Court Opinion

ID: 4484508
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:47.945972+00
Date Added: 2024-06-11T11:45:09.739564
License: Public Domain

Parker, J., dissenting: I respectfully dissent. The majority holds that, subsequent to the filing of a fraudulent original return, the 3-year statute of limitations in section 6501(a) begins to run upon the filing of a nonfraudulent amended return. I believe this interpretation of section 6501 fails to give effect to the plain language of the statute. Section 6501(a) provides that "Except as otherwise provided in this section, the amount of any tax * * * shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed).” As stated by the majority, exceptions to the general rule of section 6501(a) may be found in sections 6501(c) and 6501(e). Section 6501(c)(1) provides that, in the case of the filing of a false or fraudulent return with the intent to evade tax, the tax may be assessed "at any time.” Section 6501(e) provides that, except as otherwise provided in section 6501(c), in the case of a taxpayer who omits from gross income an amount in excess of 25 percent of the gross income reported on the return, the tax may be assessed at any time within 6 years after the return was filed. In the present case,, section 6501(c)(1) applies to the filing of the original fraudulent returns and specifically provides an unlimited period for assessment of the taxes. The majority apparently agrees that the fraudulent returns herein were "returns” for purposes of triggering the exception in section 6501(c)(1).1 The majority reasons that, since the fraudulent returns did not start the running of any period of limitations, the nonfraudulent amended returns became the "returns” referred to in section 6501(a) for purposes of starting the 3-year statute of limitations. However, there is no indication in the wording of section 6501 that any action subsequent to the filing of fraudulent original returns, including the filing of nonfraudulent amended returns, renders section 6501(c)(1) inapplicable and triggers section 6501(a). There is no language in the statute requiring that a statute of limitations ever begin running where section 6501(c)(1) applies in the first instance. No subsequent event can alter the fact that petitioners herein filed fraudulent original returns. Just as we have held that the filing of a nonfraudulent amended return does not bar the imposition of the fraud penalty itself (Bennett v. Commissioner, 30 T.C. 114, 125 (1958)), likewise, it should not cut short the time within which that penalty may be assessed. The main thrust of the majority’s opinion is that the policy underlying the unlimited period of limitations in section 6501(c)(1) is to provide respondent with sufficient time to investigate a taxpayer’s returns where respondent is at a special disadvantage based on the taxpayer’s fraud. The majority believes that that policy no longer applies once, as in the present case, the taxpayer has filed nonfraudulent amended returns putting respondent on notice as to his income and deductions. Thus, according to the majority, once respondent receives a nonfraudulent amended return, he no longer needs an unlimited period within which to assert the fraud penalty. In support of its position, the majority cites the Supreme Court’s language in The Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), stating that the purpose of the extended 5-year period in the predecessor to section 6501(e) was to give respondent 2 extra years to investigate returns where he was at a disadvantage due to the taxpayer’s omission of items totaling 25 percent of his gross income. However, in the section 6501(e) situation, the subsequent filing of amended returns without substantial omissions does not affect the running of the 5- (or 6-) year period which commenced with the filing of original returns with substantial omissions. Houston v. Commissioner, 38 T.C. 486 (1962); Goldring v. Commissioner, 20 T.C. 79 (1953). In other words, once a taxpayer files an amended return correcting the substantial omission in his original return, even though respondent then has all of the facts pertaining to that omission before him and he no longer needs additional time to assess the proper tax, the filing of the amended return does not cut short the original period of limitations. In the section 6501(c)(1) situation, when a taxpayer files a nonfraudulent amended return in an attempt to correct a fraudulent original return, respondent will have all of the facts relating to the underpayment but will not necessarily have all of the facts he needs to prove by clear and convincing evidence a fraudulent intent to evade tax. Absent proof of that specific intent, evidence of an underpayment standing alone will not support the imposition of the fraud penalty. Thus, while 3 years may be an adequate period within which to assert the fraud penalty where the taxpayer’s fraudulent intent is established in prior criminal proceedings or by stipulation, the 3 years may not be enough time for respondent to prove fraudulent intent where a more extensive investigation is required. The majority’s interpretation of section 6501 does not take into account respondent’s heavy burden of proof in fraud cases. The situation in Bennett v. Commissioner, supra, relied on by the majority, is distinguishable from the present case. The taxpayer in Bennett failed to file returns within the meaning of the predecessor to section 6501(c)(3), and his failure to file was fraudulent.2 We held that the subsequent filing of a delinquent return started the 3-year period of the predecessor to section 6501(a). Section 6501(c)(3) provides that in the case of the failure to file a return, the tax may be assessed at any time. Section 6501(a) expressly applies to a return "whether or not such return was filed on or after the date prescribed.” Thus, where a delinquent return is ultimately filed, section 6501(a) clearly applies and renders section 6501(c)(3) inapplicable. In cases such as Bennett, it follows that where taxpayers filed delinquent returns, the exception in section 6501(c)(3), by its own terms, no longer applied and the 3-year period in section 6501(a), by its express terms, began to run on the date the delinquent returns were filed, notwithstanding the fact that the initial failure to file was fraudulent. Although the policy reasons stated above for allowing respondent an unlimited period to assert and prove fraud also apply to a fraudulent failure to file, Congress did not distinguish between fraudulent and nonfraudulent failures to file and specifically provided that, in the "no return” situation of section 6501(c)(3), the later filing of a delinquent return shall start the 3-year period in section 6501(a). In the present case and in Dowell v. Commissioner,3 however, the exception in section 6501(c)(1) is not rendered inapplicable by the filing of a nonfraudulent amended return. The statute does not say that subsequent events have any effect on the application of section 6501(c)(1) to a fraudulent original return.4  There is no language in section 6501 that requires respondent to assert a fraud penalty within 3 years of the filing of a fraudulent original or nonfraudulent amended return. As for statutory construction, the general rule is that a statute of limitations barring the collection of taxes otherwise admittedly due and owing is to be strictly construed in favor of the Government, and its applicability will not be presumed in the absence of clear congressional action. Lucia v. United States, 474 F.2d 565, 570 (5th Cir. 1973); McDonald v. United States, 315 F.2d 796, 801 (6th Cir. 1963). Since section 6501 does not expressly limit respondent’s time for asserting the fraud penalty, this Court should not impose its own limitation on the unlimited period already provided for asserting and proving the fraud penalty. Tannenwald, Scott, Sterrett, and Chabot, JJ., agree with this dissenting opinion.  If the fraudulent returns were not "returns,” then sec. 6501(c)(1) would not apply in the first place. The Ninth Circuit, to which an appeal would lie in this case, has specifically held that a fraudulent return was nevertheless a "return” where it purported to be a return, and there was no apparent refusal to comply with the requirements for filing returns. United States v. Crowhurst, an unreported case (9th Cir. 1980,46 AFTR 2d 80-5673,80-2 USTC par. 9638).   The "failure to file” described in sec. 6501(c)(3) may be fraudulent or nonfraudulent.    614 F.2d 1263 (10th Cir. 1980), revg. and remanding 68 T.C. 646 (1977).   See Woolf v. United States, 578 F.2d 1103, 1105 (5th Cir. 1978).