Opinion
Docket No. 53825.
1955-09-27
J. L. FOUTZ AND FERN FOUTZ, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
John P. Dwyer, Esq., for the petitioners. T. W. Sommer, Esq., for the respondent.
ESTOPPEL.— Petitioners marked their 1948 income tax return ‘Tentative’ and later acquiesced in respondent's advice that the return could not be considered a final return. Held, petitioners estopped from contending that their ‘Tentative’ return started the period of limitations for the assessment of their 1948 tax. John P. Dwyer, Esq., for the petitioners. T. W. Sommer, Esq., for the respondent.
Respondent determined a deficiency of $7,892.14 in petitioner's income tax for 1948, and a penalty of $1,973.04 for failure to file a timely return.
The questions presented are whether the above deficiency and penalty are barred by the statute of limitations which requires the assessment of income taxes within 3 years after the filing of a return (sec. 275(a), I.R.C. 1939); and if so, whether petitioners are estopped from claiming the bar of the period of limitations.
The facts have been stipulated. The stipulation and its accompanying exhibits are incorporated herein.
FINDINGS OF FACT.
The petitioners are husband and wife. During 1948 they resided in Farmington, New Mexico. On January 15, 1949, petitioners filed with the then collector of internal revenue of Albuquerque, New Mexico, a Form 1040 for the year 1948, together with their check for $7,419.80, the balance of tax shown on the form to be due. Written on the face of the form, at the top, by petitioner's accountant was the word ‘Tentative’ (so spelled on the return). There were omissions on the form: the occupations and social security numbers of petitioners were not stated, and the spaces provided for naming the taxpayers' exemptions were left blank. A profit and loss statement, balance sheet, and a depreciation schedule, all relating to the J. L. Foutz, contracting business, were attached to the form. Also included was a Schedule D, ‘Schedule of Gains And Losses From Sales Or Exchanges Of Property,‘ which disclosed a net long-term gain of $36.90 from the sale of equipment. There was a complete tax computation on page 3 of the form showing how petitioners determined the amount of their tax. In arriving at their surtax net income on page 3, petitioners took a total standard deduction of $2,000 (subsequently reduced to $1,000 on their amended return) and an exemption of $1,800. The form was signed by both petitioners.
On February 1, 1949, the collector, by letter, advised the petitioners that tentative returns could not be taken into account in that office, and that pending receipt of a completed return for 1948 the payment of $7,419.80 was being placed in the collector's suspense account. In this letter advice was also given to the petitioner's of the necessity for filing the completed return within time limits to avoid application of penalty.
By letter dated February 16, 1949, petitioner J. L. Foutz, requested the collector to ‘Please transfer the amount of $7,419.80 from your suspense account to a credit on my estimated tax account.’ Pursuant to such request the collector transferred the $7,419.80 from his suspense account and applied same as a credit to petitioners' estimated tax for the year 1948.
On August 29, 1950, petitioners filed with the collector of internal revenue at Albuquerque another Form 1040 for the year 1948, with supporting schedules. On the face of this return was typewritten the word ‘Amended.’ The tax liability shown was $7,033.80; a credit of $7,419.80 by payments on 1948 Declaration of Estimated Tax was claimed; and a refund of $376 was sought.
The second Form 1040 was examined by a deputy collector in October 1950, and his report proposing a deficiency in tax for 1948 and a delinquency penalty was dated October 30, 1950. A protest to this report was filed by petitioners, and the case was subsequently reexamined by an internal revenue agent, whose report or reexamination was dated September 12, 1952.
On November 3, 1952, an attorney representing petitioners wrote to the internal revenue agent in charge at Denver, Colorado, requesting an extension of the time within which to file a protest to the agent's report of September 12, 1952. In his letter the attorney stated: ‘If you wish an extension of the statute of limitations I shall see that Form 872 is signed by the taxpayers.’ The internal revenue agent in charge replied by letter of November 5, 1952, granting the request for extension of time for protest and stating that a consent to the extension of the statute of limitations would be requested at the proper time, if necessary.
On December 29, 1952, petitioners' attorney filed a protest to the agent's report of September 12, 1952. No mention of the statute of limitations was made in the protest or in the attorney's letter of transmittal.
On February 17, 1953, the head of the field audit branch of the director's office in Albuquerque wrote petitioner's attorney as follows:
In accordance with our telephone conversation I have prepared consent Form 872, covering the above-named taxpayers' delinquent return for 1948, which is enclosed herewith for signature.
The consent, Form 872, for the year 1948 was signed by petitioners on or about February 18, 1953, and approved on behalf of the Commissioner on February 27, 1953. It extended the period of limitations to June 30, 1954.
The collector's office assigned serial number 8290174 to the Form 1040 filed on August 29, 1950, but never assigned a serial number to the form filed on January 15, 1949.
Petitioner J. L. Foutz, was a member of a partnership known as Lively and Foutz, from August 1, 1943, until February 16, 1948, when the partnership was dissolved.
On the form 1040 and its accompanying schedules filed by petitioners on January 15, 1949, there was no information with reference to the dissolution of the partnership. On the Form 1040 and a schedule attached thereto filed on August 29, 1950, petitioners claimed a capital loss of $6,400 from the dissolution of the partnership, limited to $2,000.
Respondent's notice of deficiency was dated April 30, 1954.
OPINION.
TIETJENS, Judge:
Petitioners claim that the Form 1040 marked ‘Tentative,‘ filed by them on January 15, 1949, was a return sufficient to start the 3-year period of limitations provided for the assessment of taxes (sec. 275(a), I.R.C. 1939)
; that therefore the deficiency here is barred because it was not assessed within 3 years after the return was filed. The respondent contends that the ‘Tentative’ Form 1040 was not a ‘return’ within the requirement of section 275(a), and by amendment to his answer respondent has pleaded that petitioners are estopped from asserting that their return of January 15, 1949, was sufficient to begin the period of limitations upon the assessment of their 1948 tax.
SEC. 275. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION.Except as provided in section 276—(a) GENERAL RULE.— The amount of income taxes imposed by this chapter shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.
We need not take up respondent's first contention relating to the sufficiency of petitioner's initial return, since we agree that petitioners are estopped from arguing that their return of January 15, 1949, started the period of limitations. Cf. R. H. Stearns Co. v. United States, 291 U.S. 54 (1934); John J. Flynn, 35 B.T.A. 1064, 1070 (1937). The basis of the estoppel is this: By marking their return ‘Tentative’ petitioners clearly indicated that they did not intend it as a final return, and that something more was to follow. They were informed by respondent that tentative returns could not be taken into account, and that pending receipt of a completed return for 1948, their payment was being held in the collector's suspense account. In the same letter petitioners were advised of the necessity of filing completed return within time limits in order to avoid the application of a penalty. In response to this letter petitioners requested the collector to transfer the payment included with the return from his suspense account to a credit on their estimated tax account. By their reply to respondent's letter, in requesting that the tax paid be treated not as a final payment, petitioners indicated their acquiescence in his advice that their return was not a final return. Thus by their representation and their acquiescence petitioners induced respondent to believe that they too did not consider the return as final, and to forego a timely assessment of their tax liability for 1948. Under the circumstances this was a reasonable belief on respondent's part. To permit petitioners now to take a position inconsistent with what reasonably appeared to respondent to be their previous position would work an obvious hardship and injustice on respondent.
While the facts in R. H. Stearns Co. v. United States, supra, are quite different from those at hand, the rationale of that case is equally applicable here. In Stearns the Commissioner demanded payment of petitionerS 1917 tax liability. In response petitioner filed a claim for refund and credit of income taxes alleged to have been overpaid for the fiscal years 1918 through 1921, and asked that the unpaid balance of its tax for 1917 be set off against its claim for overpayment. In 1924 the Commissioner applied an overassessment for 1918 against petitioner's unpaid tax for 1917, and petitioner objected on the ground that the collection in 1924 of its 1917 tax liability by a credit against a 1918 overassessment was barred because the period of limitations had run. One ground for the Supreme Court's opinion upholding the Commissioner was that the petitioner having requested a postponement of the collection of its 1917 tax liability, was estopped from claiming that the period of limitations within which this liability could be collected had expired. The Court explained its reasoning as follows (p. 61):
The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the non-performance which he has himself occasioned, for the law, says to him in effect ‘this is your own act, and therefore you are not damnified.‘‘ Dolan v. Rodgers, 149 N.Y. 489, 491; 44 N.E. 167; and Imperator Realty Co. v. Tull, 228 N.Y. 447, 457; 127 N.E. 263; quoting West v. Blakeway, 2 Man.&G. 828, 839. 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. Imperator Realty Co. v. Tull, supra. A suit may not be built on an omission induced by him who sues. Swain v. Seamens, 9 Wall. 254, 274; United States v. Peck, 102 U.S. 64; Thomson v. Poor, 147 N.Y. 402; 42 N.E. 13; New Zealand Shipping Co. v. Societe des Ateliers, (1919) A.C. 1, 6; Williston, Contracts, Vol. 2, Secs. 689, 692. We think the above principle applies equally to the facts of this case and precludes the petitioners from claiming that their return of January 15, 1949, started the period of limitations for the assessment of their 1948 tax.
Decision will be entered in accordance with the stipulation of the parties.