Opinion ID: 746869
Heading Depth: 1
Heading Rank: 7

Heading: estoppel and the government

Text: 85 The Supreme Court has not directly met the issue whether estoppel against the IRS may be appropriate in certain circumstances. However, contrary to counsel for the Commissioner's emphatic statement at oral argument that in no case has estoppel been asserted successfully against the IRS, this court and others have applied the doctrine of estoppel to the IRS under various circumstances. In Walsonavich v. United States, 335 F.2d 96 (3d Cir.1964), we held that the IRS was estopped from asserting the statute of limitations as a defense to a taxpayer's claim for a refund where the government and taxpayer had entered a written agreement extending the statute of limitations. See also Miller v. United States, 500 F.2d 1007 (2d Cir.1974) (IRS estopped from relying on a statute of limitations contained in a previously signed waiver-of-notice form as a bar to taxpayer's refund claim, where the IRS had erroneously disregarded the waiver, unnecessarily issued the notice to taxpayer and, pursuant to the notice, the statute of limitations had not run); Staten Island Hygeia Ice & Cold Storage Co. v. United States, 85 F.2d 68 (2d Cir.1936) (equitable relief available against IRS where erroneous advice induced taxpayer to enter agreement with IRS waiving future claims for refund); Schuster v. Commissioner, 312 F.2d 311 (9th Cir.1962) (IRS estopped from correcting prior erroneous determination of estate tax where bank relied on that determination and disposed of the affected assets); Time Oil Co. v. Commissioner, 258 F.2d 237 (9th Cir.1958) (IRS estopped from recouping tax advantages obtained by employer where default was in part triggered by Commissioner); United States v. Brown, 86 F.2d 798, 799 (6th Cir.1936) (IRS, after exercising choice to pursue one of two available remedies while letting alternative theory slumber in the files, is bound by that choice and cannot later pursue the inconsistent alternative remedy); Woodworth v. Kales, 26 F.2d 178 (6th Cir.1928) (avoiding direct estoppel ruling, but holding that Commissioner and his successors cannot reopen, reconsider and assess taxpayer's return--even within the statute of limitations period--once an initial valuation of certain stock had been made and indirectly confirmed by two subsequent commissioners); Simmons v. United States, 308 F.2d 938 (5th Cir.1962) (finding persuasive plaintiff's argument that IRS should be estopped from imposing a tax contrary to its agent's advice); Joseph Eichelberger & Co. v. Commissioner, 88 F.2d 874 (5th Cir.1937) (where IRS had rejected the existence of a loss claimed by a taxpayer, IRS was estopped for purposes of another transaction from subsequently claiming such loss was indeed realized); Perkins v. Thomas, 86 F.2d 954 (5th Cir.1936) (IRS estopped from making deductions based on a depletion allowance for the sale of mineral interests where IRS previously rejected taxpayer's claim for that depletion allowance in an earlier determination of tax owed on a sale of related interests); Stockstrom v. Commissioner, 190 F.2d 283 (D.C.Cir.1951) (IRS estopped from assessing taxpayer's estate in 1948 for failure to file a 1938 return where Commissioner had seven years earlier ruled that no tax was owed); Vestal v. Commissioner, 152 F.2d 132, 135 (D.C.Cir.1945) (IRS estopped from characterizing and taxing transaction as one involving a corporation where IRS agent previously deemed and taxed the transaction as one involving a partnership); Exchange & Sav. Bank of Berlin v. United States, 226 F.Supp. 56 (D.Md.1964) (IRS estopped from relying on the statute of limitations period in a previously signed irrevocable waiver because IRS subsequently inadvertently sent taxpayer a notice stating that the limitations period began running at a later date); Smale & Robinson, Inc. v. United States, 123 F.Supp. 457 (S.D.Cal.1954) (IRS estopped from raising statute-of-limitations defense to taxpayer's claim where authorized agent proposed and affirmatively represented, by words and figures placed in [a] report, that an unused credit from earlier tax year would be allowed without the taxpayer having to make a formal claim); see also H.S.D. Co. v. Kavanagh, 191 F.2d 831 (6th Cir.1951) (not directly referencing estoppel doctrine, but holding that a subsequent commissioner is barred from changing a ruling expressed in two letters of former commissioner upon reexamination of the taxpayer's file); Ford Motor Co. v. United States, 81 Ct.Cl. 30, 9 F.Supp. 590 (1935) (not directly mentioning estoppel though effectively estopping IRS from changing its characterization of corporations as separate entities after treating them as such throughout multiple transactions). 86 The IRS is not the only federal agency against which courts have applied the doctrine of estoppel. Case law demonstrates that courts have invoked estoppel against the Post Office Department, the Department of Housing and Urban Development, the Land Management Office, the Postal Service, the Parole Commission, the Farmer's Home Administration, the War Department, the Department of Interior, the Department of Commerce and Labor and the General Land Office. 3 This plethora of precedent suggests that [i]t is well settled that the doctrine of equitable estoppel, in proper circumstances, and with appropriate caution, may be invoked against the United States in cases involving internal revenue taxation, and in a variety of other contexts. Simmons v. United States, 308 F.2d 938, 945 (5th Cir.1962). 87 Although the Supreme Court has neither rejected outright nor articulated a specific test for estoppel claims against the government, the foregoing case law illuminates certain factors beyond the traditional elements of estoppel that we should consider before estopping the IRS. Those factors are: 1) the impact of the estoppel on the public fisc; 2) whether the government agent or agents who made the misrepresentation or error were authorized to act as they did; 3) whether the governmental misconduct involved a question of law or fact; 4) whether the government benefitted from its misrepresentation; and 5) the existence of irreversible detrimental reliance by the party claiming estoppel. We have addressed all but the first factor in conjunction with the traditional elements of estoppel, and we conclude that each of those factors cuts in favor of Fredericks. We now proceed to consider the impact on the public fisc in this case. Impact on the Public Fisc 88 Courts are more likely to estop the government when the public fisc--in particular, Congress' power to control public expenditures--is only minimally impacted, if at all. This consideration derives from Schweiker v. Hansen, 450 U.S. 785, 790-793, 101 S.Ct. 1468, 1471-74, 67 L.Ed.2d 685 (1981). The Court in Schweiker observed that future cases could be distinguished if the government entered written agreements that supported estoppel or if estoppel did not threaten the public fisc. Accordingly, in Portmann v. United States, 674 F.2d 1155 (7th Cir.1982), the court held that the U.S. Postal Service could be estopped from claiming certain packages were merchandise and from applying a lower insurable limit than that which would apply if the packages were deemed nonnegotiable documents. The court ruled that estoppel could be invoked if the plaintiff proved that the postal clerk assured her the packages could be insured as nonnegotiable documents. Important to the court's conclusion was that the public fisc would not be endangered if estoppel were permitted. The Seventh Circuit also articulated certain factors to be balanced in determining whether to grant estoppel. Among those factors was the potential danger of undermining important federal interests or risking severe depletion of the public fisc. Id. 674 F.2d at 1167. 89 We discussed Payne v. Block, 714 F.2d 1510, 1517-1518 (11th Cir.1983), in our analysis of the detriment element in Part IV. The court in Payne affirmed a district court order compelling the Farmers Home Administration to extend a loan application period, effectively estopping the government from adhering to its previously established application deadline. The court distinguished Schweiker v. Hansen on several grounds. Among these grounds was that in Schweiker estoppel would have threatened the public fisc with potential fraudulent claims by allowing any eligible claimants to obtain retroactive benefits by merely claiming that they visited the Social Security office and were told they were ineligible. In contrast, no threat of fraudulent claims existed in Payne because Congress had already authorized the funds for the loan program at issue and the money remained unallocated. 90 The public-fisc consideration cuts in favor of estopping the government in the case at bar. By enacting a three-year statute of limitations on the time within which the IRS must assess tax deficiencies, Congress clearly contemplated that in some instances taxpayers would retain funds--because the statute of limitations had run--to which they were not initially entitled. Therefore, invoking the statute of limitations to bar an IRS assessment cannot be deemed an intrusion into Congress' power to expend and allocate public funds. Neither Congress' power to control public expenditures nor its authority to enact statutes of limitations is impacted when a taxpayer invokes such a statute, either at the end of its original life or 11 years later pursuant to written agreements between the taxpayer and IRS. 91 Estoppel in this instance would not open the door to fraudulent claims. Therefore, the concerns about such claims raised in Portmann and Schweiker are inapplicable here. Unlike in Schweiker and Portmann, Fredericks' claim is based on more than mere oral assurances from government officials, although the government does not deny that its agent orally informed Fredericks that it did not have an extension on file and that the Form 872-A was probably lost. In this case, Fredericks proved, with documents authorized by Congress and signed by IRS agents, that the IRS executed three written agreements establishing specific dates on which the statute of limitations would expire. Thus, the Schweiker Court's concerns about a governmental estoppel that would open the door to potentially costly fraudulent claims based on mere oral misrepresentations from government officials are inapposite here. 92 The impact on the public fisc in this case would be nothing greater than that authorized by Congress in enacting a statute of limitations and authorizing the IRS to enter Form 872 written agreements extending the limitations period to specific dates. Congress certainly contemplated that taxpayers would rely on the dates fixed in those agreements to bar IRS assessments to which the government is no longer entitled because of the passage of time. See Helvering v. Griffiths, 318 U.S. 371, 403, 63 S.Ct. 636, 653, 87 L.Ed. 843 (1943) (the statute of limitations bar[s] sometimes the Government and sometimes the taxpayer with capricious effects). 93 Estoppel here affects the public fisc by approximately $28,361, plus any interest that would have accrued before June 30, 1984--the day the statute of limitations in the last Form 872 signed by the IRS and Fredericks expired. We are satisfied that in the scope of the IRS' operations, this impact on the public fisc is not only minimal, but also a necessary result of Congress' enactment of enforceable statutes of limitations. 94 We conclude that Fredericks has met his burden of establishing the traditional elements of estoppel. The IRS misrepresented its possession of a Form 872-A indefinite extension of the statute of limitations and confirmed that misrepresentation by obtaining three Forms 872. The IRS' conduct constituted affirmative misconduct when it remained silent upon realizing its mistake and upon deciding to change its course of action to rely on the previously lost Form 872-A without notifying the taxpayer. Its decision to effectively revoke the third Form 872 without notice to the taxpayer also adds to the affirmative misconduct here. Fredericks relied upon the IRS' oral and written representations as to the relevant statute of limitations and lost his right to terminate the Form 872-A. His detriment is compounded by the IRS' assessment of an increased penalty rate of interest covering the entire duration of its protracted investigation. 95 We have addressed the special factors that must be considered in governmental-estoppel claims and we conclude that they favor estopping the IRS here. The impact on the public fisc is minimal and consistent with Congress' enactment of enforceable statutes of limitations. The acts and omissions of the IRS agents were authorized; the errors involved misrepresentations of fact, not law, and do not contravene any statutory or regulatory requirements. The government benefitted from its misrepresentations; and Fredericks relied on those misrepresentations to his detriment, irretrievably losing the benefit of the statute of limitations, the benefit of the contracts he entered with the IRS, and the right to terminate the Form 872-A that the government repeatedly and affirmatively represented as non-existent. 96 Having concluded that the IRS is estopped from relying on the Form 872-A to extend the statute of limitations, we hold that the Commissioner was time-barred from making any assessment, in full or in part, in 1992. The original three-year statute of limitations had run, as had the three one-year extensions agreed to by the parties. Any assessment by the IRS on Fredericks' 1977 tax return was time-barred by 1984. The taxpayer asserted the statute of limitations as a defense to a 1992 assessment, and the Commissioner is thus estopped from refusing to recognize that defense and from denying the effectiveness of the 1984 statute of limitations. 97 The dissent agrees that the IRS should be estopped, but argues that we should allow the government to assess a deficiency for the period before September 30, 1984-90 days after the last Form 872 one-year extension expired. This contention fails to recognize the precise nature of the estoppel here. The Commissioner is estopped from using the Form 872-A to deny that the statute of limitations had run in 1984. Thus, the entire 1992 assessment was time-barred. By operation of the estoppel doctrine, the Commissioner was stripped of authority to make any assessment whatsoever. The effect of the estoppel here does not raise a question of equities; it presents one of pure law--the operation of a statute that bars the Commissioner's action beyond a date certain. 98 Application of estoppel here does not merely limit the remedy available to the Commissioner; it negates the Commissioner's ability to trump an act of Congress, to wit, the statute of limitations. As stated above, by enacting a statute of limitations on the time for assessing tax deficiencies, Congress clearly contemplated that in some instances taxpayers would retain funds--because the limitations period had run--to which they were not initially entitled. That this may result in an unnecessary windfall to the party invoking the statute of limitations is totally irrelevant. Such is the nature of a congressionally enacted limitations period; it confers a benefit on any litigant asserting the defense. To be sure, the statute of limitations bar[s] sometimes the Government and sometimes the taxpayer with capricious effects. See, e.g., Helvering v. Griffiths, 318 U.S. 371, 403, 63 S.Ct. 636, 653, 87 L.Ed. 843 (1943). 99 Estopping the government from capitalizing on Fredericks' failure to file an 872-T termination form, when the IRS itself procured both Fredericks' omission and his reliance on the alternative Forms 872, is not only consistent with more than a century of precedents, but also essential to maintaining fundamental notions of fair play. The Supreme Court has recognized such fundamental principles and applied them against both private parties and the government. 100 In R.H. Stearns Co. v. United States, 291 U.S. 54, 54 S.Ct. 325, 78 L.Ed. 647 (1934), the Court held that a taxpayer was estopped from asserting the statute of limitations as a bar to an assessment where the taxpayer himself had requested the Commissioner to delay the assessment. The Court stated: 101 The applicable principle is fundamental and unquestioned. He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him, in effect: This is your own act, and therefore you are not damnified.... Sometimes the resulting disability has been characterized as an estoppel, sometimes as a waiver. The label counts for little. Enough for present purposes that the disability has its roots in a principle more nearly ultimate than either waiver or estoppel, the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong. A suit may not be built on an omission induced by him who sues. 102 Id. at 61-62, 54 S.Ct. at 328 (citations and internal quotations omitted). The taxpayer claimed that a waiver of the statute of limitations that he signed, but which the Commissioner did not sign until several years later, was invalid. The Court noted that all parties proceeded as though the waiver was on file and had been signed: [t]he events that followed confirm this interpretation of the effect of the transaction. Therefore, the taxpayer was estopped from later claiming that the waiver was invalid. The facts in the case at bar are strikingly similar, and the same principles of law and equity should apply. 103 Here, all parties proceeded as though the IRS did not possess a Form 872-A. The events that followed, the IRS' three requests for Forms 872 and its silence upon finding the Form 872-A, confirmed this interpretation of the facts. We conclude that the same principle that the Court has applied against taxpayers--the principle that those who prevent a thing from being done may not avail themselves of the nonperformance which they themselves have occasioned--must apply to the Commissioner as well as the taxpayer in this instance. See, e.g., United States v. Peck, 102 U.S. (12 Otto) 64, 26 L.Ed. 46 (1880) (applying these fundamental principles of equity against the government as a party to a contract with a private individual). 104