725 F. 2d 1488 - Klemp v. Commissioner of Internal Revenue

In this case, taxpayers initially filed fraudulent income tax returns for the years 1970-1973. In 1974, after being contacted by the Internal Revenue Service regarding those returns, taxpayers filed nonfraudulent, amended returns for those years. The Commissioner issued notices of deficiency on July 9, 1979, nearly five years after taxpayers filed their amended returns. The question presented by this appeal is whether the filing of the original fraudulent returns permitted the Commissioner to assess the deficiency "at any time" as provided by 26 U.S.C. Sec. 6501(c)(1), or whether the subsequent filing of nonfraudulent returns requires that deficiencies be assessed within three years thereafter as provided in 26 U.S.C. Sec. 6501(a).

We withdrew this case from submission because the Supreme Court had granted certiorari to decide this very question in Badaracco v. Commissioner, --- U.S. ----, 104 S.Ct. 756, 78 L.Ed.2d 549, cert. granted, --- U.S. ----, 103 S.Ct. 2084, 77 L.Ed.2d 296 (1983). On January 17, 1984, the Supreme Court handed down its decision in Badaracco, --- U.S. ----, 103 S.Ct. 2084, 77 L.Ed.2d 296 holding that the filing of a fraudulent return permits a deficiency to be assessed at any time pursuant to section 6501(c)(1), despite the fact that nonfraudulent amended returns may have been filed more than three years prior to assessment.

Badaracco controls this case. This appeal is ordered submitted, the judgment of the Tax Court, 77 T.C. 201 is reversed, and the case is remanded to the Tax Court for further proceedings in light of Badaracco.

REVERSED AND REMANDED.