Badaracco v. Commissioner

Justice Blackmun

delivered the opinion of the Court.

These cases focus upon §6501 of the Internal Revenue Code of 1954, 26 U. S. C. § 6501. Subsection (a) of that statute establishes a general 3-year period of limitations “after the return was filed” for the assessment of income and certain other federal taxes.1 Subsection (c)(1) of §6501, however, provides an exception to the 3-year period when there is “a false or fraudulent return with the intent to evade tax.” The tax then may be assessed “at any time.”2

The issue before us is the proper application of §§ 6501(a) and (c)(1) to the situation where a taxpayer files a false or fraudulent return but later files a nonfraudulent amended return. May a tax then be assessed more than three years after the filing of the amended return?

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No. 82-11*58. Petitioners Ernest Badaracco, Sr., and Ernest Badaracco, Jr., were partners in an electrical contracting business. They filed federal partnership and individual income tax returns for the calendar years 1965-1969, inclusive. “[F]or purposes of this case,” these petitioners concede the “fraudulent nature of the original returns.” App. 37a.

In 1970 and 1971, federal grand juries in New Jersey subpoenaed books and records of the partnership. On August 17, 1971, petitioners filed nonfraudulent amended returns for the tax years in question and paid the additional basic taxes shown thereon. Three months later, petitioners were indicted for filing false and fraudulent returns, in violation of §7206(1) of the Code, 26 U. S. C. §7206(1). Each pleaded guilty to the charge with respect to the 1967 returns, and judgments of conviction were entered. United States v. Badaracco, Crim. No. 766-71 (NJ). The remaining counts of the indictment were dismissed.

On November 21,1977, the Commissioner of Internal Revenue mailed to petitioners notices of deficiency for each of the tax years in question. He asserted, however, only the liability under § 6653(b) of the Code, 26 U. S. C. § 6653(b), for the addition to tax on account of fraud (the so-called fraud “penalty”) of 50% of the underpayment in the basic tax. See App. 5a.

Petitioners sought redetermination in the United States Tax Court of the asserted deficiencies, contending that the Commissioner’s action was barred by § 6501(a). They claimed that § 6501(c)(1) did not apply because the 1971 filing of nonfraudulent amended returns caused the general 3-year period of limitations specified in § 6501(a) to operate; the deficiency notices, having issued in November 1977, obviously were forthcoming only long after the expiration of three years from the date of filing of the nonfraudulent amended returns.

The Tax Court, in line with its then-recent decision in Klemp v. Commissioner, 77 T. C. 201 (1981), appeal pend*390ing, No. 81-7744 (CA9), agreed with petitioners.3 42 TCM 573 (1981), ¶ 81, 404 P-H Memo TC.

No. 82-1509. Petitioner Deleet Merchandising Corp. filed timely corporation income tax returns for the calendar years 1967 and 1968. The returns as so filed, however, did not report certain receipts derived by the taxpayer from its printing supply business. On August 9, 1973, Deleet filed amended returns for 1967 and 1968 disclosing the receipts that had not been reported.4 Although the taxpayer corporation itself was not charged with criminal tax violations, and although no formal criminal investigation was initiated as to it, there were criminal and civil investigations that centered on certain former officers of the taxpayer. After the completion of those investigations, the Commissioner, on December 14, 1979, issued a notice of deficiency to Deleet. App. 71a. The notice asserted deficiencies in tax and additions under § 6653(b) for 1967 and 1968.

Deleet paid the alleged deficiencies and brought suit for their refund in the United States District Court for the District of New Jersey. On its motion for summary judgment, Deleet contended that the Commissioner’s action was barred by § 6501(a). It claimed that no deficiencies or additions could be assessed more than three years after the amended returns were filed, regardless of whether the original returns were fraudulent.

*391The District Court agreed and granted summary judgment for Deleet. 535 F. Supp. 402 (1981). It relied on the Tax Court’s decision in Klemp v. Commissioner, supra, and on Dowell v. Commissioner, 614 F. 2d 1263 (CA10 1980), cert. pending, No. 82-1873.

The Appeals. The Government appealed each case to the United States Court of Appeals for the Third Circuit. The cases were heard and decided together. That court, by a 2-to-l vote, reversed the decision of the Tax Court in Badaracco and the judgment of the District Court in Deleet. 693 F. 2d 298 (1982). The Third Circuit’s ruling is consistent with the Fifth Circuit’s holding in Nesmith v. Commissioner, 699 F. 2d 712 (1983), cert. pending, No. 82-2008. The Second Circuit has ruled otherwise. See Britton v. United States, 532 F. Supp. 275 (Vt. 1981), affirmance order, 697 F. 2d 288 (CA2 1982). See also Espinoza v. Commissioner, 78 T. C. 412 (1982).5 Because of the conflict, we granted certiorari, 461 U. S. 925 (1983).

l — i f

Our task here is to determine the proper construction of the statute of limitations Congress has written for tax assessments. This Court long ago pronounced the standard: “Statutes of limitation sought to be applied to bar rights of the Government, must receive a strict construction in favor of the Government.” E. I. du Pont de Nemours & Co. v. Davis, 264 U. S. 456, 462 (1924). See also Lucas v. Pilliod *392Lumber Co., 281 U. S. 245, 249 (1930). More recently, Judge Roney, in speaking for the former Fifth Circuit, has observed that “limitations statutes barring the collection of taxes otherwise due and unpaid are strictly construed in favor of the Government.” Lucia v. United States, 474 F. 2d 565, 570 (1973).

We naturally turn first to the language of the statute. Section 6501(a) sets forth the general rule: a 3-year period of limitations on the assessment of tax. Section 6501(e)(1)(A) (first introduced as § 275(c) of the Revenue Act of 1934, 48 Stat. 745) provides an extended limitations period for the situation where the taxpayer’s return nonfraudulently omits more than 25% of his gross income; in a situation of that kind, assessment now is permitted “at any time within 6 years after the return was filed.”

Both the 3-year rule and the 6-year rule, however, explicitly are made inapplicable in circumstances covered by § 6501(c). This subsection identifies three situations in which the Commissioner is allowed an unlimited period within which to assess tax. Subsection (c)(1) relates to “a false or fraudulent return with the intent to evade tax” and provides that the tax then may be assessed “at any time.” Subsection (c)(3) covers the case of a failure to file a return at all (whether or not due to fraud) and provides that an assessment then also may be made “at any time.” Subsection (c)(2) sets forth a similar rule for the case of a “willful attempt in any manner to defeat or evade tax” other than income, estate, and gift taxes.6

All these provisions appear to be unambiguous on their face, and it therefore would seem to follow that the present cases are squarely controlled by the clear language of § 6501(c)(1). Petitioners Badaracco concede that they filed *393initial returns that were “false or fraudulent with the intent to evade tax.” Petitioner Deleet, for present purposes, upon this review of its motion for summary judgment, is deemed to have filed false or fraudulent returns with the intent to evade tax. Section 6501(c)(1), with its unqualified language, then allows the tax to be assessed “at any time.” Nothing is present in the statute that can be construed to suspend its operation in the light of a fraudulent filer’s subsequent repentant conduct.7 Neither is there anything in the wording of § 6501(a) that itself enables a taxpayer to reinstate the section’s general 3-year limitations period by filing an amended return. Indeed, as this Court recently has noted, Hillsboro National Bank v. Commissioner, 460 U. S. 370, 378-380, n. 10 (1983), the Internal Revenue Code does not explicitly provide either for a taxpayer’s filing, or for the Commissioner’s acceptance, of an amended return; instead, an amended return is a creature of administrative origin and grace. Thus, when Congress provided for assessment at any time in the case of a false or fraudulent “return,” it plainly included by this language a false or fraudulent original return. In this connection, we note that until the decision of the Tenth Circuit in Dowell v. Commissioner, 614 F. 2d 1263 (1980), cert. pending, No. 82-1873, courts consistently had held that the operation of § 6501 and its predecessors turned on the nature of the taxpayer’s original, and not his amended, return.8

*394The substantive operation of the fraud provisions of the Code itself confirms the conclusion that § 6501(c)(1) permits assessment at any time in fraud cases regardless of a taxpayer’s later repentance. It is established that a taxpayer who submits a fraudulent return does not purge the fraud by subsequent voluntary disclosure; the fraud was committed, and the offense completed, when the original return was prepared and filed. See, e. g., United States v. Habig, 390 U. S. 222 (1968); Plunkett v. Commissioner, 465 F. 2d 299, 302-303 (CA7 1972). “Any other result would make sport of the so-called fraud penalty. 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.” George M. Still, Inc. v. Commissioner, 19 T. C. 1072, 1077 (1953), aff’d, 218 F. 2d 639 (CA2 1955). In short, once a fraudulent return has been filed, the case remains one “of a false or fraudulent return,” regardless of the taxpayer’s later revised conduct, for purposes of criminal prosecution and civil fraud liability under § 6653(b). It likewise should remain such a case for purposes of the unlimited assessment period specified by § 6501(c)(1).

*395We are not persuaded by Deleet’s suggestion, Brief for Petitioner in No. 82-1509, p. 15, that § 6501(c)(1) should be read merely to suspend the commencement of the limitations period while the fraud remains uncorrected. The Tenth Circuit, in Dowell v. Commissioner, supra, made an observation to that effect, stating that the 3-year limitations period was “put in limbo” pending further taxpayer action. 614 F. 2d, at 1266. The language of the statute, however, is contrary to this suggestion. Section 6501(c)(1) does not “suspend” the operation of § 6501(a) until a fraudulent filer makes a voluntary disclosure. Section 6501(c)(1) makes no reference at all to § 6501(a); it simply provides that the tax may be assessed “at any time.” And § 6501(a) itself contains no mechanism for its operation when a fraudulent filer repents. By its very terms, it does not apply to a case, such as one of “a false or fraudulent return,” that is “otherwise provided” for in § 6501. When Congress intends only a temporary suspension of the running of a limitations period, it knows how unambiguously to accomplish that result. See, e. g., §§ 6503(a)(1), (a)(2), (b), (c), and (d).

The weakness of petitioners’ proposed statutory construction is demonstrated further by its impact on § 6501(e)(1)(A), which provides an extended limitations period whenever a taxpayer’s return nonfraudulently omits more than 25% of his gross income.

Under petitioners’ reasoning, a taxpayer who fraudulently omits 25% of his gross income gains the benefit of the 3-year limitations period by filing an amended return. Yet a taxpayer who nonfraudulently omits 25% of his gross income cannot gain that benefit by filing an amended return; instead, he must live with the 6-year period specified in § 6501(e) (1)(A).9 We agree with the conclusion of the Court of Ap*396peals in the instant cases that Congress could not have intended to “create a situation in which persons who committed willful, deliberate fraud would be in a better position” than those who understated their income inadvertently and without fraud. 693 P. 2d, at 302.

We therefore conclude that the plain and unambiguous language of § 6501(c)(1) would permit the Commissioner to assess “at any time” the tax for a year in which the taxpayer has filed “a false or fraudulent return,” despite any subsequent disclosure the taxpayer might make. Petitioners attempt to evade the consequences of this language by arguing that their original returns were “nullities.” Alternatively, they urge a nonliteral construction of the statute based on considerations of policy and practicality. We now turn successively to those proposals.

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Petitioners argue that their original returns, to the extent they were fraudulent, were “nullities” for statute of limitations purposes. See Brief for Petitioners in No. 82-1453, pp. 22-27; Brief for Petitioner in No. 82-1509, pp. 32-34. Inasmuch as the original return is a nullity, it is said, the amended return is necessarily “the return” referred to in § 6501(a). And if that return is nonfraudulent, § 6501(c)(1) is inoperative and the normal 3-year limitations period applies. This nullity notion does not persuade us, for it is plain that “the return” referred to in § 6501(a) is the original, not the amended, return.

Petitioners do not contend that their fraudulent original returns were nullities for purposes of the Code generally. There are numerous provisions in the Code that relate to civil and criminal penalties for submitting or assisting in the preparation of false or fraudulent returns; their presence makes clear that a document which on its face plausibly purports to *397be in compliance, and which is signed by the taxpayer, is a return despite its inaccuracies. See, e. g., §§7207, 6531(3), 6653(b). Neither do petitioners contend that their original returns were nullities for all purposes of § 6501. They contend, instead, that a fraudulent return is a nullity only for the limited purpose of applying § 6501(a). See Brief for Petitioners in No. 82-1453, p. 24; Brief for Petitioner in No. 82-1509, pp. 33-34. The word “return,” however, appears no less than 64 times in § 6501. Surely, Congress cannot rationally be thought to have given that word one meaning in § 6501(a), and a totally different meaning in §§ 6501(b) through (q).

Zellerbach Paper Co. v. Helvering, 293 U. S. 172 (1934), which petitioners cite, affords no support for their argument. The Court in Zellerbach held that an original return, despite its inaccuracy, was a “return” for limitations purposes, so that the filing of an amended return did not start a new period of limitations running. In the instant cases, the original returns similarly purported to be returns, were sworn to as such, and appeared on their faces to constitute endeavors to satisfy the law. Although those returns, in fact, were not honest, the holding in Zellerbach does not render them nullities. To be sure, current Regulations, in several places, e. g., Treas. Reg. §§301.6211-l(a), 301.6402-3(a), 1.451-l(a), and 1.461-l(a)(3)(i) (1983), do refer to an amended return, as does § 6213(g)(1) of the Code itself, 26 U. S. C. § 6213(g)(1) (1976 ed., Supp. V). None of these provisions, however, requires the filing of such a return. It does not follow from all this that an amended return becomes “the return” for purposes of § 6501(a).

We conclude, therefore, that nothing in the statutory language, the structure of the Code, or the decided cases supports the contention that a fraudulent return is a nullity for statute of limitations purposes.

IV

Petitioners contend that a nonliteral reading should be accorded the statute on grounds of equity to the repentant *398taxpayer and tax policy. “Once a taxpayer has provided the information upon which the Government may make a knowledgeable assessment, the justification for suspending the limitations period is no longer viable and must yield to the favored policy of limiting the Government’s time to proceed against the taxpayer.” Brief for Petitioner in No. 82-1509, p. 12. See also Brief for Petitioners in No. 82-1453, p. 17.

The cases before us, however, concern the construction of existing statutes. The relevant question is not whether, as an abstract matter, the rule advocated by petitioners accords with good policy. The question we must consider is whether the policy petitioners favor is that which Congress effectuated by its enactment of §6501. Courts are not authorized to rewrite a statute because they might deem its effects susceptible of improvement. See TVA v. Hill, 437 U. S. 153, 194-195 (1978). This is especially so when courts construe a statute of limitations, which “must receive a strict construction in favor of the Government.” E. I. du Pont de Nemours & Co. v. Davis, 264 U. S., at 462.

We conclude that, even were we free to do so, there is no need to twist § 6501(c)(1) beyond the contours of its plain and unambiguous language in order to comport with good policy, for substantial policy considerations support its literal language. First, fraud cases ordinarily are more difficult to investigate than cases marked for routine tax audits. Where fraud has been practiced, there is a distinct possibility that the taxpayer’s underlying records will have been falsified or even destroyed. The filing of an amended return, then, may not diminish the amount of effort required to verify the correct tax liability. Even though the amended return proves to be an honest one, its filing does not necessarily “re-mov[e] the Commissioner from the disadvantageous position in which he was originally placed.” Brief for Petitioners in No. 82-1453, p. 12.

Second, the filing of a document styled “amended return” does not fundamentally change the nature of a tax fraud investigation. An amended return, however accurate it ulti*399mately may prove to be, comes with no greater guarantee of trustworthiness than any other submission. It comes carrying no special or significant imprimatur; instead, it comes from a taxpayer who already has made false statements under penalty of perjury. A responsible examiner cannot accept the information furnished on an amended return as a substitute for a thorough investigation into the existence of fraud. We see no “tax policy” justification for holding that an amended return has the singular effect of shortening the unlimited assessment period specified in §§ 6501(c)(1) to the usual three years. Fraud cases differ from other civil tax cases in that it is the Commissioner who has the burden of proof on the issue of fraud. See § 7454(a) of the Code, 26 U. S. C. § 7454(a). An amended return, of course, may constitute an admission of substantial underpayment, but it will not ordinarily constitute an admission of fraud. And the three years may not be enough time for the Commissioner to prove fraudulent intent.

Third, the difficulties that attend a civil fraud investigation are compounded where, as in No. 82-1453, the Commissioner’s initial findings lead him to conclude that the case should be referred to the Department of Justice for criminal prosecution. The period of limitations for prosecuting criminal tax fraud is generally six years. See § 6531. Once a criminal referral has been made, the Commissioner is under well-known restraints on the civil side and often will find it difficult to complete his civil investigation within the normal 3-year period; the taxpayer’s filing of an amended return will not make any difference in this respect. See United States v. La-Salle National Bank, 437 U. S. 298, 311-313 (1978); see also Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, § 333(a), 96 Stat. 622. As a practical matter, therefore, the Commissioner frequently is forced to place a civil audit in abeyance when a criminal prosecution is recommended.10

*400We do not find petitioners’ complaint of “unfair treatment” persuasive. Petitioners claim that it is unfair “to forever suspend a Sword of Damocles over a taxpayer who at one time may have filed a fraudulent return, but who has subsequently recanted and filed an amended return providing the Government with all the information necessary to properly assess the tax.” Brief for Petitioner in No. 82-1509, p. 26. See Brief for Petitioners in No. 82-1453, p. 16. But it seems to us that a taxpayer who has filed a fraudulent return with intent to evade tax hardly is in a position to complain of the fairness of a rule that facilitates the Commissioner’s collection of the tax due. A taxpayer who has been the subject of a tax fraud investigation is not likely to be surprised when a notice of deficiency arrives, even if it does not arrive promptly after he files an amended return.

Neither are we persuaded by Deleet’s argument that a literal reading of the statute “punishes” the taxpayer who repentantly files an amended return. See Brief for Petitioner in No. 82-1509, p. 44. The amended return does not change the status of the taxpayer; he is left in precisely the same position he was in before. It might be argued that Congress should provide incentives to taxpayers to disclose their fraud voluntarily. Congress, however, has not done so in § 6501. That legislative judgment is controlling here.

V

Petitioners contend, finally, that a literal reading of § 6501(c) produces a disparity in treatment between a taxpayer who in the first instance files a fraudulent return and one who fraudulently fails to file any return at all. This, it is said, would elevate one form of tax fraud over another.

*401The argument centers in § 6501(c)(3), which provides that in a case of failure to file a return, the tax may be assessed “at any time.” It is settled that this section ceases to apply once a return has been filed for a particular year, regardless of whether that return is filed late and even though the failure to file a timely return in the first instance was due to fraud. See Bennett v. Commissioner, 30 T. C. 114 (1958), acq., 1958-2 Cum. Bull. 3. See also Rev. Rui. 79-178, 1979-1 Cum. Bull. 435. This, however, does not mean that § 6501 should be read to produce the same result in each of the two situations. From the language employed in the respective subsections of § 6501, we conclude that Congress intended different limitations results. Section 6501(c)(3) applies to a “failure to file a return.” It makes no reference to a failure to file a timely return (cf. §§ 6651(a)(1) and 7203), nor does it speak of a fraudulent failure to file. The section literally becomes inapplicable once a return has been filed. Section 6501(c)(1), in contrast, applies in the case of “a false or fraudulent return.” The fact that a fraudulent filer subsequently submits an amended return does not make the case any less one of a false or fraudulent return. Thus, although there may be some initial superficial plausibility to this argument on the part of petitioners, we conclude that the argument cannot prevail. If the result contended for by petitioners is to be the rule, Congress must make it so in clear and unmistakable language.11

The judgment of the Court of Appeals in each of these cases is affirmed.

It is so ordered.

Section 6501(a) reads in full:

“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) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.”

Section 6501(c)(1) reads:

“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.”

In Klemp, the Tax Court, in a reviewed decision with five judges dissenting on the issue, departed from its earlier holding in Dowell v. Commissioner, 68 T. C. 646 (1977), rev’d, 614 F. 2d 1263 (CA10 1980), cert. pending, No. 82-1873.

Deleet asserts that the filing of its amended returns was voluntary. The taxpayer’s correct tax liability has not yet been determined. Although Deleet has not conceded that its original returns were fraudulent, both the District Court, App. to Pet. for Cert. in No. 82-1509, p. 4d, and the Court of Appeals, see 693 F. 2d 298, 299, n. 3 (CA3 1982), assumed, for purposes of Deleet’s summary judgment motion hereinafter referred to, that they were. We must make the same assumption here.

The Tax Court, in cases concerning several of Deleet’s officers, has followed its ruling in Klemp, supra. See Kramer v. Commissioner, 44 TCM 42 (1982), ¶ 82, 308 P-H Memo TC; Elliott Liroff v. Commissioner, 44 TCM 43 (1982), ¶ 82, 309 P-H Memo TC; Derfel v. Commissioner, 44 TCM 45 (1982), ¶82, 311 P-H Memo TC; Richard B. Liroff v. Commissioner, 44 TCM 47 (1982), ¶ 82, 312 P-H Memo TC. See also Galvin v. Commissioner, 45 TCM 221 (1982), ¶ 82, 689 P-H Memo TC.

Subsections (c)(1) and (c)(3) appeared separately only upon the enactment of the 1954 Code. From 1921 until the 1954 Code, they were combined. See, e. g., Revenue Act of 1921, § 250(d), 42 Stat. 265; Internal Revenue Code of 1939, § 276(a).

Under every general income tax statute since 1918, the filing of a false or fraudulent return has indefinitely extended the period of limitations for assessment of tax. See Revenue Act of 1918, § 250(d), 40 Stat. 1083; Revenue Act of 1921, § 250(d), 42 Stat. 265; Revenue Act of 1924, § 278(a), 43 Stat. 299; Revenue Act of 1926, § 278(a), 44 Stat., pt. 2, p. 59; Revenue Act of 1928, § 276(a), 45 Stat. 857; Revenue Act of 1932, § 276(a), 47 Stat. 238; Revenue Act of 1934, § 276(a), 48 Stat. 745; Revenue Act of 1936, § 276(a), 49 Stat. 1726; Revenue Act of 1938, § 276(a), 52 Stat. 540; Internal Revenue Code of 1939, § 276(a).

The significance of the original, and not the amended, return has been stressed in other, but related, contexts. It thus has been held consistently that the filing of an amended return in a nonfraudulent situation does not *394serve to extend the period within which the Commissioner may assess a deficiency. See, e. g., Zellerbach Paper Co. v. Helvering, 293 U. S. 172 (1934); National Paper Products Co. v. Helvering, 293 U. S. 183 (1934); National Refining Co. v. Commissioner, 1 B. T. A. 236 (1924). It also has been held that the filing of an amended return does not serve to reduce the period within which the Commissioner may assess taxes where the original return omitted enough income to trigger the operation of the extended limitations period provided by § 6501(e) or its predecessors. See, e. g., Houston v. Commissioner, 38 T. C. 486 (1962); Goldring v. Commissioner, 20 T. C. 79 (1953). And the period of limitations for filing a refund claim under the predecessor of § 6511(a) begins to run on the filing of the original, not the amended, return. Kaltreider Construction, Inc. v. United States, 303 F. 2d 366, 368 (CA3), cert. denied, 371 U. S. 877 (1962).

In both Dowell and Klemp, the Commissioner had issued his deficiency notices more than three years after the amended returns were filed but within the extended 6-year period after the original returns were *396filed. The courts in those cases nonetheless ruled the notices untimely. That result flows necessarily from petitioners’ proposed statutory construction. It seems to us, however, to be unacceptably anomalous.

Petitioners contend that these policy considerations favorable to the Commissioner do not apply on the facts of petitioners’ cases. Brief for *400Petitioners in No. 82-1453, pp. 33-34; Brief for Petitioner in No. 82-1509, pp. 35-36. This assertion is irrelevant, for the cases involve construction of a statute of limitations, not a question of laches, a defense to which the Government usually is not subject. See United States v. Summerlin, 310 U. S. 414, 416 (1940).

See generally Brennan, The Uncertain Status of Amended Tax Returns, 7 Rev. of Taxation of Individuals 235, 252-264 (1983).