Johnson v. Comm'r of Internal Revenue , Docket Nos. 7461—73
| Decision Date | 28 July 1977 |
| Docket Number | 7718—73.,Docket Nos. 7461—73 |
| Citation | 68 T.C. 637 |
| Parties | EDWARD P. JOHNSON AND ESTATE OF HELEN T. JOHNSON, EDWARD P. JOHNSON, ADMINISTRATOR, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTESTATE OF WALTER P. MCFARLAND, DECEASED, MICHAEL T. McFARLAND, EXECUTOR, AND BERTHA L. MCFARLAND, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Each petitioner executed an ‘unlimited waiver’ (Form 872—A) for the taxable year 1965 which provided in part that the period of limitation for assessment of income taxes was extended to a date not more than 90 days after ‘mailing by the Internal Revenue Service of written notification to the taxpayer(s) of termination of Appellate Division consideration.’ Held, letters mailed by respondent's authorized agent to petitioners on Jan. 2, 1973, and Mar. 6, 1973, respectively, constituted the requisite notification of termination of Appellate Division consideration which triggered the running of the agreed 90-day period and, therefore, respondent's statutory notices of deficiencies, issued more than 90 days thereafter, are vitiated by the statute of limitations upon assessment. Lester J. Tanner, for the petitioners in docket No. 7461—73.
Robert E. Stroud, for the petitioners in docket No. 7718—73.
Stephen M. Friedberg and St. Clair Reeves, for the respondent.
These two cases are before the Court on petitioners' motions for summary judgment filed March 25, 1977, with respect to docket No. 7461—73, and April 11, 1977, with respect to docket No. 7718—73, pursuant to the provisions of Rule 121, Tax Court Rules of Practice and Procedure. Respondent filed objections to the motions on April 15, 1977, and a hearing was held in Washington, D.C., on April 27, 1977. Petitioners in each docket filed a memorandum at the hearing urging summary judgment in their favor. Respondent subsequently filed a memorandum in opposition on May 27, 1977, to which petitioners replied on June 27, 1977.
Respondent determined the following Federal income tax deficiencies and an addition to tax for the year 1956 with respect to the petitioners:
+---------------------------------------------------+
¦ ¦ ¦Addition to tax ¦
+--------------------+------------+-----------------¦
¦Docket No. ¦Deficiency ¦sec. 6651(a) ¦
+--------------------+------------+-----------------¦
¦ ¦ ¦ ¦
+--------------------+------------+-----------------¦
¦7461-73 (Johnsons) ¦$304,816.94 ¦$15,385.14 ¦
+--------------------+------------+-----------------¦
¦7718-73 (McFarlands)¦169,945.41 ¦ ¦
+---------------------------------------------------+
The ultimate issue framed by the pleadings is whether, on the facts presented, a letter sent petitioners in docket No. 7718—73, on January 2, 1973, and a letter sent to petitioners in docket No. 7461—73, on March 6, 1973, by respondent's authorized agent, constituted notice of termination of Appellate Division consideration to their respective recipients as a matter of law. No material facts are in dispute. All pertinent facts are set forth below.
Petitioners McFarland and Johnson were audited simultaneously by the Internal Revenue Service with respect to a business venture common to both of them. Although alleged deficiencies in Federal income taxes were discussed by petitioners and respondent with respect to several tax years, the year 1965 is the only one affected by either of the petitioners' motions herein. Negotiations between the parties were lengthy due to the complexity of the issues involved. As those discussions protracted, it became necessary for the parties to extend by agreement the time period in which deficiencies in income taxes could be assessed by respondent.
Pursuant to the provisions of section 6501(c)(4) of the Internal Revenue Code, petitioners Johnson executed Form 872, Consent Fixing Period of Limitation Upon Assessment of Income Tax, with respect to taxable year 1965 during 3 successive years on April 22, 1969, May 27, 1970, and February 16, 1971. The last two were executed for respondent by William A. Johnston, appellate conferee, on May 28, 1970, and February 19, 1971. Execution of the third Form 872 extended the statute of limitations upon assessment through June 30, 1972. On May 30, 1972, after the Johnson case had been pending in the Appellate Division before William A. Johnston, appellate conferee, for more than 2 years, the parties agreed to extend the period for the year 1965 once more for an indefinite time. Thus, the Johnsons signed Form 872—A, Special Consent Fixing Period of Limitation Upon Assessment of Income Tax, which was executed on behalf of respondent by William A. Johnston, appellate conferee, on June 1, 1972.
Meanwhile, petitioners McFarland had executed with respondent a similar series of Forms 872 extending the period of limitations upon assessment for both taxable years 1965 and 1966 through September 30, 1972. On August 26 and 28, 1972, petitioners executed a Form 872—A which extended indefinitely the statute of limitations upon assessment for taxable years 1965 and 1966. The agreement was signed on behalf of respondent by the same William A. Johnston on September 5, 1972.
The Form 872—A executed by the petitioners in each docket stated, in pertinent part, that assessment of Federal income taxes could be made:
at any time on or before the 90th day after (1) mailing by the Internal Revenue Service of written notification to the taxpayer(s) of termination of Appellate Division consideration, or (2) receipt by the Regional Appellate Division branch office considering the case of written notification from the taxpayer(s) of election to terminate this agreement * * *
We are concerned with whether ‘written notification * * * of termination of Appellate Division consideration’ within the meaning of clause (1) above subsequently was sent to each petitioner by the respondent.
During the ensuing settlement negotiations, petitioners McFarland made a request to Appellate Conferee Johnston that further Appellate Division consideration of their taxable year 1965 be held in abeyance until respondent had completed the audit of all of petitioners' subsequent years then under examination. Mr. Johnston responded, by letter dated November 21, 1972, that such a request was denied as unreasonable and inappropriate. The last paragraph in that letter set forth respondent's position in the following manner:
I believe that the suggested basis for settlement of the instant case, which I have related, is fair to both Mr. McFarland and to the Government. I urge that you and he consider it carefully and advise me by December 1, 1972 whether disposition of the case as I suggest is acceptable or whether you desire a statutory notice of deficiency.
After requesting an extension of time to respond until December 8, 1972, the former counsel of the petitioners McFarland wrote Mr. Johnston on December 7, 1972, requesting formally that any statutory notice of deficiency for taxable years 1965 and 1966 be deferred pending audit of the subsequent years under consideration.
Mr. Johnston refused the McFarland request on January 2, 1973, by means of the following letter, the body of which is set forth in its entirety:
We have considered the protest, evidence and arguments you submitted to support your position regarding the tax identified above. Since we were unable to reach a satisfactory agreement in your case, a statutory notice of deficiency will be sent to you.
If you desire to contest this matter further without first paying the tax, you may, after receiving the notice, file a petition with the United States Tax Court for a redetermination of your tax liability.
No further communication was effected between the parties prior to July 25, 1973, except for notice from petitioners' former counsel to respondent of his withdrawal from the case. A statutory notice of deficiency for 1965 in the amount of $169,945.41, was mailed to the McFarlands on that date which was signed by W. A. Johnston, appellate conferee.
Similar circumstances surround the pre-notice of deficiency interaction between the Johnsons and respondent. Following the signing of the Form 872—A in early June of 1972, some lines of communication remained open between the parties until Mr. W. A. Johnston sent the letter set forth hereinafter, in its entirety, to petitioners on March 6, 1973:
Inasmuch as no mutually satisfactory basis of settlement has been reached concerning your income tax liability for the year 1965, a statutory notice of deficiency will be issued at an early date.
It is conceded that no further contacts were made between the parties from that point forward until respondent mailed a statutory notice of deficiency to the Johnsons in the amount of $304,816.94, plus an addition to tax of $15,385.14 under section 6651(a) of the Code on July 25, 1973. That notice, too, was signed by W. A. Johnston, appellate conferee. Neither notice was sent within 90 days of respondent's last preceding correspondence.
The Johnsons invoked this Court's jurisdiction over their case by filing a timely petition on October 11, 1973. The McFarlands filed their timely petition on October 24, 1973.
Contending that the respective letters from Appellate Conferee Johnston dated January 2, 1973, and March 6, 1973, constituted notice of termination of Appellate Division consideration, petitioners McFarland and Johnson moved for summary judgment with respect to the taxable year 1965. If petitioners' interpretation of those letters is correct, the July 25, 1973, statutory notices of deficiencies were barred by the statute of limitations because more than 90 days had passed since each letter was issued, a violation of the agreed terms set forth in each Form 872—A.
Petitioners' primary contention centers on the express language contained in the letters in...
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