Commissioner introduces no new theory, would the majority remedy the Commissioner's violation of section 7522 by placing the burden of proof upon him?2

The majority, however, has convinced itself that a reasonable method for enforcing the requirement of section 7522 is to allocate the burden of proof to the Commissioner with regard to any new theory that both (1) was not stated or described in the notice of deficiency and (2) requires the presentation of different evidence. Majority op. pp. 196, 197. I do not understand the cumulative aspect of such a test. Clearly, any new theory that requires the presentation of different evidence, thus satisfying the second prong, could not have been stated or described in the notice and, thus, will always satisfy the first prong. Adding the first prong, however, is a rhetorical device that serves only to import the section 7522 requirement into the new matter inquiry. The majority merely couples one of our traditional disjunctive alternatives, which has been explicitly adopted by the Ninth Circuit, to a restatement of the section 7522 requirement, to opine on what is a proper means of enforcement for section 7522. Such holding is both unnecessary and inappropriate on the facts before us.

Looking Beyond the Notice of Deficiency

My second concern with the majority's analysis is its suggestion that there may be a case in which the Commissioner's intent in drafting the notice of deficiency will determine whether a new theory is new matter under either the inconsistency or different evidence alternatives. The majority states: "Respondent failed to offer any evidence that indicated that respondent considered the application of community property law or section 66(b) in making his deter

2 In that vein, consider Judge Beghe's concern:

that a vaguely broad notice that does no more than state an intention to assess a deficiency in a specified amount is not just a valid notice. It's an empty bottle that can be filled and made specific with any theory and won't thereby be considered an inconsistent theory or as requiring different evidence so as to justify the shifting of the burden of proof to the Commissioner. Beghe, J., concurring p. 208. Witness the case at bar, where the majority has found that, under the different evidence alternative, respondent raised new matter relative to his vaguely broad notice by trying, with consent, the sec. 66(b) issue. It seems a sufficient and appropriate response to Judge Beghe's concern to say that, if a new theory is both not inconsistent with a notice of deficiency and does not require different evidence, petitioner has not been prejudiced by such new theory. Therefore, notwithstanding that the notice may be an "empty bottle", there is no harm requiring redress.

mination." Majority op. p. 192. The majority then finds: "[R]espondent gave no thought to community property law or section 66(b) when the notice of deficiency was prepared." Id. at 17. That finding, the majority continues, "supports our conclusion that section 66(b) was not implicit in the notice of deficiency." Id. at 10. Although the majority makes obeisance to the determining force of the notice's language ("The objective language in the notice of deficiency remains the controlling factor." Id.), the fact that the majority finds "support" in respondent's failure to consider section 66(b) suggests that intent has some role in determining whether a new theory is a new matter. If intent plays some role, then there is the possibility that, in a close case, intent (or lack thereof) could tip the balance. I disagree, and think that the majority should make it clear that there is no connection between the Commissioner's intent and whether a new theory is implicit in a notice of deficiency.

Consider two taxpayers, each with unreported income, each married and filing separately, and each residing in a community property jurisdiction. Each receives an identical notice determining a deficiency in income tax on account of the omission of $100 in gross income. The notices do not mention section 66(b). Each taxpayer concedes receipt of the $100 and its taxable nature. Each pleads, nevertheless, that, as the receipt was community property, he is taxable only on one-half. In one case, in determining the deficiency, it was the Commissioner's intention (unexpressed in the notice) to disallow the benefits of community property under section 66(b). In the second case, the Commissioner was unaware that the receipt was community property. He becomes aware only after his right to amend the answer without leave of Court has expired. See Rule 41(a). The Commissioner's awareness may be a factor in determining whether, under Rule 41(a), the Court should give leave to amend the answer to incorporate the new theory. Assuming leave to amend is given, the question of whether the new theory constitutes new matter under Rule 142(a) involves different considerations, viz, whether the new theory is inconsistent with the notice or requires different evidence. Simply stated, it would violate principles of horizontal equity to place the burden of proof on the taxpayer in the first case and on the Commis

sioner in the second case, when both taxpayers have identical tax attributes and received identical notices.

Conclusion

I fail to see what the majority's analysis adds to the jurisprudence of this Court, when attention to Golsen v. Commissioner, supra, would allow us to dispose of this issue without discussing section 7522 or respondent's intent. The Court is always free to place the burden of proof on respondent pursuant to the first sentence of Rule 142(a), which provides: "The burden of proof shall be upon the petitioner, except as otherwise * * * determined by the Court".3 Placing the burden on respondent because section 7522 makes something “new matter", which otherwise is not, obfuscates not only our interpretation of the Ninth Circuit's jurisprudence, but our own jurisprudence as well. For the foregoing reasons, I respectfully concur in the result.

CHABOT, WHALEN, and CHIECHI, JJ., agree with this concurring in the result opinion.

BEGHE, J., concurring: More than 4 years ago Judge Raum made the suggestion that bears fruit today, that section 7522(a) provides a justification for shifting the burden of proof to respondent as a sanction for vague notices of deficiency. See Ludwig v. Commissioner, T.C. Memo. 1994-518. I write on to respond to some of the objections to the majority opinion expressed in Judge Halpern's concurrence. Judge Halpern's normative explication of the disjunctive tests for new matter-inconsistency and different evidenceis impeccable so far as it goes. But he pays inadequate attention to another strand in the Tax Court's jurisprudence on this subject, exemplified by Sorin v. Commissioner, 29 T.C. 959 (1958), affd. per curiam 271 F.2d 741 (2d Cir. 1959), that the Court of Appeals for the Ninth Circuit relied upon, along with Judge Learned Hand's opinion in Olsen v. Helvering, 88 F.2d 650, 651 (2d Cir. 1937), to reverse us for our shifting of the burden of proof in Abatti v. Commissioner, 644 F.2d 1385 (9th Cir. 1981), revg. T.C. Memo. 1978-392. That

3 That portion of the Rule would support the result that Judge Beghe would accomplish, and satisfy his pragmatic concern, without doing violence to the term "new matter".

strand is to the effect that a vaguely broad notice that does no more than state an intention to assess a deficiency in a specified amount is not just a valid notice. It's an empty bottle that can be filled and made specific with any theory and won't thereby be considered an inconsistent theory or as requiring different evidence so as to justify the shifting of the burden of proof to the Commissioner.

Our jurisprudence and that of the Ninth Circuit is sufficiently murky on this issue to justify using section 7522(a) to clarify the situation and set ourselves and our litigants on the right path for the future.

In so using section 7522(a), I frankly am impelled by pragmatic considerations. Commentators have suggested that the present situation is unsatisfactory because it encourages— even rewards-vagueness and imprecision in the Commissioner's deficiency notices and discourages the specificity that tells taxpayers the points they must put in issue in their petitions and prove at trial. It's appropriate to use section 7522(a) as the device for repudiating the line of cases represented by Sorin v. Commissioner, supra.

There's a theoretical as well as a pragmatic justification for so using section 7522(a) that answers the questions posed in Judge Halpern's concurrence, pp. 204-205. Judge Halpern follows up the general question-Just what is section 7522(a) supposed to accomplish?-by asking what justifies our decision to sanction a vague notice by shifting the burden of proof when the Commissioner's theory is finally put forth, as opposed to applying some other sanction, such as extending the period of limitations or awarding attorney's fees. The answer, I submit, is that shifting the burden on the ground that the theory, once stated by the Commissioner, constitutes "new matter" is an appropriate, proportionate, and specifically directed response to the vagueness and inadequacy of the notice in failing to set forth any matter other than to express the intent to assess a specified amount of a particular tax.

Section 7522(a) was a signal from Congress that vague notices would thenceforth be disfavored. Shifting the burden of proof to the Commissioner under section 7522(a) is an appropriate way to implement the not-too-clearly expressed intent of Congress. In this regard, the "imaginative reconstruction" applied by Judge Learned Hand in other con

texts, see, e.g., Lehigh Valley Coal Co. v. Yensavage, 218 F. 547, 553 (2d Cir. 1914) (“Such statutes are partial * * * * they should be construed, not as theorems of Euclid, but with some imagination of the purposes which lie behind them."), and espoused by Judge Posner, as well as by our own Judge Raum, points the direction in which we and the Courts of Appeals should go. See Posner, "Statutory Interpretation-in the Classroom and in the Courtroom", 50 U. Chi. L. Rev. 800, 817 (1983).

WILLIAM T. GLADDEN AND NICOLE L. GLADDEN, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 16932-97.

Filed April 15, 1999.

On cross-motions for partial summary judgment, held, partnership water rights constitute capital assets. Held, further, no portion of partnership's tax basis in land the partnership acquired in 1976 is to be allocated to the water rights the partnership acquired in 1983 and relinquished in 1992.

William Louis Raby, Burgess J. William Raby, and James J. Rossie, Jr., for petitioners.

Katherine Holmes Ankeny, for respondent.

OPINION

SWIFT, Judge: This matter is before us on the parties' motions and cross-motions for partial summary judgment.

In 1993, as investors in a partnership named Saddle Mountain Ranch, which owned land in Harquahala Valley, Arizona (the partnership), petitioners received a portion of $28.7 million paid by the Federal Government to certain Harquahala Valley landowners in connection with the landowners' relinquishment of the right each year to receive Colorado River water to irrigate their land (water rights).

Initially, the parties cross-move for partial summary judgment on the issue as to whether the partnership's water rights constitute capital assets. Respondent would treat the partnership's water rights as not rising to the level of capital assets.

If, as a matter of partial summary judgment, we conclude that petitioners' water rights do constitute capital assets,