Source: https://www.legalcrystal.com/case/99418/colony-inc-vs-commissioner
Timestamp: 2018-02-19 02:38:20
Document Index: 92577081

Matched Legal Cases: ['§ 275', '§ 275', '§ 275', '§ 275', '§ 275', '§ 275', '§ 275', '§ 275', '§ 275', '§ 276', '§ 275', '§ 276', '§ 275', '§ 275', '§ 275', '§ 275', '§ 6501']

The Colony Inc Vs Commissioner - Citation 99418 - Court Judgment | LegalCrystal
The Colony, Inc. Vs. Commissioner - Court Judgment
LegalCrystal Citation legalcrystal.com/99418
Case Number 357 U.S. 28
Appellant The Colony, Inc.
.....of the taxpayer's gross income by more than 25% of the amount reported. held: the five-year period of limitations prescribed in § 275(c) for cases in which the taxpayer "omits from gross income an amount properly includible therein" which exceeds 25% of the gross income reported is not applicable, and the assessment was barred by the three-year limitation of § 275(a). pp. 357 u. s. 29 -38. (a) in § 275(c), the words "omits from gross income an amount properly includible therein" refers to situations in which specific items of income are left out of the computation of gross income, and they do not apply to errors in the computation of gross income resulting from a mistaken overstatement of the cost of property sold. pp. 357 u. s. 32 -33. (b) the.....
The Colony, Inc. v. Commissioner - 357 U.S. 28 (1958)
U.S. Supreme Court The Colony, Inc. v. Commissioner, 357 U.S. 28 (1958)
Held: the five-year period of limitations prescribed in § 275(c) for cases in which the taxpayer "omits from gross income an amount properly includible therein" which exceeds 25% of the gross income reported is not applicable, and the assessment was barred by the three-year limitation of § 275(a). Pp. 357 U. S. 29 -38.
(a) In § 275(c), the words "omits from gross income an amount properly includible therein" refers to situations in which specific items of income are left out of the computation of gross income, and they do not apply to errors in the computation of gross income resulting from a mistaken overstatement of the cost of property sold. Pp. 357 U. S. 32 -33.
(b) The legislative history of § 275(c) supports this conclusion. Pp. 357 U. S. 33 -35.
(c) In enacting § 275(c), Congress was not concerned with the mere size of an error in reporting gross income, but with a restricted type of situation where the taxpayer's failure to report some items of taxable income put the Commissioner at a special disadvantage in detecting errors. Pp. 357 U. S. 36 -38.
Under the 1939 Code, the general statute of limitations governing the assessment of federal income tax deficiencies is fixed at three years from the date on which the taxpayer filed his return, § 275(a), 53 Stat. 86, except in cases involving a fraudulent return or failure to file a return, where a tax may be assessed at any time. § 276(a), 53 Stat. 87. A special five-year period of limitations is provided when a taxpayer, even though acting in good faith, "omits from gross income an amount properly includible therein which is in excess of 25 percentum of the amount of gross income stated in the return. . . ." § 275(c), 53 Stat. 86. In either case, the period of limitation may be extended by a written waiver executed by the taxpayer within the statutory or any extended period of limitation. § 276(b), 53 Stat. 87. [ Footnote 1 ]
had resulted in the understatement of the taxpayer's total gross income by 77.2% and 30.7%, respectively, of the amounts reported for the taxable years 1946 and 1947. In addition, the Tax Court held that, in these circumstances, the five-year period of limitation provided for in § 275(c) was applicable. It took the view that the statutory language, "omits from gross income an amount properly includible therein," embraced not merely the omission from a return of an item of income received by or accruing to a taxpayer, but also an understatement of gross income resulting from a taxpayer's miscalculation of profits through the erroneous inclusion of an excessive item of cost. 26 T.C. 30. On the taxpayer's appeal to the Court of Appeals, the only question raised was whether the three-year or the five-year statute of limitations governed the assessment of these deficiencies. Adhering to its earlier decision in Reis v. Commissioner, 142 F.2d 900, the Court of Appeals affirmed. 244 F.2d 75. We granted certiorari because this decision conflicted with rulings in other Courts of Appeals on the same issue, [ Footnote 2 ] and
On the other hand, the taxpayer contends that the Commissioner's reading fails to take full account of the word "omits," which Congress selected when it could have chosen another verb such as "reduces" or "understates," either of which would have pointed significantly in the Commissioner's direction. The taxpayer also points out that normally "statutory words are presumed to be used in their ordinary and usual sense, and with the meaning commonly attributable to them." De Ganay v. Lederer, 250 U. S. 376 , 250 U. S. 381 . "Omit" is defined in Webster's New International Dictionary (2d ed. 1939) as "to leave out or unmentioned; not to insert, include, or name,"
House Hearings, supra, p. 149.
H.R.Rep. No. 704, 73d Cong., 2d Sess., p. 35.
As rebutting these persuasive indications that Congress merely had in mind failures to report particular income receipts and accruals, and did not intend the five-year limitation to apply whenever gross income was understated, the Commissioner stresses the occasional use of the phrase "understates gross income" in the legislative materials. The force of this contention is much diluted, however, when it is observed that wherever this general language is found, its intended meaning is immediately illuminated by the use of such phrases as "failed to disclose" or "to leave out" items of income. See Uptegrove Lumber Co. v. Commissioner, 204 F.2d 570, 572.
We think 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. In such instances, the return, on its face, provides no clue to the existence of the omitted item. On the other hand, when, as here, the understatement of a tax arises from an error in reporting an item disclosed on the face of the return, the Commissioner is at no such disadvantage. And this would seem to be so whether the error be one affecting "gross income" or one, such as overstated deductions, affecting other parts of the return. To accept the Commissioner's interpretation and to impose a five-year limitation when such errors affect "gross income," but a three-year limitation when they do not, not only would be to read § 275(c) more broadly than is justified by the evident reason for its enactment, but also to create a patent incongruity in the
tax law. See Uptegrove Lumber Co. v. Commissioner, supra, 204 F.2d at 573.
Finally, our construction of § 275(c) accords with the interpretations in the more recent decisions of four different Courts of Appeals. See note 2 supra. The force of the reasoning in these opinions was recognized by the Court of Appeals in the present case, which indicated that it might have agreed with those courts had the matter been res nova in its circuit. 244 F.2d at 76. And, without doing more than noting the speculative debate between the parties as to whether Congress manifested an intention to clarify or to change the 1939 Code, we observe that the conclusion we reach is in harmony with the unambiguous language of § 6501(e)(1)(A) of the Internal Revenue Code of 1954. [ Footnote 3 ]