Kunkel v. Commissioner, 821 F.3d 908

The IRS audited Integra Engineering and its owners Craig and Kim Kunkel for tax years 2008–2010 and concluded additional tax was due; the Kunkels were also assessed a 20% accuracy-related penalty for 2008.
The Kunkels engaged Frank W. Bastian (attorney/CPA) to negotiate with the IRS; as the limitations period for 2008 approached, the IRS presented Form 872-A waivers for Bastian to sign extending the assessment period.
The waivers, as completed, used dates (e.g., “period(s) ended February 15, 2012”) that corresponded to the expiration of the limitations periods for 2008, not the actual tax-year “period ended” dates—apparently a scrivener’s error.
The IRS issued notices of deficiency in November 2012; taxpayers contested responsibility for 2008 taxes on the ground the notices were untimely because the waivers, they argued, applied to 2011 (i.e., were ambiguous as written).
The Tax Court reformed the waivers to reflect that they extended the assessment period for 2008 (curing a mutual mistake), entered judgment for the IRS for the recalculated 2008 tax and penalty amounts, and the taxpayers appealed.
On appeal, the court upheld the Tax Court: (1) the correct evidentiary standard for reformation in this civil tax context is preponderance of the evidence, not clear and convincing; and (2) objective construction of the form and surrounding circumstances supported reformation to cover 2008.

Issue	Plaintiff's Argument	Defendant's Argument	Held
What evidentiary standard governs reformation of a waiver of the statute of limitations?	Woods requires clear and convincing evidence to reform the waiver.	Civil-money litigation uses preponderance; Supreme Court precedent requires preponderance.	Preponderance of the evidence is the proper standard.
Whether the Form 872-A extended the assessment period for 2008 or 2011 (i.e., whether it was ambiguous/mistaken)	The typed dates on the form mean it applied only to 2011; waiver language governs as written.	The form contains a scrivener’s error; objective context shows it was intended to extend 2008.	The Tax Court did not err: reformation was proper to reflect extension for 2008.
Whether extrinsic evidence of subjective intent (e.g., what Bastian thought) is required to reform the document	Taxpayers argued lack of testimony from the typist or signatory prevents meeting standard.	Objective contract law uses expressed words; private unshared thoughts are irrelevant.	Court affirmed objective approach; parol evidence limited to communications, not private beliefs.
Whether reformation or IRS error precludes assessment of penalty	Taxpayers suggested IRS error should affect penalty enforcement.	IRS proceeded; taxpayers didn’t ask court to compare fault or set aside penalty on appeal.	Court noted irony but declined to disturb penalty because taxpayers did not seek relief based on comparative fault.

Woods v. Commissioner, 92 T.C. 776 (Tax Ct. 1989) (discussed as authority for demanding clear-and-convincing proof for waiver reformation)
Travelers Indem. Co. v. Calvert Fire Ins. Co., 798 F.2d 826 (5th Cir. 1986) (cited on reformation standard in prior cases)
Lynal, Inc. v. Patrick Petroleum Co., 593 F. Supp. 1325 (W.D. La. 1984) (analyzed mutual-mistake/reformation principles)
Herman & MacLean v. Huddleston, 459 U.S. 375 (U.S. 1983) (preponderance standard for civil money claims)
Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (reinforces preponderance standard in civil contexts)
Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (U.S. 2014) (supports use of preponderance in civil litigation standards)
Rossetto v. Pabst Brewing Co., 217 F.3d 539 (7th Cir. 2000) (federal contract law is objective)
Grun v. Pneumo Abex Corp., 163 F.3d 411 (7th Cir. 1998) (objective approach to contractual intent)
Eckstein v. Balcor Film Investors, 8 F.3d 1121 (7th Cir. 1993) (parol-evidence and objective contract principles)