Opinion ID: 8114
Heading Depth: 2
Heading Rank: 2

Heading: extension agreement: executory contract or waiver?

Text: 11 Ordinarily, under section 6501(a) of the IRC, tax deficiencies must be assessed against a taxpayer within three years following the filing of the tax return. 6 Section 6501(c)(4) of the IRC, permits the taxpayer and the Commissioner to enter written agreements extending the statute of limitations on an assessment to any time period prior to the expiration of the period agreed upon. 7 12 The Bilskis concede that the limitations period was extended indefinitely by the Extension Agreement, but argue that it was an executory contract for the purposes of the bankruptcy code as a result of which it is deemed to be rejected, i.e., terminated, sixty days following the filing of debtor's Chapter 7 petition, unless the Chapter 7 trustee assumes the contract pursuant to the bankruptcy code. 8 Unfortunately for the Bilskis, the premise undergirding their argument contains a structural flaw: An 872-A is not an executory contract. 13 Like every other circuit that has addressed the matter, we have held that the [872-A] agreement to extend the statute of limitations between the Commissioner and the [taxpayer] is not a contract, but a unilateral waiver of a defense by the taxpayer. 9 Here, the Extension Agreement was an indefinite waiver of the statute of limitations. Although this is the first time that we have considered the nature of an 872-A in the context of bankruptcy, upon reflection we can discern no reason to depart from the general rule or to carve out a bankruptcy exception to it. Accordingly, we hold that the Extension Agreement was not an executory contract that terminated automatically 60 days after the Bilskis filed for bankruptcy. Rather, for purposes of bankruptcy, as for all other purposes, an 872-A is a waiver of the affirmative defense of time-bar under the statute of limitations. 14 As such, the Extension Agreement was still in full force and effect when the IRS issued the Bilskis' deficiency notice. For a taxpayer to terminate an 872-A, he must send the IRS a Treasury Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax (872-T). In like manner, for the IRS to terminate an 872-A, it must send to the taxpayer either a 872-T or a notice of deficiency in taxes for the relevant period. In this case, neither the Bilskis nor the IRS took any such terminating actions. Accordingly, the Extension Agreement was still in effect when the deficiency notice was issued, and the Tax Court correctly concluded that the deficiency assessment was not barred by the statute of limitations.