                      T.C. Memo. 1997-456



                  UNITED STATES TAX COURT



       DENIS BRODY AND CAROL BRODY, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15934-86.            Filed October 8, 1997.



     Scott A. Brody, for petitioners.

     Christopher W. Schoen, for respondent.



                      MEMORANDUM OPINION

     WHALEN, Judge:   Respondent determined a deficiency of

$10,209.09 in petitioners' 1978 income tax, and determined

that the entire underpayment for that year is a substantial

underpayment attributable to tax-motivated transactions

with the result that the annual rate of interest is 120

percent of the underpayment rate, pursuant to former
                            - 2 -


section 6621(c).   All section references in this opinion

are to the Internal Revenue Code, as amended.

     The deficiency determined by respondent is based upon

the following adjustment as described in the notice of

deficiency:


     It has been determined that your distributive
     share of the loss from the B.D.B. Properties
     partnership which has an interest in the
     Thunderbird Associates Ltd. partnership is
     $(2,564.00) in lieu of $(31,255.00) which was
     reported on your tax return for the taxable
     year ending 1978. The Thunderbird Associates,
     Ltd. partnership has been agreed to at the
     partnership level.


As suggested above, one petitioner, Mr. Brody, held a

partnership interest in BDB Properties (BDB) and that

partnership held an interest in another partnership,

Thunderbird Associates, Ltd. (Thunderbird).   Petitioners

reported a loss of $31,255 from BDB on their 1978 return

that was based upon BDB's share of the loss originally

reported by Thunderbird in the amount of $953,129.

Respondent determined that the correct amount of

Thunderbird's loss is $78,120 and, accordingly, adjusted

petitioners' return in the subject notice of deficiency

by reducing their share of the Thunderbird loss from

$31,255 to $2,564.
                              - 3 -


     This is the second opinion that we have issued in this

case.    In our first opinion, Brody v. Commissioner, filed

at T.C. Memo. 1988-203 (hereafter Brody I), we addressed

petitioners' motion for summary judgment in which they took

the position that the adjustment, described above, is

barred under the period of limitations on assessment and

collection prescribed by section 6501(a).     Petitioners'

motion was based upon the fact that the special consent to

extend the period of limitations on IRS Form 872-A on which

respondent relied in issuing the notice of deficiency is

expressly limited to adjustments from Thunderbird.

Petitioners argued that the subject adjustment is outside

the scope of the special consent because they did not

directly own a partnership interest in Thunderbird but

owned such interest only indirectly through Mr. Brody's

partnership interest in BDB.

        In Brody I, we held that the subject adjustment was

well within the scope of the consent and, accordingly, was

not barred by the period of limitations on assessment and

collection in section 6501(a).     In interpreting the special

consent, we took note of the fact that petitioners are the

ultimate taxpayers with respect to a share of the

partnership items reported by Thunderbird for 1978, and

petitioners deducted on their 1978 return a share of the
                             - 4 -


losses reported by Thunderbird.      We found that the language

of the consent is clear and unambiguous, and there was no

justification to look beyond the terms of the consent in

determining the intent of the parties.      We interpreted the

terms of the consent to mean that the parties thereto

mutually agreed that adjustments to petitioners' 1978

return during the extended period could be made to

petitioners' share of the partnership items reported by

Thunderbird.    We noted that partnership items of BDB which

did not originate with Thunderbird were not covered under

the consent.    We further noted that if the consent had

specified that adjustments could be made to the partnership

items from BDB, as petitioners claimed were necessary, then

the consent would have covered all partnership items from

BDB.   Thus, it would have been a different and broader

consent than the consent that was executed.

       Shortly after we issued Brody I, proceedings in the

case were stayed for some time pursuant to the automatic

stay in bankruptcy, 11 U.S.C. section 362(a)(8) (1994).

When the bankruptcy stay was lifted, we set the case for

trial.

       In due course before trial, respondent filed a motion

for summary judgment on the ground that the sole assignment

of error raised in the petition had already been decided by
                            - 5 -


the Court in Brody I.   Respondent's motion points out that

the only facts raised in the petition are facts relating to

the period of limitations defense that was considered by

the Court and rejected in Brody I.   For example, paragraph

six of the petition states as follows:


     Because neither Denis Brody nor Carol Brody was
     a partner in Thunderbird, no adjustment to the
     return of Thunderbird could have directly
     affected the return filed by Mr. and Mrs. Brody.
     Instead, the alleged deficiency is directly
     resultant from adjustments to the Form 1065 filed
     by BDB Associates. Clearly, adjustments to BDB's
     return are not excepted from the operation of the
     statute of limitations by the restrictive
     language on the Form 870-A.


Respondent's motion also notes that petitioners had not

amended their pleadings to raise any issue other than the

period of limitations issue decided in Brody I.   The Court

calendared respondent's motion for summary judgment for

hearing on the same day as the case was set for trial.

     Shortly before trial and hearing on respondent's

motion, petitioners filed a cross-motion for summary

judgment in which they raise for a second time the issue

that was considered and decided in Brody I, that is,

whether the notice of deficiency was issued within the

period of limitations on assessment and collection

described by section 6501(a).   Petitioners' cross-motion

states as follows:
                        - 6 -



Petitioner [sic] respectfully submits that this
Court's prior holding that the consent encompass'
B.D.B. is in error. Petitioners contend that the
872-A executed by it [sic] specifically limits
the scope of any adjustments to Petitioners'
income to those adjustments resulting only from
modifications to any interest that Petitioner may
have in Thunderbird Associates, Ltd. Petitioners
do not own an interest in Thunderbird Associates,
Ltd. but rather, Denis Brody was a partner in
B.D.B. Properties, a New York general partner-
ship. B.D.B. Properties owned an interest in
Thunderbird Associates, Ltd., a Texas Limited
Partnership. B.D.B. Properties, on or about
April 15, 1979 filed a form 1065 for the year
1978, including its share of Thunderbirds' net
taxable loss in its return. The Petitioners in
their 1978 Income Tax Return Form 1040 included
their share of B.D.B.'s net taxable loss in their
Tax Return. * * *

The 872-A executed by Petitioners and Respondent
clearly limits any adjustments to Petitioner's
[sic] income only as a result of an adjustment to
Thunderbird Associates, Ltd. Since Petitioners
are not a partner in Thunderbird, an adjustment
to Thunderbirds' income in 1978 has no effect
[sic] on Petitioner's taxable income 1978
notifications and adjustments would have to just
be made to the return of B.D.B. However, since
the 872-A did not also extend the Statute of
Limitations with respect to B.D.B., the Internal
Revenue Service is barred from making the instant
assessment which purports to adjust Petitioner's
[sic] income as a result of an adjustment to
B.D.B.'s income for 1978.

          *    *    *      *    *   *   *

Since the Petitioners were not Partners in
Thunderbird Associates, Ltd., and since no
special consent was utilized to extend the
Statute of Limitations on behalf of the BDB
Partnership, no flow-through may occur.

          *    *    *      *    *   *   *
                            - 7 -


     It is Petitioners [sic] contention that the
     872-A executed by the parties is clear and
     ambiguous [sic] on its face and therefore must
     be strictly construed in accordance with its
     own terms.


     The thrust of petitioners' argument is that respondent

is legally precluded from adjusting petitioners' income to

correct their share of the losses reported from Thunderbird

because BDB was not specifically mentioned in the consent,

and petitioners did not directly own an interest in

Thunderbird.   We answered petitioners' argument in Brody I

as follows:

          Petitioners' only claim is that the omission
     of any reference to BDB in the consent forecloses
     any adjustment to their share of the losses of
     Thunderbird after the general period of limita-
     tions expired because they did not directly own
     an interest in Thunderbird. Petitioners'
     argument simply begs the question of what was
     intended by the parties as objectively determined
     from the language used in the consent. The fact
     that petitioners did not directly own an interest
     in Thunderbird means nothing different in the
     context of interpreting the consent than it meant
     in the context of petitioners' income tax return.
     Petitioners deducted losses from Thunderbird on
     their return, in accordance with their partner-
     ship interest in BDB, and the consent is clearly
     intended to cover partnership items from
     Thunderbird. It is also clear that is precisely
     what was intended by the Commissioner.

          Furthermore, had the consent specifically
     named BDB, as petitioners claim is necessary, it
     would have been a different agreement with
     broader legal effect than the subject consent.
     In that case, any partnership item flowing from
     BDB into petitioners' return, not just partner-
     ship items from Thunderbird, would have been
                            - 8 -


     covered by the extended limitations periods. The
     parties, of course, could have formulated their
     agreement in that manner but there is no reason
     to require them to have done so.

          Moreover, under petitioners' construction,
     the consent form would have been a nullity ab
     initio. We have no reason to believe that the
     parties would have undertaken a meaningless act
     and we will not interpret the consent to so
     provide when there exists a reasonable
     interpretation which accomplishes the intent of
     the parties as objectively interpreted. "It must
     be assumed that an effective and not a futile act
     was intended." Stange v. United States, 282 U.S.
     at 277.


     Petitioners acknowledge in their cross-motion that the

issue raised therein was "previously addressed by this

Court" in Brody I but they argue that the Court's opinion

in Brody I "was mistaken" in finding the intent of the

parties to the special consent.     Based upon "new and

additional information" that petitioners claim to have

submitted with their cross-motion for summary judgment,

they ask the Court "to reach a contrary conclusion" from

that reached in Brody I.   In the memorandum that

petitioners filed in support of their cross-motion

(referred to herein as petitioners' memorandum),

petitioners assert that there is "before the Court on

this motion" the following "additional facts" which were

"not previously before the Court":
                           - 9 -


     a.   The affidavit of Denis Brody which makes
          clear that the Petitioners did not consent
          to an extension of the statutory period
          with respect to B.D.B.;

     b.   Respondent's Response To Petitioners'
          Request To Admit and Respondent's Response
          To Petitioners' Interrogatories. These
          documents show that there is no evidence
          that Respondent intended to include
          adjustments to B.D.B. within the Form
          872-A, and that Respondent has no
          witnesses who can address the intent of
          Respondents at the time the documents were
          executed;

     c.   Portions of Respondent's file, which show
          that the Respondent had every available
          document necessary to show to the agent
          that Petitioner was a partner in B.D.B.,
          and not Thunderbird. More importantly,
          the documents requesting information of
          Petitioner do not even refer to Thunderbird.


     At the hearing of petitioners' cross-motion for

summary judgment, petitioners' attorney formulated their

position in the following terms:


     Our position is that we [are] addressing the same
     issue [as the issue decided in Brody I] but that
     it has not been resolved by the Court, by this
     Court's prior memorandum opinion because there
     are additional facts from which we are asking the
     Court to reach a contrary conclusion and these
     facts are very simple and we believe that they
     are significant enough to justify this Court
     rendering an opposite conclusion, and those facts
     are as follows: the fact that no other partner
     of the BDB Partnership was requested to sign a
     waiver or extension; the fact that there was no
     indication in the Respondent's file that the
     person who prepared the consent had any
     documentation of the existence of the BDB
     Partnership or Partnership files; and the fact
                            - 10 -


     that the only place that Mr. Brody's name
     appeared in the Thunderbird file was as General
     Partner of BDB and not as an individual partner
     of Thunderbird.

          It is our position that it was Respondent's
     procedure at the time that this extension was
     filed to obtain consents from the partners of a
     partnership and to determine the deficiencies at
     the partnership level, that in this particular
     case an error was made by the person who prepared
     the consents who presumed that Mr. Brody was a
     partner in Thunderbird and not a partner of some
     other partnership that owned an interest in
     Thunderbird.

          It is our belief that had he known the
     existence of other partners of BDB that he would
     have, to be consistent, would have asked all of
     the other partners of BDB to execute waivers,
     that is was [sic] the position to have a
     partner's tax return resolved at the partnership
     level for distributions from a partnership and
     that in this case if this Court makes this
     deficiency applicable to Mr. Brody his return
     will then be inconsistent with the return of BDB
     and inconsistent with the return of all the other
     partners of the BDB partnership.

     Petitioners assert that the Court misconstrued their

intent.   They point to the statement in Brody I that

"Petitioners do not claim that they misunderstood what was

intended by the restrictive language in the consent or that

they intended something different".   Based upon Mr. Brody's

affidavit, submitted as part of the new and additional

information, petitioners argue that the Court was mistaken.

According to petitioners:


     Obviously the Court was mistaken, since
     Petitioners have outright stated that they did
                                 - 11 -


     not believe, as stated to Respondent in writing
     back in 1983, that the Consent encompassed
     adjustments which had to be made through B.D.B.


Mr. Brody's affidavit on which petitioners rely states that

he considered the consent with his attorneys and:


     We did not believe that the execution of the
     document could result in the imposition of a
     tax against me because the form did not include
     B.D.B., and I was not a partner in Thunderbird.

               *      *      *    *    *    *    *

     My attorneys and I addressed this fact [i.e.,
     that petitioner was not a partner in Thunderbird]
     at that time, and it was our belief that the
     failure to include B.D.B. in the waiver was a
     fatal defect.


     Petitioners also assert that the Court misconstrued

respondent's intent.         They argue that the Court erroneously

"went beyond the written terms of the consent * * * [and]

considered the intent of the Service, an intent which is

not in evidence."         Petitioners argue that "there is

absolutely no evidence as to what concerned the

Respondent."       Petitioners also argue, based upon the

"new and additional information" attached to their cross-

motion for summary judgment, that respondent's agent simply

"presumed that Mr. Brody was a partner in Thunderbird".

As we understand it, petitioners' argument is that the

Commissioner's agent who prepared the consent on behalf of
                            - 12 -


the Commissioner mistakenly thought that Mr. Brody held a

partnership interest in Thunderbird and did not realize

that Mr. Brody's interest in Thunderbird was based upon his

interest in another partnership, BDB.    Petitioners' trial

memorandum states as follows:


          Additional evidence has been submitted to
     the Court to show that the service did not intend
     or know that adjustments to another partnership
     [i.e., BDB] had to be made before the deficiency
     could be imposed upon Petitioners. The facts and
     evidence show that the I.R.S. did not properly
     prepare the consent, and the deficiency issued is
     not covered by the consent. [Emphasis deleted.]


     Petitioners cross-motion for summary judgment is

really in the nature of a motion for reconsideration of

our opinion in Brody I.    We find nothing in petitioners'

cross-motion or in petitioners' memorandum in support

thereof that leads us to believe that we erred in Brody I.

Petitioners base their cross-motion upon the "new and

additional information" submitted therewith, but they

present no basis for the Court to consider such "new and

additional information".    In Brody I, both parties argued,

and the Court found that the consent is clear and

unambiguous and that there was no justification to look to

extraneous evidence in order to determine the intent of the

parties to the consent.    See, e.g., Woods v. Commissioner,

92 T.C. 776 (1989).   Accordingly, in Brody I the Court
                          - 13 -


construed the intent of the parties to the consent based

upon the plain meaning of the words used in the consent.

See United States v. Hodgekins, 28 F.3d 610, 614 (7th Cir.

1994).

     In their cross-motion for summary judgment,

petitioners continue to assert that the consent is "clear

and ambiguous [sic] on its face and therefore must be

strictly construed in accordance with its own terms."

Thus, petitioners do not argue that the consent is

ambiguous, that a mutual mistake was made, or that there

is any other reason to consider extraneous evidence in

determining the intention of the parties to the consent.

See, e.g., Woods v. Commissioner, supra.   Accordingly,

we have no reason to consider the "new and additional

information" submitted by petitioners or to reconsider

our opinion in Brody I.

     Even if we were to consider the "new and additional

information" submitted by petitioners, the result would

be the same as the result in Brody I.   Generally, in

determining whether the parties to a consent to extend the

period of limitations have reached "agreement", as required

by section 6501(c)(4), courts look to the objective mani-

festation of mutual assent as evidenced by the parties'

overt acts and do not take into account the parties' secret
                           - 14 -


intentions.   Mecom v. Commissioner, 101 T.C. 374, 385

(1993), affd. without published opinion 40 F.3d 385 (5th

Cir. 1994); Kornish v. Commissioner, 90 T.C. 684, 693

(1988).   In this case, petitioners intentionally signed the

subject consent form and thereby manifested their assent to

the terms contained therein.   According to Mr. Brody's

affidavit, he harbored the unstated view that respondent's

agent had made a mistake in preparing the consent by

limiting it to adjustments from Thunderbird.   Mr. Brody's

affidavit does not suggest that petitioners misunderstood

what was intended by the restrictive language in the

consent or that they intended a different restriction.

Petitioners merely harbored the secret belief that the

consent would not have the legal effect of extending the

period of limitations with respect to their 1978 return.

Thus, petitioners made a unilateral mistake concerning the

legal effect of the consent.   This is not the type of

mistake for which relief is warranted.   See Estate of

Caporella v. Commissioner, 86 T.C. 285, 298 (1986), affd.

817 F.2d 706 (11th Cir. 1987); 13 Williston on Contracts,

sec. 1587 (3d ed. 1970).

     Petitioners claim that the "new and additional

information" submitted with their cross-motion for summary

judgment shows that the Court misconstrued respondent's
                            - 15 -


intent.   According to petitioners' argument, summarized

above, the person who prepared the consent on behalf of

respondent thought that Mr. Brody held an interest in

Thunderbird directly and did not know that Mr. Brody held

his interest in Thunderbird through BDB.    Petitioners

contend that if respondent's agent had known, then he

"would have asked all of the other partners of BDB to

execute waivers".    Petitioners complain that "if this

Court makes this deficiency applicable to Mr. Brody his

return will then be inconsistent with the return of BDB

and inconsistent with the return of all the other partners

of the BDB partnership."

     Accepting petitioners' factual allegations as true for

purposes of this discussion, we agree that respondent's

agent would have asked all partners of BDB, including

petitioners, to execute waivers of the period of

limitations on assessment and collection.    Prior to the

enactment of the uniform audit procedures for partner-

ships in sections 6221 through 6233, the Commissioner

was required to obtain a consent for extension of the

period of limitations from each of the partners, not

the partnership.    See Staff of Joint Comm. on Taxation,

General Explanation of the Revenue Provisions of the Tax

Equity and Fiscal Responsibility Act of 1982, at 267 (J.
                           - 16 -


Comm. Print 1982).   However, even assuming that

respondent's agent did not know that Mr. Brody held his

interest in Thunderbird through BDB, there is no reason to

believe that respondent would have acted differently as to

petitioners.   Nothing attached to petitioners' cross-motion

for summary judgment suggests that respondent would not

have sought to obtain a waiver of the period of limitation

from petitioners or that respondent would have sought a

waiver from petitioners on different terms.

     Furthermore, we agree with petitioners that if the

period of limitations remains open with respect to

petitioners' 1978 return but not with respect to other

partners of BDB, then "inconsistent results" could follow.

In fact, that is one of the problems which led to the

enactment of the unified partnership procedures in sec-

tions 6221 through 6233.   See id. at 268 ("Inconsistent

results could be obtained for different partners with

respect to the same item.").   However, the possibility of

any such inconsistent results does not mean that respondent

and petitioners failed to reach an "agreement" to extend

the period of limitations with respect to the losses from

Thunderbird reported on petitioners' 1978 return or that

there is any reason not to give effect to that agreement.
                           - 17 -


     Finally, we note that petitioners elected not to

proceed to trial.   After the parties had completed their

argument on the motion and cross-motion for summary

judgment, the following exchange took place between the

Court and petitioners' attorney:


     THE COURT:      And so there is no trial, I take
                     it?

     MR. BRODY:      On behalf of the Petitioner we
                     believe that we have submitted
                     our evidence to the Court on
                     the motions.


     To reflect the foregoing,


                                   An order and decision shall

                            be entered granting respondent's

                            motion for summary judgment and

                            denying petitioners' cross-

                            motion for summary judgment.
