Judgment summary
The case concerns a dispute over whether Notices of Deficiency issued to Barry Holmes Fine and Monica Dias for the 2015 and 2016 taxable years were time-barred under section 6501.
The petitioners had signed Forms 872 extending the assessment period, but after settlement negotiations with the IRS Independent Office of Appeals failed, they faxed Forms 872–T to the IRS purporting to terminate those extensions.
The Commissioner moved for partial summary judgment, arguing that Form 872–T does not terminate a properly executed Form 872. The Tax Court agreed, holding that the Notices were timely and granting partial summary judgment in the Commissioner's favour.
Background
Petitioners filed their federal income tax returns for 2015 and 2016 on October 16, 2016, and October 15, 2017, respectively. The IRS selected both returns for examination.
On June 5, 2019, petitioners each executed a Form 872 extending the assessment period for 2015 until December 31, 2020, countersigned by the IRS on June 10, 2019. A second Form 872 for 2015 was executed on July 2, 2020, extending the deadline to December 31, 2021, countersigned on July 6, 2020. For 2016, petitioners executed a Form 872 on January 28, 2020, extending the assessment period to June 30, 2021, countersigned on February 4, 2020.
The parties were unable to reach a settlement during case consideration by the IRS Independent Office of Appeals. On September 11, 2020, petitioners' counsel faxed Forms 872–T for 2015 and 2016 to the relevant IRS officers, seeking to terminate the examination and the previously executed Forms 872 and requesting expeditious issuance of a Notice of Deficiency. Because Form 872–T has no box for terminating Form 872, the box for terminating Form 872–A was checked instead, with copies of the executed Forms 872 attached.
By Notices dated April 15, 2021, the IRS determined deficiencies of $405,943 (2015) and $210,003 (2016), together with section 6662(a) accuracy-related penalties of $81,189 (2015) and $42,001 (2016).
Petitioners timely filed a Petition disputing the adjustments and penalties and raising the statute of limitations as an affirmative defense, contending the Notices were issued more than 90 days after the IRS received the Forms 872–T. Respondent filed an Answer disputing this and later moved for partial summary judgment on the timeliness of the Notices.
Core dispute
The central question was whether the Forms 872–T faxed by petitioners to the IRS terminated the previously and properly executed Forms 872 for the years at issue.
Petitioners argued that sending the Forms 872–T gave the IRS 90 days to issue Notices of Deficiency, and that because the Notices were issued after that period, assessment was time-barred under section 6501.
Respondent argued that Form 872–T does not terminate a Form 872, that the Forms 872 remained in effect according to their own fixed terms, and that the Notices, issued before the agreed expiration dates, were therefore timely.
Court findings
The Court distinguished Form 872, a fixed-date extension agreed by both parties, from Form 872–A, an indefinite extension that expires 90 days after either party sends a notice of termination, including by Form 872–T.
The Court noted that Form 872–T contains no option for terminating Form 872, and Form 872 makes no reference to Form 872–T, underscoring that Form 872–T's purpose is limited to terminating Form 872–A.
Applying contract principles, the Court held that agreements of indefinite duration are generally terminable at will, whereas agreements with a specified date for performance, such as Form 872, must be adhered to according to their terms. Because Form 872 reflects the mutual assent of the parties to a specific extended deadline, only the passage of time (or a new Notice or subsequent agreement) can end it.
The Court relied on its own precedent in Coggin v. Commissioner, T.C. Memo. 1993-209, which held that a properly executed Form 872 cannot be terminated by a Form 872–T, noting that the Eleventh Circuit, to which this case is appealable, had expressly left that question open on appeal in Coggin.
The Court rejected petitioners' reliance on a footnote in Kelley v. Commissioner, 45 F.3d 348 (9th Cir. 1995), finding it was merely a factual recitation, not a legal holding, and in any event not binding given the case's appealability to the Eleventh Circuit.
The Court also rejected petitioners' fairness argument that they should be able to unilaterally terminate Form 872 just as the IRS can effectively end the extension by issuing a Notice of Deficiency, finding this mischaracterised the nature of Form 872 as a taxpayer's voluntary waiver of the limitations defense.
Outcome
The Court held that Form 872–T does not terminate a properly executed Form 872.
The Court further held that the Notices of Deficiency for 2015 and 2016 were not barred by the statute of limitations, as the Forms 872 remained in effect and the Notices were issued within the agreed extended periods.
The Court found no genuine dispute as to any material fact regarding timeliness and granted respondent's Motion for Partial Summary Judgment on that issue. An appropriate order was to be issued.
Major issues / areas of contention
- Whether Form 872–T can be used to terminate a properly executed Form 872 (as opposed to Form 872–A)
- Whether the Notices of Deficiency for 2015 and 2016 were issued within the period prescribed by section 6501
- Allocation of the burden of proof on the statute of limitations affirmative defense between taxpayer and Commissioner
- Whether summary judgment under Rule 121 was appropriate given the absence of a genuine dispute of material fact on timeliness
- The legal distinction between a fixed-date consent (Form 872) and an indefinite consent (Form 872–A) for extending the assessment period