Dowell v. C. I. R., 78-1341

• Decision Date: 11 February 1980
• Docket Number: No. 78-1341,78-1341
• Citation: 614 F.2d 1263
• Parties: 80-1 USTC P 9216 Alfonzo L. DOWELL and Vivian T. Dowell, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1263

614 F.2d 1263

80-1 USTC P 9216

Alfonzo L. DOWELL and Vivian T. Dowell, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 78-1341.

United States Court of Appeals, Tenth Circuit.

Argued Nov. 26, 1979.

Decided Feb. 11, 1980.

Stephen Jones of Jones & Gungoll, Enid, Okl. (Julius M. Greisman and Nancy S. Abramowitz of Arnold & Porter, Washington, D. C., with him on the briefs), for appellants.

Richard Farber, Dept. of Justice, Washington, D. C. (M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews and Daniel F. Ross, Attys., Tax Division, Dept. of Justice, Washington, D. C., with him on the brief), for appellee.

Before SETH, Chief Judge, HOLLOWAY, Circuit Judge, and BROWN, District Judge ^*.

SETH, Chief Judge.

This is an appeal from a ruling of the United States Tax Court against appellants. Dowell v. Commissioner, 68 T.C. 646. The facts are undisputed. Taxpayers filed fraudulent income tax returns for calendar years 1963, 1964, 1965, and 1966. On September 13, 1968, taxpayers filed nonfraudulent amended returns for 1965 and 1966, and on November 25, 1968 they filed nonfraudulent amended returns for 1963 and 1964.

The Government used the amended returns in its fraud investigation, and also used them to convict taxpayers of willfully filing fraudulent returns for 1963-1966. United States v. Dowell, 446 F.2d 145 (10th Cir.).

The Government apparently also used the amended returns to determine additional taxes due for all four years plus penalties and interest. Taxpayers received a notice of deficiency issued December 11, 1974, and filed a petition in the Tax Court which sought a refund and a bar against further assessments.

The taxpayers' position is that the nonfraudulent amended returns satisfied the requirements of 26 U.S.C. § 6501(a), and accordingly started the three-year period of limitation. Thus they assert that the Government failed to assess within the three-year period. The Tax Court held in substance that there was no limitation period for assessment of the 1963-1966 taxes because the original returns were fraudulent, and the matter was governed only by § 6501(c)(1) which entitled the Government to assess tax "at any time." Thus it held that the taxpayers could not start the period provided in § 6501(a). For the reasons that follow we must disagree with the ruling of the Tax Court.

The general statute of limitations, 26 U.S.C. § 6501(a), provides "any tax imposed by this title shall be assessed within 3 years after the return was filed." However, it is often difficult to determine whether certain filings are "returns." The Supreme Court in Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 55 S.Ct. 127, 79 L.Ed. 264 held:

"Perfect accuracy or completeness is not necessary to rescue a return from nullity, if it purports to be a return, is sworn to as such . . . , and evinces an honest and genuine endeavor to satisfy the law. This is so though at the time of filing the omissions or inaccuracies are such as to make amendment necessary."

Thus once the taxpayer has evinced an honest and genuine effort to satisfy the law by filing such a return, the § 6501(a) period begins to run.

In John D. Alkire Inv. Co. v. Nicholas, 114 F.2d 607 (10th Cir.), this court held that a subsequent corrective filing to a deficient return started the three-year limitations period. Taxpayer had filed returns from 1926 to 1935 that "not only failed to disclose requisite information but were misleading and calculated to prevent discovery of material facts." In late 1936, taxpayer filed amended returns for each year in question. These contained the required information, and we held they started the limitations period. There was no holding of fraud in Alkire but the original returns were totally deficient and misleading.

In Bennett v. Commissioner, 30 T.C. 114, acq. 1958-2 C.B. 3, taxpayer originally failed to file any return. The Tax Court found as fact the "failure to file was deliberate and fraudulent with intent to evade tax." Taxpayer eventually filed a return which satisfied the requirements of the three-year statute of limitations. The Tax Court held the subsequent filing of an honest return triggered the three-year limitations period notwithstanding the previous applicability of § 6501(c)(3). The court reasoned:

"For, once a nonfraudulent return is filed, putting the Commissioner on notice of a taxpayer's receipts and deductions, there can be no policy in favor of permitting assessment thereafter at any time without limitation. We think that the statute of limitations begins to run with the filing of such returns."

This reasoning is equally compelling in this case. Furthermore, the Internal Revenue Service adopted the Bennett holding in Rev.Rul. 79-178, 1979-23 I.R.B. 16. The Tax Court did not here follow its Bennett opinion because it reasoned the Bennett court applied the three-year limitation to "an original, although delinquent return," and therefore "(t)his is different from petitioners' situation." The distinction thus was made between a fraudulent failure to file and a fraudulent return.

The question would seem to be whether taxpayers have filed a return that meets the requirements of § 6501(a) and Zellerbach, not whether the return was "original" or "amended." The fraudulent returns filed in the first instance here were really not "returns" within the meaning of § 6501(a) or Zellerbach. They started no statute of limitations; they simply entitled the Government to make its assessment "at any time" as provided in § 6501(c)(1). This "at any time" does not mean regardless of what may take place. It is not, as the Government argues, some sort of period of limitation or "statute of limitations." We are thus not concerned with an act which stops the running of a period of limitations. We are concerned instead with something which starts the period. Section 6501(c) represents the antithesis of a limitations concept, and in the absence of anything else the commencement of any period of repose for fraudulent or evasive "returns" is put in limbo.

The purpose of § 6501(c) is to provide the Government time to unearth information the taxpayer did not furnish and to file an assessment. Once the Government has the information from a Zellerbach filing or as in Alkire or as said in Bennett, "there can be no policy in favor of permitting assessment thereafter at any time without limitation." Thus the Government's reliance on cases such as Kaltreider Construction, Inc. v. United States, 303 F.2d 366 (3d Cir.), and Houston v. Commissioner, 38 T.C. 486, is misplaced.

The original returns in the case before us are in many respects comparable to those in John D. Alkire Inv. Co. v. Nicholas, 114 F.2d 607 (10th Cir.). In the cited case there was found to be no fraud, but we said, as mentioned above:

"The returns not only failed to disclose requisite information but were misleading and calculated to prevent discovery of material facts. Returns of that kind are not effective to start the period of limitation running."

The amended returns were held to be sufficient to start the period of limitations. We consider that the Alkire decision is not necessarily controlling, but is sufficiently similar to indicate the conclusion to be reached...