Court Opinion

ID: 9468429
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:14:31.785787+00
Date Added: 2024-06-11T17:40:51.836959
License: Public Domain

SPRECHER, Circuit Judge,
dissenting.
The issue on appeal is whether a certain letter written by an internal revenue appellate conferee constitutes the “written notification to the taxpayer of termination of Appellate Division consideration” sufficient to terminate waiver of the statute of limitations under Form 872-A.
I
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.
On July 18, 1974, after taxpayer’s case had been transferred to the Appellate Division of the Internal Revenue Service at St. Louis, Missouri,2 taxpayer and Internal Revenue Service entered into an agreement evidenced by Form 872-A, entitled “Special Consent Fixing Period of Limitation Upon Assessment of Income Tax,” which extended the assessment period until 90 days after written notification by either party of termination of the agreement.3 Kenneth E. Christian, Appellate Conferee, signed Form 872-A on behalf of Fred J. Ochs, Assistant Regional Commissioner — Appellate.
*333At no time did taxpayer ever avail itself of its right to terminate the unlimited waiver of the statute of limitations represented by Form 872-A.
Kenneth E. Christian, Appellate Conferee, mailed the following letter to taxpayer under date of October 18, 1974:
Conferee Anna Jobson and I have carefully considered the evidence and arguments in support of your position as discussed during our two conferences with you and Mr. Neal Farrell, and as set forth in your protest and supplemental information, the latest of which accompanied your letter of August 29, 1974.
We regret that we have been unable to agree upon a mutually satisfactory basis for closing the case, although settlement proposals and counter-proposals were made and considered by the parties. Accordingly, this is to inform you that it is our intention to recommend issuance of a statutory notice of deficiency reflecting the adjustments proposed by the district Director.
Your cooperation has been very much appreciated.
Very truly yours,
Kenneth E. Christian, Appellate Conferee
On January 17, 1975, Christian telephoned one of taxpayer’s representatives and outlined a slightly different settlement proposal than the last one offered the taxpayer. Taxpayer’s representative requested another conference, which was then arranged for January 22, 1975 in St. Louis. At the scheduled conference, attorneys for taxpayer appeared and stated that the statute of limitations had expired on January 16,1975, 90 days after Christian had mailed the letter dated October 18, 1974.
The notice of deficiency required by statute was mailed by the Commissioner of internal Revenue to the taxpayer on April 18, .1975, in the amount of $6,316,749.57. Taxpayer filed its petition for redetermination with the Tax Court on July 10, 1975.
On October 23, 1975, taxpayer moved for summary judgment in the Tax Court on the ground that the statute of limitations had expired. Special Trial Judge Randolph F. Caldwell, Jr. denied the motion on April 2, 1976.
On April 30, 1976, taxpayer moved to vacate Judge Caldwell’s order denying summary judgment. On May 13, 1976, Chief Judge Howard A. Dawson, Jr. of the Tax Court denied the motion to vacate.
On August 25, 1977, taxpayer moved in the Tax Court for reconsideration of its motion for summary judgment. On November 7, 1977, Judge Theodore Tannenwald, Jr. of the Tax Court denied the motion to reconsider.
On March 17, 1980, Judge Tannenwald of the Tax Court determined a deficiency of $4,316,132.06 against taxpayer. Taxpayer has appealed on the ground that the statute of limitations barred the deficiency.
II
A
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
Form 872-A, which has been called the “unlimited waiver” form, was initiated by Internal Revenue Service in February, 1971, mainly to relieve taxpayers and the Service from the irritations and difficulties of obtaining frequent renewals of limited period consents.5
*334Earlier uses of waivers unlimited in time have been upheld so long as the taxpayer retained the right to terminate the suspension of the statute of limitations by giving notice to the Commissioner. In Greylock Mills v. Commissioner of Internal Revenue, 31 F.2d 655, 658 (2nd Cir. 1929), Judge Swan said: 6
If waivers which are in terms unlimited are to be limited at all, we think they should expire only after the taxpayer gives notice to the Commissioner that he will regard the waiver as at an end after a reasonable time, say three or four months, from the date of such notice. In such a rule there is no harshness to either party; on the contrary, it seems to us the most reasonable one.
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(cX4), 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:
The statute requires an agreement between the taxpayer and the Commissioner; it does not require an agreement for a fixed period of time. If a fixed period is agreed to, it can be extended. The taxpayers could have cut the extension period to 90 days by sending a letter. They failed to do so. We fail to see any significant difference between not sending a letter here and granting a further extension.
It has also been held that the use of Form 872-A does not violate the due process or equal protection clauses of the Fifth Amendment. Winn v. Commissioner of Internal Revenue, 67 T.C. 499 (1976), affirmed, 595 F.2d 1060 (5th Cir. 1979).
B
The sole issue to be resolved is whether the letter dated October 18,1974 and signed by one of the Appellate Conferees, Kenneth E. Christian, constitutes the “written notification to the taxpayer of termination of Appellate Division consideration” required by Form 872-A to trigger the 90-day notice period.
The letter of October" 18, 1974, does not state that it is a notification of the termination of Appellate Division consideration. It does not state that Appellate Division consideration is terminated. While it is true that it states “that it is our intention to recommend issuance of a statutory notice of deficiency” and that such issuance would terminate Appellate Division consideration, the words “intention to recommend” are lacking in finality by at least two steps — an intention is contingent in that it may be reconsidered by the person or persons so intending and a recommendation is contingent in that it may be disapproved by the person or persons to whom it is made.
The expression of a present intention to do some act does not bind one’s future intention regarding that act. The word “intention” is included among “law words and phrases which are often used because they.are flexible or despite their flexibility.” Mellinkoff, The Language of Law (1963) at 21. “Recommend” means “to mention or introduce as being worthy of acceptance, use or trial.” Webster’s Third New International Dictionary (Unabridged, 1966).
The practice regularly followed by Internal Revenue Service both before and after October 18, 1974, mandates a clear requirement that written notifications of termination of Appellate Division consideration be explicit. Section 3.02 of Rev.Proc. 71-11 provided:
Notification by the service to the taxpayer of termination of Appellate Division consideration will normally be accomplished by issuance of a form letter indicating the basis upon which consideration is terminated.
*335In this case no form letter was issued and no basis was indicated upon which consideration was terminated. In fact the letter does not state that consideration was terminated but only that there existed a present intention to recommend an act which would have the implied effect of terminating consideration.
In agreed eases, 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:
This is your notice of termination of Appellate Division consideration referred to in consent Forms 872-A for tax years ended ....
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
In 1979, Rev.Proc. 71-11 was superseded by Rev.Proc. 79-22, 1979-1 C.B. 563, which provides for the use of Form 872-T, which is entitled “Notice of Termination of Special Consent to Extend the Time to Assess Tax” and states expressly that “this form is written notification of termination of Form 872-A.” 9
There is nothing unfair nor unreasonable from the taxpayer’s standpoint in requiring that written notification be explicit. The concept of suspending the statute of limitations during the pendency of settlement negotiation is designed for the benefit of the taxpayer as well as the government. In United States v. Havner, 101 F.2d 161, 163 (8th Cir. 1939), the court said:
The taxpayer, in submitting such an offer and waiver, in effect requests the Government to withhold attempts to collect the tax while the offer is pending, and, in consideration of this forebearance on the part of the Government, consents to forego the benefit of having the statute of limitations run while his offer of settlement is pending.
See also, United States v. Harris Trust & Savings Bank, 390 F.2d 285, 288 (7th Cir. 1968).
In the present case the statutory notice of deficiency was in the amount of $6,316,-249.57 and the Tax Court determined the deficiency at $4,316,132.06. There existed a viable controversy in which settlement negotiations were prudent for both the taxpayer and the government.
C
Nor did this particular taxpayer have any reasonable expectancy from which it was entitled to imply termination of the limitation waiver. Both parties agreed that settlement conferences at the appellate level occurred on June 19 and August 14, 1974. *336Both parties agreed that at both conferences settlement proposals and counter-proposals were discussed but no settlement agreement was reached. Crunican affidavit, second paragraph; Christian affidavit, third paragraph.10 Christian’s affidavit further stated that “[a] written settlement proposal was received from Borg-Warner Corporation on September 3, 1974,” which statement was not controverted by taxpayer.11
The Internal Revenue Service regulation which applies to offers in compromise is 26 C.F.R. Sec. 301.7122-1 and it provides in part:12
(f) Requirement with respect to statute of limitations. No offer in compromise shall be accepted unless the taxpayer waives the running of the statutory period of limitations on both or either assessment or collection of the tax liability involved for the period during which the offer is pending, or the period during which any installment remains unpaid, and for one year thereafter.
Crunican, taxpayer’s representative in the settlement negotiations, was an Internal Revenue Agent from 1945 to 1957 and a Group Supervisor, Audit Division, from 1957 to 1961. He must have been well aware of the requirement that offers in compromise suspend the statute of limitations while they were pending plus one year. The statutory notice of deficiency was issued April 18, 1975, six months from the Christian letter of October 18, 1974. So even if Crunican erroneously interpreted the Christian letter as rejection of the September 3, 1974 settlement proposal by taxpayer and if this had been the usual offer and waiver situation, the suspension of the statute of limitations would not have expired until October 18, 1975. Crunican could have had no reasonable expectation of early termination of the limitations suspension.
Crunican, as a former revenue agent and supervisor, would also recognize that a letter signed by an Appellate Conferee stating that “it is our intention [that is, the intention of Christian and his Co-Conferee Anna Jobson] to recommend issuance of a statutory notice of deficiency . . . . ” required some action by the conferees’ supervisor. Crunican was also on notice that the Form 872-A was executed in the name of the Assistant Regional Commissioner — Appellate. Thus until some time later than October 18, 1974, there remained an opportunity to negotiate a settlement. In fact, further settlement proposals were made by Christian on January 17, 1975 and on behalf of the taxpayer on February 20, 1975. Therefore it was impossible for the October 18,1974 letter to be a written notification of termination of Appellate Division consideration inasmuch as termination had not occurred by that time.
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 not*337ed 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 entirely 13 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.
Taxpayer relied heavily on Johnson v. Commissioner of Internal Revenue, 68 T.C. 637 (1977), where the Tax Court held in two consolidated cases that an Appellate Conferee’s two letters — one saying “a statutory notice of deficiency will be sent to you” and the other, “a statutory notice of deficiency will be issued at an early date” — constituted a written notification of termination under Form 872 — A. Johnson does not affect our conclusion for several reasons.
In the first place, a footnote in the Johnson opinion refers to the present case as “clearly distinguishable.” 68 T.C. at 645, n.l. Secondly, the issue in this case was passed upon by three different Tax Court judges on three separate occasions and they all reached a conclusion different than the one reached in Johnson. One of the three was Tax Court Judge Dawson who was the author of Johnson. Thirdly, Johnson is clearly distinguishable in that the language here (“it is our intention to recommend issuance of a statutory notice of deficiency") lacks the finality found in Johnson’s language (“a statutory notice of deficiency will be sent [or issued]”). Finally, we believe that Johnson is in any event incorrect in permitting an implied as opposed to an explicit notice of termination.
I would affirm the judgment of the Tax Court.

. 26 U.S.C. § 6501(c)(4) provides:
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 or his delegate 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.

. Internal Revenue Service received taxpayer’s protest to the Appellate Division of June 28, 1973. Subsequently representatives of taxpayer and Appellate Conferees participated in two settlement conferences of June 19 and August 14, 1974.

. Form 872-A provided that taxpayer and Assistant Regional Commissioner — Appellate consent and agree as follows:
That the amount(s) of any Federal income tax due under any return(s) made by or on behalf of the above-named taxpayer(s) for the tax year(s) ended December 31, 1968 under existing or prior revenue acts may be assessed at any time on or before the 90th day after (1) mailing by the Internal Revenue Service of written notification to the taxpayers) of termination of Appellate Division consideration, or (2) receipt by the Regional Appellate Division branch office considering the case of written notification from the taxpayers) of election to terminate this agreement, except that if in either event a statutory notice of deficiency in tax for any such year(s) is sent to the taxpayer(s), the running of the time for making any assessment shall be suspended for the period during which the making of an assessment is prohibited and for 60 days thereafter. If such statutory notice is sent to the taxpayer(s) and neither of the conditions enumerated (1) and (2) in the preceding sentence have occurred, the time for making such assessment will expire 60 days after the period during which the making of an assessment is prohibited. However, this agreement will not reduce the period of time otherwise provided by law for making such assessment.

. See note 1.

. Rev.Proc. 71-11, 1971-1 C.B. 678 provided as follows in Sec. 2.03:
In order to relieve taxpayers and the Service from the irritations and difficulties of obtaining renewal consents, to relieve the Service, in part, of the problems of maintaining controls to ensure that the period of limitation does not expire during consideration of a case, and to provide a means of restricting the period of limitation to the minimum time required for Appellate Division consideration, Form 872-A is provided.

. In Big Four Oil & Gas Co. v. Heiner, 57 F.2d 29, 31 (3rd Cir. 1932), after quoting Judge Swan in Greylock Mills, the court concluded that “[t]his rule seems reasonable . .. . ”

. Internal Revenue Manual, par. 8233(13)(4) provides:
Notification by the Service of termination of Appellate consideration is issued in all Form 872-A cases except where notice of deficiency has been issued, or where notification of termination has been received from taxpayer. Provision is included for Service notification in closing letter Form L-85 used in agreed cases. See Exhibit 53 of IRM 8(24)60, Appellate Division Secretarial Handbook.

. See note 7, supra.

. Sec. 3.03 of Rev.Proc. 79-22 provides: Written notification by the Service to the taxpayer of termination of Service consideration will be accomplished by issuance of Form 872-T, Notice of Termination of Special Consent to Extend Time to Assess Tax. Form 872-A provides that 90 days will thereafter remain for assessment of tax. In this regard, mailing of a notice of deficiency will constitute written notification of termination of Service consideration in lieu of mailing Form 872-A. Receipt from the taxpayer(s) of Form 872-T by the Internal Revenue Service office considering the case will likewise start the running of the 90-day period for assessment.
Sec. 4.02 provides:
With the exception of the mailing of a notice of deficiency, written notification by the Service to the taxpayer(s) of termination of Service consideration can only be made using Form 872-T.

. Christian’s letter to taxpayer dated October 18, 1974, referred to the parties’ inability to agree “although settlement proposals and counter-proposals were made and considered by the parties.”

. The record does not reveal the dates of any other written settlement proposals made by taxpayer.

. The requirement of suspension of the statute of limitations while an offer in compromise is pending plus one year is in the present regulation (26 C.F.R., Part 301, § 301.7122(f)); was in effect as far back as 1960 (see United States v. Harris Trust & Savings Bank, 390 F.2d 285 (7th Cir. 1968)); and was utilized as early as 1935 (see United States v. Havner, 101 F.2d 161, 162 (8th Cir. 1939)).

. Internal Revenue Manual, par. 8293 provides:
If, in consideration of a case, it is concluded that a statutory notice of deficiency is to be issued, the taxpayer or his representative will be advised of this conclusion in advance of the mailing of the statutory notice. Such advice need not be in written form unless circumstances warrant such written advice.