T.C. Memo. 2020-31



                       UNITED STATES TAX COURT



     MARK Y. LIU AND GINGER Y. BIAN, DECEASED, MARK Y. LIU,
                  SURVIVING SPOUSE, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 8667-16.                        Filed March 5, 2020.



      Mark Y. Liu, pro se.

      Christopher S. Kippes and John A. Schumann, for respondent.



           MEMORANDUM FINDINGS OF FACT AND OPINION


      KERRIGAN, Judge: In two notices of deficiency dated January 6, 2016,

respondent determined Federal income tax deficiencies of $29,156 and $26,751

and section 6663 penalties of $21,867 and $14,937 for 2012 and 2013 (years in
                                          -2-

[*2] issue), respectively. The issue before the Court is whether petitioners1 are

liable for the deficiencies.2

      Unless otherwise indicated, all section references are to the Internal

Revenue Code in effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to

the nearest dollar.

                                 FINDINGS OF FACT

      Some of the facts have been deemed stipulated under Rule 91(f) because

petitioners’ response to the motion made under that Rule was not fairly directed to

the proposed stipulation. See Rule 91(f)(3). The stipulated facts and attached

exhibits are incorporated in our findings by this reference. Petitioner husband

resided in Texas when he filed their petition.3


      1
       Petitioner wife was deceased when the petition was filed with this Court.
Her interest is represented by petitioner husband as surviving spouse.
      2
          Respondent conceded the sec. 6663 penalties for the years in issue.
      3
        Pursuant to sec. 6213(a), a petition for redetermination of a deficiency must
be filed with this Court within 90 days after the notice of deficiency is mailed to
the taxpayer. See also sec. 7502; Rule 34(a); sec. 301.7502-1(a), Proced. &
Admin. Regs. On September 21, 2017, the Court rendered an Oral Findings of
Fact and Opinion in which we addressed, among other things, the timeliness of
petitioners’ filing. We concluded that the record showed that the petition was
“treated as having been timely filed” in response to the notices of deficiency. Liu
                                                                        (continued...)
                                        -3-

[*3] During the years in issue petitioners each owned a 50% interest in LB

Education Corp., an S corporation, that operated Cypress Montessori School. On

Forms 1120S, U.S. Income Tax Return for an S Corporation, LB Education Corp.

reported ordinary income of $251,021 and $181,9774 for 2012 and 2013,

respectively.

      Petitioners timely filed joint Federal income tax returns for the years in

issue. They attached to their 2012 Federal income tax return Forms 1099-DIV,

Dividends and Distributions, from Cypress Montessori School which reported that

they received qualified dividends of $251,021. For 2013 petitioners attached to



      3
        (...continued)
v. Commissioner, T.C. Dkt. No. 8667-16 (Sept. 21, 2017) (bench opinion); see
Sylvan v. Commissioner, 

, 551-554 (1975). Respondent does not
dispute our jurisdiction.
       The petition in this case was due to be filed on or before April 5, 2016, but
it was not received and filed by the Court until April 13, 2016. Given the lapse of
time between the due date and the filing date, respondent apparently proceeded as
though a petition had not been filed in response to either notice of deficiency, and
assessments were made on the basis of the determinations in each notice. See
sec. 6213(c). Those assessments resulted in the collection actions petitioners
complain about in this proceeding, filed pursuant to sec. 6213(a), not sec. 6330(d),
for redeterminations of deficiencies. Ultimately, respondent reversed the
collection actions.
      4
        Exhibits in the record show this amount as $181,978. This discrepancy is
unimportant to our analysis. Respondent received third-party information returns
for the years in issue from LB Education Corp. Cypress Montessori School and
LB Education Corp. had the same employer identification number.
                                       -4-

[*4] their joint Federal income tax return Schedules K-1, Shareholder’s Share of

Current Year Income, Deductions, Credits, and Other Items, from LB Education

Corp. and Forms 1099-DIV from Cypress Montessori School, both of which

reported that they received $181,978 as qualified dividends. Petitioners reported

these amounts on Forms 8949, Sales and Other Dispositions of Capital Assets.

      Respondent examined petitioners’ Federal income tax returns for the years

in issue. Respondent’s wage and income transcripts show that petitioners received

ordinary income rather than qualified dividends from LB Education Corp. In the

notices of deficiency respondent determined that petitioners overstated qualified

dividend income by $251,021 and $181,978 for 2012 and 2013, respectively. On

Schedules E, Supplemental Income and Loss, respondent increased ordinary

income received from an S corporation by $251,021 and $181,978 for 2012 and

2013, respectively.

      On June 23, 2018, petitioners paid respondent $55,907. Respondent applied

the payment against petitioners’ outstanding deficiencies on June 29, 2018.

Respondent’s account transcripts, dated December 3, 2019, do not reflect any

assessments of unpaid tax or any assessed or accrued interest amounts.

      On September 26, 2016, respondent filed a notice of Federal tax lien

(NFTL) with the Harris County clerk in Houston, Texas, for unpaid assessments of
                                         -5-

[*5] petitioners’ 2012 and 2013 income tax. On December 7, 2018, respondent

filed a certificate of release of Federal tax lien. On July 12, 2019, respondent filed

a subsequent certificate of release of Federal tax lien pursuant to section 6326 in

order to clarify that the NFTL had been filed erroneously.

                                     OPINION

      Generally, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer bears the burden of proving those

determinations erroneous. Rule 142(a); Welch v. Helvering, 

, 115

(1933). Under section 7491(a) in certain circumstances the burden of proof may

shift from the taxpayer to the Commissioner. Petitioners have neither shown nor

claimed that they meet the requirements of section 7491(a) to shift the burden of

proof to respondent as to any relevant factual issue. Accordingly, the burden of

proof remains with petitioners.

      Generally, an S corporation is not subject to Federal income tax at the entity

level. Sec. 1363(a); see also Taproot Admin. Servs., Inc. v. Commissioner, 

, 204 (2009), aff’d, 

(9th Cir. 2012). S corporation items of

income, gain, loss, deduction, and credit flow through to the S corporation

shareholders who report their pro rata shares of such items on their respective

returns. See sec. 1366(a). The character of an S corporation item allocated to a
                                        -6-

[*6] shareholder is determined as if the item were realized directly by the

shareholder. Sec. 1366(b).

      Respondent received Schedules K-1 from LB Education Corp., which

reported that petitioners’ distributive shares of the operating income were ordinary

income for the years in issue. However, on their Federal income tax returns

petitioners reported their distributive shares as qualified dividend income from LB

Education Corp. Qualified dividend income includes dividends received from a

domestic corporation and is taxed as net capital gain. Sec. 1(h)(11)(B)(i)(I).

      Petitioners received their pro rata shares of income from LB Education

Corp., an S corporation. On Forms 1120S LB Education Corp. reported ordinary

income of $251,021 and $181,977 for 2012 and 2013, respectively. We find that

petitioners received ordinary income of $251,021 and $181,978 for 2012 and

2013, respectively. On June 23, 2018, petitioners paid the total deficiency

amounts respondent determined, and that payment has been applied to petitioners’

account.

      Petitioners contend that they should not have to pay interest on the

deficiency amounts because the Internal Revenue Service erroneously filed an

NFTL. The Tax Court is a court of limited jurisdiction, and we may exercise our

jurisdiction only to the extent authorized by Congress. See sec. 7442; Naftel v.
                                         -7-

[*7] Commissioner, 

, 529 (1985). The Court’s jurisdiction under

sections 6320 and 6330 depends upon the issuance of a valid notice of

determination and the filing of a timely petition for review of the notice of

determination. Secs. 6320(c), 6330(d)(1); see also Orum v. Commissioner, 

, 8 (2004), aff’d, 

(7th Cir. 2005); Sarrell v. Commissioner, 

, 125 (2001). In the absence of a notice of determination and a timely

filed petition, this Court lacks jurisdiction over issues arising under sections 6320

and 6330. Offiler v. Commissioner, 

, 498 (2000). Furthermore,

respondent filed a certificate of release of Federal tax lien.

      In deficiency proceedings, such as this case, our jurisdiction does not extend

to interest imposed by section 6601. Lincir v. Commissioner, 

, 298

(2000), aff’d, 32 F. App’x 278 (9th Cir. 2002). However, in limited circumstances

this Court does have jurisdiction to redetermine interest.

      Pursuant to section 7481(c)(1) and (2) we have jurisdiction to redetermine

an overpayment of interest when certain requirements are met, including an

assessment made by the Commissioner under section 6215 which includes interest.

Interest has not yet been assessed in this case. Therefore, we do not have

jurisdiction pursuant to section 7481(c).
                                        -8-

[*8] We have considered all other arguments made and facts presented in

reaching our decision, and to the extent not discussed above, we conclude that

they are moot, irrelevant, or without merit.

      To reflect the foregoing,


                                               Decision will be entered for

                                       respondent with respect to the deficiencies

                                       and for petitioners with respect to the

                                       section 6663 penalties.