Silverman v. Commissioner

• Court: Court of Appeals for the First Circuit
• Decided: June 20, 1996
• Docket: 95-2062
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT



                                                     
                                 ____________________



        No. 95-2062



                             DAVID R. SILVERMAN, ET AL.,



                               Petitioners, Appellants,



                                          v.



                          COMMISSIONER OF INTERNAL REVENUE,



                                Respondent, Appellee.



                                                     
                                 ____________________


ON APPEAL FROM DECISION OF THE



                               UNITED STATES TAX COURT



                       [Hon. Arnold Raum, U.S. Tax Court Judge]
                                          ____________________



                                                     
                                 ____________________



                                        Before



                                 Cyr, Circuit Judge,
                                      _____________



                            Aldrich, Senior Circuit Judge,
                                     ____________________



                          and Gertner,* U.S. District Judge.
                                        ___________________



                                                     
                                 ____________________


James  P. Redding, with whom Gail E. Pergine and James P. Redding
             _________________            _______________     ________________

        & Associates were on brief for petitioners, appellants.
        ____________

             Kenneth  W.  Rosenberg,  Attorney,  Tax  Division, Department  of
             ______________________

        Justice, with whom Loretta C. Argrett, Assistant Attorney General, and
                           __________________

        Gary R. Allen, Kenneth  L. Greene, and Patricia M.  Bowman, Attorneys,
        _____________  __________________      ___________________

        Tax  Division, Department of  Justice, were  on brief  for respondent,

        appellee.



                                                     
                                 ____________________



                                    June 20, 1996

                                                     
                                 ____________________

                            
        ____________________



             *Of the District of Massachusetts, sitting by designation.



CYR,  Circuit Judge.   Petitioners  David and  Meredith
                    CYR   Circuit Judge
                          _____________



          Silverman appeal a United States Tax Court ruling rejecting their



          claim that the statute of limitations barred further  tax assess-



          ments by the Internal Revenue Service ("IRS").  We affirm the tax



          court decision. 



                                          I
                                          I



                                      BACKGROUND
                                      BACKGROUND
                                      __________



                    The Silvermans  jointly reported losses from  a limited



          partnership interest  in a motion picture  production company for



          tax years  1975, 1976,  and  1977.   Petitioner David  Silverman,



          individually, reported another such loss  on his 1980 tax return.



          Later, the company and its investors were audited by IRS.  Within



          three  years after filing their returns, see 26 U.S.C.   6501(a),
                                                   ___



          the Silvermans agreed to extend the limitation periods applicable



          to  these four  reporting  years, by  executing  IRS Form  872-A,



          entitled Special Consent  to Extend the Time to Assess  Tax.  See
                                                                        ___



          id.   6501(c)(4) (authorizing extensions by agreement).1  
          ___


____________________



               1In  relevant part, the Form 872-A provided that the tax due

          for the specified years     



                    may be assessed on  or before the 90th (nine-

                    tieth)  day after:   (a) the Internal Revenue
                                             ____________________

                    Service office considering the  case receives
                    _____________________________________________

                    Form 872-T, Notice  of Termination of Special
                    _____________________________________________

                    Consent  to Extend  the Time  to Assess  Tax,
                    _____________________________________________

                    from  the  taxpayer(s); or  (b)  the Internal
                    ______________________  __

                    Revenue Service mails Form 872-T  to the tax-

                    payer(s); or (c) the Internal Revenue Service
                              __

                    mails  a notice of  deficiency for such peri-

                    ods. . . .



          (Emphasis added.) 



                                          2



Thereafter, the  Silvermans and  IRS signed a  Form 906



          "Closing Agreement," which  bound them  to the outcome  in a  so-



          called "controlling  case" before the  tax court,  relating to  a



          similar  tax shelter.  The  Form 906 closing agreement authorized



          IRS to assess a tax deficiency within one year after the decision



          in the controlling case became final, notwithstanding the expira-



          tion  of  any period  of  limitation prescribed  by  the Internal



          Revenue Code.   The closing  agreement made no  reference to  the



          Form 872-A extensions.



                    The  tax court  ruling in  the controlling  case became



          final on July  18, 1991.   Almost two  years later, IRS  received



          from the  Silvermans separate Forms 872-T,  Notice of Termination



          of Special Consent to  Extend the Time to Assess Tax, relating to



          all four tax years.  Within ninety days from its receipt of these



          Forms  872-T, IRS sent notices of income tax deficiencies for the



          tax years in  question, calculated in  conformity with the  final



          outcome in the controlling case.  



                    The Silvermans promptly initiated a tax  court proceed-



          ing,  claiming that  the Form  906 closing  agreement effectively



          terminated their  earlier  consent  to  extend  indefinitely  the



          limitation periods  as previously  indicated in their  Form 872-A



          filings,  with the  result  that IRS  was  required to  make  its



          supplemental  tax assessments  within  one year  after the  final



          decision  in the controlling case.   IRS responded  that the Form



          906 closing agreement had  no effect upon the earlier  Form 872-A



          extensions.  


3



The  tax court  rejected the  taxpayers' argument  that



          their  Form 872-A  extensions  were superseded  by  the Form  906



          closing  agreement, holding  that  the tax  assessments were  not



          time-barred  since  IRS had  issued  its  tax deficiency  notices



          within  ninety days  of its  receipt of  the Forms  872-T.   This



          appeal followed.      



                                          II
                                          II



                                      DISCUSSION
                                      DISCUSSION
                                      __________



                    A  tax court decision is reviewed in the same manner as



          a civil judgment in a case tried to the district  court without a



          jury.   See 26 U.S.C.    7482(a); Alexander v. IRS,  72 F.3d 938,
                  ___                       _________    ___



          941 (1st Cir. 1995).  As  the instant matter was submitted to the



          tax court on  a stipulated record,  the proper interpretation  of



          the Forms 872-A  and the  Form 906 closing  agreement presents  a



          pure  question of  law subject  to plenary review.   Id.  at 941;
                                                               __



          Hempel v. United States, 14 F.3d 572, 575-76 (11th Cir. 1994).
          ______    _____________



                    The first  argument raised  by IRS on  appeal, but  by-



          passed in the tax court, maintains that the Forms 872-A submitted



          by the  Silvermans extended the  limitation periods  indefinitely



          and  constituted their agreement to use only Form 872-T to termi-
                                                  ____



          nate  their Form 872-A extensions.   Several circuits, in various



          contexts, have declined to enforce attempted terminations of Form



          872-A extensions  unless correctly  implemented in a  manner pre-



          scribed  within Form 872-A itself.2  See, e.g., Coggin v. Commis-
                                               ___  ____  ______    _______

                              
          ____________________



               2Form 872-A plainly states, on its face, that its indefinite

          extension of a statute of limitations terminates on the ninetieth

          day following one  of three events:   (1) the  receipt by IRS  of



                                          4



sioner,  71 F.3d 855, 861-62 (11th Cir. 1996) (sending Form 872-T
          ______



          to wrong IRS division); Stenclik v. Commissioner, 907 F.2d 25, 27
                                  ________    ____________



          (2d Cir.)  (passage of reasonable  time), cert. denied,  498 U.S.
                                                    _____ ______



          984 (1990); Kernen  v. Commissioner,  902 F.2d 17,  18 (9th  Cir.
                      ______     ____________



          1990) (executing Form 872 containing specific consent-termination



          date); Wall v. Commissioner, 875 F.2d 812, 813 (10th Cir. 1989).
                 ____    ____________



                    The Silvermans note  that no court  of appeals has  yet



          decided  whether  a Form  906  closing  agreement constitutes  an



          exception  to this  exclusivity  rule.   Nonetheless, a  district



          court  has rejected the contention that a Form 906 closing agree-



          ment effectively terminates a Form 872-A extension.  See DeSantis
                                                               ___ ________



          v. United States, 783 F.Supp. 165, 169 (S.D.N.Y. 1992).  Nor  are
             _____________



          we  persuaded by  the bald  assertion that  DeSantis  was wrongly
                                                      ________



          decided.   Furthermore, as  it appears entirely  appropriate that



          Form 872-A  extensions be  literally construed, cf.  Badaracco v.
                                                          __   _________



          Commissioner, 464  U.S. 386,  391-92 (1984) (statutes  of limita-
          ____________



          tions on tax collections are to be strictly construed in favor of



          IRS), and we are presented with no principled basis for not doing



          so, there is  every reason to conclude that the  Form 906 closing



          agreement did  not constitute a  valid termination device  in the



          instant case. 



                    Form  872-A was  designed to  eliminate the  repetitive



          task of renewing extensions of  limitation periods, and to  mini-



          mize  the  daunting  administrative  burden of  preventing  their

                              
          ____________________



          Form 872-T from  the taxpayer; (2)  the mailing of Form  872-T by

          IRS to  the taxpayer; or (3)  the mailing by IRS  of a deficiency
                                __

          notice to the taxpayer.  See supra note 1.
                                   ___ _____



                                          5



inadvertent expiration  before a  reliable tax assessment  can be



          made.    Rev. Proc.  79-22,    2.03,  1979-1 C.B.  563;  see also
                                                                   ___ ____



          Stenclik,  907 F.2d at 27 (noting that Form 872-T reduces litiga-
          ________



          tion); Kernen, 902 F.2d at 18 (standardized form required to cope
                 ______



          with millions  of  taxpayer communications).   A  plain need  for



          certainty prompted  IRS to  devise Form  872-T  as the  exclusive



          means, apart from mailing a deficiency notice, for either the IRS



          or  taxpayers to  terminate  a Form  872-A  consent to  extend  a



          limitation period.3  Given  the unmistakable language employed in



          Revenue Procedure 79-22  and in Form 872-A itself, as well as the



          evident importance  of the policy  considerations at work  in the



          tax  collection context, we adhere to the plain language of Forms



                              
          ____________________



               3The applicable Revenue Procedure provides:



                    .02  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.  

                    .03    Written notification  to  the Internal
                           ______________________________________

                    Revenue  Service from  the taxpayer(s)  of an
                    _____________________________________________

                    election  to terminate  Form 872-A  is to  be
                    _____________________________________________

                    made  using Form  872-T.   Taxpayer(s) should
                    ________________________

                    sign and  mail Form 872-T in  accordance with

                    instructions contained on the form.

                    .04  Steps taken  to terminate Forms 872-A by
                         ________________________________________

                    the Service  or the taxpayer(s) other than by
                    _____________________________________________

                    using Forms 872-T (e.g., by letter or orally)
                    _____________________________________________

                    will not terminate Form 872-A.  
                    ______________________________



          Rev. Proc. 79-22,    4.02-4.04, 1979-1 C.B. 563 (emphasis added).

          Although lacking the force  of law attendant to a  formal regula-

          tion, the applicable Revenue  Procedure provides guidance for our

          interpretation  of Form  872-A, especially  since it  was readily

          available to petitioners.   See Xerox Corp. v. United  States, 41
                                      ___ ___________    ______________

          F.3d 647,  657 (Fed.  Cir.  1994), cert.  denied, 116  S. Ct.  72
                                             _____  ______

          (1995);  Clark v.  Modern Group  Ltd., 9 F.3d  321, 335  (3d Cir.
                   _____     __________________

          1993). 



                                          6



872-A and 872-T, as informed by the applicable Revenue Procedure,



          see supra note 3,  in holding that the Form 906 closing agreement
          ___ _____



          did not terminate these Form 872-A extensions.



                    Finally,  we note that a  contrary ruling is not neces-



          sary to protect legitimate taxpayer interests in closing out past



          tax  years.   First,  taxpayers need  never  agree to  extend the



          prescribed three-year  limitation period.   See Stange  v. United
                                                      ___ ______     ______



          States,  282 U.S. 270, 276  (1931) (consenting to  extension is a
          ______



          "voluntary,  unilateral waiver  of a  defense by  the taxpayer").



          Moreover, taxpayers may execute waivers for prescribed periods by



          using  Form 872, see  Coggin, 71 F.3d  at 861, and  in all events
                           ___  ______



          Form  872-T is  available  as a  simple  and effective  means  to



          terminate indefinite  Form 872-A  extensions.  Finally,  if peti-



          tioners  had intended to  limit IRS to the  time specified in the



          Form  906 closing  agreement, they  need simply have  filed Forms



          872-T,  as they eventually did.   Accordingly, we  can discern no



          sound  reason to adopt a strained interpretation of Form 872-A to



          excuse their failure to submit Form 872-T at an earlier time.



                                         III
                                         III



                                      CONCLUSION
                                      CONCLUSION
                                      __________



                    As the Form 906 closing agreement did not supersede the



          Form 872-A  extensions, and petitioners' remaining  arguments are



          without merit, the tax court judgment must be affirmed.  



                    SO ORDERED.
                    SO ORDERED.
                    __________


7