Van Bergh v. Commissioner

¶1OPINION.

¶2Petitioner claimed the benefit of section 107 in reporting his 1945 income. We are faced at the threshold with the question whether such treatment constitutes a failure to report more than 25 per cent of his income, thus invoking the 5-year statute of limitations under section 275(c), Internal Revenue Code.1 For if not respondent’s claim is barred in any event.

¶3We fail to see how this question can be answered in the affirmative from the standpoint of either the facts or the law. Treating the issue as one fact, it is stipulated that “Petitioner received a check … in the amount of $37,675.05 as compensation for services. Petitioner reported said compensation in his return for 1945 … This stipulation is borne out by the return itself which shows a reference on the first page to “See attached schedules” and in the schedules computing the tax due under section 107 reference is made to this item not once but at least four times as “The agreed, compensation for said services was … $37,675.05 which sum was entirely paid during the calendar year 1945”; “Compensation received in 1945 $37,675.05”; “Net income including $37,675.05 as above,” and “Entire compensation received in 1945 from J. A. Harris, 37,675.05.” We have accordingly found as a fact that petitioner has reported the receipt of the compensation as a part of his 1945 gross income.

¶4The very circumstance that petitioner claimed the benefit of section 107 would indicate as a legal matter that the amount in question was included in his gross income, the section being applicable by limiting “the tax attributable to any part thereof which is included in the gross income of any individual ….”2 (Emphasis added.) Thus, it could hardly be consistent to say that a taxpayer claiming the benefits of the tax computation of section 107 has omitted “from gross income”3 the very amounts upon which the statute operates only if included in gross income.

¶5Curiously enough, there is no item on the Individual Income Tax Return Form expressed as indicating “gross income.” It cannot hence be argued that the mere failure to insert the figure at any designated place in the return constitutes its omission from “gross income.” Line 5 of the return at which point the total of the income items appears is characterized on page 3 of the return as “Adjusted Gross Income.”4 A reference to section 22 (n), Internal Revenue Code, demonstrates that gross income and adjusted gross income are not the same.5

¶6Added to this is the fact that the tax under section 107 is conceived as a tax on income of the year received. Federico StaTlforth, 6 T. C. 140. This was so notwithstanding that in some situations in order to observe the mandate of the statute that the tax shall not be greater than it would have been had the receipt taken place in installments over other years, some heed must be given to tax computations so arrived at. William F. Knox, 10 T. C. 550. Cf. Edward C. Thayer, 12 T. C. 795.

¶7We conclude that by computing his tax and reporting his income so as to avail himself of the benefits of section 107, petitioner did not omit from gross income any part of the compensation affected; and that accordingly not the 5- but the 3-year statute of limitations applies. It being conceded that the deficiency notice was issued beyond the 3-year limit, respondent’s action is barred and it becomes unnecessary to consider the substantive question whether or not petitioner was entitled to the tax computation he claimed.

¶8Reviewed by the Court.

¶9Decision will he entered under Rule 50.