Bufferd v. Commissioner of Internal Revenue

RESPONDENT: Commissioner of Internal Revenue
LOCATION: City of Minneapolis

DOCKET NO.: 91-7804
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 506 US 523 (1993)
ARGUED: Nov 30, 1992
DECIDED: Jan 25, 1993

Kent L. Jones - on behalf of the Respondent
Stuart Jay Filler - on behalf of the Petitioner

Facts of the case


Media for Bufferd v. Commissioner of Internal Revenue

Audio Transcription for Oral Argument - November 30, 1992 in Bufferd v. Commissioner of Internal Revenue

William H. Rehnquist:

We'll hear argument next in number 91-7804, Sheldon Bufferd v. the Commissioner of Internal Revenue.

Mr. Filler, you may proceed whenever you're ready.

Stuart Jay Filler:

Mr. Chief Justice, and may it please the Court:

This is a statute of limitations case.

Petitioner recognizes that this Court in the Badaracco case decided that a statute of limitations should be strictly construed in favor of the Government.

In this case, however, this Court must add phrases to an otherwise clear and unambiguous set of statutory provisions in order to affirm the opinion of the Second Circuit below.

Petitioner believes that this Court did not intend in their prescription in Badaracco to mean that every time there is a statute of limitation issue, the Government wins.

The question presented is whether the three sections of the Internal Revenue Code provide a statute of limitations which bars adjustments to a shareholder's income tax return with respect to items appearing on an S corporation's income tax return.

The three provisions are section 6501(a), section 6037, and section 6012 of the Internal Revenue Code of 1954, as amended and in effect for 1979, the taxable year at issue in this case.

All three provisions are on page 1 and 2 of petitioner's brief on the merits, if the Court wishes to refer to them.

It is important to note that Congress in 1958 created an entirely new entity for Federal tax purposes.

This entity was separate and distinct from its shareholders.

The IRS, not Congress, created a form 1120S which is separate and distinct from the form 1040 filed by the shareholders.

Congress... the IRS, not Congress, also created a form K-1 and required the corporation to provide the shareholders annually with a form K-1 which reported the bottom line results of the S corporation for the taxable year, and the shareholder was required to attach this form K-1 to the shareholder's form 1040 and report on the shareholder's return the bottom line results of the S corporation for the taxable year.

While examining the shareholder's return, an IRS employee must retrieve the form 1120S, must examine the form 1120S, and must adjust the form 1120S.

Pursuant to section 6501(a) of the code, these adjustments must be made within the 3-year period of limitations.

Only then can the IRS adjust the return of the shareholder with respect to the items appearing on the S corporation return.

If additional time is required for an adjustment to be made, the IRS employee may obtain an extension of the period of limitations for either the S corporation return, the shareholder's return, or both returns.

In fact, that is exactly what the Internal Revenue Service did in the case at bar in 1980, the taxable year following the year in dispute in this case, and the 1980 taxable year is not before this Court.

Antonin Scalia:

Mr. Filler, can I ask you a question?

What if this were a subchapter C corporation?

What is the normal treatment of... I report something on my personal income tax return which turns out to be wrong because the subchapter C corporation gave me information, which it also reported on its return, that turns out to be wrong?

Stuart Jay Filler:


Antonin Scalia:

Now, what if it's more than 3 years ago that the subchapter C corporation did that?

Stuart Jay Filler:

I think the Government would not dispute, frankly, Your Honor, that if this were a C corporation and an adjustment of the C corporation were necessary in order to adjust a shareholder's return... and I provided such an example in my brief with respect to a dividend, okay?

If it was necessary to adjust a C corporation's return, that they would not and could not adjust a C corporation's shareholder's return with respect to the item after the C corporation's period of limitations has expired.

William H. Rehnquist:

Well, you cited--

--Why is that?

Stuart Jay Filler:

Why is that?

Because section 6012(a)(2) of the code provides that a C corporation, or a corporation subject to taxation... and by the way, provided that much prior to 1958, when the S corporation was created and carved out--