Estate of Bommer v. Commissioner, Docket No. 15485-94.
| Decision Date | 04 May 1995 |
| Docket Number | Docket No. 15485-94. |
| Citation | 69 T.C.M. 2541 |
| Parties | Estate of Cameron W. Bommer, Deceased, Marcella Bommer, Executrix, Ronald J. Bommer, Residuary Trustee, Trustee, and Executor, Cameron M. Bommer, Executor, Ronald Bommer II, Executor, Kelly Long, Executrix v. Commissioner. |
| Court | U.S. Tax Court |
PANUTHOS, Chief Special Trial Judge:
This matter is before the Court on respondent's Motion for Partial Summary Judgment.1 Respondent seeks partial summary judgment that the terms of an Estate Tax Closing Letter issued to the Estate of Cameron W. Bommer (petitioner or the estate) do not affect the validity of the deficiency notice issued in this case.
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Florida Peach Corp. v. Commissioner [Dec. 44,689], 90 T.C. 678, 681 (1988). Summary judgment may be granted with respect to all or any part of the legal issues in controversy "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Rule 121(b); Sundstrand Corp. v. Commissioner [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶ 50,092] 17 F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner [Dec. 44,714], 90 T.C. 753, 754 (1988); Naftel v. Commissioner [Dec. 42,414], 85 T.C. 527, 529 (1985). The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences will be read in a manner most favorable to the party opposing summary judgment. Dahlstrom v. Commissioner [Dec. 42,486], 85 T.C. 812, 821 (1985); Jacklin v. Commissioner [Dec. 39,278], 79 T.C. 340, 344 (1982).
The following is a summary of the relevant facts which do not appear to be in dispute; they are stated solely for purposes of deciding the motion and are not findings of fact for this case. Fed. R. Civ. P. 52(a); Sundstrand Corp. v. Commissioner, supra at 520.
Cameron W. Bommer (decedent) died on September 10, 1990. On September 19, 1990, Marcella Bommer, decedent's wife, was appointed executrix of decedent's estate. At the time of filing the petition herein, the executrix resided at Cincinnati, Ohio.
At the time of his death, decedent owned 117.7568 shares of CamVic Corp. stock (CamVic stock). Decedent's CamVic stock was reported on the estate's Federal estate tax return, filed June 4, 1991, at an aggregate value of $1,334,573 or $11,330.30 per share.
Decedent's estate was closed on August 23, 1991.
On or about December 26, 1991, Revenue Agent Donald Grigsby notified counsel for petitioner of the beginning of an examination of the estate's Federal estate tax return. Revenue Agent Grigsby conducted the examination from December 26, 1991, through January 29, 1992. During the course of the examination, the estate complied with Revenue Agent Grigsby's request that certain assets be reallocated among various trusts identified as the beneficiaries of the residual portion of decedent's estate.
The parties generally disagree with respect to the specific matters that were disclosed to Revenue Agent Grigsby during the examination of the estate's return, and, specifically, whether the value of decedent's CamVic stock was discussed during the course of the examination.
On January 29, 1992, Revenue Agent Grigsby issued an examination report for the estate. On March 12, 1992, the District Director of Internal Revenue, Cincinnati, Ohio, issued Letter 627 (DO), entitled Estate Tax Closing Letter (closing letter), to the estate. The closing letter states:
Our computation of the Federal tax liability for the above estate is shown below. It does not include any interest or late payment penalties that may be charged. Other penalties have been considered in the computation of net estate tax below. You should keep a copy of this letter as a permanent record because your attorney may need it to close the probate proceedings for the estate. This letter is evidence that the Federal tax return for the estate has either been accepted as filed, or has been accepted after an adjustment that you agree to.
This is not a formal closing agreement under section 7121 of the Internal Revenue Code. We will not reopen this case, however, unless Revenue Procedure 85-13 [1985-1514], reproduced on the back of this letter, applies.
If you have any questions, please contact the person whose name and telephone number are shown above. Thank you for your cooperation.
The closing letter indicated that no tax was due from the estate.
On October 7, 1993, the District Director advised counsel for petitioner that the examination of the estate's return was being reopened. By letter dated October 18, 1993, counsel for petitioner requested an explanation of the basis for the reopening. The District Director responded by letter dated January 13, 1994, stating that the failure to reopen the matter would result in a "Serious Administrative Omission." Respondent subsequently issued a deficiency notice to petitioner for Federal estate tax and generation-skipping transfer tax totaling $5,510,630. The deficiencies as determined by respondent are largely attributable to respondent's conclusion that petitioner understated the fair market value of decedent's CamVic stock on its Federal estate tax return.2
Petitioner invoked this Court's jurisdiction by filing a timely petition for redetermination. The petition includes allegations that the deficiency notice is invalid on the grounds that respondent "erred in determining that she had authority and jurisdiction to reopen the closed examination" and acted "in an arbitrary and capricious manner in issuing the notice of deficiency."
After filing an answer to the petition, respondent filed the Motion for Partial Summary Judgment pending before the Court. Petitioner in turn filed a Memorandum in Opposition to respondent's motion.
The matter was called for hearing in Washington, D.C., on January 18, 1995. Counsel for both parties appeared at the hearing and presented argument on the motion.
Respondent's Motion for Partial Summary Judgment is directed at the allegations set forth in the petition contesting the validity of the deficiency notice. Contrary to petitioner's position, respondent argues that the closing letter dated March 12, 1992, was not effective to restrict respondent's authority to issue a deficiency notice in this case. More specifically, respondent maintains that partial summary judgment sustaining the validity of the notice is warranted on the ground that, in the absence of a formal closing agreement as defined in section 7121,3 she was not otherwise precluded from either reopening the examination in this case or issuing a deficiency notice to petitioner. In conjunction with the foregoing, respondent maintains that Rev. Proc. 85-13, 1985-1 C.B. 514,4 referred to in the closing letter, is directory rather than mandatory, and, therefore, the deficiency notice issued to petitioner is valid regardless of whether the criteria under the revenue procedure can be established.5
Although petitioner concedes that the closing letter in question is not a closing agreement within the meaning of section 7121, petitioner nonetheless maintains that respondent is obliged to demonstrate a sound basis for reopening the examination in this case. Petitioner opposes respondent's Motion for Partial Summary Judgment on the following grounds:
Specifically, this Court should deny Commissioner's motion because:
1) there is long standing precedent in the Sixth Circuit which prohibits the Commissioner from reopening a closed case for the purpose of making an assessment based on a new view of old facts;
2) after the Commissioner has limited her discretion by restricting the basis upon which she may reopen a closed examination, it is an abuse of discretion for her to then disregard those restrictions; and
3) the Commissioner, by incorporating her internal procedures into a written agreement with Petitioner, is contractually bound to abide by those procedures.
It is only as to the third issue that this Court must determine the preemptive scope of sec. 7121 and decide whether the Commissioner has the authority to enter into agreements other than closing agreements so long as those agreements do not have the effect of a final determination of the taxpayer's tax liability.
We will address each of petitioner's contentions in turn.
Petitioner relies on Woodworth v. Kales [1 USTC ¶ 308], 26 F.2d 178 (6th Cir. 1928), as well as H.S.D. Co. v. Kavanagh [51-1 USTC ¶ 9358], 191 F.2d 831 (6th Cir. 1951), and Boyne City Lumber Co. v. Doyle, 47 F.2d 772 (W.D. Mich. 1930), for the proposition that respondent may not reopen an examination based simply on a new view of facts that were available to respondent at the time the examination was initially closed.6 Applying this principle to the case at hand, petitioner asserts that respondent's motion must be denied due to the parties' factual dispute regarding the specific matters that were disclosed or available to Revenue Agent Grigsby during the course of the original examination. We disagree.
In Woodworth v. Kales, supra, the taxpayer, intending to sell certain Ford Motor Co. stock, applied to the Commissioner to determine the fair market value of the stock as of March 1, 1913. Such information was necessary to allow the taxpayer to compute her gain on the sale of the shares.7 Relying on the Commissioner's determination that the stock was worth approximately $9,500 per share as of March 1, 1913, the taxpayer sold her stock and reported a profit of approximately $3,000 per share on her income...
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