In Uncategorized on 09/11/2017 at 17:33

When two insurance companies got the urge to merge, the successor filed a single Form 1120 for the entire year wherein the merger took place.

IRS claims there should have been a short-year 1120-PC for the predecessor, and a short year for successor, but since there wasn’t, and since the Section 368(a)(1)(F) tax-free merger was defective, IRS can go back 15 (count ‘em, 15 years) and zing successor for predecessor’s sins of omission and commission).

Negatory, says Judge Goeke, and puts out the fire in New Capital Fire, Inc., as Successor by Merger to The Capital Fire Insurance Company,” 2107 T. C. Memo. 177, filed 9/11/17.

The New Capitalists sent in a pro forma short-year 1120-PC along with the full-year 1120 for the year of the merger. That gave IRS all the numbers and started the three-years SOL running.

Fraud and substantial miscues are off the table.

“The notice of deficiency in this case was issued nearly nine years after New Capital filed its 2002 return.  Therefore, the period of limitations for the year at issue has expired and assessment is barred unless an exception to the general limitations period applies.  Respondent relies solely on the failure to file exception under section 6501(c)(3).  Under section 6501(c)(3), where a taxpayer fails to file a return, the tax may be assessed ‘at any time’.

“As we understand it, respondent’s position is that we have before us two separate taxpayers–Old Capital and New Capital–that were each required to file tax returns.  Old Capital did not file a return for the short tax year ending December 4, 2002.  Only New Capital filed a return for the tax year ending December 31, 2002.  New Capital’s 2002 return with the accompanying pro forma return, respondent urges, does not qualify as a valid return as it pertains to Old Capital’s short tax year.  On the basis of the undisputed facts, whether Old Capital was required to file a return for short tax year ending December 4, 2002, and failed to do so, makes no difference to the question of whether the period of limitations has expired.” 2017 T. C. Memo. 177, at p. 4.

But a return doesn’t have to be perfect to be a return.

“If a taxpayer files the wrong type of return, that wrong return will be sufficient to trigger the running of the period of limitations, so long as it satisfies the following test articulated in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6th Cir. 1984): (1) the document must contain sufficient data to calculate tax liability; (2) the document must purport to be a return; (3) there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and (4) the taxpayer must have executed the document under penalties of perjury.” 2017 T. C. Memo. 177, at p. 6.

“The pro forma return included with New Capital’s 2002 return listed the name of the taxpayer as ‘The Capital Fire Insurance Co.’ and reported income, deductions, and credits that were included in the notice of deficiency at issue in this case.  Indeed, New Capital’s 2002 return contained sufficient information to calculate Old Capital’s tax liability.

“On its 2002 return New Capital reported Old Capital’s tax payments, listed Old Capital’s EIN, and checked the box stating that it was the ‘Final Return’ for Old Capital.  New Capital’s 2002 return clearly purported to be a return and was executed under penalties of perjury.” 2017 T. C. Memo. 177, at p. 7.

So what, says IRS, the return as filed was “purposely misleading.” So what, indeed, says Judge Goeke. Fraud and evasion are off the table. So y’all were slow away from the gate in scoping out the return. That’s too bad, but that’s why there’s a three-year SOL.

I note that among winning counsel for the New Capitalists was an alumnus of the ABA/NYSBA Subcommittee on Taxation of Cooperatives and Condominiums, s/a/k/a Uncle Charlie’s Pizza Party.

Well done, OT!

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