Stetson & Ellison v. Commissioner

Aeundell,

dissenting: All of the income-tax statutes, beginning with the Revenue Act of 1913, provide for a return by the taxpayer. The entire policy of the law contemplates that the tax is to be computed and paid, based on the information contained in the return. The review by the tax collector is in the usual case a review of the information as reported by the taxpayer. It is the unusual case that is made the subject of an independent investigation and check by the Government. If the return is to serve any useful purpose it follows that it must be one that substantially complies with the law. To hold otherwise would make ineffective the administration of the taxing system.

The specific question we have to decide is whether or not petitioner filed a return that substantially satisfies the requirements of the statute. A consolidated return was filed in which this petitioner’s gross income and deductions were commingled with those of other taxpayers. The findings of fact specifically state that from the return made the gross income and deductions of this taxpayer could not be identified. Section 239 of the Revenue Act of 1918 provides:

That every corporation subject to taxation under this title * * * shall make a return, stating specifically the items of its gross income and the deductions and credits allowed by this title.

Section 240 of the same Act provides for a consolidated return in a proper case and contains the further provision that in the absence of an agreement between the members of the consolidated group, the tax shall be assessed against each company on the basis of the net income properly assignable to each. Treasury Decision 2831, promulgated pursuant to the statute, also called for information covering the gross income and deductions of the separate corporations composing the group.

*405None of this information was furnished. We have then a return, so far as this petitioner is concerned, from which the Commissioner would be unable to compute the tax even though he was ready to accept the taxpayer’s own statement of his income and deductions. How can such a return be said to substantially comply with the lav/ when it fails to give any of the information required by law ? Moreover, this petitioner does not claim that it is affiliated with the company that purported to make a return for it, nor has it made any showing that there was a reasonable basis for reporting its income and deductions commingled with those of other taxpayers. It has now made a separate return disclosing the information from which its tax may be computed. That is its return as I see it, and the limitation period not having run from the date of that return at the time the deficiency notice was sent, assessment is not barred by limitation.

Littleton and Trammell concur in this dissent.