Riley Inv Co v. Commissioner of Internal Revenue

• Decision Date: 12 November 1940
• Docket Number: No. 50,50
• Parties: J. E. RILEY INV. CO. v. COMMISSIONER OF INTERNAL REVENUE
• Court: U.S. Supreme Court

311 U.S. 55

61 S.Ct. 95

85 L.Ed. 36

J. E. RILEY INV. CO.

v COMMISSIONER OF INTERNAL REVENUE.

No. 50.

Argued Oct. 25, 1940.

Decided Nov. 12, 1940.

Messrs. Robert Ash and William J. Sebald, both of Washington, D.C., for petitioner.

Mr. Richard H. Demuth, of Washington, D.C., for respondent.

Mr. Justice DOUGLAS delivered the opinion of the Court.

This case is here on certiorari to resolve the conflict of the decision below (9 Cir., 110 F.2d 655) with C. H. Mead Coal Co. v. Commissioner, 4 Cir., 106 F.2d 388.

Petitioner is engaged in the business of mining gold at Flat, Alaska. The winter mail service to and from that remote place was so uncertain and slow that, in order to avoid delinquency in income tax returns, petitioner's officers were accustomed to use the forms for an earlier year. Consequently petitioner's original return for the calendar year 1934 was filed on a 1933 form which had been mailed to petitioner by the Collector at Tacoma, Washington, This return was executed on January 2, 1935, and reached Tacoma on January 29, 1935. When it was executed petitioner did not know of the provision¹ in the Revenue Act of 1934, 48 Stat. 680, allowing percentage depletion. But petitioner did know that unless the law had been changed it was not entitled to depletion, as it had no basis for cost depletion. The Collector in sending the 1933 forms had not advised petitioner with respect to percentage depletion. And it was found that if petitioner had known of the statutory provision for percentage depletion, it would have elected to take advantage of it. Petitioner first actually learned of the provision in August, 1935. On March 3, 1936, petitioner filed an amended return for 1934 upon which a deduction of percentage depletion was taken; and it asked for a refund. The Board of Tax Appeals, 39 B.T.A. 1243, upheld the Commissioner's ruling denying percentage depletion and the Circuit Court of Appeals affirmed.

Sec. 114(b)(4) of the 1934 Act required the taxpayer to elect in his 'first return' whether the depletion allowance was to be computed with or without regard to percentage depletion. The method so elected is applicable not only to the year in question but to all subsequent taxable years.

We think that petitioner's amended return, filed on March 3, 1936, was not a 'first return' within the meaning of § 114(b)(4). By § 53(a)(1) of the 1934 Act, 26 U.S.C.A. Int.Rev.Code, § 53(a)(1), the return was due on or before March 15, 1935. By § 53(a)(2) the Commissioner was empowered to grant a reasonable extension for filing returns² but, so far as applicable here, not exceeding six months. Haggar Co. v. Helvering, 308 U.S. 389, 60 S.Ct. 337, 84 L.Ed. 340, would compel the conclusion that had the amended return been filed within the period allowed for filing the original return, it would have been a 'first return' within the meaning of § 114(b)(4). But we can find no statutory support for the view that an amendment making the election provided for in that section may be filed as of right after the expiration of the statutory period for filing the original return.

We are not dealing with an amendment designed merely to correct errors and miscalculations in the original return. Admittedly the Treasury has been liberal in accepting such amended returns even though filed after the period for filing original returns.³ This, however, is not a case where a taxpayer is merely demanding a correct computation of his tax for a prior year based on facts as they existed. Petitioner is seeking by this amendment not only to change the basis upon which its taxable income was computed for 1934 but to adopt a new method of computation for all subsequent years. That opportunity was afforded as a matter of legislative grace; the election had to be made in the manner and in the time prescribed by Congress. The offer was liberal. But the method of its acceptance was restricted. The offer permitted an election only in an original return or in a timely amendment. An amendment for the purposes of § 114(b)(4) would be timely only if filed within the period provided by the statute for filing the original return. No other time limitation would have statutory sanction. To extend the time beyond the limits prescribed in the Act is a legislative not a judicial function.

Strong practical considerations support this position.

If petitioner's view were adopted, taxpayers with the benefits of hindsight could shift from one basis of depletion to another in light of developments subsequent to their original choice. It seems clear that...