506 U.S. 523 (1993), 91-7804, Bufferd v. Commissioner of Internal Revenue
|Docket Nº:||No. 91-7804|
|Citation:||506 U.S. 523, 113 S.Ct. 927, 122 L.Ed.2d 306, 61 U.S.L.W. 4144|
|Party Name:||Bufferd v. Commissioner of Internal Revenue|
|Case Date:||January 25, 1993|
|Court:||United States Supreme Court|
Argued Nov. 30, 1992
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Subchapter S of the Internal Revenue Code seeks to eliminate tax disadvantages [113 S.Ct. 928] that might dissuade small businesses from adopting the corporate form and to lessen the tax burden on such businesses by means of a pass-through system under which corporate income, losses, deductions, and credits are attributed to individual shareholders in a manner akin to the tax treatment of partnerships. Petitioner Bufferd, a shareholder in an S corporation, Compo Financial Services, Inc., claimed on his 1979 income tax return a pro rata share of a loss deduction and investment tax credit reported by Compo on its return for the 1978-1979 tax year. Code § 6501(a) establishes a generally applicable statute of limitations allowing the Internal Revenue Service to assess tax deficiencies "within 3 years after the return was filed." (Emphasis added.) As provided in § 6501(c)(4), Bufferd extended the limitations period on his return, but no extension was obtained from Compo with respect to its return. In 1987, the Commissioner determined that the loss deduction and credit reported by Compo were erroneous, and sent a notice of deficiency to Bufferd based on the deduction and credit he had claimed on his return. The Tax Court found for the Commissioner, rejecting Bufferd's argument that the claim was time-barred because the disallowance was based on an error in Compo's return, for which the 3-year period had lapsed. The Court of Appeals affirmed, holding that, where a tax deficiency is assessed against a shareholder, the filing date of the shareholder's return is the relevant date for purposes of § 6501(a).
Held: The limitations period for assessing the income tax liability of an S corporation shareholder runs from the date on which the shareholder's return is filed. Plainly, "the" return referred to in § 6501(a) is the return of the taxpayer against whom a deficiency is assessed, since the Commissioner can only determine whether the taxpayer understated his tax obligation and should be assessed a deficiency after examining his return. That Compo erroneously asserted a loss and credit to be passed through to its shareholders is of no consequence. The errors did not and could not affect Compo's tax liability, and hence the Commissioner could only assess a deficiency against the shareholder whose return claimed the benefit of the errors. By contrast, the S corporation's
return does not contain all of the information necessary to compute a shareholder's taxes, and thus should not be regarded as triggering the period of assessment. Cf. Automobile Club of Michigan v. Commissioner, 353 U.S. 180, 188. The statutory evidence and policy considerations proffered by Bufferd offer no basis for questioning this conclusion. Pp. 526-533.
952 F.2d 675 (CA 2 1992), affirmed.
WHITE, J., delivered the opinion for a unanimous Court.
WHITE, J., lead opinion
JUSTICE WHITE delivered the opinion of the Court.
On his 1979 income tax return, petitioner, a shareholder in a Subchapter S corporation, claimed as "pass-through" items portions of a deduction and a tax credit reported on the corporation's return. The question presented is whether the 3-year period in which the Internal Revenue Service is permitted to assess petitioner's tax liability runs from the filing date of the individual return or the corporate return. We conclude with the Tax Court and the Second Circuit Court of Appeals that the relevant date is that on which petitioner's return was filed.
Subchapter S of the Internal Revenue Code, 26 U.S.C. §§ 1361-1379, was enacted in 1958 to eliminate tax disadvantages that might dissuade small businesses from adopting
the corporate form and to lessen the tax burden on such businesses. The statute accomplishes these goals by means of [113 S.Ct. 929] a pass-through system under which corporate income, losses, deductions, and credits are attributed to individual shareholders in a manner akin to the tax treatment of partnerships. See §§ 1366-1368. In addition, since 1966, "S corporations" have been liable for certain capital gains and other taxes. 80 Stat. 111, 113; 26 U.S.C. §§ 1374, 1378.
Petitioner was treasurer and a shareholder of Compo Financial Services, Inc., an S corporation. On February 1, 1980, Compo filed a return for the tax year of December 26, 1978, to November 30, 1979, as required by § 6037(a) of the Code. On that return, Compo reported a loss deduction and an investment tax credit arising from its partnership interest in a venture known as Printers Associates. Petitioner and his wife filed a joint return for 1979 on April 15, 1980. Their return claimed a pro rata share of the deduction and credit reported by Compo pursuant to the pass-through provisions of Subchapter S.
Code § 6501(a) establishes a generally applicable statute of limitations providing that the Internal Revenue Service may assess tax deficiencies within a 3-year period from the date
a return is filed. That limitations period may be extended by written agreement. § 6501(c)(4). In March, 1983, before three years had passed from the time the joint return was filed, petitioner agreed to extend the period in which deficiencies arising from certain claims on the return could be assessed against him. No extension was obtained from Compo with respect to its return for the 1978-1979 tax year.
In 1987, the Commissioner determined that the loss deduction and credit reported by Compo were erroneous, and sent a notice of deficiency to petitioner based on the loss deduction and credit that he had claimed on his return. In the Tax Court, petitioner contended that the Commissioner's claim was...
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