Respondent, in a notice of deficiency dated February 12, 1985, determined deficiencies in petitioner's income tax and additions to tax as follows:
Additions to taxTaxable Income year tax Sec. 6651(a)(1) 1Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6654(a) 1979 $11,759.60 $2,349.79 $587.98 N/A $366.97 1980 8,900.53 1,439.20 445.03 N/A 317.31 1981 22,639.10 5,659.78 1,131.96 ** 1,738.85 1982 47,150.43 11,787.61 2,357.52 *** 4,589.98 _________ _________ ________ ________ Totals 90,449.66 21,236.38 4,522.49 7,013.11 N/A — Not applicable ** 50 percent interest due on $22,639.10 *** 50 percent interest due on $47,150.43
The parties have settled all issues but one. The sole issue remaining for our consideration is whether petitioner is entitled to use "married filing jointly" rates for the taxable years in question. More specifically, we must consider the interrelationship of respondent's ability to "execute a return" under section 6020(b) and petitioner's election to file a joint return after the filing of a separate return under section 6013(b). In this connection, we must also consider the effect of respondent's execution of a return under section 6020(b) upon a taxpayer's right to deficiency procedures with respect to income tax issues.
FINDINGS OF FACT
This case was submitted fully stipulated
Petitioner resided in Scottsdale, Arizona, at the time his petition herein was filed. For the taxable years 1979, 1980, 1981, and 1982, petitioner failed to file timely Federal income tax returns. During each taxable year in issue, petitioner was married to Carol Millsap, who did not file separate returns and with whom petitioner could have filed a joint Federal income tax return.
Respondent's revenue agent conducted an examination of
On February 12, 1985, respondent mailed a notice of deficiency to petitioner. The deficiencies were determined using the tax rates for married taxpayers filing separately. Petitioner, on May 13, 1985, caused a petition to be filed with this Court. During January 1986, petitioner and his wife filed Federal income tax returns (Forms 1040), for the years in question, electing joint filing status on each return. Petitioner does not now dispute the amount of income determined by respondent. Petitioner and respondent disagreed about deduction items. The parties have settled all questions concerning deductions and other items other than
We focus here upon whether the "substitute" returns "filed" by respondent, under circumstances where petitioner and his wife had not timely filed returns, constitute a "separate return[s]" for purposes of section 6013(b).
Section 6013(a) enables "a husband and wife [to] make a single return jointly of income taxes * * * even though one of the spouses has neither gross income nor deductions." In the circumstances of this case, the computation of the tax based upon the joint tax rates, rather than separate rates, would result in a reduced tax liability for petitioner. Section 6013(b)(1) permits the election of a joint return, after a separate return has been filed, under specified circumstances. Section 6013(b)(2)(C) would preclude the filing of a joint return after a separate return had been filed if respondent had mailed a notice of deficiency to either spouse and a petition, concerning said notice, is filed with this Court. Jacobson v. Commissioner, 73 T.C. 610, 614 (1979).
In a recent opinion we addressed a situation, similar to the one in the present case, where respondent attempted to "file" a substitute return under section 6020(b) (before the taxpayer attempted to untimely file), thus precluding the taxpayer from using joint rates. In that case, we held that the "returns" filed by respondent were "dummy" returns and not "substitute" returns within the meaning of section 6020(b), and thus did not preclude that taxpayer from utilizing joint return rates with respect to the tax liability under consideration. Phillips v. Commissioner, 86 T.C. 433, 437-438 (1986), affd. in part, revd. in part 851 F.2d 1492 (D.C. Cir. 1988) (Phillips).
The returns utilized by respondent in this case are not "dummy" returns as found in Phillips, but constitute "substitute" returns within the meaning of section 6020(b). Here, unlike Phillips, respondent attached sufficient information to the Forms 1040 to compute the tax liability. Furthermore, the attached report was subscribed. The Forms 1040 in conjunction with the revenue agent's report
In the present case, we are squarely confronted with the issue of whether a section 6020(b) "substitute" return is a "return" within the context and meaning of section 6013(b). More specifically, we must consider whether the language of section 6020(b) would permit the respondent to preempt deficiency procedures for issues concerning a taxpayer's filing status.
In their current form, the basic deficiency procedures are contained in sections 6211 through 6215. Respondent is not entitled, with few exceptions,
Our first consideration of this statutory interrelationship was in Goldberg v. Commissioner, 14 B.T.A. 465, 467 (1928) (Court-reviewed). In that case, the taxpayers had failed to file their 1923 and 1924 income tax returns and the Commissioner, pursuant to the authority in Revised Statute 3176, "filed" returns for the taxpayers showing their filing status as joint.
A dissenting opinion expressed disagreement with the holding, as follows:
I am of the opinion that section 3176 [of the Revised Statutes] has no application whatever to the matter of an election as to how a conjugal couple shall make their income-tax return. It only provides that, in the event no return be filed by the taxpayer, the Commissioner may, with such information as he may be able to obtain, make and subscribe a return for and on account of the taxpayer, and that such return so made shall be prima facie good for all legal purposes.
In the absence of a protest sustained, that return in law is sufficient to base an assessment upon, and enforce collection. But in the event of a protest on the part of the taxpayer, I know of no decision of any court or of this Board, prior to the one now being considered, that can be construed to hold that the return made by the Commissioner is binding on the taxpayer on any phase of such return.
[Goldberg v. Commissioner, 14 B.T.A. at 468. Emphasis supplied.]
The dissent continued with a discussion of the basis for holding taxpayers to their initial election.
About 9 years later, in Taylor v. Commissioner, 36 B.T.A. 427, 429 (1937), (Taylor) (involving the Commissioner's motion to dismiss for lack of jurisdiction) the Board of Tax Appeals did not permit the Commissioner to preclude or preempt deficiency procedures based upon a substitute return. In that case, the taxpayer failed to file a 1917 income tax return, and during 1935, the Commissioner "prepared and filed such return for [the taxpayer], pursuant to section 3176 of the Revised Statutes as amended." The Commissioner "reported" over $10,000 in tax and over $5,000 in an addition to tax for 1917. Three days later, the
In the ordinary case where a return is filed by the taxpayer, the amount of tax shown thereon is admitted to be due, and in such case a deficiency is the amount of tax determined by respondent to be due in excess of that shown on the taxpayer's return. But where a taxpayer shows an amount of tax on his return but does not admit that such amount is due and collectible, the amount admitted to be due and not the amount shown on the return is the starting point in computing a deficiency. [Taylor v. Commissioner at 429.]
Our holding in Taylor that we possessed jurisdiction to the extent that a taxpayer disagreed with the return as filed by respondent in a deficiency setting, is, we believe, the correct and intended congressional interpretation. To hold otherwise would both ignore and obviate the deficiency procedures upon which our jurisdiction is based. It would be no less anomalous to permit the Commissioner to "elect" filing status or resolve other differences which the taxpayer disputes under section 6020(b) in a situation where a taxpayer properly contests respondent's determination and opts to petition this Court. Although we have not varied from the specific holding of Taylor as it relates to the income and deduction items, we have failed to afford taxpayers the same rights as they relate to filing status. This issue has not been formally
The Tax Court clearly recognized the present problem when it commented in its decision as follows:
Where a tax return is not timely filed by a taxpayer, and the Commissioner is required to make the joint or separate return election for the taxpayer in a notice of deficiency, that election may not thereafter be altered if the taxpayer files a petition with respect to the notice of deficiency with this Court. As stated previously by this Court —
the administrative considerations which accompany a system such as ours, where taxation is based upon voluntary disclosure, demand that where, "as a result of a failure to file a return, the Commissioner has been required to make an election for the taxpayers * * * that election may not thereafter be altered." (emphasis added.)
[Smalldridge v. Commissioner, supra at 128. 48 T.C.M. 882, 883. Fn. ref. omitted.]
The plain language of section 6013(b) references a return filed by an "individual." It is implicit in this language that taxpayers have the initial right to elect their filing status and that right concerns a part of a deficiency that is no less significant than the amount of the income and deductions determined in arriving at an income tax deficiency.
We consider here the confluence of three statutory provisions enacted at different times for different purposes which: (1) Are not inherently ambiguous; (2) do not literally conflict with each other; but may (3) produce anomalous or unintended results in their application. Secs. 6013, 6020, and 6213. Further, the legislative history underlying these statutory provisions does not resolve the conflict or circuity.
To treat the issue of a taxpayer's filing status any differently than the issues involving deductions or income items would be arbitrary and without reason. A taxpayer is no less entitled to question respondent's determination of filing status than he is any other determination. We have already recognized and accepted that respondent may not obviate or circumvent the deficiency procedures and/or this Court's jurisdiction by means of section 3176 of the Revised Statutes (now section 6020) (Taylor v. Commissioner, supra), and we resolve this statutory conflict similarly. Our approach leaves section 6020 intact for situations where deficiency procedures are not available or have been foregone. It also advances a rational meaning for the word "individual" in section 6013(b), while providing appropriate preassessment Court review of all issues generated by respondent's determination in this and other cases.
In view of the foregoing, we hold that in situations where deficiency procedures are availed of and a taxpayer has not filed a return, the taxpayer may file a return and contest respondent's filing status determination, even though respondent has "filed" a substitute return under section 6020(b), in which filing status has been "elected" by respondent. To hold otherwise would be to cede jurisdiction as to the determination of filing status in all cases where no return has been filed to respondent for his absolute and final determination. Accordingly, we overrule the holding in Goldberg v. Commissioner, 14 B.T.A. 465, 467 (1928), and its progeny and decline to follow the 10th Circuit Court of Appeals' holding in Smalldridge v. Commissioner, 804 F.2d 125, 127-128 (10th Cir. 1986), affg. T.C. Memo. 1984-434.
To reflect the foregoing,
Decision will be entered under Rule 155.
Reviewed by the Court.
WHITAKER, KÖRNER, SHIELDS, CLAPP, SWIFT, WRIGHT, PARR, and COLVIN, JJ., agree with the majority opinion.
COHEN, J., concurs in the result only.
NIMS, Chief Judge, dissents.
RUWE, J., did not participate in the consideration of this case.
SWIFT, J., concurring:
In further support of the result reached by the majority opinion, I would add that such result avoids the anomalous situation that would obtain under respondent's position. Assuming respondent's position regarding the effect of a substitute return were correct, only where a taxpayer receives a notice of deficiency and subsequently files a petition in the Tax Court would the taxpayer be precluded from electing joint return status. Section 6013(b)(2)(C), by its express terms, only applies where the taxpayer files a petition in the Tax Court.
On another matter, the majority opinion (p. 935) rejects out of hand an administrative policy that this and other courts have frequently recognized and that may still be viable in other situations. I would expressly limit our rejection of that administrative policy to the particular joint return issue before us.
I also would clarify that our Memorandum Opinion in Smalldridge v. Commissioner, T.C. Memo. 1984-434, did not address the effect of section 6020(b) upon the joint return issue addressed therein. In affirming the result reached in our Memorandum Opinion in Smalldridge, the 10th Circuit on its own initiative relied on section 6020(b).
CHABOT and GERBER, JJ., agree with this concurring opinion.
The majority overrules Goldberg v. Commissioner, 14 B.T.A. 465 (1928), which has been outstanding for 60 years, and now holds that a so-called "substitute return" made by the Secretary of the Treasury or his delegate pursuant to section 6020(b) and declared by Congress to be "prima facie good and sufficient for all legal purposes" is not a return for purposes of section 6013(b), with the result that the limitations on a taxpayer's election to make a joint return for the same taxable year, set forth in section 6013(b)(2), are not applicable.
Neither petitioner nor his spouse made a timely Federal income tax return for calendar years 1979, 1980, 1981, or 1982, as required by law. Secs. 6011, 6012(a)(1)(A), 6072(a), 6081(a). Accordingly, in April 1984, after conducting an audit of petitioner's income tax liability, respondent exercised his authority under section 6020(b) to make substitute returns on petitioner's behalf for those years. These substitute returns, designating petitioner's filing status as "Single," were "separate returns" in the sense that no election to make a joint return under section 6013(a) was made for petitioner and his spouse. Approximately 9½ months later, respondent issued petitioner a notice of deficiency based upon the tax liability shown on the substitute returns. After commencing this proceeding, petitioner and his spouse filed delinquent returns in January 1986, claiming joint filing status in derogation of the limitation contained in section 6013(b)(2)(C).
In analyzing petitioner's claim, it is helpful to note that the Internal Revenue Code generally provides the tax collector with three alternative responses to a taxpayer's failure to file an income tax return. First, he may seek criminal sanctions pursuant to section 7203 against any taxpayer whose failure to file is willful. E.g., United States v. Verkuilen, 690 F.2d 648 (7th Cir. 1982) (affirming taxpayer's conviction for failure to file individual income tax returns for 1976 and 1977 after respondent made a return on the taxpayer's behalf for 1975 under section 6020(b)).
Second, the Secretary of the Treasury may issue a statutory notice of deficiency, even though no return is made by the taxpayer, and compute the amount of the
Third, the Secretary may do what he did in this case and what he attempted to do in Phillips: make a substitute return pursuant to section 6020(b) on behalf of the taxpayer and issue a statutory notice of deficiency for the income tax shown on such substitute return. While the Secretary is given "authority" to make such return, he is clearly not required to do so. Roat v. Commissioner, supra; Moore v. Commissioner, 722 F.2d 193, 196 (5th Cir. 1984); Hartman v. Commissioner, supra at 545. In this case, unlike Phillips, the majority found that the Secretary made substitute returns on behalf of petitioner.
It is clear that if the petitioner had made the separate returns which respondent made on his behalf, section 6013(b)(2)(C) would foreclose him from contesting his failure to elect joint filing status in a proceeding before this Court. The limitation in section 6013(b)(2)(C) becomes operative once a separate return is filed. This limitation precludes a taxpayer from thereafter electing to make a joint return with his spouse for that year once a notice of deficiency is issued to either one of them and a petition is filed in this Court. The issue here is whether such limitation becomes operative following a substitute separate return made by respondent under section 6020(b).
Section 6020(b)(2) declares that a substitute return is presumed to be, in effect, the functional equivalent of a return filed by an individual taxpayer.
As I read its opinion, the majority believes that respondent should not be permitted, by filing a substitute separate return, to foreclose petitioner from electing to file a joint return. The majority recognizes that literal application of section 6020(b)(2) requires that result, but believes it to be an "anomalous" and "unintended" result in terms of the
Unlike the majority, I do not believe it is anomalous to hold, as we did in Goldberg v. Commissioner, supra, that a substitute return filed on behalf of a delinquent taxpayer under section 6020(b) triggers the limitation contained in section 6013(b)(2)(C) and, at the same time, to hold, as we did in Taylor v. Commissioner, supra, that the taxpayer is nevertheless able to petition this Court for redetermination of other aspects of the respondent's deficiency computation arising from the substitute return. The result is identical for a taxpayer who failed to file a return and for a taxpayer who filed a separate return: both can petition this Court to redetermine other elements of a deficiency, but both are foreclosed by section 6013(b)(2)(C) from electing joint return status. In my view, the majority creates the anomaly by affording nonfiling taxpayers an opportunity to elect joint return status while the statute expressly makes such election unavailable to taxpayers who file their returns.
Unlike the majority, I do not believe that the issue in this case presents a conflict between section 6020(b) and the deficiency procedures embodied in sections 6211 through 6215. Under the Goldberg rule, a delinquent taxpayer for whom respondent makes a substitute return would be bound by separate filing status if selected by respondent. A delinquent taxpayer, such as petitioner, had the opportunity to elect joint filing status for himself, but failed to do so. In my view, it is not "anomalous" for the statute to provide, as I believe it does through the application of section 6020(b), that a delinquent taxpayer is bound by the selection made by respondent on a substitute return. I see nothing in the deficiency procedures to suggest that a delinquent taxpayer should not be bound thereby, just as if he had filed the substitute return himself, or just as in the case of a taxpayer who files a timely return.
Nor do I agree that Congress recognized that the literal application of section 6020(b) would bring about "anomalous results" in this case. Indeed, when Congress enacted the Revenue Act of 1924, which created the deficiency procedures, it also reenacted the predecessor of section 6020,
Congress also demonstrated its approval of the principle underlying the Goldberg decision by adding section 6501(b)(3) to the Code in 1954. Sec. 6501(b)(3), I.R.C. 1954, 68A Stat. 803. That provision expressly applies "notwithstanding the provisions of paragraph (2) of section 6020(b)," and stops the running of the period of limitations on assessment and collection in the case of substitute returns executed by the Secretary. The congressional committee reports describe the effect of section 6501(b)(3) as follows:
This subsection * * * changes existing law in that the execution of a return by the Internal Revenue Service will not constitute the making of a return for the purpose of starting the running of the statute of limitations on assessment. [S. Rept. 1622, 83d Cong., 2d Sess. 584 (1954); H. Rept. 1337, 83d Cong., 2d Sess. A413 (1954). Emphasis supplied.]
Such change would have been unnecessary unless Congress viewed a substitute return as the equivalent of a return filed by the taxpayer.
Shortly after Congress promulgated the deficiency procedures in 1924, our predecessor, the Board of Tax Appeals, was called upon to determine the meaning of the term "deficiency" for purposes of deciding whether the Board had jurisdiction over the matter at issue or whether, as respondent contended, there was no deficiency because he had merely assessed the amount shown on the return filed by the taxpayer. See, e.g., Moir v. Commissioner, 3 B.T.A. 21 (1925); Continental Accounting & Audit Co. v. Commissioner, 2 B.T.A. 761 (1925). We noted that, ordinarily, the term "deficiency" is the amount of tax determined to be due by respondent in excess of that shown on the taxpayer's return, but held that such term also includes so much
We subsequently applied the same rationale to a substitute return filed by respondent. Taylor v. Commissioner, 36 B.T.A. 427 (1937). In Taylor, we correctly held that there was a "deficiency" in the amount of the tax liability shown on a substitute return, just as in the case of a return filed by the taxpayer himself, because the taxpayer had not acknowledged such tax liability to be due and owning. We rejected the Commissioner's contention that a substitute return foreclosed our deficiency jurisdiction and in legal effect was something more than a taxpayer's own return. We did not, however, suggest that a substitute return was anything less than the taxpayer's own return. In Taylor, we merely granted a substitute return made by the Secretary or his delegate under section 6020(b) the same legal status as a return made by the taxpayer, himself.
Taylor involved a substitute return, but did not involve an election to file a joint return under section 6013, as did Goldberg. Nevertheless, the two opinions are entirely consistent and give a substitute return the same status as a return filed by the taxpayer himself. We stated the following in Goldberg:
In R. Downes, Jr., supra, we denied to the petitioner, who had filed a return on a joint basis, the right to change to a separate basis. The foundation of this decision is that under section 223, Revenue Act of 1921, a husband and wife may either file separate returns or a joint return and that whichever method is pursued, the return or returns filed become the return or returns recognized and required by the statute. The decision further holds that taxpayers are not permitted or required to file more than one return for a taxable year. It followed, therefore, that since the return contemplated by the statute was filed when the joint return was filed, the Board could not recognize new returns on a separate basis as the returns required by statute.
Now, is the situation different where no return was filed by the husband or wife, but a return was filed on their behalf by the Commissioner? In other words, does the return filed by the Commissioner become the return of the husband and wife, and stand on the same basis as a return filed by the parties themselves? We think so. Not only does section 3176 provide that upon the failure of a taxpayer to make a return, the return may be made by the Commissioner from his own
[14 B.T.A. at 466-467. Emphasis in original.]
We stated the same rationale for our decision in Taylor:
In the ordinary case where a return is filed by the taxpayer, the amount of tax shown thereon is admitted to be due, and in such case a deficiency is the amount of tax determined by respondent to be due in excess of that shown on the taxpayer's return. But where a taxpayer shows an amount of tax on his return but does not admit that such amount is due and collectible, the amount admitted to be due and not the amount shown on the return is the starting point in computing a deficiency. [36 B.T.A. at 429.]
The majority, on the other hand, summarizes our holding in Taylor to be that "we possess jurisdiction to the extent that a taxpayer disagreed with the return as filed by respondent in a deficiency setting." In my view, the majority thus misstates our holding in Taylor by disregarding the principle that a substitute return is the equivalent of a return filed by the taxpayer, himself. We have consistently held in Taylor, and in Goldberg, and in a number of cases dealing with other issues, that in a deficiency proceeding, a taxpayer for whom respondent has filed a substitute return is in no different position than a taxpayer who himself filed the return at issue. Second Carey Trust v. Commissioner, 2 T.C. 629, 633 (1943); Lee H. Marshall Heirs v. Commissioner, 45 B.T.A. 632, 637 (1941); Harden v. Commissioner, 44 B.T.A. 961, 966 (1941), affd. 125 F.2d 906 (4th Cir. 1942); Blenheim Co., Ltd. v. Commissioner, 42 B.T.A. 1248, 1251 (1940); Taylor Securities, Inc. v. Commissioner, 40 B.T.A. 696 (1939); Briarly v. Commissioner, 29 B.T.A. 256 (1933).
If a substitute return is given the same status as a return filed by the taxpayer, as required by section 6020(b), then it is clear that the choice of filing status made on a substitute return should be treated no differently than the choice of filing status made on a return filed by the taxpayer. In both situations, the limitation contained in section
PARKER, HAMBLEN, JACOBS, WILLIAMS, and WELLS, JJ., agree with this dissent.
(2) LIMITATIONS FOR MAKING OF ELECTION. — The election provided for in paragraph (1) may not be made —
* * * * * * *
While I accept the majority's conclusion that the subject documents constitute "substitute returns" for purposes of this dissent, I question whether the majority has fully considered the requirement of sec. 6020(b)(2) that such a return be subscribed by the Secretary or his delegate. In this case, the return itself was not subscribed, but a signature does appear on a document attached to such return. We have consistently held that an unsigned form submitted by a taxpayer is not a return, even though the taxpayer's signature appears on a document attached thereto. Richardson v. Commissioner, 72 T.C. 818, 822 (1979); Vaira v. Commissioner, 52 T.C. 986, 1005 (1969), revd. on other grounds 444 F.2d 770 (3d Cir. 1971). See also Brafman v. United States, 384 F.2d 863, 868 (5th Cir. 1967). I see no reason why the same should not be true here. See Rinieri v. Scanlon, 254 F.Supp. 469, 474 (S.D.N.Y. 1966). In that situation, our decision in Phillips controls.