Source: https://caselaw.findlaw.com/us-supreme-court/288/420.html
Timestamp: 2019-04-25 08:56:58+00:00

Document:
These cases arose out of the same transaction and present, on substantially the same facts, the same question of law. Reference will be made in the opinion only to the McDonnell case.
The action was brought by McDonnell in the Court of Claims on November 4, 1929 to recover $4,549.03, with interest from the date of payment, October 23, 1926. McDonnell filed his individual income tax return for 1917 on April 1, 1918, and paid the amount shown thereon to be due. The sum now sought to be recovered was paid to the collector of internal revenue for the Second district of New York pursuant to an assessment of an additional income tax for the year 1917, which was made by the Commissioner of Internal Revenue on October 9, 1926. There had been a waiver on February 23, 1926, of the statutory limitation upon the time for making the assessment. Claims for refund were made on December 27, 1928, and May 31, 1929, alleging that the waiver was invalid and that the amount claimed was collected after the running of the statute. The claims for refund were rejected on March 6, 1929, and July 25, 1929. The Court of Claims entered judgment for the defendant. 59 F.(2d) 290. Because of conflict of the decision with that in Uncasville Manufacturing Co. v. Commissioner (C.C.A.) 55 F.(2d) 893, certiorari was granted, limited to the question of the validity of the waiver under section 278(e) of the Revenue Act of 1924 (26 USCA 1062 note) 287 U.S. 589 , 53 S.Ct. 95, 77 L. Ed. --.
The waiver was given under the following circumstances: McDonnell was in 1917 a member of the firm of McDonnell & Truda, which in that year filed its income tax return and paid the taxes therein shown to be due. On March 18, 1923, that is, within five years after the filing of the return and before the expiration of the period allowed by section 250(d) of the Revenue Act of 1921 (42 Stat. 264) for [288 U.S. 420, 422] assessment and collection of an additional tax, the Commissioner made a jeopardy assessment against the firm of $100,005.14. On November 30, 1925, that is, after the expiration of the statutory period for making an additional assessment against the plaintiff, the Commissioner notified the plaintiff that the amount payable by the firm for additional tax should, because of errors, be reduced to $24,863.28; but that a reduction of the liability of the partnership necessitated additional taxes to the individual members of the firm; and that he would not make the reduction to the firm unless plaintiff and his partner would waive the statute of limitations so as to permit additional individual taxes, and would pay the amounts assessed against them. Each gave the waiver requested, and paid the amount now sought to be recovered.
The contention of the petitioner, expressed in different terms, is that waivers executed subsequent to June 2, 1924, are invalid where the date of filing the return was such that the five-year period for assessment elapsed before June 2, 1924. Obviously, the waiver would have been good if executed before June 2, 1924, the period of limitation expiring when it did; for in that event the assessment would not have been 'barred by the period of limitation' at the time of the enactment of the 1924 act. The fact that the waiver was executed after the running of the statute of limitations does not render it invalid. Burnet v. Chicago Railway Equipment Co., 282 U.S. [288 U.S. 420, 424] 295, 298, 299, 51 S.Ct. 137; Stange v. United States, 282 U.S. 270 , 273-275, 51 S.Ct. 145. And confessedly, the waiver would have been good, executed when it was, if the period of limitation had expired after June 2, 1924.
Both the language and the purpose of paragraph (e) are consistent with this view. It was pointed out in Burnet v. Chicago Railway Equipment Co., 282 U.S. 295 , 300, note 5, 51 S.Ct. 137, that paragraph ( e) cannot have been intended to qualify every other subdivision in section 278. The petitioner assumes, in fact, that it does not qualify subdivisions (a) and (b), which provide, respectively, for assessment at any time in the case of false or fraudulent returns or failure to file returns, and in the case of deficiencies attributable to a change in deductions taken in amortization of war investments. That paragraph (e) does qualify paragraph (d), which extends the period in [288 U.S. 420, 425] which collection may be made to six years after assessment, was decided in Russell v. United States, 278 U.S. 181 , 49 S.Ct. 121. The petitioner argues that since paragraph (d) relates only to collection, and since the qualifications of paragraph (e) apply in terms to assessments as well, the latter paragraph must limit paragraph (c), the only remaining subdivision. But this conclusion does not necessarily follow. Congress may have inserted the reference to 'assessments' in paragraph (e) in order to make it clear that the extension of time for collections should in no event be regarded as authorizing an assessment already barred by the applicable statute of limitations. Moreover, paragraph (d) alone marked a change in the policy of Congress. 3 Paragraph (e) was inserted to prevent the section from being given a 'retroactive effect.' 4 To apply it to paragraph (c) would not serve that function. On the countrary, it would serve to cause a break in the policy of giving effect to waivers; a policy expressly adopted in the act of 1921 and avowedly continued by the act of 1924. The disclaimer of an intention to 'authorize an assessment' where 'such assessment' was already barred cannot be taken to refer to assessments [288 U.S. 420, 426] which were authorized by section 278 only in the sense that they were made pursuant to an agreement by the taxpayer of the kind which the act continued to recognize and sanction.
'(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
'(b) Any deficiency attributable to a change in a deduction tentatively allowed under paragraph (9) of subdivision (a) of section 214, or paragraph (8) of subdivision (a) of section 234, of the Revenue Act of 1918 or the Revenue Act of 1921, may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
'(c) Where both the Commissioner and the taxpayer have consented in writing to the assessment of the tax after the time prescribed in section 277 for its assessment the tax may be assessed at any time prior to the expiration of the period agreed upon.
[ Footnote 2 ] See H. Rep. No. 179, 68th Cong., 1st Sess., p. 26; S. Rep. No. 398, 68th Cong., 1st Sess., p. 32.
[ Footnote 3 ] See the committee reports, loc. cit., supra, note 2; also, Hearings on H.R. 6715 before Senate Committee on Finance, 68th Cong., 1st Sess., pp. 36, 39. As originally drafted, paragraph (d) authorized collection without limitation of time. See Hearings, supra, p. 39; Statement of Changes Made in the Revenue Act of 1921 by H.R. 6715 and the Reasons Therefor, Senate Committee on Finance, 68th Cong., 1st Sess., p. 27. The limitation on collections of six years from the date of assessment was proposed by the Senate and agreed to by the House. See Conference Report, H.R. No. 844, 68th Cong., 1st Sess., p. 24. The 1921 act, 250(d), had imposed a limit on collections of five years from the date of return. See Russell v. United States, 278 U.S. 181, 185 , 49 S.Ct. 121.
[ Footnote 4 ] See Hearings on H.R. 6715 before the Senate Committee on Finance, 68th Cong., 1st Sess., p. 41 (Statement of A. W. Gregg, Treasury draftsman).

References: v. 
 v. 
 v. 
 v. 
 v. 
 v.