Opinion
Docket No. 32918-86.
1988-11-23
ESTATE OF PRUDENCIO B. CAMARA, DECEASED, DAVID L. ZIEGLER, EXECUTOR, AND BILLIE J. CAMARA, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Carle E. Davis and Donald W. Piacentini, for the petitioners. William L. Ringuette, for the respondent.
A series of Forms 872 was executed on behalf of petitioners and respondent for the years in issue. Subsequently, Forms 872-A were executed on behalf of petitioners and respondent. HELD, Forms 872-A do not expire by operation of law after a reasonable time. To the extent that McManus v. Commissioner, 65 T.C. 197 (1975), affd. 583 F.2d 443 (9th Cir. 1978), requires a different result, we will no longer follow it. Carle E. Davis and Donald W. Piacentini, for the petitioners. William L. Ringuette, for the respondent.
OPINION
TANNENWALD, JUDGE:
Respondent determined the following deficiencies in petitioners' Federal income tax:
+----------------+ ¦Year¦Deficiency ¦ +----+-----------¦ ¦1971¦$4,316.85 ¦ +----+-----------¦ ¦1973¦11,272.14 ¦ +----+-----------¦ ¦1974¦7,711.83 ¦ +----+-----------¦ ¦1975¦17,127.85 ¦ +----+-----------¦ ¦1976¦20,458.66 ¦ +----+-----------¦ ¦1977¦8,838.38 ¦ +----------------+ By order of the Court, issues relating to the years 1971, 1973 and 1976 were severed. The parties agree that the adjustments are proper and that the deficiencies are due unless assessment thereof is barred by the statute of limitations.
All of the facts have been stipulated. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Billie J. Camara was a resident of Hinton, West Virginia, at the time the petition was filed. She and her husband, Prudencio B. Camara, who died on May 7, 1982, filed timely joint Federal income tax returns for 1974, 1975 and 1977 with the Internal Revenue Service Center at Memphis, Tennessee, on the following dates:
+-------------------+ ¦Year¦Date filed ¦ +----+--------------¦ ¦1974¦June 15, 1975 ¦ +----+--------------¦ ¦1975¦June 15, 1976 ¦ +----+--------------¦ ¦1977¦June 15, 1978 ¦ +-------------------+
A series of Forms 872 (Consent Fixing Period of Limitation Upon Assessment of Income Tax) extending the statute of limitations for 1974 and 1975 to December 31, 1980, were timely executed by Dr. and Mrs. Camara and on behalf of respondent.
A Form 872-A (Special Consent to Extend the Time to Assess Tax) related to the years 1970 through 1976 was executed by Dr. and Mrs. Camara on July 23, 1980, and on behalf of respondent on July 24, 1980. That form provides, in part, that the Federal income tax due for the years to which it applied:
may be assessed on or before the 90th (ninetieth) 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). * * * The Form 872-A further provides: ‘This agreement ends on the earlier of the above »quoted† expiration date or the assessment date of an increase in the above tax that reflects the final determination of tax and the final administrative appeals consideration.‘ We will refer to Form 872-A, as well as other extension agreements having no fixed termination date, as indefinite extension agreements.
A Form 872-A relating to 1977 was executed by Dr. and Mrs. Camara on February 12, 1981, and on behalf of respondent on February 18, 1981. That Form 872-A contained the language quoted above with respect to termination of the extension agreement.
At no time did petitioners, Dr. Camara or anyone acting on their behalf send a Form 872-T (Notice of Termination of Special Consent to Extend Time to Assess Tax) to respondent, or attempt to terminate the consent given by the Forms 872-A for any of the tax years in issue.
On December 9, 1983, respondent mailed petitioners an examination report for the years in issue. During January 1984, petitioners filed a protest with respondent, protesting the changes set out in that examination report on the ground that the statute of limitations for the years in issue had run. The last contact petitioners had with respondent before he issued the notice of deficiency was on March 16, 1984, when a conference was held to consider petitioners' protest.
On May 19, 1986, respondent mailed petitioners the statutory notice of deficiency at issue herein.
In general, taxes imposed by the Internal Revenue Code must be assessed within 3 years from the time that the return is filed. Section 6501(a). It is undisputed that the notice of deficiency herein was not sent to petitioners within the 3-year period. Therefore, unless an exception to the general rule applies, respondent's determination will be time-barred.
The period for assessment may be extended by agreement, provided that such agreement is executed before the period for assessment, or that period as extended by another agreement, has expired. Section 6501(c)(4). Petitioners contend that assessment of tax for the years at issue is barred by the statute of limitations because respondent did not issue his notice of deficiency within a reasonable time after the Forms 872-A were signed. Respondent argues that he must have notice of a taxpayer's wish to terminate an indefinite extension agreement, and that such agreements do not expire by operation of law.
A consent to extend the statute of limitations is essentially a unilateral waiver of the taxpayer's defense rather than a contract; contract principles are important, however, because section 6401(c)(4) requires an agreement between the parties. Kovens v. Commissioner, 90 T.C. 452, 457 (1988). By their terms, the Forms 872- A signed by Dr. and Mrs. Camara require that an executed Form 872-T be delivered to respondent in order for Dr. and Mrs. Camara to terminate the extension agreements. See also Grunwald v. Commissioner, 86 T.C. 85, 88-90 (1986). Petitioners argue, in effect, that we should graft onto the agreement an additional term requiring that the agreement expire when a reasonable time has passed since its execution.
Petitioners base much of their argument on cases stating that indefinite extension agreements expire at the end of a reasonable time. The early cases upon which petitioners rely, however, are distinguishable, because the indefinite extension agreements with which they deal did not contain any provision covering the manner in which the agreement could be terminated. See, e.g., Franklin v. Commissioner, 7 B.T.A. 636 (1927). See also William S. Doig, Inc. v. Commissioner, 13 B.T.A. 256 (1928). Those cases fill in that gap by adding a term to an agreement which was silent on the subject. Thus, they do not support petitioners' argument that we should add a term to the specific termination provisions contained in the extension agreements at issue herein.