294

Opinion of the Court.

on the ground that § 67 (f) had avoided and discharged the lien of the levy. The issue was decided against him and he did not appeal. Later, when the respondent, who had purchased at the assignee's sale, asked the bankruptcy court to confirm that sale, the trustee withdrew his objections to confirmation and accepted from the assignee the consideration received from the respondent as purchaser at the latter's sale. The trustee's acquiescence in the confirmation of the sale to the respondent would seem to be at least a tacit assertion that the levy of the execution did not constitute an encumbrance upon respondent's title. But we think, if in other circumstances the trustee's conduct could amount to an election to avoid the lien, it can have no such effect here, in view of the prior decision against him on that issue in the state court.

We are of opinion that the trustee, having raised the issue in the state court, was bound by the final decision of that tribunal. The estoppel of the judgment of the state court extended not only to him but to the respondent as his transferee. This conclusion requires reversal of the judgment.

We do not pass upon the question whether the title of the respondent, derived from the sale of the property to it by the assignee for the benefit of creditors, is, by virtue of that sale, superior to the title of the petitioner. This is a question of state law which the court below remains free to decide.

The judgment is reversed and the cause is remanded for further proceedings not inconsistent with this opinion.

Reversed.

MR. JUSTICE MURPHY took no part in the consideration or decision of this case.

GERMANTOWN TRUST CO., TRUSTEE, v. COMMISSIONER OF INTERNAL REVENUE.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.

No. 462. Argued February 8, 1940.-Decided February 26, 1940.

A trust company, which held and administered a fund enabling its patrons to invest small amounts in securities, filed with a collector for the district where it conducted its business a fiduciary return setting forth the gross income of the fund, deductions, net income, etc.-all the information necessary to the calculation of any tax that might be due, and attached a list of the beneficiaries of the fund and their shares of the income. The beneficiaries included these shares in their individual returns. The Commissioner made an additional return for the fund and assessed a deficiency which the Board of Tax Appeals set aside as too late. Held:

1. The venue for review was in the circuit in which the fiduciary return was filed. Rev. Act, 1926, § 1002 (a), as amended by the Rev. Act, 1932, § 519. P. 308.

2. The assessment was barred under the Rev. Act, 1932, § 276 (a), two years after the fiduciary return was filed. P. 309.

3. Sec. 275 (c), providing a four year limitation if a corporation makes "no return of the tax imposed," and § 276 (a), providing that in case of failure to file a return the tax may be assessed "at any time," are inapplicable. P. 309.

106 F. 2d 139, reversed.

CERTIORARI, 308 U. S. 544, to review a judgment which reversed a decision of the Board of Tax Appeals holding an income tax assessment barred by limitations.

Mr. Harold Evans, with whom Messrs. Paul F. Myers and Martin W. Meyer were on the brief, for petitioner.

Mr. J. Louis Monarch, with whom Solicitor General Jackson, Assistant Attorney General Clark, and Messrs. Sewall Key, Arnold Raum, and F. E. Youngman were on the brief, for respondent.

304

Opinion of the Court.

MR. JUSTICE ROBERTS delivered the opinion of the Court.

This case involves the construction and application of provisions of the Revenue Act of 1926, as amended by that of 1934, and of the Revenue Act of 1932, relating to the venue of proceedings to review a decision of the Board of Tax Appeals and setting limitations upon the assessment of income tax.

The petitioner is a trust company, doing a general business as such, including administering trust estates and acting as agent for the custody, handling, and management of its clients' investments. In 1930 it created, by an appropriate instrument, a fund to afford those for whom it acted the advantage of investing small amounts in securities at minimum expense and with opportunity of ready liquidation. The fund has since been managed according to the terms of the agreement. In the course of administration the petitioner has paid to the participants their respective shares of income from the invested principal, and has filed fiduciary returns of income on Treasury Form 1041, intended for use by trustees.

March 15, 1933, the petitioner, as trustee, filed such a return, for the calendar year 1932, with the Collector of Internal Revenue for the First District of Pennsylvania, at Philadelphia. The return accurately set forth the gross income, the deductions, and the net income,-in short all information necessary to the calculation of any tax which might be due, and attached a list of the beneficiaries of the fund, and their shares of the income. No corporation income tax return was filed on Treasury Form 1120. The participants in the fund, who were required to make individual returns for the year 1932, included in their respective returns, filed on or before March 15, 1933, their shares of income.

September 17, 1936, pursuant to the recommendation of a treasury agent that the fund be taxed as a corpora

215234°-40— -20

Opinion of the Court.

309 U.S.

tion,' the respondent prepared from the Form 1041 return, a substitute corporation return on Form 1120, covering the year 1932, and, on February 27, 1937, gave notice of a consequent deficiency of tax.

The petitioner carried the matter to the Board of Tax Appeals for redetermination, asserting that it was taxable as a trust and not as an association and that assessment and collection of the asserted deficiency was barred by the expiration of two years from the date its return was filed. The Board held the assessment barred.

The respondent petitioned the United States Court of Appeals for the Third Circuit to review the Board's decision. That court held that the venue provision of § 1002 (a) of the Revenue Act of 1926, as amended by § 519 of the Revenue Act of 1934, empowered it to entertain the petition, and that the assessment of a deficiency was not barred by §§ 275 and 276 of the Revenue Act of 1932, the applicable section, in its view, being 275 (c).*

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'§ 1111 (a) (2) of the Revenue Act of 1932, 47 Stat. 169, 289: "The term 'corporation' includes associations . . ." See Morrissey v. Commissioner, 296 U. S. 344.

* "Sec. 1002. (a) Except as provided in subdivision (b) [relating to venue by stipulation], such decision may be reviewed by the Circuit Court of Appeals for the circuit in which is located the collector's office to which was made the return of the tax in respect of which the liability arises or, if no return was made, then by the Court of Appeals of the District of Columbia." (Italics supplied.) 44 Stat. 9, 110; 48 Stat. 680, 760; 26 U. S. C. 641 (b).

"Sec. 275. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLEC

TION.

"Except as provided in section 276

"(a) General Rule.-The amount of income taxes imposed by this title shall be assessed within two years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.

"(c) Corporation and Shareholder.-If a corporation makes no return of the tax imposed by this title, but each of the shareholders

304

Opinion of the Court.

The petitioner sought certiorari on the ground that the Circuit Court of Appeals' decision that the fiduciary return it had filed was a return which governed venue under § 1002, as amended, but no return within the meaning of § 275 (c), conflicts with a decision of the Circuit Court of Appeals for the Second Circuit. Because of the conflict we granted certiorari.

Petitioner and respondent agree that the court below was right in holding the return in question was such a return as fixed the venue of the petition for review in the Third Circuit, where the return was filed. We concur in this view.

The petitioner contends that the fiduciary return filed on Form 1041 was a return within the meaning of § 275 (a), which limits the time for assessment to two years after the filing of the return. The respondent insists that the return was "no return of the tax" within the meaning of § 275 (c), and, therefore, the four-year limitation specified in that section applies.

As the notice of deficiency was given more than two years after the filing of the fiduciary return, and within four years of the filing of the last return by any participant in the fund, decision turns upon which subsection governs.

We hold that the return was a return within the meaning of § 275 (a) and that the petitioner cannot be held includes in his return his distributive share of the net income of the corporation, then the tax of the corporation shall be assessed within four years after the last date on which any such shareholder's return was filed." (Italics supplied.)

"Sec. 276. SAME-EXCEPTIONS.

"(a) False Return or No Return.-In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time." Revenue Act of 1932, 47 Stat. 169, 237.

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* Commissioner v. Germantown Trust Co., 106 F. 2d 139.

* Commissioner v. Roosevelt & Son Inv. Fund, 89 F. 2d 706.