Taylor v. United States
| Citation | 417 F.2d 991 |
| Decision Date | 19 November 1969 |
| Docket Number | No. 27874 Summary Calendar.,27874 Summary Calendar. |
| Parties | Walter D. TAYLOR and Carolyn H. Taylor, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Clinton N. Ashmore, U. S. Atty., Tallahassee, Fla., Johnnie M. Walters, Asst. Atty. Gen., William A. Friedlander, Lee A. Jackson, Michael B. Arkin, Attys., Tax Division, U. S. Dept. of Justice, Washington, D. C., for appellant.
Hugh F. Culverhouse, W. A. Gartner, Fred M. Cone, Jr., Culverhouse, Tomlinson, Taylor & DeCarion, Jacksonville, Fla., for appellees.
Before JOHN R. BROWN, Chief Judge, THORNBERRY and MORGAN, Circuit Judges.
This is an appeal from the judgment of the United States District Court for the Northern District of Florida.1 In a civil action for the refund of individual income taxes for the year 1961, the district court found that the three-year period of limitations was applicable, and entered judgment for the taxpayers. The United States appeals, arguing that the six-year period of limitations is applicable to this suit.
Taxpayers filed a timely personal joint federal income tax return for the year 1961 disclosing gross income in the amount of $5,093.36. That return disclosed income derived solely from wages for teaching services performed by taxpayers. Carolyn Taylor, one of the taxpayers, owned twenty-five per cent of the capital stock of J. O. Huxford Estate, Inc., a closely held corporation. The corporate fiscal year ended the last day of February each year. On March 1, 1961, the corporation became an electing small business corporation under Subchapter "S" of the Internal Revenue Code of 1954. During the fiscal year ended February 28, 1962, the corporation derived income in the amount of $100,000, and that income was reported by the corporation on its Subchapter "S" information return for the fiscal year ending February 28, 1962. Distributions totalling $18,000 were made to Carolyn Taylor by the corporation in March and September of 1961. Because of the taxpayers' mistaken belief that the distributions were not reportable as gross income in 1961 on their joint personal federal income tax return, there was no reference to the 1961 distributions contained thereon. There was no reference made to the Subchapter "S" corporation in taxpayers' individual return, nor on any schedule contained therein.
On December 8, 1966, the Internal Revenue Service issued a statutory notice of deficiency of income taxes for the year 1961 based on its determination that the distribution to Carolyn Taylor in 1961 constituted additional unreported income. Thereafter, the tax deficiency was formally assessed on March 31, 1967, more than three years, but less than six years, after the taxpayer's 1961 federal income tax return was filed.
The issue presented is whether the period of limitations within which the Government may assess a tax deficiency was extended from three to six years because of taxpayers' failure to report or adequately disclose an item of gross income, admittedly taxable in 1961, on their federal income tax return for the year 1961.
As a general rule, subject to specific statutory exceptions, the period of limitations within which the Government may assess a tax deficiency is three years. Section 6501(a), Internal Revenue Code of 1954. One such exception to this general rule is section 6501(e) (1) (A), which provides an extension to six years for the period within which a tax deficiency may be assessed if the taxpayer has omitted an amount from gross income that exceeds twenty-five per cent of the gross income stated in his return. The taxpayers argue that the six-year statute of limitations is inapplicable, relying on section 6501(e) (1) (A) (ii), which states:
In determining the amount omitted from gross income, there shall not be taken into account any amount which is omitted from gross income stated in the return if such amount is disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary or his delegate of...
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