ON APPEAL FROM THE UNITED STATES TAX COURT Docket Entries Nos. 1700-78 and 1701-78. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY C.A. No. 80-00026.
Adams, Hunter and Becker, Circuit Judges. Hunter, Circuit Judge, dissenting.
These two appeals*fn1 concern the effect of filing nonfraudulent, amended income tax returns, subsequent to the filing of fraudulent original returns, on the statute of limitations provisions of 26 U.S.C. § 6501.*fn2
The facts in each proceeding are undisputed.*fn3 In the first case, Ernest Badaracco, Sr. and Ernest Badaracco, Jr. were equal partners in an electrical contracting business, Badaracco Brothers and Company. They filed individual and partnership returns for the years 1965 to 1969, which fraudulently understated their taxable income. After federal grand juries subpoenaed the partnership's books and records, the taxpayers, on August 17, 1971, filed amended returns for each of the years in question. Three months later, on November 17, 1971, the Badaraccos were indicted on fifteen counts under 26 U.S.C. § 7206(1) for filing false and fraudulent income tax returns for the years 1965 to 1969. They each entered a plea of guilty to the charge of filing a false and fraudulent partnership tax return for 1967, and the district court entered a judgment of conviction on June 6, 1973. United States v. Badaracco, (N.J. Crim. No. 766-71). The remaining counts of the indictment were dismissed. Four and one-half years after the conviction, the Commissioner of Internal Revenue issued deficiency notices for each of the five years in question. The Badaraccos asserted that the Commissioner's action was time-barred by 26 U.S.C. § 6501(a), because more than three years had passed since the filing of their non-fraudulent, amended returns. The Tax Court agreed, and the Commissioner appealed to this Court.
In the second case, Deleet Merchandising Corporation ("Deleet") filed timely corporate income tax returns for the years 1967 and 1968. Amended returns for these years were then filed on August 9, 1973. Following lengthy criminal and civil investigations, the Internal Revenue Service ("I.R.S.") issued a notice of deficiency to Deleet on December 14, 1979 for the years 1967 and 1968. The taxpayer paid the deficiencies and penalties assessed on or about December 27, 1979, and then filed a complaint in district court to recover those monies. On December 14, 1981, Deleet moved for summary judgment on the ground that even if the original returns had been fraudulent, the deficiencies and penalties could not be assessed more than three years after the filing of a non-fraudulent amended return. The district court, 535 F. Supp. 402, granted the motion and the Commissioner appealed.
To support their claims that the three year statute of limitations has run, the taxpayers rely principally on Dowell v. Commissioner, 614 F.2d 1263 (10th Cir. 1980), and the cases which have followed it. Britton v. U.S., 532 F. Supp. 275 (D. Vt. 1981), aff'd without opinion (2d Cir. April 15, 1982); Klemp v. Commissioner, 77 T.C. 201 (1981), on appeal (9th Cir. No. 81-7744); see also, Espinoza v. Commissioner, 78 T.C. 412 (1982); Kramer v. Commissioner, 1982 T.C. Memo 308, 44 T.C.M. (CCH) 42 (1982); Elliott Liroff v. Commissioner, 1982 T.C. Memo 308, 44 T.C.M. (CCH) 42 (1982); Deyel v. Commissioner, 1982 T.C. Memo 311, 44 T.C.M. (CCH) 45 (1982); Richard B. Liroff v. Commissioner, 1982 T.C. Memo 312, 44 T.C.M. (CCH) 47 (1982); Nesmith v. Commissioner, 1981 T.C. Memo 561, 42 T.C.M. (CCH) 1269 (1981); appeal docketed, No. 82-4162 (5th Cir. April 29, 1982) (all following Klemp). The Dowell court held that a fraudulent return was in effect no return at all, because the taxpayer had failed to evince "an honest and genuine effort to satisfy the law" within the meaning of Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 79 L. Ed. 264, 55 S. Ct. 127 (1934), and John D. Alkire Inv. Co. v. Nicholas, 114 F.2d 607 (10th Cir. 1940).*fn4 It then reasoned that the filing of a non-fraudulent, amended return subsequent to the filing of a false and fraudulent original return would have exactly the same effect as the filing of a late original return following the fraudulent failure to file any return at all. Because in Bennett v. Commissioner, 30 T.C. 114 (1958), acq. 1958-2, C.B. 3, the Tax Court had held that the late filing of a non-fraudulent return began the running of the general three year statute of limitations, the court in Dowell concluded that the filing of a non-fraudulent amended return after the filing of an original fraudulent return also started the running of the limitations period. We disagree.
Section 6501(c) (1) is clear on its face. It permits the Commissioner "in the case of a false or fraudulent return with the intent to evade tax" to assess the tax or proceed in court without an assessment " at any time." 26 U.S.C. § 6501(c) (1) (emphasis added). There is nothing in the statute, its legislative history, or the regulations to indicate that the subsequent filing of an amended return has any effect on this provision.*fn5
Original returns which are filed late, in contrast, are dealt with explicitly in section 6501(a):
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).
(Emphasis added.) There is no comparable language relating to fraudulent original returns, and we have no reason to believe that Congress acted inadvertently when it ...