293 U.S. 172 (1934), Zellerbach Paper Co. v. Helvering

Citation:293 U.S. 172, 55 S.Ct. 127, 79 L.Ed. 264
Party Name:Zellerbach Paper Co. v. Helvering
Case Date:November 05, 1934
Court:United States Supreme Court

Page 172

293 U.S. 172 (1934)

55 S.Ct. 127, 79 L.Ed. 264

Zellerbach Paper Co.



United States Supreme Court

Nov. 5, 1934




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

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assessment was limited by § 250(d) to four years from the filing of such return. P. 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. 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. 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.

CARDOZO, J., lead opinion

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,

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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, 19221 ), 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.

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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 [55 S.Ct. 129] 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

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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.2 But the Act of 1921 was retroactive

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(§§ 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 [55 S.Ct. 130] information would be necessary to enable him to act...

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