Roszkos v. C.I.R.

• Decision Date: 20 June 1988
• Docket Number: No. 87-7316,87-7316
• Citation: 850 F.2d 514
• Parties: -5084, 88-2 USTC P 9396 Louis E. ROSZKOS; and Vivian L. Roszkos, Petitioners-Appellees v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 514

850 F.2d 514

62 A.F.T.R.2d 88-5084, 88-2 USTC P 9396

Louis E. ROSZKOS; and Vivian L. Roszkos, Petitioners-Appellees v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.

No. 87-7316.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 11, 1988.

Decided June 20, 1988.

Michael L. Paup, Tax Div., Dept. of Justice, Washington, D.C., for respondent-appellant.

Woodford G. Rowland, San Rafael, Cal., for petitioners-appellees.

Appeal from the Decision of the United States Tax Court.

Before POOLE, WIGGINS and BRUNETTI, Circuit Judges.

BRUNETTI, Circuit Judge:

BACKGROUND

Louis and Vivian Roszkos ("the Roszkos") filed joint federal tax returns for the years 1973 through 1976, reflecting losses incurred and investment credits for various partnerships in which they participated. The Internal Revenue Service ("IRS") initiated an investigation of those returns. In connection with that investigation, the Roszkos executed periodic Forms 872, consenting to a limited extension of the ordinary three-year statute of limitations for assessment of tax deficiencies. See IRC Sec. 6501(a). Eventually, in late 1981, the Roszkos executed Forms 872-A for tax years 1973 and 1974, consenting to an unlimited extension of the statute of limitations. The unlimited waiver in Form 872-A can be terminated by either the IRS or the taxpayer. The taxpayer can only terminate the waiver by mailing a Form 872-T to the IRS office "considering the case," and termination is not effective until the IRS has received the Form 872-T. The IRS can terminate the waiver by mailing either a Form 872-T or a notice of deficiency to the taxpayer, and termination is effective upon mailing. Upon termination, the IRS has ninety days within which to assess a tax deficiency, if any.

On December 31, 1981, the IRS issued, by certified mail to two former (but not last known) addresses of the Roszkos, duplicate notices of deficiency for tax years 1973 through 1976. It is clear that the IRS had been notified of the Roszkos' then current address when the 1981 notices of deficiency were sent to the Roszkos' former addresses. The alleged deficiency totaled approximately $75,000, primarily relating to tax years 1973 and 1974. Both notices were returned to the IRS undelivered, the Roszkos never having received them. Thereafter, on May 24, 1982, the IRS assessed the entire deficiency, with interest.

Through subsequent IRS collection activity, the Roszkos first learned of the unsuccessfully mailed notices. They paid the assessed tax and interest in late 1982 and early 1983. More than a year later, on June 11, 1984, the Roszkos petitioned the Tax Court to declare the assessment invalid for insufficient notice pursuant to IRC Sec. 6212(b)(1), and to dismiss their case for lack of jurisdiction. The Commissioner of Internal Revenue ("Commissioner") filed a notice of no objection to the Roszkos' petition; and on November 9, 1984, the Tax Court dismissed the case for lack of jurisdiction, having found insufficient notice to support the assessment.

On September 16, 1985, more than ten months after the dismissal, the Roszkos mailed a Form 872-T to the IRS. The Roszkos assert that they mailed this Form 872-T in order to prompt the IRS to refund the taxes they had paid relative to the now invalid assessment for tax years 1973 and 1974. They included on the Form the following additional language:

This Notice of Termination is filed without a waiver of the taxpayers' position that the time to assess tax for the years in question has expired, based on the Services' mailing of a notice of deficiency on December 31, 1981.

The Roszkos maintain that this language was included to emphasize that they considered their Form 872-A waiver of the statute of limitations to have been terminated more than three years earlier. In response, the IRS issued, on October 28, 1985, by certified mail to the Roszkos' current address, a new notice of deficiency for tax years 1973 and 1974. The new notice of deficiency covered tax years 1973 and 1974 because the IRS believed the Forms The Roszkos reacted to the new notice of deficiency by once again petitioning the Tax Court, on December 23, 1985, to dismiss their case for lack of jurisdiction, this time on the ground that the statute of limitations had expired prior to the issuance of the new notice. One week later, the Roszkos paid the IRS the amount of the alleged deficiency.

872-A, which the Roszkos had executed for those years, remained effective to waive the statute of limitations. The new notice did not cover tax years 1975 and 1976 because the Roszkos had never executed Forms 872-A for those years, and the Commissioner concedes that the statute of limitations had expired for tax years 1975 and 1976. On November 25, 1985, the IRS refunded to the Roszkos all payments they had made relating to the invalid 1982 assessment.

On December 4, 1986, the Tax Court held that the statute of limitations had expired prior to the issuance of the new notice. ¹ The Court reasoned that the IRS had terminated the Form 872-A waivers of the statute of limitations by mailing the first notices of deficiency, albeit unsuccessfully, almost five years earlier. As a result, the Court dismissed the case for lack of jurisdiction. ²

The Commissioner appeals the Tax Court decision. We review decisions of the Tax Court on the same basis as District Court decisions in civil bench trials. Mayors v. C.I.R., 785 F.2d 757, 759 (9th Cir.1986). The issue on appeal is whether the mailing of a concededly invalid notice of deficiency terminates a Form 872-A waiver of the statute of limitations for assessment of tax deficiencies. Interpretation of these waiver agreements is subject to the rules governing interpretation of contracts, see Pursell v. Commissioner, 38 T.C. 263, 278 (1962), aff'd per curiam, 315 F.2d 629 (3d Cir.1963); and when, as in this case, the lower court based its decision on the language of the agreement and principles of contract interpretation, the decision is one of law which we review de novo. See Miller v. Safeco Title Insurance Co., 758 F.2d 364, 367 (9th Cir.1985).

DISCUSSION

The critical language of the Form 872-A waiver agreement is as follows:

The amount of any federal income tax due on any return(s) made by or for the above taxpayer(s) for the period ended December 31, 19[xx], may be assessed on or before the 90th (ninetieth) day after: (a) the Internal Revenue Service office considering the case receives Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, from the taxpayer(s), or (b) the Internal Revenue Service mails a Notice of Deficiency for such period(s). However, if a Notice of Deficiency is sent to the taxpayer(s), the time for assessing the tax for the period(s) stated in the Notice of Deficiency will be further extended by the number of days the assessment was previously prohibited, plus 60 days.

(Emphasis added). The Commissioner argues that mailing a notice of deficiency which does not satisfy the statutory requirements for notice set forth in IRC Sec. 6212 was not an act which the parties contemplated would terminate the above agreement.

In rejecting the Commissioner's position, the Tax Court looked to the literal terms of the agreement, resolving doubtful terms against the drafting party, namely the IRS. The Tax Court also looked to case law governing notices of deficiency in general. Its holding rests on two central conclusions. First, in drafting Form 872-A, the Commissioner has enabled the IRS to terminate the agreement by the simple act of mailing, thereby rendering irrelevant the accuracy of the address. See Roszkos, 87 T.C. at 1260-61. Second, although a misaddressed notice is a "nullity" for assessment purposes, it is still a notice of deficiency for purposes of the waiver. See id. at 1263. Although we agree with the method of the Tax Court's analysis, we are compelled to reject its conclusions.

To focus on the distinction between a "mailing" standard and a "receipt" standard is to ignore the basic function of the notice of deficiency. As provided in IRC Sec. 6212, the notice of deficiency has a distinct and unambiguous purpose. Its very name denotes that it was intended to serve as a vehicle of notification. Indeed, it follows that a notice of deficiency which does not satisfy the minimum statutory requirement for notice cannot reasonably be considered a notice of deficiency.

In Clodfelter v. C.I.R., 527 F.2d 754 (9th Cir.1975), cert. denied, 425 U.S. 979, 96 S.Ct. 2184, 48 L.Ed.2d 805 (1976), we discussed the interplay between the mailing standard and the...