Barry I. Fredericks v. Commissioner of Internal Revenue

433 1B1.10(b) 1B1.10(a). 1B1.10(b) § 1B1.10(b), § § The amendment to to § the amendment only those “retrospective” “disadvantages” prisoners “disadvanta both who is 423, Florida, § a seek benefit under 1B1.10 and who geous.” See Miller v. U.S. 2451, 430, 2446, punishment. 96 L.Ed.2d 351 therefore cannot face a harsher S.Ct. (to (1987) Clause, initially example, Post Facto stat For Berrios was violate Ex sentenced prison. “must “retrospective” resentencing, must disad to months On ute it”); vantage affected see he sentenced to 168 months. Even as the offender suming, Dep’t arguendo, Corrections v. Mor that amendment to also of California 1B1.10(b) ales, 1597, § “disadvantaged” n. 115 S.Ct. lim 514 U.S. Berrios (1995) (“the iting only n. focus the district court’s to 131 L.Ed.2d 588 consideration amendments, post inquiry intervening ex not on whether one of the of the is facto legislative change produces ambigu amendment he resulted in a net some invoked ‘disadvantage,’ favoring Accordingly, ... but on wheth him. ous sort of effect the Ex of Post was not change er such alters the definition Facto Clause violated. See Keller, penalty (holding 58 F.3d at that criminal conduct increases “when punishable.”). positive negative implications which a crime is of an favoring result in a net amendment effect We believe the amendment defendants, post problem pres no ex is facto 1B1.10(b) § Post does not violate Ex ent,” regardless of whether ef ameliorative Sentencing Clause. Under the Guide Facto fects and detrimental effects are found lines, problems usually post ex arise facto Sentencing amendments to same Guide Sentencing Guidelines are amended when Sentencing lines section or different Guide after a commits- an offense but defendant sections). lines she con before he or is sentenced. Because we conclude that the amendment text, sentencing apply court must 1B1.10(b) § Ex does not violate the Post Sentencing of in effect version Guidelines Clause, deprived Facto Berrios was not of sentencing that version at time unless sentencing. effective assistance of counsel at in a more sentence “results severe than which would have resulted had the Guide affirm. We therefore lines version effect at time of commis applied.” sion the crime been United (2d Rodriguez, v. 989 F.2d

States

Cir.1993). post inquiry relevant ex analysis particular is not whether

facto is Sentencing amendment to the Guidelines defendant, ap to a but whether

detrimental

plication version of the later Sentenc Guidelines, whole,

ing as a results Barry FREDERICKS, considered Appellant, I. penalty. in a more onerous States v. Cir.1995) Keller, (2d 890-93 INTERNAL COMMISSIONER OF (noting changes that “had the detrimental to REVENUE. more than the defendants not offset them, changes later favorable to version No. 96-7748. applicable, guidelines of the would have been Appeals, United States Court notwithstanding component that one Third Circuit. later version have been less favorable would defendants”). Sept. Analogous principles apply to a situation where, here, already-sentenced as defen advantage seeks to take of later amend

dant Sentencing

ments Guidelines. Section

1B1.10(b) triggered after defendant pursuant a reduction in sentence

seeks possession, regarding its solicitation appeal consent re-

use of these forms. us to determine whether the IRS was quires making the assessment regarding of its these 1992 because conduct agreements. consent taxpayer alleges committed The the IRS following in connection with the misconduct forms he and the executed to extend the IRS First, the IRS the statute of limitations. in misrepresented 1981 that it never received (Special to Extend a Form 872-A Consent Taxes), Time to Assess which Fredericks the exten- signed to authorize an indefinite Second, of of the statute limitations. sion misrepresentation in the confirmed this IRS 1983, 1981,1982 by soliciting and execut- and (argued), Englewood Barry I. Fredericks separate which extend ing three Forms Cliffs, NJ, appellant. for year. one the statute of limitations for Attorney Argrett, Assistant Loretta C. Third, possessed the IRS discovered that Greene, Utig- General, L. Karen D. Kenneth the Form 872-A sometime before June Division, of Department (argued), er Tax one-year the extension the date last DC, Justice, appellee. Washington, in expired, rely decided to on that form investigation tax continuing its of Fredericks’ STAPLETON, and LEWIS Before: taxpayer of its notify and failed to the return ALDISERT, Judges. Circuit Fourth, changed course of action. deficiency the Form 872-A to assess used THE OF COURT OPINION years informing taxpay- the in after ALDISERT, Judge. Circuit exist, and Form 872-A not er that did one-year extension years after the final eight appro- whether this is an must decide We Finally, imposed interest expired. IRS estoppel apply the doctrine of priate case to amount totaling over times the penalties five (IRS). Internal Revenue Service of covering entire duration the tax and appeals Barry I. Fredericks a decision investigation of the tax shelter. protracted approved Tax Court that United States deficiency rejected taxpayer’s statute-of- assessed Commissioner The IRS July defense, Freder- 1992 for based on the Internal Revenue which was limitations tax The IRS ac- icks’ income return. Form 872 executed Fredericks third taxpayer pay argued an addition- requires tion to The government. Commissioner $158,000 effect, $28,361 approximately al tax of Form 872-A remained tax- represented on the basis of a disallowed for the though interest the IRS had even filed a time- years The form existed. previous shelter deduction. no such return, years but the took ly tax IRS that he relied contended taken if the tax-shelter over the misrepresentations to decide deduction affirmative IRS’ thus, appropriate. and, taxpayer was the Com- years to his detriment using that Form missioner long after assessment was filed The IRS’ 872-A. ex- three-year of limitations had statute his taxpayer has met However, that this pired. request at the of the IRS We conclude proving the traditional elements agree- burden of signed various consent high estoppel, has mounted equitable time extending the for the ments establishing special factors taxpay- other tax hurdle of his 1977 return. assess gov- against the claims alleged applicable er’s contention is based reverse the Accordingly, we will by the and misconduct ernment. misrepresentations approving January agent telephoned Court’s decision assess- Tax IRS requested sign ment. Fredericks and him Consent to the Time to Extend jurisdiction pursuant The Tax Court had Tax, year. for the 1977 tax Assess Accord- 6213(a), §§ 6214 and We 26 U.S.C. ing testimony: Fredericks’ trial jurisdiction under U.S.C. have 7482(a)(1). timely appeal § filed ... he was [The] indicated that 13(a), with Rule Rules of accordance Federal my reviewing tax return involved Appellate Procedure. my return, 1977 tax ... audit of statute limitations was about to run and Tax are Court decisions reviewed that the Government needed an extension in the same manner court as district deci statute____ I ... agent of that told the non-jury sions civil 26 U.S.C. cases. already had that I returned executed and 7482(a); Commissioner, § Bachner v. 81 ... an extension---- He me he was told (3d 1274, Cir.1996). 1277 Determina F.3d charge; he my file was no and there party that a tions failed to establish bur extension the file. He me did I asked proof clearly den of are reviewed under ... copy a receive of the extension back Brown, In 82 erroneous standard. Re F.3d signed. from the IRS I I not. He said did 801, Cir.1996); McMahan, Knop 804 v. ... (3d Cir.1989). indicated therefore the Govern- 1132, F.2d 1140 We also it, probably ment not have error, did it was lost findings of fact review for clear and we mail, in the and that he needed me to apply plenary review to the Tax Court’s con Asmar, extension, execute another clusions of law. United otherwise States (3d 907, Cir.1987). going n. Government was 913 8 to assess the tax. They

But didn’t want to that. do review, I. time to I wanted and would send 87—a them an new form. did not We In Fredericks and his former wife mention numbers. timely joint a tax filed federal income return for 1977. October the IRS sent J.A. 81a-82a. IRS did not contradict 872-A, a Form Special Fredericks Consent testimony. this Taxes, Extend the Time to re- Assess testimony, with Consistent Fredericks’ questing him year to extend for 1977 tax government sent a Form which he three-year statute of limitations within signed and returned to the IRS. The Form goveimment which the must assess deficien- expressly extends of the statute limita- 6501(a). § J.A. 22a. cies. See 26 U.S.C. On year, tions for one whereas the Form 17, 1980, signed October Fredericks and re- indefinite, although 872-A an authorizes re- 872-A, authorizing gov- the Form turned vocable, extension of the statute of limita- days ernment assess deficiencies within by The first tions. Form 872 executed of: IRS and Fredericks statute of extended the (a) 872-T, receipt the IRS’ of a Form No- 31,1982. until limitations December of Special tice Termination of Consent to Tax, Extend the Time to Assess agents telephoned on two Fredericks taxpayer; or requested additional occasions and him to (b) the IRS’ mailing of a Form 872-T to return sign two and additional Forms 872. taxpayer; 13, 1982, signed On June Fredericks and (c) mailing the IRS’ of a notice deficien- a consent to returned extend the statute of cy year. for the relevant 31, 1983; limitations to December and on 3, 1983, February signed of these and re- According None events occurred. government’s stamp turned a Form 872 agreeing “received” date on to extend the 872-A, the Form it was statute of limitations until 1984. received Audit June Division of the Each Manhattan District Director’s of these Forms 872 was received and 3, 1980, on signed Office November signed by Dis- IRS Newark Office, dated copies November 1980. trict Director’s these July 9,1992 eight years days On and nine subsequently were forwarded signed forms — expiration after the June date —the to, by, Fredericks. and received deficiency to IRS mailed a notice of Freder- argument, counsel for the Throughout oral alleging they icks and his former-wife were abundantly why govern- clear IRS made $28,361 tax, plus liable income interest requested these of the stat- ment extensions year. for the tax Fredericks filed a of limitations: ute petition in the Tax challenging Court really long took so deficiency grounds What assessment IRS COUNSEL: that it was 30,1984 very fact it took a barred the June statute of limita- in this case was the Thus, agreed to in the third the tax long time for the IRS and shelter tions. Fredericks claimed the Commissioner was investigating the IRS was which which relying on the Form 872-A to invested, to reach an Mr. Fredericks had defense, avoid the statute-of-limitations years .... agreement [A] number ____ completely which bars the assessment of couple by, went I believe that deficiency.1 It organizations were involved. complicated settlement. held trial at which Tax Court Fred-

[*] ^{[*] [*] [*] [*]} ericks sented no witnesses. testified the Commissioner Significantly, pre- very common when [I]t’s IRS COUNSEL: presented no evidence to the date as it “dis- like you complicated have tax shelters this possession covered” its of the Form 872-A very long for ... which it invoked to Fredericks’ 1977 to ask extensions. assess This return in 1992. is the same form the you any ask for THE But didn’t COURT: affirmatively represented taxpay- IRS to the expira- ... additional extensions after the Moreover, er as the non-existent. IRS does you? tion 1984 did disputé notify not that it until 1992 to waited No, .... we did not IRS COUNSEL: it the that had the Form 872-A and rely form of the intended that instead IRS made clear that Counsel for the also signed by parties. third Form 872 the At extending agreements consent the stat- the the argument, oral counsel for IRS stated repeatedly were ute of limitations obtained that not know when the she did IRS discov- taxpayers’ both the and the benefit: IRS’ it ered Form 872-A or when decided to the IRS Mr. Fredericks didn’t COUNSEL: rely on form. that any than want that tax assessed more gov- Tax Court concluded agent why And was that? Be- IRS did. ernment’s action did not constitute an affir- they negotiation still in on the cause were misrepresentation any mative about fact was not underlying- tax shelter which re- 872-A, concerning the Form and that Fred- why he solved until 1988. That’s didn’t estop- prove the elements of ericks failed why that’s want tax assessed and pel. that Fredericks did The court found want tax didn’t assessed his not that he relied to detriment establish regarding acts government’s extensions) 1988, February (one-year because he After the IRS made no Forms 872 limitations, a Form 872-T could have at time filed attempt to the statute of extend previously to terminate the executed Form Form 872 pursuant which third ex- extension). (unlimited de- 872-A court of the pired light on June 1984. In IRS’ $28,361 deficiency was due. cided that a signed representations nor neither appeals now that decision. possessed a Form 872-A indefinite extension limitations, of the statute of II. lacked concluded that au- thority deficiency on his is Fredericks suffi- question assess 1977 whether estop- ciently of an established the elements income tax return after that date. join case. 1. Petitioner’s former wife did not in the party filing petition and is not a this

438 (3d Cir.1996). pel claim such that it 96 F.3d 1544 The additional prevented relying should be on the element reflects the need to balance both the Form 872-A indefinite extension of the stat- public interest in ensuring government can pursue ute of limitations to an otherwise enforce the law fearing estoppel without time-barred assessment on Fredericks’ 1977 citizens’ interests “in minimum some stan tax govern- return. Fredericks contends the honor, decency, reliability dard of July ment’s 1992 assessment on his 1977 their relations with their Government.” As 30, 1984, tax return was barred as of June mar, (citing 827 F.2d at 912 Community agree- date on which his and the IRS’ County Health Servs. of Crawford Califa ment to extend the statute limitations no, (3d Cir.1983), 698 F.2d 615 rev’d on other expired pursuant to the third Form 872 grounds sub nom. v. Community Heckler sought by government. The Commis- Health County, Servs. 467 U.S. of Crawford sioner correctly contends the Tax Court con- 51, (1984)). 104 S.Ct. L.Ed.2d inappropriate cluded that here See also United States v. St. John’s Gen. because Fredericks failed to demonstrate (3d Cir.1989). Hosp., 875 F.2d government’s conduct constituted Community In Heckler v. Health Servs. of affirmative misconduct. County, 467 U.S. 104 S.Ct. Crawford “Estoppel equitable is an doctrine in (1984),2 Supreme L.Ed.2d injustice particular voked to avoid cases.” Court holdings reversed this court’s Community Heckler v. Health Servs. of elements, reliance and detriment but left un- Inc., 51, 59, County, 467 U.S. Crawford analysis disturbed our and conclusions re- 2218, 2223, (1984). S.Ct. 81 L.Ed.2d Par garding the existence of affirmative miscon- attempting estop private ties par another misconduct, duct. In finding affirmative we reliqd ty must establish that to their stated: adversary’s detriment on their misrepresen every Not form of official misinformation tation and that such reliance was reasonable will be estop considered sufficient to the because neither knew nor should have government.... Yet some forms of erro- adversary’s known the conduct was mislead neous closely advice are so connected to Id.; Asmar, . ing. 907, U.S. the basic fairness of the administrative (3d Cir.1987). The Tax Court has set forth making process decision govern- that the estoppel: the essential elements of may ment disavowing 1) representation wrongful false or mis- the misstatement. . 2) silence; leading error a statement Califano, opinion of fact in ah 698 F.2d at (quoting and not Brandt v. statement 3) law; Hickel, (9th Cir.1970) 53, person of claiming the 56-57 benefits of ignorant facts; (estoppel appropriate must be of the even though govern- true 4) person claiming estoppel ment’s advice that must be contractor could resubmit adversely losing priority affected the bid without acts or state- was erroneous and unauthorized)). person against ments of the whom estoppel We found that affirmative is claimed. misconduct existed government because the provider, “induced” the health “by care the Commissioner, Estate Emerson v. 67 T.C. ’ affirmative instructions of [government the 612, (1977). 617-618, 1977WL 3636 agent]” to submit reports the cost without This court among majority is the offsetting grants once, the at issue. “Not recognizing estoppel circuits equitable as an separate but on five spanning occasions over claims, defense government but years,” government two the pro- advised the impose such a context we an additional bur grants. vider not to offset the Id. 698 F.2d den on claimants to establish some “affirma at 622. part tive on govern misconduct the of the Asmar, ment officials.” County, F.2d at 911 n. Supreme the Court Crawford 912; Co., Philadelphia see also Kurz v. Elec. question did not reach gov- whether the Hereinafter, 2. we Supreme refer to the Third opinion Circuit Court to the Court's as Crawford Appeals opinion Califano, County. in this case as III. “affirmative conduct constituted ernment’s because the Court concluded misconduct” MISREPRESENTATIONS the minimum petitioner failed establish argues rep Fredericks that the oral private requirements estoppel against him resentations the IRS made to 61, 104 at party. County, 467 U.S. Crawford 872-A indefinite extension was lost noted that at 2224-25. The Court S.Ct. mail, coupled with its three successful government expect are who deal with those attempts to obtain Form 872 limited exten rely may the law not ed to know limitations, misrepre sions of the statute of contrary government agents conduct of pos sented fact that the in its IRS had Thus, rep government’s reliance on the law. session Form 872-A. contends the He in that case was unreasonable. resentations affirmatively maintained that alleged further undermined Court misrepresentation years, for over 11 even County because reliance Crawford rely after it found decided advice, provider uncon received oral Thus, argues Form 872-A. evidenced a written instrument. firmed or misrepresentations government’s and his det 2226-27. Id. 104 S.Ct. at See also at estop rimental thereon should reliance Hansen, 785, 101 Schweiker v. 450 U.S. S.Ct. invoking in 1992 IRS from the Form 872-A (1981); United States v. 67 L.Ed.2d denying and from of the effectiveness Hosp., 875 F.2d St. John’s Gen. third Form which the statute extended (never (3d Cir.1989) reaching affirmative- He only to contends June there was no written misconduct issue where gov appropriate in this case because any misrepresentation and where evidence of misrepresenta to correct ernment failed its contrary submitted written finally when Form 872-A tions learned the misrepresen of the absence of evidence rely decided to on that form. file and tations). government argues any purport- misrepresentations ed were the result element, the On the detriment Court lack of communication between district County petitioner’s found that the Crawford offices. claims that Newark office It alleged inability to detriment was the retain Form 872 that obtained Fredericks’ three public which funds to it was never entitled. limita- limited extensions statute of provider The health services suffered no tions was unaware of the office’s Manhattan any it not lost detriment because had vested possession previously of his executed Form contingent legal any or right, suffered conduct, 872-A indefinite extension. Such change in status. The adverse its Court contends, the not constitute does “merely petitioner that the was concluded eq- to required the “affirmative misconduct” something to do which could be cor- induced uitably relying on estop the IRS from now County, later rected at a time.” Crawford also ar- the Form 872-A. at 2225. U.S. at S.Ct. gues reliance on the Form 872-A is that its instruct, because, correctly we foregoing the cases must valid as the Tax Court As concluded, may form terminated sufficiently that be whether Fredericks determine form; forth in the manner set in the establishing the met his burden traditional nor filed the neither Fredericks estoppel. requires This to elements of us requisite termination form. 872-T misrepresentation, consider the elements of and detriment. We will discuss the reliance findings the traditional The Tax Court’s conjunc- in affirmative-misconduct element estoppel elements of focussed on absence the IRS’ tion with our consideration of mis- government’s of Fredericks’ reliance on the representations, proceed to and then the reli- emphasized that he acts. The court could Subsequently, ance and detriment elements. the Form indefinite have terminated 872-A special we factors that must will address at by filing a Form 872-T extension present against in Fredericks’ estoppel an claim time. The court concentrated conduct, govern- than on that of the government. rather ment, doing notify in so committed reversible failure Fredericks of its decision in Beyond error. statement of facts and its effective revocation of the third Form appears opinion, ignored the court to have constitute affirmative misconduct. undisputed evidence that the IRS mis- jurisdictions Case law in this and other represented the Form supports our recog- conclusion. We have “probably on file and 872-A was not lost act, authority nized that the as well as the request the mail.” The IRS’ for three short- exists, authority failure to do so when such of the statute term extensions of limitations give estoppel can rise claim. In Ritter misrepresentation this in- reinforced (3d States, Cir.1928), v. United 28 F.2d 265 rely agreed-upon duced Fredericks to we stated: “The acts or omissions of the termination dates in those Forms 872. The government, they officers of the if be autho- logic by Tax suggesting Court defied that a particu- rized to bind the United States taxpayer should file a form to terminate a transaction, lar will work according document that to the IRS does not government....” Id. 28 at require taxpayers exist. a rule would Such added). (emphasis to venture into an Alice in Wonderland of hypotheticals reject with the IRS. We States, Corp. In Dana v. United 200 Ct.Cl. reasoning toto the Tax Court’s and we de- (1972), 470 F.2d 1032 the court held that adopt concept suggests cline to tax- Department the Post Office was payers should file Forms 872-T to terminate denying agent’s the effects of its deci- forms which the insists do not exist. pay, sion to inform, continue to and not plaintiff-supplier that performing it was misrepresentations We believe requirements. excess of contract Important egregious here were more than those in 1) holding the court’s agent were that: Community Health Servs. of Crawford supplier knew the performing was in excess (3d County Califano, 698 F.2d 615 Cir. 2) contract; of the payments the continued 1983), and that rise to affirmative mis could have encouraged plain- induced and Califano, At govern conduct. least tiff shipments to continue to make not in immediately ment provid notified the health 3) conformity contract; with the possi- “it is upon realizing er the erroneous nature of its that, plaintiff ble if had been informed of the prior representations. See also United problem, it packaged [goods could have (3d Pepperman, States v. accordingly and] maintained an action ... for Cir.1992) (finding no govern where 4) costs”; additional making representations ambigu ment’s were at most payments the contract authority to act explanation ous and further im where was and her payment “decision to continue with- mediately upon discovery sent that an earlier out informing plaintiff problem was erroneous). representation within scope authority.” her Here, the IRS did not refute evidence that court remanded the findings case for further told Fredericks 872-A “was on the issue of detrimental reliance. probably lost in the mail.” On three occa- period years bar, sions over a of two the IRS In the case at misrep- who sign induced to Forms estab- resented that the IRS did not have a Form lishing agreement 872-A, an to three agents consecutive and the who solicited and exe- specific dates on which the statute of limita- subsequent one-year cuted the Form 872 ex- expire. government’s tions would The mis- tensions authority they had to act as did. As representation beyond went mere in Corp., erroneous Dana government’s because of the agent; oral of, advice from an IRS it discovery consisted silence after its and decision to affirmative, on, 872-A, inducing rely acts authorized Fred- the Form agents the IRS sign rely ericks to on the terms of the induced rely and Fredericks to continue to Form 872 on three in different Forms 872. occasions Had the in- been Moreover, years. three different discovery IRS’ formed of the IRS’ its and decision misleading finding action, silence after deciding adopt and to plan alternative he rely 872-A, to coupled the Form with its could have —and testified that he would 872-A, possession ered its of the Form coun- right to terminate the his have —exercised responded: sel for the IRS 872-A. fairness, I think that as a matter of and mistake its the IRS discovered When statutorily not as a matter of what is re- previously of a execut denying the existence case, quired in that if this there was some- 872-A, pre agents number of ed Form one at the IRS who realized that Mr. to authority alert Fredericks sumably to misled, I Fredericks had been do believe the form did misrepresentation that prior notify obligation had an to him. agents these assume that not exist. We question ques- That is a different than the inform Fredericks authorized to were also asking, tion that we should be which is: is disregard the third decided to that the IRS proper apply equitable estop- it case until statute extended the Form 872—which pel. rely on this 1984—and decided June reject disagree. We We the notion that IRS form, created an indefinite which alternative agents examining Fredericks’ file sometime Instead, the IRS waited period. extension in 1984 could have discovered a Form 872-A notifying Fredericks that eight years before signed that was 1980 and not known that form, then filed an assess possessed it had been misled-as to its exis- exercising him from his precluded and ment given subsequently that the three exe- tence terminate the Form 872-A. right were also in Fredericks’ cuted Forms 872 by acts bound the authorized IRS should be exactly It combination of written file. is this agents of its and omissions by agreements entered into the IRS and 872-A, and from relying the Form prompted forego Fredericks that the IRS to validity of the last Form 872 denying the soliciting one-year additional extensions. See, taxpayer. e.g., United executed with the Brown, 798, 799 Cir. v. 86 F.2d States only party was the with knowl IRS 1936) (after exercising pursue one choice edge of all the facts this case. IRS’ letting alterna of two remedies and available secreting reappearance of the Form files,” theory in the IRS tive “slumber 872-A, to inform Fredericks of the its failure pursue by that and cannot later bound choice reappearance, decision to revoke form’s its remedy). inconsistent alternative agreement without notice the third Form 872 30, 1984, the extension to June which limited is more conduct this case The IRS’ eight years filing of an assessment Corp. than that Dana unconscionable later constitutes affirmative misconduct e.g., v. case law. See Stockstrom similar impressive most case for gives rise to the (D.C.Cir.1951) Commissioner, 190 F.2d 283 our estoppel against the IRS that research assessing tax- (holding estopped from IRS See, e.g., Vestal Commis has disclosed. failure to file return where payer for (IRS (D.C.Cir.1945) sioner, 132, 135 ruling of the was induced omission taxing characterizing and estopped from Commissioner). Here, claims au- involving corporation transaction as one tax in 1992 based on thority to assess a agent previously deemed and where IRS Form 872- failure to terminate a Fredericks’ part involving a the transaction as one taxed omissions A when it was the IRS’ acts and Robinson, nership); Inc. v. United Smale & into inaction. The lulled Fredericks (S.D.Cal.1954) (IRS States, F.Supp. terminating prevented Fredericks raising estopped from statute-of-limitations misrepresenting that it Form 872-A taxpayer’s where authorized claim defense form, affirmatively possess such a did not affirmatively represent “proposed by misrepresentation and maintaining that ed, figures placed [a] re by words and taxpayer years notify the failing eight for tax port,” credit from earlier that an unused adopting an discovering its error and after plaintiffs without year would be allowed the course of action. alternative “The autho having a formal claim. to make entering unused credit and rized act of the question raised at oral response to the sheet, report the amount on the any obli- the dollar the IRS had argument whether thereon, and the subse- plaintiff taxpayer it discov- reliance of notify the when gation to plaintiffs prejudice, quent lapse usurp of time to agreement decision the Form 872 Commissioner.”) bind the setting should entered June 1984 as expiration the of the statute of limitations. may challenge not The Commissioner the doggo, IRS’ decision to lie and induce inference that only permissible can be drawn: well, into thinking all was cou- presence that the IRS discovered the of the pled with its eight-year delay additional prior expiration executed Form 872-A to the producing previously a document it repre- of the third Form 872 extension on June non-existent, compels sented as us to con- precise date is information within 1984. The clude that the guilty IRS was of affirmative possession previous of the the sole IRS. As misconduct at least as of June 1984. stated, ly the Commissioner’s counsel con Fredericks has met his burden of establish- argument that fessed at oral she could not ing misrepresentation and affirmative- court, to the supply this information and that misconduct elements of an claim not disclose this her file did information. We, therefore, government. pro- see fit Nor did the Commissioner to intro ceed to an examination of the reliance and on duce direct evidence this issue at the detriment elements of this doctrine. are thus Tax Court trial. We left with cir evidence, but cumstantial the evidence here IY. , probability gives that quality

has a rise to compellable logicians what the describe as a RELIANCE Bank, Tose v. First Pa. inference. Cf. (3d Cir.1981); Edward J. Swee claiming equitable estoppel Parties Texaco, Sons, Inc., ney Inc. v. & only must demonstrate not relied (3d. Cir.1980). generally Irving See on alleged misrepresentations, but also Cohen, CopiM. & Logic Carl Introduction to that such reliance was “in reasonable 1994) (discussing 58-61 ed. party the relation claiming did not know ship probability). between inferences and nor should it have known adversary’s that its following Consider uncontroverted evi conduct was misleading.” County, Crawford (1) misrepresentation dence: the IRS’ that it 59, 104 467 U.S. at S.Ct. at 2223. Fredericks (2) 872-A; did not have the Form argues the IRS’ that if he had known the IRS was for, of, requests three and execution annual possession 872-A, of the Form he would have (3) limitations; (Form extensions of the statute of 872-T) necessary filed the document any requests the absence annual exten to terminate the indefinite Relying consent. SO,1981; (4) eight- sions June the IRS’ misrepresentation the IRS’ that the Form after year delay production file, 872-A 872-A was not in his followed (5) 1992; the IRS’ admission that repeated requests IRS’ agree for Form 872 investigation actively ments, of the tax shelter was Fredericks concluded that it was un ongoing only until 1992. The reasonable con necessary to terminate a agreement consent clusion that can be drawn from the evidence which the IRS that it maintained never re knowledge that the IRS had actual ceived. He subsequent concluded that prior Form 872-A’s existence at least to June Forms 872 agreements were the rele Otherwise, would vant 30, 1984, to his 1977 return. On June sought have additional annual extensions be one-year when the last Form 872 extension cause, argument, as stated at oral the investi expired, Fredericks believed that the statute gation ongoing. prevented of limitations the IRS from assess ing any deficiencies. misrepre- IRS confirmed its earlier by failing notify sentations We conclude that Fredericks acted reason- possessed that it the Form ably 872-A and that in relying on the misrepresentation IRS’ rely upon Commissioner intended to file, that the Form 872-A was not in his government’s form. misleading in relying silence subsequent Forms 872 exe- perpetuation misrepresentation was a of its cuted him and the IRS. Fredericks’ reli- that the Form signed 872-A was never ance would have been unreasonable received the IRS. It was an affirmative solely misrep- been based on the initial oral above, “proba- examining As indicated courts Form 872-A was that the resentation case, estoppel against government the But in this claims of bly in the mail.” lost position beyond to its stated have looked mere reasonableness repeatedly confirmed sepa- alleged years by requesting on three determine whether the reliance was three for estoppel. one-year Form 872 exten- sufficient to invoke Courts are occasions the rate likely agree- Form 872 more to find the reliance reasonable language The sions. if unequivocal. governmental-estoppel The third claims three addi- is clear and ments (1) taxpayer stated: tional factors exist: if the Form 872 executed authority agents engage to the acts or and the District director [Fredericks] (2) issue; agents’ misrep- if omissions at agree to the Internal Revenue consent and (3) fact, law; resentation was one of not following: misrep- if the benefitted from its (1) any amount of Federal [In- that resentation. will each of these We address return(s) any made or for tax due on come] appropriateness in turn to illuminate the period(s) taxpayer(s) above estoppel in this instance. may ...] [December ended before [June assessed at time on or

1984], A. J.A. 61a. private party’s Courts have held that believe that Fredericks’ reliance We governmental on actions or omis- reliance was reasonable. text of this written IRS form if sions is not reasonable such acts or omis- conjunction Reading form with this contrary beyond sions the law or are statements, reason- IRS’ earlier agents’ authority. We stated the rule in 30, 1984 was the ably concluded that June Ritter v. United States: deficiency for the IRS to assess last date or omissions of the officers of the acts has his 1977 tax return. The IRS itself on government, if be authorized to bind as “a a similar Form 872-B characterized particular in a transac- the United States contract,” its terms urged us to read tion, estoppel against govern- will work States, literally. v. United See Walsonavich ment, within the if the officers have acted Cir.1964). (3d taxpay- scope authority. of their of such contracts is ers’ reliance on the terms Kales, See, e.g., v. Woodworth reasonable. (3d Cir.1928). 265, 267 See also 28 F.2d Cir.1928). (6th 26 F.2d 178 Manloading Mgmt. v. United & Assocs. (1972); States, 628, 461 F.2d 1299 suggests that Fredericks is 198 Ct.Cl. The IRS now States, 335 F.2d 96 attempting requirement Walsonavich to circumvent (3d Fritch, Cir.1964); Inc. v. Unit taxpayers Form 872-A J. Homer can terminate a (9th Cir.1916). However, States, ed 236 F. only by filing a Form 872-T. Ritter, attempted estop the arguing, as the Tax Court Fredericks is not limitations invoking the statute of of a Form IRS from suggested, that mere execution taxpayer’s request for a refund. to bar the negates the terms of a valid Form 872-A. him 7; taxpayer claimed an IRS told Kernen v. Ct.Op. Tax at see Commission Cir.1990). limita request during the er, filing He con a formal unnecessary. refused period was We 872-A and understood tions cedes he read Form IRS, estop finding taxpayer’s al terminat procedures set forth therein for em leged reliance unreasonable because IRS argues He ing that form. statutory authority to waive ployees no Form lack the him believe there was misled file; reasonably regulatory filing requirements. that he relied 872-A on Cf. Office Richmond, 496 Management v. misrepresentations Personnel and conclud IRS’ 2465, 110 L.Ed.2d 387 110 S.Ct. no need to terminate the non U.S. ed there was (1990) (refusing apply based only not form. We believe this was existent per conclusion, Navy employee relations the actions of but the reason a reasonable asserting estoppel party sonnel because the conclusion that a could draw able statute); sought not authorized benefits from the IRS’ conduct. 444 Merrill, Crop Corp. v. 332

Federal Ins. U.S. C. (1947) (rejecting 10 92 L.Ed. S.Ct. willing estop gov Courts are more employee estoppel claim because of the Fed- government ernment when the itself benefit Corporation no Crop eral Insurance au- upon by ed from the acts or omissions relied thority plaintiffs that wheat to advise their See, private party. e.g., Walsonavich v. insurable). crop was (3d Cir.1964) (IRS States, United 335 F.2d agreement benefited from to extend the stat Here, government dispute does not deficiencies, assessing ute of limitations for authority that to inform the IRS had taxpayer justified in relying was Fredericks that it did not have the Form agreement period same to extend the 872-A, dispute government nor does the that refund); filing Joseph Eichelberger & v.Co. authority the IRS had the to solicit termi- Commissioner, (5th Cir. agreements extending nate the statute of 1937) (“The got United States the benefit of contrary, govern- limitations. To the ought [the decision then and Commissioner’s] suggested argument ment’s counsel at oral now.”); by it Hygeia abide Staten Island agents routinely agree- such IRS enter States, Storage Ice & Cold Co. v. United Moreover, ments. has con- (2nd Cir.1936) (“The F.2d 68 United States obligation ceded the IRS had —not got the benefit of [the Commissioner’s] deci merely authority notify —to now.”); ought sion then and to abide that it had the Form 872-A when it realized Hygeia Storage Staten Island Ice & Cold Co. its error Fredericks had been mis- States, (2d Cir.1936) v. United 85 F.2d 68 agents scope led. The here acted within the (IRS is bound the burdens as well as the Therefore, authority. of the law and their taxpayer’s agreement benefits of to waive we conclude Fredericks’ reliance on their claims). future misleading acts and silence was reasonable. focussing One ease benefits ob- tained strikingly has facts B. similar to those the case at bar. In Stock- Commissioner, strom v. 190 F.2d 283 likely apply estoppel Courts are more (D.C.Cir.1951), taxpayer gifts made government’s when the conduct involves a $5,000 less than to several trusts in 1938. fact, misrepresentation of rather than a mis The gift IRS had ruled 1937 that no tax representation See, e.g., of law. Miller v. was on such An due transfers. IRS officer (2d States, Cir.1974); United 500 F.2d 1007 position affirmed this telling the Commissioner, Estate Emerson v. 67 T.C. taxpayer that no tax. was due on his 1938 612, 1977 (1977); Exchange WL 3636 & Sav. gifts. repre- relied on the IRS’ States, F.Supp. Bank Berlin v. and, due, sentations no tax because did (D.Md.1964). However, some courts gift not file a covering tax return the 1938 gone have further and invoked attempted transfers. misrepresen the IRS even where the deficiency assess a gifts, based on the 1938 question involved a of law. See Schus tation arguing that there was no statute of limita- Commissioner, (9th ter v. 312 F.2d 311 Cir. tions on the assessment because the 1962) (IRS estopped correcting prior never filed return. The D.C. Circuit es- reasonably mistake of law on which bank topped the assessing Commissioner from relied); Commissioner, Stockstrom v. 190 deficiency, finding that taxpayer’s failure (D.C.Cir.1951); Joseph Eichelberger entirely to file a return was due to the ac- Commissioner, & Co. 88 F.2d 874 tions of the IRS. The court held: “[The Cir.1937). go We need not that far because Commissioner] induced the omission which misrepresented in this case the pos upon giving he now relies as him unlimited agreement. session of a Form 872-A consent time to assess a tax. The law as to such a fact, misrepresentation This awas not of long situation has since been established.... law; and we find Fredericks’ reliance there prevents thing being He who done on to may non-performance be reasonable. not avail himself of the occasioned,----” Id. the of the himself To understand nature detriment which has he suffered, we must consider Fredericks the 190 F.2d at 288. charged underpayment. interest rate on his Stockstrom, the the As in IRS induced 6601 of the Section Internal Revenue Code assessing upon in a omission it relies which U.S.C.) (26 provides rules for the accrual of The IRS deficiency against Fredericks. underpayments. interest on tax Section have the misrepresented that did not 6601(a) provides that underpay- interest on 872-A, rely induced Fredericks Form at a accrues rate established ments under 872 to subsequently three executed Forms 6621, § until and continues to accrue the investigation, in its aid the government pays Appen- amount. overdue reasonably there was induced him to believe underpayment A rates dix illustrates govern- no Form 872-A to terminate. § since have been effect under June attempts to Freder- ment benefit from now 30,1984. many icks’ to terminate this form failure 1,1985, January after On six months Fred- years misrepresentation its initial after reasonably statute ericks believed that the of years si- many after its realization of—and expired, government limitations had be- D.C. regarding lence own error. As the —its gan to calculate interest on Fredericks’ liabil- Stockstrom, regard as “[w]e Circuit stated 6621(c) ity higher at even rate. Section of the Commissioner’s claim unconscionable provided an increased rate for “substantial assess a tax ... when the Com- authority to underpayments attributable to tax motivated responsible for that himself was missioner See Reduction Act transactions.” Deficit of at failure.” Id. 190 F.2d 289. 1984, 98-369, 144, § Pub.L. No. 98 Stat. 682 (1984) (effective respect with to interest ac- V. 31, 1984), repealed cruing after December Budget Act of

Omnibus Reconciliation DETRIMENT 101-239, § No. 103 Stat. Pub.L. (1989) (effective for returns due date for analyze private “To nature of 31,1989). which is after December party’s change position, we detrimental Tax Court’s in this case order stated identify must the manner in which reliance liability substantial un- that Fredericks’ “is a on the has caused Government’s misconduct derpayment attributable to tax-motivated private change position for citizen to his transactions, purposes computing of County, at worse.” U.S. Crawford amount, payable respect with to such interest argues at 2224. S.Ct. 6621(e).” pursuant § to I.R.C. Tax Court that he detri suffered substantial economic August dated 1996. increased Order by relying misrepresenta ment on the IRS’ 6621(c) § ordinary of the rate under is 120% reasonably tions. the third He relied on underpayment rate. interest This com- reasonably Form that the 872 and believed 6621(a). pounded daily pursuant Ap- §to expired statute of limitations on June pendix penalty-enhanced B shows the inter- misrepresenta 1984. he relied IRS’ 31,1984. applicable est rates after December tions was no indefi that there Form 872-A suffered nite extension of the statute of limitations The detriment Fredericks be- and, detriment, comparing readily apparent by his did not terminate comes right penalty-enhanced those he could permanently form. Fredericks lost his rates to accounts, savings certificates to terminate the Form 872-A and he lost have earned treasury top-rated deposit, benefit statute of in the limitations securities Moreover, penalized Appendix C. Con- corporate third bonds. See he could application eededly, rate Fredericks retained and have IRS’ an enhanced $28,361 compounded that he owed to that continues to earned interest interest IRS, daily. even scenario he This interest while the IRS the but a best-case accrued years not have amount interest eight waited after the June could earned the expired now to collect. This statute of limitations to assess defi seeks dramatically by comparing ciency. fact is illustrated charged by penalty-enhanced interest sufficient detriments to establish an B, in Appendix as forth with defense. government, set Appendix rates shown in

the market interest observed, As have we courts must consider economic detriment— penalty C. This —this additional factors when is asserted technicality than a mere because the is more and one such factor greatly involved here ex- amount of interest government’s perma is whether the action liability. underlying ceeds the deprived nently party claiming estoppel the right Fredericks a benefit or it argument, At oral stated: which was entitled. Block, example, Payne in government numbers that the For v. 714 F.2d “from direct $158,- 1510, Cir.1983), ... the interest is about 1517-1518 the given has me court effectively estopped than figure government 000.” This is more five times the $28,361. deficiency of underlying closing application period gov tax Coun- a loan because responded question to a agents sel for the IRS ernment failed to advertise the loans. government Estoppel the amount of interest the appropriate part about was in because the by stating: charged Fredericks applicants op loan would forever lose their portunity apply government unless dispute I Mr. Fredericks’ estimate don’t application closing was might fifty a thou- that it be hundred and 1518; period. Id. 714 at in I accord Vestal dollars this case. don’t know for sand (D.C.Cir. Commissioner, certain, dispute I not that. v. 152 F.2d 135 but would 1945) (estopping changing IRS from its char government reasoning relies on the in entity part acterization in because taxable County argues that Fredericks Crawford expired; the statute of limitations had “resto benefit, detriment, a rather than a obtained taxpayers originally ration to the of the taxes by delay. government con- the IRS’ impossible,” being estoppel ap collected money tends that he was allowed to retain propriate). entitled, money which he was not owed to the view, In Payne distinguished IRS in 1978. our the case at bar The court in Schweik Hansen, 785, 101 in contrast with v. stands stark Coun- er 450 U.S. 67 S.Ct. Crawford (1981), ty. 685 L.Ed.2d a case which the Court estop Secretary refused to of Health and County, In the Court found no Crawford Schweiker, Human govern Services. private party detriment because had suf- agent erroneously Security ment told Social only inability money “the to retain fered ineligible claimant she was for benefits. Re [kept] place.” it never should have the first lying information, on this false claimant at 104 S.Ct. at 2225. Freder- U.S. application did not file an until inability icks’ arises not from his detriment later, discovering months after she was in $28,361, admittedly to retain the which he eligible. deed The claimant equita asserted paid should have in 1978. estoppel against government, arguing ble His detriment results from the loss of his that she should receive benefits retroactive right to terminate the Form 872-A and the during for the time which she relied high being charged, he is rate of interest employee’s misrepresentation. The Court interest that accrued while Fredericks rea- rejected argument her noted sonably believed assessments were barred permanent claimant suffered no loss of a the statute of limitations. Fredericks was could, legal right did, because she submit “merely something not ... induced do application 789, 101 at a later at date. Id. which later.” Id. at could corrected S.Ct. at 1471. 104 S.Ct. at 2225. He was induced to forfeit his right applicants Payne, to terminate the Form 872-A con- Like the loan Schweiker, agreement. sent subsequent The IRS’ action unlike the claimant simply prior misrep- permanent was not legal right. a correction suffered loss of a resentations, penalty compounded right awas He forever lost his to terminate the 872-A, daily 12-year as the through IRS continued its inves- Form means which tigation beyond well the statute of limitations could 1992 assess his irreversibly deprived assessments. are tax return. He was We conclude these by employer advantages tax obtained where three-year statute of limita- the benefit of part of the by Congress, triggered the benefit was in Commission default tions enacted Brown, er); contracts he entered' with States v. 86 F.2d terms any oppor- period, (6th Cir.1936) and of (IRS, to extend that exercising after 872-A that the revocable tunity to terminate pursue of two choice one available reme misrepresented as lost. The loss of letting theory while alternative dies “slumber tangible economic detri- right created a this files,” in the is bound that choice and penalty-enhanced inter- in the form of ment pursue cannot later the inconsistent alterna that Freder- Accordingly, we find est rates. Kales, remedy); tive Woodworth of an element icks has satisfied detriment (6th Cir.1928) (avoiding direct govern- claim equitable ruling, holding that Commissioner and but ment. reopen, his successors cannot reconsider and taxpayer’s assess return —even within the VI. period statute of limitations an initial —once valuation of certain stock had been made and AND THE GOVERNMENT ESTOPPEL indirectly subsequent two com confirmed Supreme has not di Court States, missioners); v. 308 Simmons United estoppel against rectly the issue whether met (5th Cir.1962) (finding “persuasive” 938 F.2d may appropriate in certain cir be plaintiffs argument that IRS should be es- However, contrary to counsel cumstances. imposing contrary a tax topped from emphatic statement for Commissioner’s advice); agent’s Joseph Eichelberger v. & Co. that in no ease has argument at oral (5th Cir.1937) Commissioner, 88 F.2d 874 IRS, successfully against the been asserted (where rejected a IRS the existence of applied the doc others have this court and taxpayer, loss claimed a IRS was es- estoppel to the IRS under various trine of topped purposes for of another transaction v. United Walsonavich circumstances. claiming such subsequently from loss (3d Cir.1964), States, we held 335 F.2d 96 realized); Thomas, Perkins v. 86 F.2d indeed asserting estopped from the IRS was that (5th Cir.1936) (IRS estopped mak- 954 from to a of limitations as a defense the statute depletion on a allow- ing deductions based gov taxpayer’s claim for a refund where ance for the sale of mineral interests where taxpayer had entered a written ernment and taxpayer’s previously rejected claim for extending statute of limita agreement depletion in an earlier deter- allowance States, v. 500 tions. See also Miller United on a sale of related mination of tax owed Cir.1974) (IRS (2d estopped from 1007 F.2d Commissioner, interests); 190 v. Stockstrom relying a statute of limitations contained (IRS (D.C.Cir.1951) estopped from 283 F.2d previously signed waiver-of-notice form in a in failure assessing taxpayer’s estate 1948for claim, taxpayer’s where as a bar to refund where Commissioner to file a 1938 return erroneously disregarded the the IRS had that no tax was years earlier ruled had seven waiver, unnecessarily the notice to issued Commissioner, owed); v. 152 Vestal notice, and, pursuant to the (D.C.Cir.1945) (IRS estopped from 135 run); not of limitations had Staten statute transaction as one characterizing taxing Storage v. Hygeia Ice & Cold Co. Island pre- corporation agent where IRS involving a (2d Cir.1936) States, (equi 85 F.2d 68 United transaction as viously and taxed the deemed against IRS where erro table relief available Exchange & involving partnership); one a to enter advice induced neous States, 226 Bank Berlin v. United Sav. waiving future claims agreement with IRS of (IRS (D.Md.1964) estopped from F.Supp. Commissioner, refund); Schuster v. period limitations in (9th (IRS relying on the statute of Cir.1962) estopped from F.2d 311 signed waiver be- previously irrevocable prior of correcting erroneous determination inadvertently sent subsequently cause IRS relied on that determi estate tax where bank assets); stating that the limitations taxpayer a notice disposed of the affected nation and date); Commissioner, began running at a later Smale period 258 F.2d 237 Time Oil Co. v. States, Robinson, (9th Cir.1958) (IRS Inc. v. United estopped recouping from & (IRS (S.D.Cal.1954) agency The IRS is not federal F.Supp. 457 against applied which courts have the doc- raising statute-of-limitations defense estoppel. trine of Case law demonstrates authorized taxpayer’s claim where estoppel against that courts have invoked affirmatively represented, by “proposed and Department, Department Post Office of report,” figures placed [a] words and Housing Development, and Urban Land year from earlier tax would credit unused Office, Service, Management the Postal taxpayer having without be allowed Commission, Parole the Farmer’s Home Ad- claim); make a formal see also H.S.D. Co. v. ministration, Department, the War the De- (6th Cir.1951) (not Kavanagh, 191 F.2d 831 Interior, partment Department of doctrine,” “estoppel directly referencing but Labor Commerce and and the General Land holding subsequent that a commissioner plethora precedent suggests Office.3 This changing ruling expressed barred from is well settled that “[i]t the doctrine upon two letters of former commissioner re- circumstances, equitable estoppel, proper file); taxpayer’s Ford Mo- examination caution, appropriate may with in- States, 81 Ct.Cl. tor Co. voked the United States cases (1935) (not directly F.Supp. mentioning taxation,” involving internal revenue “estoppel” though effectively estopping IRS variety of other contexts. Simmons v. Unit- corpo- changing its characterization of States, Cir.1962). ed separate treating entities after rations as throughout multiple Although Supreme them as such transac- Court has tions). rejected outright neither nor a articulated States, 200, Corp. ground price 3. 200 Ct.Cl. Dana v. United that sale was too low where (1972) (Post Department Office 470 F.2d 1032 estopped agents authority negotiate had the contract denying agent’s of sale); Fritch, States, from effects deci for J. Homer Inc. v. United pay plaintiff- sion supplier and not inform to continue 133, (9th Cir.1916) (Department 236 F. 134 of performing that it was in excess of con estopped denying Commerce and Labor from requirements): Manloading Mgmt. tract & As option effect of extension of an charter States, socs. v. 198 Ct.Cl. 461 F.2d government requested vessel where tension); ex said (1972) (Department Housing and of Urban Co., Big v. United States Bend Transit Development estopped denying from renewal of (E.D.Wash.1941) F.Supp. (Depart plaintiff agent contract with where authorized estopped denying validity ment of Interior from prospective had assured bidders that funds were grants rights corporation of water of where renewed); and contract would be available granting agents clearly were authorized to issue States, Banking v. Branch & Trust Co. United grants corporation, relying grants, on those (1951) F.Supp. 120 Ct.Cl. 766-769 expended money development); toward Walker (War denying pay Department estopped from States, v. United 139 F. 412-414 ment party fees for additional costs incurred .of (C.C.M.D.Ala.1905) (Treasury Department es- government that entered contract with topped collecting overpayments from it made repeatedly government agents where authorized proceed years compensation by over several in of such fees and allowed contractor to as form Hickel, though paid); v. opening vacating fees would be Brandt it entered with settlements Cir.1970) (9th (estopping 427 F.2d 53 Land entering the individual where such settlements Management denying priori Office from bidder government, constitutes "affirmative acts” of ty agent gave advice where erroneous that re government delayed asserting va its intention to submitting proposal would not result in loss of affirmatively changed cate settlements and its States, priority); Portmann v. United 674 F.2d position prejudice); Payne to individual’s v. (7th Cir.1982) (holding U.S. Postal Service Block, (11th 714 F.2d 1517-1518 Cir. may claiming packages were 1983) (affirming compelling district court order applying merchandise and from lower insurable Farmers Home Administration to extend loan plaintiff prove postal limit if clerk could as i.e., application period, effectively estopping the packages sured her the could be insured as non adhering previously government from to the es limit); negotiable up higher documents to a government agents tablished deadline because (9th Williford, Johnson 682 F.2d 868 Cir. loans); notify potential applicants failed to (Parole 1982) estopped from revok Commission Hawes, 554, 560, (2 Black) Lindsey v. 67 U.S. ing petitioner's parole enforcing nonparola (1862) (not directly mentioning L.Ed. 265 "es bility provision of statute where Parole Commis toppel,” effectively estopping but the Commis erroneously petitioner sion released who had Land from correct sioner of the General Office successfully reintegrated into the com himself ing prior survey land and land sale based Jones, munity); United States v. 176 F.2d 278 thereon). (9th 1949) (War Cir. Assets Administration es- topped surplus revoking goods sale of depletion risking public severe fisc. claims specific test Id. 674 at illumi- foregoing case law government, beyond factors the traditional certain nates Block, Payne v. We discussed estoppel that we should consider elements 1510, 1517-1518 Cir.1983), analy in our estopping the Those factors IRS. before sis of the detriment element in Part IV. The 1) eátoppel impact of the on the are: Payne court affirmed a district court order 2) fisc; government whether the public compelling the Farmers Home Administra misrepresentation or agents who made the application period, tion to extend a loan effec 3) did; they act as were authorized to error tively estopping government from adher misconduct in- governmental whether previously ing application to its established 4) fact; whether question of law or volved distinguished deadline. The court Schweiker misrepre- benefitted from grounds. Among v. Hansen on several these r 5) sentation; of irreversible the existence grounds was that in Schweike party claiming detrimental reliance public would have threatened the fisc with estoppel. have addressed all but We potential by allowing any fraudulent claims conjunction first factor in with the traditional eligible claimants to obtain retroactive bene estoppel, elements of and we conclude by merely claiming they fits visited the each those factors cuts favor of Freder- Security Social office and were told proceed impact icks. We now to consider contrast,- ineligible. were no threat of public fisc this case. Payne claims fraudulent existed because already

Congress had authorized funds program money for the loan at issue and the Impact on the Public Fisc remained unallocated. likely estop govern more Courts are public-fisc in favor consideration cuts public particular, fisc—in ment when the estopping the case at power public expendi to control Congress’ By enacting three-year a statute of bar. if only minimally impacted, at all. tures —is limitations on 'the time within which the IRS v. This consideration derives from Schweiker deficiencies, Congress assess tax clear- must Hansen, 785, 790-793, 101 450 U.S. S.Ct. ly in tax- contemplated that some instances (1981). 1471-74, The 67 L.Ed.2d 685 payers retain the stat- would funds —because that future Court in Schweiker observed they ute of limitations had run—-to which distinguished govern be if the cases could Therefore, initially invok- were not entitled. sup agreements that ment entered written ing the statute of limitations bar IRS ported estoppel estoppel if not threat or did cannot an intrusion assessment be deemed public Accordingly, fisc. in Portmann en the Congress’ power expend and allocate into States, v. Cir. power public Congress’ Neither funds. 1982), court that Postal held U.S. authority public expenditures nor its control claiming cer estopped Service could be impacted to enact statutes of limitations is packages merchandise and from tain were' statute, taxpayer ei- when a invokes such applying a insurable limit than that lower original years or 11 ther at the end of its life apply packages if were would which pursuant agreements written be- later nonnegotiable The deemed documents. tween the and IRS. estoppel that could be invoked if court ruled open postal Estoppel in this instance would not plaintiff proved that the clerk as Therefore, packages to fraudulent claims. sured her the could be insured as door Important to the the concerns about such claims raised nonnegotiable documents. inapplicable public are court’s conclusion was that fisc Portmann Schweiker Portmann, endangered if were here. Unlike Schweiker and would not be claim is on more than permitted. The Circuit also articu Fredericks’ based Seventh government assurances from offi- lated certain factors to be balanced deter mere oral cials, government deny not grant estoppel. Among although the does mining whether to orally Fredericks potential danger was the its informed those factors not have an extension on file and undermining important federal interests or that it did probably representations as to the relevant statute of lost. that the Form 872-A right to case, proved, with documents limitations and lost his terminate the this compounded signed by Form 872-A. His detriment is by Congress and IRS authorized pen- assessment of an increased executed three written .IRS’ agents, that the IRS alty establishing specific covering dates on rate of interest the entire dura- agreements expire. protracted investigation. tion of limitations would which statute Thus, concerns about Court’s the Schweiker special have factors that We addressed open the that would governmental governmental-estoppel must be considered costly fraudulent claims potentially door estop- claims and we conclude that favor misrepresentations from on mere oral based ping impact public here. The IRS inapposite are here. government officials Congress’ fisc is minimal consistent with public in this case enactment of enforceable statutes of limita- impact on the fisc nothing greater than that autho- tions. The acts and omissions of the IRS would authorized; enacting agents were the errors by Congress in statute of involved rized fact, law, authorizing misrepresentations of not the IRS to enter and do limitations extending any statutory regulatory not agreements written contravene Form 872 specific requirements. period to dates. Con- benefitted limitations taxpayers misrepresentations; gress certainly contemplated that from its and Fredericks agree- misrepresentations rely on the fixed in those relied on those to his det- would dates riment, irretrievably losing to which the the benefit of the ments to bar IRS assessments limitations, longer is no entitled because of statute of the benefit of the con- IRS, Helvering right tracts he entered with the and the passage of time. See Grif- 636, 653, fiths, gov- 63 S.Ct. 87 to terminate the Form 872-A that the 318 U.S. (1943) (“the repeatedly affirmatively repre- statute of limitations ernment L.Ed. 843 the Government and some- sented as non-existent. sometimes bar[s] effects”). capricious with times the Having concluded that the public relying Estoppel here affects the fisc on the Form 872-A to extend $28,361, limitations, plus any the statute of approximately interest we hold making have accrued before June 1984— Commissioner was time-barred from would assessment, part, last in full or in in 1992. day the statute of limitations signed by original three-year the IRS and Fredericks statute of limitations Form 872 run, expired. scope one-year are satisfied that in the as had the three exten- We impact agreed by parties. Any operations, of this on the sions to assess- the IRS’ minimal, a tax public fisc is not but also ment Fredericks’ 1977 necessary Congress’ enactment of return was time-barred tax- result of payer of limitations. asserted the statute of limitations as a enforceable statutes assessment, defense to a 1992 and the Com- that Fredericks has met his We conclude estopped refusing missioner is thus from to establishing the traditional ele- burden recognize denying that defense and from estoppel. misrepresented ments of The IRS effectiveness of the 1984 statute of limita- possession of a Form 872-A indefinite its tions. statute of limitations and extension of the misrepresentation by agrees obtain- The dissent that the confirmed that IRS should be ing estopped, argues 872. The IRS’ conduct but that we should allow three Forms deficiency it a for the constituted affirmative misconduct when assess days upon realizing period September mistake 1984-90 remained silent before change one-year Form extension upon deciding its course of after the last expired. recognize This fails to rely previously action to lost Form contention taxpayer. precise estoppel Its nature of the here. The notifying 872-A without estopped effectively using from decision to revoke the third Commissioner deny that statute of taxpayer 872 without notice to the also adds Form 872-A to Thus, run in 1984. the entire to the affirmative here. Freder- limitations had misconduct By oper- was time-barred. upon icks relied the IRS’ oral and written 1992 assessment act, doctrine, your in effect: This is own and there- the Commis- ation any authority you to make stripped of fore are not damnified.... Some- sioner was The effect of resulting whatsoever. disability assessment times the has been question a does not raise estoppel here estoppel, characterized as an sometimes as presents pure one of law—the “equities”; it a label waiver. The counts for little. of a statute that bars the Commis- operation Enough present purposes for that the dis- beyond a certain. action date sioner’s ability principle has its roots in a more nearly ultimate than either waiver or es- here does not Application principle toppel, the that no one shall be remedy limit available to the merely permitted upon to found claim his own Commissioner; negates the Commission- inequity ability trump Congress, advantage an act of or take of his own er’s wit, As stated wrong. may the statute of limitations. A suit not be built on an above, by of limitations on enacting statute omission induced him who sues. deficiencies, assessing tax Con- the time for (citations 61-62, at Id. 54 S.Ct. at 328 that in some in- clearly contemplated gress omitted). quotations taxpayer internal taxpayers would retain funds —be- stances that a waiver of claimed the statute of limita- run —to period limitations cause the signed, tions that he but which the Commis- they initially entitled. That which were not later, sign years sioner did not until several “unnecessary may result in an windfall” this parties was invalid. The Court noted that all invoking statute of limita- party to the proceeded though-the as waiver was on file nature totally irrelevant. Such is the tions is signed: and had been events that fol- “[t]he peri- eongressionally limitations of a enacted interpretation lowed confirm this of the effect od; any litigant assert- it confers a benefit Therefore, of the transaction.” sure, “the statute of ing the defense. To be claiming later from sometimes the Government bar[s] limitations waiver was invalid. The facts in the case at capricious with and sometimes similar, strikingly prin- bar are and the same See, e.g., Helvering Griffiths, effects.” ciples equity apply. of law and should 371, 403, 636, 653, 87 L.Ed. 843 U.S. 63 S.Ct. (1943). Here, parties proceeded though all as

Estopping capitaliz- possess a Form 872-A. The IRS did not followed, failure to file an 872-T ing requests on Fredericks’ events that the IRS’ three form, pro- when the IRS itself termination upon finding and its silence Forms 872 reli- 872-A, both Fredericks’ omission and his interpreta- cured the Form confirmed this Forms is not ance on the alternative tion of the facts. We conclude that the same century only consistent with more than applied against principle that the Court has precedents, maintaining but also essential taxpayers- principle pre- who that those —the play. fair fundamental notions of Su- may thing being not avail vent done preme recognized Court has such fundamen- nonperformance themselves of the which applied them both principles tal ap- have themselves occasioned —must private parties government. and the as the tax- ply to the Commissioner well as See, e.g., payer this instance. States, 291 In R.H. Stearns Co. v. United (12 Otto) Peck, 64, States 102 U.S. 54, 325, (1934), 54 S.Ct. 78 L.Ed. 647 U.S. (1880) (applying L.Ed. 46 these fundamental held that a Court principles equity against asserting the statute of limitations as a party private as a to a contract with a indi- to an assessment where the bar vidual). requested the Commissioner to himself delay the assessment. The Court stated: applicable principle is fundamental *N ‡ ^{[*] [*]} sK ^[*] Because we rule the Commissioner is es- prevents unquestioned. He who deficiency in topped asserting being may not avail him-

thing from done Fredericks, Barry I. nonperformance which he has 1977 tax return self of him, occasioned, Tax will reversed. says for the law decision of the Court himself

APPENDIX A1 RATES ON INTEREST UNDERPAYMENTS 30,1997 Sep. Jul. 1984— 31,1984 1,1991 31,1991 1,1984 Oct. 11% 13% 10% Jul. Jan. —Dec. —Dec. 1,1992 30,1985 31,1992 1,1985 Jan. 9% —Mar. —Jun. 1,1992 31,1985 Apr. 1,1985 11% 30. 1992 8% Jul. Jan. Jul. Jan. —Jun. —Dee. 30,1986 30,1992 1,1986 1,1992 Sep. Jul. 10% 8% —Jun. — 1,1992 31,1992 1,1986 31. 1986 Oct. 9% 7% —Dec. —Dec. 31,1987 1,1993 31,1993 1,1987 9% 9% 9% Jan. 7% 7% 7% —Mar. —Mar. 30,1987 1,1993 30,1993 Apr. 1,1987 Apr. —Jun. —Jun. 30,1987 30,1993 1,1987 Sep. 1,1993 Sep. Jul. Jul. — — 31,1987 1,1993 31,1993 1,1987 10% 11% Oct. Oct. 7% 7% —Dec. —Dec. 31,1988 1,1994 31,1994 1,1988 Jan. Jan. —Mar. —Mar. 30,1988 1,1994 30,1995 1,1988 Apr. 10% Apr. 7% —Jun. —Jun. 30,1988 30,1994 1,1988 Sep. 1,1994 Sep. 10% Jul. Jul. 8% — — 31,1988 1,1994 1,1988 31,1994 11% 11% Oct. Oct. 9% —Dec. —Dec. 1,1995 31,1989 1,1989 31,1995 Jan. Apr. Jan. 9% —Mar. —Mar. 30,1989 1,1995 1,1989 30,1995 Apr. 12% 12% 10% —Jun. —Jun. 30,1989 31,1995 1,1989 Sep. 1,1995 Sep. Jul. Jul. 9% — — 31,1989 1,1995 31,1995 1,1989 11% 11% 11% 11% 11% 11% Oct. Oct. 9% 9% 8% 9% 9% 9% —Dec. —Dec. 1,1997 31,1990 31,1997 1,1990 Jan. Jan. —Mar. —Mar. 30,1990 1,1996 30,1996 Apr. Apr. 1.1990—Jan. —Jun. 30,1990 30,1996 1,1990 Sep. 1,1997 Sep. Jul. Jul. — — 1,1996 31,1990 31,1996 1,1990 Oct. Oct. —Dec. —Dee. 1,1997 1,1991 Jan. Jan. —Mar. —Mar. 30,1991 1,1997 1,1991 30,1997 Apr. Apr. 10% 10% 9% 9% —Jun. —Jun. 30,1991 30,1997 1,1991 Sep. 1,1997 Sep. Jul. Jul. — — 97-23, Rul. higher from Rev. 1997-22 I.R.B. 10. The Rates taken effective rate of interest even shown, 6622(a). 95-17,1995-1 daily compounding § See Rev. Rul. figures due to under than the C.B. 556 rules). computation using daily (containing compounding tables of interest 1B APPENDIX 1,1985 Sep. 30,

Jan. — 30,1985 1,1992 1,1985 31,1992 Jan. Jan. 15.6% 10.8% —Mar. —Jun. 31,1985 1,1992 1,1985 Apr. 30,1992 Jul. 13.2% 12.0% 9.6% —Jun. —Dec. 30,1986 30,1992 1,1992 Sep. Jul. Jan. Jul. 1986—Jun. 9.6% 8.4% — 31,1986 1,1992 1,1986 31,1992 10.8% Oct. —Dec. —Dec. 31,1987 1,1993 1,1987 31,1993 Jan. Jan. 10.8% 10.8% 8.4% —Mar. —Mar. 30,1987 1,1993 Apr. 1,1987 Apr. 30,1993 8.4% —Jun. —Jun. 30,1987 30,1993 1,1987 Sep. 1,1993 Sep. Jul. 10.8% Jul. 8.4% — — 31,1987 1,1993 1,1987 31,1993 12.0% Oct. Oct. 8.4% —Dec. —Dec. 1,1994 1,1988 31,1988 31,1994 Jan. 13.2% 12.0% Jan. 8.4% 8.4% —Mar. —Mar. 1,1994 1,1988 30,1988 30,1994 Apr. Apr. —Jun. —Jun. 30,1988 1,1988 Sep. 30,1994 1,1994 Sep. Jul. Jul. 12.0% 13.2% 13.2% 9.6% — — 31,1988 1,1994 1,1988 31,1994 Oct. Oct. 10.8% 10.8% —Dec. —Dee. 1,1995 1,1989 31,1995 Jan. Jan. —Mar. —Mar. 1,1995 1,1989 30,1995 Apr. Apr. 14.4% 12.0% —Jun. —Jun. 30,1989 31,1995 1,1989 Sep. 1,1995 Sep. Jul. Jul. 14.4% 13.2% 10.8% 10.8% — — 1,1989 1,1995 31,1995 Oct. 31.1989 Oct. —Dec. —Dee. 31,1990 1,1996 1,1990 31,1996 Jan. 13.2% 13.2% Jan. 10.8% —Mar. —Mar. 1,1990 30,1990 1,1996 30,1996 Apr. Apr. 9.6% —Jun. —Jun. 30,1990 30,1996 1,1990 Sep. 1,1996 Sep. Jul. 13.2% Jul. 10.8% — — 31,1990 1,1996 31,1996 1,1990 Oct. 13.2% Oct. 10.8% —Dec. —Dec. 1,1997 1,1991 31,1991 31,1997 Jan. 13.2% 12.0% Jan. 10.8% 10.8% —Mar. —Mar. 30,1991 1,1997 Apr. 1,1991 Apr. 30,1997 —Jun. —Jun. 30,1991 30,1997 1,1991 Sep. Jul. 1,1997 Sep. Jul. 12.0% 10.8% — — 31,1991 1,1991 Oct. 12.0% —Dec. Appendix A, higher figures daily 1. rate of As with the the effective interest will be even due to 6622(a) compounding § under

453

APPENDIX C Market Interest Rates 3 Treasury

Savings Account1 CDs2 Securities Bonds 3 l-2}£ 2$ Corporate Insured (aaa) Year Bank Years Over One Ten Year Year Commercial 8.24% 8.73% 8.43% 10.62% 11.37% NA 1985 6.61% 6.46% 7.68% 9.02% 1986 5.24% 6.22% 5.21%, 7.86% 7.46% 6.76% 8.38% 9.38% 1987 8.43% 7.65% 8.85% 5.29% 8.30% 9.71% 1988 7.88% 7.86% 8.54% 8.50% 5.53% 9.26% 1989 7.42% 7.53% 7.88% 8.55% 9.32% 1990 5.84% 4.95% 5.52% 5.86% 7.86% 4.30% 8.77% 3.88% 4.77% 3.89% 7.01% 8.14% 2.88% 2.46% 3.55% 4.28% 3.43% 5.87% 7.22% 2.92% 5.74% 6.30% 5.31% 7.08% 7.96% (cid:127)1994 5.40% 5.95% 3.10% 5.17% 6.58% 7.59% 5.46% NA NA NA NA 5.22% Special Supplementary Table H.6 Savings Board 1. for Accounts taken Federal Reserve Statistics (1990-1995). Digest (1986-1989) figures represent and Federal Reserve Board Annual Statistical These year yield annual in the month of December for each shown. the effective represent interest-bearing open deposits all time certificates and account 2. for CDs time with Statistics $100,000 including Keogh deposits. than those held IRAs and Plan Federal balances of less Reserve (1985-1989); Special Supplementary H.6 Federal Reserve Board’s Annual Board’s Table Statistical (1990-1995). Digest Bonds taken from Business Statistics Treasury Corporate United for 3. Statistics Securities ed.). Slater, editor, (Courtenay M. States 99-100 STAPLETON, J., concurring part right exercised his to revoke his indefinite dissenting part: period. waiver of the limitations If he had so, however, the have done Service would persuaded I am that there is basis days deficiency, had 90 to assess a and the estopping in this case. As the Commissioner clearly record indicates that would have observes, persuasively the Service the court protect position though so to even its done taxpayer’s must have learned that it had the Thus, investigation complete.1 was not if the point prior 872-A at some to June Service, taxpayer had not been misled 1984, and, the Form 872s then in based on pay have in the Fall of 1984 he would had file, taxpayer’s must have realized that deficiency found the Tax Court to be ability expected the Commissioner’s he due, statutory up with interest to that time. deficiency terminate on that date. assess a equitable Equitable is defense however, persuaded, I am not equities to fit the and should tailored estopped from con- Commissioner should be particular ease. v. Interstate Green any deficiency tending that and interest Management Corp., 748 Services only specific reliance the due. The (3d Cir.1984) (“[T]he equitable is his claims this case forbearance doctrine, ‘a flexible [is] doctrine that, revoking his Form 872-A. He insists equities applied to be ... as the between the him that it his had the Service informed ”); Dobbs, promptly parties preponderate.’ Law Form 872-A in he would have immediately grant in which an extension would cause it to In each of the three earlier instances to execute a one- the Service asked deficiency. assess extension, year it advised him that failure to 2.4(1). Remedies, 2.3(5) Estopping §§ any contending from

the Commissioner deficiency and interest he has assessed

of the unnecessary in an windfall result

is due will In order to avoid such taxpayer.

to the

windfall, that the Commissioner I hold would contending that amount deficiency found in excess

is due Court, statutory up interest until

the Tax 30,1984, and market rate interest

September payment. until that date PARHAM, Appellant, Lamont

Paul Jr., Doctor; JOHNSON, Medical

Marshall Kozakieqicz; Forester, Tom J.

Charles Joseph Mazurkiewicz,

Commissioner;

Ph.D.

No. 95-3623. Appeals, States Court

Third Circuit.

Argued Feb. 1997. Sept.

Decided

Case Details

Case Name: Barry I. Fredericks v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Third Circuit

Date Published: Sep 11, 1997

Citation: 126 F.3d 433

Docket Number: 96-7748

Court Abbreviation: 3rd Cir.