United States Court of Appeals

For the Eighth Circuit

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No. 14-3251

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Thomas J. Heckman,

lllllllllllllllllllllAppellant,

v.

Commissioner of Internal Revenue,

lllllllllllllllllllllAppellee.

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Appeal From The United States Tax Court

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 Submitted: April 13, 2015

 Filed: June 10, 2015

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Before MURPHY, COLLOTON, and KELLY, Circuit Judges.

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COLLOTON, Circuit Judge.

This appeal involves a tax dispute that turns on the applicable statute of

limitations. Thomas Heckman did not report certain gross income on a tax return for

2003 that he filed in August 2004. The Internal Revenue Service issued Heckman a

notice of deficiency in July 2010. Heckman petitioned the tax court, arguing that the

deficiency notice was untimely, because the statute of limitations expired three years

after the filing of his return. The tax court determined that a six-year statute of
limitations applied, and that the notice was therefore timely. The tax court held

Heckman liable for a deficiency of $38,623 for tax year 2003, and Heckman appeals.

Heckman participated in an employee stock ownership plan established by his

company, KC Investment Management, in 2001. In 2003, the plan acquired a 100%

interest in Prairie Capital, LLC, and then distributed its interest in Prairie Capital to

Heckman’s individual retirement account. The plan distribution was worth $137,726.

Heckman filed his 2003 Form 1040 tax return, along with accompanying

schedules, in August 2004. On the return, Heckman omitted the plan distribution

from his gross income. Heckman also did not disclose the distribution or his interest

in Prairie Capital on his individual return. For tax year 2003, Prairie Capital filed a

Form SS-4 application for an Employer Identification Number and a Form 1065

information tax return. The forms identified Heckman and Heckman’s individual

retirement account, respectively, as members of Prairie Capital. 

The IRS learned of the plan distribution through oral and written statements

that Heckman provided during an unrelated audit in April 2007. In July 2010, more

than three years but fewer than six years after Heckman filed his 2003 return, the IRS

issued Heckman a notice of deficiency for tax year 2003. The parties now agree that

the employee stock ownership plan was not eligible for favorable tax treatment under

26 U.S.C. § 401(a), and that the distribution constituted taxable income to Heckman

in 2003.

In the tax court, Heckman argued that the notice of deficiency was untimely

under the three-year statute of limitations of 26 U.S.C. § 6501(a) (2000). The tax

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court applied the six-year limitations period prescribed by § 6501(e)(1)(A) and ruled

that the notice was timely.

*

Under 26 U.S.C. § 6501(a) (2000), the IRS must assess a tax deficiency within

three years after the relevant tax return was filed. Section 6501(e)(1)(A) extends the

limitations period to six years if the taxpayer “omits from gross income” an amount

in excess of twenty-five percent of the gross income stated on the return. The parties

stipulate that the plan distribution exceeded twenty-five percent of Heckman’s gross

income for 2003. An amount is not considered “omitted” from gross income,

however, if it is “disclosed in the return, or in a statement attached to the return, in a

manner adequate to apprise the Secretary of the nature and amount of such item.” 

§ 6501(e)(1)(A)(ii). We review the tax court’s interpretation of § 6501 de novo, and

its factual findings for clear error. Scherbart v. Comm’r, 453 F.3d 987, 989 (8th Cir.

2006).

Heckman first argues that § 6501(e)(1)(A)’s six-year limitations period does

not apply because the IRS gained actual knowledge of the distribution—during the

unrelated audit—within three years of the date when he filed his 2003 tax return. 

This argument is premised on language in Colony, Inc. v. Commissioner, 357 U.S. 28

(1958), which construed § 275(c) of the Internal Revenue Code of 1939. Section

275(c) provided for an extended statute of limitations (five years rather than three)

when a taxpayer “omits from gross income an amount properly includible therein

which is in excess of 25 per centum of the amount of gross income stated in the

return.”

Section 6501(e)(1)(A) waslater redesignated as § 6501(e)(1)(B), Pub. L. 111- *

147, Title V, § 513(a) (2010), but we refer to the Code in effect when Heckman filed

the return at issue.

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Colony held that when an understatement of tax arose from an error in

reporting an item disclosed on the face of the return, the five-year limitations period

did not apply. The Court reasoned that “in enacting § 275(c) Congress manifested

no broader purpose than to give the Commissioner an additional two years to

investigate tax returns in cases where, because of a taxpayer’s omission to report

some taxable item, the Commissioner is at a special disadvantage in detecting errors.” 

357 U.S. at 36. Heckman contends that the IRS in this case was not “at a special

disadvantage” in detecting his error within the ordinary three-year limitations period,

because the government obtained actual knowledge of the distribution before the

three-year period expired. On that basis, Heckman contends that Congress did not

intend to give the Commissioner six yearsto investigate his return, and that the longer

limitations period does not apply.

The short answer to Heckman’s contention isthat Colony construed a different

statute that was superseded by § 6501(e)(1)(A). Like the 1939 Code, the successor

statute provides for an extended statute of limitations when a taxpayer omits an

amount from gross income that exceeds 25 percent of the reported gross income. But

unlike the 1939 Code, § 6501(e)(1)(A) spells out precisely what amounts should be

taken into account in determining the amount omitted fromgross income. Subsection

(ii) provides that an amount is excluded in determining “the amount omitted from

gross income” only if the amount “is disclosed in the return, or in a statement attached

to the return.” § 6501(e)(1)(A)(ii). There is no provision that says an amount is

excluded if the Commissioner is not “at a special disadvantage” in detecting the error,

orif the Commissioner learns ofthe amount within the ordinary three-year limitations

period. Colony, moreover, concerned an amount that was disclosed on the face of the

taxpayer’s return, id. at 36, so the Court unsurprisingly viewed its decision as “in

harmony” with the later enacted § 6501(e)(1)(A). Id. at 37 & n.3. 

Heckman’s proposed interpretation of § 6501(e)(1)(A) cannot be reconciled

with the text and structure of the statute. The statute of limitationsrunsfrom the date

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when the taxpayer’s “return was filed,” § 6501(a), (e)(1)(A), thus allowing the

Commissioner either three years or six years to investigate a return, depending on

which limitations period applies. Under Heckman’s approach, however, if the

Commissioner gains actual knowledge about an amount omitted froma return atsome

date after the return is filed (say, two years and 364 days later), then the

Commissioner would be left with only the remaining time (e.g., one day) to

investigate and act on the omission, not the three years contemplated by the statute. 

It is no answer to say, as Heckman does in the alternative, that the Commissioner

could simply be granted another three years after the date when the government

acquires actual knowledge of the omission. The Code provides only two statutes of

limitations: three years orsix years after the return was filed, not three years after the

acquisition of actual knowledge.

Heckman argues alternatively that his distribution fromthe plan was “disclosed

in the return,” as contemplated by § 6501(e)(1)(A)(ii), because it was allegedly

disclosed in Prairie Capital’s 2003 tax filings. He relies on Benderoff v. United

States, 398 F.2d 132 (8th Cir. 1968), which considered both taxpayers’ individual

returns and an information return filed by a corporation in determining whether a

corporate distribution to the taxpayers was “disclosed in the return . . . in a manner

adequate to apprise the Secretary . . . of the nature and amount of such item.” Id. at

134-35 (internal quotation mark omitted). In Benderoff, the taxpayers disclosed their

status as shareholders of the corporation and reported their respective shares of

undistributed corporate income on their individual tax returns, but failed to include

a corporate distribution that they received. Id. at 135. This court reasoned that the

corporate information return should be considered along with the individual returns

in analyzing the statute of limitations, because the purpose of the corporate

information return was to allow the government to verify the accuracy of the

shareholders’ individual returns, and because the individual returns made “adequate

reference to the corporate information return.” Id.

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In contrast to the situation in Benderoff, Heckman’s return contained no

reference to Prairie Capital or to the distribution. Neither Heckman’s return nor any

attached statement gave the Commissioner a clue that Prairie Capital’s filings were

relevant to Heckman’s tax liability. Because Heckman’s individual return made no

reference to Prairie Capital’s filings, the latter are not considered in determining

whether Heckman’s return disclosed the distribution in a manner “adequate to

apprise” the Commissioner of the amount omitted from Heckman’s return. See

Taylor v. United States, 417 F.2d 991, 994 (5th Cir. 1969) (“Since the Government

in this case examined an individual income tax return giving no suggestion or

inference that relevant information may have been contained elsewhere, it cannot be

seriously contended that the ‘adequate disclosure’ referred to in section

6501(e)(1)(A)(ii) was made.”); Connell Bus. Co. v. Comm’r, 87 T.C.M. (CCH) 1384,

1387 (T.C. 2004).

Heckman also points to Revenue Ruling 55-415, 1955-1 C.B. 412 (1955),

which said that “[a]ny partner’s share of the gross income reported in the partnership

information return should be considered as having been returned by the taxpayer, as

such information return is a return by or on behalf of each partner.” Id. at 413. 

Although Prairie Capital is a limited liability company, it is treated as a partnership

for federal income tax purposes, and it filed a Form 1065 partnership tax return for

2003. Heckman contends that the 1955 revenue ruling means that Prairie Capital’s

2003 tax return is a return by or on behalf of Heckman, so that income disclosed on

the Prairie Capital return was not “omitted” from his gross income. The revenue

ruling, however, interpreted the 1939 Code. It did not address whether income

disclosed in a partnership return is disclosed “in the return” or “in a statement

attached to the return” for purposes of the later-enacted § 6501(e)(1)(A)(ii), where

“the return” refers to the return filed by the individual taxpayer. In any event, as the

tax court observed, no return filed by Prairie Capital for the 2003 tax year disclosed

the distribution from the employee stock ownership plan to Heckman’s individual

retirement account. 

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Heckman’s last contention is that because he reasonably believed in 2003 that

the plan distribution qualified for a tax-free rollover and was not gross income, the

amount should not be treated as “omitted” from his 2003 return for purposes of

determining the statute of limitations. It is now undisputed, however, that the

distribution was taxable income and that Heckman’s belief when he filed his return

was incorrect. Section 6501(e)(1)(A) creates no exception for omissions caused by

a taxpayer’s mistaken tax position. See Benson v. Comm’r, 560 F.3d 1133, 1136 (9th

Cir. 2009). 

The tax court correctly concluded that the distribution that Heckman received

fromhis employee stock ownership plan was an “amount omitted fromgross income”

that triggered the extended six-year statute of limitations under § 6501(e)(1)(A). The

judgment of the tax court is therefore affirmed.

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