Union Texas Int'l Corp. v. Comm'r of Internal Revenue, 15182–94
| Decision Date | 21 May 1998 |
| Docket Number | 15183–94.,No. 15182–94,15182–94 |
| Court | U.S. Tax Court |
| Parties | UNION TEXAS INTERNATIONAL CORPORATION, f.k.a. Union Texas Petroleum Corporation, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.UNION TEXAS PETROLEUM ENERGY CORPORATION SUCCESSOR BY MERGER TO UNION TEXAS PETROLEUM CORPORATION, f.k.a. Union Texas Properties Corporation, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
110 T.C. 321
110 T.C. No. 25
UNION TEXAS INTERNATIONAL CORPORATION, f.k.a. Union Texas Petroleum Corporation, Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.UNION TEXAS PETROLEUM ENERGY CORPORATION SUCCESSOR BY MERGER TO UNION TEXAS PETROLEUM CORPORATION, f.k.a. Union Texas Properties Corporation, Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
No. 15182–94
15183–94.
United States Tax Court.
May 21, 1998.
[110 T.C. 321]
Jasper George Taylor III, Charles Washington Hall, William H. Caudill, and John B. Kinchen, for petitioners.
Sheri Wilcox, for respondent.
In these consolidated cases, respondent determined the following deficiencies in windfall profit tax (WPT) for the taxable periods of 1983, 1984, and 1985, respectively:
[110 T.C. 322]
$3,471,045, $3,060,042, and $2,109,854. Respondent determined the deficiencies against Union Texas Petroleum International (International) for 1983 and 1984, and against Union Texas Petroleum Energy (Energy) for 1985. In their petitions, petitioners raised an issue pursuant to section 6512(b) 1, claiming overpayments of WPT for the taxable periods of 1983, 1984, and 1985, respectively, in the following amounts: $6,107,901, $5,969,611, and $7,931,434, resulting from a recomputation of the WPT net income limitation (NIL), or WPT NIL.
After concessions by the parties 2, the issues for decision are: (1) Whether petitioner, Energy, should be equitably estopped to deny that the limitations period for the taxable periods of 1985 were extended properly under section 6501(c)(4). We hold it should. (2) Whether, pursuant to section 613A(d)(2), Union Texas Petroleum Corporation (Old Petroleum) and Union Texas Petroleum Corporation (New Petroleum), f.k.a. Union Texas Properties Corporation (Properties) were independent producers during the taxable years in issue. We hold they were. (3) Whether petitioners are entitled to recompute Old Petroleum's and New Petroleum's WPT NIL computations for the taxable periods of 1983, 1984, and 1985, where the recomputations do not follow the percentage depletion calculations claimed on their original Federal income tax returns. We hold they are not.3
Some of the facts have been stipulated and are so found. The stipulated facts and the accompanying exhibits are incorporated into our findings by this reference. At the time the petitions in these cases were filed, petitioners' principal place of business was located in Houston, Texas. For convenience, we present a general background section and combine our findings of fact with our opinion under each separate issue.
[110 T.C. 323]
General Background
Corporate Structure—1982 Reorganization
Until December 31, 1982, Old Petroleum (Employer Identification Number, hereinafter EIN 74–6044301), a Delaware corporation, was a subsidiary of Allied Corporation (Allied), a New York corporation. Old Petroleum owned and operated 10 natural gas processing plants and held nonoperating interests in additional gas processing plants. During that time, Old Petroleum owned 100 percent of the stock of Texgas Corporation (Texgas), a Delaware corporation, which was in the business of retailing propane.
In a December 31, 1982, reorganization, Allied formed a new corporation called Union Texas Petroleum Holdings, Inc. (Holdings) (EIN 76–0040040) to serve as the parent of Old Petroleum and a new corporation called Union Texas Products Corporation (Products), a Delaware corporation.4 Pursuant to the reorganization, Old Petroleum contributed all of the assets of its hydrocarbons division to Products, including its natural gas gathering lines, gas processing plants, storage facilities, contracts for the sale of petroleum products, and all of the stock of Texgas. In exchange, Old Petroleum received the stock of Products, which it then distributed to Holdings. Thereafter, Products was a direct subsidiary of Holdings, Texgas was a direct subsidiary of Products, and Old Petroleum did not own stock in Products or Texgas.
Corporate Structure—1984 Reorganization
In a December 31, 1984, reorganization, Old Petroleum transferred all of its domestic oil and gas properties to New Petroleum (EIN 76–0125286), a Delaware corporation and subsidiary of Holdings, then known as Properties. On March 5, 1985, New Petroleum changed its name from Union Texas Properties Corporation to Union Texas Petroleum Corporation. Old Petroleum, presently known as International, currently exists as a Delaware corporation and is the petitioner in the instant case with respect to 1983 and 1984.
[110 T.C. 324]
Corporate Structure—1991 Reorganization
On October 15, 1991, Holdings became the parent of a new corporation called Union Texas Petroleum Energy Corporation, or Energy (EIN 76–0351014), a Delaware corporation. Effective December 31, 1991, pursuant to Delaware Corporation Law, New Petroleum merged into Energy and ceased to exist. Energy was the surviving corporation under Delaware law and is the petitioner in the instant case with respect to 1985.5
In the 1984 reorganization, Old Petroleum transferred its domestic oil and gas properties to New Petroleum, then known as Properties. Thus, the responsibility for filing WPT returns shifted from Old Petroleum to Properties. On March 5, 1985, Properties changed its name to New Petroleum. Despite the name change, New Petroleum continued to file its Forms 720, Quarterly Federal Excise Tax Returns (Forms 720), for the first three taxable quarters of 1985 under the name of Properties.
To keep the period of limitations open while respondent continued to conduct the WPT examination of New Petroleum for the 1985 taxable periods, respondent and New Petroleum began executing a series of Forms 872, the last of which was meant to extend the limitations period to June 30, 1994. At that time, what respondent's WPT revenue agents (WPT agents or agents) did not know was that there had been another reorganization in which New Petroleum merged with Energy, and as of December 31, 1991, ceased to exist. As a result of the merger, New Petroleum no longer had authority to extend the period of limitations after December 31, 1991. Yet, New Petroleum, through its former officers, Sanford M. Lobliner (Lobliner), and M.N. Markowitz (Markowitz), 6
[110 T.C. 325]
executed the following three Forms 872 after it had merged out of existence:
+--------------------------------------------------------------+
¦Extended Date¦Date New Petroleum Signed¦Date Respondent Signed¦
+-------------+-------------------------+----------------------¦
¦6/30/93 ¦7/22/92 ¦8/24/92 ¦
+-------------+-------------------------+----------------------¦
¦12/31/93 ¦1/14/93 ¦2/11/93 ¦
+-------------+-------------------------+----------------------¦
¦6/30/94 ¦7/27/93 ¦7/30/93 ¦
+--------------------------------------------------------------+
Each of these three consents was prepared by respondent's Appeals Office in Houston, Texas. Each consent identified the taxpayer as “Union Texas Petroleum Corporation (formerly Union Texas Properties Corporation) (Successor to Union Texas Petroleum Corporation 74–6044301)” and listed the EIN as 76–0125286. The consents should have identified the taxpayer for 1983 and 1984 as Union Texas International Corporation, F.K.A. Union Texas Petroleum Corporation, and for 1985 as Union Texas Petroleum Energy Corporation, successor by merger to Union Texas Petroleum Corporation, F.K.A. Union Texas Properties Corporation. When New Petroleum returned the consents to respondent, the Form 872 extending the assessment date to June 30, 1993, bore Lobliner's signature, and the two Forms 872 extending the assessment dates to December 31, 1993, and June 30, 1994, respectively, bore Markowitz's signature, both of whom signed as vice presidents of New Petroleum.
On March 9, 1992, respondent sent New Petroleum the revenue agent's report for the taxable periods of 1985, addressed to Union Texas Petroleum Corporation, F.K.A. Union Texas Properties Corporation, as was the consent. On April 24, 1992, in response to the revenue agent's report, Lobliner submitted to respondent a protest of respondent's determinations for 1985. The protest was on a preprinted letterhead styled Union Texas Petroleum. The case remained under consideration by respondent's Appeals Office until May 26, 1994, when the notice of deficiency for 1985 was issued.7
At no time before the petitions in these cases were filed did anyone representing New Petroleum or Energy directly inform the agents conducting the WPT examination or the
[110 T.C. 326]
Appeals officers considering the cases that New Petroleum was defunct and had no authority to act, that Lobliner and Markowitz were not officers of New Petroleum and did not have authority to execute the Forms 872 for the 1985 taxable periods, that future correspondence should be directed to Energy, or that future Forms 872 should be executed by Energy.
Discussion
Respondent contends that Energy should be estopped to deny the validity of the last three Forms 872 signed by Lobliner and Markowitz on behalf of New Petroleum, because Energy, through its officers, agents or employees, intentionally deceived respondent by failing to disclose New Petroleum's merger into Energy, thereby causing respondent to withhold assessment in reliance upon the consents. Energy asserts that it did not make any false representations to, or maintain any misleading silences in connection with, New Petroleum's merger into Energy. Furthermore, Energy claims that when the last three Forms 872 were signed respondent not only knew of New Petroleum's merger, but had a convenient means of acquiring such knowledge. Finally, Energy contends that in preparing and executing the last three Forms 872, respondent did not rely on any acts or statements made by Energy's representatives, because respondent's agents prepared the Forms 872 by looking...
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