935 F.2d 1285
ESTATE OF Joseph G. BENNETT, Deceased, Ruby L. Bennett and
Michael W. Bennett, Administrators, Petitioners-Appellants,
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Ruby L. BENNETT, Administrator, Petitioner-Appellant,
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Nos. 90-2728, 90-2729.
United States Court of Appeals, Fourth Circuit.
Argued April 10, 1991.
Decided June 21, 1991.
As Amended July 15, 1991.
NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit.
Appeals from the United States Tax Court. (Tax Ct. Nos. 87-22432, 87-22433)
James J. Conroy, III, Fairfax, Va., for appellant.
Shirley D. Peterson, Assistant Attorney General (Argued), for appellee; Gary R. Allen, Jonathan S. Cohen, Joan I. Oppenheimer, Tax Division, United States Department of Justice, Washington, D.C., on brief.
Before DONALD RUSSELL, Circuit Judge, CHAPMAN, Senior Circuit Judge, and RICHARD L. WILLIAMS, United States District Judge for the Eastern District of Virginia, sitting by designation.
RICHARD L. WILLIAMS, District Judge:
Defendants Ruby Bennett and the Estate of Joseph Bennett appeal a U.S. Tax Court determination that their 1983 gift tax payments were deficient. The deficiencies were based on the undervaluation of eighteen residential properties deeded to the Bennett children as gifts in March of 1983. Ruby Bennett and her deceased husband (referred to herein as "the Bennetts") argue that the Commissioner of Internal Revenue unlawfully amended his answers to the taxpayers' petitions after the hearing but prior to the issuance of the opinion in order to assert increased deficiencies in their gift taxes. The Bennetts also appeal the Tax Court's valuation of the eighteen parcels of real estate. Finally, Ruby Bennett argues that the Commissioner is equitably estopped from asserting a gift tax deficiency against her on the basis of IRS misrepresentation and delay.
By deed of gift dated March 8, 1983 and recorded on April 7, 1983, Ruby Bennett and her late husband, Joseph Bennett, gave eighteen separate residential properties to their children. The properties, located in Arlington County, Virginia, were reported as having an aggregate value of $765,596 on Mrs. Bennett's and the decedent's federal gift tax returns. A gift tax of $3,707.70 was reported and paid with each of their returns.
On or about August 20, 1984, Mrs. Bennett received a notice from the Internal Revenue Service stating that the amount of $138,685.59, including additional gift tax, penalties, and interest, was due on her 1983 Federal gift tax return, and should be paid by August 30, 1984. Mrs. Bennett wrote to the Internal Revenue Service asking for an explanation of the amount claimed the day before it was due. Several weeks later, Mrs. Bennett received an undated postcard from the Correspondence Section of the Internal Revenue Service which stated that the Internal Revenue Service was investigating the matter and that she could expect an answer within 45 days. On or about September 21, 1984, the Internal Revenue Service sent a second notice to Mrs. Bennett claiming an additional late payment penalty and interest in the amount of $140,803.69. The Internal Revenue Service mailed a Final Notice of Intention to Levy to Mrs. Bennett on or about October 19, 1984, demanding a total of $142,639.69 in taxes, penalties, and interest.
By letter dated November 8, 1984, Mrs. Bennett's attorney requested from the Taxpayer Assistance Section of the Internal Revenue Service an explanation of the amount claimed. Ruby Bennett subsequently received a letter dated January 28, 1985 from Suzanne Battles of the IRS Problem Resolution Office. The letter, which was handwritten on notepaper, stated that, pursuant to a "tax decrease," the correct tax owed was $3,707 and that a new bill would be issued in a few weeks. Mrs. Bennett later received a Notice of Adjustment claiming that she owed a total of $4,306.25 and paid that amount. Several months after Mrs. Bennett made the payment, her lawyer received requests from an IRS agent in Bailey's Crossroads, Virginia for additional information on the properties. In response to these requests, the appellant hired an inspector to prepare inspection reports for certain properties which were furnished to the IRS in the spring of 1985. The appellants were informed by the agent in December of 1986 that he was going to pursue notices of deficiency for the gift tax returns. On April 14, 1987, the Tax Commissioner sent both taxpayers statutory notices of deficiency which increased the fair market value of the properties from $765,596, as reported on the tax returns, to $1,242,700 and informed Ruby Bennett and the decedent's estate that each was liable for a deficiency of $104,546.44.
The Tax Court denied the Bennetts' petitions for redetermination of the deficiencies. In addition, the Court allowed the Commissioner to amend the answers in each case following the conclusion of the two-day hearing to increase the amounts of the deficiencies claimed by the IRS.
Although the doctrine of estoppel is applicable against the Commissioner of Internal Revenue, the Bennetts have not satisfied the heavy burden of proof imposed on parties seeking to invoke the defense of equitable estoppel against the Government.1 The doctrine of equitable estoppel is applied against the Government "with utmost caution and restraint." Boulez v. Commissioner, 76 T.C. 209, 214-15 (1981), aff'd, 810 F.2d 209 (D.C.Cir.), cert. denied, 484 U.S. 896 (1987), quoting Estate of Emerson v. Commissioner, 67 T.C. 612, 617 (1977), and cases cited therein. Situations which entitle a private party to estop the Internal Revenue Service must be rare, "for the policy in favor of an efficient collection of the public revenues outweighs the policy of the estoppel doctrine in its usual context." Schuster v. C.I.R., 312 F.2d 311, 317 (9th Cir.1962).
Despite historical changes in the doctrine of estoppel as applied to the government, one requirement has remained constant: "a private party asserting estoppel against the government [must] establish as an absolute pre-condition all the elements of equitable estoppel, especially '... conduct by a government agent or entity that has induced reasonable, detrimental reliance by a private party.' " West Augusta Development Corp. v. Giuffrida, 717 F.2d 139, 141 (4th Cir.1983), quoting Note, "Equitable Estoppel of the Government, 79 Colum.L.Rev. 551, 558 (1979).2
The acts of reliance asserted by Ruby Bennett were not sufficiently detrimental to bring her case within the category of those rare instances where the government should be estopped. Mrs. Bennett contends that the handwritten note received from the Problem Resolution Office stating that she owed only $3707 in taxes and the IRS's delay in computing and informing her of the correct amount owed caused her emotional distress, accumulated interest in the amount of $120,000, and legal fees. She also claims that the delay prevented her from obtaining an appraisal of the properties before their renovation and consequent enhancement in value.
None of these circumstances are sufficient grounds for the application of equitable estoppel against the Commissioner. The accumulation of interest expense is not a "detriment" because the taxpayer has benefited for the term of underpayment from interestfree use of funds legally due and owing to the Commissioner. Thomas v. Commissioner, 92 T.C. 206, 227 (1989). See also Heckler v. Community Health Services, 467 U.S. 51 (1984). Ruby Bennett could have prevented the accumulation of interest by making a remittance when she received the first deficiency notice or placing the money in question in an interest-bearing account. As for the alleged emotional distress caused by uncertainty, the anxiety suffered by most taxpayers under audit does not entitle a taxpayer to the extreme remedy of estoppel. See Graff v. Commissioner, 74 T.C. 743, 764 (1980), aff'd, 673 F.2d 784 (5th Cir.1982) (taxpayer's unhappiness at not securing expected tax advantages falls short of detriment necessary for estoppel).
Ruby Bennett's argument that she incurred unnecessary legal fees is also without merit; the legal fees resulted from petitioners' decision to contest the notices of deficiency rather than the Commissioner's delay. Finally, we reject Ruby Bennett's argument that the delay prevented her from obtaining appraisals of the property before it was renovated because we do not think the IRS actions prevented her from obtaining an earlier appraisal. The Bennetts could have obtained appraisals at the time the gift was made, after the first indication in August 1984 of a deficiency, or during the five month period between Ruby Bennett's receipt of the initial notice from the IRS agents in August 1984 and her receipt of the January 28, 1985 letter, or even after Mr. Brooks, the local IRS agent, requested additional information a few months after she received the January 28, 1985 letter. The Bennetts' failure to obtain appraisals of their property until the spring of 1988 was their own fault.
Mrs. Bennett also fails to convince us that her reliance on the informal, handwritten note from Suzanne Battles was reasonable. The appellants did not present any evidence at trial suggesting that Ms. Battles had actual or apparent authority to enter into a binding resolution of Mrs. Bennett's gift tax liability for 1983. Moreover, Ms. Battles' note did not suggest that the IRS intended to foreclose the possibility of commencing a de novo investigation of her gift tax liability for this period. The Tax Court properly concluded that any such reliance by Mrs. Bennett on the January 28, 1985 letter would have stemmed from "mistake as to the legal effect" of the note, an insufficient basis for estoppel against the government. Service Bolt & Nut Co. Trust v. Commissioner, 78 T.C. 812, 822 (1982), aff'd, 724 F.2d 519 (6th Cir.1983).
Amendment of Answers
Forty-three days after the conclusion of the hearing, the Commissioner moved, pursuant to Rule 41(b)(1) of the Tax Court Rules of Practice and Procedure, to increase the amount of the deficiency asserted against the Bennetts in the answers. The Bennetts argue that the Tax Court's allowance of the amendment constituted a violation of Section 6214 of the Code,3 which grants the Tax Court jurisdiction to increase the amount of the deficiency at or before the Tax Court hearing or rehearing. The Tax Court's decision accorded with the well-established rule that the word "hearing," as used in Section 6214(a), encompasses the entire "proceeding" up until the decision of the Tax Court has been entered. Henningsen v. Commissioner, 243 F.2d 954 (4th Cir.1957), aff'g 26 T.C. 985, 989 (1956). The purpose of the provision is to prevent prejudicial surprise by giving the taxpayer an opportunity to answer and resist the claim before decision. Helvering v. Edison Securities Corp., 78 F.2d 85 (4th Cir.1935); Law v. Commissioner, 84 T.C. 985 (1985). The actions taken by appellants' counsel indicated that no such surprise existed: counsel received a copy of the new appraisal more than two weeks before trial, referred to the report in his opening statement, did not object to its admission into evidence, and cross-examined the expert appraiser regarding his findings. The Tax Court did not abuse its discretion in allowing the amendment to the answers to assert an increased deficiency.
The appellants contend that the Tax Court erred in disregarding the testimony and reports of their experts about the value of the properties in question. A review of the painstaking process by which the Tax Court assigned values to the individual properties reveals that the Court was completely justified in relying more heavily on the report and testimony of the Commissioner's expert. In addition to possessing superior credentials as an appraiser, the Commisioner's expert utilized the commonly accepted "comparable sales" method of valuing property. In contrast, the appellant's appraiser, whose qualifications relate primarily to real estate sales rather than appraisal, failed to use any recognized method of appraisal in reaching his conclusions. For example, he made no independent effort to determine the fair market value of the land but rather relied on assessed values and admitted that his assessments of the value of many of the improvements were arbitrary.
The Tax Court's methodology was not clearly erroneous, particularly in light of the principle that trial courts have "particularly broad discretion" in determining questions of valuation. Ebben v. Commissioner, 783 F.2d 906, 908-09 (9th Cir.1986). To the contrary, the Tax Court is to be commended for the precise and comprehensive manner in which it assigned values to the individual properties and for the careful documentation of this process in its opinion.
In conclusion, the facts of this case indicate that the bureaucratic procedures of government entities do not always operate as efficiently as its citizen-taxpayers would like. However, despite the delays and inconsistencies, the IRS's redetermination of the Bennetts' gift tax liability took place within the three year statute of limitations period authorized by Code Sections 6501(a) and 6212(a).4 Courts have uniformly held that the IRS may rexamine and redetermine a taxpayer's liability at any time within the statutory period of limitations. See, e.g., Burnet v. Porter, 283 U.S. 230 (1931); Knapp-Monarch Co. v. Commissioner, 139 F.2d 863 (8th Cir.1944); McIlhenny v. Commissioner, 39 F.2d 356 (3d Cir.1930). We affirm the Tax Court's decision that the government is not equitably estopped from charging Ruby Bennett with a gift tax deficiency because she has not demonstrated that she reasonably relied to her detriment on IRS misrepresentations or silences regarding her gift tax status. We also affirm the Court's decision to allow the IRS to amend its answers to increase the amount of the deficiency and its valuation of the individual properties.
DONALD RUSSELL, Circuit Judge, and CHAPMAN, Senior Circuit Judge, joined.
The Supreme Court has reversed every lower court finding of estoppel against the Government it has reviewed. Office Of Personnel Management v. Richmond, 110 S.Ct. 2465, 2470 (1990). In OPM v. Richmond, the Supreme Court held that estoppel can not run against the Government for a claim for payment of money from the Public Treasury contrary to a statutory appropriation. The Court declined to "embrace a rule that no estoppel will lie against the Government in any case." Id. at 2471
The government conduct resulting in detriment must be a false representation or wrongful misleading silence. The other elements of equitable estoppel are: 1) the conduct relied upon must be a false representation or a wrongful misleading silence; 2) the error must be in a statement of fact and not in an opinion or statement of law; and 3) the person claiming the benefits of estoppel must be ignorant of the true facts. Estate of Emerson v. Commissioner, 67 T.C. 612, 617-18 (1977). We affirm the conclusions and reasoning of the Tax Court with respect to whether Mrs. Bennett satisfied these other requirements
Internal Revenue Code of 1954, 26 U.S.C. Sec. 6214
Internal Revenue Code of 1954, 26 U.S.C. Sec. 6212(a) and Sec. 6501(a)