Commissioner v. Acker
361 U.S. 87 (1959)

Annotate this Case

U.S. Supreme Court

Commissioner v. Acker, 361 U.S. 87 (1959)

Commissioner of Internal Revenue v. Acker

No. 13

Argued October 19, 1959

Decided November 16, 1959

361 U.S. 87

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Syllabus

Under the Internal Revenue Code of 1939, the failure of a taxpayer, without reasonable cause, to file a declaration of estimated income tax, as required by § 58, subjects him to the addition to the tax prescribed by § 294(d)(1)(A) for failure to file the declaration, but it does not subject him also to the addition to the tax prescribed by § 294(d)(2) for the filing of a "substantial underestimate" of his tax. Pp. 361 U. S. 87-94.

258 F.2d 568 affirmed.

MR. JUSTICE WHITTAKER delivered the opinion of the Court.

This case presents the question whether, under the Internal Revenue Code of 1939, the failure of a taxpayer to file a declaration of estimated income tax, as required by § 58, [Footnote 1] not only subjects him to the addition to the tax

Page 361 U. S. 88

prescribed by § 294(d)(1)(A) for failure to file the declaration, but also subjects him to the further addition to the tax prescribed by § 294(d)(2) for the filing of a "substantial underestimate" of his tax.

Section 294(d)(1)(A) provides, in substance, that, if a taxpayer fails to make and file "a declaration of estimated tax" within the time prescribed, there shall be added to the tax an amount equal to 5% of each installment due and unpaid, plus 1% of such unpaid installments for each month except the first, not exceeding an aggregate of 10% of such unpaid installments. [Footnote 2]

Section 294(d)(2), in pertinent part, provides:

"(2) Substantial underestimate of estimated tax."

"If 80 percentum of the tax (determined without regard to the credits under sections 32 and 35). . . exceeds the estimated tax (increased by such credits), there shall be added to the tax an amount equal to

Page 361 U. S. 89

such excess, or equal to 6 percentum of the amount by which such tax so determined exceeds the estimated tax so increased, whichever is the lesser. . . ."

26 U.S.C. (1952 ed.) § 294(d)(2).

Section 29.294-1(b)(3)(A) of Treasury Regulation 111, promulgated under the Internal Revenue Code of 1939, contains the statement that:

"In the event of a failure to file the required declaration, the amount of the estimated tax for the purposes of [§ 294(d)(2)] is zero."

Respondent, without reasonable cause, failed to file a declaration of his estimated income tax for any of the years 1947 through 1950. The Commissioner imposed an addition to the tax for each of those years under § 294(d)(1)(A) for failure to file the declaration, and also imposed a further addition to the tax for each of those years under § 294(d)(2) for a "substantial underestimate" of the tax. The Tax Court sustained the Commissioner's imposition of both additions. The Court of Appeals affirmed with respect to the addition imposed for failure to file the declaration, but reversed with respect to the addition imposed for substantial underestimation of the tax, holding that § 294(d)(2) does not authorize the treatment of a taxpayer's failure to file a declaration of estimated tax as the equivalent of a declaration estimating no tax, and that the regulation, which purports to do so, is not supported by the statute, and is invalid. 258 F.2d 568. Because of a conflict among the circuits, [Footnote 3] we

Page 361 U. S. 90

granted the Commissioner's petition for certiorari. 358 U.S. 940.

The first and primary question that we must decide is whether there is any expressed or necessarily implied provision or language in § 294(d)(2) which authorizes the

Page 361 U. S. 91

treatment of a taxpayer's failure to file a declaration of estimated tax as, or the equivalent of, a declaration estimating his tax to be zero.

We are here concerned with a taxing Act which imposes a penalty. [Footnote 4] The law is settled that "penal statutes are to be construed strictly," Federal Communications Comm'n v. American Broadcasting Co.,347 U. S. 284, 347 U. S. 296, and that one "is not to be subjected to a penalty unless the words of the statute plainly impose it," Keppel v. Tiffin Savings Bank,197 U. S. 356, 197 U. S. 362. See, e.g., 85 U. S. National Bank of Missouri, 18 Wall. 409, 85 U. S. 410; Elliott v. Railroad Co.,99 U. S. 573, 99 U. S. 576.

Viewing § 294(d)(2) in the light of this rule, we fail to find any expressed or necessarily implied provision or language that purports to authorize the treatment of a taxpayer's failure to file a declaration of estimated tax as, or the equivalent of, a declaration estimating his tax to be zero. This section contains no words or language

Page 361 U. S. 92

to that effect, and its implications look the other way. By twice mentioning, and predicating its application upon, "the estimated tax," the section seems necessarily to contemplate, and to apply only to, cases in which a declaration of "the estimated tax" has been made and filed. The fact that the section contains no basis or means for the computation of any addition to the tax in a case where no declaration has been filed would seem to settle the point beyond all controversy. If the section had in any appropriate words conveyed the thought expressed by the regulation, it would thereby have clearly authorized the Commissioner to treat the taxpayer's failure to file a declaration as the equivalent of a declaration estimating his tax at zero and, hence, as constituting a "substantial underestimate" of his tax. But the section contains nothing to that effect, and therefore to uphold this addition to the tax would be to hold that it may be imposed by regulation, which, of course, the law does not permit. United States v. Calamaro,354 U. S. 351, 354 U. S. 359; Koshland v. Helvering,298 U. S. 441, 298 U. S. 446-447; Manhattan Co. v. Commissioner,297 U. S. 129, 297 U. S. 134.

The Commissioner points to the fact that both the Senate Report [Footnote 5] which accompanied the bill that became the Current Tax Payment Act of 1943, [Footnote 6] and the Conference Report [Footnote 7] relating to that bill contained the statement which was later embodied in the regulation. He then argues that, by reading § 294(d)(2) in connection with that statement in those reports, it becomes evident

Page 361 U. S. 93

that Congress intended by § 294(d)(2) to treat the failure to file a declaration as the equivalent of a declaration estimating no tax. He urges us to give effect to the congressional intention which he thinks is thus disclosed. However, these reports pertained to the forerunner of the section with which we are now confronted, and not to that section itself. Bearing in mind that we are here concerned with an attempt to justify the imposition of a second penalty for the same omission for which Congress has specifically provided a separate and very substantial penalty, we cannot say that the legislative history of the initial enactment is so persuasive as to overcome the language of § 294(d)(2), which seems clearly to contemplate the filing of an estimate before there can be an underestimate.

The Commissioner next argues that the fact that Congress, with knowledge of the regulation, several times amended the 1939 Code but left § 294(d)(2) unchanged, shows that Congress approved the regulation, and that we should accordingly hold it to be valid. This argument is not persuasive, for it must be presumed that Congress also knew that the courts, except the Tax Court, had almost uniformly held that § 294(d)(2) does not authorize an addition to the tax in a case where no declaration has been filed, and that the regulation is invalid. [Footnote 8] But the point is immaterial, for Congress could not add to or expand this statute by impliedly approving the regulation.

These considerations compel us to conclude that § 294(d)(2) does not authorize the treatment of a taxpayer's failure to file a declaration of estimated tax as the equivalent of a declaration estimating his tax to be zero. The questioned regulation must therefore be regarded "as

Page 361 U. S. 94

no more than an attempted addition to the statute of something which is not there." United States v. Calamaro, supra, 354 U.S. at 354 U. S. 359.

Affirmed.

[Footnote 1]

Section 58, as amended, provides, in pertinent part, that:

"Every individual . . . shall, at the time prescribed in subsection (d), make a declaration of his estimated tax for the taxable year if [his gross income from wages or other sources can reasonably be expected to exceed stated sums, showing] the amount which he estimates as the amount of tax under this chapter for the taxable year, without regard to any credits under Sections 32 and 35 for taxes withheld at source . . . ; the amount which he estimates as [such] credits . . . , and [that] the excess of the [estimated tax] over the [estimated credits] shall be considered the estimated tax for the taxable year."

26 U.S.C. (1952 ed.) § 58.

[Footnote 2]

Section 294(d)(1)(A), as amended, provides, in pertinent part, that:

"(A) Failure to file declaration."

"In the case of a failure to make and file a declaration of estimated tax within the time prescribed . . . , there shall be added to the tax 5 percentum of each installment due but unpaid, and, in addition, with respect to each such installment due but unpaid, 1 percentum of the unpaid amount thereof for each month (except the first) or fraction thereof during which such amount remains unpaid. In no event shall the aggregate addition to the tax under this subparagraph with respect to any installment due but unpaid exceed 10 percentum of the unpaid portion of such installment. For the purposes of this subparagraph, the amount and due date of each installment shall be the same as if a declaration had been filed within the time prescribed showing an estimated tax equal to the correct tax reduced by the credits under sections 32 and 35."

26 U.S.C. (1952 ed.) § 294(d)(1)(A)

[Footnote 3]

After the Sixth Circuit had delivered its opinion in this case, but before it had decided the Commissioner's petition for rehearing, the Third Circuit, in Abbott v. Commissioner, 258 F.2d 537, and the Fifth Circuit, in Patchen v. Commissioner, 258 F.2d 544, held that the failure of a taxpayer to file a declaration of estimated tax subjected him not only to the "addition to the tax" imposed by § 294(d)(1)(A) for failure to file a declaration, but also to the "addition to the tax" imposed by § 294(d)(2) for a "substantial underestimate" of his tax. Less than two months earlier, the Ninth Circuit, too, had so held in Hansen v. Commissioner, 258 F.2d 585.

From the beginning of litigation involving the question here presented, a large majority of the published opinions of the District Courts have held that § 294(d)(2) does not authorize the treatment of a taxpayer's failure to file any declaration at all as the equivalent of a declaration estimating his tax to be zero, and that the regulation attempts to amend and extend the statute and is therefore invalid. See, e.g., United States v. Ridley, 120 F.Supp. 530, 538; United States v. Ridley, 127 F.Supp. 3, 11; Owen v. United States, 134 F.Supp. 31, 39, modified on another point sub nom. Knop v. United States, 234 F.2d 760; Powell v. Granquist, 146 F.Supp. 308, 312, aff'd, 252 F.2d 56; Nodgkinson v. United States, 57-1 U.S.T.C.

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