Bokum v. C.I.R.

• Citation: 992 F.2d 1136
• Decision Date: 04 June 1993
• Docket Number: No. 90-5810,90-5810
• Parties: -5106, 93-1 USTC P 50,342, Fed. Sec. L. Rep. P 50,342 Richard D. BOKUM, II, Margaret B. Bokum, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1136

992 F.2d 1136

72 A.F.T.R.2d 93-5106, 93-1 USTC P 50,342,

Fed. Sec. L. Rep. P 50,342

Richard D. BOKUM, II, Margaret B. Bokum, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 90-5810.

United States Court of Appeals, Eleventh Circuit.

June 4, 1993.

Richard C. Conover, Bozeman, MT, for petitioners-appellants.

Gary R. Allen, Chief, Gilbert S. Rothenberg, Asst. Chief, Teresa E. McLaughlin, Brian C. Griffin, Deputy Asst. Atty. Gen., Bridget M. Rowan, Richard Farber, Appellate Section, Tax Div., Dept. of Justice, Washington, DC, for respondent-appellee.

Appeal from a Decision of the United States Tax Court.

Before TJOFLAT, Chief Judge, HATCHETT, Circuit Judge, and HENDERSON, Senior Circuit Judge.

TJOFLAT, Chief Judge:

In this appeal, Richard and Margaret Bokum, husband and wife, level three independent challenges against a Tax Court judgment that found them liable for an income tax deficiency of $2,570,061.99 for the 1971 tax year. None of the challenges has merit, and we therefore affirm.

I.

The deficiency in this case stems from the Internal Revenue Commissioner's denial of a limited partnership loss claimed as a deduction on the Bokums' 1971 joint income tax return. On December 7, 1971, Mr. Bokum purchased, for $2,100,000.00, an 86% interest in the Special Quinta 1971 Drilling Venture (Special Quinta), a limited partnership that invested in oil, gas, and mineral leases. Special Quinta was a tax shelter, and Mr. Bokum made the purchase because the tax savings he expected from the deductions generated by the partnership would far exceed his payments to Special Quinta. ¹ In their 1971 joint tax return, filed on April 15, 1972, the Bokums took as a deduction Mr. Bokum's pro rata share, $4,202,345.00, of Special Quinta's 1971 operating losses.

In January 1975, the IRS advised the Bokums by letter that it was investigating Special Quinta and asked them to waive the statute of limitations provision that precluded the IRS from challenging a tax return after three years. See 26 U.S.C. § 6501(a) (1988). ² The Bokums refused to execute a waiver, and on April 10, 1975, the Commissioner issued a notice of deficiency, disallowing the Special Quinta deduction and claiming an additional tax liability of $2,570,061.99. In July 1975, the Bokums filed a petition in the Tax Court challenging the deficiency.

Proceedings in the Bokums' case and a number of other cases involving similar limited partnerships organized by Special Quinta's general partner, Comprehensive Resources Corporation, were stayed pending the ultimate resolution of Brountas v. Commissioner, 73 T.C. 491, 1979 WL 3779 (1979), which had been selected as the test case for the determination of the validity of this type of deduction.

The initial decision in Brountas, which was handed down by the Tax Court in 1979, held that the taxpayers could deduct their full share of the limited partnership's losses. 73 T.C. 491. The First Circuit reversed. Brountas v. Commissioner, 692 F.2d 152, 161 (1st Cir.1982), cert. denied, 462 U.S. 1106, 103 S.Ct. 2453, 77 L.Ed.2d 1333 (1983) (concluding that the limited partnership's losses were not deductible); see also CRC Corp. v. Commissioner, 693 F.2d 281 (3d Cir.1982), cert. denied, 462 U.S. 1106, 103 S.Ct. 2453, 77 L.Ed.2d 1333 (1983). After the First Circuit's decision, most of the cases that had been stayed settled.

The Bokums, however, decided to prosecute their Tax Court petition to final judgment. While the prosecution was proceeding, but prior to the trial of the case, the IRS, in July 1984, sent the Bokums a letter stating, among other things, that the statute of limitations had run on the Commissioner's right to challenge the 1971 tax return. The statement was erroneous since the statute of limitations had not run. Nonetheless, the Bokums sought to take advantage of it.

The Bokums moved for summary judgment, contending that the letter equitably estopped the Commissioner from denying that the statute of limitations had run. The court concluded that the Commissioner's notice of deficiency had timely issued, denied their motion, and the case proceeded to trial. In a post-trial brief submitted prior to the entry of judgment, the Bokums altered their estoppel argument; they claimed that the Commissioner should be estopped because the July 1984 letter had led them to believe that the IRS would drop their claim for additional taxes for the 1971 tax year if they waived their rights to refunds for the 1973 and 1974 tax years. The court found this new argument unpersuasive. It concluded that the First Circuit's opinion in Brountas controlled its decision, and held the Bokums jointly liable for the asserted tax deficiency. The Bokums appeal.

II.

The Bokums challenge the Tax Court's judgment on three grounds, which we address in turn below. First, the Commissioner failed to "determine" the alleged deficiency. See 26 U.S.C. § 6212(a) (1988). Second, the court should have held the Commissioner estopped to contest the 1971 tax return. The Bokums' final argument is that Mrs. Bokum is an "innocent spouse" under 26 U.S.C. § 6013(e) (1988) ³ and, thus, cannot be held liable for the deficiency. We conclude that each of these arguments is without merit.

A.

Section 6212(a) of the Tax Code provides that "[i]f the Secretary determines that there is a deficiency in respect of any tax imposed ..., he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail." 26 U.S.C. § 6212(a). The Bokums claim that the Commissioner failed to "determine" their deficiency within the meaning of this statutory provision because at the time the notice of deficiency issued, the IRS had not audited Special Quinta's partnership return. According to the Bokums, section 6212 required the Commissioner, in making the deficiency determination in this case, to do more than simply review their personal 1971 tax return. Our precedent defeats their argument.

A notice of deficiency, while essential, serves largely as the taxpayers' "ticket to the Tax Court." Stoecklin v. Commissioner, 865 F.2d 1221, 1224 (11th Cir.1989). This notice permits taxpayers to petition the Tax Court to redetermine their tax liability without first paying the tax and then seeking a refund in district court. See 26 U.S.C. § 6213(a) (1988). Although the statute does not indicate what a notice of deficiency should contain, we have held that a notice is sufficient if it demonstrates that "the IRS has determined that a deficiency exists for a particular year and specif[ies] the amount of the deficiency." Stoecklin, 865 F.2d at 1224 (quoting Benzvi v. Commissioner, 787 F.2d 1541, 1542 (11th Cir.), cert. denied, 479 U.S. 883, 107 S.Ct. 273, 93 L.Ed.2d 250 (1986)); see also Estate of Yaeger v. Commissioner, 889 F.2d 29, 34 (2d Cir.1989), cert. denied, 495 U.S. 946, 110 S.Ct. 2205, 109 L.Ed.2d 531 (1990); Abrams v. Commissioner, 787 F.2d 939, 941 (4th Cir.), cert. denied, 479 U.S. 882, 107 S.Ct. 271, 93 L.Ed.2d 248 (1986). Here, the notice of deficiency plainly indicated that the IRS was disallowing a certain deduction on the Bokums' 1971 tax return, identified the source of the deduction, and recomputed the tax liability using the taxpayers' tax rate. The notice unquestionably met the minimum requirements.

The Bokums nevertheless maintain that the notice was inadequate. To support their argument they cite Scar v. Commissioner, 814 F.2d 1363 (9th Cir.1987). That case is inapposite. In Scar, the notice of deficiency sent to the taxpayers was facially incorrect. The notice indicated that the IRS was disallowing a deduction for losses in a partnership in which the taxpayers had no interest. Id. at 1370 n. 11. The notice also stated that the IRS had not even examined the taxpayers' tax return. Finally, in calculating the tax liability the Commissioner failed to use the applicable tax rate. Id. at 1366. In sum, we agree with the Tax Court that the Commissioner properly "determined" the deficiency within the meaning of section 6212(a). ⁴

B.

The Bokums next claim that the doctrine of equitable estoppel precludes the Commissioner from pursuing his claim of deficiency. The IRS sent the Bokums a letter in July 1984 stating:

In your case, the Internal Revenue Service is barred from disallowing any amount of your claimed loss on your return for your first year of involvement (1971) with certain of the ... partnerships, [including Special Quinta,] due to the expiration of the statute of limitations on your return for that year. However, you have filed protective claims for subsequent tax years[, 1973 and 1974,] relative to your partnership interest(s). To dispose of your case for those years and in keeping with the overall proposal for settlement ... it will be necessary to disallow your protective claim(s) for refunds filed for your subsequent year(s) return(s).

The Bokums contend that this letter led them to believe that the IRS would drop its claim for additional taxes in the 1971 tax year if they withdrew the protective claims they had filed for the 1973 and 1974 tax years. The Bokums had filed these protective claims in order to toll the three-year statute of limitations period that had been running on their right to sue for refunds for those two years in federal district court. According to the Bokums, after receiving the July 1984 letter, they withdrew their protective claims, and in consequence lost their right to sue for refunds. They now argue that because of his actions, the Commissioner should be equitably estopped from challenging their 1971 return.

As a threshold matter, the Commissioner contends that the Tax Court did not have jurisdiction to determine an equitable estoppel claim, and thus we cannot entertain this claim on appeal. We disagree with the Commissioner and conclude that the Tax Court has the authority to entertain an equitable estoppel claim in an action over which it has jurisdiction. Nev...