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UNITED STATES V. GALLETTI (02-1389)
Web-accessible at:
http://supct.law.cornell.edu/supct/html/02-1389.ZS.html
Argued January 12, 2004 -- Decided March 23, 2004
Opinion author: Thomas
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"[T]he amount of any tax imposed [by the Internal Revenue Code] shall be
assessed within three years after the return was filed." 26 U.S.C.
sect. 6501(a). If a tax is properly so assessed, the statute of
limitations for collecting it is extended by 10 years from the
assessment date. sect. 6502(a). Respondents were general partners of a
partnership (hereinafter Partnership) that failed to pay significant
federal employment taxes from 1992 to 1995. The Internal Revenue
Service (IRS) timely assessed the Partnership, but the taxes were never
paid. Respondents later filed for Chapter 13 bankruptcy protection, and
the IRS then filed proof of claims against them for the Partnership's
unpaid employment taxes. Respondents objected, arguing that the timely
assessment of the Partnership did not extend the 3-year limitations
period against the general partners, who had not been separately
assessed within that period. The Bankruptcy Court and the District
Court agreed and sustained respondents' objections. The Ninth Circuit
affirmed, holding that since respondents are "taxpayers" under sect.
7701, which defines "taxpayer" to mean "any person subject to any
internal revenue tax," they are also "taxpayers" under sects.6203 and
6501. As such, the court held that the assessment against the
Partnership extended the limitations period only with respect to the
Partnership.
Held: The proper tax assessment against the Partnership suffices to
extend the statute of limitations to collect the tax in a judicial
proceeding from the general partners who are liable for the payment of
the Partnership's debts. Pp. 4-9.
(a) Respondents argue that a valid assessment triggering the 10-year
increase in the limitations period must name them individually, as they
are primarily liable for the tax debt.They claim, first, that they
are the relevant taxpayers under sect. 6203, which requires the
assessment to be made by "recording the liability of the taxpayer."
Although the Ninth Circuit correctly concluded that an individual
partner can be a "taxpayer," sect. 6203 speaks of the taxpayer's
"liability," which indicates that the relevant taxpayer must be
determined. Here, the liability arose from the Partnership's failure to
comply with sect. 3402(a)(1)'s requirement that an "employer [paying]
wages" deduct and withhold employment taxes. And sect. 3403 makes clear
that the "employer" that fails to withhold and submit the requisite
employment taxes is the "liable" taxpayer. In this case, the
Partnership is the "employer." Second, respondents claim that they are
primarily liable for the tax debt because California law makes them
jointly and severally liable for the Partnership's debts. However, to
be primarily liable for this debt, respondents must show that they are
the "employer." And, under California law, a partnership and its
general partners are separate entities. Thus respondents cannot argue
that, for all intents and purposes, imposing a tax directly on the
Partnership is equivalent to imposing a tax directly on the general
partners, but must instead prove that the tax liability was imposed both
on the Partnership and on respondents as separate "employers."That
respondents are jointly and severally liable for the Partnership's debts
is irrelevant to this determination.Pp. 4-7.
(b) The Code does not require the Government to make separate
assessments of a single tax debt against persons or entities secondarily
liable for that debt in order for sect. 6502's extended limitations
period to apply to judicial collection actions against those persons or
entities. It is clear that "assessment" refers to little more than the
calculation or recording of a tax liability, see, e.g., sect. 6201, and
that it is the tax that is assessed, not the taxpayer, see, e.g., sect.
6501. The limitations period resulting from a proper assessment governs
the time extension for enforcing the tax liability. United States v.
Updike, 281 U.S. 489, 495. Once a tax has been properly assessed,
nothing in the Code requires the IRS to duplicate its efforts by
separately assessing the same tax against individuals or entities who
are not the actual taxpayers but are, by reason of state law, liable for
the taxpayer's debt. The assessment's consequences--the extension of
the limitations period for collecting the debt--attach to the debt
without reference to the special circumstances of the secondarily liable
parties. Here, the tax was properly assessed against the Partnership,
thereby extending the limitations period for collecting the debt. The
United States now timely seeks to collect that debt in judicial
proceedings against respondents. Pp. 7-9.
314 F.3d 336, reversed and remanded.
Thomas, J., delivered the opinion for a unanimous Court.
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