Buchine v. C.I.R., s. 93-4977

• Citation: 20 F.3d 173
• Decision Date: 09 May 1994
• Docket Number: Nos. 93-4977,93-4990,s. 93-4977
• Parties: -1989, 94-1 USTC P 50,221 Mark BUCHINE, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee. Karen C. BUCHINE, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 173

20 F.3d 173

73 A.F.T.R.2d 94-1989, 94-1 USTC P 50,221

Mark BUCHINE, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.

Karen C. BUCHINE, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.

Nos. 93-4977, 93-4990.

United States Court of Appeals Fifth Circuit.

May 9, 1994.

Rehearing and Suggestion for Rehearing

En Banc Denied June 16, 1994.

Shelley Cashion, George Connelly, Jr., Chamberlain, Hrdlicka, White, Williams & Martin, Houston, TX, for Mark Buchine.

Janet A. Bradley, William S. Estabrook, Gary R. Allen, Chief Appellate Sec. Tax Div., Dept. of Justice, Abraham N.M. Shashy, Jr., Chief Cnsl., IRS, Washington, DC, William G. Bissell, Off. of Dist. Cnsl., IRS, Houston, TX, for C.I.R. in No. 93-4977.

Karne C. Buchine, pro se.

Neil M. Rosenstein, Levin & Kasner, Houston, TX, for Karen C. Buchine.

Abraham Shashy, Jr., Chief Cnsl., IRS, Janet A. Bradley, Gary R. Allen, Chief Appellate Sec., Tax Div., William S. Estabrook, U.S. Dept. of Justice, Washington, DC, for C.I.R. in No. 93-4990.

Appeal from A Decision of the United States Tax Court.

Before ALDISERT ^*, REYNALDO G. GARZA and DUHE, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

Mark and Karen Buchine appeal a decision from the United States Tax Court holding them liable for tax deficiencies. We find that the Tax Court did not go beyond its statutorily prescribed jurisdiction by applying the equitable principle of reformation. We further find that the Tax Court did not clearly err in finding that a written agreement existed between each of the Buchines and the IRS, and in finding that Karen Buchine was not an innocent spouse within the meaning of I.R.C. Sec. 6013(e). Therefore, the decision of the Tax Court is AFFIRMED.

I. FACTS

Mark and Karen Buchine filed their 1981 tax return on July 21, 1982. The IRS, however, did not issue the notice of deficiency until September 7, 1989.

On September 17, 1984, the Commissioner of the IRS mailed the Buchines an original and one copy of Form 872-A (Special Consent to Extend the Time to Assess Tax). The Form 872-A agreements executed by taxpayers and the IRS are known as open-ended "consents" because they extend indefinitely the Internal Revenue Code's section 6501 three-year period for assessment of tax deficiencies. The cover letter (Form 907) that accompanied the consent referred to the 1981 taxable year. Form 872-A, however, referred to the 1984 taxable year. Along with the consent and the cover letter, the Commissioner included IRS publication 1035. The front page of publication 1035 states the Commissioner's policy to identify tax returns under examination for which the statutory period is about to expire, and seeks a consent from the taxpayer to extend that period.

The Commissioner intended to request that the Buchines consent to extend the time to assess the tax for the 1981 tax year, because the three-year limitations period for that year was about to expire. The Buchines received the package of documents from the IRS and Mark Buchine read both the cover letter and the consent. The Tax Court held that when he read the documents he knew that the consent was not intended for the 1984 tax year.

On September 19, 1984, Mark Buchine telephoned the number provided on the cover letter, and spoke with revenue agent Roy Fite. At Mr. Fite's request, Mark Buchine provided Mr. Fite with his name, the taxable year 1981, and his social security number. Mr. Fite took notes of his conversation with Mark Buchine. After the conversation, Mr. Fite wrote the above information on a telephone contact sheet and discarded his notes.

Before signing the consent, Mark Buchine told his wife to sign it, and she did. The Buchines knew when they signed the consent form that they had not yet filed their 1984 income tax return.

II. PROCEDURAL HISTORY

Mark and Karen Buchine petitioned the United States Tax Court for a redetermination of proposed additional taxes ("deficiencies") determined by the Commissioner in Mark and his then-wife Karen's income for 1981, together with the carryback-effect of those adjustments on their joint tax returns for 1978, 1979, and 1980. The Tax Court held that it could reform Form 872-A based upon mutual mistake of the parties, and that clear and convincing evidence existed that Mark, Karen, and the Commissioner each intended the Form 872-A to apply to 1981, rather than 1984. The Tax Court also held that Karen was not an innocent spouse with regard to these matters.

After computations, on January 31, 1992, the Tax Court entered its decision setting forth Mark and Karen's tax liability for 1981 and the carryback years. On March 22, 1993, the Tax Court denied Mark and Karen's motion to reconsider Opinion, and motion to vacate and revise decision. Mark timely filed his notice of appeal, however, a question exists as to the timeliness of Karen's appeal to this court.

III. DISCUSSION

The Buchines claim the Tax Court: (1) went beyond its statutorily prescribed jurisdiction by reforming the consent agreement; and (2) clearly erred in finding that a written agreement existed between each of them and the IRS.

Karen Buchine argues separately that her notice of appeal was timely filed and that the district court clearly erred in finding that she was not an innocent spouse within the meaning of I.R.C. Sec. 6013(e).

We find that the Tax Court did not go beyond its statutorily prescribed jurisdiction by applying the equitable principle of reformation. We further find that the Tax Court did not clearly err in finding that a written agreement existed between each of the Buchines and the IRS, and in finding that Karen Buchine did not fall within the meaning of an innocent spouse. Finally, we find that Karen Buchine's notice of appeal was timely filed.

A. Did the Tax Court go beyond its limited jurisdiction?

Mark and Karen Buchine argue that the Tax Court lacks general equitable powers to enlarge its jurisdiction beyond that statutorily prescribed by the Internal Revenue Code.

The Buchines assert that they filed their 1981 tax return on July 21, 1982, so that any notice of deficiency issued to them would have to have been mailed by the IRS on or before July 20, 1985, absent a valid written consent extending the three year statute of limitations. See, I.R.C. Sec. 6501(a). The Buchines also assert that the consent form prepared by the IRS clearly and unambiguously extended the statute of limitations for the 1984 tax year, not the 1981 tax year. The Buchines further assert that the Tax Court, based on Woods v. C.I.R., 92 T.C. 776, 1989 WL 32907 (1989), reformed the consent form by substituting "1981" for "1984." In Woods, the Tax Court held that it had jurisdiction to reform a consent form to accord with the parties' mutual agreement which had not been expressed in the consent form due to scrivener's error. Id.

The Buchines assert that the Woods, decision is erroneous. They claim that the Woods court fashioned a slippery distinction between its jurisdictional grant and contract reformation. "[T]here is a difference, however between the application of equitable principles to decide a matter over which we have jurisdiction and the exercise of 'general equitable powers' to take jurisdiction over a matter not provided for by statute." Id. at 2971. The Buchines claim this distinction has no support in the Constitution, legislation or case law.

The Buchines claim that Article I courts do not have general equitable powers, including the power to reform a contract unless specifically provided by statute. The Supreme Court has twice ruled that predecessors to the U.S. Tax Court--the Board of Tax Appeals and the Tax Court of the U.S.--have no equity jurisdiction. C.I.R. v. McCoy, 484 U.S. 3, 7, 108 S.Ct. 217, 219, 98 L.Ed.2d 2 (1987); C.I.R. v. Gooch Milling & Elevator Co., 320 U.S. 418, 419-20, 64 S.Ct. 184, 185-86, 88 L.Ed. 139 (1943). The Buchines argue that the Supreme Court has determined that Article I courts have no jurisdiction to reform a contract absent express authority to do so. They further argue that since this court has held that Congress has not issued such statutory authority, the Tax Court in the instant case had no constitutional authority to apply the equitable remedy of reformation to create a basis for its jurisdiction. See, Harvey v. United States, 105 U.S. (15 Otto) 671, 26 L.Ed. 1206 (1881) (Court of claims, which at that time was an Article I court, did not have the power to reform an agreement.); Continental Equities, Inc. v. C.I.R., 551 F.2d 74, 79 (5th Cir.1977) (Tax Court, being a court of limited jurisdiction, did not have equitable power to expand its jurisdiction to adjudicate a tax refund claim.).

Finally, the Buchines argue that Congress was quite specific in its directive as to how the statute of limitations could be extended beyond the basic three years set forth in I.R.C. section 6501(a). Pursuant to I.R.C. section 6501(c)(4), an extension of the statute of limitations is ineffective unless "both the [Commissioner] and the taxpayer have consented in writing...." Thus, I.R.C. Section 6501(c)(4) provides that the writing itself constitutes the agreement of the parties, rather than being a mere memorialization of an oral agreement. The Buchines argue that Congress deliberately chose the phrase "written consent" in determining when the statute of limitations could be extended. Application of any equitable principles to determine whether an agreement existed at all, as well as whether a writing need exist, are simply inconsistent with the plain language of I.R.C. Section 6501(c)(4).

The jurisdiction of the Tax Court to reform a consent form extending the statute of limitations is a question of law subject to de novo review. FED.R.CIV.P. 52(a).

In Woods v. C.I.R., 92 T.C. 776, 1989 WL 32907 (1989), the Tax Court was faced with a fact situation very similar to the case at bar. In that case, the...