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decided: January 25, 1993.



White, J., delivered the opinion for a unanimous Court.

Author: White

JUSTICE WHITE delivered the opinion of the Court.

On his 1979 income tax return, petitioner, a shareholder in a Subchapter S corporation, claimed as "pass-through" items portions of a deduction and a tax credit reported on the corporation's return. The question presented is whether the 3-year period in which the Internal Revenue Service is permitted to assess petitioner's tax liability runs from the filing date of the individual return or the corporate return. We conclude with the Tax Court and the Second Circuit Court of Appeals that the relevant date is that on which petitioner's return was filed.


Subchapter S of the Internal Revenue Code, 26 U.S.C. §§ 1361-1379, was enacted in 1958 to eliminate tax disadvantages that might dissuade small businesses from adopting the corporate form and to lessen the tax burden on such businesses. The statute accomplishes these goals by means of a pass-through system under which corporate income, losses, deductions, and credits are attributed to individual shareholders in a manner akin to the tax treatment of partnerships. See §§ 1366-1368.*fn1 In addition, since 1966, "S corporations" have been liable for certain capital gains and other taxes. 80 Stat. 111, 113; 26 U.S.C. §§ 1374, 1378.

Petitioner was treasurer and a shareholder of Compo Financial Services, Inc., an S corporation. On February 1, 1980, Compo filed a return for the tax year of December 26, 1978 to November 30, 1979 as required by § 6037(a) of the Code.*fn2 On that return, Compo reported a loss deduction and an investment tax credit arising from its partnership interest in a venture known as Printers Associates. Petitioner and his wife filed a joint return for 1979 on April 15, 1980.*fn3 Their return claimed a pro rata share of the deduction and credit reported by Compo pursuant to the pass-through provisions of Subchapter S.

Code § 6501(a) establishes a generally applicable statute of limitations providing that the Internal Revenue Service may assess tax deficiencies within a 3-year period from the date a return is filed.*fn4 That limitations period may be extended by written agreement. § 6501(c)(4). In March 1983, before three years had passed from the time the joint return was filed, petitioner agreed to extend the period in which deficiencies arising from certain claims on the return could be assessed against him. No extension was obtained from Compo with respect to its return for the 1978-1979 tax year.

In 1987, the Commissioner determined that the loss deduction and credit reported by Compo were erroneous and sent a notice of deficiency to petitioner based on the loss deduction and credit that he had claimed on his return. In the Tax Court, petitioner contended that the Commissioner's claim was time barred because the disallowance was based on an error in Compo's return, for which the 3-year assessment period had lapsed. The Tax Court found for the Commissioner, relying on its decision in Fehlhaber v. Commissioner, 94 T.C. 863 (1990), aff'd, 954 F.2d 653 (CA11 1992). See App. 61. The Court of Appeals for the Second Circuit affirmed, holding that, where a tax deficiency is assessed against the shareholder, the filing date of the shareholder's return is the relevant date for purposes of § 6501(a). 952 F.2d 675 (1992). Because another Court of Appeals has a contrary view, we granted certiorari. 505 U.S. . . . (1992).*fn5


Title 26 U.S.C. § 6501(a) states simply that "the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed. . . ." The issue before us is whether "the" return is that of petitioner or that of the corporation which was the source of the loss and credit claimed on petitioner's return. Petitioner's position is that the Commissioner had three years from the date his return was filed to object to that return in any respect except the loss and credit items passed through to him by the corporation. To disallow those items, petitioner argues, the Commissioner must have acted within three years of the filing of the corporate return. Under this approach, "the" return referred to in § 6501(a) becomes two returns, and petitioner claims that there is adequate statutory basis for his submission. We have no doubt that the courts below properly concluded, as the Commissioner argued, that it is the filing of petitioner's return that triggers the running of the statutory period.

The Commissioner can only determine whether the taxpayer understated his tax obligation and should be assessed a deficiency after examining that taxpayer's return. Plainly, then, "the" return referred to in § 6501(a) is the return of the taxpayer against whom a deficiency is assessed. Here, the Commissioner sought to assess taxes which petitioner owed under the Code because his return had erroneously reported a loss and credit to which he was not entitled. The fact that the corporation's return erroneously asserted a loss and credit to be passed through to its shareholders is of no consequence. In this case, the errors on the corporate return did not and could not affect the tax liability of the corporation, and hence the Commissioner could only assess a deficiency against the stockholder-taxpayer whose return claimed the benefit of the errors. Under the plain language of § 6501(a), the Commissioner's time to make the assessment ran from the filing date of petitioner's return.*fn6

By contrast, the S corporation's return, which petitioner asserts triggers the beginning of the limitations period, is deficient precisely because it does not contain all of the information necessary to compute a shareholder's taxes. If the Internal Revenue Service were required to rely on that return, it would be forced to conduct its assessment on the basis of incomplete information:

"While [the corporate return] may show petitioner's distributive share of losses, it does not indicate his adjusted basis in his corporate stock, which is information necessary to determine if the loss is deductible. Nor does it show petitioner's income, losses, deductions, and credits from other sources. Moreover, the information return of the S corporation does not relate to ...

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