Court Opinion

ID: 4473100
Source: CourtListenerOpinion
Date Created: 2020-01-14 19:35:06.39669+00
Date Added: 2024-06-11T14:53:48.224957
License: Public Domain

Chabot and Foley, JJ., concurring: We agree with the majority opinion and write separately to emphasize that section 183(e)(4) extends the period for assessing a deficiency, but it does not provide an independent basis for extending the limitation period for overpayments. Nevertheless, the period of limitation for overpayments is extended because a section 183(e)(4) election meets the requirements of a section 6501(c)(4) agreement. I. Statutory Requirements of Section 6501(c)(4) Are Met The basic issue before us is whether petitioners’ claim for refund was timely. This Court pursuant to section 6512(b)(1) has jurisdiction to determine the existence and amount of any overpayment of tax. Section 6512(b)(3)(B) prohibits this Court from awarding a refund unless we determine that petitioners’ claim was timely under section 6511. Section 6511(c) provides that the normal period of limitation for filing a claim for refund may be extended if there is “an agreement under the provisions of section 6501(c)(4) extending the period for assessment of a tax”. Section 6501 provides rules that limit assessment and collection.1 More specifically, section 6501(c)(4) provides that, where the Internal Revenue Service (IRS) and the taxpayer have consented in writing, the assessment period is extended. The accompanying regulations state that the extension of the assessment period “[becomes] effective when the agreement has been executed by both parties.” Sec. 301.6501(c)-l(d), Proced. & Admin. Regs. In section 183(e)2 the Congress provided rules to facilitate the even-handed administration of the provisions of section 183. In paragrapns (3) and (4) of section 183(e), the Congress gave to the Secretary broad power to determine what should be in the election under section 183(e), required that such an election contain specified elements of an extension agreement, legislatively mandated the IRS’s consent to extend the assessment period, and explicitly provided that the assessment period is extended when the taxpayer makes the election; i.e., the taxpayer consents. In effect, the Congress authorized the Secretary to set any appropriate conditions for a specialized extension of the limitation on assessment, prescribed in the statute the nature and extent of this extension, required the Secretary to offer this agreement to any taxpayer on a take-it-or-leave-it basis, and mandated that the Secretary agree; i.e., “consent”, to the taxpayer’s election. Thus, the Congress’ mandate satisfies the requirement of section 6501(c)(4) that the IRS “consent”, and the requirement in section 301.6501(c)-l(d), Proced. & Admin. Regs., that the IRS execute the agreement. In short, a section 183(e) election meets the requirements of a section 6501(c)(4) agreement, and the period of limitation for overpayments is extended pursuant to section 6511(c). II. The Legislative History Supports This Analysis Section 183 was enacted by the Tax Reform Act of 1969, Pub. L. 91-172, sec. 213, 83 Stat. 487, 571-572, to deal with “hobby losses”; i.e., losses in an activity not engaged in for profit. Section 183(d) provided a presumption that an activity is engaged in for profit if a gross income test is satisfied for 2 out of 5 consecutive years. The time periods were modified by later statutes. Special rules were provided for certain horse-related activities. The Congress then became aware of a problem in applying section 183 — some taxpayers were denied the opportunity to use the presumption where the Commissioner challenged the status of the activity before the end of the presumption period. As a result, section 183(e) was enacted by the Revenue Act of 1971 (1971 Act), Pub. L. 92-178, sec. 311, 85 Stat. 497, 525-526. Paragraph (1) of section 183(e) permits a taxpayer to elect to delay the determination of whether the section 183(d) presumption applies. Paragraph (2) of section 183(e) applies the presumption to all of the years in the testing period; i.e., 5 years generally and 7 years as to horse-related activities. Paragraph (3) of section 183(e) gives the Secretary broad powers as set forth supra note 2. The Senate Committee on Finance report explains the 1971 Act as follows: The committee is aware that because of the 5- or 7-year periods involved in the case of the presumption, the statute of limitations may run before any action could otherwise be taken under the provision added by the committee. For this reason, the committee believes that this provision should not generally be applicable unless the taxpayer executes a waiver of the statute of limitations for the 5- or 7-year period and for a reasonable time thereafter. This will allow the taxpayer time to claim any refunds of tax paid during this period and also will allow the Internal Revenue Service to assess any deficiencies. [S. Rept. 92-437, at 74 (1971), 1972-1 C.B. 600, emphasis added.] See also Staff of Joint Comm, on Taxation, General Explanation of the Revenue Act of 1971, at 71-72 (J. Comm. Print 1972). Section 183(e) as enacted in the 1971 Act was identical to the language reported by the Senate Committee on Finance. The Congress’ work was not complete. There remained a “fly in the ointment”. Because of restrictions on multiple notices of deficiency for the same tax year, the Treasury’s temporary regulations required that section 183 elections be accompanied by general waivers of the statute of limitations. Thus, all the non-hobby-loss elements of a taxpayer’s liability for a year had to be held in suspense until the hobby-loss matters were dealt with. In order to deal with this limited problem, section 183(e)(4) was enacted by the Tax Reform Act of 1976 (1976 Act), Pub. L. 94-455, sec. 214, 90 Stat. 1520, 1549. The committee reports described the situation in pertinent part as follows: Present law ‡ ‡ ‡ ^ ‡ ‡ If, at the end of a given year, the taxpayer has not conducted the activity for 5 (or 7) years, a special provision allows the taxpayer to elect to postpone a determination as to whether he can benefit by this presumption until he has conducted the activity for 5 (or 7) years (sec. 183(e)). This election was added to the Code in 1971. The committee reports at that time express an intent that a taxpayer who makes the election should be required to waive the statute of limitations for the 5 (or 7) year period and for a reasonable time thereafter. The aim was to prevent the statute of limitations (3 years, in the usual case) from running on any year in the period. The taxpayer, it was believed, should have time to claim a refund of tax paid by him during the period and the Internal Revenue Service should also have time to assess any deficiency owed by the taxpayer for any year in the period. * * * * * * * General reasons for change ‡ ^ # # In order to accomplish the purposes which Congress sought when it enacted the look-forward presumption of section 183(e), it is not necessary to keep the statute of limitations open for all issues on the taxpayer’s return during the 5 (or 7) year period. The only issues on which the statute of limitations needs to remain open concern the deductions which will be tested as to whether they are incurred in an activity which the taxpayer engaged in for profit. Your committee believes that a taxpayer should be able to take full advantage of a statutory presumption which was intended for his benefit, without unnecessarily extending the statute of limitations for items on his return which are unrelated to deductions which might be disallowed under section 183. Explanation of provisions Hs * ■ % Hi Hi Hi If a taxpayer makes an election under section 183(e) of present law and postpones a determination whether he engaged in a particular activity for profit, the making of such election automatically extends the statute of limitations, but only with regard to deductions which might be disallowed under section 183. The taxpayer would not have to agree to extend the statute of limitations for any other item on his return during the 5 (or 7) year period. On the other hand, even if the taxpayer has petitioned the Tax Court with regard to an unrelated issue on his return for any year in the same period, the Service will be able to issue a second notice of deficiency relating to a section 183 issue as to any taxable year in the period. [H. Rept. 94-658, at 127-129 (1975), 1976-3 C.B. (Vol. 2) 695, 819-821.] See S. Rept. 94-938 (Part 1), at 66-69 (1976), 1976-3 C.B. (Vol. 3) 49, 104-107; Staff of Joint Comm, on Taxation, General Explanation of the Tax Reform Act of 1976, at 59-62, 1976-3 C.B. (Vol. 2) 71-74 (emphasis added; fn. ref. omitted). Thus, in the 1976 Act, the Congress reaffirmed that the 1971 Act had resulted in taxpayers’ and the IRS’ having correlative rights to claim refunds and assess deficiencies for the 5-year (or 7-year) presumption test period, intended “that a taxpayer should be able to take full advantage of a statutory presumption which was intended for his benefit”, and understood that the limited modification made by the 1976 Act had the effect of removing the IRS’s concern about restrictions on multiple notices of deficiency for the same year. See S. Rept. 94-938 (Part 1), supra at 66-68, 1976-3 C.B. (Vol. 3) at 104-106. Thus, we conclude that the Congress intended that an extension of the period of limitations would be a two-way street; i.e., an extension of the assessment period should be accompanied by an extension of the period of limitation for claiming a refund. We concluded in Crawford v. Commissioner, 97 T.C. 302, 307 (1991), that we should harmonize sections 183 and 6501 by writing section 183(e) into section 6501(a) for purposes of applying section 6501(c)(4). Similarly, we should harmonize those sections by writing section 183(e) into section 6501(c)(4). Failure to do so would take away from taxpayers a benefit that taxpayers had under the 1971 Act amendment and that was intended to be left undisturbed by the 1976 Act amendment. The dissenters suggest that this “statute appears to be clear on its face” (see infra p. 265) and that they champion “A literal reading” thereof. See infra p. 268. With respect, we suggest it is not so clear what the statutes mean. We have focused on the language of the statutes in light of the legislative history of the later-enacted provisions of section 183(e), and we discern a congressional purpose that the refund statute of limitations provisions be interpreted in light of section 183(e). The matter before us, then, is how to harmonize sections 183(e) and 6501. In doing so we have interpreted the statutory language in light of the Congress’ instructions as to what this language was intended to, and expected to, accomplish. Our analysis is consistent with the analysis set forth in Crawford v. Commissioner, supra. Instead of limiting ourselves to the text of section 6501(a), which provides that “Except as otherwise provided in this section” (emphasis added), the 3-year assessment period is applicable, we examined the legislative history of section 183 and concluded that “a sensible construction of section 183(e)(4) is that it modifies section 6501(a) with regard to a section 183 activity for which an election under section 183(e)(1) has been made.” Crawford v. Commissioner, 97 T.C. at 307. We reached this conclusion in Crawford notwithstanding the absence in the section 183 legislative history of any discussion about section 6501(c)(4) agreements’ being entered into at any time after the expiration of the assessment period actually prescribed in section 6501. If our harmonizing of sections 183(e)(4) and 6501 was permissible in Crawford — and we believe it was— then a fortiori the harmonizing we do in the instant case is permissible. Indeed, here we are effectuating explicit expressions of congressional intent. The 1971 Act committee report and the 1976 Act committee report provided that the Congress’ action “will allow the taxpayer time to claim any refunds of tax paid during this period [the 5- or 7-year period]”. S. Rept. 92-437, supra at 74, 1972-1 C.B. at 600; see also S. Rept. 94-938, supra at 67, 1976-3 C.B. (Vol. 3) at 105. Moreover, the 1976 Act committee report provided “that a taxpayer should be able to take full advantage of a statutory presumption which was intended for his benefit”. S. Rept. 94-938 (Part 1), supra at 67, 1976-3 C.B. (Vol. 3) at 105 (emphasis added). Cohen, Parr, Beghe, Chiechi, Laro, Vasquez, and Gale, JJ., agree with this concurring opinion.   Sec. 6501 provides, in pertinent part, as follows: SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION. (a) General Rule. — Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. (c) Exceptions. (4) Extension by agreement. — Where, before the expiration of the time prescribed in this section for the assessment of any tax imposed by this title, except the estate tax provided in chapter 11, both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.    Sec. 183(e) provides, in pertinent part, as follows: SEC. 183. ACTIVITIES NOT ENGAGED IN FOR PROFIT. (e) Special Rule.— (3) Election. — An election under paragraph (1) shall be made at such time and manner, and subject to such terms and conditions, as the Secretary may prescribe. (4) Time for assessing deficiency attributable to activity. — If a taxpayer makes an election under paragraph (1) with respect to an activity, the statutory period for the assessment of any deficiency attributable to such activity shall not expire before the expiration of 2 years after the date prescribed by law (determined without extensions) for filing the return of tax under chapter 1 for the last taxable year in the period of 5 taxable years (or 7 taxable years) to which the election relates. Such deficiency may be assessed notwithstanding the provisions of any law or rule of law which would otherwise prevent such an assessment.