Specific Language Not Required in Consent

Field Service Advice is not binding on Examination or Appeals and is not a final case determination. Such advice is advisory and does not resolve Service position on an issue or provide the basis for closing a case. The determination of the Service in the case is to be made through the exercise of the independent judgment of the Field office with jurisdiction over the case.

A. MODIFICATION OR RESTRICTION OF CONSENT

A consent is a unilateral waiver of a defense, i.e., expiration of the period of limitations on assessment. Stange v. United States, 282 U.S. 270 (1931); Kronish v. Commissioner, 90 T.C. 684, 693 (1988). The courts, however, find that contract principles are significant in interpreting the written "agreement." Piarulle v. Commissioner, 80 T.C. 1035, 1042 (1983). The Tax Court has concluded that the terms and conditions regarding an extension are for the parties themselves to decide so long as the "agreement" is timely executed. Pursell v. Commissioner, 38 T.C. 263, 278 (1962) aff'd per curiam, 315 F.2d 629 (3d Cir. 1963). When language, such as the above, is inserted on a Form 872-A, it could be argued that the effect of the language is to render the consent a restricted one, or that the period was being modified to shorten the period to only 6 years from the filing of the return instead of the usual indefinite period. One party may argue an intention in executing the consent that differs from the intent of the other party. Thus, an indefinite consent may arguably be modified by the addition of the statutory language to be limited to 6 years.

Moreover, the addition of the statutory language may arguably impose a restriction on the adjustments that may be made. While the Service has the burden to prove a 25% omission of income, the inclusion of the statutory language may serve as a basis for the taxpayer to argue that the Service may not make other adjustments, e.g., disallowance of deductions, credits, etc. This was the issue argued in Estate of Caporella v. Commissioner, 817 F.2d 706 (11th Cir. 1987). In that case Forms 872 and 5214 contained substantially identical language and the taxpayer argued the consent only applied to reported losses from horse breeding activities and did not extend to partnership losses from movie tax shelters where the period of limitations was being extended to permit determination of activities engaged in for profit. Although the taxpayer's argument in Caporella was rejected by the Eleventh Curcuit, different facts could lead to an undesireable result.

B. LACK OF UNIFORMITY

So far as we have been able to learn at this time, there is no requirement in Part IV of the Internal Revenue Manual that such language be inserted on any consent. To allow the Southern California District "Examiner's Procedure Guide" to require language that has not been approved by the Office of Assistant Commissioner (Examination) spawns questions such as the one asked here, whether exclusion of the prescribed statutory language caused the consent to be invalid. In our opinion, the "Procedure Guide" should merely have recited the authority for taking a consent more than 3 years after the return was filed. It was not necessary to suggest a recitation in the consent because the authority exists by statute. Districts should not adopt local policies without approval by the office of the Assistant Commissioner (Examination).

In Moskovitz v. Commissioner, T.C. Memo. 1986-357, consents were secured from the taxpayers to extend the 6-year period of limitation on assessment. For TYE 1973, the taxpayers signed consents on September 15, 1979 and June 15, 1980 to extend the period of limitations to December 31, 1980 and December 31, 1981, respectively. Similarly, on June 15, 1980, for TYE 1974, the 6-year period was extended to December 31, 1981. On all of the consents for 1973 and 1974, the taxpayer expressly conditioned the consent as being applicable only if the 6-year statute applied. Consents for 1975 were executed on March 12, 1979 (within 3 years), and September 15, 1979 and June 15, 1980, extending the statute of limitations to December 31, 1979. December 31, 1980, and December 31, 1981, respectively. A notice of deficiency was issued on December 3, 1981, with respect to TYE 1973 and 1974 under extensions of the 6-year statute, and 1975 under extension of the 3-year statute. In footnote 20 of that opinion, the Tax Court stated:

C. OTHER CONCERNS

The terms of a consent are under the control of the parties. Pursell, supra. When the 3-year statute for assessment is extended, I.R.C. § 6511(c)(1) coincidentally extends the period of limitation on claims for refund to six months after the expiration of the period of limitations on assessment. This provision for refunds may have been a reason the taxpayer was willing to extend the period for assessment to 6 years. It is not necessary for the taxpayer to expressly condition his consent to an extended period for assessment, because he wants to extend the period for a refund. That issue was raised where the taxpayer extended the 6-year period for assessment. In Estate of Chism et al. v. Commissioner, 322 F.2d 956 (9th Cir. 1963), § 275(c) of the 1939 Code, the precursor for § 6501(e)(1)(A), involving a 5 year exception for a 25% omission of income, the court followed Azevedo v. Commissioner, supra, and stated: