Muir v. Commissioner

MEMORANDUM OPINION

PARR, JUDGE: Respondent determined deficiencies in, and additions to, petitioner's Federal income tax as follows:

Respondent also determined that petitioner is liable for increased interest on underpayments attributable to tax-motivated transactions as defined in section 6621(c), ¹ for the entire underpayment of tax for 1980.

*358 The sole issue for our decision is whether the statutory periods of limitations for assessing and collecting the deficiencies in, and additions to, petitioner's Federal income taxes for 1980 and 1981 have expired. ² We hold they have not.

BACKGROUND

Some of the facts have been stipulated and are so found. The stipulated facts and the accompanying exhibits are incorporated herein by this reference. Petitioner is an attorney who resided in Rochester, Minnesota, at the time he filed his petition in this case.

Petitioner filed his Federal income tax returns for the taxable years 1980 and*359 1981 on June 15, 1981, and October 15, 1982, respectively. On each return, petitioner claimed a substantial loss from his investment in a limited partnership, relating to, among other things, enhanced oil recovery technology.

On March 22 and 26, 1984, petitioner and respondent, respectively, executed a Form 872-A, Special Consent to Extend the Time to Assess Tax, related to the taxable year ended December 31, 1980.

On its face, Form 872-A states that the tax due for the specified year:

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), 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 NOTICE OF DEFICIENCY WILL END 60 DAYS

   AFTER THE PERIOD DURING WHICH THE MAKING OF AN ASSESSMENT*360 WAS

PROHIBITED. * * *

On October 7 and 9, 1985, petitioner and respondent, respectively, executed a Form 872-A related to the taxable year ended December 31, 1981. That Form 872-A contained the language quoted above with respect to termination of the extension agreement.

On January 19, 1988, respondent issued a notice of deficiency to petitioner. At no time before respondent's issuance of the notice of deficiency did respondent or petitioner, or anyone acting on petitioner's behalf, terminate the Form 872-A agreements by mailing to or filing with the other party a Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax.

Petitioner timely filed a petition to this Court for redetermination of the deficiency, affirmatively pleading that the periods of assessment of the taxes for 1980 and 1981 had expired and alleging error in respondent's determinations that disallowed the deductions related to his investment in the limited partnership. ³

*361 DISCUSSION

Petitioner asserts that the Form 872-A extension agreements terminated by operation of law within a reasonable time after execution, and, therefore, assessment of the taxes for 1980 and 1981 is barred by the statute of limitations. ⁴ Respondent contends that the period of limitations was extended by agreement and that neither respondent nor petitioner terminated the agreement before issuance of the notice of deficiency. We agree with respondent.

*362

Section 6501(a) generally provides that taxes imposed by the Internal Revenue Code must be assessed within 3 years from the time that the return is filed. The notice of deficiency was not sent to petitioner within 3 years of his filing of either the return for 1980 or 1981. Thus, respondent's determinations will be time-barred, unless they fall within an exception to the general rule.

One exception is under section 6501(c)(4), which provides that the period for assessment may be extended by agreement, if such agreement is executed before the period of assessment has expired. ⁵ "Form 872-A plainly constitutes such an agreed-upon extension as contemplated by the statute". Stenclik v. Commissioner, 907 F.2d 25, 27 (2d Cir. 1990), affg. T.C. Memo 1989-516.

*363

The Form 872-A extension, although of indefinite duration when executed, by its terms provides specific procedures for its termination. In a Court-reviewed opinion, we held that extension agreements that contain specific termination provisions do not expire by operation of law after a reasonable time. See Estate of Camara v. Commissioner, 91 T.C. 957, 962 (1988) (issuance of notices of deficiency terminated Form 872-A agreements executed more than 5 years earlier). Rather, such agreements terminate only by the express provisions of the agreement. See, e.g., Silverman v. Commissioner, 86 F.3d 260, 261-262 (1st Cir. 1996), affg. 105 T.C. 157 (1995); Bilski v. Commissioner, 69 F.3d 64, 68 (5th Cir. 1995), affg. T.C. Memo 1994-55; Feldman v. Commissioner, 20 F.3d 1128, 1133 (11th Cir. 1994), affg. T.C. Memo 1993-17; St. John v. United States, 951 F.2d 232, 235 (9th Cir. 1991); Stenclik v. Commissioner, supra at 28; Wall v. Commissioner, 875 F.2d 812, 813 (10th Cir. 1989); Mulder v. United States, 37 Fed. Cl. 60, 62 (1996), affd. without published*364 opinion 132 F.3d 52 (Fed. Cir. 1997); Estate of Camara v. Commissioner, supra.

Finally, under the Form 872-A procedure, the length of the extension is irrelevant since it is necessarily acquiesced in by the taxpayer who does not file the Form 872-T to bring the extension period to a close. See Stenclik v. Commissioner, supra. In this case, it is undisputed that petitioner never sent a Form 872-T to respondent to terminate the agreement.

In accordance with the reasoning set forth in Estate of Camara v. Commissioner, supra, we hold that assessment of petitioner's taxes due for 1980 and 1981 is not barred by the statute of limitations.

To reflect the foregoing,

Decision will be entered for respondent.