DocketNumber: Docket Nos. 28207-08, 28208-08, 28210-08
Citation Numbers: 2011 T.C. Memo. 96, 101 T.C.M. 1451, 2011 Tax Ct. Memo LEXIS 95
Judges: COHEN
Filed Date: 5/2/2011
Status: Non-Precedential
Modified Date: 4/18/2021
Decisions will be entered for petitioners.
COHEN,
The issues for decision are: (1) Whether the period of limitations under
Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Mr. and Mrs. Shockley (the Shockleys) resided in Florida at the time their petitions were filed. Shockley Holdings is a partnership organized under the laws of the State of Wisconsin, and its principal place of business was Florida at the time its petition was filed.
SCC was incorporated in March 1985 under the *97 laws of the State of Wisconsin. SCC owned and operated five television stations and a radio station in Wisconsin, a television station and several radio stations in Minnesota, and a video production company in Wisconsin. Before May 31, 2001, petitioners each owned shares in SCC as minority shareholders along with 26 other shareholders. Mr. Shockley owned 10.18879 percent of SCC's common stock and served as president, treasurer, and a director of SCC. Mrs. Shockley owned 10.18879 percent of SCC's common stock and served as vice president, secretary, and a director of SCC. Shockley Holdings owned 3.52508 percent of SCC's common stock. Shockley Holdings is owned by the Shockleys, who are general partners, and their adult children, who are limited partners.
On May 31, 2001, pursuant to a stock purchase agreement, petitioners sold their shares of SCC to Northern Communications Acquisitions Corp. (NCAC), a Delaware corporation. The Shockleys resigned from all of their positions in SCC as of that date, and at no time after the sale was either an officer, director, or shareholder of SCC.
Also on May 31, 2001, following the acquisition of the SCC stock by NCAC, NCAC caused SCC to merge with and *98 into Shockley Delaware Corp. (SDC), a Delaware corporation and subsidiary of NCAC. SDC was the surviving entity in the merger and converted to a Delaware limited liability company named Shockley Communications Acquisition, L.L.C. (SCA LLC). SCA LLC immediately sold some of the assets that SCC had owned to Quincy Newspapers, Inc.
Petitioners timely filed Federal income tax returns for calendar year 2001 reporting gains from the May 31, 2001, SCC stock sale.
On or about February 24, 2002, the Internal Revenue Service (IRS) received SCC's Form 1120, U.S. Corporation Income Tax Return, for the short tax year of January 1, 2001, through May 31, 2001. That form reported a Washington, D.C., mailing address for SCC.
By letter dated September 17, 2004, an attorney representing the Shockleys responded on their behalf to correspondence from an IRS examiner requesting that the Shockleys execute a Form 872, Consent to Extend the Time to Assess Tax, with respect to the tax return filed by SCC for its 2001 tax year. The letter stated: You sent the Form 872 to the Shockleys as "officer/shareholder" of SCC. As you are aware, the Shockleys are not officers or shareholder's of SCC. They have not been officers *99 or shareholders for more than three years. * * * I understand that Northern Communications Acquisition Corporation * * *, the company that purchased the SCC shares, is successor in interest to SCC and capable of executing a Form 872 for SCC. * * *
The letter supplied contact information for an attorney representing NCAC and suggested that the IRS examiner contact the representative. A copy of this letter was sent to the attorney representing NCAC.
On February 18, 2005, the IRS issued multiple notices of deficiency relating to SCC's short tax year ending May 31, 2001. A U.S. Postal Service Form 3877 indicated the notices were sent by certified mail on February 18, 2005.
The IRS sent one notice of deficiency to NCAC, determining a deficiency of $42,950,336 in tax and a penalty under
The IRS also sent a notice of deficiency to "Shockley Communications Corporation" at the Washington, D.C., address reported on the 2001 Form 1120, determining a deficiency in tax of $41,566,515, a penalty under
On February 18, 2005, the IRS also sent a notice of deficiency to "Shockley Communications Corporation, Terry K & Sandra K Shockley, Officers *101 & Shareholders" at the then home address of the Shockleys in Madison, Wisconsin (the Madison notice). In this notice, the IRS determined a deficiency of $41,566,515, an addition to tax under We have determined that you owe additional tax or other amounts, or both, for the tax year(s) identified above. This letter is your NOTICE OF DEFICIENCY, as required by law. The enclosed statement shows how we figured the deficiency. If you want to contest this determination in court before making any payment, you have 90 days from the date of this letter (150 days if this letter is addressed to you outside of the United States) to file a petition with the United States Tax Court for a redetermination of the deficiency.
On May 25, 2005, a petition was filed in response to the Madison notice at docket No. *102 9699-05. The petition stated that it was "filed on behalf of Petitioner subject to the invalidity of the Notice of Deficiency and the failure to properly serve the corporation as required by statute. Without conceding the jurisdiction of this Court, the Petitioner hereby submits this Limited and Special Petition." A letter dated May 18, 2005, from the Shockleys to the Clerk of the Court was also attached and was served on the Commissioner with the petition. In the letter, the Shockleys noted concern that the notice was addressed to both SCC and the Shockleys as officers and shareholders and was mailed to their then home address, which had never been SCC's address. The Shockleys also expressed concern that the notice might be directed at them in an individual or some representative capacity.
In an answer filed July 29, 2005, the Commissioner admitted that the Madison notice was sent to the personal residence of the Shockleys but alleged that this was a courtesy copy and that a copy of the notice of deficiency was also sent to the last known address of SCC at the Washington, D.C., address.
On April 26, 2007, the case at docket No. 9699-05 was dismissed for lack of jurisdiction because *103 SCC lacked legal capacity to proceed in the case through the Shockleys. The order of dismissal for lack of jurisdiction stated that the parties agreed that the case should be dismissed on this ground and thus the Court did not determine the validity of the notice of deficiency.
The IRS also sent two separate notices of deficiency to Mr. and Mrs. Shockley at their then home address in Madison, Wisconsin, determining a deficiency of $9,868,051 and a penalty of $1,973,610.20 with respect to their jointly filed 2001 individual income tax return on February 18, 2005. The Shockleys filed a petition at docket No. 9700-05 in response to these notices. The parties agreed to settle the case with no deficiency or penalty due from the Shockleys for 2001. Accordingly, a stipulated decision was entered in docket No. 9700-05 on August 23, 2007.
On September 6, 2007, the IRS assessed the following amounts against SCC for the tax year ending May 31, 2001: (1) Corporate income tax of $41,566,515; (2) an addition to tax under
Thereafter, the IRS undertook transferee examinations *104 of eight of the largest SCC shareholders who sold their SCC shares to NCAC on May 31, 2001, including petitioners. On August 21, 2008, the IRS sent notices to each petitioner as a transferee. Each notice was erroneously titled "Notice of Deficiency".
As a general rule, shall (after the mailing of a notice under
Petitioners contend that because SCC mailed its final tax return for the year ended May 31, 2001, no later than February 19, 2002, the usual period of limitations for assessment against SCC would have expired *106 no later than February 19, 2005. The limitations period was suspended for 90 days because the notice of deficiency was mailed to SCC's last known address and for another 60 days thereafter.
Respondent counters that the notices sent to petitioners were timely because the period of limitations was suspended after a valid statutory notice was issued to SCC and thereafter a proceeding in respect of the deficiency was placed on the docket of this Court to further suspend the limitations period. Thus, respondent argues that after the order of dismissal in docket No. 9699-05 was entered on April 26, 2007, the period of limitations for assessment *107 against SCC was tolled for 90 days and another 60 days thereafter, and that the notices sent to petitioners as transferees on August 21, 2008, were within 1 year after the expiration—no earlier than September 6, 2008—of the period of limitation for assessment against the transferor.
A notice of deficiency serves the purpose of the statutory scheme if (1) it provides notice to the taxpayer that the Commissioner has determined a deficiency against the taxpayer, and (2) it is received by the taxpayer in sufficient time to petition this Court to redetermine the deficiency. See, e.g.,
The parties agree that the notice of deficiency sent to SCC at the Washington, D.C., address was valid because it was sent to SCC's last known address even though it was returned undelivered. See
Respondent argues that the Madison notice is also a valid notice of deficiency to SCC and that the petition filed at docket No. 9699-05 suspended the period of limitations under
Petitioners argue that actual receipt of the Madison notice by the Shockleys did not give notice to SCC because the Shockleys were not officers, directors, or agents of SCC in any capacity at the time the notice was mailed to them. The petition filed in response to the Madison notice in this Court was dismissed for lack of jurisdiction because SCC lacked legal capacity to proceed in the case through the Shockleys.
The Madison notice was addressed to "Shockley Communications Corporation, Terry K & Sandra K Shockley, Officers & Shareholders" as compared to the notice mailed to SCC's last known address that was addressed to "Shockley Communications Corporation". Generally defects in the mailing of a notice of deficiency are inconsequential when the taxpayer receives actual notice *110 in time to file a petition for redetermination in the Tax Court. See
The purpose of the statutory requirement for issuing the notice of deficiency is to inform the taxpayer of the determined tax deficiency and provide the taxpayer with the opportunity to file a petition in this Court before being required to make the payment. See
At the time the two notices were sent, the IRS had been informed that the Shockleys were no longer officers or shareholders of SCC and that they did not have authority to sign a Form 872 for SCC. There can be only one last known address within the meaning of
As relevant here, within 90 days after the notice of deficiency is mailed, "the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency", and no assessment of a deficiency in respect of income tax shall be made until the expiration of such 90-day period "nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final." The running of the period of limitations provided in section 6501 * * * on the making of assessments * * * in respect of any deficiency * * * shall (after the mailing of a notice under section 6212(a)) be suspended for the period during which the Secretary is prohibited from making the assessment * * * (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for 60 days thereafter.
Respondent argues that even if the Madison notice of *112 deficiency is invalid, there was a proceeding in respect of a deficiency on the docket of the Tax Court that suspended the running of the period of limitations under
Respondent asserts that
One of the cases analyzed in
Petitioners argue that the petition filed at docket No. 9699-05 was not "in respect of the deficiency" asserted against the taxpayer at issue according to
Unlike cases where a petition was filed by one other than the taxpayers, but who had authority—or appeared to have authority—to act on the taxpayers' behalf, the Shockleys did not purport to file the petition in docket No. 9699-05 in this manner. The Shockleys asserted that the Madison notice was invalid in that it was addressed to both SCC and the Shockleys as SCC's officers and shareholders. The specific circumstances here show that respondent knew before sending the purported duplicate notices of deficiency on February 18, 2005, that the Shockleys were not a proper party and that they did not have authority to act on behalf of SCC with respect to SCC's determined deficiency for 2001.
The period of limitations is suspended only after the mailing of a notice under
In
The Madison notice was not sent to SCC's last known address and was not a valid notice of deficiency. The petition filed at docket No. 9699-05 was not filed on behalf of SCC in form or in effect, was not in respect of a deficiency, and did not prohibit assessment for purposes of
In view of *118 our conclusion, it is not necessary to reach the other issues or arguments of the parties. To reflect the foregoing,
1. Cases of the following petitioners are consolidated herewith: Terry K. Shockley, Transferee, docket No. 28208-08; and Shockley Holdings, Limited Partnership, Transferee, docket No. 28210-08.↩
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