Hpffman v. Comm'r of Internal Revenue
| Decision Date | 24 September 2002 |
| Docket Number | No. 16028–99L.,16028–99L. |
| Citation | 119 T.C. No. 7,119 T.C. 140 |
| Parties | Peter M. and Susan L. HOFFMAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Taxpayers petitioned for review of IRS' determination to proceed with collection on penalty assessment for additional income reported on taxpayers' amended return submitted after expiration of period of limitations. The Tax Court, Laro, J., held that: (1) as matter of first impression, for substantial omissions limitations period, taxpayer-partner's gross income included gross receipts of partnerships, despite taxpayer-partner's non-material participation, and (2) IRS did not assess amounts within its required three-year period of limitations.
Decision for Taxpayers. Steven Toscher, Stuart A. Simon, and Bruce I. Hochman, for petitioners.
Daniel M. Whitley and Irene S. Carroll, for respondent.
On Sept. 10, 1991, Ps timely filed a joint 1990 Federal income tax return on which they reported that they: (1) Held a general partner interest in one partnership and limited partner interests in five partnerships and (2) did not under sec. 469, I.R.C., materially participate in any of the partnerships. On Sept. 8, 1997, Ps filed an amended return for 1990 reporting additional income and remitting the tax due on that additional income. On Nov. 6, 1997, R assessed the additional tax liability reported on the amended return and assessed other amounts for a penalty and interest on that additional tax liability.
Subsequently, R issued to Ps a notice of intent to levy, and Ps requested and received a hearing under sec. 6330, I.R.C. At the hearing, Ps contended that the additional tax liability reported in 1997, the penalty, and the interest were all assessed after the expiration of the period of limitations and that they were entitled to a refund of the amount paid with the amended return. R rejected those arguments in a notice of determination issued to Ps sustaining the proposed levy. R determined that the applicable period of limitations is the 6–year period under sec. 6501(e)(1)(A), I.R.C., and that the assessment was timely because the amended return was filed 2 days before the expiration of the 6–year period. R argues that the 6–year period applies because, R asserts, the reference to “gross income stated in the return” in sec. 6501(e)(1)(A), I.R.C., does not include any of the income of the partnerships given that Ps neither actively nor materially participated in the trade or business of any of those partnerships.
Held: The 6–year period of limitations in sec. 6501(e)(1)(A), I.R.C., is inapplicable, and the assessment made on Nov. 6, 1997, was untimely. Ps' “gross income stated in the return” is determined by reference to the information returns of the partnerships.
Petitioners petitioned the Court under section 6330(d), and the parties submitted the case to the Court fully stipulated. See Rule 122. We decide herein whether respondent assessed certain amounts against petitioners within the period allowed by section 6501. We hold respondent did not. Unless otherwise indicated, section references are to applicable versions of the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure. Petitioners resided in Los Angeles, California, when the petition was filed.
Peter M. Hoffman and Susan L. Hoffman (Mr. Hoffman and Ms. Hoffman, respectively) filed a joint Federal income tax return for 1990. Before filing that return, they requested from respondent two extensions of time to file, both of which were granted. Their 1990 Federal income tax return (the original return) was received by respondent on September 10, 1991.
The original return reported that either Mr. or Ms. Hoffman was a partner in the following partnerships: (1) Twelve Star Partners, Ltd ., (2) Thirteen Star Partners Limited, (3) Cabrillo Palms Associates, (4) Desert Investments, (5) Joliet Television Stations, L.P., and (6) Orbis Television Stations, L.P. The original return reported that either Mr. or Ms. Hoffman held a limited partner interest in the partnerships, except for Desert Investments, in which the original return reported that one of petitioners was a general partner. The original return reported that neither petitioner “materially participated” in the activities of any of these partnerships within the meaning of section 469. The original return reported that petitioners also were shareholders in an S corporation, Cinema Products Corp. (Cinema), and that they did not “materially participate” in the activity of Cinema.
Respondent no longer has copies of any of the six partnerships' Federal tax returns for 1990, and the Schedules K–1, Partner's Share of Income, Credits, Deductions, etc., are not in the record. Respondent has a copy of Cinema's 1990 Form 1120S, U.S. Income Tax Return for an S Corporation.
The original return reported gross income from wages, interest, a State tax refund, miscellaneous income, and rental income totaling $3,019,317. The original return also reported long-term capital gain of $5,304 from the partnerships and section 1231 gain of $76,070 from the S corporation. The record does not indicate the gross income of the six partnerships.
On September 8, 1997, petitioners filed an amended 1990 Federal income tax return (the amended return) that was prepared by their accountant.1 The amended return shows an additional tax liability of $218,152, without statutory additions, which was based upon $779,114 of gross income that was omitted from the original return.2 The amount omitted from the original return relates to cancellation of indebtedness income that petitioners did not report.
At or about the time that petitioners filed the amended return, they remitted payment for the $218,152. Respondent assessed the additional tax shown on petitioners' amended return on November 6, 1997, which is 59 days after the amended return was filed.
On May 6, 1999, respondent issued to petitioners a Notice of Intent to Levy and Notice of Your Right to a Hearing (notice of intent to levy). The notice of intent to levy is not contained in the record. The Court understands that respondent proposes to effect the levy to collect interest and penalties related to the amount of additional tax liability reported in the amended return. The record does not disclose the type of penalties respondent assessed.
On May 10, 1999, petitioners timely requested a hearing under section 6330. In their request, petitioners stated that
we are disputing any balance due and are requesting a refund of $218,152 paid in error.
Mr. and Mrs. Hoffman filed a form 1040X in 1997 for the year 1990. They paid $218,152 of additional tax with this form. The IRS is attempting to collect accumulated interest and penalty on said amended return. [sic]
The 1990 amended return was filed subsequent to the expiration of the statute of limitations and was therefore invalid. Assessment of penalties and interest is incorrect. The taxpayers are now aware of their error and intend to file a Claim for refund of the $218,152 paid utilizing the format enclosed.
The request for a hearing was accompanied by a written request for a refund, using Form 1040X, Amended U.S. Individual Income Tax Return, for the additional $218,152 paid with the amended return. The request for refund stated that
Taxpayer filed form 1040X and paid $218,152 of additional taxes for 1990 in September 1997. This was subsequent to [the] tolling of statute of limitations and as such was not valid. This form is being completed as a claim for refund. It is being filed within the 2 year period of remittance of the erroneous tax payment (IRC 6511(b)(2)(B)).
A Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 was sent to petitioners on September 8, 1999. The Appeals officer determined that petitioners
raised the issue of the timely filing of your court ordered amended return in your 2nd amended return which sought refund of the tax paid with the court ordered amended return. The statute of limitations had been extended by three years to a six year statute due to an amount of unreported income which was in excess of 25% of your AGI. Your court ordered amended return was filed on September 8, 1997, exactly two days prior to the six year statute of September 10, 1997. You have no basis for the refund of tax paid with your court ordered amended return, and accordingly, no basis for relief from the interest charged on such deficiency.
You requested a Collection Due Process hearing. Your representative appeared at the hearing and indicated that you felt that the proposed levies were intrusive because you had filed your court ordered amended return after the statute of limitations had expired. If the statute of limitations had expired it would mean that the payment you made when the amended return was filed was a voluntary payment and there was no basis for charging interest on the voluntary payments. Additionally, you sought refund of tax paid with such court ordered amended return in the amount of $218,152. It is determined that you have no basis for refund of $218,152, nor is there basis for relief from the statutory interest being sought by the government. You have offered no other alternative means of disposing of your liability, accordingly standard collection means will be pursued. In making this determination, the Appeals officer did not review the 1990 tax returns for the six partnerships in which petitioners were partners.
In this proceeding, petitioners' sole allegation is that the Appeals officer erroneously determined that the assessment of the penalty and interest was proper. Petitioners allege that the assessments were made after the expiration of the period of limitations provided in section 6501. We agree that the assessment was untimely.
Any amounts assessed, paid, or collected after the expiration of the period of limitations are overpayments....
To continue reading
Request your trial
-
Tax Court In Brief | Goddard v. Comm'r | Collection Due Process, Penalties For Failure To Register A Tax Shelter
...the issue of whether the limitations period has expired constitutes a challenge to the underlying tax liability." Hoffman v. Commissioner, 119 T.C. 140, 145 (2002). If a taxpayer is barred from contesting their underlying tax liabilities before the Tax Court because the taxpayer had a prior......