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United States v. Elton

May 3, 2006

UNITED STATES OF AMERICA, PLAINTIFF,
v.
ROGER DAVID ELTON, DEFENDANT.



The opinion of the court was delivered by: E. Thomas Boyle United States Magistrate Judge

MEMORANDUM OPINION AND ORDER

This tax collection case concerns tax assessments for income earned by defendant Roger David Elton ("Elton" or "defendant") during tax years 1988, 1989, 1990, and 1991. The relevant facts, as set forth in the complaint, the parties' Rule 56.1 Statements, and other documents submitted in connection with defendant's motion for summary judgment and the government's cross-motion for summary judgment, are undisputed unless otherwise noted.

OVERVIEW

The issue in this action is whether the statute of limitations ("SOL") has run. The IRS has ten years from the date of a tax assessment to collect a tax due and owing. 26 U.S.C. § 6502(a). The defendant's tax liabilities for the tax year 1988 and 1989 were assessed on March 4, 1991, the tax liability for tax year 1990 was assessed on November 25, 1991, and the tax liability for tax year 1991 was assessed on June 8, 1992. (Certificates of Official Record and Forms 4340 for Defendant for tax years 1988, 1989, 1990, and 1991, annexed to Steiner Decl. as Exhs. A-D.) The parties do not dispute the assessment dates. With respect to tax year 1991, the government states that the defendant does not dispute that the Court should grant summary judgment in favor of the government. (Pl.'s Mem. at 1.) While defendant does not explicitly so state, it is true that the defendant does not address tax year 1991 in any of his arguments or submissions. (See, e.g., Def.'s Mem. at 17 ("Consequently, the claims in the Complaint for tax liabilities for the tax years 1988, 1989, and 1990 are barred by the SOL."); see also Def.'s Mem. at 9, 15.) Thus, this dispute primarily concerns whether the government's complaint for tax years 1989, 1989, and 1990 was timely filed.

The ten-year SOL set forth in 26 U.S.C. § 6502(a) can be tolled by certain events, such as the taxpayer's filing of a petition for bankruptcy, or the period during which a taxpayer's offer-in-compromise ("OIC") is under consideration. 26 U.S.C. § 6503 (setting forth the tolling period where the taxpayer is in bankruptcy) and IRS Form 656 (setting forth the tolling period where an OIC filed by the taxpayer is under consideration by the IRS).

The defendant here filed two bankruptcy petitions: (1) a bankruptcy petition filed on February 13, 1996 that terminated on May 23, 1996; and (2) a bankruptcy petition filed on August 5, 1996 that terminated on July 1, 1997. Under 26 U.S.C. § 6503, tax collection is prohibited until the debtor emerges from bankruptcy, and for an additional six months thereafter.

26 U.S.C. § 6503. Thus, the defendant's two bankruptcies had the effect of tolling the statute for 1 year plus 323 days, or 688 actual days-- from February 13, 1996 through January 1, 1998-- six months after the termination of the second bankruptcy petition. The parties do not dispute the amount of time that the statute was tolled due to the bankruptcies. (Pl.'s Mem. at 2; Def.'s Mem. at 13.)

The dispute in this case concerns the amount of time that the statute was tolled by the filing of defendant's November 13, 1992 OIC, June 14, 1993 OIC, April 12, 1994 OIC, and July 21, 1994 OIC, and the effect of the Restructuring and Reform Act, PL 105-206, § 3461(c), on the private extension agreements entered here between the taxpayer and the IRS.

I. THE FACTS

Defendant Roger David Elton filed his tax returns for tax years 1986, 1987, 1988, and 1989 on February 21, 1991. (Amended Affidavit of Roger David Elton ("Elton Am. Aff.") ¶ 10.) On February 21, 1991, Elton authorized his tax attorney at that time, Michael A. Zimmerman ("Zimmerman"), to hand deliver the returns for tax years 1986, 1987, 1988, and 1989 to an IRS agent at the IRS offices located at 1501 Broadway, New York, New York. (Id.) Defendant filed his 1990 income tax return on October 22, 1991, after receiving one extension to August 15, 1991. Elton subsequently also filed his return for 1991. (Id. ¶ 11.)

On March 4, 1991, plaintiff United States of America ("United States" or "government") assessed additional taxes, including penalties and interest, against Elton for tax years 1986, 1987, 1988 and 1989. (Defendant's Rule 56.1 Statement of Facts ("Def.'s Rule 56.1 Statement") ¶¶ 1-2; Plaintiff's Rule 56.1 Counter Statement of Facts ("Pl.'s Rule 56.1 Counter Statement") ¶¶ 1-2.) On November 25, 1991, the government assessed tax liabilities for Elton for tax year 1990. (Def.'s Rule 56.1 Statement ¶ 3; Pl.'s Rule 56.1 Counter Statement ¶ 3.) On June 8, 1992, the government assessed tax liabilities for Elton for tax year 1991. (Def.'s Rule 56.1 Statement ¶ 4; Pl's Rule 56.1 Counter Statement ¶ 4.)

From May, 1991 through February, 1992, Elton voluntarily made monthly installment payments totaling approximately $45,000. (Def.'s Mem. in Supp. at 3.) The IRS credited Elton's payments against his liabilities chronologically in the order that they arose, and both parties agree that the assessments for 1986 and 1987 have been paid. (Id.; Pl.'s Mem. at 4.) The taxpayer acknowledges that the sole issue before the Court is whether this action is timely. (Am. Aff. of Roger David Elton, ¶ 5.) The Court will deem the Certificates of Official Record and Forms 4340 filed by the government in opposition to defendant's motion for summary judgment to be in support of the government's cross-motion for summary judgment for an order reducing to judgment the income tax assessments for 1988, 1989, 1990 and 1991.*fn1

A. The November 13, 1992 Offer In Compromise

The first Offer-In-Compromise ("OIC") Elton submitted was dated November 13, 1992 (the "November 13, 1992 OIC"). (Def.'s Rule 56.1 Statement ¶ 5; Pl.'s Rule 56.1 Counter Statement ¶ 5.) This OIC, submitted on IRS Form 656 and accompanied by a letter dated November 18, 1992 from Elton's tax attorney, Zimmerman, proposed that Elton would pay $68,500 over a ten (10) month period, in addition to the regular monthly payments he had been making, to satisfy his entire aggregate tax liability for all previous years. (Elton Am. Aff. ¶ 18; November 13, 1992 OIC, annexed to Elton Am. Aff. as Exh. B.) The government accepted defendant's November 13, 1992 OIC for processing on December 15, 1992. (Def.'s Rule 56.1 Statement ¶ 6; Pl.'s Rule 56.1 Counter-Statement ¶ 6.)

B. The June 14, 1993 Offer In Compromise

Defendant contends that, having received no response from the IRS to his November 13, 1992 OIC, he sought to revise his offer because his financial situation had deteriorated. (Def.'s Mem. at 6.) On June 15, 1993, Elton submitted another Form 656 OIC to the IRS, dated June 14, 1993 (the "June 14, 1993 OIC"), with a letter from Zimmerman to IRS Officer Jerry Freda, dated June 15, 2003, stating "I am enclosing a revised Offer in Compromise in which Mr. Elton is offering to pay the same $68,500.00, but he is respectfully requesting that you extend the time within which he can pay it from ten (10) months to twenty-one (21) months." (Def.'s Mem. at 6; see also June 14, 1993 OIC, annexed to Elton Am. Aff. as Exh. D; Letter from Michael A. Zimmerman to IRS Officer Jerry Freda, dated June 15, 1993, annexed to Elton Am. Aff. as Exh. C.) Defendant states that he was thereafter informed that Elton could not "revise" his November 13, 1992 OIC, but rather, that Elton should withdraw the November 13, 1992 OIC and submit another. (Def.'s Mem. at 6.) Zimmerman prepared another letter, dated June 24, 1993, to IRS Officer Jerry Freda, stating: "This letter is to confirm that on behalf of the above listed Taxpayer, we hereby withdraw the Form 656, Officer In Compromise dated November 13, 1992 and substitute in lieu thereof the Form 656, Offer In Compromise previously furnished to you dated June 14, 1993." (Letter from Michael A. Zimmerman to IRS Officer Jerry Freda, dated June 24, 1993, annexed to Elton Am. Aff. as Exh. E.) Defendant contends that thereafter, the government required him to submit the June 14, 1993 OIC yet another time, separately from the withdrawal letter. (Def.'s Mem. at 7.) Defendant states that, therefore, he sent the IRS a transmittal cover letter, dated July 19, 1993, enclosing the June 14, 1993 OIC for formal re-submission. (Id.; see also Letter from Michael A. Zimmerman to IRS Officer Jerry Freda, dated July 19, 1993, annexed to Elton Am. Aff. as Exh. G. ("Enclosed please find the fully executed Offer In Compromise as signed by Mr. Roger D. (David) Elton.").)

The defendant's June 14, 1993 OIC was accepted for processing and consideration on August 13, 1993. (See Certificates of Official Record and Forms 4340 for Defendant for tax years 1989, 1990, and 1991, annexed to Declaration of David M. Steiner in Opp'n to Def.'s Mot. for Summary Judgment ("Steiner Decl.") as Exhs. B-D.)

C. The July 29, 1993 Letter from the IRS to the Defendant

Both parties agree that the IRS responded with a letter from Robert L. Douglas to the defendant, dated July 29, 1993, stating in relevant part the following:

This refers to your offer of $68,500.00 submitted to compromise your liability for income taxes for the years 1986, 1987, 1988, 1989, 1990 and 1991.

In your letter of June 24, 1993 you state in part: "We hereby withdraw the Form 656, Offer in Compromise dated November 13, 1992."

The offer is considered withdrawn as of June 24, 1993, the date your letter was received. * * * * (Letter from Robert L. Douglas to Roger D. Elton, dated July 29, 1993, annexed to Elton Am. Aff. at Exh. F.) Defendant contends that because the letter explicitly states that the November 13, 1992 OIC was considered withdrawn as of June 24, 1993, the SOL began tolling again on June 24, 1993. (Def.'s Mem. at 8.) The government argues, based on case law and the language of Form 656, that despite the language of the letter, the November 13, 1992 OIC remained pending until July 29, 1993, the date that the IRS stated in writing that the OIC was withdrawn. (Pl.'s Mem. at 9-10.)

D. The March 2, 1994 Letter from the IRS to Defendant

Thereafter, the IRS sent defendant a letter, dated March 2, 1994, which refers to the June 14, 1993 OIC, and states:

We have considered your offer in compromise and regret that an acceptable arrangement has not been reached. The reason [the] offer is not acceptable is because the tax is held to be legally due and an amount larger than the offer appears to be collectible. We do not have the authority to accept an offer in these circumstances. If you accept our findings, or do not intend to protest it, please write or call us. We will then handle your case on the basis of that finding.

If you do not accept our findings and want a hearing, you should send us your request within 30 days from the date of this letter. We will forward it to the Office of Regional Director of Appeals and they will contact you to arrange an appointment. A written protest is required for a hearing in all cases where the total liability exceeds $2,500.00 for any taxable year or period. Please refer to the attached statement for instructions on preparing the written appeal. A statement of facts supporting your position on any contested issue must be included in the appeal.

If we do not hear from you within 30 days, your offer will be rejected. We must therefore ask you to pay your account in full as soon as possible. If you have any questions, please contact S. Irizarry, Advisor, Accounts Management Special Processing Branch, at telephone number (212) 264-8323.

(Letter from Robert L. Douglas to Roger D. Elton, dated March 2, 1994, annexed to Elton Am. Aff. at Exh. I.)

The parties also dispute the import of this letter. Defendant asserts that this letter constituted a rejection of defendant's June 14, 1993 OIC, and that therefore, the statute of limitations began to run again on March 2, 1994. (Def.'s Mem. at 7-8.) The government argues that the IRS did not reject defendant's June 14, 1993 OIC because defendant contacted the IRS within 30 days of the date that the IRS sent its letter, thereby further delaying the government from finally rejecting the offer. (Pl.'s Mem. at 13-14; see Letter from Robert L. Douglas to Roger D. Elton, dated March 2, 1994, annexed to Elton Am. Aff. at Exh. I (stating "If we do not hear from you within 30 days, your offer will be rejected."). ) The government maintains that the June 14, 1993 OIC remained pending until January 10, 1995, the date the IRS stated in writing defendant's withdrawal of the OIC. (Id.)

E. The April 12, 1994 Offer in Compromise

Defendant asserts that -- within the above 30-day period-- on April 1, 1994, he faxed a letter dated March 31, 1994 to the IRS, stating:

I am writing to confirm our telephone conversation this morning wherein we agreed that I would re-submit my Offer in Compromise to reflect the change in my personal circumstances. Per our discussion, the new Offer with supporting information will be to you by April 12, 1994. I appreciate your time and cooperation. As I said, at this time no one is gaining; I am anxious to resolve this matter as quickly as possible.

(Letter and cover sheet from Roger D. Elton to Ms. Irizarry, dated March 31, 1994, annexed to Declaration of David M. Steiner ("Steiner Decl.") as Exh. 1.)

Thereafter, defendant submitted another Form 656 Offer in Compromise to the IRS, dated April 12, 1994 (the "April 12, 1994 OIC"). (Form 656 Offer in Compromise, dated April 12, 1994, annexed to Steiner Decl. as Exh. 2.) In the April 12, 1994 OIC, defendant offered to compromise his liabilities for tax years 1987, 1988, 1989, 1990, and 1991 for $40,235. (Id.) Defendant also sent the April 12, 1994 OIC to IRS Revenue Officer Mr. DeMaria, with a letter dated May 5, 1994, in which defendant stated in relevant part:

As we have discussed, I am enclosing the complete package of what I submitted to Ms. S. Irizarry at Church St. As a brief recap, I spoke to Ms. Irizarry before sending this Offer to discuss the earlier offer that had been sent. After that conversation, it was agreed that because my circumstances had changed, I should submit the enclosed April 12, 1994 Officer in Compromise. So, this is now the official "of record" Offer under ...


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