On Appeal from the Decision of the U.S. Tax Court
Before: SLOVITER, Chief Judge, COWEN and GARTH, Circuit Judges
Ronald C. Bachner appeals from the decision of the United States Tax Court sustaining the determination of the Commissioner of Internal Revenue of deficiencies in and additions to Bachner's federal income taxes for the tax years 1984 and 1985. Bachner claims that the applicable statute of limitations bars assessment for each year.
I. Facts and Procedural History
In 1984 and 1985, Bachner was employed as a laboratory technician by the Westinghouse Electric Corporation. In November 1984, he sent the first of three letters to the Internal Revenue Service (IRS), all requesting assurance that his filing of a tax return would not cause him to be treated as having "relinquished" any of his constitutional rights. The District Director responded with letters emphasizing that the Internal Revenue Code mandated the filing of returns, describing the penalties otherwise applicable, and urging Bachner to submit the required information and pay the required amount.
On April 15, 1985, Bachner filed a timely Form 1040 for the 1984 tax year. In addition to providing his name, social security number, and other identification information, Bachner reported $24,441.71 on Line 7, captioned "Wages, salaries, tips, etc.", and attached the Form W-2 from his employer stating the same amount of compensation.
Bachner typed "XXXXXX" over the caption designated "Moving expense" on Line 24, and typed the amount $24,441.71 in the space provided. He added in the margin the note "No Income or Taxable Compensation See Attached Letter and Eisner v. Macomber 252 US 189." He attached a letter along with the Form W-2, in which he claimed a refund of "erroneously withheld" federal income taxes, cited twenty-two court decisions and the Internal Revenue Code for support, and stated that his submission did not constitute a waiver of any rights. By applying his claimed deduction against his stated income, Bachner reported zero taxable income. He further claimed a refund of $4,396.95, the total amount withheld as taxes from his year's salary. The withheld taxes were not refunded.
At approximately the same time Bachner filed this return for 1984, Bachner filed three Forms 1040X (Amended U.S. Individual Income Tax Return), claiming refund of federal income taxes he had paid for the 1981, 1982 and 1983 tax years. Each of the claims included the statement "I have no income or taxable compensation," and was accompanied by the same letter Bachner had attached to his 1984 return.
In March 1985, Bachner filed with his employer a Form W-4 (Employee's Withholding Allowance Certificate), on which he claimed exemption from income tax withholding. Bachner indicated on the form that he did not owe any federal income tax for the previous year and would not for the current year, and that he had a right to a full refund of all income tax withheld for the previous year and expected the same for the current year.
In August 1985, the IRS asked Bachner to provide further information regarding his claimed exemption from income tax withholding. Bachner responded by a letter again declaring that he had no taxable income and again attached the letter he had attached to his 1984 Form 1040 and to each of his three Forms 1040X. Multiple rounds of correspondence followed, with the IRS notifying Bachner that it deemed his claim of exemption invalid and had directed his employer to withhold accordingly. Predictably, Bachner repeatedly disputed the IRS's authority to do so and asserted the validity of his exemption claim.
Bachner earned $26,901.76 in wages in 1985, of which $1,547.71 was withheld as federal income tax. Bachner filed no Form 1040 or 1040A for the 1985 tax year.
In June 1989, Bachner was indicted on one count of tax evasion for the 1985 tax year, in violation of 26 U.S.C. Section(s) 7201, and four counts of filing false, fictitious or fraudulent claims for tax refund for the 1981 through 1984 tax years, in violation of 18 U.S.C. Section(s) 287. After a jury trial in the Western District of Pennsylvania, Bachner was acquitted of all charges.
In December 1990, Bachner received two letters from the IRS, one regarding his tax liability for the 1984 tax year and the other for the 1985 tax year. The letters, with identical text, stated in their entirety:
Based on the information you have provided, the account specified above is resolved. We may contact you in the future, if further issues arise requiring clarification. At present, no further response is needed on the above account. App. at 60-61.
On September 11, 1992, the IRS issued to Bachner a notice of deficiency for the 1984 and 1985 tax years. The notice asserted tax deficiencies of $4,096 for 1984 and $4,708 for 1985, and additions for fraud pursuant to I.R.C. Section(s) 6653(b) of $2,048 for 1984, and $2,354 plus 50 percent of the interest due on the unpaid deficiency of $3,161 for 1985. The asserted deficiencies did not reflect the amounts withheld of $4,397 in 1984 and $1,547 in 1985.
Bachner petitioned the Tax Court for redetermination of the asserted deficiencies for both years. Bachner relied on the statute of limitations in Section(s) 6501(a) of the Internal Revenue Code, which limits assessment to "within 3 years after the return was filed." With respect to the 1984 tax year, he contended that the Form 1040 he had filed, though irregular in format, provided information sufficient for the IRS to have computed his tax liability for that year, and therefore it qualified as a "return" adequate to trigger the running of the statute of limitations. Bachner conceded that he had filed no Form 1040 or 1040A for the 1985 tax year, but claimed that the Form W-2 submitted by his employer equipped the IRS with data sufficient to determine his tax liability for 1985. Therefore, the W-2 "filed on his behalf" served as a "return" within the meaning of I.R.C. Section(s) 6501(a) and marked the commencement of the three-year limitations period. Finally, Bachner argued that even if the Forms 1040 and W-2 were not "returns" upon submission, the IRS's subsequent communication in December 1990, declaring his accounts for 1984 and 1985 "resolved," constituted after-the-fact "acceptance" of the documents as valid tax returns.
Following a trial at which all the relevant facts were stipulated, the Tax Court sustained the Commissioner's determination of deficiencies with respect to both years. The court held that the statute of limitations was inapplicable and both years remained open to assessment since neither the unusual Form 1040 filed for 1984 nor the W-2 Bachner's employer submitted for 1985 qualified as a "return" that would commence the running of the statute of limitations under 6501(a). The court further held ...