## Facts

- Two consolidated matters involved individual/partnership taxpayers (Badaracco) and a corporate taxpayer (Deleet).
- Badaracco filed partnership and individual federal income tax returns for 1965–1969 and conceded the original returns were fraudulent for purposes of the case.
- After grand jury subpoenas for records, Badaracco filed nonfraudulent amended returns in 1971 and paid the additional basic tax shown.
- Badaracco later pleaded guilty to filing a false return for 1967; other criminal counts were dismissed.
- In 1977, the IRS issued deficiency notices asserting only civil fraud additions under I.R.C. § 6653(b) for 1965–1969 (no additional basic tax asserted).
- Deleet filed timely corporate returns for 1967 and 1968, then filed amended returns in 1973 disclosing previously unreported receipts.
- In 1979, the IRS assessed deficiencies and civil fraud additions against Deleet; Deleet paid and sought a refund.
- The Tax Court (Badaracco) and a federal district court (Deleet) held the IRS actions time-barred under the general limitations rule.
- The Third Circuit reversed in both cases, holding the fraud exception allowed assessment “at any time”; the Supreme Court granted certiorari.

## Issues

1. Whether filing a nonfraudulent amended return after a false or fraudulent original return causes the general three-year limitations period in I.R.C. § 6501(a) to apply, displacing the unlimited period in § 6501(c)(1).
2. Whether, once a fraudulent return has been filed with intent to evade tax, the IRS may assess tax and civil fraud additions more than three years after the amended return.

## Decision

- The Supreme Court affirmed the Third Circuit.
- The Court held that when a taxpayer files a false or fraudulent return with intent to evade tax, I.R.C. § 6501(c)(1) permits assessment “at any time.”
- A later nonfraudulent amended return does not terminate the unlimited limitations period and does not start a new three-year period under § 6501(a).
- Applying that rule, the IRS’s notices in both cases were timely despite being issued more than three years after the amended returns.

## Legal Principles

- Under I.R.C. § 6501(c)(1), a false or fraudulent return filed with intent to evade tax removes any limitations period for assessment for that tax year.
- The “at any time” language in § 6501(c)(1) is not conditioned on, and is not suspended by, subsequent taxpayer disclosure through an amended return.
- Courts may not create a limitations cutoff absent congressional direction; statutes of limitation reflect legislative choices, and § 6501(c)(1) reflects Congress’s choice of no cutoff for fraud.
- Allowing amended returns to displace § 6501(c)(1) would let fraudulent filers control the limitations period and would conflict with the provision’s purpose of permitting investigation and assessment in fraud cases without time constraint.

## Conclusion

The Court held that a taxpayer cannot avoid the unlimited assessment period triggered by a fraudulent original return by later filing an honest amended return; § 6501(c)(1) continues to permit assessment and related civil fraud additions without time limit for the year of the fraudulent filing.


Badaracco v. Commissioner, 464 U.S. 386 (1984)