1981 U.S. Tax Ct. LEXIS 66">*66
1. On Nov. 13, 1973, a Form 870-AD was executed by P's counsel and her then husband. The form stated that P and H consented to the assessment and collection of deficiencies determined for 1968, 1969, and 1970. Typed on the form was a note which stated that P reserved the right to contest collection of the deficiencies as an innocent spouse. On Dec. 10, 1973, the Commissioner assessed the deficiencies against P and H. The statutory period for assessing the deficiencies for each of the 3 years would have ended on or before May 24, 1974. In 1975, a U.S. District Court in Texas enjoined the Commissioner from collecting the deficiencies from P on the ground that the note attached to the Form 870-AD preserved for P the right to receive a notice of deficiency and contest her tax liability prior to payment. In 1976, a notice of deficiency was sent to P, and in 1978, the Tax Court held that the decision of the District Court was res judicata on the question of whether a notice of deficiency was required to have been sent to P and whether the Tax Court had jurisdiction in this case.
2. For 1969, P and her then husband reported as gross income $ 81,176.99, including $ 10,000 which was not properly includable in gross income, but not including $ 19,500 which was gross income attributable to the husband.
77 T.C. 514">*515 OPINION
The Commissioner determined the following deficiencies in the petitioner's Federal income taxes:
| Year | Deficiency |
| 1968 | $ 4,775.00 |
| 1969 | 2,647.17 |
| 1970 | 800.75 |
1981 U.S. Tax Ct. LEXIS 66">*70 The only issues to be decided are: (1) Whether the statute of limitations on assessment of the deficiencies in this case was tolled in 1973 when the Commissioner made an assessment of the deficiencies prior to mailing a notice of deficiency to the petitioner; and (2) if the statute of limitations was tolled, whether the petitioner is relieved of liability for the deficiency for 1969 as an innocent spouse under
77 T.C. 514">*516 All the facts have been stipulated, and those facts are so found.
The petitioner, Mary Frances Stroman, resided in Dallas, Tex., when the petition in this case was filed. During 1968, 1969, and 1970, she was married to Richard H. Stroman, and with Mr. Stroman, she filed joint Federal income tax returns for such years with the Internal Revenue Service.
The tax return of the petitioner and Mr. Stroman for 1968 was filed on or before April 15, 1969. Their tax return1981 U.S. Tax Ct. LEXIS 66">*71 for 1969 was filed on June 12, 1970, and their return for 1970 was filed on May 24, 1971. From 1971 through 1973, the petitioner and Mr. Stroman executed several consents extending the period for assessing Federal income taxes for 1968 and 1969. The last such consent extended the period for assessing taxes for such years through December 31, 1973.
On November 13, 1973, a Form 870-AD was executed by Mr. Stroman and by an attorney on behalf of Mrs. Stroman covering the taxable years 1968, 1969, and 1970. Such form stated, in part, that "the undersigned offers to waive the restrictions provided in section 6213(a) * * * and to consent to the assessment and collection" of deficiencies determined by the Commissioner. The following note was typed on the form: "Execution of this form by Mrs. Mary Frances Stroman is not intended by her to be a waiver of any rights under
On December 10, 1973, the deficiencies determined by the Commissioner in the Form 870-AD were assessed against the petitioner and Mr. Stroman by the Internal Revenue Service Center at Austin, 1981 U.S. Tax Ct. LEXIS 66">*72 Tex. In 1975, the petitioner filed an action in the U.S. District Court for the Northern District of Texas seeking permanently to enjoin the IRS from foreclosing upon her homestead property to satisfy the deficiencies. In
77 T.C. 514">*517 The substance of what the Court holds today addresses the equities of this situation * * *
* * * *
The "condition" inserted by Mrs. Stroman in signing her Form 870-AD was obviously meant to mean something, and assuming the I.R.S. accepted it, an assumption fully supported by the evidence, then it must be enforced in the same manner as any other contract.
* * * *
In the instant case, neither side made a mistake and neither side was surprised by Mrs. Stroman's conditional statement on the Form 870-AD. 1981 U.S. Tax Ct. LEXIS 66">*73 If the plaintiff had not inserted this provision, then she would have waived all her rights to contest assessment and collection of the taxes that she and her husband both owed. * * * [
The court concluded that the IRS was required to mail the petitioner a notice of deficiency prior to seeking to collect the deficiencies which it had determined.
On July 23, 1976, the notice of deficiency was sent to the petitioner, and within 90 days thereafter, the petitioner filed her petition in this Court. Subsequently, the Commissioner filed a motion to dismiss for lack of jurisdiction. In support of his motion, the Commissioner argued that the result in the District Court had no basis under the Code since in executing the Form 870-AD, the petitioner had legally waived her right to contest her tax liability prior to payment. In
On their tax return for 1969, the petitioner and Mr. Stroman erroneously reported as gross income a $ 10,000 loan. They reported total gross income of $ 81,176.99. In computing the deficiency for 1969, the Commissioner reduced gross income by the $ 10,000 loan but also determined that the petitioner and Mr. Stroman had failed to report income of $ 19,500 received by Mr. Stroman. There were no other adjustments to gross income by the Commissioner for 1969.
The first issue to be decided in this case is whether the assessment made by the IRS on December 10, 1973, was effective to toll the statute of limitations. The parties assume 77 T.C. 514">*518 that the period of limitations on assessments applicable to this case is the 3-year period of
1981 U.S. Tax Ct. LEXIS 66">*75 The burden in this case, for the Commissioner, is to explain why section 6213(a) did not invalidate the 1973 assessment. That section provides, in part:
no assessment of a deficiency in respect of any tax imposed by subtitle A or B or chapter 41, 42, 43, 44, or 45 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until * * * [a notice of deficiency] has been mailed to the taxpayer, nor until the expiration of * * * [the period for filing a petition with the Tax Court] * * * nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court.
The petitioner argues that a notice of deficiency was required to be sent to her, that the Commissioner was not permitted to assess the deficiencies prior to the mailing of the notice, and that, therefore, the 1973 assessment, made prior to the mailing of the notice of deficiency, was a nullity and was ineffective to toll the statute of limitations.
1981 U.S. Tax Ct. LEXIS 66">*76 The Commissioner makes essentially two arguments to support the timeliness of the notice of deficiency in this case. First, he contends that as a matter of law, section 6213(a) does not invalidate an assessment made prior to the mailing of a notice of deficiency, that when such an assessment is made, the taxpayer's only remedy is to enjoin collection of the deficiency until the termination of a prepayment hearing and that since the assessment in this case was made before the 77 T.C. 514">*519 running of the statute of limitations, the notice of deficiency could be issued at any time prior to the expiration of the period for the collection of the taxes assessed. Second, the Commissioner argues that even if a premature assessment is usually invalid, under the circumstances of this case, the 1973 assessment should be considered valid and effective to toll the statute of limitations.
The courts have adopted somewhat different views regarding the effect of a premature assessment. In some cases, it has been held that such an assessment is invalid and does not toll the running of the statute of limitations.
Here, the petitioner sought and secured an injunction against the collection of the deficiency. In granting the injunction, the court concluded that the Commissioner was required to send the petitioner a notice of deficiency1981 U.S. Tax Ct. LEXIS 66">*78 prior to seeking to collect the deficiencies. That case was commenced and decided in 1975 by which time the statute of limitations would have already expired, if the 1973 assessment was wholly invalid. The District Court did not invalidate such assessment and must have assumed that it had tolled the running of the statute of limitations.
In
The only other issue to be decided is whether the petitioner qualifies as an innocent spouse for 1969 under (1) In general. -- Under regulations prescribed by the Secretary, if -- (A) a joint return has been made under this section for a taxable year and on such return there was omitted from gross income an amount properly includable therein which is attributable to one spouse and which is in excess of 25 percent of the amount of (B) the other spouse establishes that in signing the return he or she did not know of, and had no reason to know of, such omission, and (C) taking into account whether or not the other spouse significantly benefited directly or indirectly from the items omitted from gross income and taking into account all other facts and circumstances, it is inequitable to hold the other spouse liable for the deficiency in tax for such taxable year attributable to such omission. then the other spouse shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent that such liability is attributable to such omission from gross income. [Emphasis added.]
It is stipulated1981 U.S. Tax Ct. LEXIS 66">*80 that the petitioner meets the conditions of
The language of
6501(e)(1)(A). General rule. -- If the taxpayer omits from gross income an amount properly includable therein which is in excess of 25 percent of the
The computation of the 25-percent omission for purposes of
There is no evidence that Congress considered the question now before us in enacting either provision. See S. Rept. 91-1537,
This case is appealable to the Fifth Circuit, and that court has addressed the question which is before us. In
1981 U.S. Tax Ct. LEXIS 66">*84 In reaching its decision in
In
We by no means intend to suggest that a gross income figure of $ 168,920.31 [gross income reported less amount improperly included] should be used in determining whether the 25-percent1981 U.S. Tax Ct. LEXIS 66">*85 test is met here.
77 T.C. 514">*523 It may be argued that the explanation by the Fifth Circuit was not necessary to its decision and was dicta and that under
The petitioner argues that her construction of
1981 U.S. Tax Ct. LEXIS 66">*87 77 T.C. 514">*524 In our judgment, the construction of the phrase "gross income stated in the return" adopted by the Fifth Circuit in its
1. All statutory references are to the Internal Revenue Code of 1954 as in effect during the years in issue.↩
2. The petitioner maintains that for 1969, there was an omission of more than 25 percent of the gross income stated on the return and that she qualifies as an innocent spouse within the meaning of
3. Because of that conclusion, the Fifth Circuit reversed the decision of the Tax Court. However, there is no evidence that the taxpayer argued before the Tax Court that the omitted income should not be reduced by the erroneously included income, and the Tax Court took no position explicitly on such issue.
4. The petitioner also argues that
