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CHEESECAKE FACTORY v. USA, “zombie penalties and interest”

July 18, 2013


No. 12-432 T


July 3, 2013

Opinion by Chief Judge Emily C. Hewitt:

zombie emily hewitt chief judge federal claims

The Cheesecake Factory, Inc. (plaintiff) brings this suit seeking a refund of penalties and interest paid to the Internal Revenue Service (IRS) for its 2005 tax year in the amount of $432,280 (plus interest).

In August 2006 plaintiff filed a federal income tax return for its 2005 tax year, reporting that it owed taxes in the amount of $21,117,565.

As a result of the audit, on July 2, 2009, the IRS issued a notice of deficiency to plaintiff with respect to its 2005 tax year.

The notice of deficiency stated that plaintiff owed an additional $698,705 in taxes and a $138,741 accuracy-related penalty, unrelated to the previous assessments.

Plaintiff brought this suit seeking refund of the 2005 penalties and interest on July 2, 2012. See generally Compl.

According to plaintiff, because the notice of deficiency in this case (which [*18] was issued in 2009 after plaintiff’s audit by the IRS with respect to plaintiff’s 2005 tax year) “had nothing to do with either of the interest and penalty assessments in 2006 and 2007,” those assessments amounted to “zombie penalties and interest” as to which “no tax ‘deficiency’ was involved.” [citing Plaintiff’s Response]

However, section 7422(e) of the Internal Revenue Code, cited by plaintiff in support of its argument in favor of the court’s jurisdiction, see Pl.’s Resp. 6, is not relevant to this case because it pertains to cases filed prior to the issuance of a notice of deficiency. Specifically, section 7422(e) provides that, if a notice of deficiency is mailed “prior to the hearing of a suit brought by a taxpayer in a district court or the . . . Court of Federal Claims for the recovery of any income tax . . . (or any penalties relating to such taxes) . . . , the proceedings in [the] taxpayer’s suit shall be stayed” until the expiration of “the period of time in which the taxpayer may file a petition with the Tax Court for a redetermination of the asserted deficiency.” I.R.C. § 7422(e). If the taxpayer then files a petition with the Tax Court in response to the notice of deficiency, the district court or the Court of Federal Claims (depending on where the original suit was brought) “shall lose jurisdiction of [the] suit to whatever extent jurisdiction is acquired by the Tax Court.” Id.

Here, when the notice of deficiency was issued on July 2, 2009, plaintiff had not yet filed this suit, nor was any suit pending in this court or any district court at the time that plaintiff filed its petition in the Tax Court on October 5, 2009. See supra Part I. Accordingly, plaintiff’s reliance on section 7422(e) is misplaced. Nevertheless, the court notes that, even if section 7422(e) applied, the Tax Court’s jurisdiction under section 7422(e) would still include the entire subject of the correct tax for the particular year. [citations omitted]


For the foregoing reasons, defendant’s Motion, to the extent that it seeks dismissal for lack of jurisdiction, is GRANTED and, to the extent that it seeks dismissal for failure to state a claim upon which relief can be granted, is DENIED as MOOT. The Clerk of Court SHALL ENTER JUDGMENT for defendant. No costs.

Plaintiff’s counsel (from whom the Court takes the “zombie” phrase) was L. Richard Walton, Marina del Rey, CA. No picture readily available for zombie portrait.

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