Opinion ID: 3012396
Heading Depth: 4
Heading Rank: 1

Heading: Subserving the Merits

Text: In its order the Tax Court reasoned that the merits were not subserved because the Tolves' statute of limitations defense was without merit. It based this conclusion on a terse determination that the meaning of tax on the form was clear. While the Tax Court's view of tax was a correct statement of tax court decisions as to the meaning of tax, the Tax Court borrowed these rulings as conclusive on the issue of the plain meaning of tax in the specific Consent executed by the Tolves. By ruling that the meaning of tax was clear, the Tax Court foreclosed any discussion of the proper interpretation of the form itself, which, as we have noted, contained specific typed limiting language. We view the issue as to whether the Consent extended the statute of limitations as to only the tax, or also as to the additions to tax and interest, to be not quite as clear cut as the IRS suggests or the Tax Court concluded. The Supreme Court has said that a consent to extend the time period for the assessment of tax is not a contract . . . [but is] essentially a unilateral waiver of a defense by the taxpayer. Stange v. United States, 282 U.S. 270, 276 (1931). However, courts have analyzed taxpayer consent in contractual interpretation terms. See Ripley v. Commissioner, 103 F.3d 332, 337 (4th Cir. 1996); Kronish v. Commissioner, 90 T.C. 684, 693 (1988). In interpreting the waiver agreement in terms of contract principles, courts have looked to the plain meaning of the form. See United States v. Hodgekins, 28 F.3d 610, (7th Cir. 1994); Stenclik v. Commissioner, 907 F.2d 25, 27 (2d Cir. 1990). We conclude that the plain meaning of the form before us is not limited to the statutory meaning of the words tax or deficiency. Rather the meaning of the form can only be determined by examining the contract language and deciding whether its meaning is, in fact, plain. We conclude that it is not. The typed words of limitation reference very specific items of tax resulting from adjustments relating solely to their investment in Stu-Co. We cannot say that they clearly include additions and interest, as those words appear nowhere in the typed portion (or in the form itself, for that matter). As the tax court has explained, the meaning of the form must be determined by looking at the specific restricted form at issue. See Ferguson v. Commissioner, 64 T.C.M. (CCH) 431(1992) (explaining that in order to determine whether amounts assessed by the IRS were covered by the consent, the court would focus on the extensive and detailed language of the restriction). In Anthony v. United States, 987 F.2d 670 (10th Cir. 1992), the Tenth Circuit Court of Appeals was called on to determine the meaning of the word taxes in a settlement agreement between the IRS and the taxpayer. In that case, the IRS argued that the word taxes did not include interest. The Tenth Circuit found that the meaning of taxes was ambiguous in the agreement, and therefore looked instead to the intent of the parties. Id. at 673. The court rejected the IRS's argument that they had not settled the claim for interest and that taxpayers should have been aware of the additional interest. Id. at 673. Interestingly, the IRS makes that same claim here, but makes it as the basis for the opposite conclusion arguing that tax clearly includes interest. The court in Anthony concluded that the parties' intent was to limit the taxpayers' liability to only the taxes themselves. Here, in denying the Tolves' motion, the Tax Court explained that we [have] indicated that the word 'tax' in such waivers [as the form 872] included any applicable interest, penalty or other additions to tax. It then references tax court rulings as to the meaning of tax in the context of a standard form. Pleasanton Gravel Co. v. Commissioner, 85 T.C. 839 (1985) (citing Picard v. Commissioner, 28 T.C. 955, 961 (1957)). This may be a correct reading of the word tax, but this should not end the consideration of the meaning of the Consent at issue here in light of the additional typed portion containing limiting language. The Tolves contend, and we agree, that this language could well be viewed as distinguishing the consent from the unrestricted consent in the cases relied on by the IRS and the Tax Court, such as Pleasanton Gravel and Picard, which only considered the meaning of tax in the form without additional qualification. For this reason, the Tax Court was wrong to simply adopt the reasoning of those courts as to tax without considering the meaning of the form, including additional language included on the Tolves' consent. As we find ambiguity in the meaning of the form, the parties intentions should have been explored in determining the meaning of the form. Further proceedings before the Tax Court would be required in order to resolve this issue.