Opinion
No. C98-2096 MJM.
November 6, 2000
ORDER and OPINION
In a two-count complaint, Plaintiff, the United States of America brought this civil action against the above-named Defendants pursuant to 26 U.S.C. § 7401 and 7403, requesting that this Court: (1) reduce to judgment unpaid federal tax assessments against John J. Engels and Maxine V. Engels ("the Engels") for the years 1986 through 1989; and (2) set aside certain conveyances of real property as fraudulent against the United States. (Doc. No. 1). In their Answer to the United States' complaint, Defendants claim, inter alia, that the federal tax assessments for the years from 1986 through 1989 were not timely. (Doc. No. 10, ¶¶ 11-13).
Before this Court is Plaintiff's motion of March 20, 2000, requesting partial summary judgment as to the timeliness of those tax assessments. (Doc. No. 39). Also on file is Defendants' April 28th resistance to the Motion, and Plaintiff's May 24th reply to that resistance. (Doc. Nos. 45 and 53). For the reasons discussed herein, this Court concludes that Defendants have failed to raise any genuine issues of material fact, that assessments for the 1986 through 1989 tax years were timely, and that Plaintiff is thus entitled to partial summary judgment on that issue as a matter of law.
Summary Judgment Standard
The standard for granting summary judgment is well established. A motion for summary judgment may be granted only if, after examining all of the evidence in the light most favorable to the nonmoving party, the court finds that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Montgomery v. John Deere Co., 169 F.3d 556, 559 (1999); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) ( quotation omitted); Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). A fact is material if it might affect the outcome of the suit under the governing substantive law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
The party moving for summary judgment bears the "initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record which show lack of genuine issue." Celotex, 477 U.S. at 323. Once the moving party has carried its burden, the opponent must go beyond the pleadings and designate specific facts-by such methods as affidavits, depositions, answers to interrogatories, and admissions on file-that show that there is a genuine issue for trial. See Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324. The evidence of the nonmoving party is to be considered as true, and justifiable inferences arising from the evidence are to be drawn in his or her favor. See Anderson, 477 U.S. at 255. If the evidence of the nonmoving party is "merely colorable," or is "not significantly probative," summary judgment may be granted. Id. at 249-50. Thus, the nonmoving party does not have to provide direct proof that genuine issues of fact exist for trial, but the facts and circumstances that the nonmoving party relies upon must "attain the dignity of substantial evidence and must not be such as merely to create a suspicion." Metge v. Baehler, 762 F.2d 621, 625 (8th Cir.), cert. denied, 474 U.S. 1057 (1985). In essence, the evidence must be "such that a reasonable jury could find a verdict for the nonmoving party." Anderson, 477 U.S. at 248.
Background
Under § 6501(a) of the Internal Revenue Code of 1986 (26 U.S.C.), a federal tax must be assessed within three years after the filing of the return for that tax. See Smith v. Commissioner, 925 F.2d 250, 252 (8th Cir. 1991). Section 6501(c)(4), however, provides a mechanism — a consent form (Form 872) — by which the IRS and a taxpayer can agree to extend the time to assess, or, alternatively stated, waive the original statute of limitations deadline. See Smith, 925 F.2d at 253. As summarized below, during the relevant period in question the IRS and the Engels entered into a series of such consensual extensions.
Section 6501(c)(4) provides:
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.
This summary reflects the generally undisputed facts as laid out in Plaintiff's supporting briefs.
The Engels filed a return for the 1986, 1987, 1988 and 1989 tax years on October 15, 1987, September 27, 1988, August 15, 1989, and October 10, 1990, respectively, and federal taxes were assessed against them for those years. Those tax assessments were subsequently paid. On August 19, 1990, before the three-year statute of limitations period to assess taxes for the 1986 tax year had expired, the Engels consented to extend that period to October 15, 1991. On May 14, 1991, before the extended time to assess taxes for the 1986 tax year and the three-year statute of limitations period to assess taxes for the 1987 tax year had expired, the Engels and their representative at that time, Edward Skinner, consented to extend those periods to October 15, 1992. On April 30, 1992, before the extended time to assess taxes for the 1988 tax year had expired, the Engels consented to extend those periods to April 15, 1993. On November 12, 1992, before the extended time to assess taxes for the 1986, 1987, and 1988 tax years and the three-year statute of limitations period to assess taxes for the 1989 tax year had expired, the Engels representative at that time, James Dutton, consented to extend those periods to April 15, 1994.
On December 28, 1993, a statutory notice of deficiency for each of the tax years at issue was mailed to the Engels, and additional taxes for those years was assessed on May 17, 1994. It is the timeliness of those May 17th additional assessments that are at issue in this motion.
Plaintiff contends that the May 17, 1994 assessment for the 1986 through 1989 tax years complied with all requisite statutory provisions, and thus summary judgment is warranted as to the timeliness of the assessments. Defendants, in resistance to Plaintiff's motion, make the following arguments: (1) the consent form extending the assessment period for the years in question to April 15, 1994, is invalid because it was signed without authorization by the Engels and the alleged signature of the Engels' representative is a possible forgery; (2) the notice of deficiency mailed on December 28, 1993 did not toll the assessment period beyond the agreed-upon extension date of April 15, 1994; (3) the notice of deficiency was not validly issued because Plaintiff has not proved compliance with all statutory procedural provisions; and (4) the assessment was deficient because Plaintiff has failed to show procedural compliance with applicable statutory provisions and regulations. The Court will address Defendants' arguments seriatim to determine whether any raise genuine issues of material fact. In so doing, the Court will examine the record in the light most favorable to Defendants, the nonmoving party.
1. Validity of the consent form for extension of statute of limitations
When a taxpayer raises the affirmative defense of the statute of limitations, the taxpayer bears the burden to prove that defense. See Feldman v. Commissioner, 20 F.3d 1128, 1132 (11th Cir. 1994) (citing Adler v. Commissioner, 85 T.C. 535 (1985)). Once a taxpayer shows that an assessment has been made after the statutory period has expired, the burden shifts to the Government to demonstrate the existence of consent to extend the statute. Feldman, 20 F.3d at 1132 ( citing Haskell v. Commissioner, T.C.M. (CCH) 15, 18 (1986)). If the Commissioner makes that showing, the burden shifts back to the taxpayer to prove that the waiver was invalid. See Concrete Engineering Co. v. Commissioner, 58 F.2d 566, 567-68 (8th Cir. 1932) (quoting Stern Bros. Co. v. Burnet, 51 F.2d 1042, 1046 (8th Cir. 1931) ("[W]here the waiver is regular in form and in the possession of the proper governmental bureau, every presumption should be taken in favor of its validity and binding effect, and the burden is upon the taxpayer to show such invalidity or ineffectiveness.")). The ultimate burden of showing that an assessment is barred by the statute of limitations period remains with the taxpayer. See Feldman, 20 F.3d at 1132 ( citing Adler, 85 T.C. at 540).
The Court finds nothing in the record that demonstrates any genuine issues of material fact with regard to the validity of the consensual extension agreement. Plaintiff has presented a copy of the relevant consent form, Form 872, extending the statute of limitations period for the years at issue to April 15, 1994. (Gov't exhibit E, Form 872). The form is signed by Paul Unger, an appeals officer for the Internal Revenue Service ("IRS"), and James Dutton, as representative for the Engels. Mr. Unger was authorized pursuant to Delegation Order No. RDA-42 (Rev. 1) to sign on behalf of the Regional Director of Appeals all consents fixing the period of limitation on assessment or collection of taxes. (Gov't exhibit N). Mr. Dutton was authorized to sign pursuant to a Power of Attorney signed by the Engels. (Gov't exhibit F). That document named Mr. Dutton as the Engels' representative before the IRS on these matters and authorized Mr. Dutton to "perform any and all acts" with respect to those tax matters, including "the authority to sign any agreements, consents, or other documents." ( Id.) Defendants' conclusory and unsubstantiated statements that Mr. Dutton's signature may be a forgery and that, regardless, he was not authorized to so consent do not rise to the minimal evidentiary burden placed on the nonmovant at the summary judgment stage. See Flannery v. Trans World Air Lines, Inc., 160 F.3d 425, 428 (8th Cir. 1998) (citing, Helfter v. United Parcel Serv., Inc., 115 F.3d 613, 616 (8th Cir. 1997), for proposition that conclusory statements in affidavit, standing alone, are insufficient to withstand properly supported motion for summary judgment).
2. Validity of statutory notice of deficiency
Defendants' challenges to the validity of the notice of deficiency are similarly without merit. Defendants argue that summary judgment on this issue is precluded absent conclusive proof that the notice was sent by certified or registered mail. See I.R.C. 6212(a). This does not correctly state Plaintiff's burden at summary judgment which is, rather, to show that there are no genuine issues of material fact which preclude resolution of the matter in question. See Celotex, 477 U.S. at 323 (requiring movant to point to evidence in record showing absence of material issues). In support of that burden, Plaintiff has presented a copy of the mailed notice, on which the words "CERTIFIED MAIL" are typed below the Engels' name and address. (Gov't exhibit G, Copy of Notice of Deficiency). Further, the associate chief of appeals for the IRS at that time declared by affidavit that it was standard practice for such notices to be sent by certified mail, and that he cannot recall any such notice ever having been sent by any method other then certified mail. (Davey Decl. ¶¶ 6-8). Finally, as noted by Plaintiff in its brief, Defendants do not aver that they did not receive the notice of deficiency, and in fact referred to that notice in numerous written communications with the IRS. (Gov't exhibits Q and R, Copies of letters to IRS from John J. Engels).
Section 6212(a) provides:
(a) In general. — If the Secretary determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 41, 42, 43, or 44, he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail.
The Court concludes that Plaintiff has presented more than ample unrebutted evidence to demonstrate that, in accordance with standard practice, the IRS sent the notice of deficiency by certified mail and the notice was properly received by Defendants. See U.S. v. Chem. Found. Inc., 272 U.S. 1, 14-15 (1926) ("The presumption of regularity supports the official acts of public officers and, in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties."), as quoted in U.S. v. Ahrens, 530 F.2d 781, 785-86 (8th Cir. 1976); see also, id. ("[A]ll necessary prerequisites to the validity of official action are presumed to have been complied with, and . . . where the contrary is asserted it must be affirmatively shown.") ( quoting Lewis v. U.S., 279 U.S. 63, 73 (1929)).
3. Calculation of additional assessment deadline
Plaintiff contends that the May 17, 1994 assessments were valid because they fell within 150 days after the IRS mailed the notice of deficiency on December 28, 1993. Defendants counter that the notice of deficiency did not toll the assessment period beyond April 15, 1994, the date agreed-upon in the Form 872 extension agreement. Defendants argue that although a notice of deficiency normally tolls the statute of limitations for assessment for at least 150 days after the date of the notice, that tolling period only applies when the notice is sent during the original three-year statute of limitations period. Where, as here, the notice was sent during a period covered by an extension agreement, Defendant contends that the extension deadline governs the assessment deadline.
After the IRS mails a notice of deficiency under § 6212(a), the 150-day tolling period arises from adding together the 90 and 60 day suspensions in §§ 6213(a) and 6503(a) which, in relevant part, provide:
§ 6213. Restrictions applicable to deficiencies; petition to Tax Court
(a) Time for filing petition and restriction on assessment. — Within 90 days . . . after the notice of deficiency . . . is mailed . . ., the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided . . . no assessment of a deficiency in respect of any tax imposed . . . shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day . . . period, . . . nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final.
§ 6503. Suspension of running of period of limitation
(a) Issuance of statutory notice of deficiency. —
(1) General rule. — The running of the period of limitations . . . on the making of assessments . . . shall (after the mailing of a notice [of deficiency] be suspended for the period during which the Secretary is prohibited from making the assessment . . . (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for 60 days thereafter.
Defendants have offered no case law, nor has this Court found any, to support the proposition that the statutory tolling period does not apply to the consensual extension agreements at issue here. Rather, those courts which have addressed the issue have held the contrary. In DeJean v. Commissioner, 122 F.3d 1070 (9th Cir. 1997), the taxpayer appealed a Tax Court decision in favor of the government, arguing that the statute of limitations for assessing taxes for 1982 had expired before the commissioner mailed a notice of deficiency for that year. The appellate court affirmed, stating that where the taxpayer executes an extension agreement under § 6501(c)(4), that agreement (absent express language to the contrary) waives the statute of limitations, and the limitations period for assessment is also suspended for any period during which the IRS is prohibited from making an assessment under § 6503(a)(1). See Id.; accord, Wedemeyer v. U.S., 1988 WL 212516, *4-5 (C.D.Cal. 1988) (holding additional assessment timely when sent within 150 days after notice of deficiency mailed during notice was mailed). Because the assessments were made on May 17, 1994, they were timely. an agreed-upon extension period beyond the statutory three-year limit); Lansburgh v. U.S., 699 F. Supp. 279, 282-83 (S.D.Fla. 1988) (granting summary judgment to government, and holding that "[w]henever the taxpayer and the IRS extend the limitations period for assessment to a point in time triggered by the sending of a notice of deficiency, the Government has the benefit of the suspension period of prohibition contained in § 6503(a), and if a notice of deficiency is in fact sent, thereby triggering a period of prohibition against assessment, the taxpayer cannot rely on any contrary clause in the extension agreement to eviscerate § 6503(a)'s protection").
As the case law demonstrates, where the taxpayer and the IRS enter into a private agreement extending the period for assessment, the statutory tolling periods of §§ 6503(a) and 6213(a) are generally applicable unless there is clear and express language to the contrary. See also, generally, Donald T. Kramer, Annotation, "Suspension of Running of Period of Limitation, Under 26 U.S.C.A. § 6503, For Federal Tax Assessment or Collection," 160 A.L.R. Fed. 1 (2000) (collecting cases, all of which are in accord). Here, there is no such averment or showing of any express agreement. In signing Form 872, Defendants agreed to extend the statute of limitations period for the years in question to April 15, 1994. The notice of deficiency was mailed to Defendants on December 28, 1993, well within the extension period. Therefore, the deadline for assessing the deficiency was extended, pursuant to I.R.C. § 6503(a)(1) and 6512(a), until May 27, 1994 (150 days after the notice was mailed). Because the assessments were made on May 17, 1994, they were timely.
4. Procedural validity of assessments
Finally, the Court finds without merit Defendants' contention that summary judgment is precluded because Plaintiff has not proven that the assessments made against the Engels were done in a timely manner and conformed with statutory procedural requirements. Plaintiff has submitted copies of Certified Transcripts of the assessments and payments with regard to the 1986 through 1989 tax years. (Gov't exhibits A through D). Under the relevant statutory provision and the presumption of official regularity, these transcripts show that assessments were timely made. See 26 U.S.C. § 6203 and related Treasury regulations (explaining minimal assessment record requirements). And where, as here, Defendants have offered no evidence to the contrary, such evidence is sufficient to demonstrate the absence of any genuine issues of material fact with regard to procedural conformity and timeliness.
Thus, for the reasons discussed herein, the Court concludes that Defendants have failed to raise any genuine issues of material fact, and that Plaintiff is entitled as a matter of law to summary judgment regarding the timeliness of the May 17, 1994 assessments for the 1986 through 1989 tax years.
ORDER
Accordingly, it is ORDERED:
Plaintiff's motion for partial summary judgment as to the timeliness of the additional tax assessments for the 1986 through 1989 tax years at issue in Count I of this action is GRANTED.
Done and so ordered.