Sanderling, Inc. v. Comm'r of Internal Revenue

• Decision Date: 26 July 1976
• Docket Number: Docket No. 7167-73.
• Citation: 66 T.C. 743
• Parties: SANDERLING, INC., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

66 T.C. 743

SANDERLING, INC., PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 7167-73.

United States Tax Court

Filed July 26, 1976.

Herbert M. Gannet and Harvey R. Poe, for the petitioner.

William M. Gross, for the respondent.

Respondent issued a notice of deficiency to petitioner covering petitioner's taxable year ended Feb. 28, 1969. Respondent subsequently conceded that petitioner was liquidated and dissolved as a corporation on Jan. 22, 1969, and that its taxable year ended on that date. Approximately 3-years after petitioner was dissolved, petitioner's treasurer (who was also a trustee in dissolution for the benefit of petitioner's stockholders and creditors) signed a consent as such trustee to extend the statute of limitations (Form 872). A later consent was signed by a certified public accountant acting under a power of attorney (Form 2848) signed by two of petitioner's officers. On the power of attorney such officers did not recite the specific representative capacity in which they purported to act on petitioner's behalf. Both consents were also signed by respondent's agents acting in their respective capacities as ‘acting group supervisors.’ These consents purported to extend the statute of limitations for a taxable year which, although different from the taxable year covered by the deficiency notice, was ultimately determined to be petitioner's correct taxable year. Held, this Court has jurisdiction to redetermine the asserted deficiency notwithstanding that the statutory notice was issued for petitioner's incorrect taxable year. Held, further, petitioner's treasurer had the requisite authority to bind petitioner to the first consent to extend the statute of limitations, and the certified public accountant had authority to bind petitioner to the second such consent. Held, further, respondent's agents, acting in their respective capacities as ‘acting group supervisors,‘ had authority to bind respondent to both consents. Held, further, the consents were not invalid because they recited a taxable year different from the taxable year covered by the deficiency notice. Held, further, under the facts, the burden of proving petitioner's liability for the addition to tax under sec. 6651(a) falls on respondent. Held, further, respondent has carried such burden, and a 10-percent penalty imposed under such section is sustained. Rev. Rul. 73-133, 1973-1C.B. 605, followed.

FORRESTER, Judge:

Respondent has determined the following deficiencies in petitioner's income tax plus additions to tax under sections 6651(a)¹ and 6653(a):

+-----------------------------------------------------------------------------------------------------+
                ¦Taxable year  ¦Deficiency  ¦Addition to tax under sec. 6651(a)  ¦Addition to tax under sec. 6653(a)  ¦
                +--------------+------------+------------------------------------+------------------------------------¦
                ¦              ¦            ¦                                    ¦                                    ¦
                +--------------+------------+------------------------------------+------------------------------------¦
                ¦3/1/68—2/28/69¦$7,231.81   ¦$361.59                             ¦$361.59                             ¦
                +--------------+------------+------------------------------------+------------------------------------¦
                ¦3/1/69—12/31/ ¦3,619.03    ¦904.76                              ¦180.95                              ¦
                ¦69            ¦            ¦                                    ¦                                    ¦
                +--------------+------------+------------------------------------+------------------------------------¦
                ¦1/1/71—4/16/71¦62,698.34   ¦15,674.59                           ¦3,134.92                            ¦
                +-----------------------------------------------------------------------------------------------------+
                

Concessions having been made, the issues presented for our decision are as follows:

(1) Whether this Court lacks jurisdiction in the instant case because the notice of deficiency upon which the petition herein is based was issued for petitioner's incorrect taxable year;

(2) Whether the consents extending the 3-year statute of limitations (Forms 872) are invalid because (a) such consents were not signed by individuals with authority to bind the parties, or (b) recited a different taxable year than that set forth in the notice of deficiency; and

(3) Whether the late filing of petitioner's income tax return was due to ‘reasonable cause’ within the meaning of section 6651(a)(1) so as to preclude the addition to tax provided for under that section.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

Petitioner was incorporated on February 28, 1963, in the State of New Jersey and was dissolved on October 31, 1969. Petitioner filed its final U.S. Small Business Corporation Income Tax Return (Form 1120-S) for the short period March 1, 1968, to January 22, 1969, with the Middle Atlantic Service Center, Philadelphia, Pa. Pursuant to section 7482(b)(2), the parties have agreed that the decision of this Court may be reviewed by the United States Court of Appeals for the Third Circuit.

At all times relevant herein, the officers of petitioner were as follows:

President² . . . . . John M. Pillsbury

Secretary . . . . . Laurence A. Carton

Treasurer . . . . . William A. Sternkopf, Jr.

The board of directors consisted of these same three individuals plus Howard Roberts, Rochford Ern, and John D. Lazarus. All of petitioner's outstanding stock was held in equal proportions by the six directors or their legal representatives.

On November 20, 1968, petitioner adopted a plan of complete liquidation pursuant to section 337. By an agreement of the same date, petitioner and its shareholders designated William A. Sternkopf, Jr. (Sternkopf), and John M. Pillsbury (Pillsbury) as trustees in dissolution for the benefit of the stockholders and creditors of petitioner.

On or about December 16, 1968, petitioner filed Form 966³ with the Internal Revenue Service. Together with this form, petitioner attached a copy of a resolution adopted at a joint meeting of the directors and stockholders adopting a complete plan of liquidation.

On January 22, 1969, petitioner distributed all of its assets to the trustees in dissolution. Such distribution was in complete liquidation and as full payment in exchange for all of its outstanding shares. The shareholders properly reported their respective long-term capital gains in their 1969 income tax returns.

Each shareholder has executed a transferee agreement, Form 2045, and the parties have stipulated that the shareholders are thereby liable as transferees if a deficiency is assessed against petitioner⁴ and that the shareholders will be entitled to long-term capital gains deductions for the amount of any transferee liability paid in the year of payment.

Respondent's files contain an application for an employer identification number (Form SS-4) signed by Sternkopf and Pillsbury as ‘Trustees for Stockholders of Sanderling, Inc.’ There is no indication as to the date the application was received by respondent. Copies of 1970 and 1971 fiduciary returns (Form 1041) were submitted to the revenue agent during the audit stage of this case.

Because respondent's agent, Lawrence Long (Long), who handled the examination of petitioner's return, was of the opinion that a corporation was not liquidated until all its assets were turned over to the stockholders, he determined that petitioner was not liquidated until April 16, 1971. Accordingly, the deficiency notice, upon which the petition herein is based, was issued for the following years:⁵

Mar. 1, 1968 . . . . . Feb. 28, 1969

Mar. 1, 1969 . . . . . Dec. 31, 1969

Jan. 1, 1971 . . . . . Apr. 16, 1971

Respondent has now conceded that petitioner was liquidated on January 22, 1969, and was not required to make or file returns for periods subsequent thereto, and the parties have stipulated that as the result of their various agreements the only remaining issues before us are:

(1) whether the statute of limitations bars assessment of the agreed deficiency;

(2) whether the Court lacks jurisdiction on the ground that the statutory notice was issued for the wrong taxable year; and (3) whether the late filing of petitioner's return was due to reasonable cause so as to preclude an addition to the tax under Code sec. 6651(a). * * * The parties further agree that the questions presented above have been appropriately raised in the pleadings.

(Stipulation of issues.)

The sole asserted deficiency in the instant case involved a liquidation distribution, on January 22, 1969, of a purchase-money mortgage, which was part of the consideration petitioner had received from the sale of real estate in prior years. Because petitioner had elected the installment method of reporting the gain on the sale of real estate, under section 453(d) long-term capital gain of $154,818 resulted on the disposition of the obligation. This gain was not reported on petitioner's final return, and petitioner concedes that failure to do so resulted in an income tax deficiency. Petitioner's position is that, for reasons discussed infra, the assessment of the deficiency is barred.

On May 14, 1969, petitioner mailed its final income tax return for the short period March 1, 1968, to January 22, 1969, and respondent received the return on May 19, 1969. The parties have stipulated that, unless extended by the Forms 872⁶ discussed below, the 3-year statute of limitations expired on May 14, 1972. The respondent's statutory deficiency notice herein was mailed to petitioner on June 29, 1973.

There are two Forms 872 which attempt to extend the statute of limitations beyond May 14, 1972. The first was signed by Sternkopf, as described infra, on February 25, 1972, and by Robert Shore (Shore) on behalf of respondent on March 10, 1972. This form purported to extend the statute to October 15, 1972.

The second Form 872 was signed by ...