Lone Star Life Ins. Co. v. Commissioner
| Decision Date | 14 October 1997 |
| Docket Number | Docket No. 5898-97.,Docket No. 14781-96. |
| Citation | 74 T.C.M. 904 |
| Parties | Lone Star Life Insurance Company v. Commissioner. |
| Court | U.S. Tax Court |
PANUTHOS, Chief Special Trial Judge:
The case assigned Docket No. 14781-96 is before the Court on respondent's Motion for Partial Summary Judgment and petitioner's Cross-Motion for Summary Judgment. The issue to be decided is whether the period of limitations expired prior to the issuance of the notice of deficiency.
The case assigned Docket No. 5898-97 is before the Court on petitioner's Motion to Dismiss for Lack of Jurisdiction on the ground that the notice of deficiency underlying the petition constitutes an improper second notice of deficiency under section 6212(c).1
During the taxable years 1988 through 1991, Lone Star Life Insurance Co. was a wholly owned subsidiary of Hibiscus Life Insurance Co. (Hibiscus). Hibiscus timely filed consolidated Federal income tax returns, Forms 1120L, pursuant to section 1501 for the taxable years 1988, 1989, 1990, and 1991 on September 14, 1989, September 17, 1990, September 16, 1991, and September 14, 1992, respectively.3
During the years in issue, Hibiscus and petitioner shared common corporate officers as well as the same mailing address. In particular, Jerry Marshall served as controller for Hibiscus and vice president and controller for petitioner, while Gary Powers served as treasurer for Hibiscus and vice president (finance and treasurer) for petitioner.
Revenue Agent Anita Kate Barrett conducted an examination of Hibiscus' consolidated tax returns for the taxable years 1988 through 1991 to determine whether it was appropriate to include petitioner within the Hibiscus consolidated group. Hibiscus and petitioner have consistently argued throughout the examination period and in these proceedings that petitioner was properly included in the Hibiscus consolidated group during the years in issue.
In February 1992, during the course of the examination, Revenue Agent Barrett requested that Hibiscus and petitioner execute separate Forms 872, Consent to Extend the Time to Assess Tax, for the taxable year 1988. However, petitioner's representatives refused to execute a separate Form 872 out of concern that respondent might attempt to use the document as evidence that petitioner should not be included in the Hibiscus consolidated group. Instead, Hibiscus' representatives executed a series of Forms 872 that served to extend the period of assessment for the years in issue to December 31, 1996. Each of the Forms 872 in question identifies the taxpayer as "Hibiscus Life Insurance Co. and Subsidiary". The following schedule shows the taxable year, the date executed, and the expiration date for each of the Forms 872 executed on behalf of Hibiscus:
Date Expiration
Year Executed Date
1988 ..................................................... 1/27/92 9/30/93
1988-89 .................................................. 7/1/93 6/30/94
1988-90 .................................................. 11/11/93 12/31/94
1988-90 .................................................. 11/1/94 12/31/95
1988-91 .................................................. 5/19/95 6/30/96
1988-91 .................................................. 1/22/96 12/31/96
Forms 2848
On April 12, 1993, Gary Powers executed Form 2848, Power of Attorney and Declaration of Representative, identifying the taxpayer as "Hibiscus Life Insurance Co. & Subsidiary" and appointing David L. Veeder and John K. Cassil as Hibiscus' attorneys in fact for the taxable years 1989 and 1990. On July 20, 1993, Gary Powers executed separate Forms 2848 for Hibiscus and petitioner appointing Messrs. Veeder and Cassil as Hibiscus' and petitioner's attorneys in fact for the taxable year 1991. On September 20, 1993, Gary Powers executed Form 2848, identifying the taxpayer as "Hibiscus Life Insurance Co. & Subsidiary", appointing Messrs. Veeder and Cassil as Hibiscus' attorneys in fact for the taxable year 1988.4
On April 12, 1993, the District Director issued separate 30-day letters to Hibiscus and petitioner (along with separate revenue agent reports (RAR's)) proposing adjustments to their respective tax liabilities for 1988, 1989, and 1990 on the ground that Hibiscus and petitioner were not entitled to file consolidated tax returns for the years 1988 through 1990. On or about the same date, the District Director issued separate 30-day letters and RAR's to Hibiscus and petitioner proposing similar adjustments to their respective tax liabilities for 1991. The RAR's included computations reflecting each entity's corrected taxable income for each of the years in issue computed on a separate tax return basis. In particular, respondent proposed to determine overpayments with respect to Hibiscus' separate tax liabilities for 1988 through 1991 and deficiencies with respect to petitioner's separate tax liabilities for the same periods. Hibiscus and petitioner filed a joint administrative protest with respect to the proposed adjustments.
On April 11, 1996, respondent issued a notice of deficiency to petitioner determining deficiencies in its Federal income taxes for the years and in the amounts as follows:
Year Deficiency
1988 ............................ $ 397,397
1989 ............................ 2,941,341
1990 ............................ 4,591,998
1991 ............................ 5,658,976
The notice of deficiency includes an explanation of adjustments which states in pertinent part:
It is determined that Hibiscus Life Insurance Company does not qualify as an insurance company under I.R.C. sec. 816 because not more than half of its business during the years in question was the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies. Accordingly, Lone Star Life Insurance Company and Hibiscus Life Insurance Company may not file consolidated returns.
It is determined that reinsurance agreements between Hibiscus Life Insurance Company and Lone Star Life Insurance Company have significant tax avoidance effect. This effect is eliminated by disallowing Hibiscus's reserves associated with the reinsurance agreements pursuant to I.R.C. sec. 845. As a result of the disallowance Hibiscus has no reserves and fails to qualify as an insurance company under I.R.C. sec. 816. Accordingly, Lone Star Life Insurance Company and Hibiscus Life Insurance Company may not file consolidated returns.
Prior to April 18, 1996, Hibiscus received constructive and actual notice of the notice of deficiency issued to petitioner.
Petitioner filed a timely petition for redetermination with the Court contesting the notice of deficiency.5 The petition includes an allegation that the notice of deficiency was issued to petitioner after the expiration of the period of limitations. Respondent filed an answer to the petition denying that the period of limitations had expired in this case by virtue of the Forms 872 that Revenue Agent Barrett obtained during the examination. Petitioner in turn filed a reply to respondent's answer asserting that, as a consequence of respondent's direct dealing with petitioner during the examination process, the Forms 872 executed by Hibiscus were ineffective to extend the period of limitations applicable to petitioner. As indicated, the parties' dispute respecting the applicability of the period of limitations is the subject of the parties' cross-motions for summary judgment filed in Docket No. 14781-96.
By letter dated December 13, 1996, respondent notified Hibiscus that respondent would deal directly with petitioner respecting the latter's tax liabilities for the years 1988, 1989, 1990, and 1991. In addition, on December 30, 1996, respondent issued a further notice of deficiency to petitioner determining deficiencies in petitioner's Federal income taxes for the years and in the amounts as follows:
Year Deficiency
1989 ............................ $2,932,321
1990 ............................ 4,591,187
1991 ............................ 5,658,791
Petitioner filed a timely petition for redetermination (assigned Docket No. 5898-97) with respect to the second notice of deficiency. Shortly thereafter, however, petitioner filed a motion to dismiss for lack of jurisdiction asserting that the December 30, 1996, notice of deficiency constitutes an improper second notice under section 6212(c). Respondent filed a response to petitioner's motion to dismiss stating that the December 30, 1996, notice of deficiency was issued as a protective measure out of concern that the Court might hold the April 11, 1996, notice of deficiency to be invalid on the basis of respondent's failure to provide Hibiscus with advance, formal notice that respondent had elected to treat petitioner as having separate filing status.6
The parties' motions were called for hearing at the Court's motions session in Washington, D.C. Counsel for both parties appeared at the hearing and presented argument with respect to the pending motions. Subsequent to the hearing, petitioner filed a further written statement with the Court, to which respondent filed a response.
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...
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