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SUPREME COURT OF THE UNITED STATES
_________________
No. 11–139
_________________
UNITED STATES, PETITIONER
v. HOME
CONCRETE & SUPPLY, LLC, et al.
on writ of certiorari to the united states
court of appeals for the fourth circuit
[April 25, 2012]
Justice Breyer delivered the opinion of the
Court, except as to Part IV–C.
Ordinarily, the Government must assess a
deficiency against a taxpayer within “3 years after the
return was filed.” 26 U. S. C. §6501(a) (2000
ed.). The 3-year period is extended to 6 years, however, when a
taxpayer “
omits from gross income an amount properly
includible therein which is in excess of 25 percent of the
amount of gross income stated in the return.”
§6501(e)(1)(A) (emphasis added). The question before us is
whether this latter provision applies (and extends the ordinary
3-year limitations period) when the taxpayer
overstates
his basis in property that he has sold, thereby
understating the gain that he received from its sale.
Following
Colony, Inc. v.
Commissioner,
357 U.S.
28 (1958), we hold that the provision does not apply to an
overstatement of basis. Hence the 6-year period does not apply.
I
For present purposes the relevant underlying
circumstances are not in dispute. We consequently assume that (1)
the respondent taxpayers filed their relevant tax returns in April
2000; (2) the returns overstated the basis of certain property that
the taxpayers had sold; (3) as a result the returns understated the
gross income that the taxpayers received from the sale of the
property; and (4) the understatement exceeded the
statute’s 25% threshold. We also take as undisputed that the
Commissioner asserted the relevant deficiency within the extended
6-year limitations period, but outside the default 3-year period.
Thus, unless the 6-year statute of limitations applies, the
Government’s efforts to assert a tax deficiency came too
late. Our conclusion—that the extended limitations period
does not apply—follows directly from this Court’s
earlier decision in
Colony.
II
In
Colony this Court interpreted a
provision of the In- ternal Revenue Code of 1939, the operative
language of which is identical to the language now before us. The
Commissioner there had determined
“that the taxpayer had understated
the gross profits on the sales of certain lots of land for
residential purposes as a result of having overstated the
‘basis’ of such lots by erroneously including in their
cost certain unallowable items of development expense.”
Id., at 30.
The Commissioner’s assessment came after
the ordinary 3-year limitations period had run. And, it was
consequently timely only if the taxpayer, in the words of the 1939
Code, had “omit[ted] from gross income an amount properly
includible therein which is in excess of 25 per cen- tum of the
amount of gross income stated in the return
. . . .” 26 U. S. C. §275(c)
(1940 ed.). The Code provision ap- plicable to this case, adopted
in 1954, contains materially indistinguishable language. See
§6501(e)(1)(A) (2000 ed.) (same, but replacing “per
centum” with “percent”). See also Appendix,
infra.
In
Colony this Court held that taxpayer
misstatements, overstating the basis in property, do not fall
within the scope of the statute. But the Court recognized the
Commissioner’s contrary argument for inclusion. 357
U. S., at 32. Then as now, the Code itself defined
“gross income” in this context as the difference
between gross revenue (often the amount the taxpayer received upon
selling the prop- erty) and basis (often the amount the taxpayer
paid for the property). Compare 26 U. S. C.
§§22, 111 (1940 ed.) with §§61(a)(3), 1001(a)
(2000 ed.). And, the Commissioner pointed out, an overstatement of
basis can diminish the “amount” of the gain just as
leaving the item entirely off the return might do. 357 U. S.,
at 32. Either way, the error wrongly understates the
taxpayer’s income.
But, the Court added, the Commissioner’s
argument did not fully account for the provision’s language,
in particular the word “omit.” The key phrase says
“
omits . . . an amount.” The word
“omits” (unlike, say, “reduces” or
“un- derstates”) means “ ‘[t]o leave
out or unmentioned; not to insert, include, or
name.’ ”
Ibid. (quoting Webster’s New
International Dictionary (2d ed. 1939)). Thus, taken literally,
“omit” limits the statute’s scope to situations
in which specific receipts or accruals of income are
left
out of the computation of gross income; to inflate the basis,
however, is not to “omit” a specific item, not even of
profit.
While finding this latter interpretation of the
language the “more plausibl[e],” the Court also noted
that the language was not “unambiguous.”
Colony,
357 U. S., at 33. It then examined various congressional
Reports discussing the relevant statutory language. It found in
those Reports
“persuasive indications that
Congress merely had in mind failures to report particular income
receipts and accruals, and did not intend the [extended] limitation
to apply whenever gross income was understated
. . . .”
Id., at 35.
This “history,” the Court said,
“shows . . . that the Congress intended an
exception to the usual three-year statute of limitations only in
the restricted type of situation already described,” a
situation that did not include overstatements of basis.
Id.,
at 36.
The Court wrote that Congress, in enacting the
provision,
“manifested no broader purpose than
to give the Commissioner an additional two [now three] years to
investigate tax returns in cases where, because of a
taxpayer’s omission to report some taxable item, the
Commissioner is at a special disadvantage . . . [because]
the return on its face provides no clue to the existence of the
omitted item. . . . [W]hen,
as here
[
i.e., where the overstatement of basis is at issue], the
understatement of a tax arises from an error in reporting an item
disclosed on the face of the return the Commissioner is at no such
disadvantage . . . whether the error be one affecting
‘gross income’ or one, such as overstated deductions,
affecting other parts of the return.”
Ibid. (emphasis
added).
Finally, the Court noted that Congress had
recently enacted the Internal Revenue Code of 1954. And the Court
observed that “the conclusion we reach is in har- mony with
the unambiguous language of §6501(e)(1)(A),”
id.,
at 37,
i.e., the provision relevant in this present
case.
III
In our view,
Colony determines the
outcome in this case. The provision before us is a 1954 reenactment
of the 1939 provision that
Colony interpreted. The operative
language is identical. It would be difficult, perhaps impossible,
to give the same language here a different interpretation without
effectively overruling
Colony, a course of action that basic
principles of
stare decisis wisely counsel us not to take.
John R. Sand & Gravel Co. v.
United States,
552 U.S.
130, 139 (2008) (“
[S]tare decisis in respect to
statu- tory interpretation has special force, for Congress remains
free to alter what we have done” (internal quotation marks
omitted));
Patterson v.
McLean Credit Union,
491 U.S.
164, 172–173 (1989).
The Government, in an effort to convince us to
interpret the operative language before us differently, points to
differences in other nearby parts of the 1954 Code. It suggests
that these differences counsel in favor of a different
interpretation than the one adopted in
Colony. For example,
the Government points to a new provision, §6501(e)(1)(A)(i),
which says:
“In the case of a trade or business,
the term ‘gross income’ means the total of the amounts
received or accrued from the sale of goods or services (if such
amounts are required to be shown on the return) prior to the
diminution by the cost of such sales or services.”
If the section’s basic phrase
“omi[ssion] from gross income” does not apply to
overstatements of basis (which is what
Colony held), then
what need would there be for clause (i), which leads to the same
result in a specific subset of cases?
And why, the Government adds, does a later
paragraph, referring to gifts and estates, speak of a taxpayer who
“omits . . .
items includible in [the] gross
estate”? See §6501(e)(2) (emphasis added). By speaking
of “items” there does it not imply that omission of an
“amount” cov- ers more than omission of individual
items—indeed that it includes overstatements of basis, which,
after all, di- minish the
amount of the profit that should
have been re- ported as gross income?
In our view, these points are too fragile to
bear the sig- nificant argumentative weight the Government seeks to
place upon them. For example, at least one plausible reason why
Congress might have added clause (i) has nothing to do with any
desire to change the meaning of the general rule. Rather when
Congress wrote the 1954 Code (prior to
Colony), it did not
yet know how the Court would interpret the provision’s
operative language. At least one lower court had decided that the
provision did
not apply to overstatements about the cost of
goods that a business later sold. See
Uptegrove Lumber Co.
v.
Commissioner, 204 F.2d 570 (CA3 1953). But see
Reis v.
Commissioner, 142 F.2d 900, 902–903
(CA6 1944). And Congress could well have wanted to ensure that,
come what may in the Supreme Court,
Uptegrove’s
interpretation would remain the law where a “trade or
business” was at issue.
Nor does our interpretation leave clause (i)
without work to do.
TRW Inc. v.
Andrews,
534 U.S.
19, 31 (2001) (noting canon that statutes should be read to
avoid making any provision “superfluous, void, or
insignificant” (internal quotation marks omitted)). That
provision also explains how to calculate the denominator for
purposes of determining whether a conceded omission amounts to 25%
of “gross income.” For example, it tells us that a
merchant who fails to include $10,000 of revenue from sold goods
has not met the 25% test if total revenue is more than $40,000,
regardless of the cost paid by the merchant to acquire those goods.
But without clause (i), the general statutory definition of
“gross income” requires subtracting the cost from the
sales price. See 26 U. S. C. §§61(a)(3), 1012.
Under such a definition of “gross income,” the cal-
culation would take (1)
total revenue from sales, $40,000,
minus (2) “
the cost of such sales,” say,
$25,000. The $10,000 of revenue would thus amount to 67% of the
“gross income” of $15,000. And the clause does this
work in respect to omissions from gross income irrespective of our
interpretation regarding overstatements of basis.
The Government’s argument about subsection
(e)(2)’s use of the word “item” instead of
“amount” is yet weaker. The Court in
Colony
addressed a similar argument about the word “amount.”
It wrote:
“The Commissioner states that the
draftsman’s use of the word ‘amount’ (instead of,
for example, ‘item’) suggests a concentration on the
quantitative aspect of the error—that is whether or not gross
income was understated by as much as 25%.” 357 U. S., at
32.
But the Court, while recognizing the
Commissioner’s logic, rejected the argument (and the
significance of the word “amount”) as insufficient to
prove the Commissioner’s conclusion. And the addition of the
word “item” in a different subsection similarly fails
to exert an interpretive force sufficiently strong to affect our
conclusion. The word’s appearance in subsection (e)(2), we
concede, is new. But to rely in the case before us on this solitary
word change in a different subsection is like hoping that a new
batboy will change the outcome of the World Series.
IV
A
Finally, the Government points to Treasury
Regulation §301.6501(e)–1, which was promulgated in
final form in December 2010. See 26 CFR §301.6501(e)–1
(2011). The regulation, as relevant here, departs from
Colony and interprets the operative language of the statute
in the Government’s favor. The regulation says that “an
un- derstated amount of gross income resulting from an
overstatement of unrecovered cost or other basis constitutes an
omission from gross income.”
§301.6501(e)–1(a)(1)(iii). In the Government’s
view this new regulation in effect overturns
Colony’s
interpretation of this statute.
The Government points out that the Treasury
Regulation constitutes “an agency’s construction of a
statute which it administers.”
Chevron, U. S. A.
Inc. v.
Natural Resources Defense Council, Inc.,
467 U.S.
837, 842 (1984). See also
Mayo Foundation for Medical Ed.
and Research v.
United States, 562 U. S. ___ (2011)
(applying
Chevron in the tax context). The Court has written
that a “court’s prior judicial construction of a
statute trumps an agency construction otherwise entitled to
Chevron deference only if the prior court decision holds
that its construction follows from the
unambiguous terms of
the statute . . . .”
National Cable &
Telecommunications Assn. v.
Brand X Internet Services,
545 U.S.
967, 982 (2005) (emphasis added). And, as the Government notes,
in
Colony itself the Court wrote that “it cannot be
said that the language is unambiguous.” 357 U. S., at
33. Hence, the Government concludes,
Colony cannot govern
the outcome in this case. The question, rather, is whether the
agency’s construction is a “permissible construction of
the statute.”
Chevron,
supra, at 843. And,
since the Government argues that the regulation embodies a
reasonable, hence permissible, construction of the statute, the
Government believes it must win.
B
We do not accept this argument. In our view,
Colony has already interpreted the statute, and there is no
longer any different construction that is consistent with
Colony and available for adoption by the agency.
C
The fatal flaw in the Government’s
contrary argument is that it overlooks the
reason why
Brand X held that a “prior judicial
construction,” unless reflecting an “unambiguous”
statute, does not trump a different agency construction of that
statute. 545 U. S., at 982. The Court reveals that reason when
it points out that “it is for agencies, not courts, to fill
statutory gaps.”
Ibid. The fact that a statute is
unambiguous means that there is “no gap for the agency to
fill” and thus “no room for agency discre- tion.”
Id., at 982–983.
In so stating, the Court sought to encapsulate
what earlier opinions, including
Chevron, made clear. Those
opinions identify the underlying interpretive problem as that of
deciding whether, or when, a particular statute in effect delegates
to an agency the power to fill a gap, thereby implicitly taking
from a court the power to void a reasonable gap-filling
interpretation. Thus, in
Chevron the Court said that,
when
“Congress has explicitly left a gap
for the agency to fill, there is an express delegation of authority
to the agency to elucidate a specific provision of the statute by
regulation. . . . Sometimes the legislative
delegation to an agency on a particular question is implicit rather
than explicit. [But in either instance], a court may not substitute
its own construction of a statutory provision for a reasonable
interpretation made by the administrator of an agency.” 467
U. S., at 843–844.
See also
United States v.
Mead
Corp.,
533 U.S.
218, 229 (2001);
Smiley v.
Citibank (South Dakota),
N. A.,
517 U.S.
735, 741 (1996);
INS v.
Cardoza-Fonseca,
480 U.S.
421, 448 (1987);
Morton v.
Ruiz,
415 U.S.
199, 231 (1974).
Chevron and later cases find in
unambiguous language a clear sign that Congress did
not
delegate gap-filling authority to an agency; and they find in
ambiguous language at least a presumptive indication that Congress
did delegate that gap-filling authority. Thus, in
Chevron
the Court wrote that a statute’s silence or ambiguity as to a
particular issue means that Congress has not “directly
addressed the precise question at issue” (thus likely
delegating gap-filling power to the agency). 467 U. S., at
843. In
Mead the Court, describing
Chevron,
explained:
“Congress . . . may not
have expressly delegated authority or responsibility to implement a
particular provision or fill a particular gap. Yet it can still be
apparent from the agency’s generally conferred authority and
other statutory circumstances that Congress would expect the agency
to be able to speak with the force of law when it addresses
ambiguity in the statute or fills a space in the enacted law, even
one about which Congress did not actually have an intent as to a
particular result.” 533 U. S., at 229 (internal
quotation marks omitted).
Chevron added that “[i]f a court,
employing traditional tools of statutory construction,
ascertains that Congress had an intention on the precise question
at issue, that intention is the law and must be given
effect.” 467 U. S., at 843, n. 9 (emphasis
added).
As the Government points out, the Court in
Colony stated that the statutory language at issue is not
“unambiguous.” 357 U. S., at 33. But the Court
decided that case nearly 30 years before it decided
Chevron.
There is no reason to believe that the linguistic ambiguity noted
by
Colony reflects a post-
Chevron conclusion that
Congress had delegated gap-filling power to the agency. At the same
time, there is every reason to believe that the Court thought that
Congress had “directly spoken to the question at hand,”
and thus left “[no] gap for the agency to fill.”
Chevron,
supra, at 842–843.
For one thing, the Court said that the taxpayer
had the better side of the textual argument.
Colony, 357
U. S., at 33. For another, its examination of legislative
history led it to believe that Congress had decided the question
definitively, leaving no room for the agency to reach a contrary
result. It found in that history “persuasive
indications” that Congress intended overstatements of basis
to fall outside the statute’s scope, and it said that it was
satisfied that Congress “intended an exception
. . . only in the restricted type of situation” it
had already described.
Id., at 35–36. Further, it
thought that the Commissioner’s inter- pretation (the
interpretation once again advanced here) would “create a
patent incongruity in the tax law.”
Id., at
36–37. And it reached this conclusion despite the fact that,
in the years leading up to
Colony, the Commissioner had
consistently advocated the opposite in the circuit courts. See,
e.g., Uptegrove, 204 F.2d 570;
Reis, 142 F.2d
900;
Goodenow v.
Commisioner, 238 F.2d 20 (CA8 1956);
American Liberty Oil Co. v.
Commissioner, 1 T.C. 386
(1942). Cf.
Slaff v.
Commisioner, 220 F.2d 65 (CA9
1955);
Davis v.
Hightower, 230 F.2d 549 (CA5 1956).
Thus, the Court was aware it was rejecting the expert opinion of
the Commissioner of Internal Revenue. And finally, after completing
its analysis,
Colony found its interpretation of the 1939
Code “in harmony with the [now] unambiguous language”
of the 1954 Code, which at a minimum suggests that the Court saw
nothing in the 1954 Code as inconsistent with its conclusion. 357
U. S., at 37.
It may be that judges today would use other
methods to determine whether Congress left a gap to fill. But that
is beside the point. The question is whether the Court in
Colony concluded that the statute left such a gap. And, in
our view, the opinion (written by Justice Harlan for the Court)
makes clear that it did not.
Given principles of
stare decisis, we
must follow that interpretation. And there being no gap to fill,
the Government’s gap-filling regulation cannot change
Colony’s interpretation of the statute. We agree with
the taxpayer that overstatements of basis, and the resulting
understatement of gross income, do not trigger the extended
limitations period of §6501(e)(1)(A). The Court of Appeals
reached the same conclusion. See 634 F.3d 249 (CA4 2011). And its
judgment is affirmed.
It is so ordered.
APPENDIX
We reproduce the applicable sections of the
two relevant versions of the U. S. Code below. Section 6501
was amended and reorganized in 2010. See Hiring Incentives to
Restore Employment Act, §513, 124Stat. 111. But the parties
agree that the amendments do not affect this case. We therefore
have referred to, and reproduce here, the section as it appears in
the 2000 edition of the U. S. Code.
Title 26 U. S. C. §275 (1940
ed.)
“
Period of limitation upon assessment
and collection.
. . . . .
“(a) General rule.
“The amount of income taxes imposed by
this chapter shall be assessed within three years after the return
was filed, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of
such period.
. . . . .
“(c) Omission from gross
income.
“If the taxpayer omits from gross income
an amount properly includible therein which is in excess of 25 per
centum of the amount of gross income stated in the return, the tax
may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within 5
years after the return was filed.”
Title 26 U. S. C. §6501 (2000
ed.)
“Limitations on assessment and
collection.
“(a) General rule
“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. . . .
. . . . .
“(e) Substantial omission of
items
“Except as otherwise provided in
subsection (c)—
“(1) Income taxes
“In the case of any tax imposed by
subtitle A—
“(A) General rule
“If the taxpayer omits from gross income
an amount properly includible therein which is in excess of 25
percent of the amount of gross income stated in the return, the tax
may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within 6
years after the return was filed. For purposes of this
subparagraph—
“(i) In the case of a trade or business,
the term ‘gross income’ means the total of the amounts
received or accrued from the sale of goods or services (if such
amounts are required to be shown on the return) prior to diminution
by the cost of such sales or services; and
“(ii) In determining the amount omitted
from gross income, there shall not be taken into account any amount
which is omitted from gross income stated in the return if such
amount is disclosed in the return, or in a statement attached to
the return, in a manner adequate to apprise the Secretary of the
nature and amount of such item.
. . . . .
“(2) Estate and gift taxes
“In the case of a return of estate tax
under chapter 11 or a return of gift tax under chapter 12, if the
taxpayer omits from the gross estate or from the total amount of
the gifts made during the period for which the return was filed
items includible in such gross estate or such total gifts, as the
case may be, as exceed in amount 25 percent of the gross estate
stated in the return or the total amount of gifts stated in the
return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time
within 6 years after the return was
filed. . . .”