Badaracco v. Commissioner
464 U.S. 386 (1984)

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U.S. Supreme Court

Badaracco v. Commissioner, 464 U.S. 386 (1984)

Badaracco v. Commissioner of Internal Revenue

No. 82-1453

Argued November 28, 1983

Decided January 17, 1984*

464 U.S. 386

Syllabus

Section 6501(a) of the Internal Revenue Code of 1954 establishes a general 3-year period of limitations "after the return was filed" for the assessment of federal income taxes. However, § 6501(c)(1) provides that, when there is "a false or fraudulent return with the intent to evade tax," the tax then may be assessed "at any time." In No. 82-1453, petitioners conceded, for purposes of this litigation, that they had filed fraudulent partnership and individual income tax returns for the years 1965-1969. However, in 1971, they filed nonfraudulent amended returns and paid the additional basic taxes shown thereon. In 1977, the Commissioner of Internal Revenue issued notices of deficiency, asserting liability under § 6653(b) of the Code for the addition to tax on account of fraud of 50% of the underpayment in the basic tax. Petitioners sought redetermination in the United States Tax Court of the asserted deficiencies, contending that § 6501(c)(1) did not apply because of the filing of the nonfraudulent amended returns, and that the Commissioner's action was barred by § 6501(a) because the deficiency notices were issued more than three years from the date of filing of the amended returns. The Tax Court agreed with petitioners. In No. 82-1509, petitioner filed timely corporation income tax returns for the years 1967 and 1968, but, in 1973, it filed amended returns disclosing certain receipts that had not been reported on the original returns. In 1979, the Commissioner issued a notice asserting deficiencies in tax and additions under § 6653(b) for 1967 and 1968. Petitioner paid the alleged deficiencies and brought suit for refund in Federal District Court, which granted summary judgment for petitioner on the ground that the Commissioner's action was barred by § 6501(a), regardless of whether the original returns were fraudulent. The Court of Appeals, consolidating the appeals, reversed in both cases.

Held: Where a taxpayer files a false or fraudulent return but later files a nonfraudulent amended return, § 6501(c)(1) applies and a tax may be assessed "at any time," regardless of whether more than three years have expired since the filing of the amended return. Pp. 464 U. S. 391-401.

Page 464 U. S. 387

(a) The plain and unambiguous language of § 6501(c)(1) permits 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. Nothing is present in the statute that can be construed to suspend its operation as a consequence of a fraudulent filer's subsequent repentant conduct. 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. Moreover, the 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. Pp. 464 U. S. 391-396.

(b) Nothing in the statutory language, the structure of the Code, or the decided cases supports petitioners' contention that a fraudulent return is a "nullity" for statute of limitations purposes, and that therefore the amended return is necessarily "the return" referred to in § 6501(a). Pp. 464 U. S. 396-397.

(c) 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 its literal language is supported by substantial policy considerations -- the increased difficulty in investigating fraud cases as opposed to cases marked for routine audits; the fact that the filing of a document styled "amended return" does not fundamentally change the nature of a tax fraud investigation; and the compounding of the difficulties that attend a civil fraud investigation where the Commissioner's initial findings lead him to conclude that the case should be referred to the Department of Justice for criminal prosecution. Pp. 464 U. S. 397-400.

(d) Petitioners' argument that a literal reading of § 6501(c) would elevate one form of tax fraud over another because it 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, cannot prevail. Section 6501(c)(3) -- which provides that, in a case of failure to file a return, the tax may be assessed "at any time" -- has been construed as ceasing 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. However, the language employed in the respective subsections of § 6501 establishes that Congress intended different limitations results under § 6501(c)(1). Pp. 464 U. S. 400-401.

693 F.2d 298, affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, POWELL, REHNQUIST, and

Page 464 U. S. 388

O'CONNOR, JJ., joined. STEVENS, J., filed a dissenting opinion, post, p. 464 U. S. 401.

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