1. The Revenue Act of 1921, approved November 23, but effective
January 1 of that year, did not nullify a return by a corporation
for its fiscal year ending April 30, 1921, filed in July, 1921; in
effect, it adopted and renewed the return retroactively from
January 1, and the time within which the Commissioner might make a
deficiency
Page 293 U. S. 173
assessment was limited by § 250(d) to four years from the filing
of such return. P.
293 U. S.
176.
So
held where the increase of tax liability under the
1921 Act was ascertainable by simple computation from returns
already filed, and where the efficiency assessments, in large
amounts, were based mainly on grounds unrelated to any changes in
the law.
2. Under the Act of 1921,
supra, a second return,
reporting an additional tax for the period covered retroactively,
would be an amendment or supplement of the return already on file,
and being effective by relation, would not toll a limitation which
had once begun to run. P.
293 U. S.
180.
3. Review by certiorari will not extend to a point not
considered by the court below nor mentioned in the petition for
certiorari and response thereto. P.
293 U. S.
182.
69 F.2d 852 reversed.
Certiorari, 292 U.S. 621, to review judgments of the court below
affirming the Board of Tax Appeals, 26 B.T.A. 96, sustaining
deficiency assessments of income and profits taxes.
MR. JUSTICE CARDOZO delivered the opinion of the Court.
The controversy in these cases hinges upon the date when the
statute of limitations began to run against deficiency assessments
by the Commissioner of Internal Revenue.
On July 16, 1921, Zellerbach Paper Company filed a consolidated
income and profits tax return in behalf of itself and a subsidiary,
National Paper Products Company,
Page 293 U. S. 174
for the fiscal year beginning May 1, 1920, and ending April 30,
1921.
On March 15, 1921, it filed an income and profits tax return for
the calendar year 1920 in behalf of A. S. Hopkins Company, a
dissolved subsidiary, including in its own consolidated return the
income of the A. S. Hopkins Company between January 1, 1921, and
the date of dissolution.
At the filing of these returns the income and profits tax
statute applicable to the taxpayers was the Revenue Act of 1918 (40
Stat. 1057). Later (on November 23, 1921) another tax statute, the
Revenue Act of 1921 (42 Stat. 227), became a law, with a provision
(§ 263) that it should take effect retroactively as of January 1,
1921.
By the Act of 1921 (§ 239a), every corporation subject to
taxation thereunder was required to "make a return, stating
specifically the items of its gross income and the deductions and
credits allowed by this title." Treasury Decisions issued by the
Commissioner in March, 1922 (T.D. 3305, March 16, 1922, amended by
T.D. 3310, March 28, 1922 [
Footnote
1]), gave notice in substance that taxpayers who had filed
returns under the Act of 1918 and who were subject to an additional
tax for the same period under the Act of 1921, should file a new or
supplemental return covering such additional tax. By implication
this was a ruling that an additional return was not required of
taxpayers whose taxes were not increased by the new law.
Page 293 U. S. 175
By implication, also, the new return was to be limited to a
statement of the facts or figures necessary to exhibit the
additions, without repetition of facts or figures that had been
well returned already.
The Act of 1921, in its application to the petitioners, made one
change and one only. If the net income of the taxpayer was more
than $25,000, there was to be a denial of the credit or exemption
of $2,000 otherwise allowable. Section 236b. The fiscal year of the
petitioners ran, as we have seen, from May 1, 1920, to April 30,
1921, and, of this period, one-third was in the calendar year 1921.
The net income being largely in excess of $25,000, the effect of
the new law was to cut down the permissible credit by one-third of
$2,000, thus increasing the tax by little more than a nominal
amount. What that amount was could be ascertained by a simple
computation, dependent upon data fully supplied by the return
already filed, and calling only for the application of the
statutory rule.
The petitioners did not make a new or supplemental return
correcting the computation in the one on file. The change was so
trivial and so obvious as perhaps to lead them to believe that no
amendment was expected. Be that as it may, they heard nothing more
from the Bureau of Internal Revenue with reference to their taxes
till May 11, 1928, an interval of nearly seven years, when they
received from the Commissioner notices of deficiency assessments in
large amounts upon grounds unrelated (except for the deduction
already mentioned) to any changes in the law. The Revenue Act of
1921 provides (§ 250d) that income and profits taxes shall be
determined and assessed by the Commissioner within four years after
a return is filed. If the return filed by the petitioners or in
their behalf in July, 1921, served to set in motion the term of
limitation, the assessments were too late. The Board of Tax
Appeals, however, upheld the action of the Commissioner, and ruled
(two members dissenting) that
Page 293 U. S. 176
the return on file was a nullity, and hence that the statute of
limitations had never been set running. 26 B.T.A. 96. The Court of
Appeals for the Ninth Circuit affirmed. 69 F.2d 852. In so doing,
it refused to follow decisions directly to the contrary by courts
of coordinate jurisdiction.
Myles Salt Co., Ltd. v.
Commissioner, 49 F.2d 232;
Isaac Goldmann Co. v.
Commissioner, 60 App.D.C. 265, 51 F.2d 427;
Valentine-Clark Co. v. Commissioner, 52 F.2d 346. Because
of that conflict, writs of certiorari were granted by this Court.
292 U.S. 621.
The opinion of the court below rests heavily upon the argument
that what is required by the statute is a return under the act, and
that this excludes by implication a return by the taxpayer before
the act became a law. Various sections are cited as enforcing that
conclusion.
See, e.g., §§ 205a, 239a, 250d, which so far
as material are quoted in the margin. [
Footnote 2] But the Act of 1921 was retroactive
Page 293 U. S. 177
(§§ 263, 1400), taking effect, as we have seen, as of the
beginning of the year. Being law by relation, to the disadvantage
of the taxpayer, in respect of the burden of his tax, it may well
have been law by relation to his benefit in respect of the form and
time of his return. There is no anomaly, to say the least, in such
a rule of reciprocity. Indeed, there are special reasons why this
very result must have been thought of in the framing of the
statute. If a new return was required, when was it to be due? The
statute tells us (§§ 227a, 241a) that, when a taxpayer makes his
return on the basis of a fiscal year, the time for filing shall be
the fifteenth day of the third month following the close of such
year, which for these petitioners, was the fifteenth of July. Thus,
the date fixed for filing was far in advance of the date when the
statute was enacted. From this, the inference is a fair one that
returns already filed were continued in effect, being treated as if
made under the new act, which thus adopted and renewed them.
Otherwise, the taxpayer was placed in default before the duty was
imposed. Nor is there anything unworkable in thus applying the
doctrine of relation to keep returns alive. To the extent that
gross income or deductions were to be computed differently
thereafter, the Commissioner could make the necessary adjustment in
connection with his audit. Moreover, by virtue of his general power
to make "all needful rules and regulations" with the approval of
the Secretary (§ 1303), he might require of taxpayers whatever
supplementary information would be necessary to enable him to act
correctly. This, as we have seen, he did, designating a new date
selected by himself and wholly unrelated to the fiscal year
covered. The validity of such a regulation will be assumed and
indeed is not contested . Nonetheless, the return exacted by the
statute, the one that, in the absence of fraud, is to start the
term of
Page 293 U. S. 178
limitation (§ 250d) is the return filed by the taxpayer at the
close of the fiscal year, though supplementary information may
modify or add to it.
Cf. Florsheim Bros. Dry Goods Co., Ltd. v.
United States, 280 U. S. 453,
280 U. S.
462.
A different conclusion would lead in practice to complications
and injustice. Many taxpayers filing returns under the Act of 1918
were unaffected by the changes wrought by the Act of 1921. Their
returns, if made over again, would have been an exact reproduction
of those they had made already. A statute would have to be very
plain to justify a holding in such circumstances that there was an
obligation to report anew. Certainly the average man would be slow
to suspect that he was subject to such a duty. If he looked into
the Treasury Decisions, he would learn that the Commissioner agreed
with him. In these. he was told by the plainest implication that,
unless he had an additional tax to pay, his return would stand as
filed, without supplement or correction. Now, the Commissioner of
Internal Revenue is without dispensing power. If a return under the
old act is not good under the new one, but, instead is an utter
nullity, he may not relieve the taxpayer of making a return over
again. To this the government assents, and on it builds the
argument that the first returns are to be disregarded altogether,
whether more is due or nothing. In that view, hundreds of
taxpayers, perhaps thousands, though innocent of willful wrong,
have been deprived of the protection of any rule of limitation, not
to speak of other penalties unwittingly incurred. A statute of
uncertain meaning will not readily be made an instrument for so
much of hardship and confusion.
Administrative construction, confirmed by acts of Congress,
brings reinforcement to the argument. Reference has been made
already to the Treasury Decisions issued in March, 1922. The
pertinent administrative history,
Page 293 U. S. 179
however, does not begin at that point. It goes back to earlier
statutes presenting a like problem. In the transit from the Revenue
Act of 1917 to the Act of 1918 (40 Stat. 1057), there was the same
gap to be filled, the same necessity for determining the standing
of returns made on a fiscal year basis before the new act became
law. Treasury Decision 2797, issued by the Commissioner March 11,
1919, was designed to guide the taxpayer in that predicament. It is
quoted in the margin. [
Footnote
3] It calls for an additional return when an additional tax is
due, but not at other times. It treats the whole tax, computed
under both returns, as made up of separate parts, one the part due
under what is styled "the original return" and the other the
additional part due "under the amended return." This regulation was
in substance readopted in the regulations already referred to under
the Act of 1921. There are verbal variations, but not of such a
nature as to suggest a change of meaning. The like is true of a
Treasury Decision issued under the Revenue Act of 1926 (44 Stat. 9;
T.D. 3843). All these regulations have had the tacit assent and
confirmation of the lawmakers. Successive revenue statutes have
been enacted without substantial change in the applicable sections.
Congress seemingly has been satisfied with the Decisions of the
Page 293 U. S. 180
Treasury and with the interpretation of its own meaning implicit
in them.
National Lead Co. v. United States, 252 U.
S. 140,
252 U. S. 146;
McCaughn v. Hershey Chocolate Co., 283 U.
S. 488,
283 U. S.
492-493;
Costanzo v. Tillinghast, 287 U.
S. 341,
287 U. S. 345;
Norwegian Nitrogen Products Co. v. United States,
288 U. S. 294,
288 U. S.
315.
From this administrative history, the inference is compelling
that a second return, reporting an additional tax, is an amendment
or supplement to a return already upon the files, and, being
effective by relation, does not toll a limitation which has once
begun to run.
Florsheim Bros. Dry Goods Co., Ltd. v. United
States, supra. Cf. United States v. Memphis Cotton Oil
Co., 288 U. S. 62,
288 U. S. 67;
New York Central & H.R. Co. v. Kinney, 260 U.
S. 340,
260 U. S. 346.
Perfect accuracy or completeness is not necessary to rescue a
return from nullity, if it purports to be a return, is sworn to as
such (
Lucas v. Pilliod Lumber Co., 281 U.
S. 245), and evinces an honest and genuine endeavor to
satisfy the law. This is so though, at the time of filing, the
omissions or inaccuracies are such as to make amendment necessary.
Even more clearly is it so when the return is full and accurate in
the beginning under the statutes then in force, but is made
inaccurate or incomplete by supervening changes of the law,
unforeseen and unforeseeable. Supplement and correction in such
circumstances will not take from a taxpayer, free from personal
fault, the protection of a term of limitation already running for
his benefit.
Cf. Myles Salt Co., Ltd. v. Commissioner,
supra at p. 233;
Valentine-Clark Co. v. Commissioner,
supra, at p. 349. At the very least, the statutes are
sufficiently ambiguous to be susceptible of that construction
without strain upon their meaning. So, in effect, the Commissioner
has construed them by relieving taxpayers of the duty of filing a
new return except for additional taxes and by treating such new
return as an
Page 293 U. S. 181
amendment or a supplement. So this Court construes them now.
In the argument for the government, much is made of the point
that, in giving effect for any purpose to the original return, we
cut down the period available to the bureau for audit and
assessment. The reduction, however, is not serious. In the first
place, it applies only to that part of the taxable year as to which
the two statutes overlap. In the second place, the return in its
first form was subject to immediate audit in respect of everything
embraced within it. Indeed at that time, the examiners could not
know whether a new statute would be passed before the end of the
calendar year, or whether the changes would be great or small.
Whatever shortening of time there has been is limited to those
matters as to which the statutes differ from each other. Even for
that purpose, however, the time available was ample. Almost three
years and eight months were left for carrying the audit to
completion. The curtailment is too slight, the inconvenience too
nearly negligible, to affect the process of construction.
A middle ground has been suggested, a path of compromise between
the position of the petitioners at one extreme and that of the
government at the other. Some such compromise is indicated, it
seems, in decisions of the Board of Tax Appeals, though the rulings
of the Board in that respect are involved in some obscurity. At all
events, the suggestion is that the term of limitation shall run
from the new return when it appears on the face of the original
return that, because of the changes in the law, a tax will be due
beyond the liability reported, [
Footnote 4] and that
Page 293 U. S. 182
the limitation shall run from the original return when there is
nothing on the face of that return to indicate that the liability
reported is less than is owing. [
Footnote 5] The statute supplies no basis for such a
principle of division. An examiner needs more time for an audit
when errors are latent, to be discovered only by digging into books
and vouchers, than when errors are apparent upon a bare inspection
of the record. It would be a strange rule of limitation that would
vary his opportunity inversely to his needs.
One other contention of the government is stated merely to
exclude it from the scope of our decision. The government makes the
point that the petitioners' return, even if filed at the proper
time, must be held to be a nullity for the reason that it
commingles the income of the affiliated companies, parent and
subsidiary, with that of another company, the A. S. Hopkins
Company, previously dissolved. No such point was considered by the
court below, nor was it suggested either in the petition for
certiorari or in any response thereto. Review by this Court will be
limited accordingly.
Johnson v. Manhattan Ry. Co.,
289 U. S. 479,
289 U. S. 494;
Charles Warner Co. v. Independent Pier Co., 278 U. S.
85,
278 U. S.
91.
The decree should be reversed, and the cause remanded for
further proceedings in accordance with this opinion.
Reversed.
* Together with
No. 39, National Paper Products Co. v.
Helvering, Commissioner of Internal Revenue, certiorari to the
Circuit Court of Appeals for the Ninth Circuit.
[
Footnote 1]
The text of the amended decision is as follows:
"If any taxpayer has, before November 23, 1921, filed a return
for a fiscal year ending in 1921, and paid or become liable for a
tax computed under the Revenue Act of 1918, and is subject to
additional tax for the same period under the Revenue Act of 1921, a
return covering such additional tax shall be filed at the same time
as the returns of persons making returns for the fiscal year ending
February 28, 1922, are due under the laws and regulations, and
payment of such additional tax will be due in the same installments
and at the same times as in the case of payments based on returns
for the fiscal year ending February 28, 1922. . . ."
[
Footnote 2]
"§ 205a. That if a taxpayer makes return for a fiscal year
beginning in 1920 and ending in 1921, his tax under this title for
the taxable year 1921 shall be the sum of: (1) the same proportion
of a tax for the entire period computed under Title II of the
Revenue Act of 1918 at the rates for the calendar year 1920 which
the portion of such period falling within the calendar year 1920 is
of the entire period, and (2) the same proportion of a tax for the
entire period computed under this title at the rates for the
calendar year 1921, which the portion of such period falling within
the calendar year 1921 is of the entire period."
"§ 239a. That every corporation subject to taxation under this
title and every personal service corporation shall make a return,
stating specifically the items of its gross income and the
deductions and credits allowed by this title."
"§ 250d. The amount of income, excess profits, or war profits
taxes due under any return made under this Act for the taxable year
1921 or succeeding taxable years shall be determined and assessed
by the Commissioner within four years after the return was filed. .
. ."
[
Footnote 3]
"If a corporation has, before February 25, 1919, filed a return
for a fiscal year ending in 1918 and paid or become liable for a
tax computed under the revenue act of 1917, and is subject to
additional tax for the same period under the revenue act of 1918,
the return covering such additional tax shall be filed at the same
time as returns of persons making returns for the calendar year
1918 are due under existing rulings, and payment of such additional
tax is due in the same installments and at the same times as in the
case of payments based on returns for the calendar year 1918. If no
part of the tax for such fiscal year was due until after February
24, 1919, the whole amount of tax due, including tax due under the
original return and additional tax due under the amended return,
will be payable in the same installments and at the same times as
in the case of payments based on returns for the calendar year
1918."
[
Footnote 4]
See, e.g., Isaac Goldmann Co. v. Burnet, Commissioner,
17 B.T.A. 1103,
rev'd, 60 App.D.C. 265, 51 F.2d 427; Myles
Salt Co., Ltd. v. Commissioner, 18 B.T.A. 742, 744,
rev'd,
49 F.2d 232; G. Corrado Coal & Coke Interests, Inc. v.
Commissioner, 19 B.T.A. 691; E. J. Lorie v. Commissioner, 21 B.T.A.
612.
[
Footnote 5]
See, e.g., Fred T. Ley & Co. v. Commissioner, 9
B.T.A. 749, 751; Palmetto Coal Co. v. Commissioner, 11 B.T.A. 154;
Denholm & McKay Co. v. Commissioner, 15 B.T.A. 225.