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If, under the statutes, income must be reported in a
certain way and the taxpayer erroneously reports it in
a different way, such treatment is not binding upon
either the taxpayer or the Commissioner. The taxpayer
has made an error * * * which error, in the absence of
estoppel, is subject to correction if timely challenged
by either the taxpayer or Commissioner * * *.[3]
Respondent does not argue that petitioners are bound to
report the $190,000 guaranteed payment in the year of receipt by
the “duty of consistency” doctrine, nor is it contended that the
mitigation provisions of sections 1311-1314 or the extended
period of limitations provided by section 6501(c) and (e), are
applicable. Petitioners’ mistaken omission of the management
fees from their returns for the years in which they were included
in cost of goods sold by the partnership does not prevent them
from obtaining the benefit of the bar of the statute of
limitations as applicable to the instant case.
3
We note that generally it is held that, where a taxpayer
erroneously omits income in a year with respect to which
assessment is barred by the statute of limitations, the
Commissioner may not require it to be included in income in a
later year simply to prevent it from escaping tax. United States
v. Wilkins, 385 F.2d 465, 469 (4th Cir. 1967); Welp v. United
States, 201 F.2d 128, 131-133 (8th Cir. 1953); Commissioner v.
Frame, 195 F.2d 166, 167 (3d Cir. 1952) affg. 16 T.C. 600 (1951);
Commissioner v. Mnookin’s Estate, 184 F.2d 89, 92-93 (8th Cir.
1950) affg. 12 T.C. 744 (1949); Ross v. Commissioner, 169 F.2d
483, 492 (1st Cir. 1948), revg. and remanding a Memorandum
Opinion of this Court dated Feb. 10, 1947; Fruehauf Trailer Co.
v. Commissioner, 42 T.C. 83, 107 (1964), affd. 356 F.2d 975 (6th
Cir. 1966). “The courts hold that neither income nor deductions
may be taken out of the proper accounting period for the benefit
of the Government or the taxpayer.” Commissioner v. Mnookin’s
Estate, supra at 92.
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