1988 U.S. Tax Ct. LEXIS 144 | Tax Ct. | 1988
Lead Opinion
OPINION
Respondent determined the following deficiencies in petitioners’ Federal income tax:
Year Deficiency
1971.$4,316.85
1973. 11,272.14 .
1974. 7,711.83.
1975. 17,127.85.
1976. 20,458.66
1977. 8,838.38
By order of the Court, issues relating to the years 1971, 1973, and 1976 were severed. The parties agree that the adjustments are proper and that the deficiencies are due unless assessment thereof is barred by the statute of limitations.
All of the facts have been stipulated. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Billie J. Camara was a resident of Hinton, West Virginia, at the time the petition was filed. She and her husband, Prudencio B. Camara, who died on May 7, 1982,
Year Date filed
1974. June 15, 1975
1975. June 15, 1976
1977. June 15, 1978
A series of Forms 872 (Consent Fixing Period of Limitation Upon Assessment of Income Tax) extending the statute of limitations for 1974 and 1975 to December 31, 1980, were timely executed by Dr. and Mrs. Camara and on behalf of respondent.
A Form 872-A (Special Consent to Extend the Time to Assess Tax) related to the years 1970 through 1976 was executed by Dr. and Mrs. Camara on July 23, 1980, and on behalf of respondent on July 24, 1980. That form provides, in part, that the Federal income tax due for the years to which it applied:
may be assessed on or before the 90th (ninetieth) day after: (a) the Internal Revenue Service office considering the case receives Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, from the taxpayer(s); or (b) the Internal Revenue Service mails Form 872-T to the taxpayer(s); or (c) the Internal Revenue Service mails a notice of deficiency for such period(s). * * *
The Form 872-A further provides: “This agreement ends on the earlier of the above [quoted] expiration date or the assessment date of an increase in the above tax that reflects the final determination of tax and the final administrative appeals consideration.” We will refer to Form 872-A, as well as other extension agreements having no fixed termination date, as indefinite extension agreements.
A Form 872-A relating to 1977 was executed by Dr. and Mrs. Camara on February 12, 1981, and on behalf' of respondent on February 18, 1981. That Form 872-A contained the language quoted above with respect to termination of the extension agreement.
At no time did petitioners, Dr. Camara, or anyone acting on their behalf send a Form 872-T (Notice of Termination of Special Consent to Extend Time to Assess Tax) to respondent, or attempt to terminate the consent given by the Forms 872-A for any of the tax years in issue.
On December 9, 1983, respondent mailed petitioners an examination report for the years in issue. During January 1984, petitioners filed a protest with respondent, protesting the changes set out in that examination report on the ground that the statute of limitations for the years in issue had run. The last contact petitioners had with respondent before he issued the notice of deficiency was on March 16, 1984, when a conference was held to consider petitioners’ protest. May 19, 1986, respondent mailed petitioners the statutory notice of deficiency at issue herein.
In general, taxes imposed by the Internal Revenue Code must be assessed within 3 years from the time that the return is filed. Sec. 6501(a).
The period for assessment may be extended by agreement, provided that such agreement is executed before the period for assessment, or that period as extended by another agreement, has expired. Sec. 6501(c)(4).
A consent to extend the statute of limitations is essentially a unilateral waiver of the taxpayer’s defense rather than a contract; contract principles are important, however, because section 6401(c)(4) requires an agreement between the parties. Kovens v. Commissioner, 90 T.C. 452, 457 (1988). By their terms, the Forms 872-A signed by Dr. and Mrs. Camara require that an executed Form 872-T be delivered to respondent in order for Dr. and Mrs. Camara to terminate the extension agreements. See also Grunwald v. Commissioner, 86 T.C. 85, 88-90 (1986). Petitioners argue, in effect, that we should graft onto the agreement an additional term requiring that the agreement expire when a reasonable time has passed since its execution.
Petitioners base much of their argument on cases stating that indefinite extension agreements expire at the end of a reasonable time. The early cases upon which petitioners rely, however, are distinguishable, because the indefinite extension agreements with which they deal did not contain any provision covering the manner in which the agreement could be terminated. See, e.g., Franklin v. Commissioner, 7 B.T.A. 636 (1927).
Petitioners also cite McManus v. Commissioner, 65 T.C. 197 (1975), affd. 583 F.2d 443 (9th Cir. 1978), as requiring the implied term for which they contend. In that case, we were dealing with the taxpayer’s assertion that indefinite extension agreements on the then-current Form 872-A (a predecessor of the Forms 872-A at issue here)
If waivers which are in terms unlimited are to be limited at all, we think they should expire only after the taxpayer gives notice to the Commissioner that he will regard the waiver as at an end after a reasonable time, say three or four months, from the date of such notice. * * * [31 F.2d at 658.]
Thus, McManus is far from clear as to what it considered to be the appropriate rule for termination of indefinite extension agreements, particularly since, in the final analysis, it concluded that the extension agreements involved therein were in fact reasonably used.
Since McManus was decided, we have held that the current version of Form 872-A may be terminated only with a Form 872-T or a notice of deficiency. Grunwald v. Commissioner, 86 T.C. at 89-90.
We think that both of those concerns are implicated here. Firstly, the Forms 872-A involved herein specifically allow a taxpayer to terminate it in writing on a Form 872-T. The parties to the extension agreement should be held to that term. See Grunwald v. Commissioner, 86. T.C. at 89. Secondly, certainty in the use of Form 872-A is further enhanced by not interpreting it to end by operation of law after a reasonable time. If the extension agreements of the type involved herein were held to end after a reasonable period of time without the giving of prior notice, we would be forced to make an inquiry into the facts and circumstances of every case in which a Form 872-A was utilized. Therefore, we hold that extension agreements that contain specific termination provisions do not end by operation of law after a reasonable time. To the extent that McManus v. Commissioner, supra, requires a different result, we will no longer follow it.
Petitioners also argue that unlimited extensions of the statute of limitations violate the policy behind such extensions, which they assert, citing Borg-Warner Corp. v. Commissioner, 660 F.2d 324, 328 (7th Cir. 1981), revg. a Memorandum Opinion of this Court,
We hold that the Forms 872-A for the years 1974, 1975, and 1977 were valid and that assessment of taxes for those years is not barred by the statute of limitations.
To reflect the foregoing,
Decision will be entered under Rule 155.
Reviewed by the Court.
We will refer to Mrs. Camara and the Estate of Prudencio B. Camara as petitioners.
UnIess otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect during the relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
In relevant part, that subsection provides:
(4) Extension by agreement. — Where, before the expiration of the time prescribed in this section for the assessment of any tax imposed by this title * * * both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.
Petitioners also cite Farmers Union State Exchange v. Commissioner, 30 B.T.A. 1051 (1934), and Ethel D. Co. v. Commissioner, 27 B.T.A. 25 (1932), affd. 70 F.2d 761 (D.C. Cir. 1934), both of which deal with the interplay between extension agreements of unlimited and limited duration.
The Form 872-A at issue in that case did not require use of a Form 872-T to terminate the extension agreement, but rather stated that it would terminate 90 days after receipt by respondent of written notification that the taxpayer elected to terminate the agreement.
Cases citing McManus v. Commissioner, 65 T.C. 197 (1975), affd. 583 F.2d 443 (9th Cir. 1978), have been principally concerned with upholding indefinite extension agreements against attack on the grounds that sec. 6501(c)(4) requires a fixed expiration date, and have gone on to hold that the agreements were reasonably used. Winn v. Commissioner, 67 T.C. 499, 508 (1976), affd. in part and revd. in part on other issues 595 F.2d 1060 (5th Cir. 1979); Carriage Square, Inc. v. Commissioner, 69 T.C. 119, 126 (1977).
Any argument by petitioners that the 1984 protest constituted notice of their intent to terminate the extension agreement is foreclosed by that case.
Our approach also avoids the necessity of an inquiry such as occurred in Funk v. Commissioner, T.C. Memo. 1988-388, and Ribb v. Commissioner, T.C. Memo. 1988-379.
We note that the statement of the purpose behind extension agreements in Borg-Warner was made in the context of determining whether a letter sent to the taxpayer therein, informing it that the examination of its return was complete, was sufficient to terminate the extension agreement. See Borg-Warner Corp. v. Commissioner, 660 F.2d 324, 327 (7th Cir. 1981), revg. a Memorandum Opinion of this Court.