T.C. Memo. 1999-302
UNITED STATES TAX COURT
DIESEL PERFORMANCE, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5019-98. Filed September 14, 1999.
Richard S. Calone and Jason W. Harrel, for petitioner.
Neal O. Abreu and Christian A. Speck, for respondent.
MEMORANDUM OPINION
PARR, Judge: Respondent determined deficiencies of $17,822
and $14,506 in petitioner's Federal income taxes for the taxable
years ending June 30, 1994, and June 30, 1995, respectively, and
an accuracy-related penalty of $3,564 under section 6662(a) for
1994.
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All section references are to the Internal Revenue Code in
effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
After concessions,1 the issues for decision are: (1)
Whether petitioner made a timely election to waive the carryback
period with respect to its net operating loss for its tax year
ending June 30, 1992. We hold it did not. (2) Whether the
period of limitations bars the assessment and collection of the
deficiency in income tax for the tax year ending June 30, 1994.
We hold it does not. (3) Whether the duty of consistency
doctrine, or in the alternative, the theory of equitable
estoppel, applies under these circumstances. We hold they do
not.
This case was submitted fully stipulated under Rule 122.
The stipulated facts and the accompanying exhibits are
incorporated herein by this reference. At the time the petition
in this case was filed, petitioner's principal place of business
was located in Stockton, California.
1
Petitioner conceded respondent's determination with respect
to the sec. 481 adjustment for the taxable year ending June 30,
1995. Respondent conceded that the accuracy-related penalty
under sec. 6662(a) does not apply to petitioner for the taxable
year ending June 30, 1994.
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Background
Diesel Performance, Inc. (Diesel Performance), is a
corporation permitted to do business in California. It was
incorporated on January 2, 1973.
For the tax year ending June 30, 1992, petitioner timely
filed its corporate income tax return, Form 1120. The originally
filed Form 1120 for the tax year ending June 30, 1992, showed a
profit (taxable income) for petitioner.
Due to accounting errors related to section 263A
adjustments, petitioner's accountant discovered that the original
Form 1120 for the tax year ending June 30, 1992, was incorrect.
After discovering the error, petitioner prepared an amended Form
1120X for the tax year ending June 30, 1992, which was filed on
March 25, 1994. The Form 1120X, for the first time, showed
petitioner had actually sustained a loss for that period.
Respondent does not dispute the accuracy of the loss reported on
petitioner's Form 1120X for the period ending June 30, 1992.
On the Form 1120X, petitioner attached a statement which
read:
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ELECTION TO RELINQUISH
NET OPERATING LOSS CARRYBACK PERIOD
DIESEL PERFORMANCE, INC.
EIN: XX-XXXXXXX
FORM 1120
Fiscal Year Ended June 30, 1992
Taxpayer incurred a net operating loss in its taxable
year ended June 30, 1992, and is entitled to a three-
year carryback period with respect to that loss under
Code Section 172(b)(1) of the Internal Revenue Code.
Pursuant to Code Section 172(b)(3)(C), the taxpayer
hereby elects to relinquish the entire carryback period
with respect to the net operating loss incurred in its
taxable year ended June 30, 1992.
On petitioner's Form 1120 filed for the tax year ending June
30, 1994, petitioner claimed a reduction in gross income in an
amount representing the net operating loss from the June 30,
1992, period. In auditing petitioner's June 30, 1994, Form 1120,
respondent disallowed the net operating loss carryover from June
30, 1992, on the grounds petitioner had not included a valid
election to waive the carryback period on a return filed by the
original due date.
Respondent issued a notice of deficiency for the taxable
year ending June 30, 1994, disallowing $55,769 of the net
operating loss petitioner attempted to carry forward to the June
30, 1994, taxable year.
On petitioner's original Forms 1120 for the taxable years
ending June 30, 1989, and 1990, petitioner reported net taxable
income of $109,646 and $191,445, respectively.
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On petitioner's original Form 1120 for the taxable year
ending June 30, 1991, petitioner reported a loss of $11,877.
Petitioner included with the original return its election to
waive the carryback period for the reported loss.
On petitioner's amended Form 1120X for the taxable year
ending June 30, 1991 (filed on or about April 20, 1994),
petitioner reported a loss of $79,007.
Discussion
Respondent determined that petitioner did not make a timely
election to waive the carryback period on the amended return for
the tax year ending June 30, 1992. Petitioner asserts that it
did make a valid election to relinquish the carryback period with
respect to its net operating loss for the tax year ending June
30, 1992.
In general, section 172 allows a deduction for an amount
equal to the aggregate of the net operating loss carryovers to a
taxable year plus the net operating loss carrybacks to that year.
See sec. 172(a). Section 172(b), as in effect for the years at
issue, required that a net operating loss first be carried back
to each of the 3 previous taxable years and, if it was unabsorbed
by those years, that the remaining portion be carried forward to
the 15 following taxable years. See sec. 172(b)(1) and (2).
Section 172(b)(3), however, provides that a taxpayer may
elect to relinquish the entire carryback period and carry forward
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the loss to the taxable years following the loss year. That
section further provides:
(3) * * * Such election shall be made in such
manner as may be prescribed by the Secretary, and shall
be made by the due date (including extensions of time)
for filing the taxpayer's return for the taxable year
of the net operating loss for which the election is to
be in effect. Such election, once made for any taxable
year, shall be irrevocable for that taxable year.
The regulations, in accord with the statute, provide that
the "election must be made by the later of the time, including
extensions thereof, prescribed by law for filing income tax
returns for such taxable year or March 8, 1977." Sec. 7.0(b)(1),
Temporary Income Tax Regs., 42 Fed. Reg. 1469-1470 (Jan. 7,
1977),2 which regulation is entitled Various Elections Under the
Tax Reform Act of 1976. As to the manner in which the election
is to be effected, section 2, Temporary Income Tax Regs., 42 Fed.
Reg. 1470 (Jan. 7, 1977), provides:
(d) Manner of making election. Unless otherwise
provided in the return or in a form accompanying a
return for the taxable year, the elections described
* * * shall be made by a statement attached to the
return (or amended return) for the taxable year. The
statement required when making an election pursuant to
this section shall indicate the section under which the
election is being made and shall set forth information
to identify the election, the period for which it
applies, and the taxpayer's basis or entitlement for
making the election.
2
The regulation was redesignated in 1992 as sec. 301.9100-
12T, Temporary Income Tax Regs., 57 Fed. Reg. 43893 (Sept. 23,
1992).
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In Young v. Commissioner, 83 T.C. 831, 840-841 (1984), affd.
783 F.2d 1201 (5th Cir. 1986), this Court concluded that the
taxpayer's "amended return is irrelevant" in determining
substantial compliance with the election requirements. In
rejecting the taxpayer's argument that section 7.0(d), Temporary
Income Tax Regs., 42 Fed. Reg. 1469 (Jan. 7, 1977), provides that
an election may be made in an amended return, the Court
explained:
This is true; however, in order to square the
regulation with the directive of the statute, an
election made in a subsequently filed return can only
be effective if the subsequently filed return is filed
before the due date of the return. [Young v.
Commissioner, supra at 841 n.9.]
We accept that petitioner made an honest mistake when filing
its original return for the tax year ending June 30, 1992.
Furthermore, we accept that it attempted to elect to relinquish
the carryback period on its amended return for the tax year
ending June 30, 1992. The due date, with extensions, of
petitioner's return for the tax year ending June 30, 1992,
however, was March 15, 1993. Petitioner did not file the amended
return with the election until March 25, 1994. Therefore,
petitioner did not make a timely election to waive the carryback
period on its amended return for the tax year ending June 30,
1992. See Young v. Commissioner, supra; Klyce v. Commissioner,
T.C. Memo. 1999-198; Menaged v. Commissioner, T.C. Memo. 1991-79.
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Petitioner next argues that the period of limitations under
section 6501 bars the assessment and collection of the deficiency
in income tax for the tax year ending June 30, 1994.
Petitioner's amended return for the tax year ending June 30,
1992, was filed on March 25, 1994. According to section 6501,
petitioner argues, the period of limitations for the tax year
ending June 30, 1992, expired September 15, 1995.
An amended return, even if accepted by the IRS, is
considered a mere supplement, and the original return is used for
purposes of determining the period of limitations on assessment.
See Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934).
Therefore, petitioner is correct in that generally the period of
limitations for the tax year ending June 30, 1992, would expire
on September 15, 1995; however, the tax year in issue for which a
deficiency was determined ended on June 30, 1994. Respondent is
not barred from assessment and collection of a deficiency in
income tax for the tax year ending June 30, 1994, by the period
of limitations.
Next, petitioner argues that the duty of consistency is
applicable in this case. We may exercise equitable principles so
that the duty of consistency applies in this Court, see LeFever
v. Commissioner, 103 T.C. 525, 541 (1994), affd. 100 F.3d 778
(10th Cir. 1996); however, it does not apply to the facts of this
case. The duty of consistency doctrine prevents a taxpayer
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from taking a position one year, and then a contrary position in
a later year after the period of limitations has expired on the
first year. See id. at 541-542; see also United States v.
Matheson, 532 F.2d 809, 819 (2d Cir. 1976)(estate estopped to
deny decedent's U.S. citizenship after she represented to the
U.S. Government for a period of more than 20 years that she was a
citizen of the United States). Petitioner argues that under
certain circumstances, the duty of consistency may also apply to
the Commissioner. See, e.g., Conway Import Co. v. United States,
311 F. Supp. 5, 14-15 (E.D.N.Y. 1969)(Commissioner estopped to
apply ruling retroactively to recordkeeping system that had been
substantially accepted for a long period of time and reviewed by
many agents at different levels of authority). This type of
situation is not present here. Petitioner made an honest mistake
in preparing a return, which respondent discovered on audit. The
duty of consistency does not apply against respondent.
Although petitioner argues the duty of consistency applies,
petitioner also mentions equitable estoppel and argues on brief
that respondent was not timely in reviewing the invalid election,
and thereby "provided a wrongful misleading silence upon which
the taxpayer relied". To invoke estoppel against the Government,
the party seeking estoppel must show at a minimum: (1) The
existence of a false representation or wrongful misleading
silence by the other party; (2) ignorance of the facts; (3)
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reasonable reliance on the false representation or wrongful
misleading silence of the other party; (4) error in a statement
of facts and not in an opinion or statement of law; and (5) a
resulting detriment to the party relying on the false statement
or misleading silence. See Garland v. Commissioner, T.C. Memo.
1993-190. Petitioner has not proven any of the elements of
equitable estoppel.
For the foregoing reasons,
Decision will be entered
under Rule 155.