Shockley v. Comm'r, s. 11–13494

Decision Date11 July 2012
Docket NumberNos. 11–13494,11–13495 and 11–13497.,s. 11–13494
Citation23 Fla. L. Weekly Fed. C 1274,686 F.3d 1228,110 A.F.T.R.2d 2012
PartiesSandra K. SHOCKLEY, Terry K. Shockley, Shockley Holdings, Limited Partnership, Transferees, Petitioners–Appellees, v. COMMISSIONER OF IRS, Respondent–Appellant.
CourtU.S. Court of Appeals — Eleventh Circuit

OPINION TEXT STARTS HERE

Jenny Louise Johnson, Holland & Knight, LLP, Aharon S. Kaye, Alexander S. Vesselinovitch, Katten, Muchin, Rosenman, LLP, Ziemowit T. Smulkowski, Paul, Hastings, Janofsky & Walker, LLP, Chicago, IL, for Transferees PetitionersAppellees.

Rachel Ida Wollitzer, Tamara W. Ashford, Thomas J. Clark, Gilbert Steven Rothenberg, U.S. Dept. of Justice, Tax Div. App. Sec., Ashton P. Trice, Acting Chief Counsel, William J. Wilkins, Chief Counsel, IRS, Washington, DC, Steven N. Balahtsis, Chief Counsel, Gail Campbell, Chief Counsel, Lyle B. Press, Chief Counsel, IRS, New York City, for RespondentAppellant.

Petitions for Review of a Decision of the U.S. Tax Court.

Before TJOFLAT and HULL, Circuit Judges, and HUCK,* District Judge.

HULL, Circuit Judge:

The Internal Revenue Code (“Code”) requires the Internal Revenue Service (“IRS”) to assess tax deficiencies within certain statutory limitations periods. The Code, however, provides for suspension of certain limitations periods. This appeal involves one such statutory-suspension section. Specifically, § 6503(a)(1) of the Code suspends the running of the limitations period when “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.” 26 U.S.C. § 6503(a)(1).1

The narrow question before us is whether a particular Tax Court petition, that challenged a notice of deficiency as invalid, “was a proceeding in respect of the deficiency” so as to suspend the limitations period. After review and oral argument, we hold the petition in issue suspended the running of the statute of limitations, and thus we reverse.

I. BACKGROUND
A. The 2001 Corporate Tax Return

Shockley Communications Corporation (“SCC”) was a closely held corporation that owned and operated numerous media stations.

The three petitioners in this caseTerry Shockley, Sandra Shockley, and Shockley Holdings, LP—were shareholders in SCC. Terry and Sandra Shockley also served as officers and directors of SCC.

On May 31, 2001, Northern Communications Acquisition Corporation (“NCAC”) bought all shares of SCC. That same day, Terry and Sandra Shockley resigned from their SCC positions due to that sale. Subsequently, SCC merged into Shockley Delaware Corporation.

On February 24, 2002, SCC filed its Form 1120, U.S. Corporation Income Tax Return, for the short tax year ending May 31, 2001. The form showed a Washington, D.C. address for SCC.

The IRS selected SCC's return for audit. In 2004, the IRS contacted Terry and Sandra Shockley, in their officer/shareholder capacity, to request an extension of time to assess SCC's tax. Their lawyer, by letter dated September 17, 2004, responded that Terry and Sandra Shockley were no longer officers or shareholders of SCC. The lawyer also provided the contact information of NCAC, stating that NCAC was the “successor in interest to SCC” and could grant the extension.

The IRS then began the statutory procedures required prior to formal “assessment” of SCC's tax. Before the IRS may assess a tax deficiency, the IRS must issue a notice of deficiency and permit the taxpayer 90 days to challenge the notice. I.R.C. §§ 6212(a), 6213(a). Here, the IRS issued two nearly identical notices of deficiency regarding SCC's corporate tax on February 18, 2005.

A taxpayer may then challenge a notice of deficiency by filing a petition in the Tax Court. Id. § 6213(a). If a proceeding regarding the taxpayer's deficiency is placed on the Tax Court docket, the IRS must wait to assess until the Tax Court decision becomes final, plus 60 days thereafter. Id. §§ 6213(a), 6503(a)(1). In this case, a petition was filed in the Tax Court challenging one of the notices of deficiency. We address the notices first.

B. 2005 Notice of Deficiency Sent to Washington, D.C. Address

On February 18, 2005, the IRS mailed one notice of deficiency relating to SCC's tax return for the year ending May 31, 2001, to “Shockley Communications Corporation at the Washington, D.C. address reported on SCC's 2001 return (“D.C. notice”). The D.C. notice listed SCC's taxpayer identification number and identified a deficiency in tax of $41,566,515, a penalty of $8,313,303, and an addition to tax of $2,078,276, all for the tax year ending May 31, 2001. In this regard, the D.C. notice stated that “you owe additional tax ... for the tax year(s) identified above [May 31, 2001].”

The D.C. notice also stated that [t]his letter is your NOTICE OF DEFICIENCY, as required by law.” It continued, “If you want to contest this determination in court before making any payment, you have 90 days from the date of this letter ... to file a petition with the United States Tax Court for a redetermination of the deficiency.”

The IRS enclosed with the notice Forms 4549–A and 4089.2 Both forms identified the “Taxpayer(s) as “Shockley Communications Corporation,” and Form 4089 listed SCC's D.C. address as the “Address of Taxpayer(s).” The D.C. notice was returned to the IRS as undeliverable.

C. 2005 Notice of Deficiency Sent to Madison, Wisconsin Address

Also on February 18, 2005, the IRS mailed a second, nearly identical notice of deficiency to SCC, with a Madison, Wisconsin address on the notice (“Madison notice”):

SHOCKLEY COMMUNICATIONS CORPORATION

TERRY K & SANDRA K SHOCKLEY

OFFICERS & SHAREHOLDERS

702 PRAIRIE SMOKE ROAD

MADISON WI 53713–2708.

The Madison address was the then-home address of the Shockleys in Madison, Wisconsin.3 Only SCC's taxpayer identification number was listed on the notice. The Madison notice identified the same deficiency in corporate tax of $41,566,515, the same penalty of $8,313,303, and the same addition to tax of $2,078,276, all for the May 31, 2001, tax year. As did the D.C. notice, the Madison notice included the boilerplate language of “you owe additional tax,” “this letter is your NOTICE OF DEFICIENCY,” and [i]f you want to contest this determination ... you have 90 days from the date of this letter ... to file a petition with the United States Tax Court for a redetermination of the deficiency.”

In the Madison notice, the IRS also enclosed Forms 4549–A and 4089. Form 4549–A identified “Shockley Communications Corp as the “Name ... of Taxpayer” and listed SCC's D.C. address as the “Address of Taxpayer.” Form 4089 named “Shockley Communications Corporation/Terry K & Sandra K Shockley/Officers & Shareholders” as the “Taxpayer(s) and listed the Madison address as the “Address of Taxpayer(s).”

D. The 2005 Petition

On May 25, 2005, Terry and Sandra Shockley responded to the Madison notice by filing a petition (2005 petition”) in the Tax Court. The 2005 petition was styled as follows:

SHOCKLEY COMMUNICATIONS CORPORATION

TERRY K & SANDRA K SHOCKLEY

OFFICERS & SHAREHOLDERS

Petitioner,

v.

COMMISSIONER OF INTERNAL REVENUE

Respondent.

The 2005 petition stated that it was “filed on behalf of Petitioner subject to the invalidity of the Notice of Deficiency and the failure to properly serve the corporation as required by statute.” The 2005 petition sought both a declaration that the Madison notice was invalid as to SCC and a “redetermination of the deficiencies set forth” in the notice.

As to invalidity, the 2005 petition acknowledged that the Madison notice identifiedSCC as the “taxpayer,” but alleged that the notice also improperly named Terry and Sandra Shockley, “individually and not as transferees,” as the “taxpayer.” The petition further alleged that the notice was invalid because it was “addressed and delivered to the personal residence of Terry and Sandra Shockley, not to the business address of SCC nor to SCC's last known address on file with the IRS.” Notably, the 2005 petition refers to the Petitioner in the singular.

The 2005 petition also refers to only the tax liability of SCC. As to redetermination of that deficiency, the 2005 petition stated that the deficiency was for corporate income taxes reported on SCC's corporate Form 1120 return for the tax year ended May 31, 2001.” (Emphasis added.) The 2005 petition recognized that the notice “ma[de] no determination of individual federal income tax liabilities with respect to Terry K. and Sandra K. Shockley and determined a deficiency only for “corporate income taxes in the amount of $41,566,515, and for penalties in the amount of $10,391,579.” The 2005 petition alleged that [e]ach and every determination of additional taxes and penalties set forth in the Notice of Deficiency is erroneous,” and [a]ll deficiencies, as well as the validity of the Notice of Deficiency itself, are in dispute.” In the final paragraph, the 2005 petition reiterated its request “for a determination that the alleged Notice of Deficiency is invalid and that there are no deficiencies in income tax or penalties due from Petitioner,” a name designation that necessarily included SCC.

In a May 18, 2005, letter attached to the 2005 petition, Terry and Sandra Shockley expressed concern that the Madison notice was directed at them in an individual or representative capacity, even though the Madison notice was “issued in the name of a corporation” and the adjustments were for “the tax of SCC.” “If so,” they stated, we dispute that any tax is owed.” The letter was neither incorporated nor referenced in the 2005 petition.

On March 5, 2007, before the Tax Court addressed the merits of the 2005 petition, Terry and Sandra Shockley moved to dismiss the 2005 petition for lack of jurisdiction on the grounds that (1) the Madison notice was invalid because it was not sent to SCC's last known address, and (2) Terry and Sandra Shockley lacked capacity to contest the deficiency on SCC's behalf. The IRS agreed only with...

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