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Tax Court Petition Was A “Proceeding” That Extended Limitations Period On Assessment

In SHOCKLEY v. COMM., the Court of Appeals for the Eleventh Circuit, reversed the Tax Court, and held that a Tax Court petition filed by former shareholder-officers of a corporation qualified as a “proceeding in respect of” the corporation's multimillion dollar deficiency that suspended the statute of limitations under Code Sec. 6503(a)(1). Accordingly, the notices of transferee liability issued to the shareholder-officers within one year after the limitations period expired with regard to the corporation were timely.

Code Sec. 6501(a) generally provides that a valid assessment of income tax liability may not be made more than three years after the later of the date the tax return was filed or the due date of the tax return. The three-year period is suspended during the period in which IRS is prohibited from making an assessment, and during the pendency of a Tax Court case “in respect of” the deficiency plus an additional 60 days. (Code Sec. 6503(a)(1)

In situations involving transferee liability, IRS has an additional year to assess the deficiency against a transferee of assets of the taxpayer-transferor. (Code Sec. 6901(c)(1))

The Tax Court concluded that the limitations period for assessment of transferee liability had expired. The Tax Court also found that the Wisconsin notice was invalid as to SCC because it wasn't sent to its last known address, and that the first petition wasn't “in respect of” SCC's deficiency under Code Sec. 6503(a)(1). Accordingly, the Tax Court held that the invalid notice didn't suspend the limitations period as to SCC, the first petition filed in response to the invalid notice didn't suspend the limitations period, IRS's assessment against SCC was untimely, and the notices of transferee liability were untimely.

The sole issue on appeal was whether the first petition was a “proceeding in respect of the deficiency” that suspended the limitations period under Code Sec. 6503(a)(1). The parties agreed that, if it was, the transferee liability notices were timely.

Looking at the plain language of Code Sec. 6503(a)(1), and bearing in mind that statutes of limitation barring tax collections or assessments by IRS are “strictly construed in the government's favor” (Atl. Land & Improvement Co. v. U.S., (CA 11 1986)), the Eleventh Circuit found that the first petition qualified as a proceeding sufficient to suspend the limitations period. Thus, the limitations period was suspended, and the transferee liability notices were timely issued.

Shockley V. Comm,(CA 11 7/11/2012)

Read more at: Tax Times blog

 
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