                  T.C. Memo. 1997-58



                UNITED STATES TAX COURT



   THEODORE HALPER, INCOMPETENT, VALERIE HALPER AND
  WAYNE HALPER, CO-PLENARY GUARDIANS, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 23378-94.            Filed February 3, 1997.



     P signed a power of attorney (POA) in 1988 naming B as
his representative. In April 1991, P was totally
incapacitated by a stroke. B signed a Form 872 on Sept. 23,
1991, extending the statutory period of limitations (SPL)
for tax years 1985 and 1986, with a letter to R describing
the effects of P’s stroke. On Jan. 28, 1992, a Florida
court found P legally incapacitated and named co-plenary
guardians, neither of which was B. In a letter dated
May 20, 1992, B advised R that P was not competent to
authorize agreement to settlement, and that B thus could not
sign a Form 870. However, on Aug. 27, 1992, B nevertheless
did sign another Form 872 for 1985 and 1986 on behalf of P.
On Sept. 19, 1994, a notice of deficiency for 1984, 1985,
and 1986 was mailed to P.
     Held: The Form 872 signed in 1992 is ineffective to
extend the SPL, because the POA under which B acted was
revoked by P’s incapacity and R had actual knowledge of the
incapacity. Held, further, the SPL for 1984, 1985, and 1986
                                - 2 -


     had expired when the notice was mailed, unless the
     underpayments of tax for those years were due to fraud.


     Michael B. Axman, for petitioner.

     Ladd C. Brown, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION

     PARR, Judge:    This case is before us on petitioner's motion

for partial summary judgment.   The case involves tax years 1984,

1985, and 1986.   One of the issues is whether petitioner is

liable for the addition to tax for fraud for each of those years.

The parties agree that, absent fraud, the period of limitations

for 1984 has expired.   The parties also agree that petitioner's

Federal income tax returns for the taxable years 1985 and 1986

were filed on July 25, 1986, and June 12, 1987, respectively, and

that, without a valid chain of extensions, the periods of

limitations would have expired July 25, 1989, and June 12, 1990,

respectively, unless the underpayments of tax for those years

were due to fraud.

     The specific issue presented is whether the Forms 872

(Consent to Extend the Time to Assess Tax), executed by

petitioner's purported representative on September 23, 1991, and

August 27, 1992, were effective to extend the periods of

limitations.   That issue turns on whether respondent knew or had

reason to know that petitioner was, in fact, incompetent and that
                                          - 3 -


the power of attorney, signed by petitioner when he was

competent, had thus been revoked by operation of law.

     All section references are to the Internal Revenue Code as

amended and in effect for the years in issue, unless otherwise

indicated.                       FINDINGS OF FACT

     When the petition in this case was filed, petitioner resided

in North Miami Beach, Florida.

     Petitioner and respondent timely executed agreements in

writing pursuant to the provisions of section 6501(c)(4),

extending the period for the assessment of tax due for 1985 and

1986 as follows:

        Form    Year(s)      Petitioner   Respondent   Extension Date

        872      1985        03/13/89       03/16/89     12/31/89

        872    1985 & 1986   09/12/89       09/15/89     12/31/90

        872    1985 & 1986   10/01/90       10/10/90     12/31/91

The first two extensions were signed by both petitioner and his

representative, Paul B. Bergman (Bergman).                Bergman was named as

petitioner’s representative in a Form 2848 (Power of Attorney and

Declaration of Representative), signed by petitioner on June 14,

1988.   (The parties agree that Form 2848 is not a durable power

of attorney.)      The third extension was signed by petitioner only.

The validity of the foregoing extensions is not in issue.

     The parties agree that in April of 1991, while undergoing

coronary bypass surgery, petitioner suffered a massive stroke,

leaving him both physically and mentally incapacitated.                 After
                               - 4 -


the stroke, Bergman continued to act on behalf of petitioner vis-

a-vis the Internal Revenue Service (IRS) under the apparent

authority of the power of attorney executed by petitioner before

his stroke.

     On September 23, 1991, Bergman alone signed a Form 872 that

purported to extend the period of limitations for both 1985 and

1986 to December 31, 1992.   That form was accompanied by a letter

from Bergman (first letter) to Andrew Rosenblatt (Agent

Rosenblatt), the IRS agent assigned to petitioner’s audit.    The

letter states:

           I am returning herewith the two copies of form
     872, signed by me alone as Mr. Halper’s representative.
     As I advised you, Mr. Halper suffered a stroke and as a
     result cannot speak and is paralyzed in half of his
     body.

          If you have any questions, please telephone me at
     my office.

Respondent signed the consent on October 2, 1991.

     On January 28, 1992, the Probate Division of the Eleventh

Judicial District in and for Dade County, Florida, determined

petitioner to be “incapable of the care, custody, and management

of his estate by reason of physical and/or mental infirmity".

Valerie Harper (petitioner's wife) was named guardian of the

person of petitioner, and Sidney Most was named guardian of the

property of petitioner.   On December 9, 1993, petitioner's wife

and Wayne Halper were named co-plenary guardians of the property

of petitioner.   Petitioner's wife was (and still is) the only
                                - 5 -


guardian of the person of petitioner."    They did not give Bergman

a power of attorney.

     In a second letter addressed to Agent Rosenblatt on May 20,

1992 (second letter), Bergman stated:

     Because Mr. Halper is presently not competent to
     authorize my agreement to the figures which you state
     represent sums owed to the IRS, I cannot sign the Form
     870 [Waiver of Restrictions on Assessment and
     Collection of Deficiency in Tax and Acceptance of
     Overassessment] which you have enclosed. As you may
     know, while he was competent, Mr. Halper believed that
     the assessed amounts were not accurate to the extent
     stated.

Although Bergman refused to sign the Form 870, 3 months later, on

August 27, 1992, he did sign a Form 872, purporting to extend the

statutory period of limitations for 1985 and 1986 to December 31,

1993.    That form was signed by respondent on August 31, 1992.

     On November 16, 1992, a new power of attorney was signed by

Valerie Halper as guardian of Theodore Halper, authorizing Steven

M. Kwartin, Martin J. Nash, and Michael B. Axman as petitioner’s

representatives.    A final Form 872 for 1985 and 1986 was signed

October 7, 1993, apparently by Mr. Axman, and by respondent on

October 15, 1993, extending the statutory period of limitations

for 1985 and 1986 to December 31, 1994.    That document is not in

issue.

     The notice of deficiency setting forth respondent's

determination of petitioner's income tax liabilities for 1985 and
                               - 6 -


1986 was sent to petitioner by certified mail on September 19,

1994.

                              OPINION

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials of phantom factual issues.

Kroh v. Commissioner, 98 T.C. 383, 390 (1992); Florida Peach

Corp. v. Commissioner, 90 T.C. 678, 681 (1988); Shiosaki v.

Commissioner, 61 T.C. 861, 862 (1974).   Summary judgment is

appropriate "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show 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); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985).   Because the

Court's granting of a motion for summary judgment decides against

a party before trial, such a disposition should be cautiously

invoked and used sparingly after carefully ascertaining that the

moving party has met all the requirements for the granting of a

summary judgment motion.   Associated Press v. United States, 326

U.S. 1, 6 (1945); Espinoza v. Commissioner, 78 T.C. 412, 416

(1982).
                               - 7 -


     The Court will not resolve disagreements over relevant

factual issues in a summary judgment proceeding.    Espinoza v.

Commissioner, supra at 416.   The burden of proving that there is

no genuine issue of material fact is on the moving party and

factual inferences are viewed in the light most favorable to the

nonmoving party.   United States v. Diebold, Inc., 369 U.S. 654,

655 (1962); Kroh v. Commissioner, supra at 390.    A fact is

material if it "tends to resolve any of the issues that have been

properly raised by the parties."   10A Wright et al., Federal

Practice and Procedure, Civil 2d, sec. 2725, at 93 (2d ed. 1983).

In this regard, the Court previously has denied motions for

summary judgment where intent is a material issue in the case;

such an inference of fact is to be drawn only at trial.     Oakland

Hills Country Club v. Commissioner, 74 T.C. 35, 40 (1980); Hoeme

v. Commissioner, 63 T.C. 18, 20 (1974).   The value of a trial

with complete opportunity to view the demeanor of the parties and

their evidence is obvious.    Hoeme v. Commissioner, supra at 20.

     Rule 121(d) provides, in pertinent part, as follows:

     When a motion for summary judgment is made and
     supported as provided in this Rule, an adverse party
     may not rest upon the mere allegations or denials of
     such party’s pleading, but such party’s response, by
     affidavits or as otherwise provided in this Rule, must
     set forth specific facts showing that there is a
     genuine issue for trial. If the adverse party does not
     so respond, then a decision, if appropriate, may be
     entered against such party.

See King v. Commissioner, 87 T.C. 1213, 1217 (1986).
                               - 8 -


     Here, neither petitioner's actual incapacity, nor the

content and receipt of Bergman's letters, is in dispute.    The

only question is whether, as a matter of law, either of the

letters was sufficient to notify respondent that Bergman's

authority was terminated.1   This matter is therefore ripe for

summary judgment.2

     The general rule under the common law is that a power of

attorney is revoked by operation of law by the subsequent

incapacity of either the principal or the agent.3   The common law

rule has not been modified in Florida by statute.   Millman v.

First Fed. Sav. & Loan Association, 198 So. 2d 338, 340 (Fla.

Dist. Ct. App. 1967).

     It follows that an adjudication of incompetency * * *
     will effect such a revocation, as being a circumstance
     which is inconsistent with a continuation of the
     agency. See 1 Fla. Jur., Agency, sec. 18. [Id.]




     1
        If either letter provided sufficient notice, the chain of
extensions was broken and the statutory period of limitations for
1985 and 1986 would have expired, unless the underpayments for
those years were due to fraud.
     2
        At the hearing on this matter, respondent's counsel said,
with regard to the second letter, "I think this particular issue
is--well, as we discussed, ripe for a summary judgment motion."
Respondent did not offer any testimony or affidavits alleging any
intent by Bergman to mislead.
     3
        Generally, the loss of capacity by a principal has the
same effect upon the authority of the agent during the period of
incapacity as has the principal's death. 1 Restatement, Agency
2d, sec. 122 (1957).
                               - 9 -


See also Kuder v. United Natl. Bank, 497 A.2d 1105, 1108 (D.C.

App. 1985); In re Berry's Estate, 329 N.Y.S.2d 915, 916 (N.Y.

Sur. 1972); cf. In re Estate of Head, 94 N.M. 656, 615 P.2d 271,

274 (App. 1980) (trial court's finding that defendant was

mentally competent when he executed trust agreement, but

incompetent when he executed amendment reversed; no evidence to

support finding of incompetence).

     In Florida, only a durable power of attorney is unaffected

by the subsequent incapacity of the principal, Fla. Stat. Ann.

sec. 709.08(1) (West Supp. 1996), and even a durable power is

revoked by a judgment of total or partial incapacity by a court,

as occurred here.   See Fla. Stat. Ann. sec. 709.08(3)(b) (West

Supp. 1996).

     Respondent concedes that petitioner was, in fact, left

mentally and physically incompetent by the stroke.

Respondent’s Form 2848 (Power of Attorney and Declaration of

Representative) had, thus, already been revoked by operation of

law when Bergman signed the Form 872 in 1992.   The only issue is

whether, in light of the letters from Bergman, it was reasonable

for respondent to continue to rely on the power as authority for

Bergman’s representation.

     It is undisputed that the Forms 872 are regular on their

faces.   Where a Form 872 is regular on its face and respondent

reasonably relied on it, we have indicated that taxpayers may be
                               - 10 -


precluded by the application of estoppel or a similar doctrine

from attacking the validity of the forms they signed, even if

they later prove they were incompetent when they signed them.

See Hollman v. Commissioner, 38 T.C. 251, 260 (1962); Dale v.

Commissioner, T.C. Memo. 1982-654.      However, those cases (and

others cited by respondent) differ from the one before us.     They

involve consents signed by the taxpayer, not by a third party

purporting to act on behalf of the taxpayer.     More importantly,

in those cases there was no evidence that the Commissioner had

either actual notice or reason to know of the taxpayer's

incapacity.

     Apparent authority, not otherwise terminated, ends when the

third person has notice of the termination of the agent's

authority.    1 Restatement, Agency 2d, sec. 125 (1957).    A third

person has notice when he knows, has reason to know, should know,

or has been given a notification of the occurrence of an event

from which, if reasonable, he would draw the inference that the

principal does not consent to have the agent so act for him, that

the agent does not consent so to act for the principal, or that

the transaction has become impossible of execution.     1

Restatement, Agency 2d, sec. 135 (1957).     Revocation of the prior

power of attorney need not be expressed; it can be implied from

words and conduct.    Whiting v. Marine Midland Bank-Western, 80

Misc. 2d 871, 365 N.Y.S.2d 628, 643 (Sup. Ct. 1975); see also
                              - 11 -


Bernstein v. Centaur Ins. Co., 644 F. Supp. 1361, 1369 (S.D.N.Y.

1986) (plaintiffs could not reasonably rely on apparent authority

of vice president of one of defendant's subsidiaries to bind

defendant, when plaintiffs had actual notice that the vice

president was no longer employed by the subsidiary); Baker v.

McCue-Moyle Dev. Co., 695 S.W.2d 906, 912 (Mo. Ct. App. 1984)

(warranty deed not legal tender because when it was presented,

the buyer knew that the partner who signed it no longer had

authority to sign, as the other partner had notified the buyer of

the dispute.   Further, the buyer had no duty to express his

reasons for objecting to the deed because they were obvious.);

In re Wolf Creek Valley Metro. Dist. No. IV, 138 Bankr. 610, 618

(D. Colo. 1992) (even if a friend had served as an agent in the

past, that relationship was clearly terminated when the friend

explicitly notified corporate property owner that he could no

longer serve as an intermediary between the parties).

     We need not discuss Bergman’s first letter because we

believe the second letter and the Form 872 signed in 1992 are

dispositive.   The second letter says, “Because Mr. Halper is

presently not competent to authorize my agreement * * * I cannot

sign the Form 870 which you have enclosed.”   (Emphasis added.)

     Respondent focuses on the word “presently” as casting doubt

on petitioner’s condition.   However, we do not see any ambiguity.

We think, rather, the word is simply used to distinguish between
                               - 12 -


the present and the past, in contrast to the next sentence: “As

you may know, while he was competent, Mr. Halper believed that

the assessed amounts were not accurate”.

     When Bergman signed the Form 872 in 1992, petitioner had

been judged incapacitated and coplenary guardians had been

appointed by the court.    They were the only persons legally

authorized to act on petitioner’s behalf or to appoint a

representative to do so.    They did not appoint Mr. Bergman.

     We need not speculate about why Bergman thought he had

continuing authority to sign the Form 872 on behalf of

petitioner, when he clearly (and correctly) understood he had no

such authority to sign the Form 870.    His authority to do either

would, in fact, have arisen under the same power of attorney.

     Regardless of Mr. Bergman's state of mind, his second letter

should have raised a red flag for respondent, triggering further

investigation.   Bergman never tried to hide petitioner’s

condition; indeed, he was explicit about it.    The second letter

contains a clear statement of incompetency, sufficient to put

respondent on notice that the power of attorney authorizing

Bergman to represent petitioner was revoked.    It was not

reasonable for respondent to continue to deal with him as

petitioner's representative.

     Based upon our review of the record, we are satisfied that

as to the Form 872 signed in 1992 there is no genuine issue of
                               - 13 -


material fact and that petitioner is entitled to partial summary

judgment as a matter of law.     The chain of consents to extend the

statutory period of limitations was broken.    Thus, we hold that

the period of limitations for 1985 and 1986 expired, at the

latest, on December 31, 1992 (the date of extension on the Form

872 signed in 1991).   Since the notice of deficiency was mailed

to petitioners on September 19, 1994, the statutory period of

limitations has expired for each of the tax years 1985 and 1986,

unless the underpayment of tax was due to fraud.

     To reflect the foregoing,


                                      An order granting petitioner's

                                 motion for partial summary judgment

                                 will be issued.
