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Sanderling Inc. v. Commissioner of Internal Revenue

argued: January 13, 1978.

SANDERLING, INC., APPELLANT,
v.
COMMISSIONER OF INTERNAL REVENUE, APPELLEE



ON APPEAL FROM THE DECISION OF THE UNITED STATES TAX COURT, WASHINGTON, D.C. (Tax Court No. 7167-73).

Adams and Weis, Circuit Judges, and Coolahan, District Judge.*fn*

Author: Weis

Opinion OF THE COURT

WEIS, Circuit Judge.

Whether waivers of the statute of limitations and an IRS statutory notice of deficiency were in themselves deficient is the question presented in this appeal from a redetermination by the Tax Court. We conclude taxpayer's challenge to the statutory notice must fail. However, we do agree with the taxpayer that no penalty for late filing should be imposed because responsibility for properly preparing and filing a return was entrusted to a C.P.A. In the circumstances present here, the taxpayer's reliance on professional assistance was not shown to be unreasonable when the IRS later demonstrated confusion on when the return should have been filed. Accordingly, we will affirm the decision of the Tax Court except that the penalty will be stricken.

The taxpayer corporation was chartered under the law of New Jersey in 1963, and on November 20, 1968, adopted a plan of complete liquidation under I.R.C. § 337, 26 U.S.C. § 337. As part of the arrangement, William A. Sternkopf, Jr. and John M. Pillsbury, officers and directors of the corporation, were appointed trustees in dissolution for the benefit of the stockholders as was then the practice under New Jersey law.

On January 22, 1969, the corporation distributed all of its assets to the trustees in dissolution. This action was taken despite the fact that a New Jersey statute*fn1 provided that on and after January 1, 1969 the power to act on behalf of a dissolved corporation became vested in the directors as such, rather than a trustee.

The corporation turned over its books and records to John P. Morro, Sternkopf's partner in an accounting firm and a Certified Public Accountant licensed by the State of New Jersey. Morro was directed to prepare and file the corporate income tax returns. On May 14, 1969, he mailed to the Internal Revenue Service the return for the short taxable period running from March 1, 1968 to January 22, 1969.

During the process of examining the tax return, the IRS and the corporation entered into two agreements to extend the time within which a statutory notice of deficiency must issue. The first, executed for the taxpayer corporation by Sternkopf, purported to extend the period of limitations on assessment to October 15, 1972 and was signed as follows: "Sanderling, Inc., William A. Sternkopf, Jr., Trustee for Stockholders." The second, enlarging the limitation period to June 30, 1973, was signed by the accountant Morro acting under authority of a power of attorney executed on behalf of taxpayer by Sternkopf and Pillsbury. Both agreements were signed on behalf of IRS by two revenue agents who had orally been designated acting group supervisors.

Initially the examining agent for the IRS insisted that the corporation had not liquidated until April, 1971, and that it should have filed a return for the full year ending February 28, 1969 (the end of the corporation's fiscal year), as well as for calendar years thereafter. A statutory notice was issued on June 29, 1972 claiming a deficiency for the period ending February 28, 1969 based upon a sale of land and adjustments for the taxable periods following.*fn2

In his amended answer in the Tax Court, the Commissioner conceded that the corporation had, in fact, liquidated as of January 22, 1969, that there was a deficiency of $42,574.95 for that taxable year, and none for subsequent years. The Commissioner further claimed a penalty of $4,257.50 under I.R.C. § 6651(a), 26 U.S.C. § 6651(a), because of late filing of the 1969 return.

At trial, the issues were limited to (1) the validity of the statutory deficiency notice; (2) the efficacy of the consents to extend the statute of limitations; and (3) the imposition of the penalty for failure to timely file.

The Tax Court decided it had jurisdiction to redetermine the deficiency notwithstanding errors in the statutory notice; the consent forms executed by Sternkopf, Morro, and the IRS acting group supervisors did bind the taxpayer, and consequently, the notice of deficiency properly issued; and the imposition of the penalty under I.R.C. § 6651(a) for late filing of the return was proper.

Taxpayer contends that the statutory notice contained a number of errors. The notice listed a deficiency for the taxable year March 1, 1968 to February 28, 1969, as well as for the additional periods which were later conceded to be inapplicable. Since it was determined that the return should have covered only the short year March 1, 1968 to January 22, 1969,*fn3 taxpayer asserts that the notice was for an incorrect period. Because a valid notice of deficiency is required to vest the Tax Court with jurisdiction of a ...


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