Source: https://law.justia.com/cases/federal/appellate-courts/F2/660/324/42015/
Timestamp: 2019-07-22 18:08:05
Document Index: 547492286

Matched Legal Cases: ['§ 601', '§ 6501', '§ 6501', '§ 6501', '§ 6501', '§ 6501', '§ 601']

Borg-warner Corporation, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 660 F.2d 324 (7th Cir. 1981) :: Justia
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Borg-warner Corporation, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 660 F.2d 324 (7th Cir. 1981)
U.S. Court of Appeals for the Seventh Circuit - 660 F.2d 324 (7th Cir. 1981)
Argued Dec. 1, 1980. Decided Sept. 29, 1981
Agreements between taxpayers and the government extending the statute of limitations for the assessment of taxes, including agreements to extend the limitations period indefinitely, like the one at issue here, have long been recognized as valid. See McManus v. Commissioner, 583 F.2d 443, 446 (9th Cir. 1978), cert. denied, 440 U.S. 959, 99 S. Ct. 1501, 59 L. Ed. 2d 773 (1979). The sole issue in this case, as we noted above, is not whether the agreed extension of the statute of limitations is valid but whether Mr. Christian's letter of October 18, 1974 was notification of the end of Appellate Division consideration as contemplated by IRS Form 872-A and, thus, whether the extension of the limitations period terminated 90 days thereafter on January 16, 1975.
There is, of course, one difference between the letter in this case and those in Johnson : the appellate conferee here wrote "it is our intention to recommend issuance of a statutory notice of deficiency," whereas in Johnson, the appellate conferees wrote that a notice of deficiency "will be sent to you" or "will be issued at an early date." This difference is not a material one, however. The critical event so far as the limitations period is concerned is not, as the Commissioner seems to suggest, the issuance of a notice of deficiency or even the acceptance of the appellate conferee's recommendation that a notice of deficiency issue, but the termination of the Appellate Division's consideration of the case. The purpose of agreements extending the statutory limitations period is to allow a taxpayer to seek compromises of its asserted tax liability. See United States v. Herman, 186 F. Supp. 98 (E.D.N.Y. 1960). When the possibilities of settlement have been exhausted, the quid pro quo for the extension of this limitations period disappears.
Furthermore, contrary to the Commissioner's contention, Mr. Christian's statement that "it is our intention to recommend issuance of a statutory notice of deficiency" does not indicate that Mr. Christian was only making a recommendation to his supervisor who, in turn, might or might not agree to terminate Appellate Division consideration. "Recommend" and "recommendation" are terms of art used to describe the process that the Appellate Division follows to obtain the Regional Counsel's approval to issue a notice of deficiency. See 26 C.F.R. § 601.106(d) (2) (ii);2 Internal Revenue Manual, Position Profile 33(II) (D).3 Given the circumstances surrounding Mr. Christian's letter, the phrase "it is our intention to recommend issuance of a statutory notice of deficiency" obviously refers not to a recommendation by Mr. Christian to his supervisor that Appellate Division consideration be terminated, but to the Appellate Division's recommendation to Regional Counsel after termination of the division's consideration of the case that, as the letter states, a notice of deficiency be sent to the taxpayer. Consequently, there is nothing in the language of this letter which indicates that it is anything other than a notification of termination of Appellate Division consideration.
Second, it is not at all clear that it can fairly be said that it is the Service's policy not to issue notices of termination in unagreed cases. See Johnson v. Commissioner, supra at 643. Revenue Procedure 71-11, which was in effect at the time Mr. Christian sent his October 18 letter to the taxpayer, states, among other things, that Form 872-A extends the period of limitations to a date 90 days after "mailing by the Internal Revenue Service of written notification to the taxpayer(s) of termination of Appellate Division consideration." Form 872-A contains an identical provision. Nothing in these provisions indicates that notices of termination will be issued only in agreed cases. On the contrary, such a provision is at least as crucial in unagreed cases since the taxpayer is entitled to expeditious issuance of the notice of deficiency. Additionally, paragraph 8233(13) (4) of the Internal Revenue Manual states clearly that "(n)otification by the Service of termination of Appellate consideration is issued in all Form 872-A cases except where notification of termination has been received from taxpayer." (Emphasis added.) Thus, published pronouncements of the Service's policy at the time Mr. Christian sent his letter to Mr. Crunican indicated that the Service issued notices of termination of Appellate Division consideration in unagreed as well as agreed cases. The St. Louis office's internal, unpublished modifications of this policy, if any, cannot take precedence over published announcements to the contrary.
* Taxpayer's federal income tax return for the calendar year 1968 was filed on June 13, 1969. The three-year statute of limitations for assessing a deficiency would have expired on June 13, 1972. On four occasions between March 16, 1972 and April 17, 1974, taxpayer and the Internal Revenue Service timely agreed in writing to extensions of the statutory period pursuant to 26 U.S.C. § 6501(c) (4).1 Each of these four extensions was evidenced by Internal Revenue Service Form 872 and each was for a time period ending on a specific date, the last such date being December 31, 1974.
* The statute of limitations provides that income taxes shall be assessed within 3 years after the return is filed. 26 U.S.C. § 6501(a). Extensions of this period by agreement of the taxpayer and the Commissioner are provided for by § 6501(c) (4).4
The validity of the unlimited waiver provided by Form 872-A has been upheld against a taxpayer's attack that the open-ended nature of the form violated 26 U.S.C. § 6501(c) (4), which speaks of the "period so agreed upon." McManus v. Commissioner of Internal Revenue, 65 T.C. 197 (1975), affirmed, 583 F.2d 443 (9th Cir. 1978), cert. denied, 440 U.S. 959, 99 S. Ct. 1501, 59 L. Ed. 2d 773 (1979). The Ninth Circuit said at 446:
In agreed cases, Internal Revenue Service provided for the use of Form L-85. Internal Revenue Manual, par. 8233(13) (4).7 In agreed cases considered by the Joint Committee on Internal Revenue Taxation, the Service provided for use of Pattern Letter P-265. Both Form L-85 and Pattern Letter P-265 contained the following language:
From 1971 to 1979, in non-agreed cases the Service considered that the mailing of the statutory notice of deficiency constituted the written notification of termination of Appellate Division consideration. Internal Revenue Manual, par. 8233(13) (4).8
A mere recommendation from a revenue agent to his supervisor does not trigger any critical factors in the relation between government and a taxpayer. The Supreme Court in Donaldson v. United States, 400 U.S. 517, 91 S. Ct. 534, 27 L. Ed. 2d 580 (1971) held that an internal revenue summons may be issued in aid of an investigation if it is issued in good faith and prior to a recommendation for criminal prosecution. In United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978), the Court clarified Donaldson as not referring to the recommendation by the agent to his supervisor but to the recommendation by Internal Revenue Service to the Department of Justice. The Court noted that any other interpretation "would unnecessarily hamstring the performance of the tax determination and collection functions by the Service." 437 U.S. at 313, n.15, 98 S. Ct. at 2365, n.15. Similarly here, if a letter intended for a different purpose entirely13 was held to imply the foreclosure of the government to collect from four to six million dollars of taxes, tax functions would be hamstrung as agents spent their time composing exactly the proper language. It is preferable to draw a bright line requiring that written notifications of termination explicitly state that fact.
26 U.S.C. § 6501(c) (4) provides:
26 C.F.R. § 601.106(d) (2) (ii) provides in part:
IR Manual, Position Profile 33(II) (D) provides, in part:
Internal Revenue Manual, par. 8233(13) (4) provides: