McGARVIE v. Commissioner
| Decision Date | 29 February 1988 |
| Docket Number | 29285-84.,Docket No. 19119-83,25383-84,20904-84 |
| Citation | 1988 TC Memo 85,55 TCM (CCH) 264 |
| Parties | James B. McGarvie and Carol B. McGarvie, et al. v. Commissioner. |
| Court | U.S. Tax Court |
James B. McGarvie, pro se in Docket No. 19119-83. John P. Barrie and William E. Cooper, 340 Lindell Blvd., St. Louis, Mo., for the petitioners in Docket Nos. 20904-84, 25383-84, and 29285-84. Richard A. Witkowski, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in Federal income tax in these consolidated cases:
Docket
Petitioners No. Year Deficiency
James B. McGarvie and
Carol B. McGarvie ....................... 19119-83 1979 $4,475.16
John T. Slattery and
Patricia A. Slattery .................... 20904-84 1980 1,254.28
Estate of Guy N. Magness
Deceased, Ella Mae Magness
Personal Representative, and
Ella Mae Magness ........................ 25383-84 1980 1,721.61
James Crymes and
Barbara Crymes .......................... 29285-84 1980 3,461.06
After concessions by petitioners and respondent, the issues for decision are (1) solely as to petitioners James B. McGarvie and Carol B. McGarvie, docket No. 19119-83: (a) whether the statutory notice of deficiency was timely mailed to them at their last known address and (b) whether the notice of deficiency was so vague as to be arbitrary and capricious; (2) as to all petitioners: whether the petitioners are entitled to deduct intangible drilling and development costs, depreciation, and investment tax credits in the amounts claimed pertaining to their investments in certain oil and gas well programs for the years in issue.
Some of the facts have been stipulated and are found accordingly. The stipulations of facts and attached exhibits are incorporated herein by this reference.
Petitioners John T. Slattery and Patricia A. Slattery (hereinafter jointly referred to as the Slatterys) resided in St. Louis, Missouri, at the time they filed their petition with the Court; petitioner Ella Mae Magness resided in St. Louis, Missouri, at the time she filed her petition with the Court;2 petitioners James Crymes and Barbara Crymes (hereinafter jointly referred to as the Crymeses) resided in Saint Cloud, Florida, at the time they filed their petition with the Court; and petitioners James B. McGarvie and Carol B. McGarvie (hereinafter jointly referred to as the McGarvies) resided in Kirkwood, Missouri, at the time they filed their petition with the Court.
For the 1979 tax year, the McGarvies timely filed a joint U.S. Individual Income Tax Return, Form 1040, showing thereon as their home address, 732 Coral Way #6, Coral Gables, Florida (the "Coral Gables address"). In form letter 1189 (DO) (Rev. 9-78) dated Feb. 25, 1983, and directed to the McGarvies at 1700 N. Woodlawn Avenue, St. Louis, Missouri (the "Woodlawn Avenue address"), the District Director, Internal Revenue Service, Jacksonville, Florida, stated that the IRS was examining the 1979 "Byron Oil Ind. Inc." partnership or trust return. This letter further stated that the McGarvies were a member of the partnership or trust for 1979 and that, as a result of its examination, the IRS proposed adjustments to the partnership or trust return which, if determined to be valid, would affect the McGarvies' individual tax return. The form letter requested that the McGarvies sign and return all copies of an enclosed Consent Form 872-A to extend for 1979 the limitation period prescribed by law for refunding overpayments or determining additional tax.
On March 3, 1983, McGarvie3 purportedly mailed to the Internal Revenue Service an "offer" to extend the statute of limitations on assessment for 1979. This purported "offer" consisted of a letter dated March 3, 1983, with enclosures,4 directed to Mr. C. Arden, Internal Revenue Service Center, P.O. Box 35045, Jacksonville, Florida 32202.
McGarvie's March 3rd letter stated that he had modified the attached consent Form 872-A(C) "so as to limit its operation to matters related to Byron Oil partnerships." The letter used as a return address 147 (or 177) Maple Hill, Kirkwood, Missouri 63122 ("the Maple Hill address"). The letter did not state that the Maple Hill address was the address to which respondent was to send all future communications to the McGarvies. The Form 872-A(C) attached to McGarvie's March 3rd letter was not modified to indicate that the Woodlawn Avenue address was incorrect or that the Maple Hill address was the then proper address for the McGarvies. No evidence was adduced at trial regarding the address or addresses used by the McGarvies on any Federal income tax returns filed with the Internal Revenue Service after April 14, 1980, the date they signed their 1979 tax return, or, except as noted below, on any other correspondence sent by the McGarvies to the IRS or sent by the IRS to the McGarvies.
The record does not show when the McGarvies moved from the Coral Gables address, nor when they moved to and from the Woodlawn Avenue address, nor when they moved to the Maple Hill address. The record also does not show when and under what circumstances the IRS learned of the Woodlawn Avenue address.
Respondent submitted postal Form 3877 certifying that on April 14, 1983, respondent mailed statutory notices of deficiency to the McGarvies pertaining to their 1979 tax year addressed to them at the Coral Gables address and the Woodlawn Avenue address. The U.S. Post Office initially attempted to deliver the notice of deficiency to the McGarvies at the Woodlawn Avenue address on April 20, 1983. The record does not show whether this attempted delivery was of the notice mailed to the Coral Gables address, the Woodlawn Avenue address, or both. The McGarvies actually received the notice of deficiency no later than April 29, 1983.5 The McGarvies' petition for a redetermination of the 1979 deficiency was filed timely with this Court on July 11, 1983. Attached to this petition was a copy of the notice of deficiency mailed to the McGarvies at the Woodlawn Avenue address.
Petitioners participated in drilling oil and gas wells promoted by Byron Oil Industries, Inc. (hereinafter referred to as "Byron Oil") for the years in issue as indicated below:
Percentage Purchase
Investor Well Share Price Year
James B. McGarvie (a) Jean Ehler #2 1.5 $ 6,300 1979
DKT No. 19119-83 (b) Ernest P. Zarlengo #3 1.5 6,300 1979
John T. Slattery McElwain #12 1.5 6,575 1980
DKT No. 20904-84
Guy N. & Ella Mae Magness Wyman #1 1.5 6,300 1980
DKT No. 25383-84
Barbara J. Crymes (a) McElwain #13 .375 1,643.75 1980
DKT No. 29285-84 (b) Jean Ehler #1 .375 1,643.75 1980
(c) Jaccobucci #5 .375 1,643.75 1980
(d) N. Colorado #5 .375 1,575.00 1980
______ _________
1.5 $6,506.25
Byron Oil, solely owned by Alan J. Byron, is a Missouri corporation formed for the purpose of acquiring, developing, and operating oil and gas properties. It was experienced and skilled in selecting potential oil and gas properties for development, negotiating drilling contracts, completion contracts, and contracts for related services, purchasing oil and gas field equipment, and supervising the drilling, completion, and operation of oil and gas wells. During the years in issue, Byron Oil conducted substantially all of its exploration and production activities through the offering of participative interests organized as tenancies-in-common.
Alan J. Byron ("Byron") has been the president, sole shareholder, and a director of Byron Oil since its incorporation on February 19, 1974. Prior to incorporation, Alan J. Byron conducted business as "Alan J. Byron, d/b/a Byron Oil Industries."
Starting in 1972, Byron Oil, or its predecessor, Alan J. Byron, d/b/a Byron Oil Industries, began to acquire various oil and gas leases in the Wattenberg Oil and Gas Field (the "Wattenberg Field") located in Adams and Weld Counties, near Denver, Colorado. Over the years, it acquired around 8,000 acres. With respect to the oil and gas leases obtained, Byron Oil incurred expenses for title searches and geological determinations.
All of the wells in issue are located in the Wattenberg Field. The Wattenberg Field in the years in issue comprised approximately 978 square miles.
Byron Oil drilled approximately 106 wells in the Wattenberg Field, substantially all of which were drilled to the Sussex formation. The Sussex formation is sandstone with very low permeability that is partially filled with clays. It is a very tight, consolidated sand that will not produce without stimulation. The thickness and porosity and the other physical features of this sand vary substantially from location to location. The formation is approximately 5,000 to 5,500 feet deep. None of the wells drilled to the Sussex formation were dry wells; however, some wells were very marginal producing wells. Byron Oil completed all of the Sussex wells it offered to investors. All of the wells in issue were drilled to the Sussex formation.
All of the Sussex wells were drilled to approximately the same depth and had the same geological formation. The drilling and completion risks were generally the same for all of the wells.
The nonproducing participating interests sold by Byron Oil were the right to minerals in...
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