Source: http://www.chanrobles.com/usa/us_supremecourt/357/28/case.php
Timestamp: 2017-10-21 08:48:29
Document Index: 144676450

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

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] chanroblesvirtualawlibrary
Page 357 U. S. 30
The Tax Court sustained the Commissioner. It held that substantial portions of the development costs were properly disallowed, and that these errors by the taxpayer chanroblesvirtualawlibrary
Page 357 U. S. 31
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 chanroblesvirtualawlibrary
Page 357 U. S. 32
because the question as to the proper scope of § 275(c), although resolved for the future by § 6501(e)(1)(A) of the Internal Revenue Code of 1954, infra, remains one of substantial importance in the administration of the income tax laws for earlier taxable years. 355 U.S. 811.
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," chanroblesvirtualawlibrary
Page 357 U. S. 33
and the Court of Appeals for the Sixth Circuit has elsewhere similarly defined the word. Ewald v. Commissioner, 141 F.2d 750, 753. Relying on this definition, the taxpayer says that the statute is limited to situations in which specific receipts or accruals of income items are left out of the computation of gross income. For reasons stated below, we agree with the taxpayer's position.
"Your subcommittee is of the opinion that the limitation period on assessment should also not apply to certain cases where the taxpayer has understated his gross income on his return by a large amount, even though fraud with intent to evade tax cannot be established. It is therefore recommended that
Page 357 U. S. 34
the statute of limitations shall not apply where the taxpayer has failed to disclose in his return an amount of gross income in excess of 25 percent of the amount of the gross income stated in the return. The Government should not be penalized when a taxpayer is so negligent as to leave out items of such magnitude from his return."
H.R.Rep. No. 704, 73d Cong., 2d Sess., p. 35. chanroblesvirtualawlibrary
Page 357 U. S. 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. chanroblesvirtualawlibrary
Page 357 U. S. 36
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 chanroblesvirtualawlibrary
Page 357 U. S. 37
tax law. See Uptegrove Lumber Co. v. Commissioner, supra, 204 F.2d 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 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] chanroblesvirtualawlibrary
Page 357 U. S. 38
"(c) OMISSION FROM GROSS INCOME. If the taxpayer 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, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 5 years after the return was filed."
"(e) OMISSION FROM GROSS INCOME. -- Except as otherwise provided in subsection (c) --"