LOCATION: Wolverine Tube, Inc.
DOCKET NO.: 306
DECIDED BY: Warren Court (1957-1958)
LOWER COURT: United States Court of Appeals for the Sixth Circuit
CITATION: 357 US 28 (1958)
ARGUED: Apr 03, 1958
DECIDED: Jun 09, 1958
Facts of the case
Media for The Colony, Inc. v. Commissioner
Audio Transcription for Oral Argument - April 03, 1958 in The Colony, Inc. v. Commissioner
Number 306, The Colony, Incorporated, Petitioner, versus Commissioner of Internal Revenue.
Mr. Doll, you may proceed.
A. Robert Doll:
Mr. Chief Justice, may it please the Court.
This is an income tax case rising under the Internal Revenue Code of 1939.
Specifically, the question in this case involves the statutory construction of Section 275 (c) of the 1939 Code.
Generally speaking, the Internal Revenue Service must assess tax deficiencies or taxes within three years after a tax return is filed.
There are certain exceptions including fraudulent returns and where no return is filed, where there's no statute.
There's the so-called five-year statute which is the one we're dealing with.
That section provides that if a taxpayer omits from gross income, amounts properly includable therein in excess of 25% of the gross income stated in the return then the Commissioner has five years instead of three to make the assessment.
The taxpayer's construction of that statute is that omits from gross income means leaving out items of receipt.
The Government on the other hand contends that where -- wherever a taxpayer's gross income is understated in a statutory amount regardless of the cause of the understatement, the five-year statute applies.
In terms of volume, I think perhaps the petitioner has a better side of the case.
This issue of course has been up in the lower courts and the Courts of Appeal for the Third, Fifth, Ninth and Eighth Circuits have construed the statute the way that the taxpayer here is contending.
On the other hand, the Tax Court and the Court of Appeals for the Sixth Circuit are construed as the respondent without having construed.
I think that the facts in this case point up the issue, the material facts and they are the -- this taxpayer was in the subdivision business subdividing the land.
He did not build but he subdivide it.
During the years in question, he reported all of his gross receipts from a sale of his lots but he over reported the cost of his lot sold.
He overstated them.
The principal item of overstatement was the cost of a water supply system which he had allocated certain amounts to that cost to each lot that was sold.
The Tax Court held on the merits that he'd overstated the cost and I might point out that they went at some length, I think, they had to distinguish a earlier decision of theirs to decide against the taxpayer on the merits.
As you can see --
Delivered -- delivered overstated (Inaudible)
A. Robert Doll:
It was not.
It was -- as I pointed out in my brief and the Government made reference to it, this was an innocent overstatement that had a reasonable basis.
Now, the Tax Court held as a -- has held in the past that in this case where the overstatement of the cost to good sold resulted in an understated gross income and -- that overstated offset item resulting in an understated gross income that there was no omission.
The Court of Appeals for the Sixth Circuit affirm citing an earlier decision of this it -- of its own.
I think, however, at least we feel that in its opinion, which is very short, the Sixth Circuit perhaps indicated that it had misgivings because it eluded favorably, we think, to the contrary decisions in the Courts of Appeal for the Third, Fifth, Ninth and Eighth Circuits.
The reasons why the petitioner thinks that it is right are as follows.
As I've said, our position is that omits from gross income means leaves out items of receipt.