Court Opinion

ID: 2961864
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:48:59.438476+00
Date Added: 2024-06-11T11:42:22.450757
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USCA1 Opinion

	

          March 30, 1993                                [NOT FOR PUBLICATION]                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ___________________          No. 92-1938                                     PETER A. JOHNSON AND CLAIRE P. LYON,                               Petitioners, Appellants,                                          v.                          COMMISSIONER OF INTERNAL REVENUE,                                Respondent, Appellee.                                  __________________                       APPEAL FROM THE UNITED STATES TAX COURT                   [Hon. Theodore Tannenwald, U.S. Tax Court Judge]                                              ____________________                                 ___________________                                        Before                                Selya, Cyr and Boudin,                                   Circuit Judges.                                   ______________                                 ___________________               Peter A. Johnson and Claire P. Lyon on brief pro se.               ________________     ______________               James A. Bruton, Acting  Assistant Attorney General, Gary R.               _______________                                      _______          Allen, Jonathan  S. Cohen and Regina S.  Moriarty, Attorneys, Tax          _____  __________________     ___________________          Division, on brief for appellee.                                  __________________                                  __________________            P. Lyon,  appeal a decision of the Tax Court that sustained a                 Per Curiam.  The appellants, Peter A. Johnson and Claire                 __________            Tax Court's decision.            appellants'  joint income tax return for 1986.  We affirm the            deficiency determined by the  Internal Revenue Service on the                                          I                                          _                                         -2-            shareholders of liquidating corporations.   Under 26 U.S.C.              Hampshire.  Mr. Johnson is a certified  public accountant and            regulation.  In  1980, Mr. Johnson and Ms.  Lyon incorporated            primarily  to  law firms  practicing in  the field  of energy            Peter A.  Johnson Associates, Inc. (PAJA),  through which Mr.            for  a number  of  years made  his  living as  a  consultant,            corporation initially  issued 100 shares of  stock: 51 shares            Johnson  then  carried  on  his  consulting  business.    The                 Mr. Johnson and Ms.  Lyon are married and reside  in New            to Mr. Johnson  and 49 shares  to Ms. Lyon.   The corporation            Trust.            consulting work  tapered  off.    Late  in  1986,  with  PAJA            he  accepted  a  salaried  position  at a  hospital  and  his            relatively  dormant,  Mr. Johnson  and  Ms.  Lyon decided  to                 Mr. Johnson  worked full-time for PAJA  until 1985, when            shareholders.              liquidate  the  company  and  distribute its  assets  to  the            later sold 8 more shares to  an entity known as PAJA  Pension                 At   the  time,  the  tax  laws   offered  a  choice  to            331, they could  recognize all of  the distributed assets  on            their  income  tax   returns  for  the  year  in   which  the            liquidation occurred,  but pay  taxes on the  distribution at            the capital gains rate, which was lower than the rate applied            to  "ordinary income" such as  wages or dividends.   Or, they            could  elect to treat the distribution under 26 U.S.C.   333.            Section  333  required  the   shareholders  to  allocate  the            distributed  assets  to  two  categories:  (1)  earnings  and            profits, and (2) all  other assets.  The shareholders  had to            declare  the  portion  of  the distribution  that  came  from            earnings  and profits as ordinary income on their returns for            the  year in which the liquidation occurred, and pay taxes on            it at the higher income  tax rate.  However, with  respect to            the portion of  the distribution  that took the  form of  the            corporation's other  assets, the shareholders  could postpone            recognizing any  gain until they themselves  sold the assets.            Roughly  speaking, then, Section 333 was a good deal only for            shareholders of  "a corporation holding  appreciated property            but having little  or no earnings  and profits . .  . ."   B.            Bittker & J. Eustice, Federal Income Taxation of Corporations                                  _______________________________________            and  Shareholders  at     11.62  (5th  ed.  1987).    If  the            _________________            corporation  had  significant   earnings  and  profits,   the            shareholders   were   better   off   electing   Section  331,            recognizing a  gain immediately on  the entire  distribution,                                         -3-            but  avoiding  taxation of  the earnings  and profits  at the            higher income tax rates.                 This  case concerns  the  appellants' election  to treat            PAJA's   distributed  assets  under  Section  333  when  they            dissolved  the corporation at the  end of 1986.   Mr. Johnson            knew  that  Congress  had  repealed  Section  333,  effective            January 1, 1987.   See Pub.L. 99-514, Title VI,    631(e)(3),                               ___            Oct. 22, 1986, 100 Stat. 2273.   He thus felt some urgency to            liquidate PAJA by year's end.  But, because personal business            intervened,  he did not sit  down to the  task until December            28, 1986.                 Mr. Johnson and Ms. Lyon  executed a number of documents            on December 28.  The  first was a Form 1120-A,  a "Short-Form            Corporation  Income  Tax Return"  for  PAJA.   This  document            showed  that PAJA had assets of  $132,249, of which "retained            earnings"  constituted  $96,311.    With  such a  significant            amount  of earnings --  which the shareholders  would have to            declare as ordinary income under Section 333, but could treat            as  a  capital gain  under Section  331 --  liquidation under            Section 333 was an unwise choice.                   However,  the appellants  made  it.   For reasons  never            fully  explained,  Mr. Johnson  figured PAJA's  "earnings and            profits" at zero  when deciding whether to  elect Section 331            or Section 333.  Consequently, he and Ms. Lyon made a written            shareholder  resolution  to liquidate  the  corporation under                                         -4-            Section 333.  Each of them executed and filed with  the IRS a            Form 964,  which bears  the caption "Election  of Shareholder            under Section  333 Liquidation."   Mr. Johnson  also executed            and  filed,  on  behalf  of  the  corporation,  a  Form  966,            captioned  "Corporate  Dissolution  or   Liquidation,"  which            identified  Section 333  as  the "Section  of the  Code under            which the  corporation is  to be  dissolved or liquidated."              Mr.  Johnson then  wrote checks  on PAJA's  corporate account            that  distributed more  than $137,000  in assets:  $64,607 to            himself,  $63,632  to Ms.  Lyon, and  $9,622 to  PAJA Pension            Trust.                 Four months later,  when Mr. Johnson and  Ms. Lyon filed            their joint  income tax  return  for 1986,  they should  have            attached copies of the already-filed  Forms 964, to alert the            IRS  to their election, see  26 C.F.R.     1.333-3 and 1.333-                                    ___            6(a)(5), and  treated their  share of the  distributed assets            pursuant  to Section 333 -- that is, by declaring the portion            attributable to earnings and  profits as ordinary income, but            postponing recognition of any gain on the remainder.                 The appellants  did not do what  their election required            them to  do.  They  did not attach  Form 964; in  fact, their            income tax  return contained  no mention of  the liquidation.            It  characterized all of the money they had received from the            liquidation as  proceeds  of  a  "sale" of  PAJA  stock,  and            treated  the entire  distribution as  a capital  gain.   This                                         -5-            calculation  would  have been  consistent with  a liquidation            under   Section  331,  or   with  a  simple   sale  of  stock            unaccompanied  by a liquidation, but it did not jibe with the            Section  333 election  the appellants  had made  the previous            December.                 The  IRS accepted  the  appellants' return  and took  no            further  action   until  an   audit  in  1988   revealed  the            inconsistency between the election  under Section 333 and the            tax  treatment  given  the  distribution  in the  appellants'            return.  The  IRS then  rejected the  appellants' efforts  to            revoke their  Section 333  election,  recalculated their  tax            liability  to take  the election  into account,  determined a            deficiency of $24,790, and added penalties for negligence and            for making a  substantial understatement of taxes  owed.  The            appellants  sought review in the Tax Court, which held a one-            day trial  and  sustained  the IRS'  actions.    This  appeal            followed.                                            II                                          __                 Mr.  Johnson and Ms. Lyon  say that they  are not liable            for  taxes  calculated  according  to  Section  333  for  two            reasons: first, because they never made a valid election; and            second, because  their election, even if  formally valid, was            based on a mistake and was therefore revocable.                                          A                                          _                                         -6-                 The appellants point to a number of errors they say they            made  while attempting  to  elect Section  333 and  liquidate            PAJA, and assert  that strict compliance with  all of Section            333's  requirements  is  necessary  in  order  to  enjoy  the            benefits  (or in  this case,  suffer the  detriments) of  the            statute.   This  is  not  completely  true.    The  level  of            compliance  needed  to  make  a  valid  tax  election  varies            according  to the nature of  the requirement.   The IRS "'may            insist upon full compliance  with [its] regulations' when the            regulatory requirements relate to the substance or essence of            a  statute, but  [the Tax  Court  has] held  that substantial            compliance with regulatory requirements may suffice when such            requirements are procedural and  when the essential statutory            purposes have  been fulfilled."   American Air Filter  Co. v.                                              ________________________            Commissioner, 81 T.C.  709, 719  (1983) (citations  omitted).            ____________            See also Dunavant  v. Commissioner, 63 T.C. 316 (1974) (same,            ________ ________     ____________            construing Section 333).                 Two  of the  regulations which  the appellants  say they            violated  --  26 C.F.R.     1.333-6, which  required  them to            provide  supplemental information about  the liquidation, and            26  C.F.R.   1.333-3, which  required them to  file a copy of            Form 964 along  with the original at the time  of election --            plainly do  not go to  the "essence" of  the statute  and are            therefore "procedural"  in the sense discussed  above.  Their            breach will not defeat the election.                                           -7-                 The  other asserted  defects  require  some  discussion.            First, the appellants  say that the distribution was  not "in            complete  cancellation or  redemption of  all the  stock," 26            U.S.C.     333(a)(1), because  their  Forms 964  inaccurately            listed the number  of shares each held.  Mr. Johnson owned 51            shares at the time of the election, but listed only 47 in his            Form 964; Ms. Lyon owned 49 shares, but listed only 46.                 The premise does not support the conclusion.  Nothing in            the  record  causes us  to believe  that,  in return  for the            company's assets, Mr. Johnson and Ms.  Lyon (and PAJA Pension            Trust) actually  gave  up anything  less  than all  of  their            shares in PAJA.  And if that is so, then the distribution was                                                         ____________ ___            "in complete  cancellation or  redemption of all  the stock."            Putting  the  wrong count  on the  forms  did not  affect the            substance  of the liquidation and therefore did not go to the            essence of the statute.                 Second, the appellants claim that they failed  to make a            timely election.   Section 333(d)  says: "The filing  [of the            written  election form] must be within 30 days after the date            of  the  adoption of  the plan  of  liquidation."   The cases            indicate that this  is an "essential" requirement.   Shull v.                                                                 _____            Commissioner, 291 F.2d 680, 682-85 (4th Cir. 1961); Kelley v.            ____________                                        ______            Commissioner, 10  T.C.M. 143,  146 (1951).   However, whether            ____________            and when  a plan of liquidation was adopted "is a question of                                         -8-            fact ordinarily for the  Tax Court," Shull, 291 F.2d  at 684,                                                 _____            and thus subject to review only for clear error.                 We see no  error in  the Tax Court's  finding that  "the            evidence  clearly  establishes December  28,  1986 [when  the            appellants executed a written shareholder resolution], as the            date of the adoption of the plan of liquidation."  It is true            that  Mr. Johnson  testified  that he  and  Ms. Lyon  made  a            "decision" to liquidate PAJA sometime  in November 1986.   It            is also true that Section  333 does not require "that a  plan            of liquidation must be in writing or in any particular form."            Shull, 291 F.2d at 682.              _____                 But  the   statute  does   by  its  terms   require  the            shareholders  to  "adopt" some  "plan"  of  liquidation.   In            Shull,  the Fourth  Circuit  held that  the shareholders  had            _____            "adopted" a  plan of liquidation  before they  made a  formal                                              ______            resolution to  that effect only because  the shareholders had            previously "acted deliberately .  . . and had gone so  far in            the  actual execution of a plan of liquidation as to dissolve            the corporation and terminate  its existence for all purposes            other than  liquidation. . . ."  291 F.2d at 684-85.  Nothing            of  this sort  happened  here.   The  resolution executed  on            December 28  was the  first manifestation of  the appellants'            intention to dissolve PAJA.   In the absence of  any evidence            to  corroborate Mr.  Johnson's testimony,  the Tax  Court was            entitled to find either that the "decision" in November never                                         -9-            happened, or that it happened but was too indefinite an event            to trigger the statutory  filing requirement, and to conclude            that the  appellants did  not "adopt"  a plan  of liquidation            within the meaning of Section 333(d) until December 28 -- the            same day that they made the election and filed Form 964.                 Third,  the  appellants  contend  that  PAJA  failed  to            distribute all of its assets before the end of December 1986,            thus  violating  Section  333(a)(2),  which   says  that  the            benefits of election are  available only if "the transfer  of            all  the property  under liquidation  occurs within  some one            calendar month."  Since the bulk of the distribution occurred            in December 1986, when Mr.  Johnson wrote corporate checks to            himself,  his  wife  and   PAJA  Pension  Trust,  the  entire            transaction  had  to  be  completed  during  that  same  "one            calendar month."   But, the appellants  say, the distribution            was  not completed  until March  1987, when  Spriggs,  Bode &            Hollingsworth (one of PAJA's law firm clients) made a payment            of  $6,727 for  "services  rendered during  November 1,  1986            through March 10, 1987."                 We   agree   with  the   Tax   Court   that  only   some            "indeterminate"  portion   of  this   payment  --   the  part            attributable to services  rendered before PAJA was  dissolved            at the end of December 1986, and thus "earned" by the company            -- can  be  considered  a  "distribution" from  PAJA  to  its            shareholders.  Any money paid for services rendered after the                                         -10-            dissolution  was  money that  Mr. Johnson  earned on  his own            behalf.1                   The late distribution of  such a relatively small amount            -- something less  than $6,727 and  thus less than 5%  of the            PAJA's  assets  -- does  not  affect  the legitimacy  of  the            election.  A "liberality of approach" exists with  respect to            tax  statutes  that  require  corporate  liquidations  to  be            accomplished within  specific  time limits.    Cherry-Burrell                                                           ______________            Corp. v. United  States, 367  F.2d 669, 677  (8th Cir.  1966)            _____    ______________            (Blackmun,  J.).    Thus, when  a  tax  statute  on its  face            requires  distribution  of  all  corporate  assets  within  a            certain period in  order to  qualify for a  tax benefit,  the            failure  to dispose of a  minor portion of  the assets within            the time allotted will not defeat the taxpayer's choice.  See                                                                      ___            Mountain  Water  Co.  v.  Commissioner, 35  T.C.  418  (1960)            ____________________      ____________            (calling  this the  "de minimis  rule"); Estate  of  Lewis B.                                                     ____________________            Meyer  v. Commissioner, 15  T.C. 850  (1950), rev'd  on other            _____     ____________                        _______________            grounds  200 F.2d 592  (5th Cir. 1952)  (it "would be  out of            _______            line with [the predecessor to Section 333] . . . to hold that            the failure, within the calendar month, physically to deliver                                            ____________________            1.    For the  same reason,  a check  received from  a second            client  in March  1987 was  not part  of the  distribution of            corporate  assets  because  it  represented  payment  of  Mr.            Johnson's monthly  retainer for January, February,  and March            1987 --  i.e.,  money earned  after  the dissolution  by  Mr.            Johnson, not by the corporation.                                         -11-            less than 6 percent  in book value of the  distributed assets            destroys the election. . . ").                 Finally, the appellants would have us rule that, because            they reincorporated PAJA in  1991, they are not bound  by the            election they made more than four years earlier.  They supply            no  useful authority  for  this proposition.   The  cases and            revenue rulings  they cite  are inapposite; all  involved the            question whether  a complete liquidation had  occurred in the            first place.  See,  e.g., Telephone Answering Service Co.  v.                          __________  _______________________________            Commissioner, 63 T.C. 423  (1974).  In this case,  the record            ____________            shows that  the appellants  distributed PAJA's assets  in the            successful pursuit of a  complete and permanent  liquidation.            Their belated  revival of the corporate form,  done after the            IRS  had determined  a tax  deficiency (and  for no  apparent            reason  other  than  to   escape  the  consequences  of  that            determination), "did not alter the character" of the previous            distribution or affect the validity  of their election.   See                                                                      ___            Kennemer  v.  Commissioner, 96  F.2d  177,  178-89 (5th  Cir.            ________      ____________            1938).                                          B                                          _                 Even  if  their  election was  procedurally  valid,  the            appellants say, the IRS should have allowed them to revoke it            because it was based on the mistaken belief that  PAJA had no            "earnings  and profits"  to  distribute to  its shareholders.            Although   (with  one   exception  not  relevant   here)  the                                         -12-            regulations  implementing  Section  333  say  flatly  that  a            written  election to be governed by that provision "cannot be            withdrawn  or  revoked,"  26  C.F.R.     1.333-2(b)(1),   the            appellants  believe that  a taxpayer may  nevertheless obtain            relief from an election made as the result of a mistake.                  The courts have on  occasion allowed taxpayers to revoke            mistaken   elections.     See,   e.g.,   Meyer's  Estate   v.                                      ___________    _______________            Commissioner,  200  F.2d 592  (5th  Cir.  1952); McIntosh  v.            ____________                                     ________            Wilkinson, 36  F.2d 807 (E.D.Wis.  1929);  DiAndrea,  Inc. v.            _________                                  _______________            Commissioner, 47  T.C.M. 731 (1983)  (revoking election under            ____________            Section 333).  However,  in each of these cases  the taxpayer            made what the court characterized as a "mistake of fact."  In            deciding whether to allow taxpayers to revoke otherwise-valid            elections, the courts have consistently distinguished between            mistakes of fact, which  may justify revocation, and mistakes            of law, which will not.  See Bankers & Farmers  Life Ins. Co.                                     ___ ________________________________            v. United States, 643 F.2d 234, 238 (5th Cir. 1981); Shull v.               _____________                                     _____            Commissioner, 271 F.2d 447,  449 (4th Cir. 1959); Raymond  v.            ____________                                      _______            United States, 269 F.2d 181, 183 (6th Cir. 1959); Grynberg v.            _____________                                     ________            Commissioner,   83  T.C.   255,  261-63   (1984);  Cohen   v.            ____________                                       _____            Commissioner, 63 T.C. 527 (1975).  "Oversight, poor judgment,            ____________            ignorance   of   the  law,   misunderstanding  of   the  law,            unawareness of  the tax  consequences of making  an election,            miscalculation,  and unexpected  subsequent  events have  all            been  held insufficient  to  mitigate the  binding effect  of                                         -13-            elections made under a variety of provisions of the [Internal            Revenue]  Code."  Estate  of Stamos v.  Commissioner, 55 T.C.                              _________________     ____________            468, 474 (1970) and cases cited therein.                 The  appellants  do  not  question the  wisdom  of  this            distinction,  but   argue  that  the  Tax  Court  erroneously            described their mistake as one of law.  We agree with the Tax            Court.  The  mistake in  this case was  Mr. Johnson's  stated            belief that PAJA had no "earnings and profits," and thus that            the  shareholders  could  defer  recognition  of  the  entire            distribution  under Section  333.   Depending on  its source,            this could have been a  mistake of fact or a mistake  of law.                                                    __            "[M]istakes of fact  occur in instances where  either (1) the            facts exist, but are unknown,  or (2) the facts do  not exist            as  they are believed to."  Hambro Automotive Corp. v. United                                        _______________________    ______            States, 603 F.2d 850, 855 (C.C.P.A. 1979). If Mr. Johnson had            ______            decided that PAJA  had no "earnings  and profits" because  he            believed it had no money in the  bank, then his mistake would            have been a mistake of fact.  But, as the Tax Court found, it            is "difficult to believe" that the appellants were unaware of            PAJA's  cash reserves when they made the election on December            28, 1986, for on  the same day, Mr. Johnson,  as president of            PAJA,  executed a  corporate tax  return indicating  that the            company  had more  than $96,000  in "retained  earnings," and            wrote checks  to himself, Ms.  Lyon and  PAJA Pension  Trust,                                         -14-            drawn  on  the corporate  bank  account,  totaling more  than            $137,000.                 Since the appellants knew how much money the corporation            had  in  the  bank when  they  made  the  election, the  only            plausible explanation for their mistake  is that they did not            know  that  the  money  constituted  "earnings  and  profits"            subject  to taxation  as ordinary  income under  Section 333.            See  GPD, Inc. v. Commissioner, 508 F.2d 1076, 1082 (6th Cir.            ___  _________    ____________            1974) (corporation's  "earnings and profits" may  not bear an            "exact  relation"  to  earnings  as  determined  by   "normal            corporate accounting methods"); Bennett v. United States, 427                                            _______    _____________            F.2d  1202, 1208 (Ct.Cl. 1970) ("'earnings and profits' . . .            is  a tax,  not an  economic concept").    Thus, they  made a            mistake  of law, which occurs "where the facts are known, but            their  legal consequences are not known or are believed to be            different than  they really are," Hambro  Automotive Corp. v.                                              ________________________            United  States, 603 F.2d  at 855 (emphasis  omitted), and may            ______________            not revoke their election.                                         III                                         ___                 The  IRS made  two  "additions" to  the appellants'  tax            liability.    First,  it  added  $1,240  under  26  U.S.C.               6653(a)(1),  which says: "If any part of the underpayment . .            .  of  tax  required  to  be shown  on  a  return  is  due to            negligence  (or disregard  of  rules or  regulations),  there            shall be added to the tax an amount equal to 5 percent of the                                         -15-            underpayment."   "Negligence in this context is a lack of due            care  or  failure to  do  what  a  reasonable and  ordinarily            prudent  person  would  do  under  the  circumstances.    The            Commissioner's  imposition  of   a  negligence  addition   is            presumptively  correct,  leaving  the  [appellants]  with the            burden  of proving  that  their underpayment  was not  due to            negligent  or intentional  rules  violations."   McMurray  v.                                                             ________            Commissioner, Nos. 92-1513 and 92-1628,  slip op. at 13  (1st            ____________            Cir. February 9, 1993).   We review the Tax  Court's findings            on  negligence  issues only  for  clear error.    Leuhsler v.                                                              ________            Commissioner, 963 F.2d 907, 910 (6th Cir. 1992).            ____________                 There was  no error.   The  "underpayment" in  this case            occurred because  the appellants, having elected  in December            1986 to treat their taxes under Section 333, instead prepared            their  tax return the following  April as if  they had either            elected   Section  331  or  made   a  simple  sale  of  stock            unaccompanied by a liquidation.  Under the circumstances, and            absent a compelling explanation to the contrary, one might --            as the Tax  Court appears  to have done  in its  Supplemental            Memorandum  Opinion  --  infer  that the  "switch"  here  was            deliberate, since  making it promised to  save the appellants            some $24,000, and since the appellants obscured the de  facto                                                                _________            revocation  of  their  previous  election  by describing  the            distribution as  a "sale" rather  than a liquidation,  and by            neglecting  to  attach Form  964 to  their  return.   But the                                         -16-            negligence  penalty was  appropriate even  if the  switch was            accidental;  like the  Tax Court,  we see  nothing reasonable            about a  certified public accountant's  failure to  calculate            his tax liability in accordance with his own election and the            Code's explicit instructions.2                 The IRS  also added $6,198  under 26  U.S.C.    6661(a).            Section 6661(a) imposes  a 25% addition to an underpayment if            "there is a substantial understatement of income  tax for any            taxable  year."  Section  6661(b)(1)(A) defines a substantial            understatement  as one that exceeds the greater of (1) 10% of            the tax for the  year or (2) $10,000.   Section 6661(b)(2)(B)            reduces the understatement by  any amount attributable to (i)            the  tax treatment  of  an  item  if there  was  "substantial            authority" for the  treatment, or (ii) any  item with respect            to  which the relevant facts affecting  its tax treatment are            adequately disclosed in the return or a statement attached to            it.                 The  appellants  understated their  taxes  by more  than            $24,000,  which was  almost  50% of  the  tax for  the  year.                                            ____________________            2.  Ms. Lyon's  reliance on her husband's  expertise does not            excuse  her  negligence.    Although  Section  6653(b), which            authorizes an addition to tax for fraud,  contains a "special            rule for joint  returns" that  allows the IRS  to penalize  a            spouse only to the extent that the underpayment is due to her            own  fraud, 26  U.S.C.    6653(b)(3), Section  6653(a), which            authorizes  the  penalty  for  negligence,  contains no  such            qualification.   See  Langer v.  Commissioner, 59  T.C.M. 740                             ___  ______     ____________            (1990)  (sustaining negligence  penalty against  both spouses            where husband, an IRS agent, prepared the erroneous return).                                         -17-            However,  they  claim   to  have  satisfied  the   disclosure            requirement   with  respect  to   the  entire  understatement            because, when they  made the election in  December 1986, they            filed Forms 964 and 966 with the IRS.  But  this "disclosure"            was inadequate for  two reasons.  First,  it was not  made on            the return or  on a  statement attached  to the  return.   26            C.F.R.   1.6661-4(a)  and (b).  Second, filing  a Form 964 at            the time  of  liquidation, nearly  four months  before a  tax            return is due, is not an act that "reasonably may be expected            to apprise the  Internal Revenue Service  of the identity  of            the item,  its  amount,  and  the  nature  of  the  potential            controversy  concerning  the  item."   26  C.F.R.     1.6661-            4(b)(1)(iv) and   1.6661-4(b)(4).  That is precisely why  the            regulations require the shareholder to file Form 964 twice --            once upon making the  election and again with his  income tax            return.  26 C.F.R.    1.333-3 and 1.333-6(a)(5).                 The IRS has  the authority  to waive  all or  part of  a            Section  6661 addition to tax  "on a showing  by the taxpayer            that  there was reasonable cause for the understatement . . .            and  that the taxpayer  acted in  good faith."   26  U.S.C.              6661(c).   The most important  factor in waiver  decisions is            "the extent  of the taxpayer's effort to  assess [his] proper            tax  liability under the  law . .  . ."  26  C.F.R.   1.6661-            6(b).                                           -18-                 We review the  IRS' waiver  decision only  for abuse  of            discretion.   Heasley v. Commissioner, 902 F.2d 380, 385 (5th                          _______    ____________            Cir. 1990);  Mailman v.  Commissioner, 91 T.C.  1079, 1083-84                         _______     ____________            (1988).   For  the reasons already  stated, we  are confident            that  the IRS did not abuse its discretion by concluding that            reasonable  people acting in good faith would not (a) fail to            pay the tax in  accordance with their election, and  (b) fail            to  notify the IRS that  they were, in  effect, revoking that            election.                   The appellants' Motion for Oral Argument is denied.                 The judgment of the Tax Court is affirmed.                                                  ________                                         -19-