McDonnell v. United States

Background

An individual taxpayer, McDonnell, had been a member of a partnership that filed and paid a 1917 income tax return. The Commissioner later made a large jeopardy assessment against the partnership in 1923 and then reduced the partnership liability in 1925, saying that the partners owed additional individual tax. In February 1926 McDonnell signed a written waiver extending the time for assessment and paid the extra amount. He sued later to recover the payment, arguing the waiver was invalid under the Revenue Act of June 2, 1924.

Reasoning

The main question was whether a waiver signed after the usual statutory assessment period had run could make a later assessment valid. The Court said the 1924 law recognized and continued the earlier rule that a taxpayer and the Commissioner can consent in writing to extend the assessment period. It found nothing in the 1924 nonretroactivity clause (§278(e)) that was meant to cancel ordinary waivers under §278(c). The Court relied on prior decisions that treated waivers as effective and concluded the waiver here authorized the assessment and collection.

Real world impact

The ruling means a taxpayer’s written agreement to extend the assessment period can allow the government to assess and collect additional tax even if the usual time limit had already passed. That outcome affects taxpayers, partnerships, and the Treasury in later tax adjustments and collections. The Court affirmed the lower court’s judgment for the government.