1. Under § 280(1) of the Revenue Act of 1926, an income and
excess profits tax which might lawfully have been assessed, under
an earlier Act, against a transferor of all of his property, before
the transfer, may be assessed against the transferee in the same
manner and subject to the same provisions and limitations as in the
case of a deficiency in a tax imposed by the 1926 Act. P.
291 U. S.
487.
2. Under § 278(c) of the Revenue Act of 1926, the time for
assessment may be extended by waiver even though the period limited
for assessment by § 277 had expired before the waiver was given. P.
291 U. S.
488.
3. Any doubt that § 1106(a) of the Revenue Act of 1926, in
providing that the bar of the statute of limitations should not
only operate to bar the remedy, but should extinguish the right,
was not intended to make § 278(c) -- the waiver section --
inapplicable to assessments barred by limitations, was removed by §
612, Revenue Act of 1928, which repealed § 1106(a) retroactively as
of the effective date of the 1926 Act. P.
291 U. S.
489.
4. Congress, with the consent of the taxpayer, has power to
reestablish his tax liability and to authorize assessment of the
tax, even though extinguished by the running of the statute of
limitations, and Congress evidenced that purpose by repealing §
1106(a) as of its effective date, leaving unaffected § 278(c). P.
291 U. S. 491.
5. An assessment made after time but with consent of the
taxpayer by waiver given under § 278(c) was validated by the
subsequent act of Congress repealing § 1106(a) as of its effective
date. Pp.
291 U. S.
488-490.
65 F.2d 925 reversed.
Certiorari, 290 U.S. 620, to review the affirmance of a decision
of the Board of Tax Appeals, 22 B.T.A. 833, overruling a deficiency
assessment of income and profits taxes.
Page 291 U. S. 486
MR. JUSTICE STONE delivered the opinion of the Court.
This case comes here on certiorari to review a judgment of the
Court of Appeals for the Seventh Circuit, 65 F.2d 925, affirming a
decision of the Board of Tax Appeals, that a deficiency assessment
against respondent as transferee of the assets of the Newport
Chemical Works, Inc., for 1917 income and profits taxes of the
transferor was barred by the statute of limitations.
In 1919, the Chemical Works, a Maine corporation, after it had
filed its tax return for 1917, transferred all its assets to the
respondent, a Delaware corporation, which, as consideration for the
transfer, issued its stock to the stockholders of the transferor
and assumed all liabilities of the transferor. On March 1, 1920,
the Supreme Court of Maine entered a decree which purported to
dissolve the Chemical Works. The statutory period of limitation for
the assessment and collection of the 1917 taxes, as the government
concedes, expired on April 1, 1923, five years after the return for
that year had been filed. Whether this period was extended by
waiver so as to include the date of the deficiency assessment fixed
by the Commissioner's sixty-day letter of March 14, 1927, depends
on the validity and effect of several documents filed with the
Commissioner by the Chemical Works or by respondent.
During the period from December 15, 1920, to November, 1926, six
documents, asserted by the government to be waivers extending the
time for assessment, were executed by the Chemical Works by an
officer or its general counsel, and lodged with the Commissioner.
On or about November 6, 1926, a further waiver extending the
period
Page 291 U. S. 487
for assessment to December 31, 1927, executed by respondent by
its president, was filed with the Commissioner.
The court below and the Board of Tax Appeals both held, as
respondent argues here, that the period for assessment and
collection of the tax, which had been indefinitely extended by the
terms of the first waiver, was terminated and the assessment barred
on April 1, 1924, by a departmental ruling (Mimeograph 3085, II-1
Cum.Bull. 174, April 11, 1923); that all the subsequent waivers,
before that of November 6, 1926, were void because they were given
by the Chemical Works, which had been previously dissolved, and
that, as the assessment against the Chemical Works had thus been
barred prior to the Revenue Act of 1926, the right to assess the
respondent as transferee could not, under the provisions of that
Act, be revived by respondent's waiver of November 6, 1926.
Several independent grounds are urged by the government to
support the challenged deficiency assessment. The only one which we
need now consider is that the waiver of November 6, 1926, unaided
by the earlier ones, extended the time for the assessment against
the respondent, as transferee of the Chemical Works until its
expiry date, December 31, 1927. Before that date, the assessment
had been made.
Respondent, as such transferee, became liable for any tax which
might have been lawfully assessed against its transferor before the
transfer, and § 280(a) of the Act of 1926 directs that such
liability
"shall . . . be assessed, collected and paid in the same manner
and subject to the same provisions and limitations as in the case
of a deficiency in a tax imposed"
by that act.
Phillips v. Commissioner, 283 U.
S. 589. If, as respondent maintains and as the court
below held, any assessment was barred before respondent's waiver of
November 6, 1926, the effect of that waiver upon the right to
assess respondent pursuant to § 280 must be determined by the
Revenue Act of 1926.
Page 291 U. S. 488
The provisions of the act applicable to limitations and waivers
are found in §§ 277 and 278. Section 277 fixes the period of
limitation, but § 278(c) provides:
"Where both the commissioner and the taxpayer have consented in
writing to the assessment of the tax after the time prescribed in §
277 for its assessment the tax may be assessed at any time prior to
the expiration of the period agreed upon."
Had these provisions stood alone the waiver of November 6, 1926,
if otherwise valid, would have extended the time for assessment to
the specified date, December 31, 1927, even though it was made
after the period for assessment had expired. There is nothing in §
278(c) or related sections which requires that a waiver be given
prior to the expiration of the statutory period, and this Court has
uniformly held that, under the identical § 278(c) of the 1924 Act,
the defense of the statute of limitations may be waived by the
taxpayer after, as well as before, the expiration of the statutory
period.
McDonnell v. United States, 288 U.
S. 420;
Stange v. United States, 282 U.
S. 270;
Brown & Sons Lumber Co. v. Burnet,
282 U. S. 283,
282 U. S. 287;
Burnet v. Railway Equipment Co., 282 U.
S. 295,
282 U. S.
298.
To avoid this conclusion here, respondent relies on § 1106(a) of
the Act of 1926, which provides that:
"The bar of the statute of limitations against the United States
in respect of any internal revenue tax shall not only operate to
bar the remedy but shall extinguish the liability. . . ."
This section, it is said, indicates a congressional intent that,
once the liability of the taxpayer is extinguished, it should not
be revived by waiver. The government argues that this attempted
distinction between the defense of the bar of the statute of
limitations and the defense that the liability has been
extinguished is at most, only formal and does not affect the
application of § 278(c); that a defense founded on a right which
may
Page 291 U. S. 489
be waived by failure to plead it may likewise be waived by
formal document authorized by statute.
Burnet v.
Desmornes, 226 U. S. 145.
See Atlantic Coast Line v. Burnette, 239 U.
S. 199,
239 U. S. 200;
Finn v. United States, 123 U. S. 227,
123 U. S. 233.
Compare Stange v. United States, supra. But doubts as to
the effect which Congress intended, if any, to be given to the
quoted provision of § 1106(a) note in construing § 278(c) [
Footnote 1] were removed by § 612 of
the Revenue Act of 1928, which declared that § 1106(a) was repealed
as of February 26, 1926, its effective date. Congress thus
indicated its intention that the section should be erased from the
books as though it had never been enacted, so that § 278, like
other surviving sections of the 1926 Act,
Page 291 U. S. 490
must be construed free of such restrictive influence, if any, as
§ 1106(a) would otherwise impose. Thus, it must be dealt with as
was the identical section in the Act of 1924 which was before the
Court in
Stange v. United States, supra. [
Footnote 2]
Page 291 U. S. 491
That Congress, with consent of the taxpayer, has power to
reinstate his tax liability and to authorize assessment of the tax
cannot be doubted.
Graham & Foster v. Goodcell,
282 U. S. 409,
282 U. S. 426;
Mascot Oil Co. v. United States, 282 U.
S. 434. The taxpayer cannot complain that Congress has
availed itself of the consent which he has given, and cannot object
that it did so by revival of the tax "liability," rather than by
removing the bar of the statute, as in
McDonnell v. United
States, supra, and
Stange v. United States, supra; see Wm.
Danzer & Co. v. Gulf & S.I. R. Co., 268 U.
S. 633,
268 U. S. 636;
Home Insurance Co. v. Dick, 281 U.
S. 397,
281 U. S.
409.
We have considered, but do not discuss, respondent's arguments
based on the construction of the waiver of November 6, 1926, which
are without merit. We do not doubt that, rightly construed, the
waiver conformed to the requirements of §§ 278 and 280 of the Act
of 1926 and that, by it, respondent consented to the deficiency
assessment.
Reversed.
[
Footnote 1]
The legislative history of § 1106(a) shows that its purpose was
not to prevent a taxpayer from voluntarily agreeing to pay a tax
after the period of limitation had expired. It was proposed in
order to avoid the effect of a decision of the Court of Claims in
Toxaway Mills v. United States, 61 Ct.Cls. 363, 372,
holding that, if a tax had been collected after the running of the
statute of limitations the taxpayer could not set up that fact as
entitling him to recover, but could establish a right to a refund
only by proving that there had been an overpayment of the tax, on
the theory that the statute of limitations did not extinguish the
liability but merely barred the remedy. As stated in the Conference
Report on this section of the bill, H.Rep. 356, 69th Cong., 1st
Sess., p. 55:
"This amendment is deemed advisable because of an opinion in a
recent decision of the Court of Claims,
Toxaway Mills v. United
States. . . . Obviously this section does not apply in the
case of fraud or in the case of a waiver."
And see 67 Cong.Rec. Part IV, p. 3531. But in
conference, § 1106(a) was qualified by the addition of a clause
denying a right to a refund unless taxpayers had in fact overpaid
the tax.
See Conference Rep. H.Rep. 356, 69th Cong., 1st
Sess., pp. 26, 55. Congress, in enacting these provisions, was thus
concerned with refunds, rather than assessments and obviously did
not enact the provision for the purpose of rendering invalid
waivers executed after the running of the statute.
See
also Sen.Rep. 960, 70th Cong., 1st Sess., p. 41; Report of
Joint Committee on Internal Revenue Taxation, 70th Cong., 1st
Sess., House Doc. No. 139, p. 16.
[
Footnote 2]
It is true that § 506(a) of the Act of 1928 amended § 278(c) of
the Act of 1926 by providing for extension, by consent, of the time
within which an assessment might be made only if the consent were
given before the expiration of the period of limitation. But §
506(b) further provided that any such consent, given after the
expiration of the period of limitation, should be valid and
effective according to its terms if entered into after the
enactment of the Act of 1928 and before January 1, 1929. It was
also provided in § 506(c) that
"The amendments made by this section to the Revenue Act of 1926
shall not be construed as in any manner affecting the validity of
waivers made prior to the enactment of this Act, which shall be
determined according to the law in existence at the time such
waiver was filed."
The application of subdivision (c) of § 506 is, by its terms,
limited to amendments made by the section and it seems plain that
it was intended to be a qualification of subdivision (a), and not a
limitation upon § 612.
Compare United States v. Morrow,
266 U. S. 531.
Thus construed, it prevents any retroactive operation of
subdivision (a) by saving the effect of waivers already given
although after the expiration of the period of limitation. That
effect is to be determined by the application of the provisions of
the Act of 1926, with § 1106(a) eliminated as provided by § 612 of
the Act of 1928. The declared purpose of § 506 was to preserve the
Commissioner's rights to waivers filed under prior acts and to fix
January 1, 1929, as the date of change from the old practice to the
new.
See H.Rep. 2, 70th Cong., 1st Sess., p. 29; Sen.Rep.
960, 70th Cong., 1st Sess., p. 36; Conference Rep. H.Rep. 1882,
70th Cong., 1st Sess., p. 21. If subdivision (c) were construed as
a limitation upon § 612, it would nullify the operation of § 612,
and would produce a "whimsical result."
See Commissioner v.
Oswego & Syracuse R. Co., 62 F.2d 518, 520. For waivers
executed after the period of limitation had run would be valid if
filed prior to February 26, 1926, the effective date of the 1926
Act. Like waivers would be invalid if executed between February 26,
1926, and May 29, 1928, the effective date of the 1928 Act. But, by
§ 506(b),
supra, they would be valid if executed between
May 29, 1928 and January 1, 1929. Scope is given for the operation
of § 612,
see Bernier v. Bernier, 147 U.
S. 242,
147 U. S. 246,
and incongruous results are avoided by treating § 1106(a) as though
it had never been a part of the 1926 Act, as § 612 directs.
See
United States v. Katz, 271 U. S. 354.