Tax Court petition suspends limitation period.

• Author: Beavers, James A.

The Eleventh Circuit, reversing the Tax Court, held that the filing of a Tax Court petition "was a proceeding in respect of the deficiency" for purposes of Sec. 6503(4(1) that suspended the running of the limitation period for the IRS to assess a tax deficiency even though the petition responded to a defective notice.

Background

Shockley Communications Corp. (SCC) was a closely held corporation that owned and operated numerous media stations. Terry Shockley and Sandra Shockley were shareholders, officers, and directors of SCC, and Shockley Holdings LP was also a shareholder.

On May 31, 2001, Northern Communications Acquisition Corp. (NCAC) bought all shares of SCC. That same day, Terry and Sandra Shockley resigned from their SCC positions because of that sale. Subsequently, SCC merged into Shockley Delaware Corp. On Feb. 24, 2002, SCC filed its Form 1120, U.S. Corporation Income Tax Return, for the short tax year ending May 31, 2001. The form showed a Washington, D.C., address for SCC.

The IRS selected SCC's return for audit. The IRS determined a deficiency for taxes and penalties of more than $50 million for SCC for the 2001 short tax year and moved to assess the deficiency. It mailed two notices of deficiency for the 2001 tax year, the first to "Shockley Communications Corporation" at its last known address in Washington, D.C. It sent a second nearly identical notice to:

Shockley Communications Corporation

Terry K. & Sandra K. Shockley

Officers & Shareholders at what was then the Shockleys' home address in Madison, Wis. (the Madison notice).

In May 2005, the Shockleys responded to the Madison notice by filing a petition (the 2005 petition) with the Tax Court. The 2005 petition listed SCC and the Shockleys as petitioners. It sought both a declaration that the Madison notice was invalid as to SCC and a "redetermination of the deficiencies set forth" in the notice. Before the Tax Court could rule on the merits of the 2005 petition, in March 2007, the Shockleys moved to have their case dismissed on the grounds that the Madison notice was invalid because the IRS did not send it to SCC's last known address and they lacked capacity to contest the deficiency on SCC's behalf. In April 2007, the Tax Court dismissed the case for lack of jurisdiction because the Shockleys lacked capacity to act on SCC's behalf.

With the petition dismissed, on Sept. 6, 2007, the IRS assessed SCC for the taxes and penalties for the 2001 tax year listed in the 2005...