In Evert v. Commissioner, T.C. Memo 2022-48, the Tax Court addressed a statute of limitations defense raised by petitioner. Petitioner had signed a Form 872 consenting to the extension of the statute of limitations on assessment; however, she argued that she did so under duress which invalidated the consent. For reasons discussed below, the Court found that the consent was valid and, therefore, the notice of deficiency was timely issued. While duress arises regularly in the joint return context, it also comes into play regularly in the consent context and particularly with unrepresented taxpayers.
In the Tax Court case, Ms. Evert received representation from the low income taxpayer clinic at Syracuse Law School. Syracuse has an excellent clinic headed by Rob Nassau. Unfortunately, Ms. Evert found representation after signing the consent and petitioning the Tax Court. Had she found the clinic earlier, she could have had a meaningful discussion with her representative regarding the decision of whether to sign the Form 872.
Bryan Camp wrote an excellent post on this case focusing on the calculation of the assessment period expiration date (ASED). The ASED is a big deal for exam and Appeals. Missing the ASED was once an almost career ending offense for revenue agents and appeals officers. They carefully monitored every case in their inventory to insure that they were not holding a case as the time expired.
The IRS selected Ms. Evert’s 2015 and 2016 returns for exam. She disagreed with the results of the examination and filed an administrative appeal upon receipt of the 30 day letter. I almost never see pro se taxpayers avail themselves of the opportunity to go to Appeals at this stage. My clients always seem to go straight from exam to Tax Court and catch Appeals after the petition.
The court provided a paragraph of explanation of the Appeals Officer’s (AO) background. Because the actions of the AO stood at the heart of the case, the background material assists in understanding the case. He was former military, former SSA hearing officer, former attorney in private practice and former FBI agent before joining Appeals. His background became important because his credibility was important in deciding whether he exerted undue pressure on Ms. Evert to sign the extension form.
The AO reached out to petitioner to schedule a conference and to gather information she might provide in support of her case. She was somewhat slow in providing information. Her case ended up on a report in Appeals showing cases in which the statute of limitations on assessment would expire in nine months. As mentioned above, the IRS takes the statute of limitations on assessment very seriously and the AO decided that obtaining a statute extension would best serve this case.
This part of the case provides good instruction for anyone not familiar with underlying motivations at the IRS. Here, the decision to continue working with Ms. Evert tied closely to the concerns at Appeals that the statute of limitations was getting close. While nine months may seem like plenty of time, lots of steps need to occur in resolving a case and no one at the IRS wants to feel pushed by a deadline if they can help it. The reports the AO had to file identified Ms. Evert’s case as one requiring attention.
So, the AO wanted closure or more time on the statute of limitations and Ms. Evert wanted more time to respond to the request for information. Each side needed something but the IRS had what some might consider the upper hand since it could issue the notice of deficiency if its comfort level dipped too low. To gain more time to work with Appeals, Ms. Evert signed the consent form. Did the pressure to do so exceed the normal pressures that exist in this situation? That’s what the Court has to decide.
The burden to show that the AO obtained the consent by duress falls on Ms. Evert. The Court quoted from an old Board of Tax Appeals case, Diescher v. Commissioner, 18 B.T.A 353, 358 (1929) to define duress:
In modern jurisprudence the definition of duress has been enlarged much beyond the narrow limits recognized in the common law. It is now well settled that if an act of one party deprives another of his freedom of will to do or not to do a specific act the party so coerced becomes subject to the will of the other, there is duress, and in such a situation no act of the coerced person is voluntary and [*7] contracts made in such circumstances are void because there has been no voluntary meeting of the minds of the parties thereto.
In Diescher the Court found that the taxpayer signed the waiver under duress because the IRS threatened to impose the fraud penalty if he did not sign. The Tax Court has also held on numerous occasions that simply advising a taxpayer that an assessment will occur without a consent to extend does not rise to the level of duress stating in one case:
it was not duress for the revenue agent to inform the taxpayer that a notice of deficiency would be issued without an opportunity for administrative appeal because such statements were nothing more than notice that the Commissioner intended to use lawful means at his disposal to assess the tax.
Here, the court found that petitioner failed to meet her burden. The AO simply informed her that he would close her case without a consent holding open the statute. In finding this the Court accepted the testimony of the AO as credible and found petitioner’s testimony about statements made by the AO too vague to overcome the AO’s credible testimony about his actions. The Court distinguished Diescher because it found no evidence that the request to sign the consent was coupled with a threat of the imposition of a penalty of the taxpayer withheld consent.
Ms. Evert also cited Robertson v. Commissioner, T.C. Memo 1973-205 which held a consent invalid because the revenue agent harassed the taxpayer to sign a consent less than two weeks prior to the ASED. In finding for the petitioner in that case the court noted that the revenue agent did not testify and the court had only the testimony of the taxpayer. Here, the Court had the testimony of the AO and it found nothing in the record to suggest that the AO harassed her into signing.
I have never litigated the specific issue presented here but did once file a motion seeking to set aside a Tax Court decision document a taxpayer represented was signed after receipt of threats of the consequences of failing to sign. Under the circumstances of that case, I found the taxpayer’s assertions credible; however, the situation presented a conflict of testimony between the taxpayer and the Chief Counsel attorney. The Court denied my motion without even holding a hearing.
Cases challenging agreements whether the consent to extend or some other type of agreement put a relatively heavy burden on the taxpayer seeking to show the signing resulted from some wrongdoing on the part of the IRS. I don’t doubt Ms. Evert’s sincerity in believing that she was coerced into signing the consent but the outcome of her case does not surprise me in the least. She received the benefit of the extension and causing the IRS to lose its ability to assess puts a burden on her to show something unusual happened in the granting of the extension.