Badaracco v. Commissioner

JAMES HUNTER, III, Circuit Judge,

dissenting:

The majority holds that the filing of a non-fraudulent amended return after the filing of a fraudulent original return does not start the running of the three year statute of limitations in I.R.C. § 6501(a) (1976) for the assessment of tax. I respectfully dissent.

The underlying facts involved in these appeals are not in dispute. In both cases, taxpayers originally filed fraudulent tax returns with the Commissioner. They later filed amended returns covering the same taxable periods. The Commissioner concedes that the amended returns were non-fraudulent and that they contained all the information the law required in the original filings. Over six years after the filing of the amended returns, the Commissioner issued deficiency notices for taxes allegedly owed by the taxpayers. Taxpayers sought relief,1 arguing that the Commissioner’s actions were barred by I.R.C. § 6501(a) (1976), which requires the Commissioner to initiate the assessment and collection of tax within three years of the filing of a return. The Commissioner argued that his action was timely under section 6501(c)(1), which allows the Commissioner to initiate the assessment and collection of taxes at any time after the filing of a fraudulent return. I.R.C. § 6501(c)(1) (1976). Applying the reasoning of Dowell v. Commissioner, 614 F.2d 1263 (10th Cir.1980), and Klemp v. Commissioner, 77 T.C. 201 (1981), appeal docketed, No. 81-7744 (9th Cir. November 5, 1981), the courts below found for the taxpayers. These appeals followed.

Section 6501 lays out the basic time limitations on the assessment and collection of taxes by the Commissioner. Section 6501(a) provides in relevant part:

(a) General rule. — Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) . . . and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.

I.R.C. § 6501(a) (1976). Section 6501(c)(1) provides:

(1) False return. — In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.

*3041.R.C. § 6501(c)(1) (1976). Interpreting these two provisions, the majority finds section 6501(c)(1) to be “clear on its face” and holds it to be a complete exception to section 6501(a), even when the taxpayer files a subsequent, non-fraudulent amended return.

While recognizing that “[t]he starting point in every case involving construction of a statute is the language itself,” Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1935, 44 L.Ed.2d 539 (1975) (Powell, J. concurring), the Court has recently admonished that “ascertainment of the meaning apparent on the face of a single statute need not end the inquiry.... This is because the plain meaning rule is ‘rather an axiom of experience than a rule of law, and does not preclude consideration of persuasive evidence if it exists.’ ” Watt v. Alaska, 451 U.S. 259, 266, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981), quoting Boston Sand Co. v. United States, 278 U.S. 41, 48, 49 S.Ct. 52, 53, 73 L.Ed. 170 (1928).2 In this case sufficient persuasive evidence exists to lead me to a different conclusion than the majority about the proper interpretation of section 6501. Because amended returns are not an explicit part of the statutory scheme, because a reasonable alternative reading of the statutory scheme is apparent, and because the majority’s holding leads to distorted results, I am unable to accept the majority’s reading of the statute’s “plain meaning.”

First, although section 6501(c)(1) might be “clear on its face” concerning the Commissioner’s statutory authority to act when a false or fraudulent return is first filed, it is not “clear” on the issue presented here, the effect of a subsequent filing of a non-fraudulent amended return. The majority itself acknowledges, majority op. at 300 n. 4, that Congress has not provided for amended returns under the statute and that the Commissioner’s treatment of them is a matter solely within his discretion. Koch v. Alexander, 561 F.2d 1115, 1117 (4th Cir.1977); Miskovsky v. United States, 414 F.2d 954, 955-56 (3d Cir.1969); Lion Associates, Inc. v. United States, 515 F.Supp. 550 (E.D. Pa.1981).3 They are a creation of the Internal Revenue Service and not of Congress. It is thus difficult to understand how their effect on the statute of limitations can be discerned solely from the language of the statute when Congress made no provision for amended returns within the statutory scheme.

Second, Dowell v. Commissioner, 614 F.2d 1263 (10th Cir.1980), offers a reasonable alternative interpretation of section 6501. Accord Britton v. United States, 532 F.Supp. 275 (D.Vt.1981), aff’d without opinion, 697 F.2d 288 (2d Cir.1982); Klemp v. Commissioner, 77 T.C. 201 (1981), appeal docketed, No. 81-7744 (9th Cir. November 5, 1981).4 In Dowell, the court *305recognized that the fraudulent original return is not a “return” for ,the purposes of section 6501(a). The court cited Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 55 S.Ct. 127, 79 L.Ed. 264 (1934), in which the Supreme Court held that the statute of limitations began to run against deficiency assessments upon the filing of a first return if the first return is proper. The Court stated that “[pjerfect accuracy or completeness is not necessary to rescue a return from nullity, if it purports to be a return, is sworn to as such. .., and evinces an honest and genuine endeavor to satisfy the law.” 293 U.S. at 180, 55 S.Ct. at 130. Applying this principle to the instant situation, the Dowell court reasoned that a fraudulent return is not an honest and genuine effort to satisfy the law and thus does not start the running of any statutory limitation period. Dowell, 614 F.2d at 1265-66; cf. Kaltreider Construction Co. v. United States, 303 F.2d 366, 368 (3d Cir.), cert. denied, 371 U.S. 877, 83 S.Ct. 148, 9 L.Ed.2d 114 (1962) (the first return must be complete and meet the statutory requirements; the statute of limitations will begin to run only upon the filing of a proper return) (dicta). Section 6501(c)(1) does apply whenever an inadequate return is filed, not as a statute of limitations, but rather as a provision allowing the government to institute a suit at any time.5 When a valid return is filed, even in the form of an amended return to a previously filed fraudulent return, the limitation period of section 6501(a) begins to run.

Third, the Dowell court’s statutory reading of section 6501 “balances the policy of repose to the taxpayer with the purpose of providing the Commissioner of Internal Revenue adequate time to assess taxes and deficiencies.” Britton, 532 F.Supp. at 278. While a fraudulent return may put the Commissioner at a special disadvantage in detecting errors, the filing of an amended return removes the disadvantage by providing the Commissioner with all the information required by law. The general rule, therefore, should govern. Dowell, 614 F.2d at 1265.6 That interpretation also avoids the distorted result reached by the majority. Under the majority’s holding, once a fraudulent return is filed, the threat of future assessment of deficiencies will hang in perpetuity like the Sword of Damocles over the head of the taxpayer, despite his efforts to set the record straight.7

In reaching my conclusion, I do not purport to set tax policy, rather merely to interpret the tax code in light of congressional purpose. See Rose v. Lundy, 455 U.S. 509, 518, 102 S.Ct. 1198, 1203, 71 L.Ed.2d 379 (1982) (when Congress never thought of the problem, courts must examine a statute’s underlying purposes to determine its proper scope); Chapman v. Houston Welfare Rights Organization, 441 U.S. 600, 608, 99 S.Ct. 1905, 1911, 60 L.Ed.2d 508 (1979) (“As in all cases of statutory construction, our task is to interpret the words of these statutes in light of the purposes Congress sought to serve.”). My interpretation of section 6501 reflects the factual reality that the Commissioner has made amended returns an integral part of the administrative scheme,8 even though Con*306gress did not make it an explicit part of the statutory scheme. The differing conclusions reached by the majority and the tenth circuit indicate that Congress’ intent under this provision is far from clear and that perhaps section 6501 is a proper area for further legislative scrutiny. I am unable nonetheless to join the majority’s holding that section 6501, as presently written, does not provide for the application of a three year statute of limitations in this case.

. In Badaracco the taxpayer filed a petition with the tax court for a redetermination of the deficiency under I.R.C. '§ 6213(a) (1976 & Supp. IV 1980). In Deleet the taxpayer paid the tax and then sought a refund in the District Court for the District of New Jersey pursuant to I.R.C. § 7422 (1976 & Supp. IV 1980) and 28 U.S.C. § 1346(a)(1) (1976).

. Of course it is true that the words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract, or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.

Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.) (L. Hand, J.), aff’d, 326 U.S. 404, 66 S.Ct. 193, 90 L.Ed. 165 (1945).

. Taxpayers point to one provision which mentions “amendments” to returns. I.R.C. § 6213(g)(1) (1976 & Supp. IV 1980) defines “return” for the purposes of § 6213 as “any return, statement, schedule, or list, and any amendment or supplement thereto.... ” The legislative history indicates that this definition was included to insure that the Commissioner reviewed all supporting schedules for “mathematical errors” before assessing deficiencies through summary proceedings. See H.R.Rep. No. 94-658, 94th Cong., 1st Sess. 289-93 (1975); S.Rep. No. 94-938, 94th Cong., 2d Sess. 375-78 (1976), U.S.Code Cong. & Admin.News 1976, p. 2897. It does not indicate that Congress explicitly included amended returns within the statutory scheme.

.See Espinoza v. Commissioner, 78 T.C. 412 (1982); Kramer v. Commissioner, 44 T.C.M. (CCH) 42 (1982); Elliott Liroff v. Commissioner, 44 T.C.M. (CCH) 43 (1982); Deyel v. Commissioner, 44 T.C.M. (CCH) 45 (1982); Richard B. Liroff v. Commissioner, 44 T.C.M. (CCH) 47 (1982); Nesmith v. Commissioner, 42 T.C.M. (CCH) 1269 (1981), appeal docketed, No. 82-4162 (5th Cir. April 29, 1982) (all following Klemp).

. As the Tenth Circuit recognized in Dowell, § 6501(c) “represents the antithesis of a limitation period.” 614 F.2d at 1265-66.

. That reading is also consistent with the language of § 6501(a) that tax must be assessed within three years after a return is filed “whether or not such return was filed on or after the date prescribed.” I.R.C. § 6501(a). When no return is filed, the Commissioner is able to act “at any time” under I.R.C. § 6501(c)(3). If a return is later filed, however, the Commissioner then has all the necessary information to assess what tax is due, and the general three year period applies. Dowell, 614 F.2d at 1265; Bennett v. Commissioner, 30 T.C. 114, 124 (1958).

. The application of the three year statute of limitations will not allow a taxpayer who previously filed a fraudulent return to “escape [the] penalties or erase the fraud merely by filing a non-fraudulent amended return.” Majority op. at 302. The taxpayer is still subject to civil and criminal sanctions as long as the Commissioner acts within three years.

. The Commissioner’s regulations provide for the use of amended returns by the Internal Revenue Service. See, e.g., 26 C.F.R. §§ 301.-6211-1 (a), .6402-3(a)(5) (1982). When the *306I.R.S. has accepted amended returns, as in this case, the courts have given them effect. E.g., United States v. Samara, 643 F.2d 701, 704 (10th Cir.), cert. denied, 454 U.S. 829, 102 S.Ct. 122, 70 L.Ed.2d 104 (1981); Bookwalter v. Mayer, 345 F.2d 476, 480 (8th Cir.1965).