                       T.C. Memo. 1996-348



                     UNITED STATES TAX COURT



            JOHN AND LOUISA A. HODEL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7435-94.                     Filed July 31, 1996.


     John Hodel, pro se.

     Michael D. Zima and Stephen R. Takeuchi, for respondent.



                       MEMORANDUM OPINION


     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1   Respondent



1
     Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                   2

determined deficiencies in petitioners' Federal income taxes for

1986 and 1987 in the respective amounts of $3,475 and $4,258.

     The parties have reached agreement concerning most of the

adjustments involved in respondent's determinations, and the

issues remaining for decision are:     (1) Whether petitioners are

entitled to capitalize certain expenses attributable to their

farming business and claimed as current deductions on Schedules F

of their 1986 through 1990 Federal income tax returns; and (2)

whether petitioners are entitled to a refund of an overpayment in

1986 attributable to the carryback of a net operating loss (NOL)

incurred in 1989.    For ease of discussion, we address each issue

separately.

     Some of the facts have been stipulated and are so found.

The stipulation of facts, stipulation of settled issues, and

exhibits received into evidence are incorporated herein by this

reference.    Petitioners resided in Apopka, Florida, at the time

their petition was filed.    References to petitioner are to John

Hodel.

Farming Expenses

     On November 14, 1985, petitioners purchased 100 percent of

the stock of Federal Citrus Corp. (FCC), a corporation engaged in

the citrus grove business.    The assets of FCC include 46 acres of

land, irrigation systems, fixtures attached to the land, and

fencing.     During 1985, petitioners cleared the land and replaced

the citrus grove with ornamental ligustrum seedlings.    They
                                   3

formed a proprietorship (the nursery) to rent the land from FCC

and grow ligustrum trees for resale.

     Petitioners expected the trees to mature and be ready for

resale in approximately 3 years.       Instead, the trees were

afflicted with continuous problems including freezes, disease,

and inadequate care.   Petitioner testified that he was not

properly equipped to care for his nursery and, as a result, has

not been able to prepare the trees for resale.       Despite the

substantial time petitioners devoted to the nursery, at the time

of trial they had not sold one tree.

     On their 1986 joint Federal income tax return, petitioners

depreciated a truck, a farm tractor, a trailer and cart, security

equipment, and two cars.   The remainder of expenses attributable

to the nursery was currently deducted on petitioners' Schedule F.

These expenses included chemicals, rent paid for the FCC's land,

seeds and plants, supplies, taxes, utilities, gasoline, repairs

and maintenance, insurance, fertilizers, and labor.       Petitioners

continued to deduct similar expenses on their 1987 through 1990

returns.   Petitioners have not received the approval of the

Internal Revenue Service (IRS) to amend their treatment of the

expenses deducted.

     Farmers, like taxpayers in any other type of business, may

deduct their ordinary and necessary business expenses under

section 162.   The farming business includes the operation of a

nursery and the raising of ornamental trees such as petitioners'
                                 4

ligustrum tree business.   Sec. 1.263A-4T(c)(4)(i)(A), Temporary

Income Tax Regs., 59 Fed. Reg. 39960 (Aug. 5, 1994).   Expenses

incurred in the farming business may be placed into three

categories:   (1) The preparatory period; (2) the development or

preproductive period; and (3) the productive period.   Expenses

incurred during the preparatory period include drilling, clearing

brush, laying pipes, and installing ditches and drainage pipes.

Such expenses are generally required to be capitalized.     Maple v.

Commissioner, T.C. Memo. 1968-194, affd. 440 F.2d 1055 (9th Cir.

1971).   In contrast, ordinary and necessary expenses incurred

during the productive period, after the farm produces or is

reasonably expected to produce its first yield, are generally

required to be deducted.   Id.   Farm expenditures that are clearly

capital in nature are not deductible at any time.    Thompson &

Floger Co. v. Commissioner, 17 T.C. 722, 724-726 (1951).

     During the development or preproductive period, farmers are

given the option under section 1.162-12(a), Income Tax Regs., to

either deduct or capitalize ordinary and necessary expenses.

This section provides in part:

     If a farmer does not compute income upon the crop method,
     the cost of seeds and young plants which are purchased for
     further development and cultivation prior to sale in later
     years may be deducted as an expense for the year of
     purchase, provided the farmer follows a consistent practice
     of deducting such costs as an expense from year to year. * *
     * Amounts expended in the development of farms, orchards
     and ranches prior to the time when the productive state is
     reached may, at the election of taxpayer, be regarded as
     investments of capital. * * *
                                 5

See also Estate of Wilbur v. Commissioner, 43 T.C. 322, 327

(1964); Vinson v. Commissioner, T.C. Memo. 1979-175, affd. per

curiam 621 F.2d 173 (5th Cir. 1980).   This regulation gives

farmers the option of deducting or capitalizing expenditures

incurred in the preproductive period which bear characteristics

of both capital outlays and ordinary expenses, and, as such, fall

within a "band of gray".   Estate of Wilbur v. Commissioner, supra

at 328.   Preproductive (or cultural) expenditures include

"irrigation, cultivation, pruning, fertilizing, spraying, and

other care expenses".   Maple v. Commissioner, supra.

     In the present case, petitioners incurred most of their

preparatory expenses during 1985, when they purchased and cleared

the land, bought the seedlings, and planted the nursery.     Of the

expenses claimed on their 1986 return, all but $42 spent for

young plants or seeds constitute preproductive expenses since

they were incurred in the maintenance of the ligustrum trees.    As

such, petitioners had the option to either capitalize or deduct

these expenses under section 1.162-12(a), Income Tax Regs.

     However, for taxable years commencing after December 31,

1986, the Uniform Capitalization Rules (UCR) of section 263A

generally apply to property produced by a taxpayer or acquired

for resale that has a preproductive period of more than 2 years.

Under this section, direct and indirect costs allocable to such

property are required to be capitalized.   The ligustrum seedlings

purchased by petitioners qualify as property acquired for resale
                                  6

pursuant to section 263A(b)(2)(A) and section 1.263A-3(a)(1),

Income Tax Regs.   Section 1.263A-4T(c)(4)(ii)(B), Temporary

Income Tax Regs., supra, describes the preproductive period as

follows:    "The preproductive period of a plant begins when the

plant or seed is first planted or acquired by the taxpayer.     The

preproductive period ends when the plant becomes productive in

marketable quantities or when the plant is reasonably expected to

be sold or otherwise disposed of."    Petitioners planted the

seedlings in 1986 and reasonably expected to sell them after 3

years.   Because the productive period of the trees was more than

2 years, preproductive expenses attributable thereto are subject

to the UCR, and, accordingly, petitioners are required to

capitalize such expenses unless an exception applies.

     Under section 263A(d)(3), a farmer may elect out of the UCR,

and, instead, deduct his expenses in accordance with the

provisions of section 162, with the requirement that the property

produced is then treated as section 1245 property, and any gain

resulting from the disposition thereof is recaptured to the

extent of the deductions which, but for the election under

section 263A(d)(3), would have been capitalized.    The election

must be made for the first taxable year beginning after December

31, 1986, during which the taxpayer engages in the farming

business.    Sec. 1.263A-4T(c)(6)(iii), Temporary Income Tax Regs.,

supra.   "A taxpayer * * * shall be treated as having made the

election if such taxpayer does not capitalize the costs of
                                 7

producing property in a farming business as the provisions of

this section would otherwise require."    Sec. 1.263A-4T(c)(6)(iv),

Temporary Income Tax Regs., supra.    "Once an election is made, it

is revocable only with the consent of the Commissioner."       Sec.

1.263A-4T(c)(6)(v), Temporary Income Tax Regs., supra.

     In the instant case, petitioners are deemed to have elected

out of the UCR when they deducted all the preproductive expenses

attributable to the nursery on the Schedules F attached to their

1987 through 1990 tax returns.   Petitioners have not filed any

requests to revoke this election.    Accordingly, we look to

section 162 and the regulations thereunder to determine whether

petitioners may amend their 1986 through 1990 returns in order to

deduct some of the nursery expenses, capitalize others, and alter

the mix of deductible and capitalized expenses from year to year.

     In Estate of Wilbur v. Commissioner, supra, we addressed the

issue of the revocation of an election to deduct farming expenses

incurred during the preproductive period under section 1.162-

12(a), Income Tax Regs.   The taxpayer in that case originally

thought he had no taxable income for years 1958 and 1960 and,

consequently, opted to capitalize preproductive expenses in order

to recover them in subsequent years through depreciation.      When

he learned during the course of an audit that he had taxable

income for those years, he sought to offset this income by

deducting the expenses that he had originally capitalized in the

year in which the expenses were incurred.    We held that the
                                  8

election to capitalize preproductive expenses was not revocable

without the consent of the Commissioner, and therefore the

taxpayer was bound by his original treatment of the expenses.

Id. at 331.

     Although petitioners recognize the authority of our decision

in Estate of Wilbur v. Commissioner, supra, and agree that

section 1.162-12(a), Income Tax Regs., does not permit taxpayers

to deduct expenses that were originally capitalized, they contend

that there is no prohibition against capitalizing expenses

originally deducted.    Petitioners also raise the issue of whether

their deduction of farming expenses was an "irrevocable election"

as opposed to a simple "option" which they have chosen and now

are free to change at will.   Petitioners deducted preproductive

expenses attributable to the nursery on their original returns

and now wish to capitalize a portion of those expenses.   Based on

the record, we find that petitioners' request flies squarely in

the face of the doctrine of election.

     The doctrine of election, as it applies to Federal tax law,

consists of the following two elements:   (1) There must be a free

choice between two or more alternatives; and (2) there must be an

overt act by the taxpayer communicating the choice to the

Commissioner; i.e., a manifestation of choice.    Grynberg v.

Commissioner, 83 T.C. 255, 261 (1984); Bayley v. Commissioner, 35

T.C. 288, 298 (1960).   Under the doctrine of election, a taxpayer

who makes a conscious election may not, without the consent of
                                   9

the Commissioner, revoke or amend it merely because events do not

unfold as planned.    See, e.g., J.E. Riley Inv. Co. v.

Commissioner, 311 U.S. 55 (1940); Pacific Natl. Co. v. Welch, 304

U.S. 191 (1938).     Subject to a few narrow exceptions, "once the

taxpayer makes an elective choice, he is stuck with it."     Roy H.

Park Broadcasting, Inc. v. Commissioner, 78 T.C. 1093, 1134

(1982).

     In Pacific Natl. Co., "often regarded as the fundamental

authority for the development" of the doctrine of election,

Estate of Stamos v. Commissioner, 55 T.C. 468, 473 (1970), the

taxpayer had the option to treat certain income under the

deferred payment or installment method.     It reported the income

using one method and later sought a refund based on a computation

under the other method.    The Supreme Court refused to allow this,

holding:

     Change from one method to the other * * * would require
     recomputation and readjustment of tax liability for
     subsequent years and impose burdensome uncertainties upon
     the administration of the revenue laws. * * * There is
     nothing to suggest that Congress intended to permit a
     taxpayer, after expiration of the time within which a return
     is to be made, to have his tax liability computed and
     settled according to the other method. * * *

Pacific Natl. Co. v. Welch, supra at 194; see also Grynberg v.

Commissioner, supra at 261 (quoting Estate of Stamos v.

Commissioner, 55 T.C. 468, 473 (1970)); Estate of Wilbur v.

Commissioner, 43 T.C. at 473, and cases cited therein.
                                10

     In applying the doctrine of election to the instant case, we

find that both requirements are met.    First, petitioners had a

choice to either deduct or capitalize the preproductive expenses

attributable to the nursery.   Second, petitioners claimed the

expenses as current deductions on their 1986 through 1990

returns, and, in so doing, committed an overt act that manifested

their choice to the IRS.

     Petitioners argue that they made the decision to deduct the

preproductive expenses based on gross income figures as reflected

on their original returns, prior to the adjustments that were

made to their income by respondent during the audit.    In other

words, petitioners argue that their election was based on a

mistake of fact, and, had they been aware of respondent's

adjustments at the time of filing their returns, they would have

elected to treat certain expenditures differently.

     "Courts have recognized that a material mistake of fact may

vitiate the binding nature of an election."    Grynberg v.

Commissioner, supra at 261 (citing Roy H. Parks Broadcasting,

Inc. v. Commissioner, supra at 1134).    Situations in which a

material mistake of fact may allow a taxpayer to revoke an

election are:   (1) The amended return was filed prior to the date

prescribed for filing a return; (2) the treatment of the

contested items in the amended return was not inconsistent with

his treatment of that item in his original return; or (3) the

treatment of the item on the original return was improper and the
                                 11

taxpayer elected one of several allowable alternatives in the

amended return.    Goldstone v. Commissioner, 65 T.C. 113, 116

(1975).   However, mere

     Oversight, poor judgment, ignorance of the law,
     misunderstanding of the law, unawareness of the tax
     consequences of making an election, miscalculation, and
     unexpected subsequent events have all been held insufficient
     to mitigate the binding effect of elections made under a
     variety of provisions of the Code.

Estate of Stamos v. Commissioner, supra at 474 (citations

omitted).

     We find that petitioners' desire to amend their returns is

based on the type of justifications enumerated in Estate of

Stamos.   Thus, pursuant to the doctrine of election, petitioners

may not change their election to deduct preproductive expenses

without the approval of the Commissioner.   Petitioners have not

received the approval of the Commissioner and, therefore, are not

entitled to revoke their election.

Refund of 1986 Overpayment

     Petitioners did not file their corporate or personal joint

Federal income tax returns for 1986 through 1990 until in or

about July 1991.   Petitioners received extensions to file only

for their 1986 and 1989 returns, which were due August 15, 1987,

and August 15, 1990, respectively.    The IRS selected petitioners'

1986 through 1990 corporate and personal returns for examination

in August 1991 and commenced an audit thereof in May 1992.
                                 12

     During the course of the audit, petitioners were informed

that the corporate returns that they filed for the FCC were

incorrect in that they filed Forms 1120 using subchapter C filing

status when the FCC was a subchapter S corporation.   Petitioners

discovered that an accountant whom they hired filed an

application for subchapter S status for the FCC with the IRS on

May 1, 1986.   Petitioners concede that they signed the

application but maintain that they were not aware of its contents

or its impact.    As a result of this error, petitioners' personal

returns were affected.   Respondent proposed numerous adjustments

to petitioners' returns for the years at issue, including the

determination that petitioners were entitled to NOL's for 1989

and 1990.

     Petitioner testified that during the audit conducted by an

IRS examiner referred to only as Ms. Van Der Heyden, the 1989 and

1990 NOL's, and their carryback to 1986 and 1987, respectively,

were discussed.   According to petitioner, in response to his

request to file amended returns for 1986 through 1990 to properly

reflect the NOL's and overpayments resulting from the carrybacks

thereof, Ms. Van Der Heyden explained that the policy of the IRS

does not permit taxpayers to file amended returns while involved

in an audit.   Petitioner further testified that he was assured by

Ms. Van Der Heyden that the IRS would allow him to carry back the

NOL's and obtain refunds for the resulting overpayments.
                                13

     Petitioner contends that he made additional verbal requests

for refunds of the 1986 and 1987 overpayments during a conference

with Appeals Officer Roger Caruso (Mr. Caruso) held in February

1993.   Petitioner testified as follows about the conversation

that he and Mr. Caruso had concerning the rental arrangement

between the FCC and the nursery:

     I did mention to him, in a subtle manner as opposed to a
     demand-type thing, that in the event that the rental concept
     is disallowed, then it will result in a net operating loss
     on * * * my 1989 and 1990 returns, that I would like to be
     able to utilize. And at that point, I think I got a nod.

Petitioner claims that Mr. Caruso assured him that the NOL's

would be taken into account during the final adjustment process.

However, on February 16, 1994, respondent issued a notice of

deficiency that failed to address the NOL's or refunds.

Petitioner asserts that he contacted Appeals Officer Lynn

Morrison regarding the omission and was told that the issue would

be resolved by the Tax Court and his verbal requests for refunds

constituted valid claims made within the period of limitations.

At no time prior to the issuance of the notice of deficiency did

petitioners file a protective claim for refund (Form 843), or any

written request regarding the 1986 or 1987 overpayments resulting

from the NOL's.2

2
     Petitioners filed a refund suit in the U.S. District Court
for the Middle District of Florida, claiming a refund or credit
based solely on their 1986 return as filed. The District Court
ruled that the refund or credit was barred by sec. 6511. Hodel
v. United States, 74 AFTR 2d 94-6001, 94-2 USTC par. 50,427 (M.D.
                                                   (continued...)
                                14

     Respondent concedes that petitioners incurred NOL's of

$11,281 in 1989 and of $7,401 in 1990, and that the NOL's may be

carried back to reduce income in 1986 and 1987, respectively.

Respondent also concedes that petitioners are entitled to a

refund of the resulting 1987 overpayment and informed this Court

that a refund check has been issued to petitioners.   Respondent

argues, however, that petitioners' claim for a refund of the 1986

overpayment is barred under section 6511(d)(2)(A).

     Section 6511(a) provides generally that a claim for credit

or refund of an overpayment of any tax as to which the taxpayer

is required to file a return shall be filed within 3 years from

the time the return was filed, or 2 years from the time the tax

was paid, whichever expires the later.   Section 6511(d)(2)(A)

provides a special period of limitations for claims for credit or

refund with respect to NOL carrybacks.   Under this section, a

taxpayer must file a refund claim within 3 years "after the time

prescribed by law for filing the return (including extensions

thereof) for the taxable year of the net operating loss" which

results in the carryback (and claim for refund).

     The NOL at issue was incurred during petitioners' 1989

taxable year.   Petitioners' 1989 return was due August 15, 1990,

at which time the period of limitations began to run for any


2
 (...continued)
Fla. 1994), affd. without published opinion 62 F.3d 400 (11th
Cir. 1995).
                                15

refund claim they had based on the return.   Sec. 6511(d)(2)(A).

Because the overpayment arose from an NOL carryback, petitioners

had to file a refund claim on or before August 15, 1993.   Id.

Petitioners did not file a written claim for refund, nor did they

raise the issue on their 1986 or 1989 returns.   The statute

therefore bars the claim unless petitioners can prove that:    (1)

They filed an "informal claim" putting the IRS on notice of their

refund claim; (2) the IRS is equitably estopped from raising a

statute of limitations defense; or (3) the period of limitations

is equitably tolled.3

     The validity of certain informal refund claims has long been

recognized by the Supreme Court:

     a notice fairly advising the Commissioner of the nature of
     the taxpayer's claim, which the Commissioner could reject
     because too general or because it does not comply with
     formal requirements of the statute and regulations, will
     nevertheless be treated as a claim, where formal defects and
     lack of specificity have been remedied by amendment filed
     after the lapse of the statutory period. * * *

United States v. Kales, 314 U.S. 186, 194 (1941).   "[I]n order to

be valid, an informal claim must have a written component which

adequately notifies the * * * [IRS] that a refund is sought for a

particular year."   Alisa v. Commissioner, T.C. Memo. 1976-255;

see also Mills v. United States, 890 F.2d 1133, 1135 (11th Cir.

3
     As an initial matter, the Court notes that the IRS cannot
waive the statute of limitations. Vishnevsky v. United States,
581 F.2d 1249, 1252-1253 (7th Cir. 1978); Essex v. Vinal, 499
F.2d 226, 231 (8th Cir. 1974). There is no contention in this
case that the IRS agreed to extend the statutory period of
limitations.
                                 16

1989) (citing Arch Engg. Co. v. United States, 783 F.2d 190, 192

(Fed. Cir. 1986)); American Radiator & Standard Sanitary Corp. v.

United States, 162 Ct. Cl. 106, 318 F.2d 915, 920 (1963).

     Therefore, to prevail on their informal claim argument,

petitioners bear the burden of proving that:      (1) They filed a

writing with the IRS; (2) this writing requested a refund or

notified the IRS that they would seek a refund; and (3) the IRS

had enough information to begin examining their claim before they

filed their formal refund claim.      Petitioners did not file a

written claim for refund of the 1986 overpayment.      It is well

established that an oral claim in and of itself is not sufficient

to satisfy section 6511.4   Alisa v. Commissioner, supra (citing

Ritter v. United States, 28 F.2d 265, 267 (3d Cir. 1928) and

Barenfeld v. United States, 194 Ct. Cl. 903, 442 F.2d 371

(1971)).

     In the alternative, petitioners argue they are entitled to a

refund of the 1986 overpayment based on the assurances of the IRS

agents that their claim would be considered, that their verbal

requests constituted valid refund claims within the limitations

period, and that taxpayers were not permitted to file amended

returns during an audit.    In other words, petitioners argue that

4
     Even if "the agent subsequently wrote a memorandum
summarizing the oral statements [it would not] suffice to
validate the alleged claim; the failure to file a written claim
may be taken as an indication the taxpayer does not intend to
prosecute his oral claim." Alisa v. Commissioner, T.C. Memo.
1976-255.
                                    17

respondent is equitably estopped from arguing that their refund

claim is time barred.

     The principle of equitable estoppel prohibits a party from

asserting a statute of limitations as a defense where that

party's conduct has induced another to refrain from bringing suit

during the applicable limitations period.            The Supreme Court

addressed the issue of equitable estoppel in Heckler v. Community

Health Services, 467 U.S. 51, 59 (1984):

          Estoppel is an equitable doctrine to avoid
     injustice in particular cases. While a hallmark of the
     doctrine is its flexible application, * * *

                        *   *   *   *    *   *   *

     the party claiming the estoppel must have relied on its
     adversary's conduct "in such a manner as to change his
     position for the worse," and that reliance must have
     been reasonable in that the party claiming the estoppel
     did not know nor should it have known that its
     adversary's conduct was misleading. * * * [Fn. refs.
     omitted.]

Therefore, to succeed on a traditional estoppel grounds defense

the litigant must prove (1) a misrepresentation by another party

(2) which he reasonably relied upon (3) to his detriment.            United

States v. Asmar, 827 F.2d 907, 912 (3d Cir. 1987); Dade County v.

Rohr Indus., Inc., 826 F.2d 983 (11th Cir. 1987).

     Additional considerations arise when a party alleges

estoppel against the Government, for "When the government is

unable to enforce the law because the conduct of its agents has

given arise to an estoppel, the interest of the citizenry as a

whole in obedience to the rule of law is undermined."            Heckler v.
                              - 18
                                18 -

Community Health Services, supra at 60.   Equitable estoppel is

applied against the Government with utmost caution and restraint.

Estate of Carberry v. Commissioner, 933 F.2d 1124, 1127 (2d Cir.

1991) (quoting Boulez v. Commissioner, 76 T.C. 209, 214-215

(1981), affd. 810 F.2d 209 (D.C. Cir. 1987)), affg. 95 T.C. 65

(1990).   Many Courts of Appeals apply more stringent requirements

for assertion of estoppel against the Government.    See, e.g.,

Penny v. Giuffrida, 897 F.2d 1543, 1545 (10th Cir. 1990); United

States v. Asmar, supra at 911 n.4 (equitable estoppel against

Government only if affirmative misconduct).

     The Court of Appeals for the Eleventh Circuit, to which an

appeal of this case lies, has not yet ruled whether affirmative

misconduct is an element of Government estoppel.    See Lyden v.

Howerton, 783 F.2d 1554 (11th Cir. 1986); Deltona Corp. v.

Alexander, 682 F.2d 888, 891 n.4 (11th Cir. 1982); In re

Campbell, 186 Bankr. 731 (N.D. Fla. 1995).    However, instead,

that court has adopted the reasoning of the former Court of

Appeals for the Fifth Circuit in United States v. Florida, 482

F.2d 205, 209 (5th Cir. 1973):

          Whether the defense of estoppel may be asserted against
     the United States in actions instituted by it depends upon
     whether such actions arise out of transactions entered into
     in its proprietory capacity or contract relationships, or
     whether the actions arise out of the exercise of its powers
     of government. The United States is not subject to an
     estoppel which impedes the exercise of the powers of
     government, and is not estopped to deny the validity of a
     transaction or agreement which the law does not sanction.
     [Citations omitted.]
                              - 19
                                19 -

See also Hicks v. Harris, 606 F.2d 65, 68 (5th Cir. 1979)

("Estoppel cannot be asserted against the United States in

actions arising out of the exercise of its sovereign powers").

But see Simmons v. United States, 308 F.2d 938, 945 (5th Cir.

1962) ("It is well-settled that the doctrine of equitable

estoppel, in proper circumstances, and with appropriate caution,

may be invoked against the United States in cases involving

internal revenue taxation.").5

     Under Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970),

affd. 445 F.2d 985 (10th Cir. 1971), we are obligated to follow

the law as stated by the Court of Appeals in the circuit to which

this case is appealable.   Therefore, in order for petitioners to

state a claim for equitable estoppel against the United States,

they must show:   (1) That the traditional elements of estoppel

are present; (2) that the Government was acting in its private or

proprietary capacity rather than its public or sovereign

capacity; and (3) that the Government's agent was acting within

the scope of his or her authority.     United States v. Vonderau,

837 F.2d 1540, 1541 (11th Cir. 1988).

     The United States was acting in its sovereign capacity in

its efforts to collect taxes from petitioners.    Collection of the

public revenue is a uniquely governmental function exercised by

5
     The Court of Appeals for the Eleventh Circuit, in the en
banc decision Bonner v. City of Prichard, 661 F.2d 1206 (11th
Cir. 1981), adopted as precedent decisions of the former Court of
Appeals for the Fifth Circuit rendered prior to Oct. 1, 1981.
                                - 20
                                  20 -

the Federal Government in its capacity as sovereign pursuant to

the Sixteenth Amendment to the U.S. Constitution.6   Consequently,

under the law as stated by the Court of Appeals for the Eleventh

Circuit, petitioners may not state a claim for equitable estoppel

because they are unable to establish that the United States,

acting through the IRS and its agents, was acting in a private or

proprietary capacity.     Id. at 1541.

     Even if the Court of Appeals for the Eleventh Circuit were

to decide that affirmative misconduct, and not sovereign

capacity, was the touchstone of the equitable estoppel defense,

petitioners' argument must fail because they have failed to

demonstrate that the IRS, acting through its agents, engaged in

affirmative misconduct.    Assuming, arguendo, that we give credit

to the entirety of petitioner's testimony and allegations, we are

unable to find that the statements made by Ms. Van Der Heyden,

Mr. Caruso, and Ms. Morrison amount to affirmative misconduct.

The agents might have been mistaken, and they might have led

petitioners to believe their verbal requests for refunds

constituted valid informal claims within the period of

limitations, but this is not affirmative misconduct.   At most,

these statements indicate that the agents were negligent, perhaps


6
     The Sixteenth Amendment provides: "The Congress shall have
power to lay and collect taxes on incomes, from whatever source
derived, without apportionment among the several States, and
without regard to any census or enumeration." U.S. Const. amend.
XVI.
                                - 21
                                  21 -

even recklessly so.    But negligence, even reckless negligence, is

not affirmative misconduct.    Schweiker v. Hansen, 450 U.S. 785

(1981); Portmann v. United States, 674 F.2d 1155, 1167 (7th Cir.

1982) (citing TRW, Inc. v. FTC, 647 F.2d 942, 951 (9th Cir. 1981)

(defining affirmative misconduct as "something more than mere

negligence")).

     Moreover, the often-stated general rule is that a revenue

agent does not have the authority to bind the Commissioner.      See

Dixon v. United States, 381 U.S. 68, 73 (1965); United States v.

Stewart, 311 U.S. 60 (1940).    A claim of estoppel is usually

rejected, even though the taxpayer contends that he followed the

erroneous advice of an agent and acted in reliance upon it.

Boulez v. Commissioner, supra; Montgomery v. Commissioner, 65

T.C. 511, 522 (1975).    Accordingly, petitioners' equitable

estoppel claim fails.

     Petitioners also raise arguments that the period of

limitations should be extended in light of the misrepresentations

allegedly made by the IRS agents.    In tax refund cases, the

actions of the IRS and its agents may equitably toll a period of

limitations.     Irwin v. Department of Veterans Affairs, 498 U.S.

89 (1990) (rebuttable presumption of equitable tolling applies to

suits against the United States); Brockamp v. United States, 67

F.3d 260, 261 (9th Cir. 1995), cert granted ___ U.S. ___, 116 S.

Ct. 1875 (1996).    The elements of equitable tolling are similar

to those of equitable estoppel.    A taxpayer seeking to apply
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equitable tolling must show, at a minimum, that the IRS did

something that reasonably induced him or her to believe the

period of limitations was being tolled or had been extended.     See

First Alabama Bank v. United States, 981 F.2d 1226, 1228 (11th

Cir. 1993).   Although there may be additional requirements to

prove equitable estoppel, the Court need not explore those

requirements because petitioners have not shown that the IRS did

or said anything which reasonably could have induced them to

believe the time period for filing a claim for refund was being

tolled or had been extended.

     In sum, we hold that petitioners are not entitled to a

refund of the 1986 overpayment attributable to the carryback of

the 1989 NOL.   This result may appear inequitable in light of the

fact that respondent clearly concedes that an overpayment exists

for taxable year 1986.   However, the general principles of equity

may not override statutory requirements for the timely filing of

tax refund claims.   Republic Petroleum Corp. v. United States,

613 F.2d 518 (5th Cir. 1980).    Furthermore, the Court notes that

with reference to the equities of this case, petitioners created

this situation by their failure to file timely returns for the

years at issue.
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                               23 -

     To reflect the concessions made by both parties and our

holdings herein,

                                        Decision will be entered

                                   under Rule 155.
