Hanashiro v. Commissioner

T.C. Memo. 1999-78

UNITED STATES TAX COURT

PAUL K. HANASHIRO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10486-98. Filed March 12, 1999.

Bruce E. Gardner, for petitioner.

Melinda Williams, Peter Reilly, and John Q. Walsh, for

respondent.

MEMORANDUM OPINION

PANUTHOS, Chief Special Trial Judge: This case is before

the Court on petitioner's motion to dismiss for lack of

jurisdiction.1 Petitioner contends that the notices of

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
 - 2 -

deficiency at issue in this case are invalid and/or that the

notices of deficiency were rescinded before the filing of the

petition. As discussed in greater detail below, we will deny

petitioner's motion to dismiss. However, we will dismiss for

lack of jurisdiction and strike the allegations in the petition

pertaining to the taxable year 1996.

Background

Paul K. Hanashiro (petitioner) failed to file timely Federal

income tax returns for 1994, 1995, and 1996. On March 17, 1998,

respondent mailed separate notices of deficiency to petitioner

determining deficiencies in and additions to his Federal income

taxes for 1994 and 1995 as follows:

Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654(a)

1994 $78,101 $7,036.50 $1,172.53
1995 54,085 1,945.00 142.88

As of the date of mailing of the notices of deficiency,

respondent had prepared a total of three examination reports

regarding petitioner's tax liability for 1994 and 1995. On

December 16, 1997, respondent prepared separate examination

reports for 1994 and 1995.2 The examination report for 1994

lists a balance due of $46,229.24, comprising tax of $28,146

(deficiency of $78,101 less prepayment credits of $49,955),

2
The deficiencies determined for 1994 and 1995 are
consistent with these examination reports.
 - 3 -

interest of $9,874.21, and an estimated tax penalty of $8,209.03.

The examination report for 1995 lists a balance due of

$11,504.45, comprising tax of $7,780 (deficiency of $54,085 less

prepayment credits of $46,305), interest of $1,636.57, and an

estimated tax penalty of $2,087.88. A third examination report

dated January 27, 1998 (which included the proposed disallowance

of the prepayment credits allowed in the earlier examination

reports for 1994 and 1995), states that petitioner owes balances

of $184,941.22, $125,983.69, and $110,688.75 for taxes, interest,

and estimated tax penalties for 1994, 1995, and 1996,

respectively.

In late April 1998, counsel for petitioner wrote to Nancy L.

Jones at respondent's Kansas City Service Center to request that

the notices of deficiency for 1994 and 1995 be withdrawn on the

grounds that the notices were arbitrary and inaccurate. Ms.

Jones was listed as the "Person to contact" in the notices of

deficiency.

On April 28, 1998, petitioner filed a tax return for 1994 in

which he claimed a refund of $8,310.57.

On May 4, 1998, counsel for petitioner wrote to Revenue

Agent Tom Spolrich in Chicago, who had recently contacted

petitioner, to request the withdrawal of the notices of

deficiency for 1994 and 1995.
 - 4 -

On May 26, 1998, petitioner filed tax returns for 1995 and

1996 claiming refunds of $15,020.97 and $15,677.41, respectively.

In a letter to petitioner dated June 3, 1998, Revenue Agent

John Mayer stated:

The purpose of this letter is to inform you that your
case has been changed from status 24 (90 Day) to status
12 (under examination). If you have any questions, you
can reach me at [telephone number omitted].

On June 5, 1998, counsel for petitioner wrote to Revenue

Agent Mayer as follows:

This letter concerns my request for the IRS to withdraw
the Notices of Deficiency dated March 17, 1998 for [the
1994 and 1995] tax years.

As you may be aware, on April 29, 1998 I wrote Nancy L.
Jones in the Kansas City Service Center requesting that
the notices of deficiency be withdrawn, however, to
date I have not receive a response to my
correspondence.

Your letter dated June 3, 1998 suggests the status of
the above referenced tax returns have been changed from
status 24 (90 Day) to status 12 (under examination) but
does not address my concerns regarding the withdrawal
of the deficiency notices.

Enclosed you should find a copy of my letters to Ms.
Jones and the respective deficiency notices. It is my
understanding that each deficiency notice will be drawn
[sic] no later than Monday, June 8, 1998. I will need
written confirmation that the notices have been
officially withdrawn to avert filing a petition with
the U.S. Tax Court to protect the interests of my
client.

On June 9, 1998, at 3:50 p.m., counsel for petitioner hand-

delivered a petition for redetermination to the Court's petitions

section. The petition, although contesting petitioner's tax
 - 5 -

liability for 1994, 1995, and 1996, states that no notice of

deficiency was issued to petitioner for 1996. At the time the

petition was filed, petitioner resided in Chicago, Illinois.

On June 10, 1998, following an examination of petitioner's

late-filed tax returns for 1994, 1995, and 1996, respondent

issued an examination report which states that petitioner is

entitled to refunds of $12,919, $16,975, and $15,535 for 1994,

1995, and 1996, respectively. On June 10, 1998, Revenue Agent

Mayer executed Form 8626, Agreement to Rescind Notice of

Deficiency, covering the notices of deficiency for 1994 and 1995

and sent a copy of the Form 8626 to counsel for petitioner for

his signature. By letter dated June 11, 1998, counsel for

petitioner responded as follows:

This letter concerns the Agreement to Rescind Notice of
Deficiency (Form 8626) for tax years 1994 and 1995.
This letter also concerns why we will not execute the
Form 8626 we received today via facsimile.

When you called at 5:00 pm EST on June 9th you were
informed that U.S. Tax Court Petitions were filed at
approximately 4:00 pm earlier that day. You were also
informed that rescission of the notices was no longer
necessary.

Based on our agreement of June 1st, you stated all the
tax deficiency notices would be withdrawn by June 8th.
On June 5th, I informed you, that your letter changing
the status of this case from 90 days to examination did
not address my concerns. * * *

On June 8th, I did not hear from you regarding
withdrawing the tax deficiency notices. Accordingly,
on June 9th I filed U.S. Tax Court petitions covering
the tax years 1994, 1995, and 1996.
 - 6 -

A review of the Form 8626 received on June 11th
prohibits execution if a U.S. Tax Court petition
contesting the deficiencies has already been filed.
Accordingly, we can not execute the Form 8626 in good
faith since we have already filed the petitions. [Fn.
ref. omitted.]

On July 30, 1998, petitioner filed an amended petition which

includes allegations that the notices of deficiency for 1994 and

1995 are invalid.

Petitioner subsequently filed a motion to dismiss for lack

of jurisdiction arguing that: (1) The notices of deficiency for

1994 and 1995 are invalid; and (2) the notices were rescinded by

oral agreement before the filing of the petition.3 Respondent

filed an objection to petitioner's motion to dismiss.

Respondent's objection included the allegation that the Court

lacks jurisdiction over the 1996 taxable year on the ground that

no valid notice of deficiency had been issued to petitioner for

that year at the time that the petition was filed.

A hearing in this case was conducted at the Court's motions

session in Washington, D.C. Counsel for both parties appeared at

3
Petitioner seeks to have the notices of deficiency
declared invalid or rescinded to avoid having his claim for
refund for 1994 barred by the so-called 2-year look-back rule
prescribed in sec. 6512(b)(3)(B). See Commissioner v. Lundy, 516
U.S. 235 (1996) (the Tax Court lacks jurisdiction to award a
refund of taxes made more than 2 years before the date of mailing
of a notice of deficiency, if, on the date that the notice of
deficiency is mailed, the taxpayer has not filed a tax return for
that year).
 - 7 -

the hearing and offered argument in support of their respective

positions.

Discussion

The Court's jurisdiction to redetermine a deficiency depends

upon the issuance of a valid notice of deficiency and a timely

filed petition. See Rule 13(a), (c); Monge v. Commissioner, 93

T.C. 22, 27 (1989); Normac, Inc. v. Commissioner, 90 T.C. 142,

147 (1988). Section 6212(a) expressly authorizes the

Commissioner, after determining a deficiency, to send a notice of

deficiency to the taxpayer by certified or registered mail.

Pursuant to section 6213(a), the taxpayer has 90 days (or 150

days if the notice is addressed to a person outside of the United

States) from the date that the notice of deficiency is mailed to

file a petition with the Court for a redetermination of the

deficiency.

At a minimum, the notice must indicate that the Commissioner

has determined a deficiency in tax in a definite amount for a

particular taxable year and that the Commissioner intends to

assess the tax in due course. See Olsen v. Helvering, 88 F.2d

650, 651 (2d Cir. 1937); Perlmutter v. Commissioner, 44 T.C. 382,

400 (1965), affd. 373 F.2d 45 (10th Cir. 1967).

Petitioner contends that the notices of deficiency are

invalid on the ground that respondent attached conflicting

examination reports to the notices. Petitioner's contention is
 - 8 -

similar to an argument that the Court addressed in Campbell v.

Commissioner, 90 T.C. 110 (1988). In Campbell, the Commissioner

mailed a notice of deficiency to the taxpayers including: (1) A

cover letter reciting in standard language that it was a notice

of deficiency and listing the taxable year as well as the amounts

of the deficiency and additions to tax; (2) a notice of

deficiency waiver form; and (3) several pages purportedly

explaining the adjustments. Although the cover letter and the

waiver clearly related to the taxpayers, the Commissioner had

inadvertently attached to the notice a seven-page explanation of

adjustments for an unrelated taxpayer. In response, the

taxpayers filed a petition (and later a motion to dismiss)

attacking the validity of the notice of deficiency. See id. at

111.

Upon review of the matter, we noted that the first two pages

of the deficiency notice clearly referred to the taxpayers as the

subjects of the notice. While the explanation of adjustments may

have caused confusion, there was no indication in the notice that

the Commissioner failed to consider information relating to the

taxpayers in making the deficiency determination. See id. at

113. Viewing the record as a whole, we concluded that the

Commissioner had determined a deficiency against the taxpayers

and inadvertently attached the wrong computational sheets to the
 - 9 -

notice of deficiency. See id. Accordingly, we denied the

taxpayers' motion to dismiss.

As in Campbell v. Commissioner, supra, the notices of

deficiency in question include standard cover letters listing the

years, deficiencies, and additions to tax in dispute. There is

no question that the notices of deficiency pertain to

petitioner's tax liability. Although the conflicting examination

reports that were purportedly attached to the notices of

deficiency may have caused some confusion,4 we are convinced that

the notices of deficiency served to put petitioner on notice that

respondent had determined deficiencies in his Federal income

taxes for 1994 and 1995. Consequently, we hold that the notices

of deficiency are valid.

Petitioner contends in the alternative that the notices of

deficiency were rescinded by oral agreement before the date that

the petition was filed. The Commissioner's authority to rescind

a notice of deficiency derives from section 6212(d), which

provides:

SEC. 6212(d). Authority to Rescind Notice of
Deficiency With Taxpayer's Consent.--The Secretary may,
with the consent of the taxpayer, rescind any notice of
deficiency mailed to the taxpayer. Any notice so
rescinded shall not be treated as a notice of
deficiency for purposes of subsection (c)(1) (relating
to further deficiency letters restricted), section

4
We observe that, at the time that the notices of
deficiency were issued, the only confusion concerned whether
respondent would allow prepayment credits to petitioner.
 - 10 -

6213(a) (relating to restrictions applicable to
deficiencies; petition to Tax Court), and section
6512(a) (relating to limitations in case of a petition
to Tax Court), and the taxpayer shall have no right to
file a petition with the Tax Court based on such
notice. Nothing in this subsection shall affect any
suspension of the running of any period of limitations
during any period during which the rescinded notice was
outstanding.

In sum, section 6212(d) authorizes the Commissioner, with the

consent of the taxpayer, to rescind any notice of deficiency

mailed to the taxpayer. If a notice of deficiency is rescinded,

the taxpayer has no right to file a petition with the Court based

on such a notice. The record in this case shows that counsel for

petitioner requested that the notices of deficiency be rescinded

shortly after the notices were issued. Although the record

suggests that respondent's agents were in general agreement that

the notices should be rescinded, counsel for petitioner insisted

that the matter be committed to writing. When no written

rescission of the notices of deficiency was forthcoming, counsel

for petitioner filed a petition with the Court. Moreover, the

day after filing the petition, counsel for petitioner notified

respondent that rescission of the notices of deficiency was

unnecessary because of the filing of the petition.

The rescission of a notice of deficiency requires mutual

consent by the Commissioner and the taxpayer, and such mutual

consent must be objectively apparent. See Powell v.

Commissioner, T.C. Memo. 1998-108. The record in this case
 - 11 -

indicates that petitioner and respondent may have intended to

enter into an agreement but had not agreed to rescind the notices

of deficiency before the filing of the petition. Indeed, counsel

for petitioner made it clear that he would not consider the

notices of deficiency to be rescinded unless respondent reduced

the agreement to writing. When no written agreement was

forthcoming, counsel for petitioner filed a petition on

petitioner's behalf with the Court. Under the circumstances, we

hold that the parties did not agree to rescind the notices of

deficiency for 1994 and 1995.

Our holding on this point is not affected by Revenue Agent

Mayer's June 3, 1998, letter stating that petitioner's case had

"been changed from status 24 (90 Day) to status 12 (under

examination)". See Hesse v. Commissioner, T.C. Memo. 1997-333;

Slattery v. Commissioner, T.C. Memo. 1995-274 (returning a case

file from the 90-day section to the examination division for

purposes of a conference is not tantamount to a rescission).

Petitioner also argues that he should be permitted to

withdraw his petition and then execute the Form 8626 that Revenue

Agent Mayer forwarded to him on June 10, 1998. However, it is

well settled that the filing of a timely petition contesting a

valid notice of deficiency invests the Court with jurisdiction to

resolve finally the taxpayer's liability for the year in issue.

See Estate of Ming v. Commissioner, 62 T.C. 519, 521 (1974). A
 - 12 -

taxpayer may not unilaterally oust the Court from jurisdiction.

See Dorl v. Commissioner, 57 T.C. 720, 721-722 (1972). Because

petitioner filed a timely petition in response to valid notices

of deficiency, we will deny petitioner's motion to dismiss for

lack of jurisdiction.

As a final matter, we will dismiss for lack of jurisdiction

and strike all allegations in the petition pertaining to

petitioner's tax liability for 1996. Respondent did not issue a

valid notice of deficiency to petitioner for 1996, and we so

hold.

To reflect the foregoing,

An order denying petitioner's

motion to dismiss for lack of

jurisdiction and dismissing this case

for lack of jurisdiction and striking

the allegations in the petition

pertaining to the taxable year 1996 will

be issued.