Neuhoff v. Comm'r of Internal Revenue , Docket No. 9650-76.
| Decision Date | 07 October 1980 |
| Docket Number | Docket No. 9650-76. |
| Citation | 75 T.C. 36 |
| Parties | ANN F. NEUHOFF, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner and her husband purchased U.S. Treasury bonds (flower bonds) which were redeemable at their par value to the extent they were utilized to pay Federal estate tax. At the time the bonds were acquired, petitioner obtained a vested interest in one-half of the bonds under the community property law of Texas. Following acquisition of the bonds, petitioner's husband died and one-half of the bonds were distributed to petitioner as her share of the community interest, while the remaining half was included in her husband's gross estate as his share of the community interest. To the extent that the bonds included in the gross estate were used to pay Federal estate tax, the bonds were valued at par. Held, the flower bonds passing to petitioner as her community one-half interest had a basis equal to their fair market value at the time of the death of petitioner's husband under sec. 1014(b)(6), I.R.C 1954.
In 1974, petitioner appointed a representative who was authorized to, among other things, consent to extend the statutory period for assessment of additional income tax. Following the appointment, respondent, without notifying the representative, requested petitioner to consent to an extension of the statutory period for assessment. Petitioner agreed to the extension. Held, the consent, having been obtained without deception, was valid and operated to extend the statutory period so that the period had not expired when the Commissioner issued his statutory notice of deficiency. Jimmy L. Heisz and Neil J. O'Brien, for the petitioner.
Barry M. Bloom, for the respondent.
The Commissioner determined deficiencies in petitioner's Federal income tax for the taxable years 1971 and 1972 in the respective amounts of $18,899.75 and $5,267.69.
The issues for our decision are:
(1) Whether the Consent Fixing Period of Limitation Upon Assessment of Income Tax (Form 872) signed by petitioner operated, under section 6501(c)(4), I.R.C. 1954,1 to prevent the period of limitations for the taxable years in issue from expiring prior to the issuance of the statutory notice of deficiency; and
(2) Whether petitioner's basis in her community one-half interest in certain U.S. Treasury bonds (flower bonds) is, under section 1014, the fair market value or the par value for purposes of computing her gain or loss on the sale of such bonds in 1970. Our decision with respect to issue No. 2 will determine whether petitioner had a short-term capital loss which could be carried forward to the taxable year 1971. In addition, our decision will correspondingly determine petitioner's taxable income for the taxable year 1972 due to the fact that she utilized income averaging for such year.
Some of the facts have been stipulated. The stipulation of facts and the attached exhibits are incorporated herein by this reference.
Mrs. Ann F. Neuhoff, petitioner, resided in Dallas, Tex., at the time she filed her petition in the instant case. She timely filed her individual Federal income tax returns for the taxable years 1971 and 1972 with the Internal Revenue Service Center at Austin, Tex.
Petitioner's husband, Joseph O. Neuhoff, Sr., died in Texas on May 27, 1970. At the time of his death, he and petitioner owned 3-percent U.S. Treasury bonds (flower bonds) which mature on February 15, 1995. The flower bonds were eligible for redemption at their par value to the extent they were used in payment of Federal estate tax. The par value of these bonds was $1 million at the date of Mr. Neuhoff's death, and their fair market value was $655,000 plus accrued interest of $6,464.09.
Because petitioner and her husband acquired the flower bonds during the time of their marriage, petitioner had a vested community property interest in the bonds at the time of acquisition under the laws of Texas. Consequently, in July 1970, one-half of the flower bonds were distributed to petitioner and, at the time of distribution, the bonds she received had a par value of $500,000.
On July 17, 1970, petitioner sold the flower bonds distributed to her for $335,089.94. At the time of the sale, the Federal estate tax return of her husband's estate had not been filed. Petitioner reported a short-term capital gain of $10,089.94 from the sale of the bonds as follows:
+-------------------------------+
¦Gross sales price ¦$335,089.94¦
+-------------------+-----------¦
¦Cost or other basis¦325,000.00 ¦
+-------------------+-----------¦
¦Gain ¦10,089.94 ¦
+-------------------------------+
Following the sale of her flower bonds, the Federal estate tax return for Mr. Neuhoff's estate was filed, and his one-half community interest in the flower bonds was included in his gross estate at a value of $452,452.50, computed as follows:
+-----------------------------------------------------------------------------+
¦Flower bonds valued at par in payment of Federal estate tax ¦$376,500.00¦
+-----------------------------------------------------------------+-----------¦
¦Flower bonds valued at quoted fair market value at date of death ¦ ¦
¦and not surrendered in payment of Federal estate tax—$123,500 par¦75,952.50 ¦
¦value ¦ ¦
+-----------------------------------------------------------------+-----------¦
¦Total value included in gross estate ¦452,452.50 ¦
+-----------------------------------------------------------------------------+
After the filing of the Federal estate tax return, petitioner filed an amended income tax return for the taxable year 1970 and claimed a short-term capital loss in the amount of $117,362.56 resulting from her sale of the flower bonds in July 1970. In calculating the loss, petitioner used the value of the flower bonds which were included in her husband's gross estate as her basis as follows:
+-----------------------------------------------+
¦Substituted basis for flower bonds¦$452,452.50 ¦
+----------------------------------+------------¦
¦Sale price of flower bonds ¦335,089.94 ¦
+----------------------------------+------------¦
¦Short-term capital loss claimed ¦(117,362.56)¦
+-----------------------------------------------+
Subsequently, petitioner carried forward and utilized $70,772.78 of the above short-term capital loss in computing her Federal income tax for the taxable year 1971.
On March 11, 1974, petitioner appointed Mr. James H. Dunlap as her attorney-in-fact to represent her before any Office of the Internal Revenue Service with respect to its examination of her income tax returns for the taxable years 1970, 1971, and 1972. Mr. Dunlap, a certified public accountant, prepared petitioner's Federal income tax returns for the taxable years covered by the power of attorney. Under the power of attorney, Mr. Dunlap was authorized to receive confidential information and had full power to execute consents extending the statutory periods for assessment and collection of taxes.
On March 25, 1975, the Internal Revenue Service requested Mr. Dunlap to execute a consent to extend to December 31, 1975, the period of limitations on assessment for the taxable year 1970. Mr. Dunlap executed the consent on March 31, 1975, and the Internal Revenue Service received the consent from Mr. Dunlap on April 1, 1975, at which time it was executed on behalf of the Commissioner. 2 On June 10, 1975, the Internal Revenue Service requested Mr. Dunlap to execute an additional consent to extend to December 31, 1976, the period of limitations for the taxable year 1970. Mr. Dunlap executed the consent in the same manner as he had done previously. Also on June 10, 1975, the Internal Revenue Service requested petitioner to execute consents extending the periods of limitation to December 31, 1976, and April 15, 1977, for the taxable years 1971 and 1972, respectively.3 Having received no response from petitioner, the Internal Revenue Service, on September 4, 1975, requested petitioner to either sign the consent extending the period of limitations for the taxable years 1971 and 1972 or advise it that she did not intend to agree to an extension. The text of the communication to petitioner is as follows:
We recently wrote you that the period during which the law would permit assessment of any tax due for the above year will soon end. We asked that you extend this period by signing and returning both copies of a consent form we enclosed.
Since we have no record of a reply, we now ask that you either sign and return the forms, or let us know that you do not intend to do so. If we do not hear from you within a few days, we will have no alternative but to act on your return before the statute of limitations expires.
Thank you for your cooperation.
Sincerely yours,
[signature indicated]
A. W. MCCANLESS
On September 5, 1975, petitioner, who understood the effect of signing the consents, executed the consents relating to the taxable years 1971 and 1972 and they were received and executed on behalf of the Commissioner on September 9, 1975. Mr. Dunlap was unaware of petitioner's action with respect to the consents she executed on September 5, 1975.
On July 28, 1976, respondent mailed a statutory notice of deficiency to petitioner for the taxable years 1971 and 1972 in which he determined that petitioner failed to establish that she was entitled to a short-term capital loss carryover from the taxable year 1970 to the taxable year 1971 and accordingly increased her taxable income for the taxable year 1971 by $35,636.39. Correspondingly, respondent increased petitioner's taxable income for the taxable year 1972 because she utilized income averaging for that taxable year.
OPINIONThe first issue for our decision is whether the period of limitations on assessment for the...
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