Kronish v. Comm'r of Internal Revenue

• Decision Date: 13 April 1988
• Docket Number: Dkt. No. 32574-84
• Citation: 90 T.C. No. 42,90 T.C. 684
• Parties: PEGGY J. KRONISH, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

90 T.C. 684

90 T.C. No. 42

PEGGY J. KRONISH, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Dkt. No. 32574-84

United States Tax Court

Filed April 13, 1988.

While F, P's attorney, was away on vacation, P signed a Form 872, entitled ‘Consent to Extend the Time to Assess Tax,‘ that purported to extend the period of limitations on assessment with respect to P's taxable year 1978. At the time P signed the form, she believed that the form's terms conformed with the terms F desired. In fact, the form's terms did not conform with the terms F desired. Subsequently, R sought to have P sign another Form 872 with respect to P's taxable year 1978. The second Form 872 contained the same terms as the first Form 872, except that it purported to further extend the period of limitations. Although F objected to R about the terms of both consent forms, F ultimately signed the second form on behalf of P. R later issued a statutory notice of deficiency with respect to P's taxable year 1978. The notice was issued before the expiration date of the second Form 872. HELD: P's overt act of signing the first Form 872 constituted her assent to that form, and the form therefore is valid. HELD FURTHER: R is not equitably estopped from relying upon the first Form 872. Michael E. Greene, for the petitioner.

Steven Z. Ettinger and Elizabeth M. Fasciana, for the respondent.

WELLS, JUDGE:

Respondent determined a deficiency in petitioner's Federal income tax for the taxable year 1978 in the amount of $5,532. The issue presented for decision is whether the period for assessing a deficiency against petitioner for her 1978 taxable year expired prior to the date on which respondent issued a statutory notice of deficiency with respect to such taxable year. The parties agree that our determination with respect to this issue will be dispositive of this case, since petitioner does not challenge respondent's substantive grounds for disallowing a $20,000 deduction claimed by petitioner.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by this reference.

Petitioner resided in New York, New York, at the time she filed her petition in this case. Petitioner was an office manager of a law firm.

In 1978, petitioner was a licensee of Churchill Research and Development Corp. (‘Churchill‘) with respect to the sale and distribution of a ‘birth control detector.‘ During that same year, petitioner delivered to Churchill a $20,000 nonrecourse promissory note, which was signed by her.

Petitioner filed her Federal income tax return for the taxable year 1978 in a timely manner. On a Schedule C attached to that return, petitioner indicated that she was in the business of distributing a birth control detector, and she reported a $20,000 net loss from that business. The loss was attributable to a deduction claimed by petitioner on the Schedule C for a $20,000 distributorship fee expense; this expense was reported to reflect petitioner's delivery of the $20,000 nonrecourse promissory note to Churchill.

On or about October 20, 1981, the District Director of Internal Revenue, Newark, New Jersey (‘respondent's Newark Office‘) notified the District Director of Internal Revenue, New York, New York (‘respondent's Manhattan Office‘) that it was conducting an examination of Churchill's returns for taxable years 1978 and 1979, and that there was a relationship between Churchill and petitioner. Respondent's Newark Office used a Form 918-A, entitled ‘Notice of Examination of Fiduciary, Partnership, or Small Business Corporation Return,‘ to convey that notice. On the top of the form appeared the handwritten notation ‘Special Use — Agency Relationship.‘ The Form 918-A listed petitioner as ‘A distributee/shareholder of the income of the above » Churchill†, listed in your district.‘

A form letter dated November 30, 1981, on which petitioner's name was handwritten, was sent by respondent's Manhattan Office to petitioner. The letter first stated, ‘The above-named entity(s) return »i.e., Churchill's return† is under audit consideration, certain adjustments may be proposed to the entity(s) return which may affect your individual tax return for the Year(s) 1978.‘ The letter further stated, ‘In order to allow time for adequate consideration of your case in conjunction with the audit of the entity(s), we request that you sign the enclosed consent, Form 872/872A. ‘ Finally, the letter requested that petitioner ‘Please read the instructions on Form 872/872A, then sign, date and return all copies of the Form within 10 days in the enclosed envelope.‘ Enclosed with the November 1981 letter was a Form 872-A, entitled ‘Special Consent to Extend the Time to Assess Tax,‘ that contained no restrictions as to the time period for which it would be effective or as to the matters that it would cover.

Mr. Barry C. Feldman, an attorney, was contacted by petitioner sometime during late 1982 or early 1982 with regard to the November 1981 letter and the Form 872-A. Mr. Feldman later determined from Churchill's tax return that Churchill was an electing corporation under Subchapter S of the Internal Revenue Code, and that petitioner was not one of Churchill's shareholders.

Mr. Feldman then called the telephone number listed on the November 1981 letter and spoke with an employee of respondent's Manhattan Office about the letter and the Form 872-A. ¹ Based upon his conversation with that employee, Mr. Feldman thought that respondent's Manhattan Office would be sending petitioner a consent to extend the period of limitations that was limited in duration and to ‘the issues involving adjustments to the entity Churchill Research.‘ Mr. Feldman then made a telephone call to petitioner during which he advised her that in the very near future, she would be receiving a consent form restricted in duration and to adjustments flowing from adjustments to Churchill's income tax return. Mr. Feldman also told petitioner during their telephone conversation that the form would be mailed directly to petitioner because petitioner had not filed a power of attorney with respondent authorizing Mr. Feldman to act on her behalf and authorizing respondent to communicate directly with Mr. Feldman concerning the Churchill matter.

As of mid-February 1982, petitioner had not received the consent form. Mr. Feldman told petitioner that he soon would be going on vacation. Mr. Feldman further told petitioner that if petitioner received the consent form while Mr. Feldman was on vacation and petitioner was required to sign and return the form before he returned from his vacation, petitioner should do the following: (1) make sure the form was ‘restricted to a date certain‘ and ‘limited to adjustment from Churchill Research,‘ and (2) if the form was restricted in such manner, she should sign the form and return it to respondent.

By a form letter dated February 24, 1982, respondent's Manhattan Office sent a Form 872, entitled ‘Consent to Extend the Time to Assess Tax,‘ with attached restrictions, to petitioner. The February 1982 letter was identical in all material respects to the November 1981 letter. ² The first page of the Form 872 stated, in pertinent part, as follows:

+--------------------------------------------------------------+
                ¦KRONISH, Peggy J                                              ¦
                +--------------------------------------------------------------¦
                ¦(Names(s))                                                    ¦
                +--------------------------------------------------------------¦
                ¦taxpayer(s) of¦123 East 37th Street New York, N.Y. 10016      ¦
                +--------------+-----------------------------------------------¦
                ¦              ¦(Number, Street, City or Town, State, ZIP Code)¦
                +--------------------------------------------------------------+
                

and the District Director of Internal Revenue or Regional Director of Appeals consent and agree to the following:

+-----------------------------------------------------------------------------+
                ¦(1) The amount of any Federal ____ Income ____ tax due on any return(s) made ¦
                +-----------------------------------------------------------------------------¦
                ¦       ¦(Kind of tax)                                                        ¦
                +-----------------------------------------------------------------------------¦
                ¦by or for the above taxpayer(s) for the period(s) ended _December 31, 1978_  ¦
                ¦may be assessed at any time on or before ________ June 30, 1983 ________.    ¦
                +-----------------------------------------------------------------------------¦
                ¦@      ¦¦Expiration date)                                                    ¦
                +-----------------------------------------------------------------------------¦
                ¦However, if a notice of deficiency in tax for any such period(s) is sent to  ¦
                ¦the taxpayer(s) on or before that date, then the time for assessing the tax  ¦
                ¦will be further extended by the number of days the assessment was previously ¦
                ¦prohibited, plus 60 days.                                                    ¦
                +-----------------------------------------------------------------------------+
                 

* * * * * * * * * *

RESTRICTION ATTACHED

»The underlined language on the first page of the Form 872 was inserted by the preparer of the document.†

The restrictions were contained on a separate page attached to the Form 872, which stated, in pertinent part, as follows:

The amount of any deficiency assessment is to be limited to that resulting from : 1) any carryover or continuing tax effects caused by adjustments to any prior tax return; 2) any adjustments to your share of any item of income, gain, loss, deduction, credit and/or other distributions from entity(ies) known as:

»ORIGINAL LEFT BLANK†

3) any adjustments which affect your basis in the aforementioned entity(ies); 4) any adjustments to the return(s) of the aforementioned entity(ies) which also affect your return; 5) any adjustment(s...