T.C. Memo. 2008-16
UNITED STATES TAX COURT
ESTATE OF MARVIN E. GREENFIELD, DECEASED,
BARBARA GREENFIELD, PERSONAL REPRESENTATIVE, AND
BARBARA GREENFIELD, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20423-04. Filed January 31, 2008.
Frank Agostino, for petitioners.
Joseph J. Boylan, for respondent.
MEMORANDUM OPINION
LARO, Judge: This case was submitted to the Court under
Rule 122 for decision without trial.1 Petitioners petitioned the
1
Rule references are to the Tax Court Rules of Practice and
Procedure. Unless otherwise noted, section references are to the
applicable versions of the Internal Revenue Code.
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Court to redetermine a 1982 income tax deficiency of $29,063 and
the applicability of an increased rate of interest under section
6621(c) due to substantial underpayment of tax attributable to a
tax-motivated transaction. We decide whether the period of
limitations remains open for assessment of those items. We hold
that it does.
Background
All facts were stipulated or contained in the exhibits
submitted with the stipulations. The stipulated facts and
exhibits are incorporated herein by this reference.
Barbara and Marvin E. Greenfield (separately, Ms. Greenfield
and Mr. Greenfield; together, the Greenfields) were husband and
wife in the year at issue, 1982. Mr. Greenfield died on February
28, 2006. At the time of the filing of the petition, the
Greenfields’ mailing address was in Florida.
On or about August 12, 1983, the Greenfields filed a timely
joint 1982 Form 1040, U.S. Individual Income Tax Return, with the
Atlanta Service Center (Greenfields’ tax return). The
Greenfields’ tax return included flowthrough losses from various
partnerships known as the Mast Realty Associates Partnerships.
Respondent selected the Mast Realty Associates Partnerships
for audit and solicited a Form 872-A, Special Consent to Extend
the Time to Assess Tax, from the Greenfields to extend the period
of limitations for the Greenfields’ tax return. The Greenfields
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signed the Form 872-A on June 10, 1986. On or before June 24,
1986, respondent countersigned the Form 872-A and returned a copy
to petitioners. The Greenfields never submitted a Form 872-T,
Notice of Termination of Special Consent to Extend the Time to
Assess Tax, to respondent for the Greenfields’ tax return.
Respondent eventually determined that the Greenfields’
distributive share of income for 1982 from the Mast Realty
Associates Partnerships should be increased by $62,186 and that
any deficiency related to the determination is subject to an
increased rate of interest under section 6621(c). On July 30,
2004, respondent mailed a notice of deficiency to the Greenfields
for 1982 reflecting the determination. Subsequently, respondent
determined that Ms. Greenfield qualified under section 6015 for
relief from any joint and several tax liability for 1982.
On September 19, 1992, Mr. Greenfield filed a petition under
chapter 11 of the Bankruptcy Code. On January 11, 1993,
respondent filed a proof of claim in Mr. Greenfield’s bankruptcy
case (first proof of claim). On October 21, 1993, Mr. Greenfield
objected to respondent’s first proof of claim, and on or about
November 9, 1993, respondent consented to the disallowance of
respondent’s first proof of claim.
Also on November 9, 1993, respondent filed a second proof of
claim in Mr. Greenfield’s bankruptcy proceeding (second proof of
claim). The second proof of claim asserted an unsecured priority
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claim totaling $34,150.32 for 1983 and 1984. On April 14, 1994,
Mr. Greenfield’s action under chapter 11 of the Bankruptcy Code
was converted to a bankruptcy liquidation under chapter 7.
On August 15, 1994, respondent filed a third proof of claim
in Mr. Greenfield’s bankruptcy proceeding (third proof of claim).
Respondent’s third proof of claim asserted an unsecured priority
claim totaling $216,386.49 and an unsecured general claim
totaling $19,601.28 for 1983, 1984, and 1991.
On November 18, 1997, the U.S. Bankruptcy Court for the
Southern District of Florida issued a “Discharge of Debtor(s)”.
On July 19, 2000, the bankruptcy trustee paid respondent
$29,683.67 in satisfaction of respondent’s unsecured priority
claim of $216,386.49. On July 21, 2000, respondent advised the
Greenfields by correspondence that their only open Federal tax
lien was filed in July 1995.
On April 25, 2006, the Estate of Marvin E. Greenfield filed
a Form 4810, Request for Prompt Assessment Under Internal Revenue
Code Section 6501(d), for the income tax years 1980 to 1986
inclusive. In response to that request, on October 11, 2006, in
correspondence directed to the Greenfields, respondent mistakenly
stated that the period of limitations for 1982 had already
expired.
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Discussion
We decide whether respondent timely issued the notice of
deficiency to the Greenfields within the applicable period of
limitations provided by section 6501(a). Respondent argues that
the notice of deficiency was timely because the Greenfields’
execution of Form 872-A extended the period of limitations under
section 6501(c)(4). Petitioners argue that the notice of
deficiency was untimely. Alternatively, petitioners argue, the
extension, if effective, applies only to the tax deficiency and
not to the increased rate of interest. We conclude that the
notice of deficiency was timely. We also conclude that the Form
872-A applies to both the income tax deficiency and the increased
rate of interest.
A. Burden of Proof
As a general rule, Federal income tax must be assessed
within 3 years after a tax return is filed. See sec. 6501(a).
That period may be extended, however, by written agreement
between the taxpayer and the Commissioner made before expiration
of the general 3-year period. See sec. 6501(c)(4).
The bar of limitations is an affirmative defense, and
taxpayers raising it must specifically plead it and carry the
burden of proof. See Rules 39, 142; Adler v. Commissioner, 85
T.C. 535, 540-541 (1985). A taxpayer can establish a prima facie
case by showing that the Commissioner mailed the notice of
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deficiency after the 3-year period of limitations. Adler v.
Commissioner, supra at 540. If the taxpayer establishes a prima
facie case, the burden of going forward shifts to the
Commissioner to show that the bar of the statute of limitations
is not applicable. Id. The Commissioner may meet this burden by
introducing a consent, valid on its face, that extends the period
of limitations to the date of the mailing of the notice of
deficiency. See Concrete Engg. Co. v. Commissioner, 58 F.2d 566
(8th Cir. 1932), affg. 19 B.T.A. 212 (1930); Lefebvre v.
Commissioner, T.C. Memo. 1984-202, affd. 758 F.2d 1340 (9th Cir.
1985). Once the Commissioner has established that the
limitations period was extended by way of the taxpayer’s consent,
the burden shifts back to the taxpayer to show affirmatively that
the consent is invalid. See Adler v. Commissioner, supra; Ryan
v. Commissioner, T.C. Memo. 1991-49. The burden of persuasion
never shifts from the taxpayer who has pleaded the statute of
limitations defense. See Ryan v. Commissioner, supra; see also
Feldman v. Commissioner, 20 F.3d 1128, 1132 (11th Cir. 1994),
affg. T.C. Memo. 1993-17.
The Greenfields signed Form 872-A on June 10, 1986, before
the expiration of the period of limitations on August 16, 1986,
and delivered that form to respondent. Respondent was justified
in treating Form 872-A as an effective extension of the period of
limitations.
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B. Period of Limitations
Respondent argues that the notice of deficiency was timely
issued within the period stated in the Form 872-A executed by the
Greenfields. As respondent sees it, that form allowed respondent
to assess the disputed amounts given the absence of a Form 872-T.
Petitioners argue that the Form 872-A signed by the Greenfields
extended the period of limitations only through November 18,
1992, which is 60 days after the filing of Mr. Greenfield’s
bankruptcy petition.2 To this end, petitioners assert, the Form
872-A is an executory contract and not, as asserted by
respondent, their unilateral waiver of the original
3-year period.
By its terms, the Form 872-A signed by the Greenfields
extended the period of limitations to a date on or before the
90th 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); except that if a notice
of deficiency is sent to the taxpayer(s), the time for
assessing the tax for the period(s) stated in the
2
Mr. Greenfield filed his bankruptcy petition on Sept. 19,
1992. Sixty days after this date is Nov. 18, 1992. While
petitioners assert erroneously in their brief that the 60th day
is Dec. 18, 1992, we understand them to be referring to Nov. 18,
1992.
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notice of deficiency will end 60 days after the period
during which the making of an assessment was
prohibited.
In arguing that Form 872-A is an executory contract,
petitioners point to the “functional approach” adopted by the
Court of Appeals for the Eleventh Circuit, the court to which
this case is appealable. Petitioners argue that this functional
approach deems an agreement to be executory even without
mutuality of remaining obligation between the contracting
parties, as long as the rejection of the agreement benefits the
estate and its creditors. Concluding that the Form 872-A is an
executory contract, petitioners argue the period of limitations
was ended pursuant to 11 U.S.C. section 365(d)(1): “In a case
under chapter 7 of this title, if the [bankruptcy] trustee does
not assume or reject an executory contract * * * of the debtor
within 60 days after the order for relief * * * then such
contract or lease is deemed rejected.” Under this statute,
petitioners argue that the period of limitations extension for
Form 872-A expired before respondent issued the notice of
deficiency.
Respondent argues petitioners’ position that Form 872-A is
an executory contract is misplaced. Respondent argues that the
Supreme Court and this Court have held that consents to extend
the limitations period are not contracts but instead are a
unilateral waiver by the taxpayer. See Stange v. United States,
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282 U.S. 270, 276 (1931); Piarulle v. Commissioner, 80 T.C. 1035,
1042 (1983). Petitioners do not disagree with respondent
concerning these holdings but urge this Court to step outside of
the holdings of Stange and Piarulle. Petitioners argue that the
September 1981 version of Form 872-A signed by the Greenfields,
unlike the written agreement considered in Stange and the Form
872, Consent to Extend the Time to Assess Tax, considered in
Piarulle, also operates to extend the period of limitations on
refunds. Petitioners argue that this refund extension creates a
mutuality that transforms Form 872-A from a unilateral waiver
into an executory contract.
We decline petitioners’ invitation to hold differently here
than in Stange and Piarulle. We are unpersuaded that the refund
language in the September 1981 version of Form 872-A effects a
fundamental change in the document, somehow transforming Form
872-A from a waiver into an executory contract. This Court has
held consistently that, although interpretations of Forms 872-A
are informed by contract principles, Form 872-A is a unilateral
waiver of a defense and not a contract. See Piarulle v.
Commissioner, supra at 1042; see also Bilski v. Commissioner,
T.C. Memo. 1994-55, affd. 69 F.3d 64 (5th Cir. 1995). In Bilski,
which petitioners urge was decided wrongly, the facts were
similar to the facts here. In 1986, the Bilskis executed a Form
872-A. They filed for bankruptcy under chapter 7 in June 1988
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and received their discharge in October of that year.
Approximately 1 year later, in October 1989, a notice of
deficiency was sent to the Bilskis for joint income tax liability
that the Bilskis claimed was discharged in bankruptcy and time
barred. The Bilskis, as do petitioners, argued that the Form
872-A was an executory contract. In affirming the Tax Court, the
Court of Appeals for the Fifth Circuit stated:
Like every other circuit that has addressed the
matter, we have held that “the [872-A] agreement to
extend the statute of limitations between the
Commissioner and the [taxpayer] is not a contract, but
a unilateral waiver of a defense by the taxpayer.”
Here, the Extension Agreement was an indefinite waiver
of the statute of limitations. Although this is the
first time that we have considered the nature of an
872-A in the context of bankruptcy, upon reflection we
can discern no reason to depart from the general rule
or to carve out a bankruptcy exception to it.
Accordingly, we hold that the Extension Agreement was
not an executory contract that terminated automatically
60 days after the Bilskis filed for bankruptcy.
Rather, for purposes of bankruptcy, as for all other
purposes, an 872-A is a waiver of the affirmative
defense of time-bar under the statute of limitations.
[Bilski v. Commissioner, 69 F.3d at 68 (quoting Buchine
v. Commissioner, 20 F.3d 173, 179 (5th Cir. 1994),
affg. T.C. Memo. 1992-36); fn. ref. omitted.]
Applying the reasoning of Stange and Piarulle in the context
of bankruptcy, we find Bilski persuasive. Petitioners have not
provided this Court with a convincing reason or case to the
contrary. As set forth in the Form 872-A, taxpayers wishing to
terminate their extension of the limitations period under this
form should file a Form 872-T. Only by filing a Form 872-T may a
taxpayer terminate the extension provided by a Form 872-A; no
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other action taken by the taxpayer, written or oral, will operate
to terminate Form 872-A. See Rev. Proc. 79-22, sec. 4.02, 1979-1
C.B. 563, 563; see also Grunwald v. Commissioner, 86 T.C. 85, 89
(1986). Accordingly, we find and hold that respondent timely
issued the notice of deficiency to petitioners within the
applicable period of limitations provided by section 6501(a),
given that the Greenfields executed the Form 872-A extending the
limitations period and that the extension remained in effect when
respondent issued the notice of deficiency to them.
C. Interest
Petitioners argue that waiver of the period of limitations
in Form 872-A applies only to tax, which petitioners view as
exclusive of interest and penalties. In making this argument,
petitioners rely on the literal language of Form 872-A, which, as
petitioners rightly point out, references Federal tax but neither
interest nor penalties. Respondent argues that Form 872-A
constitutes a waiver that extends the period of limitations on
the assessment of tax, interest, penalties, and additions to tax.
This Court has held that use of the term “tax” in Form 872-A
includes penalties and interest. See Pleasanton Gravel Co. v.
Commissioner, 85 T.C. 839, 855 (1985) (citing Picard v.
Commissioner, 28 T.C. 955, 961 (1957)). Neither respondent nor
the Greenfields in any way modified Form 872-A so as to except it
from the law construing the word “tax” on Form 872-A to include
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interest and penalties. Further, in Estate of Raney v.
Commissioner, T.C. Memo. 1992-684, a Form 872-A was deemed to
extend the period of limitations for increased interest under
section 6621.
Petitioners cite Tolve v. Commissioner, 31 Fed. Appx. 73 (3d
Cir. 2002), as authority that the word “tax” does not include
interest or penalties. In addition to the fact that Tolve is an
unpublished opinion that is not precedential, we find the facts
of Tolve distinguishable. In Tolve the Form 872-A included typed
language limiting the amount of any deficiency assessment to that
resulting from six specific items, none of which referenced
additions to tax or interest. Petitioners did not present to
this Court any modifications made to the Form 872-A that the
Greenfields signed.
D. Equitable Estoppel
Petitioners argue that respondent is equitably estopped from
arguing that the period of limitations has not expired. In
support of this argument, petitioners point to respondent’s
failure to include the 1982 tax liability on his proofs of claim
and to Government correspondence addressed to the Greenfields.
Equitable estoppel is a judicial doctrine that operates to
preclude a party from denying that party’s own acts or statements
that induce another to act to his or her detriment. See McCorkle
v. Commissioner, 124 T.C. 56, 68 (2005). It is to be applied
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against the Commissioner only with the utmost caution and
restraint. See id.; see also Hofstetter v. Commissioner, 98 T.C.
685, 700 (1992). The necessary elements of equitable estoppel
are: (1) A false representation or wrongful misleading silence;
(2) an error in a statement of fact and not in an opinion or a
statement of law; (3) ignorance of the true facts by the person
claiming the benefits of estoppel; and (4) adverse consequences
to the person claiming estoppel by the acts or statements of the
person against whom estoppel is claimed. See Estate of Emerson
v. Commissioner, 67 T.C. 612, 617-618 (1977).
Equitable estoppel does not operate to preclude respondent’s
assertion of an open period of limitations because of the
bankruptcy proceeding. The Greenfields’ tax liabilities for 1982
were not at issue in the bankruptcy proceeding. Thus, the
bankruptcy court did not determine the Greenfields’ 1982 tax
liability. Simply put, because the Greenfields’ 1982 tax
liability was never before the bankruptcy court, a claim cannot
lie for equitable estoppel.
Neither does equitable estoppel operate to preclude
respondent’s assertion of an open period of limitations because
of Government correspondence to the Greenfields. Petitioners
argue that the July 21, 2000, and the October 11, 2006, letters
support petitioners’ claim of equitable estoppel. In the July
letter respondent stated: “According to our records, there are
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no other open liabilities on file for the above identification
numbers in the Manhattan District Office at this time” (a prior
statement references an outstanding Federal tax lien filed in
1995). In the October letter respondent informed the Greenfields
that “The Statute of Limitations has already expired on the 1981,
1982, 1983, and 1984 tax years, so we can’t make an assessment”.
The July letter did not contain a false representation or a
wrongful misleading silence concerning the period of limitations
for the 1982 year. In fact, the July letter, in which respondent
advised the Greenfields that their only open Federal tax lien was
filed in 1995, is devoid of any statement concerning Form 872-A
or the period of limitations for 1982. Without any such
statement, petitioners cannot claim to have been adversely
affected by reliance on that letter.
In contrast the October letter clearly did contain a
statement regarding the period of limitations for 1982. In that
letter, respondent stated that because the period of limitations
for 1982 had expired, no assessment could be made. However, as
respondent points out, no adverse reliance could have occurred
because petitioners had instituted this case before the October
letter. Adverse reliance cannot be said to exist on the basis of
a letter that was received after both the issuance of the notice
of deficiency and the filing of the petition. See, e.g., Feldman
v. Commissioner, 20 F.3d 1128, 1134 (11th Cir. 1994) (taxpayers'
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estoppel argument against enforcement of their extension of the
limitations period was rejected), affg. T.C. Memo. 1993-17.
We have considered all arguments by petitioners for holdings
contrary to those which we reach herein. To the extent not
discussed, we conclude that those arguments are irrelevant or
without merit.
Decision will be entered
under Rule 155.