United States v. Home Concrete & Supply, LLC

• Decision Date: 25 April 2012
• Docket Number: No. 11–139.,11–139.
• Citation: 182 L.Ed.2d 746,132 S.Ct. 1836,566 U.S. 478
• Parties: UNITED STATES, Petitioner v. HOME CONCRETE & SUPPLY, LLC, et al.
• Court: U.S. Supreme Court

566 U.S. 478

132 S.Ct. 1836

182 L.Ed.2d 746

UNITED STATES, Petitioner

v.HOME CONCRETE & SUPPLY, LLC, et al.

No. 11–139.

Supreme Court of the United States

Argued Jan. 17, 2012.

Decided April 25, 2012.

Malcolm L. Stewart, Washington, DC, for Petitioner.

Gregory G. Garre, Washington, DC, for Respondent.

Richard T. Rice, Counsel of Record, C. Mark Wiley, Michael R. Cashin, Robert T. Numbers II, Womble Carlyle, Sandridge & Rice LLP, Winston–Salem, NC, Gregory G. Garre, J. Scott Ballenger, Lori Alvino McGill, Latham & Watkins LLP, Washington, DC, Roger J. Jones, Andrew R. Roberson, Latham & Watkins LLP, Chicago, IL, for Respondents.

Donald B. Verrilli, Jr., Solicitor General, Counsel of Record, Tamara W. Ashford, Deputy Assistant Attorney General, Malcolm L. Stewart, Deputy Solicitor General, Jeffrey B. Wall, Assistant to the Solicitor General, Gilbert S. Rothenberg, Michael J. Haungs, Joan I. Oppenheimer, Attorneys, Department of Justice, Washington, DC, for the United States.

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, 78 S.Ct. 1033, 2 L.Ed.2d 1119 (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 Internal 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, 78 S.Ct. 1033.

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 centum of the amount of gross income stated in the return...." 26 U.S.C. § 275(c) (1940 ed.). The Code provision applicable 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, 78 S.Ct. 1033. 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 property) 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, 78 S.Ct. 1033. 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 "understates") 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, 78 S.Ct. 1033. 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, 78 S.Ct. 1033.

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, 78 S.Ct. 1033.

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 harmony with the unambiguous language of § 6501(e)(1)(A)," id., at 37, 78 S.Ct. 1033,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, 128 S.Ct. 750, 169 L.Ed.2d 591 (2008) ("[S]tare decisis in respect to statutory 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, 109 S.Ct. 2363, 105 L.Ed.2d 132 (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" covers more than omission of individual items—indeed that it includes overstatements of basis, which, after all, diminish the amount of the profit that should have been reported as gross income?

In our view, these points are too fragile to bear the significant 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 (C.A.3 1953). But see Reis v. Commissioner, 142 F.2d 900, 902–903...