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regulations under prior law required a taxpayer who made the
election to agree to "extend the statute of limitations for each
taxable year in the 5 (or 7) year period to at least 18 months
after the due date of his return for the last year in the
period." S. Rept. 94-938 (Part 1), at 67 (1976), 1976-3 C.B.
(Vol. 3) 49, 105. Such an extension applied to all potential
income tax liabilities arising during the period, including
liabilities unrelated to deductions subject to section 183
issues. See id.
In explaining the purpose of section 183(e)(4), the Senate
report goes on to say that "the making of this election
automatically extends the statute of limitations, but only with
regard to deductions which might be disallowed under section
183." S. Rept. 94-938 (Part 1), supra at 106. (As we have
previously pointed out, the deductions, and the resulting
overpayments, in this case arose solely in connection with
petitioners' horse boarding and training activities.)
It is thus obvious that by enacting section 183(e)(4),
Congress intended to override section 6501(c)(4) in this narrow
area, and since a valid election extends the period of
limitations on assessment by operation of the law, the
requirement of section 6501(c)(4) that there be mutuality by
written agreement is inoperative in this area. A taxpayer could
not be heard to object that an assessment resulting from
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Last modified: May 25, 2011