Adler v. Comm'r of Internal Revenue
| Decision Date | 07 October 1985 |
| Docket Number | Docket No. 19836-83. |
| Citation | 85 T.C. 535,85 T.C. No. 31 |
| Parties | CHARLES ADLER AND EDWINA ADLER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Upon the facts, HELD that
1.The errors in Ps' return did not constitute ‘mathematical or clerical errors appearing on the return‘ within the meaning of sec. 6213(f)(2) of the Code.
2.The errors in Ps' return were of a type encompassed within a limited extension of the statute of limitations granted by Ps, and R's notice of deficiency was therefore timely. ALAN A. DAVIDSON, for the petitioners.
CAROLINE R. ADES, for the respondent.
Respondent determined a deficiency in petitioners' income tax for the calendar year 1978 in the amount of $25,765.After agreement by the parties on an unrelated matter,1 the sole issue which we must determine is whether respondent's statutory notice of deficiency for 1978 was issued after the expiration of the effective statute of limitations under section 6501.2
The case was submitted to the Court on a fully stipulated set of facts and exhibits pursuant to the provisions of Rule 122, and our findings of fact herein are based upon such stipulated facts and documents.
At the time their petition was filed herein, petitioners were residents of Kinnelon, New Jersey.
Petitioners timely filed their joint individual income tax return for the calendar year 1978 with respondent at Holtsville, New York. On July 20, 1979, petitioners filed Form l040X, amending their 1978 income tax return.The changes related to capital gain income, interest income and dividend income, and disclosed an additional tax liability, which respondent assessed on or about February 4, 1980. On March 17, 1981, petitioners and respondent executed a partial agreement of increased tax liabilities for 1978, arising from a reduction in the sales tax deductions claimed by petitioners.The agreement executed by petitioners consenting to the assessment of such additional deficiencies stated on its face that it did not include any agreement as to adjustments relating to petitioners' participation in an entity known as Envirogas Drilling, and stated that any adjustments related to that entity would be proposed upon completion of a further examination.In May 1982, petitioners filed a second Form l040X, further amending their 1978 income tax return, and claiming an increased investment tax credit for the year 1978. 3
Among the items reported in petitioners' 1978 return were losses, and related items, with respect to certain limited partnership interests which petitioner Charles Adler held in certain partnerships, as follows:
1.Petitioner Charles Adler held limited partnership interests in seven limited partnerships, grouped together under the heading of return, and a single net loss figure was reported.Other pertinent figures with respect to these seven partnerships were likewise aggregated for tax reporting purposes, e.g., excess intangible drilling costs, tax preference net income or loss, and depletion.
2.Petitioner Charles Adler had a limited partnership interest in an organization known as ‘Perry Drilling 1978, Ltd.,‘ from which a net loss for 1978 was likewise reported.
Respondent undertook an audit of the partnership returns of the seven partnerships in the Envirogas Drilling Programs group. As the result of a partial audit of these returns, respondent and petitioner agreed upon various adjustments to the income, deductions, and/or credits in six of the seven Envirogas partnerships, and petitioners and respondent entered into a partial agreement, as the result of which petitioners' distributive share of losses from the Envirogas Drilling Programs was reduced by $9,326 for the taxable year 1978. As in the case of the prior agreement between the parties, this agreement, dated December 16, 1982, was specific that it was only a partial agreement with respect to that year.
Apparently in recognition of the fact that a complete examination of petitioners' affairs and 1978 return was not yet concluded, petitioners, on January 20, 1982, executed on Form 872-A a ‘Special Consent to Extend the Time to Assess Tax‘ with respect to the calendar year 1978.Said consent was accepted on behalf of respondent on January 29, 1982.Under the terms of the agreement, the statute of limitations with respect to respondent's right to assess deficiencies in petitioners' 1978 income was extended for an indefinite period.The agreement specified that the indefinite extension of the statute of limitations would be terminated only as follows, viz, on or before 90 days after the first to occur of the following events: (a) notification in writing by either party to the other party of the termination of the Special Consent, on Form 872-T, or (b) the issuance by respondent of a statutory notice of deficiency for the year 1978.
In addition, the Special Consent agreement entered into by the parties was further limited in its scope, in that the agreement specifically provided as follows:
The amount of any deficiency assessment is to be limited to that resulting from any adjustments to (1) items affected by the continuing tax effects caused by adjustments to any prior tax return; (2) your distributive share of any items of income, gain, loss, deduction or credit of, or distribution from the entities known as Envirogas Drilling Programs; (3) the tax basis of your interest in Envirogas Drilling Programs; (4) the return of the aforementioned entity which also affects your return and; (5) including any consequential changes to other items based on such adjustment.
The use of the term entity is without prejudice to the right of the commissioner to to (sic) challenge whether such entity exists, or, if existing, the character of such entity.
Incorporated with petitioners' 1978 tax return was Form 4625 (Computation of Minimum Tax - Individuals) in which petitioners reported their items of tax preference, as defined by section 57, for purposes of the minimum tax imposed by section 56.The return form reported the following amounts of tax preference items:
+-------------------------------------------+
¦Depletion ¦$2,958 ¦
+-----------------------------------+-------¦
¦Capital gains ¦813,944¦
+-----------------------------------+-------¦
¦Intangible drilling costs ¦15,581 ¦
+-----------------------------------+-------¦
¦Total tax preference items reported¦832,483¦
+-----------------------------------+-------¦
¦ ¦ ¦
+-------------------------------------------+
The above reporting of tax preference items in petitioners' 1978 return was in error in at least two respects:
1. No amount should have been reported as a tax preference item from depletion.
2. The correct figure for intangible drilling costs should have been $191,474.4
The above errors were committed by petitioners' tax return preparer, who misinterpreted and incorrectly reported on Form 4625 figures supplied to petitioners by Envirogas Drilling Program on Schedule K-1 which gave, separately and in total, pertinent figures with respect to the results of the seven Envirogas Drilling Program partnerships in which petitioner Charles Adler was a participant in 1978.Such schedule was not included as a part of petitioners' return, and the errors were not apparent from the return itself or any schedule attached thereto.The tax preference item for intangible drilling costs, as it related to the Perry Drilling 1978 Ltd., in the amount of $15,581, was correctly reported.
On April 14, 1983, the statutory notice of deficiency at issue herein was mailed to petitioners.At that time, neither petitioners nor respondent had terminated the period of assessment for the year 1978 by notification to the other party, as provided in Form 872-A.
The sole issue between the parties is whether respondent's statutory notice of deficiency was timely issued within the applicable period of limitations provided by section 6501(a).5 Petitioners contend that respondent's statutory notice was not timely issued under the applicable three-year statute. Respondent contends that the notice of deficiency was timely sent within the period of a valid consent executed by petitioners, extending the statute of limitations, as provided in section 6501(c)(4).6 In opposition to respondent's claim of a valid consent extending the period of limitations herein, petitioners urge that the consent which they issued was strictly limited in its scope to certain types of adjustments which respondent was permitted to make to petitioners' return, and that the adjustments which respondent made were outside the scope of that limited consent, and that the statutory notice herein was therefore untimely and invalid.
The bar of the statute of limitations is an affirmative defense, and the party raising it must specifically plead it and carry the burden of proof with respect thereto. Rules 39, 142(a). Where the party pleading such issue makes a showing that the statutory notice was issued beyond the normally applicable statute of limitations, however, such party has established a prima facie case.At that point, the burden of going forward with the evidence shifts to the other side, and the other party has the burden of introducing evidence to show that the bar of the statute is not applicable. Where the other party makes such a showing, the burden of going forward with the evidence then shifts back to the party pleading the statute, to show that the alleged exception is invalid or otherwise not applicable.The burden or proof, i.e., the burden of ultimate persuasion, however, never shifts from the party who pleads the bar of the statute of limitations.See Stern Bros. & Co. v. Burnet, 51 F.2d 1042 (8th Cir. 1931), affg. 17 B.T.A. 848 (1929); ...
To continue reading
Request your trial
-
Mecom v. Comm'r of Internal Revenue
...the 3–year expiration date for the period of limitation. Amesbury Apartments, Ltd. v. Commissioner, supra at 240–241; Adler v. Commissioner, 85 T.C. 535, 540 (1985). Respondent concedes on brief that petitioner has proven both prongs.14 Thus, petitioner has established a prima facie case th......
-
Malachinski v. Commissioner of Internal Revenue
...makes a prima facie case by showing that the notice of deficiency was not mailed within the three-year time period. See Adler v. Commissioner, 85 T.C. 535, 540 (1985). If the IRS produces a consent to extend the limitations period that is valid on its face,3 the burden then shifts back to t......
-
Ambur v. U.S., Civ. 01-3015.
...defense, and the party raising it must specifically plead it and carry the burden of proof. Rule 142(a); Adler v. Commissioner, 85 T.C. 535, 540, 1985 WL 15397 (1985). A party pleading the statute of limitations as a bar to assessment establishes a prima facie case by showing that the statu......
-
Feldman v. C.I.R.
...the affirmative defense of the statute of limitations, the taxpayer bears the burden to prove that defense. Adler v. Commissioner, 85 T.C. 535, 540, 1985 WL 15397 (1985). Once the taxpayer shows that the assessment occurred outside of the statutory period, the burden shifts to the Commissio......