Court Opinion

ID: 9460584
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:55:06.770018+00
Date Added: 2024-06-11T17:36:41.730826
License: Public Domain

WEIS, Circuit Judge
(dissenting):
The dreary pages of the Internal Revenue Code contain few passages of any comfort to the taxpayer. The petitioner here has found several provisions which, when read literally and given their common sense meaning, support his position and bring about an equitable result. It is only by reliance upon previous judicial interpretations, written in response to a need which no longer exists, that the Commissioner is able to prevail, thus increasing the government’s revenue but diminishing the resources of the taxpayer. Since I believe that the plain wording of the statute should prevail, I must dissent.
As the majority concedes, the fraud penalty is computed on the “underpayment,” 1 which term is defined as a “deficiency,”2 which means the amount by which the correct tax exceeds the sum of (a) the amount shown on the taxpayer’s return plus (b) amounts previously assessed.3
I agree with the majority’s statement of the formula:
deficiency = correct tax — (tax shown on return + amounts previously assessed) .
Applying the statute literally means that the taxpayer here should pay the penalty of 50 percent only on the amount of tax due because of fraud and not on that portion of the tax which had been paid as a result of a previous assessment based on adjustments for items as to which there was a legitimate basis for difference of opinion. This result is sound and would appear to be eminently reasonable.
The difficulty is that years ago in construing earlier versions of the Internal Revenue Code, the Tax Court found a “loophole” which it felt obliged to *656close. The problem was articulated in Still v. Commissioner, 19 T.C. 1072, aff’d, 218 F.2d 639 (2d Cir. 1959), where the court said at 1077:
“A taxpayer who had filed a fraudulent return would merely take his chances that the fraud would not be investigated or discovered, and then, if an investigation were made, would simply pay the tax which he owed anyhow, and thereby nullify the fraud penalty.”
This rationale was adopted by the Courts of Appeal in Middleton v. Commissioner, 200 F.2d 94 (5th Cir. 1952), and Romm v. Commissioner, 245 F.2d 730 (4th Cir. 1957), cert. denied, 355 U. S. 862, 78 S.Ct. 94, 2 L.Ed.2d 68 (1957). These cases involve tax assessments prior to the enactment of the 1954 Code, and in each one all of the deficiencies were based on fraud. While there might be some argument about the court’s power to ignore the wording of the statute, nevertheless the equities favor the result.
The “loophole” about which the courts were concerned was closed through congressional action in 1954 by including in section 6653(c) a provision that the “amount shown on a taxpayer’s return” means a return which is timely filed. Thus, a taxpayer who learns that his tax liability is being questioned and who files a later amended return can secure no reduction of the amount of the penalty due by such action. The calculation of the fraud penalty after 1954 clearly involves only the original return, not an amended one. Therefore, the opportunity to “make sport of the so-called fraud penalty” which concerned the Still, supra, and Romm, supra, courts is no longer available.
Papa v. Commissioner, 464 F.2d 150 (2d Cir. 1972), failed to note the pertinent change in the 1954 Code and, adopting the reasoning of the older cases,4 refused to allow credit for an earlier assessment made by the Internal Revenue Service. However, Papa, supra, was in the nature of an ex parte proceeding, the appeal having been taken by the Commissioner and not contested by the taxpayer. Furthermore, the earlier deficiency which the court refused to credit was also fraudulent. Equities, therefore, favor the result in Papa, supra, as they did in the earlier cases.
Here, however, fundamental fairness supports the taxpayer’s position, and there would seem to be no reason why we should apply decisional law today which was originally developed to remedy a statutory infirmity since cured by legislative revision.
The majority finds fault with petitioner’s contention that a deficiency under section 6211(a)(1)(B) should be credited only in circumstances of non-fraudulent assessments, and dismisses the taxpayer’s position by saying that there is no support in the statute for such an interpretation. We need not reach that point in this case, although to my mind the taxpayer’s interpretation is far preferable to the one which the courts háve made over the years by completely disregarding credit for all prior assessments paid despite the plain wording of the statute. The petitioner’s suggestion requires only a modest construction to promote equity, while the decisional law involves a major interpretation which furthers inequity.
I would give to the petitioner that which the statute requires and reverse the decision of the district court.

. Section 6653(b) of the Internal Revenue Code of 1954:
“If any part of any underpayment . . . of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 50 percent of the underpayment.”

. Section 6653(c) of the Internal Revenue Code of 1954.

. Section 6211 of the Internal Revenue Code of 1954:
“Definition of a deficiency
(a) In general. — Eor purposes of this title in the case of income, estate, and gift taxes, imposed by subtitles A and B, the term ‘deficiency’ means the amount by which the tax imposed by subtitles A or B exceeds the excess of—
(1) the sum of
(A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus
(B) the amounts previously assessed (or collected without assessment) as a deficiency, over — •
(2) the amount of rebates, as defined in subsection (b) (2), made.”

. Still, supra, Romm, supra, and Wilson v. Commissioner, 7 T.C. 395 (1946).