Bufferd v. Commissioner

Background

The case involves a shareholder and treasurer of Compo Financial Services, an S corporation, who claimed a pro rata share of a corporate loss and an investment tax credit on his 1979 joint personal return filed April 15, 1980. The S corporation had filed its own return on February 1, 1980 reporting the same loss and credit. Years later the IRS concluded the corporate items were erroneous and, in 1987, sent a notice of deficiency to the shareholder. The shareholder argued the IRS was time-barred because the corporation’s return was filed more than three years earlier.

Reasoning

The Court’s central question was whether the tax code’s three-year assessment period runs from the filing date of the shareholder’s individual return or the corporation’s return. The Court explained that the IRS can assess a deficiency only against the taxpayer whose return claims the benefit, so the relevant filing date is the shareholder’s return. The Court noted corporate information returns often lack key data needed to compute an individual’s tax and found the related provisions requiring S corporations to file do not change that result. The Supreme Court agreed with the Tax Court and the Second Circuit and affirmed judgment for the IRS.

Real world impact

The decision means the IRS’s three-year window for assessing tax on items passed through from an S corporation runs from the shareholder’s filing date. Shareholders — not the corporate filing date — set the limitations clock, so the IRS may pursue adjustments years after a corporate return was filed. The opinion also highlights that shareholders should preserve corporate records to defend against later assessments, and that the ruling resolves a split among federal appeals courts.