The opinion of the court was delivered by: SOTOMAYOR
Plaintiffs Alfred Toker and Annette Toker seek tax refunds, from the defendant Internal Revenue Service, for the years 1982, 1983, and 1984. According to the allegations set forth in their Complaint, the IRS mistakenly disallowed certain deductions, claimed by the Tokers for each of those years, in connection with the couple's partnership interest in "Term Associates Partnership." The Tokers contend that they paid the IRS for these years under protest, and upon the specific understanding that their money would be refunded in the event of a subsequent Tax Court determination that the deductions were proper. Relying upon a recent series of Tax Court decisions which have reached this very result, the Tokers filed the present action claiming that they are entitled to the return of those sums which they overpaid at the insistence of the IRS.
The IRS seeks summary judgment on several grounds, including lack of subject matter jurisdiction and waiver. For the reasons to be discussed, the Court agrees with the IRS that the Tokers are bound both by a decision already rendered against them by the Tax Court for tax year 1982, and by their own assent to a "final settlement" as to tax years 1983 and 1984. Accordingly, defendant's motion is granted.
On April 17, 1986 the Tokers received an IRS notice disallowing 1982 tax year deductions for losses that they had claimed in connection with their investments in Term Associates Partnership ("Term Associates"), a car leasing partnership based in New York. (See Pl.'s Nov. 7, 1996 Mem. of Law in Sup. of Pl.'s Cross-Mot. for Summ. J. at 5.) Seeking a redetermination as to this alleged deficiency, the Tokers filed a petition, in May 1986, with the United States Tax Court. (See Def.'s Sept. 18, 1996 Mot. for Dis. of the Compl. at Ex. B.) On April 18, 1988, pursuant to a stipulation between the Tokers and the IRS, the Tax Court entered a decision finding "a deficiency in income tax due from the petitioners in the amount of $ 24,126.00." (See id. at Ex. C.) On June 20, 1988, the Tokers paid $ 41,650.00, the deficiency plus interest, for their 1982 taxable year. (See Pl.'s Nov. 6, 1996 Aff. at Ex. 3.)
Alfred Toker maintains that he entered into an agreement with the IRS providing that "if there was a later administrative or judicial determination that Term Associates deductions were correct as originally reported, taxpayers would be entitled to recovery of all sums remitted." (Pl.'s Nov. 7 Mem. of Law in Sup. of Pl.'s Cross-Mot. for Summ. J. at 5.) This purported agreement does not appear in the decision rendered by the Tax Court, though there is a section of the decision reserved for stipulations. (See Def.'s Sept. 18, 1996 Mot. for Dis. of the Compl. at Ex. C.) The only written suggestion of the alleged agreement is a notation of "PAID UNDER PROTEST" written on Alfred Toker's June 20, 1988 check to the IRS satisfying the Tax Court's judgment against him. (See Pl.'s Nov. 6, 1996 Aff. at Ex. 3.)
II. The 1983 and 1984 Tax Years
In contrast to tax year 1982, the Tokers did not resort to the Tax Court to resolve their disputes with the IRS pertaining to the deductions for tax years 1983 and 1984. When the IRS disallowed the Tokers' 1983 and 1984 deductions related to Term Associates, the Tokers filed revised tax forms for those years, and paid the amounts requested by the IRS. In a September 2, 1988 cover letter accompanying the amended tax forms, Alfred Toker wrote that he made "these payments under protest with the right to recover same or part depending on a final ruling administratively or if necessary judicially." (See Def.'s Sept. 18, 1996 Mot. for Dis. of the Compl. at Ex. E.) Mr. Toker further indicated that he had been advised by the IRS that such a reservation of rights was appropriate. Id.
By February 1990, the IRS had made its final administrative ruling, and the agency sent the Tokers two "Notice[s] of Final Partnership Administrative Adjustment" for tax years 1983 and 1984, respectively. (See Def.'s Sept. 18, 1996 Mot. for Dis. of the Compl. at Ex. F.) These notices provide as follows:
IF YOU WANT TO ENTER INTO A BINDING SETTLEMENT TO TREAT PARTNERSHIP ITEMS CONSISTENTLY WITH THE TREATMENT OF THE ITEMS ON THE PARTNERSHIP RETURN AS MODIFIED BY THE FPAA, SIGN AND RETURN THE ENCLOSED FORM 870-P. THE SIGNING AND RETURNING OF THE FORM 870-P CONSTITUTES A SETTLEMENT OFFER BY YOU. IF THE COMMISSIONER ACCEPTS YOUR OFFER OF SETTLEMENT, THE TREATMENT OF THE PARTNERSHIP ITEMS UNDER THE SETTLEMENT WILL BE BINDING AND WILL NOT BE AFFECTED BY ANY LATER JUDICIAL DETERMINATION.
(Id.) These notices were accompanied by the above-referenced Forms 870-P, which provided:
UNDER THE PROVISIONS OF SECTION 6224(c) OF THE INTERNAL REVENUE CODE, THE UNDERSIGNED OFFERS TO ENTER INTO AN AGREEMENT WITH RESPECT TO THE DETERMINATION OF PARTNERSHIP ITEMS OF THE PARTNERSHIP FOR THE YEAR SHOWN ON THE ATTACHED SCHEDULE OF ADJUSTMENTS.
IF THIS OFFER IS ACCEPTED FOR THE COMMISSIONER, THE TREATMENT OF THE PARTNERSHIP ITEMS UNDER THIS AGREEMENT WILL NOT BE REOPENED IN THE ABSENCE OF FRAUD, MALFEASANCE, OR MISREPRESENTATION OF FACT; AND NO CLAIM FOR REFUND OR CREDIT BASED ON ANY CHANGE ...