dissenting: Section 6512(b)(1) generally confers overpayment jurisdiction for a taxable year that is otherwise properly before the Court when we find “that the taxpayer has made an overpayment of income tax for the same taxable year”. However, this general statutory grant of overpayment jurisdiction is limited by the initial words of section 6512(b)(1) — “Except as provided by paragraph (3)”. “[T]he Tax Court’s jurisdiction to award a refund is limited to those circumstances delineated in section 6512(b)(3).” Commissioner v. Lundy, 516 U.S. 235, 247 (1996). The outcome in this case is dependent upon whether petitioners meet the requirements of section 6512(b)(3)(B).
“The analysis dictated by section 6512(b)(3)(B) is not elegant, but it is straightforward.” Id. at 242. Section 6512(b)(3)(B) provides:
No such * * * refund shall be allowed or made of any portion of the tax unless the Tax Court determines as part of its decision that such portion was paid—
(B) within the period which would be applicable under section 6511(b)(2), (c), or (d), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment * * *
Based on the facts presented, petitioners can meet the jurisdictional requirements of section 6512(b)(3)(B) only if the periods for filing their claims for refund were extended by agreement pursuant to section 6511(c).
Section 6511(c) provides that the normal period of limitations for filing refund claims is extended if there was “an agreement under the provisions of section 6501(c)(4) extending the period for assessment of a tax”. Section 6501(c)(4) 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. [Emphasis added.]
Section 301.6501(c)-l(d), Proced. & Admin. Regs., provides:
(d) Extension by agreement. The time prescribed by section 6501 for the assessment of any tax (other than the estate tax imposed by chapter 11 of the Code) may, prior to the expiration of such time, be extended for any period of time agreed upon in writing by the taxpayer and the district director or an assistant regional commissioner. The extension shall become effective when the agreement has been executed by both parties. The period agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. [Emphasis added.]
It is apparent from the facts in this case that petitioners and respondent never executed a written agreement to extend the period of limitations pursuant to section 6501(c)(4). It follows that the statutory predicate to our overpayment jurisdiction under sections 6512(b)(3) and 6511(c) is missing. Based on the explicit statutory language of sections 6512(b), 6511(c), and 6501(c)(4), we have no jurisdiction to determine overpayments and order refunds in this case.
There is nothing in section 183(e)(4) that changes the foregoing analysis. Section 183(e) allows a taxpayer to elect unilaterally to postpone a determination of whether an activity was engaged in for profit. Such an election allows additional time for a taxpayer to qualify for a statutory presumption that his activity was engaged in for profit. The presumption is dependent upon facts that may occur during a period of 5 to 7 years and thus may not be ascertainable within section 6501(a)’s normal 3-year period of limitations for making assessments. Of course, if the taxpayer can elect to postpone a challenge to his profit objective to a time that is beyond the normal period of limitations for making assessments, one would expect Congress to allow the Commissioner additional time to challenge the tax aspects of the activity in question. Section 183(e)(4) therefore provides:
(4) Time for assessing deficiency attributable to activity. — If a taxpayer makes an election under paragraph (1) with respect to an activity, the statutory period for the assessment of any deficiency attributable to such activity shall not expire before the expiration of 2 years after the date prescribed by law (determined without extensions) for filing the return of tax under chapter 1 for the last taxable year in the period of 5 taxable years (or 7 taxable years) to which the election relates. Such deficiency may be assessed notwithstanding the provisions of any law or rule of law which would otherwise prevent such an assessment. [Emphasis added.]
Section 183(e)(4) explicitly provides that with respect to the taxpayer’s activity for which a section 183(e) election is made, the normal statutory period for the “assessment of any deficiency” shall not expire until 2 years after the required filing date of the last return in the 5- or 7-year period referred to in section 183(e). In the Internal Revenue Code, the terms “deficiency” and “overpayment” have distinctly different meanings and separate statutes of limitations. Section 6211 generally defines a deficiency as the excess of the correct amount of tax over the amount shown on the return. Section 6501 governs the period of limitations for assessment of a deficiency. An “overpayment” is the excess of the amount of tax that has been paid over the amount of tax that is properly due. Bachner v. Commissioner, 109 T.C. 125, 128-129 (1997), affd. without published opinion 172 F.3d 859 (3d Cir., 1998). The period of limitations for claiming refunds of over-payments is contained in section 6511.3 Section 183(e)(4) extends the normal period of limitations only for “assessment of any deficiency” related to the activity in question. Crawford v. Commissioner, 97 T.C. 302, 307-308 (1991);4 Estate of Caporella v. Commissioner, 86 T.C. 285, 296 (1986), affd. 817 F.2d 706 (11th Cir. 1987). Section 183(e)(4) makes no reference to the statutory period for claiming refunds of overpayments.
When it enacted section 183(e)(4), Congress was aware of the difference between the statute of limitations on assessing deficiencies and the statute of limitations on claiming refunds. In order to make a section 183(e) election under the law and regulations existing prior to enactment of section 183(e)(4), the taxpayer and the Commissioner were required to execute a written agreement extending the period of limitations for assessing deficiencies and for claiming refunds of overpayments.5 When section 183(e)(4) was enacted in 1976, the legislative history explains the reasons for the law as it existed prior to enactment of section 183(e)(4):
The taxpayer, it was believed, should have time to claim a refund of tax paid by him during the period and the Internal Revenue Service should also have time to assess any deficiency owed by the taxpayer for any year in the period. [S. Rept. 94-938 (Part I), at 67 (1976), 1976-3 C.B. (Vol. 3) 49, 105.]
Congress was aware that an election under prior law enlarged the period of limitations for deficiencies and refunds. The 1976 change, which added section 183(e)(4), eliminated the requirement for a written agreement that generally waived the statute of limitations and provided that a section 183(e) election would automatically extend the limitation period, but only for “the assessment of any deficiency”. The purpose of section 183(e)(4) was to narrow the scope of the extension required under prior law. See S. Rept. 94-938 (Part I), supra at 67-69, 1976-3 C.B. (Vol. 3) at 105-107. By enacting section 183(e)(4), Congress limited the subject matter of the new automatic extension to the “assessment of any deficiency” attributable to the activity that might be subject to section 183. In Estate of Caporella v. Commissioner, supra, we explained the purpose of section 183(e)(4):
The committee is aware that because of the 5- or 7-year periods involved in the case of the presumption, the statute of limitations may run before any action could otherwise be taken under the provision added by the committee. For this reason, the committee believes that this provision should not generally be applicable unless the taxpayer executes a waiver of the statute of limitations for the 5- or 7-year period and for a reasonable time thereafter. This will allow the taxpayer time to claim any refunds of tax paid during this period and also will allow the Internal Revenue Service to assess any deficiencies. [S. Rept. 92-437, at 74 (1971), 1972-1 C.B. 559, 600.]
Without question, the intent of Congress in amending section 183(e) was to automatically extend the period of limitations on assessment of deficiencies arising from “hobby losses” when a taxpayer elects a postponement of a profit determination. [Id. at 296.]
When it enacted section 183(e)(4), Congress made no provision for extending the period of limitations for claiming a refund of an overpayment.
Where a statute appears to be clear on its face, we require unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein. Huntsberry v. Commissioner, 83 T.C. 742, 747-748 (1984); see Pallottini v. Commissioner, 90 T.C. 498, 503 (1988), and cases cited therein.
The legislative history of section 183(e)(4) is consistent with the literal language of sections 183(e)(4), 6512(b), 6511(c), and 6501(c)(4). Senate Report 94-938, supra, explains that Congress intended that a section 183(e)(4) election would only extend the period for assessment of a deficiency.
Explanation of provision
The committee amendment revises present law (sec. 183(e)) to provide that if a taxpayer elects to postpone the determination of his conduct of an activity under the presumption provisions, the statutory period for the assessment of any deficiency specifically attributable to that activity during any year in the 5 (or 7) year period shall not expire until at least two years after the due date of the taxpayer’s income tax return for his last taxable year in the period. This provision is the same as that in the House bill.
If a taxpayer makes an election under section 183(e) of present law and postpones a determination whether he engaged in a particular activity for profit, the making of this election automatically extends the statute of limitations, but only with regard to deductions which might be disallowed under section 183. The taxpayer would not have to agree to extend the statute of limitations for any other item on his return during the 5 (or 7) year period. On the other hand, even if the taxpayer has petitioned the Tax Court with regard to an unrelated issue on his return for any year in the same period, the Service will be able to issue a second notice of deficiency relating to a section 183 issue as to any taxable year in the period.
In order to assure the Service adequate time to reexamine the section 183 issue after the suspension period has ended, this new provision allows the Service two years after the end of the period in which to contest the taxpayer’s deductions. The making of the election extends the statute of limitations on any year in the suspension period to at least two years after the due date of his return for the last year in the period. (The due date is to be determined without regard to extensions of time to file his return for the last year.)
The taxpayer’s limited waiver of the statute of limitations would include not only the section 183 issue itself but also related deductions, etc., which depend on adjusted gross income and which might be affected if the deductions are disallowed in accord with section 183.
The provision for this limited waiver is not intended to affect the scope or duration of any general waivers of the statute of limitations which taxpayers have signed (or sign) before the date of enactment of this bill.
Similarly, the bill does not affect general waivers of the statute of limitations which may be signed after enactment, since in order to avoid two controversies relating to overall income tax liability for the same year, a taxpayer may wish to postpone a resolution of non-section 183 issues until the information relating to the section 183 presumption is available.
[S. Rept. 94-938 (Part I), supra at 68-69, 1976-3 C.B. (Vol. 3) at 106-107; fn. refs, omitted; emphasis added.]
This legislative history explains that the section 183(e) election “automatically” extends the statutory period for “assessment of any deficiency” attributable to the activity, applies “only with regard to deductions which might be disallowed”, “allows the Service” additional time “in which to contest the taxpayer’s deductions” regarding the activity, and describes the extension pursuant to section 183(e) as “The taxpayer’s limited waiver of the statute of limitations”. In short, the legislative history is perfectly consistent with the literal words of section 183(e)(4). There is nothing in the legislative history to indicate that Congress intended that section 183(e)(4) would extend the period of limitations for claiming refunds or that it would override the specific provisions of section 6501(c)(4).
Absent absurd, unreasonable, or futile results, there is “no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes.” United States v. American Trucking Associations, Inc., 310 U.S. 534, 543 (1940). There is nothing that is unreasonable or absurd about providing an extension that is limited to permitting the assessment of a deficiency regarding the section 183 activity in return for allowing a taxpayer to postpone a determination by the Commissioner regarding the same activity. There is no compelling policy-based reason why the statutory period within which the Commissioner may make a deficiency determination pursuant to section 183(e)(4) must be coterminous with the period within which a taxpayer may claim refund of an overpayment. Sections 6501 and 6511 provide different periods of limitations for making deficiency determinations and claiming refunds. Thus, it is not infrequent that this Court acquires deficiency jurisdiction based on a timely notice of deficiency and at the same time lacks overpayment jurisdiction regarding the same year. See Commissioner v. Lundy, 516 U.S. 235 (1996).6
When it enacted section 183(e)(4), Congress limited the effect of the section 183(e)(4) extension to assessments attributable to section 183 activity. However, if the section 183(e)(4) extension is construed to also apply to refund claims, unintended consequences may arise. In a refund context, it is possible that matters other than the putative section 183 activity could be placed in issue by the Commissioner, even though such matters would be time barred for purposes of assessing a deficiency. For example, in Bachner v. Commissioner, 109 T.C. 125 (1997), the taxpayer filed a petition in this Court contesting a notice of deficiency and claiming an overpayment of all taxes withheld from his wages. The assessment of the deficiency determined by the Commissioner was barred by the statute of limitations. Nevertheless, the Commissioner argued that any overpayment was restricted to the excess of the amount of tax paid through withholding over the correct amount of tax that was properly due, regardless of the fact that the Commissioner was time barred from assessing the proper tax. The taxpayer argued that we could not reduce any overpayment by considering unassessed tax liabilities which were barred by the statute of limitations on assessment. We agreed with the Commissioner, holding:
Under the principles established by the Supreme Court in Lewis v. Reynolds, 284 U.S. 281 (1932), a taxpayer’s claim for refund must be reduced by the amount of the correct tax liability for the taxable year, regardless of the fact that the Commissioner can no longer assess any deficiency for the taxable year. * * * [Bachner v. Commissioner, 109 T.C. at 130.]
A literal reading of the statutes in issue avoids this potential for raising issues other than those related to the section 183 activity.
Finally it has been suggested that the' provisions of section 183(e)(4) in combination with the taxpayer’s unilateral election under section 183(e) constitute an “agreement” between the taxpayer and the Commissioner within the meaning of section 6501(c)(4). But there is no requirement in section 183(e) that the taxpayer and the Commissioner agree and execute a written extension agreement, and no such agreement was executed in this case. A statutory provision mandating an enlargement of “the statutory period for the assessment of any deficiency” is not an “agreement”, and there is nothing in the statute or the legislative history to support such a theory. Indeed, in Crawford v. Commissioner, 97 T.C. 302 (1991), we explicitly held that section 183(e)(4) “modifies” the normal 3-year period of limitations in section 6501(a) with respect to a section 183 activity for which an election was made. As a result, we held that a written agreement to extend the period of limitations pursuant to section 6501(c)(4) that was. executed after the normal 3-year period, but before expiration of the period as modified by section 183(e)(4), was effective to extend the period of limitations for the limited purpose of assessing deficiencies attributable to the section 183 activity. Our holding that section 183(e)(4) modified the normal 3-year period of limitations in which a section 6501(c)(4) agreement can be executed is clearly inconsistent with any suggestion that a section 183(e) election is an agreement within the meaning of section 6501(c)(4). The last sentence of section 6501(c)(4) explicitly provides that a written agreement to extend the period of limitations may be extended by “subsequent agreements”. In Crawford v. Commissioner, supra, we clearly did not consider this provision regarding “subsequent agreements” to be applicable because we did not view the previous section 183(e) election as an agreement. A taxpayer’s election pursuant to section 183(e) is simply a unilateral act that has statutory consequences; i.e., it allows the taxpayer additional time to qualify for a presumption regarding certain activity and gives the Commissioner additional time to assess a deficiency regarding that activity.
Overpayment jurisdiction in this case is dependent upon the meaning of language in statutes of limitations. Statutes of limitation provisions are to be strictly construed in favor of the Government. Zeier v. United States, 80 F.3d 1360, 1365 (9th Cir. 1996). As the Supreme Court has stated:
we reject any suggestion that we elevate the ‘perceived unfairness to taxpayers’ over our duty to strictly construe in favor of the government a statute of limitation when the petitioner seeks application of the statute so as to bar the rights of the government. Fehlhaber, 954 F.2d at 658.” * * * [Bufferd v. Commissioner, 506 U.S. 523, 532 (1993) (quoting Green v. Commissioner, 963 F.2d 783, 789 (5th Cir. 1992), affg. T.C. Memo. 1991-78).]
And as recently stated by the Supreme Court in construing the statutory language in sections 6512(b)(3) and 6511:
We are bound by the language of the statute as it is written, and even if the rule Lundy advocates might “accor[d] with good policy,” we are not at liberty “to rewrite [the] statute because [we] might deem its effects susceptible of improvement.” Badaracco, supra, at 398. Applying §6512(b)(3)(B) as Congress drafted it, we find that the applicable look-back period in this case is two years, measured from the date of the mailing of the notice of deficiency. Accordingly, we find that the Tax Court lacked jurisdiction to award Lundy a refund of his overwithheld taxes. The judgment is reversed. [Commissioner v. Lundy, 516 U.S. at 252-253.]
More recently, in rejecting a taxpayer’s attempt to infer an equitable tolling exception from the limitations provisions of section 6511, the Supreme Court stated:
Section 6511’s detail, its technical language, the iteration of the limitations in both procedural and substantive forms, and the explicit listing of exceptions, taken together, indicate to us that Congress did not intend courts to read other unmentioned, open-ended, “equitable” exceptions into the statute that it wrote. * * * [United States v. Brockamp, 519 U.S. 347, 352 (1997).]
We should follow the admonitions of the Supreme Court and apply sections 6512(b), 6511(c), 6501(c)(4), and 183(e)(4) in accordance with their literal terms and hold that we lack jurisdiction to determine any overpayments in this case.
Jacobs, Gerber, Wells, Whalen, Colvin, Halpern, Thornton, and Marvel, JJ., agree with this dissent.In Bachner v. Commissioner, 81 F.3d 1274 (3d Cir. 1996), the Court of Appeals for the Third Circuit explained why expiration of the period of limitations for assessments does not preclude the Commissioner from defending against a claim for refund of an overpayment.
“The language in §6501 refers only to ‘limitations on assessment and collection,’ and the operative clause of §6501(a) directs only that taxes Tie assessed within 3 years after the return was filed.’ * * A deficiency determination, by which the IRS seeks to establish the taxpayer’s additional tax liability, is patently different from a refund determination, by which the taxpayer seeks repayment or credit from the IRS.” * * * [Bachner v. Commissioner, 109 T.C. 125, 130 (1997) (quoting Bachner v. Commissioner, 81 F.3d at 1277), affd. without published opinion 172 F.3d 859 (3d Cir., 1998).]
In Crawford v. Commissioner, 97 T.C. 302 (1991), we held that a written agreement to extend the period, of limitations that was executed after the normal 3-year period of limitations, but before the expiration of the period provided in sec. 183(e), operated to extend the limitations period. However, we also held that the written agreement was only effective to the extent that the period of limitations had been extended by sec. 183(e)(4). Therefore, we held that the written agreement to extend the period of limitations “would be effective only with regard to assessments arising from deficiencies attributable to the section 183 activity.” Id. at 307 (emphasis added).
In 1971, when Congress first recognized the need to enlarge the period of limitations in order to accommodate a sec. 183(e) election, Congress envisioned that such an election would be conditional on a general waiver of the statute of limitations as to both deficiencies and overpayments for the election year. Thus, the Senate committee report states:
Conversely, in Barton v. Commissioner, 97 T.C. 548 (1991), we held that statutes governing our overpayment jurisdiction gave us authority to determine whether the taxpayer was liable for sec. 6621(c) increased interest, whereas in White v. Commissioner, 95 T.C. 209 (1990), we held that we lacked deficiency jurisdiction to determine whether a taxpayer was liable for sec. 6621(c) increased interest. Those different outcomes were based on the literal differences between the provisions of the Code controlling our jurisdiction over overpayments and deficiencies.