The taxpayer in the case of Evert v. Commissioner, TC Memo 2022-48[1] argued that she had signed a Form 872, Consent to Extend the Time to Assess Tax, under duress, rendering it invalid and, thus, the IRS had failed to timely issue a notice of deficiency for 2015.  The Tax Court did not agree with the taxpayer.

Period of Limitations for the IRS to Assess Tax

IRC §6501 provides time limits for the IRS to assess and collect federal taxes.  Such a limitation allows taxpayers to be relieved from having to defend against tax assessments in perpetuity, since once the appropriate statute has closed the IRS can no longer assess tax against the year in question.

The limitation on assessment is found in IRC §6501(a) which provides:

(a) General rule. Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. For purposes of this chapter, the term “return” means the return required to be filed by the taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit).

The law does allow the IRS and the taxpayer to agree to extend this time period.  While it might seem against the taxpayer’s interests to extend the time period in question, extending the time period allows the matter to remain at the examination or appellate level, when the alternative would likely be the taxpayer facing the issuance of a notice of deficiency for the maximum possible assessment based on the data the IRS possesses as the statute approaches.  At that point, the taxpayer’s options would be:

• File a petition in the U.S. Tax Court to continue to contest the proposed assessment;

• Pay the tax due. then pursue relief with a claim for refund followed by filing a petition in the U.S. District Court or U.S. Court of Federal Claims; or

• Simply paying the balance due without contesting the amounts.

Due to the costs inherent in litigation, a taxpayer might find that neither of the first two options would likely be cost effective, even if the taxpayer prevailed.  Thus, the choice might really be between extending the statute or paying a maximum assessment.

Even if the math does work to contest the matter in court, the taxpayer may nevertheless prefer to avoid those costs if possible and continue working with the IRS at the administrative level.

IRC §6501(c)(4) provides for the extension by agreement:

(c) Exceptions.

…

(4) Extension by agreement.

(A) In general. Where, before the expiration of the time prescribed for the assessment of any tax imposed by this title, except the estate tax provided in chapter 11, both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

(B) Notice to taxpayer of right to refuse or limit extension. The Secretary shall notify the taxpayer of the taxpayer's right to refuse to extend the period of limitations, or to limit such extension to particular issues or to a particular period of time, on each occasion when the taxpayer is requested to provide such consent.

The IRS will typically initiate the conversation about extending the statute a number of months before the statute is set to expire. 

Facts of This Case

In this case the taxpayer’s 2015 return had been examined and, upon conclusion of the exam, the taxpayer took the case to the IRS Office of Appeals. The IRS assigned the case to an Appeals Officer who initiated contact with the taxpayer:

On April 23, 2018, AO Mack mailed petitioner Letter 5157, Non-docketed Acknowledgement & Conference, and requested that she call him by May 5, 2018. After AO Mack did not hear from petitioner, he attempted to reach her by phone on May 10, 2018. On May 21, 2018, AO Mack reached petitioner and scheduled a telephone conference for June 4, 2018. Petitioner later requested that the IRS Appeals conference be rescheduled to June 11, 2018, and AO Mack agreed.[2]

The conference went forward on the scheduled date:

During the June 11, 2018, conference, AO Mack told petitioner that he needed additional information in order to consider her positions. AO Mack agreed to leave the file open so that petitioner had time to gather the additional information to support her arguments and did not give petitioner a firm deadline. On July 9, 2018, petitioner contacted AO Mack by phone, telling him that she had gathered some additional information and would get more information later that week. Petitioner did not send any additional information in July 2018.[3]

The statute was due to expire in April of 2019 on the taxpayer’s timely filed 2015 return that was the subject of the review.  That brought it within the timeframe when IRS procedures require those handling the case to deal with the pending expiration of the statute:

In early August 2018 AO Mack prepared two reports that were due to his manager at the beginning of each month: a list of his oldest cases and a list and status summary of his cases where the period of limitations for assessment would expire in the subsequent nine months (period expiration report). AO Mack’s August 2018 period expiration report included petitioner’s case because he calculated that the period of limitations for assessment of tax for tax year 2015 would expire within nine months. AO Mack was required to report his actions taken to protect the period of limitations for each case. After evaluating the status of petitioner’s case, AO Mack decided to seek her consent to extend the period of limitations because he had not received any information from petitioner since her followup call on July 9, 2018.[4]

The Appeals Officer sent the following information to the taxpayer as part of the request for her to consent to an extension of the statute:

On August 2, 2018, AO Mack mailed to petitioner: (1) Letter 967 (Rev. 12-2016), Consent Extending Period of Limitation Transmittal, (2) Form 872 (Rev. 7-2014), Consent to Extend the Time to Assess Tax, for tax year 2015, and (3) IRS Publication 1035 (Rev. 9-2017), Extending the Tax Assessment Period. The Letter 967 included the following statement: “The law limits the amount of time we can assess additional tax on your federal return. This limitation period will expire before Appeals can complete the consideration of your case. Therefore, we request that you agree to extend the period.” The Form 872 mailed to petitioner included the following statement, titled “Your Rights as a Taxpayer”:

You have the right to refuse to extend the period of limitations or limit this extension to a mutually agreed-upon issue(s) or mutually agreed-upon period of time. Publication 1035, Extending the Tax Assessment Period, provides a more detailed explanation of your rights and the consequences of the choices you may make. If you have not already received a Publication 1035, the publication can be obtained, free of charge, from the IRS official who requested that you sign this consent or from the IRS’ web site at www.irs.gov or by calling toll free at 1-800-TAX-FORM (1-800-829-3676). Signing this consent will not deprive you of any appeal rights to which you would otherwise be entitled.

The Publication 1035 mailed to petitioner was a four-page document explaining: (1) the statute of limitations for assessment of tax; (2) why the Commissioner may request that a taxpayer consent to extend the period of limitations for assessment; (3) the taxpayer’s options and rights when the Commissioner requests such a consent; and (4) what actions the Commissioner may take in response to the taxpayer’s choices. Publication 1035 explained that the Commissioner will request an extension of the period of limitations if it will soon expire because “additional time allows [the taxpayer] to provide further documentation to support [his or her] position [or] request an appeal if [he or she does] not agree with the examiner’s findings.” Publication 1035 further explained that a taxpayer has three options when the Commissioner requests a consent: (1) sign an unconditional consent; (2) negotiate consent terms; or (3) refuse to sign the consent. Publication 1035 included a detailed explanation of what happens if a taxpayer refuses to sign the consent, including the following:

If [the taxpayer] choose[s] not to sign the consent, [the Commissioner] will take steps that will allow [the Commissioner] to assess any tax [the Commissioner] determine[s] to be due. These steps begin with the issuance of a formal notice [of deficiency] . . . [that] neither requires that [the taxpayer] make an immediate payment, nor that [the taxpayer] immediately take [his or her] case to the Tax Court.[5]

The Court notes that Ms. Evert received the documents.  She signed and returned the consent.

Petitioner received the Letter 967, Form 872, and Publication 1035 that AO Mack mailed. On August 12, 2018, petitioner signed and returned the Form 872, agreeing to extend the period of limitations for assessment of tax for tax year 2015 to April 15, 2020. AO Mack received the signed Form 872 and, on August 16, 2018, signed the Form 872 on behalf of the IRS.[6]

While the taxpayer did promptly respond to the request to extend the statute, she still failed to provide the information she had promised to get the Appeals Officer by the end of July 2018, leading to an eventual issuance of notices of deficiency both for the 2015 year for which the statute had been extended and tax year 2016 which had also been part of the exam:

After the Form 872 was signed, AO Mack continued to provide petitioner with the opportunity to present her positions and supporting documents in IRS Appeals for several months. Ultimately, respondent mailed the notice of deficiency for tax years 2015 and 2016 on April 17, 2019.[7]

While the taxpayer did not contest the assessment for 2016 in Tax Court, she did argue that the 2015 notice of deficiency had not been timely mailed to her:

Petitioner timely petitioned this Court to challenge the determinations in the notice of deficiency. After the case was docketed, petitioner moved to amend her Petition to argue that she had signed the Form 872 under duress, that the Form 872 is accordingly invalid, and that respondent failed to timely mail the notice of deficiency before the period of limitations for assessment of tax for tax year 2015 expired.[8]

If the taxpayer’s assertion that the Form 872 was invalid was correct, then the IRS would lose the ability to pursue the assessment against 2015 as the clock had expired.

The Tax Court’s Analysis and Decision

The Tax Court described the situation as follows:

The parties agree that petitioner timely filed her return for tax year 2015 and that the three-year limitations period provided for under section 6501(a), without extension, would have expired before the date on which respondent mailed the notice of deficiency for tax year 2015. Thus, petitioner has made the requisite prima facie showing. Respondent has introduced a Form 872 signed by petitioner on August 12, 2018, valid on its face, which extended the period of limitations through April 15, 2020. Therefore, respondent has discharged his burden of going forward. See Ballard v. Commissioner, T.C. Memo. 1987-471, 1987 Tax Ct. Memo LEXIS 467, at *6–7 (holding that the Commissioner met his burden of going forward when he introduced a Form 872, signed by the taxpayers on a date six months before the date the period of limitations was due to expire), aff'd without published opinion, 851 F.2d 359 (5th Cir. 1988).

Where the Commissioner has introduced an apparently valid consent and the taxpayer asserts that the consent was ineffective, it is then the taxpayer's burden to affirmatively show the written consent is not valid. Mecom, 101 T.C. at 382–83; Concrete Eng'g Co., 19 B.T.A. at 221–22; Ballard, 1987 Tax Ct. Memo LEXIS 467, at *6–7. Therefore, petitioner bears the burden of proving her contention that she signed Form 872 under duress.[9]

If the taxpayer could establish that the document had been signed under duress, the matter would be settled since the Court noted the parties had agreed the actual notice was mailed after the date the statute would have expired without a valid extension.

The Tax Court goes back to a 1929 Board of Tax Appeals case to describe what constitutes duress in the tax setting:

The Board of Tax Appeals defined duress in Diescher v. Commissioner, 18 B.T.A. 353, 358 (1929), as follows:

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 contracts made in such circumstances are void because there has been no voluntary meeting of the minds of the parties thereto.

The Board of Tax Appeals held that the taxpayer signed a waiver of the period of limitations under duress when the Commissioner threatened to impose a 100% fraud penalty should the taxpayer fail to sign the waiver. Id. at 357–59. In invalidating the waiver, the Board of Tax Appeals explained that the parties “were not dealing with each other at arm's length” and that the taxpayer “was not acting with a free will, but was coerced by the will of the [Commissioner].” Id. at 358–59.[10]

However, the Tax Court notes that not all statements made by IRS personnel related to what will happen if an extension is not granted rise to the level of duress:

We have also held that “actions that deprive another of her freedom of will are distinguishable from legally authorized actions that merely limit another to choose between options that are not desirable.” Hall v. Commissioner, T.C. Memo. 2013-93, at *12. Hence, it is not duress when the Commissioner makes statements informing a taxpayer that lawful means to assess and collect the tax will be used. Burnet v. Chi. Ry. Equip. Co., 282 U.S. 295, 303 (1931); Mulford v. Commissioner, 25 B.T.A. 238, 242–43 (1932), aff’d, 66 F.2d 296 (3d Cir. 1933). Accordingly, we have held that a taxpayer did not sign a consent under duress when the Commissioner told the taxpayer that an opportunity for an IRS Appeals conference would not be allowed if the taxpayer failed to sign a consent. Ballard, 1987 Tax Ct. Memo LEXIS 467, at *8 (reasoning that 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); Jarvis, 1980 Tax Ct. Memo LEXIS 207, at *9–10 (explaining that the Commissioner’s refusal to conduct an IRS Appeals conference without the taxpayers’ execution of Form 872 was a necessary step in the Commissioner’s pursuit of the lawful means provided for income tax assessment because holding an IRS Appeals conference without extending the period of limitations would have caused the Commissioner to issue an untimely notice of deficiency).[11]

The information available from the Appeals Officer indicated that his communications with the taxpayer were of the informational nature, not threats that rose to the level of duress:

We conclude that petitioner has not met her burden of showing that she signed Form 872 under duress. AO Mack’s testimony, his contemporaneous case notes, and the documentary evidence in the record support respondent’s assertion that AO Mack requested by mail that petitioner consent to extend the period of limitations for tax year 2015 and advised petitioner that her failure to consent would cause AO Mack to close her IRS Appeals conference without giving her much additional time to provide documents. AO Mack’s communications were statements about how respondent would act to assess and collect the tax he believed petitioner owed.[12]

However, the taxpayer alleged that the Appeals Officer had a conversation with the taxpayer before he mailed the forms where she alleged he made statements that would rise to the level of duress:

Petitioner testified that AO Mack had a conversation about the consent form with her before he mailed it to her on August 2, 2018, where he allegedly made statements about what would happen if she refused to consent to extend the period of limitations.[13]

The Appeals Officer denied that any such conversation ever took place:

AO Mack flatly denied that any conversation took place and testified that he “cold” mailed Form 872, along with Letter 967, and Publication 1035.[14]

In a footnote, the Court discussed a number of points on which the Appeals Officer contradicted the taxpayer’s testimony beyond just this issue:

AO Mack directly contradicted petitioner’s testimony on several points, including whether they discussed the consent form before AO Mack’s sending it on August 2, 2018. AO Mack’s testimony and case notes also directly contradicted petitioner’s testimony that she had already sent AO Mack additional documents substantiating some of her tax positions, he had agreed to accept her documents as sufficient to substantiate her positions, and he had threatened to go back on his agreements if she did not sign the consent. AO Mack testified that petitioner had not provided additional documentation before he mailed the consent forms on August 2, 2018.[15]

The Court notes that since it has directly conflicting testimony, the Court has to consider the credibility of the witnesses.

And now the taxpayer faced a problem, as the Court found the Appeals Officer credible, noting:

We found AO Mack to be credible. He was an experienced IRS Appeals officer, and his testimony demonstrated significant competence in IRS procedures and administration. Moreover, his testimony was supported by, and made sense in the light of, other evidence in the record. His testimony was consistent with his written case notes and the documents mailed to petitioner on August 2, 2018. We find that AO Mack was not scrambling to get petitioner's consent; he had plenty of time to allow her to receive the documents in the mail, review them, and consider his request.[16]

Conversely, the Court did not find the taxpayer’s presentation sufficiently credible to overcome her burden:

Apart from petitioner’s testimony, there is no evidence that AO Mack had any conversation with petitioner about the consent form. Faced with AO Mack’s credible testimony and the other evidence in the record, we did not find petitioner’s testimony sufficient to meet her burden. Petitioner’s testimony was uncorroborated and vague, lacked critical detail, and was not believable in the light of other evidence in the record.5 For instance, petitioner could not recall the date on which she allegedly spoke to AO Mack about the period of limitations before he sent the consent documents. We find that AO Mack “cold” mailed the Letter 967, Form 872, and Publication 1035 to petitioner, and that petitioner was not under duress when she signed and mailed back the Form 872.[17]

Although the Court doesn’t go into details, the recitation of items that the Appeals Officer testified that were at odds with the taxpayer suggests a key problem was that the AO’s statements were such that the taxpayer arguably should have been able to provide additional evidence to show they were untrue. 

For instance, if the taxpayer had provided copies of the additional documents she had provided the agent after the July meeting, that would have gone a long way to damage the AO’s credibility.  Similarly, had she been able to give a date for the phone conversation that took place after their initial conference but before the request to extend the statute had been mailed, phone records documenting the call would have likely been devastating to the AO’s credibility.  But her inability to provide any such date or records itself became a problem for her credibility.

[1] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/consent-to-extend-assessment-period-wasn%e2%80%99t-under-duress/7dgsw (retrieved May 10, 2022)

[2] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/consent-to-extend-assessment-period-wasn%e2%80%99t-under-duress/7dgsw (retrieved May 10, 2022)

[3] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[4] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[5] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[6] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[7] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[8] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[9] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[10] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[11] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[12] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[13] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[14] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[15] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[16] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022

[17] Evert v. Commissioner, TC Memo 2022-48, May 9, 2022