Evans v. Commissioner

T.C. Memo. 1999-66

UNITED STATES TAX COURT

GERALD H. EVANS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24438-95. Filed March 5, 1999.

Gerald H. Evans, pro se.

Mary P. Hamilton, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

ARMEN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 2 -

Respondent issued a so-called affected items notice of

deficiency for the taxable year 1982. In the notice, respondent

determined that petitioner was liable for (1) additions to tax

for negligence under section 6653(a)(1) and (a)(2) in the amounts

of $620 and 50 percent of the interest due on $12,395,

respectively, and (2) an addition to tax for valuation

overstatement under section 6659 in the amount of $3,014.

The issues for decision are as follows:

(1) Whether respondent issued a valid affected items notice

of deficiency sufficient to toll the period of limitations for

assessment and collection. We hold that such a notice was

issued.

(2) Whether the execution of Form 4549 by the parties barred

respondent from subsequently issuing the affected items notice of

deficiency. We hold that the execution of Form 4549 did not bar

respondent from issuing such notice.

Petitioner concedes that he is liable for the additions to

tax in dispute if respondent prevails on the two enumerated

issues.

FINDINGS OF FACT

Some of the facts have been stipulated, and they are so

found. Petitioner resided in Lambertville, New Jersey, at the

time that his petition was filed with the Court.

Petitioner filed a joint income tax return with his then

wife Linda Evans for 1982, the taxable year in issue.
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Subsequently, but before the filing of the petition herein,

petitioner and Linda Evans were divorced.

During 1981 through 1983, petitioner owned a corporation

known as G.H. Evans & Company (Evans & Co.). In 1984, respondent

commenced an examination of Evans & Co. for its taxable years

1981 through 1983 through a revenue agent named Robert M. Coar

(Agent Coar). During the corporate examination, Agent Coar

determined that petitioner had received interest-free use of

corporate funds. Based on this determination, Agent Coar

extended the examination to include petitioner's joint income tax

returns for the taxable years 1981 through 1983. Petitioner's

accountant, Eric Lear, represented petitioner during the

examination.

At the conclusion of the examination, Agent Coar made

several income adjustments to petitioner's 1981 and 1982 taxable

years. The adjustments for the 1982 taxable year were for

unreported dividends from two sources (Evans & Co. and an

unrelated payor) and additional wage income from an unrelated

source. In a conversation with his supervisor, Agent Coar stated

that these adjustments gave rise to the total tax liability

attributable to petitioner's individual examination.

Petitioner agreed to Agent Coar's adjustments and in March

1985 executed Form 4549, Income Tax Examination Changes. An

Agent of respondent executed the form during the following month.
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Form 4549 stated in pertinent part as follows:

Consent to Assessment and Collection - I do not wish
to exercise my appeal rights with the Internal Revenue
Service or to contest in the United States Tax Court
the findings in this report. Therefore, I give my
consent to the immediate assessment and collection of
any increase in tax and penalties, and accept any
decrease in tax and penalties shown above, plus any
interest as provided by law. It is understood that
this report is subject to acceptance by the District
Director.

In November 1982, petitioner invested in a partnership known

as PBB Recycling Associates II (PBB). Petitioner became a

limited partner of PBB, owning a 27.3-percent interest in the

profits, losses, and capital therein. During 1982, PBB was a

limited partner in a partnership known as Taylor Recycling

Associates (Taylor). Taylor was a first-tier TEFRA partnership

involved in plastics recycling. PBB owned a 2.91-percent

interest in the profits, losses, and capital of Taylor.

On his 1982 return, petitioner claimed a net loss and a

business energy investment credit consistent with the 1982

Schedule K-1 that he received from PBB. The propriety of such

loss and credit was not within the scope of Agent Coar's

examination, and Agent Coar did not question either the loss or

the credit during the course of his examination of petitioner's

1982 return.

On February 16, 1988, respondent issued a Notice of Final

Partnership Administrative Adjustment (FPAA) for the taxable year

1982 to the Tax Matters Partner (TMP) of PBB as a partner of

Taylor. Thereafter, a partnership proceeding captioned Taylor
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Recycling Associates, DL & K Associates, A Partner Other Than the

Tax Matters Partner v. Commissioner, docket No. 10184-88 (the

Taylor case) was commenced in this Court on behalf of Taylor. On

July 21, 1994, the Court entered decision in the Taylor case

pursuant to the Commissioner's motion for entry of decision under

Rule 248(b). All deductions and credits claimed by Taylor in

connection with its plastics recycling activities were

disallowed.

Thereafter, on August 28, 1995, respondent issued the

affected items notice of deficiency for 1982 determining

additions to tax under sections 6653(a)(1) and (2), and 6659.

Petitioner appealed from the notice and filed his petition with

this Court on November 22, 1995.

OPINION

1. Tolling of the Period of Limitations

Petitioner claims that the period of limitations for

assessment and collection for the additions to tax in dispute has

expired because of respondent's failure to issue a valid notice

of deficiency. We disagree.

Pursuant to the general rule of section 6229(a), the period

for assessing any income tax attributable to partnership items or

affected items for a partnership taxable year will not expire

until the later of a date that is 3 years after the partnership

files its information return for the taxable year in question or

the last day for filing such return for such year. The 3-year
 - 6 -

minimum period may be extended, suspended, or otherwise modified

as provided in section 6229.

As pertinent herein, section 6229(d) provides that the

running of the period of limitations specified in subsection (a)

is suspended from the date on which the notice of final

partnership administrative adjustment is mailed to the

partnership's TMP through the date on which the decision of this

Court becomes final and for 1 year thereafter. Pursuant to

sections 7481(a) and 7483, if a timely notice of appeal is not

filed, the decision of this Court becomes final 90 days after the

decision is entered.

In this regard, there is no dispute that the period for

assessing the additions to tax in dispute expired no earlier than

October 19, 1995; i.e., 1 year and 90 days from the entry of

decision in the Taylor case.

Section 6503(a)(1) provides that the running of the period

of limitations on assessment and collection will be tolled upon

the mailing of a notice of deficiency under section 6212(a). In

the present case, respondent mailed the affected items notice of

deficiency on August 28, 1995, nearly 2 months before the

expiration of the period for assessment and collection under

section 6229. Accordingly, the only issue is whether the notice

of deficiency is valid. Petitioner claims that the notice was

not mailed to his last known address and is therefore invalid.

A notice of deficiency is valid if the taxpayer actually

receives the notice and thereafter files a timely petition in the
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Tax Court. Frieling v. Commissioner, 81 T.C. 42 (1983). This

rule applies regardless of the address to which the notice is

mailed. Id. Further, such a notice serves to toll the period of

limitations for assessment and collection under section

6503(a)(1). Id.

In Frieling v. Commissioner, supra, a notice of deficiency

was mailed on the last day of the 3-year period of limitations

for assessment and collection, but the notice was not sent to the

taxpayers at their last known address. Nonetheless, the

taxpayers actually received the notice and petitioned the Tax

Court within the requisite 90-day period. The Court held that

the notice of deficiency satisfied section 6212(a) and that the

period of limitations was tolled by the mailing of the notice.

Petitioner filed a timely petition with the Court on

November 22, 1995.2 Petitioner's actual receipt of the notice of

deficiency and his subsequent filing of a timely petition with

this Court render moot any inquiry regarding the address to which

the notice of deficiency was mailed. The notice of deficiency is

valid, and the notice therefore tolled the running of the period

of limitations for assessment and collection.

Alternatively, petitioner contends that the notice of

deficiency is not valid because respondent failed to mail the

notice to the address provided on the partnership return for the

2
The 90-day period for filing a petition with the Court
expired on Nov. 27, 1995, the 90th day being a Sunday. Sec.
7503.
 - 8 -

year in issue. In this regard, petitioner refers to the

requirements under section 6223.

As previously mentioned, under the facts of this case the

address to which respondent mailed the notice of deficiency is

irrelevant because petitioner received the notice and filed a

timely petition. Regardless, as pertinent here, section 6223

requires the Commissioner to send the Notice of Beginning

Administrative Proceeding (NBAP) and the FPAA to each partner

whose name and address is furnished to the Commissioner. Under

paragraph (c) of that section, unless additional information is

provided, the Commissioner is required to use the address shown

on the partnership return in mailing the NBAP and the FPAA.

However, there is no requirement under section 6223 that the

Commissioner mail an affected items notice of deficiency to a

taxpayer at an address provided in the partnership return.

Rather, as provided under section 6230(a)(2)(A)(i), the

normal deficiency procedures apply to affected items that require

partner-level determinations. The additions to tax involved

herein--additions for negligence under section 6653(a) and for

overvaluation understatement under section 6659--are affected

items requiring factual determinations at the individual partner

level. See N.C.F. Energy Partners v. Commissioner, 89 T.C. 741,

744-746 (1987). As a result, normal deficiency procedures apply

in this case and, as discussed above, under normal deficiency

procedures the notice of deficiency involved herein is valid.

See Frieling v. Commissioner, supra.
 - 9 -

In light of the foregoing, we hold that respondent issued a

valid notice of deficiency and that such notice served to toll

the running of the period of limitations for assessment and

collection.

2. Effect of Form 4549

Petitioner also contends that the execution of Form 4549

conclusively determined his total tax liability for 1982 and that

respondent is therefore barred from making any subsequent

assessment for that year.

It has long been established that the statutory procedure

provided under section 7121 is the exclusive method by which an

agreement regarding a taxpayer's tax liability may be accorded

finality. See Hudock v. Commissioner, 65 T.C. 351, 362 (1975),

and cases cited therein; see also Person v. Commissioner, T.C.

Memo. 1985-211. (Because Congress has provided a way in which

the Commissioner may be bound, the possibility of being bound by

some other procedure is precluded.) Section 7121 authorizes the

Commissioner to enter into an agreement in writing, referred to

as a "closing agreement", with any person in respect of any tax

for any taxable period. See secs. 7121(a), 7701(a)(11)(B). A

closing agreement becomes final and conclusive when approved by

the Commissioner. Sec. 7121(b).

Section 301.7121-1(d), Proced. & Admin. Regs., provides that

all closing agreements shall be executed on forms prescribed by

the Internal Revenue Service. The Internal Revenue Service has

prescribed Forms 866 and 906 for this purpose. Form 866,
 - 10 -

entitled "Agreement as to Final Determination of Tax Liability",

is used to determine conclusively the taxpayer's total tax

liability for a taxable period. On the other hand, Form 906,

entitled "Closing Agreement on Final Determination Covering

Specific Matters", is used if the agreement relates to one or

more separate items affecting the tax liability of the taxpayer.

Sec. 601.202(b), Statement of Procedural Rules.

Petitioner did not execute a Form 866 to determine

conclusively his total tax liability for 1982, nor did he even

execute Form 906 to finalize the disposition of any specific

matter for that year. Petitioner merely executed Form 4549,

Income Tax Examination Changes. Form 4549 is not a closing

agreement under section 7121, and the form is not prescribed by

the Internal Revenue Service to be used as a closing agreement.

See Hudock v. Commissioner, supra. Form 4549 does not contain

language purporting to be respondent's final agreement concerning

petitioner's 1982 tax liability. By executing the Form 4549,

petitioner merely consented to the immediate assessment and

collection of the deficiency proposed therein. Therefore,

respondent is not precluded from determining an additional

deficiency for 1982. See id.

Further, respondent is not equitably estopped from

determining additions to tax attributable to partnership affected

items for 1982. The doctrine of equitable estoppel is applied

against the Commissioner with the utmost caution and concern.
 - 11 -

Boulez v. Commissioner, 76 T.C. 209, 214-215 (1981), affd. 810

F.2d 209 (D.C. Cir. 1987).

One of the elements required for the application of the

doctrine of equitable estoppel is that the person claiming its

benefit must be adversely affected by the acts or statements of

the person against whom an estoppel is claimed. See Kronish v.

Commissioner, 90 T.C. 684, 695-697 (1988); Century Data Sys.,

Inc. v. Commissioner, 86 T.C. 157, 165 (1986). There is no

detrimental reliance on the part of a taxpayer who, pursuant to

the execution of Form 4549, simply pays a tax that was lawful for

the taxpayer to pay. Hudock v. Commissioner, supra at 364.

An additional element required for the application of the

doctrine of equitable estoppel is a false representation or

wrongful misleading silence by the one against whom estoppel is

claimed. Petitioner claims that respondent's agent falsely

represented that the adjustments made on the Form 4549

constituted petitioner's total tax liability. Assuming that

Agent Coar made such a representation, it must be considered in

light of Agent Coar's authority and the scope of Agent Coar's

examination.

Agent Coar's examination involved petitioner's individual

taxes. In issue herein are so-called affected items consisting

of additions to tax for negligence and overvaluation. See N.C.F.

Energy Partners v. Commissioner, supra at 744-746. The TEFRA

rules, codified at sections 6221 through 6233, segregate

adjustments attributable to an individual's interest in a
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partnership that are subject to TEFRA from all other adjustments

that can be made to the individual's return. See Maxwell v.

Commissioner, 87 T.C. 783, 787-788 (1986). Agent Coar was

therefore restricted from examining affected items as part of

petitioner's individual tax case. See id. In view of this fact,

the "total" adjustments Agent Coar could make to petitioner's

1982 taxable year would necessarily exclude any adjustments for

affected items. Thus, any representation by Agent Coar must be

viewed in the context of Agent Coar's limited authority and the

restricted scope of his examination.

In light of the foregoing, the execution of Form 4549 with

respect to the 1982 year did not preclude respondent from

subsequently issuing an affected items notice of deficiency for

the same taxable year.

To reflect our disposition of the disputed issue, as well as

the parties' stipulation of settled issues,

Decision will be entered

for respondent.