Kretchmar v. United States

Frank and Bertha Kretchmar (plaintiffs) filed joint tax returns as a married couple. The Internal Revenue Service (IRS) audited the couple’s returns for the years 1976, 1977, and 1978 and found the Kretchmars to have underreported their business income. In general, the statute of limitations for the IRS to assess deficiencies was three years. The IRS issued deficiencies and assessed civil penalties against the couple. The Kretchmars refused to accept the IRS’s initial assessment, and they and the IRS began settlement negotiations, the Kretchmars agreeing to extend the three-year limitation period in the meantime. The negotiations resulted in a partial reduction in the Kretchmars’ deficiencies and penalties. The Kretchmars signed and executed IRS Form 870-AD, evidencing their acceptance of the settlement and their promise that “no claim for refund or credit shall be filed” later for the tax years covered by the settlement. The Kretchmars, nonetheless, filed a claim for refund for all three years. By the time the Kretchmars filed, the statute-of-limitations extension for the IRS to assess further deficiencies had elapsed. The IRS denied the refund, and the Kretchmars sued the government (defendant) for the refund in the United States Claims Court. The government moved for summary judgment, arguing that the Kretchmars were equitably estopped from seeking the returns in light of their execution of Form 870-AD.