Fredericks v. C.I.R.

On his 1977 income-tax return, Barry I. Fredericks (plaintiff) claimed a deduction on a tax shelter. The tax shelter was being challenged by the Internal Revenue Service (IRS) (defendant) in another case, so Fredericks agreed to an extension of the statute of limitations on tax collections related to the disputed deduction. Fredericks filled out a Form 872-A, which would indefinitely extend the statute of limitations until Fredericks revoked it. The Form 872-A that Fredericks filled out was lost by the IRS, and the IRS asked Fredericks to fill out a Form 872, which extends the statute of limitations for one year. Fredericks submitted a Form 872 for several years. In 1984 the IRS found the lost Form 872-A. The IRS did not tell Fredericks that it had found the form and also did not seek renewal of the statute of limitations through another Form 872. The last Form 872 expired on June 30, 1984. In 1992 the IRS sent Fredericks a notice of a tax deficiency of approximately $28,000 and an interest bill of $158,000. Fredericks petitioned the United States Tax Court for a redetermination, arguing that the IRS was barred from collecting taxes related to the disputed tax-shelter deduction because the statute of limitations had run out following the expiration of the last Form 872 in 1984. The tax court upheld the IRS’s calculated deficiency after finding that the initial Form 872-A was still extending the statute of limitations. Fredericks appealed.