final determinations prerequisite to the operation of the amendment are described in * * * [sec. 1313(a)]. * * * [Conf. Rept. 2330, 1939-1 C.B. (part 2) at 835.]1978 U.S. Tax Ct. LEXIS 105">*138

The petitioners have referred to no authority supporting their position, and we have found none. Moreover, when the Government filed its answer in the district court proceeding, it had no grounds for filing a counterclaim for a deficiency for 1954. At that time, no one knew what decision the district court would reach with respect to whether the annuity income was taxable to the Kappels in 1955, and until the district court reached a final decision on that issue, there could be no determination adopting their position with respect to 1955. Without such a determination, the Government had no basis for claiming a deficiency with respect to 1954. In addition, even when the district court's decision for 1955 did become final, the Commissioner was required to issue a notice of deficiency so as to give the taxpayer an opportunity to litigate the matter in the Tax Court, and the Commissioner could not assess a deficiency before the expiration of the time for filing a petition in this Court. Consequently, it is altogether clear that the Government could not have counterclaimed for a deficiency with respect to 1954 and that its failure to do so is no bar in these proceedings.

Decision1978 U.S. Tax Ct. LEXIS 105">*139 will be entered for the respondent.