                        T.C. Memo. 2004-58



                      UNITED STATES TAX COURT



   BECKER HOLDING CORPORATION AND SUBSIDIARIES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6400-03.              Filed March 10, 2004.



     Jerald David August and James P. Dawson, for petitioner.

     Andrew M. Tiktin and Sergio Garcia-Pages, for respondent.



                        MEMORANDUM OPINION

     HAINES, Judge:   The matter is before the Court on the

parties’ cross-motions for partial summary judgment pursuant to

Rule 121.1   The issues to be decided are:   (1) Whether the

parties agreed to a settlement with respect to petitioner’s tax



     1
        Unless otherwise indicated, Rule references are to the
Tax Court Rules of Practice and Procedure, and section references
are to the Internal Revenue Code, as amended.
                               - 2 -

years ending September 30, 1994, 1995, and 1996 (years at issue);

and, if not, (2) whether the notice of deficiency2 is barred

because it was mailed after the period of limitations on the

assessment of taxes had expired.

     The following facts are based upon the parties’ pleadings,

memoranda, and supporting documents.     See Rule 121(b).   They are

stated solely for the purpose of deciding the parties’ cross-

motions for partial summary judgment, and not as findings of fact

in this case.   Fed. R. Civ. P. 52(a).

                            Background

     Petitioner is a corporation with its principal place of

business in Fort Pierce, Florida.   During the years at issue,

petitioner was the parent company of a consolidated group of

affiliated corporations engaged in various aspects of the citrus

industry.

     In 1991, petitioner agreed to purchase stock owned by R.

William Becker (Mr. Becker) in petitioner.     One of the documents

evidencing the transaction, the Agreement, dated March 15, 1991,


     2
        The notice of deficiency determined deficiencies for
petitioner’s tax years ending Sept. 30 for 1993, 1994, and 1995
rather than 1994, 1995, and 1996, which we are identifying as the
years at issue. In 1996, petitioner sustained a net operating
loss, the amount of which is in dispute. Respondent’s denial of
a $5,307,600 amortization deduction taken by petitioner in 1996
reduced the net operating loss but did not result in a deficiency
for that year. Rather, respondent’s determination resulted in a
reduction in petitioner’s net operating loss carryback from 1996,
resulting, inter alia, in reductions in the net operating losses
in 1993 and 1995. See sec. 6501(h).
                                - 3 -

provided, in part, that for a period of 3 years Mr. Becker would

not “directly or indirectly engage in the processing or sale of

citrus concentrate or fresh juices” (covenant not to compete).

     The total stated consideration for the transaction was

$23,953,934 plus interest, payable over a period of 5 years.      In

its Federal income tax return for the tax year ending September

30, 1996, petitioner deducted $5,307,600 as an amortization

expense.    Respondent’s Examination Division disallowed the

amortization deduction in its entirety.

     The case at bar was assigned to Appeals Officer Neil Kaufman

(Mr. Kaufman) to see whether it could be administratively

resolved.    Mr. Kaufman was also assigned the case involving Mr.

Becker (the Becker case) in which the Examination Division took

the position that $5,307,600 was allocable to the covenant not to

compete, resulting in Mr. Becker’s having to recognize $5,307,600

of ordinary income in 1996.    Terri N. Beach (Ms. Beach) was Mr.

Kaufman’s supervisor and held the position of Appeals Team

Manager.

     The parties executed Form 872, Consent to Extend the Time to

Assess Tax, extending the period of limitations for the years at

issue to June 30, 2002.    Shortly thereafter, Lawrence Y. Leonard

(Mr. Leonard) undertook the representation of petitioner before

respondent’s Appeals Office (Appeals).    Mr. Leonard was aware

that Mr. Kaufman had also been assigned the Becker case.
                              - 4 -

     On April 8, 2002, Mr. Leonard, on behalf of petitioner,

wrote a letter to Mr. Kaufman proposing, inter alia:

     Of the $5,307,600 which remains in dispute regarding the
     covenant not to compete signed by William Becker, 85% (or
     $4,511,460) would be allowed as a deduction for the 1996
     fiscal year. This would increase the net operating loss for
     1996. A net operating loss carryback of $4,511,460 would be
     taken for the 1993 fiscal year.

     On April 18, 2002, Mr. Kaufman wrote a letter to Mr. Leonard

which stated:

     I have considered your settlement proposal in your faxed
     letter to me of April 8, 2002. My response is as follows:

          •      I am willing to allow 80% of the remaining
                 $5,307,000 ($4,246,000) as a deduction in the
                 1996 fiscal year.

          •      I believe that the 1993 fiscal year is open only
                 under a loss carryback and thus the originally
                 claimed 1995 bad debt could not be claimed in
                 that year.

          •      Unless the 1997 fiscal year loss has already
                 been examined by the Examination Division, I
                 cannot allow anything at this time. You may be
                 able to file a carryback subsequently.

          •      The rest of your proposal would be acceptable.

     On May 28, 2002, Mr. Leonard wrote a letter to Mr. Kaufman

enclosing duplicate executed Forms 872-A, Special Consent to

Extend the Time to Assess Tax, which stated:

     Enclosed please find two executed Special Consent to Extend
     the Time to Assess Tax. As we have discussed, it appears
     that the sole issue impeding our resolution of this matter
     is the carryback of net operating loss from 1997 to 1995. I
     will forward to you within the next week my research which
     indicates that the 1997 loss is required to be taken in 1995
     if 1995 is an open year. This letter will also confirm our
     discussion that 1993 remains an open year for the purpose of
                                 - 5 -

     net operating loss carryback. If this information is
     incorrect, please let me know.

Mr. Leonard, on behalf of petitioner, signed Form 872-A on May

28, 2002, and Mr. Kaufman signed it on behalf of respondent on

May 29, 2002.   The Form 872-A signed by the parties had not been

altered by any insertions, additions, or deletions.   The legal

effect of the Form 872-A signed by the parties is in dispute.

     On June 4, 2002, respondent issued a notice of deficiency in

the Becker case determining that Mr. Becker must recognize

$5,307,600 of ordinary income during the taxable year 1996.

     On July 8, 2002, Mr. Leonard again wrote Mr. Kaufman and

stated:

     As we have discussed, my client, Becker Holding Corporation,
     hereby accepts the proposal which you outlined in your April
     18, 2002 letter. As I understand your proposal you will:

     (1)   allow 80% of the remaining $5,307,000.00, to wit
           $4,246,000.00 as a deduction in the 1996 fiscal year.
           This would increase the net operating loss for 1996,
           which would be carried back to the 1993 fiscal year.

     (2)   allow a fuel tax credit for 1993 which was being
           disputed as a double deduction, but which in fact was
           not, in the amount of $87,467.00.

     (3)   make no changes to tax years 1991 and 1992.

     As we had also discussed, there remain issues outstanding
     for the above stated tax periods, as well as tax period
     ending 09/1997, with which we would request your assistance,
     but which are not contingencies to the acceptance of your
     proposal.

                  *     *    *      *    *     *      *

     As you can see, my clients would like to resolve any
     outstanding issues for tax years 09/1991 through 09/1997
                               - 6 -

     inclusive. * * * Please let me know how you wish to proceed
     regarding finalizing the details of Becker Holding
     Corporation’s acceptance of the terms of your April 18, 2002
     letter. I look forward to working with you to finally
     resolve this issue.

     On July 18, 2002, Mr. Kaufman notified Mr. Leonard that the

case could not be resolved on the terms set out in his April 18,

2002, letter.

     On January 30, 2003, respondent issued a notice of

deficiency denying in full, inter alia, petitioner’s amortization

deduction of $5,307,600 taken in 1996.   Petitioner filed a timely

petition with the Court on April 29, 2003, and respondent filed

an answer on June 25, 2003.   The original petition did not set

out the statute of limitations as an affirmative defense.

     On October 7, 2003, petitioner filed a Motion for Leave to

File Amended Petition to include a statute of limitations defense

as well as a claim that a settlement had been reached with

Appeals.   Petitioner’s Motion for Leave to File Amended Petition

was granted by the Court, and the amended petition was filed on

October 8, 2003.

     Petitioner also filed on October 7, 2003, a Motion for

Summary Judgment supported by a Memorandum of Authorities with

attached affidavits.   Petitioner’s motion seeks judgment that a

settlement had been reached, or, in the alternative, that

respondent’s notice of deficiency, dated January 30, 2003, is
                               - 7 -

barred because it was issued after expiration of the period of

limitations for assessment of taxes.

      Respondent filed an Answer to Amended Petition on November

14, 2003, and, on November 26, 2003, filed a Motion for Partial

Summary Judgment with supporting affidavits, seeking judgment

that no settlement had been reached and that the notice of

deficiency was issued within the period of limitations for the

assessment of taxes and, therefore, was not barred.

      The parties filed objections to each others’ motions.

                            Discussion

      A decision on a motion for partial summary judgment may be

rendered if the pleadings and other materials in the record show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law.   Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd.

17 F.3d 965 (7th Cir. 1994).   The Court has considered the

pleadings and other materials in the record and concludes that

there is no genuine issue of any material fact as it relates to

the cross-motions of the parties and that a decision may be

rendered as a matter of law.

I.   Settlement

      Petitioner contends that this case was settled by Mr.

Leonard and Mr. Kaufman prior to the issuance of the notice of

deficiency.   Respondent contends that Mr. Kaufman lacked the
                               - 8 -

authority to bind the Commissioner to a settlement and that,

therefore, a settlement did not occur.

     A settlement is a contract, and, consequently, general

principles of contract law determine whether a settlement has

been reached.   Robbins Tire & Rubber Co. v. Commissioner, 52 T.C.

420, 435-436 (1969), supplemented by 53 T.C. 275 (1969).    In tax

cases, settlement offers made and accepted by letters have been

enforced as binding agreements.   Dorchester Indus. Inc. v.

Commissioner, 108 T.C. 320, 333-334 (1997), affd. without

published opinion 208 F.3d 205 (3d Cir. 2000); Haiduk v.

Commissioner, T.C. Memo. 1990-506; Himmelwright v. Commissioner,

T.C. Memo. 1988-114.   A settlement agreement may even be reached

in the absence of a writing.   Haiduk v. Commissioner, supra

(citing Green v. John H. Lewis & Co., 436 F.2d 389 (3d Cir.

1971)).

     A settlement agreement may be reached by authorized agents

or officials representing the parties.   See Dorchester Indus.

Inc. v. Commissioner, supra at 331.    Whether an attorney has

authority to settle a case on behalf of a taxpayer is a factual

question to be decided according to common law principles of

agency.   Id.; see Adams v. Commissioner, 85 T.C. 359, 369-372

(1985); Kraasch v. Commissioner, 70 T.C. 623, 627-629 (1978).

The parties do not dispute that Mr. Leonard had authority to bind

petitioner to a settlement in the instant case.
                                - 9 -

     Settlement authority on behalf of the Commissioner is

delegated to officers identified in Commissioner delegation

orders.    Sec. 601.106(a)(1)(i) and (ii), Statement of Procedural

Rules.    Delegation Order No. 66 (rev.15), effective January 23,

1992, identifies the officers who are vested with the authority

to settle cases before Appeals; i.e., Regional Counsel; Regional

Director of Appeals; Chiefs, Assistant Chiefs and Associate

Chiefs of Appeals Offices; Appeals Team Chiefs and Team Managers

as to their respective cases; Directors of an Appeals Operating

Unit, Appeals Area Directors, Deputy Appeals Area Directors, and

Appeals Team Case Leaders.

     This Court has repeatedly declined to enforce a settlement

agreement when the person entering into the agreement on behalf

of the Commissioner lacked the authority to bind the

Commissioner.   See, e.g., Dorl v. Commissioner, 507 F.2d 406, 407

(2d Cir. 1974), affg. 57 T.C. 720 (1972) and T.C. Memo. 1973-145;

Gardner v. Commissioner, 75 T.C. 475, 477-478 (1980); Webb v.

Commissioner, T.C. Memo. 1994-549, affd. without published

opinion 68 F.3d 482 (9th Cir. 1995); Baratelli v. Commissioner,

T.C. Memo. 1994-484; David v. Commissioner, T.C. Memo. 1993-621,

affd. 43 F.3d 788 (2d Cir. 1995); Ginella v. Commissioner, T.C.

Memo. 1991-625.

     Respondent has offered declarations pursuant to 28 U.S.C.

sec. 1746 (2000), from Mr. Kaufman and Ms. Beach stating that Mr.
                               - 10 -

Kaufman did not hold any of the positions specified in Delegation

Order No. 66 when he was handling the instant case and,

therefore, did not have the authority to settle the case.      The

declarations further state that Ms. Beach, Mr. Kaufman’s Team

Manager, did have the authority to settle but did not exercise

her authority by entering into an agreement, or approving any

agreement, settling the Federal income tax liabilities of

petitioner for the years at issue.      Petitioner has failed to

counter those declarations with anything but unsupported

allegations.   Rauenhorst v. Commissioner, 119 T.C. 157, 176

(2002).

     It has long been held that “persons dealing with an agent of

the government must take notice of the limitations of his

authority.”    Bornstein v. United States, 345 F.2d 558, 562 (Ct.

Cl. 1965); see Graff v. Commissioner, 74 T.C. 743, 762 (1980),

affd. per curiam 673 F.2d 784 (5th Cir. 1982); Midwest Motor

Express, Inc. v. Commissioner, 27 T.C. 167, 182 (1956), affd. 251

F.2d 405 (8th Cir. 1958).   Petitioner had the responsibility to

determine the extent of Mr. Kaufman’s authority.      See Boulez v.

Commissioner, 76 T.C. 209, 214 (1981), affd. 810 F.2d 209 (D.C.

Cir. 1987).

     Further, the Commissioner is not bound by an apparent

settlement where an agent is without authority to compromise a

taxpayer’s tax liability.    Botany Worsted Mills v. United States,
                                - 11 -

278 U.S. 282, 288-289 (1929); Klein v. Commissioner, 899 F.2d

1149, 1153 (11th Cir. 1990); Reimer v. United States, 441 F.2d

1129, 1130 (5th Cir. 1971); Gardner v. Commissioner, supra at

479.

       Finally, in each of the cases on which petitioner relies,

Dorchester Indus. Inc. v. Commissioner, supra; Haiduk v.

Commissioner, supra; Addison H. Gibson Found. v. United States,

71A AFTR 2d 93-3587, 91-1 USTC par. 50,178 (W.D. Pa. 1991), affd.

without published opinion 958 F.2d 362 (3d Cir. 1992), the

Government official’s authority to settle was not at issue.

       We conclude that Mr. Kaufman had no authority to enter into

a binding settlement agreement on behalf of the Commissioner,

that a settlement was not approved by Ms. Beach, and that, as a

consequence, no settlement occurred.

II.    Legal Effect of Form 872-A

       Federal income taxes must be assessed within 3 years from

the date a return is filed.    Sec. 6501(a).   Petitioner claims the

statute of limitations as an affirmative defense in its amended

petition.    See Rule 39.   The parties do not dispute the extension

of the period of limitations to June 30, 2002, but do dispute

whether the Form 872-A executed by the parties extended the

period of limitations beyond June 30, 2002.

       Petitioner contends that the filing of the Form 872-A

extending the period of limitations for assessment was
                              - 12 -

conditioned on the settlement reached.   Petitioner argues that if

the settlement did not occur, the limitations period for

assessment expired on June 30, 2002, and section 6501(a) bars the

assertion of the deficiencies.

     Respondent contends that the Form 872-A, filed by petitioner

and accepted by respondent, was unrestricted and extended the

period of limitations for assessment, and that, as a consequence,

the notice of deficiency was timely.

     Form 872-A, in general, is an open-ended extension of the

period of limitations for assessment of taxes which, by its

terms, provides that it can be terminated by either party’s

mailing to the other a Form 872-T, Notice of Termination of

Special Consent to Extend Time to Assess Tax.   No Form 872-T to

terminate the special consent was mailed by either party in the

instant case.   Form 872-A also provides that the mailing of a

notice of deficiency terminates the extension of time to assess

as of 60 days after the period during which the making of an

assessment was prohibited because of the deficiency proceedings.

     An agreement to extend the period of limitations for

assessment and collection is not a contract but a waiver of a

defense by the taxpayer.   Stange v. United States, 282 U.S. 270,

276 (1931); Mecom v. Commissioner, 101 T.C. 374, 384 (1993),

affd. without published opinion 40 F.3d 385 (5th Cir. 1994);

Smith v. Commissioner, T.C. Memo. 1989-87.   Nevertheless,
                                - 13 -

principles of contract law are significant because section

6501(c)(4) requires the use of a written agreement to extend the

period of limitations for assessment.       Mecom v. Commissioner,

supra.

     If a taxpayer wishes to place a condition on a written

agreement to extend the period of limitations, the condition must

be evidenced by an overt act.    For this purpose, unsubstantiated

conduct or verbal communications, as in the instant case, are

insufficient.   See id. at 385; Kronish v. Commissioner, 90 T.C.

684, 693 (1988); Tallal v. Commissioner, 77 T.C. 1291, 1294

(1981).

     The Form 872-A executed by the parties was not altered in

any way.   There were no insertions, additions, or deletions made

to the form itself.   The fact that petitioner may have intended

to condition the special consent does not determine the agreement

of the parties.   As we stated in Kronish v. Commissioner, supra

at 693: “It is the objective manifestation of mutual assent as

evidenced by the parties’ overt acts, not the parties’ secret

intentions, that determines whether the parties have made an

agreement.”

     The Form 872-A signed by the parties, standing alone, is

unconditional and unrestricted.    However, we have held that a

cover letter accompanying a Form 872-A may place restrictive

conditions on the special consent.       See Aronson v. Commissioner,
                                  - 14 -

T.C. Memo. 1991-539, affd. 989 F.2d 105 (2d Cir. 1993); Smith v.

Commissioner, supra; Scheuerman v. Commissioner, T.C. Memo. 1984-

160.       To effectively condition a special consent, the cover

letter must in some way contrast or alter the language of the

Form 872-A.       Bellis v. Commissioner, T.C. Memo. 1994-28; Aronson

v. Commissioner, supra; Scheuerman v. Commissioner, supra.

       In support of its position, petitioner cites Addison H.

Gibson Found. v. United States, supra, in which a Federal

District Court held that a Form 872, extending the period of

limitations on excise taxes, was conditioned on a settlement by

the attachment of a cover letter to the Form 872.3

       Gibson Found. does not support petitioner’s position.       In

Gibson Found., a suit for refund of both Federal income taxes and

Federal excise taxes was filed in Federal District Court.          Id.,

71A AFTR 2d at 93-3590, 91-1 USTC at 87,722.      The periods of

limitation on both taxes were due to expire on May 15, 1983.

Id., 71A AFTR 2d at 93-3588, 91-1 USTC at 87,720.       The Appeals

officer sent two separate Forms 872, one for income tax and one



       3
        We are not bound by a District Court’s analysis but,
because of the reliance placed on Addison H. Gibson Found. v.
United States, 71A AFTR 2d 93-3587, 91-1 USTC par. 50,178 (W.D.
Pa. 1991), affd. without published opinion 958 F.2d 362 (3d Cir.
1992), in petitioner’s argument, we address it in our opinion.
See Norwest Corp. & Subs. v. Commissioner, 110 T.C. 454, 503
(1998); A.E. Staley Manufacturing Co. & Subs. v. Commissioner,
105 T.C. 166, 208 (1995), revd. on other grounds and remanded 119
F.3d 482 (7th Cir. 1997); Estate of Schwartz v. Commissioner, 83
T.C. 943, 952 (1984).
                                  - 15 -

for excise tax, which, if signed, extended the periods of

limitations for both to December 31, 1983.   Id., 71A AFTR 2d at

93-3589, 91-1 USTC at 87,720.

     On April 7, 1983, the taxpayer’s attorney in Gibson Found.

returned the two executed separate Forms 872 with a cover letter

to the Appeals officer which stated:

     The execution and filing of the consents are conditioned
     upon the following compromise of this case which we agreed
     to this morning:

          (1) The income tax deficiency under Section 511 will be
          reduced by the sum of $8374.54 * * *

          (2) The Foundation agrees to a deficiency of 35% of the
          Section 4945(a) tax or $14,584.33.

Id., 71A AFTR 2d at 93-3589, 91-1 USTC at 87,720.

     One day after the May 15, 1983, period of limitations had

expired, unless extended to December 31, 1983, by the Forms 872,

the Appeals officer, for some unknown reason, proposed an

entirely different settlement of the excise tax; i.e., 65 percent

of the excise tax.   Id., 71A AFTR 2d at 93-3589, 91-1 USTC at

87,721.   The Appeals officer, thereafter, refused any attempt to

settle the excise tax issue at the amount specified in the

taxpayer’s cover letter.    Id.

     The District Court treated the income tax and excise tax

issues separately.   Id., 71A AFTR 2d at 93-3591 to 93-3592, 91-1

USTC at 87,722 to 87,723.   The District Court enforced the

settlement on the income tax issue because neither party disputed
                             - 16 -

the settlement that was reached either prior to or at the time of

trial.   Id.

     With respect to the excise tax, the District Court held that

the cover letter placed a condition on the taxpayer’s consent to

extend the period of limitations; i.e., settlement of the excise

tax issue at 35 percent of the tax claimed.     Id.   The District

Court concluded that the period of limitations was not extended

because the settlement reached was disputed, and, therefore, the

assessment of excise tax was untimely.    Id.

     In the instant case, petitioner did not place a condition in

the cover letter accompanying the Form 872-A.    The body of

petitioner’s May 28, 2002, cover letter has previously been

quoted in full in this opinion.   There are no statements in the

cover letter which alter the language of the Form 872-A or, in

any way, condition the special consent.   We hold that the Form

872-A executed by the parties is unconditional and unrestricted.

     Therefore, having concluded that a settlement was not

reached and that the Form 872-A executed by the parties is

unrestricted and unconditioned, we hold, as a matter of law, that

the assessment period for petitioner’s years at issue remained

open with respect to the issues raised in the deficiency notice.

Accordingly, petitioner’s motion for partial summary judgment is

denied, and respondent’s motion for partial summary judgment is

granted.
                             - 17 -

     In reaching our holding herein, we have considered all

arguments made, and, to the extent not mentioned above, we

conclude that they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                             Appropriate orders

                                        will be issued.
