Bachner v. C.I.R., 95-7121

CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)
Citation81 F.3d 1274
Docket NumberNo. 95-7121,95-7121
Parties-1883, 96-1 USTC P 50,217 Ronald C. BACHNER, Appellant, v. COMMISSIONER OF INTERNAL REVENUE SERVICE.
Decision Date17 April 1996

On Appeal from the Decision of the U.S. Tax Court (Tax Court No. 92-27019).

Dennis P. Craig (Argued), Pittsburgh, PA, for Appellant.

Gary R. Allen, Ann B. Durney, Kenneth Rosenberg (Argued), United States Department of Justice, Tax Division, Washington, DC, for Appellee.

Before: SLOVITER, Chief Judge, COWEN and GARTH, Circuit Judges.


SLOVITER, Chief Judge.

Ronald C. Bachner appeals from the decision of the United States Tax Court sustaining the determination of the Commissioner of Internal Revenue of deficiencies in and additions to Bachner's federal income taxes for the tax years 1984 and 1985. Bachner claims that the applicable statute of limitations bars assessment for each year.

I. Facts and Procedural History

In 1984 and 1985, Bachner was employed as a laboratory technician by the Westinghouse Electric Corporation. In November 1984, he sent the first of three letters to the Internal Revenue Service (IRS), all requesting assurance that his filing of a tax return would not cause him to be treated as having "relinquished" any of his constitutional rights. The District Director responded with letters emphasizing that the Internal Revenue Code mandated the filing of returns, describing the penalties otherwise applicable, and urging Bachner to submit the required information and pay the required amount.

On April 15, 1985, Bachner filed a timely Form 1040 for the 1984 tax year. In addition to providing his name, social security number, and other identification information, Bachner reported $24,441.71 on Line 7, captioned "Wages, salaries, tips, etc.", and attached the Form W-2 from his employer stating the same amount of compensation.

Bachner typed "XXXXXX" over the caption designated "Moving expense" on Line 24, and typed the amount $24,441.71 in the space provided. He added in the margin the note "No Income or Taxable Compensation See Attached Letter and Eisner v. Macomber 252 U.S. 189." He attached a letter along with the Form W-2, in which he claimed a refund of "erroneously withheld" federal income taxes, cited twenty-two court decisions and the Internal Revenue Code for support, and stated that his submission did not constitute a waiver of any rights. By applying his claimed deduction against his stated income, Bachner reported zero taxable income. He further claimed a refund of $4,396.95, the total amount withheld as taxes from his year's salary. The withheld taxes were not refunded.

At approximately the same time Bachner filed this return for 1984, Bachner filed three Forms 1040X (Amended U.S. Individual Income Tax Return), claiming refund of federal income taxes he had paid for the 1981, 1982 and 1983 tax years. Each of the claims included the statement "I have no income or taxable compensation," and was accompanied by the same letter Bachner had attached to his 1984 return.

In March 1985, Bachner filed with his employer a Form W-4 (Employee's Withholding Allowance Certificate), on which he claimed exemption from income tax withholding. Bachner indicated on the form that he did not owe any federal income tax for the previous year and would not for the current year, and that he had a right to a full refund of all income tax withheld for the previous year and expected the same for the current year.

In August 1985, the IRS asked Bachner to provide further information regarding his claimed exemption from income tax withholding. Bachner responded by a letter again declaring that he had no taxable income and again attached the letter he had attached to his 1984 Form 1040 and to each of his three Forms 1040X. Multiple rounds of correspondence followed, with the IRS notifying Bachner that it deemed his claim of exemption invalid and had directed his employer to withhold accordingly. Predictably, Bachner repeatedly disputed the IRS's authority to do so and asserted the validity of his exemption claim.

Bachner earned $26,901.76 in wages in 1985, of which $1,547.71 was withheld as federal income tax. Bachner filed no Form 1040 or 1040A for the 1985 tax year.

In June 1989, Bachner was indicted on one count of tax evasion for the 1985 tax year, in violation of 26 U.S.C. § 7201, and four counts of filing false, fictitious or fraudulent claims for tax refund for the 1981 through 1984 tax years, in violation of 18 U.S.C. § 287. After a jury trial in the Western District of Pennsylvania, Bachner was acquitted of all charges.

In December 1990, Bachner received two letters from the IRS, one regarding his tax liability for the 1984 tax year and the other for the 1985 tax year. The letters, with identical text, stated in their entirety:

Based on the information you have provided, the account specified above is resolved. We may contact you in the future, if further issues arise requiring clarification. At present, no further response is needed on the above account.

App. at 60-61.

On September 11, 1992, the IRS issued to Bachner a notice of deficiency for the 1984 and 1985 tax years. The notice asserted tax deficiencies of $4,096 for 1984 and $4,708 for 1985, and additions for fraud pursuant to I.R.C. § 6653(b) of $2,048 for 1984, and $2,354 plus 50 percent of the interest due on the unpaid deficiency of $3,161 for 1985. The asserted deficiencies did not reflect the amounts withheld of $4,397 in 1984 and $1,547 in 1985.

Bachner petitioned the Tax Court for redetermination of the asserted deficiencies for both years. Bachner relied on the statute of limitations in § 6501(a) of the Internal Revenue Code, which limits assessment to "within 3 years after the return was filed." With respect to the 1984 tax year, he contended that the Form 1040 he had filed, though irregular in format, provided information sufficient for the IRS to have computed his tax liability for that year, and therefore it qualified as a "return" adequate to trigger the running of the statute of limitations. Bachner conceded that he had filed no Form 1040 or 1040A for the 1985 tax year, but claimed that the Form W-2 submitted by his employer equipped the IRS with data sufficient to determine his tax liability for 1985. Therefore, the W-2 "filed on his behalf" served as a "return" within the meaning of I.R.C. § 6501(a) and marked the commencement of the three-year limitations period. Finally, Bachner argued that even if the Forms 1040 and W-2 were not "returns" upon submission, the IRS's subsequent communication in December 1990, declaring his accounts for 1984 and 1985 "resolved," constituted after-the-fact "acceptance" of the documents as valid tax returns.

Following a trial at which all the relevant facts were stipulated, the Tax Court sustained the Commissioner's determination of deficiencies with respect to both years. The court held that the statute of limitations was inapplicable and both years remained open to assessment since neither the unusual Form 1040 filed for 1984 nor the W-2 Bachner's employer submitted for 1985 qualified as a "return" that would commence the running of the statute of limitations under § 6501(a). The court further held that the December 1990 letters neither purported to be, nor effectively constituted, waivers of the IRS's filing requirements.

In addition to deciding that there were deficiencies in income taxes due for the tax years 1984 and 1985 in the amounts of $4,096 and $4,708 respectively, the Tax Court imposed additions to tax for Bachner's negligent underpayment of taxes for the tax years 1984 and 1985 under I.R.C. § 6653(a), and for Bachner's failure to file a return for the tax year 1985 under I.R.C. § 6651(a)(1).

The Tax Court had jurisdiction under 26 U.S.C. §§ 6213(a) and 7442, and we have jurisdiction over Bachner's appeal pursuant to 26 U.S.C. § 7482(a)(1).

II. Discussion

Decisions of the Tax Court are reviewed in the same manner as district court decisions in non-jury civil actions. See Holof v. Commissioner, 872 F.2d 50, 52 (3d Cir.1989); 26 U.S.C. § 7482(a)(1). The issues on appeal involve only questions of statutory construction and application, and therefore we conduct de novo review. See Armstrong World Indus., Inc. v. Commissioner, 974 F.2d 422, 430 (3d Cir.1992).

A. Tax Year 1984

This case turns on our interpretation of the three-year statute of limitations on assessment of taxes found in I.R.C. § 6501(a) (1994). That provision reads in full:

Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.

(emphasis added).

With respect to Bachner's 1984 tax year, the Tax Court sustained the Commissioner's deficiency determination, accepting the Commissioner's contention that Bachner's Form 1040 was not a valid "return" and that therefore the 1984 year remained open to assessment. On appeal, the Commissioner now concedes the validity of Bachner's Form 1040 as a tax return, and thus acknowledges that the three-year limitations period on his 1984 tax year has expired. The Commissioner distinguishes Bachner's 1984 return from that held inadequate in Beard v. Commissioner, 82 T.C. 766, 1984 WL 15573 (1984), aff'd, 793 F.2d 139 (6th Cir.1986), on which the Tax Court relied, on the ground that the modifications on Bachner's return were neither as extensive nor as obfuscatory as those made by Beard. The Commissioner now only requests that we vacate the Tax Court's decision...

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