HANOVER INSURANCE COMPANY, PETITIONER V. UNITED STATES OF AMERICA No. 89-732 In The Supreme Court Of The United States October Term, 1989 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The First Circuit Brief For The United States In Opposition TABLE OF CONTENTS Question Presented Opinions below Jurisdiction Statement Argument Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1a-13a) is reported at 880 F.2d 1503. The memorandum and order of the district court (Pet. App. 14a-18a) is unreported. JURISDICTION The judgment of the court of appeals was entered on August 7, 1989. The petition for a writ of certiorari was filed on (Monday) November 6, 1989. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether a decision of the Tax Court that has been affirmed on appeal becomes "final" within the meaning of Section 7481(a)(2)(B) of the Internal Revenue Code upon the expiration of the 25-day period for seeking rehearing in the Supreme Court of the denial of certiorari or, instead, upon the entry of the order denying certiorari. STATEMENT 1. Petitioner is the successor in interest to Massachusetts Bonding and Insurance Company (MBIC), which was merged into petitioner in 1961. The Commissioner of Internal Revenue asserted deficiencies in MBIC's income tax for 1959 and 1960, which petitioner contested in the Tax Court. The Tax Court upheld part of the deficiency for 1960. Petitioner appealed, the First Circuit affirmed, and a petition for certiorari was denied on October 15, 1979. See Hanover Insurance Co. v. Commissioner, 69 T.C. 260 (1977), aff'd, 598 F.2d 1211 (1st Cir.), cert. denied, 444 U.S. 915 (1979). Pet. App. 2a-3a. On July 23, 1980, the Commissioner assessed against petitioner the tax deficiency determined by the Tax Court to be due, plus interest. Petitioner failed to pay this assessment, and the Commissioner collected it, together with additional interest, by levying upon petitioner's bank account. Petitioner filed a timely administrative claim for refund, which was disallowed. Pet. App. 3a, 15a. 2. Petitioner then commenced this refund action in the United States District Court for the District of Massachusetts. The only controverted issue was whether the July 23, 1980, assessment was untimely. Section 6501 of the Internal Revenue Code /1/ establishes the period for making an assessment; the general rule is that the assessment must be made within three years of the filing of the return. Section 6503(a)(1), however, provides that the mailing of a notice of deficiency suspends the running of the period for assessment; if, as in this case, a petition is filed in the Tax Court challenging that deficiency, the running of the assessment period is suspended until 60 days after "the decision of the Tax Court becomes final." I.R.C. Section 6503(a)(1). When the Commissioner mailed the notice of deficiency in this case, there remained 202 days in which to assess the tax. Hence, the assessment against petitioner was timely if it was made within 262 days after the date on which the decision of the Tax Court became final. Section 7481 of the Code provides that a decision of the Tax Court becomes final "(u)pon the denial of a petition for certiorari, if the decision of the Tax Court has been affirmed * * * by the United States Court of Appeals" (I.R.C. Section 7481(a)(2)(B)). If the decision in petitioner's Tax Court case became final on October 15, 1979, the date this Court entered its order denying certiorari, then the assessment period expired on July 3, 1980, which would make the July 23, 1980, assessment in this case untimely. If, however, the Tax Court's decision became final when the denial of certiorari became final under this Court's rules, i.e., upon the expiration of the period for filing a petition for rehearing (i.e., 25 days after certiorari was denied (Sup. Ct. R. 51)), then the period for assessment did not end until July 28, 1980, and the assessment in this case was timely. Relying upon this Court's decision in R. Simpson & Co. v. Commissioner, 321 U.S. 225, 229-230 (1944), the district court held that the Tax Court's decision did not become final until 25 days after the denial of certiorari, and therefore it rejected petitioner's contention that the assessment was untimely (Pet. App. 14a-18a). 3. The court of appeals affirmed (Pet. App. 1a-13a). The court observed that, while Simpson did not concern the "exact issue" presented here, its reasoning is "fully transferable" to this case and compels the conclusion that the assessment here was timely (Pet. App. 6a). The court of appeals explained that, in holding in Simpson that it lacked jurisdiction to grant an out-of-time rehearing petition in a case originating in the Tax Court, this Court had concluded that "the statutory finality provisions must be read in conjunction with the rule as to rehearings" (id. at 9a). The court of appeals also observed that interpreting Section 7481 to make Tax Court decisions "final" before resolution of a rehearing petition would introduce uncertainty in the administration of the tax laws, pointing to the difficulties that would be created when a rehearing petition is granted (Pet. App. 11a-12a). ARGUMENT The court of appeals correctly held that a decision of the Tax Court becomes "final" under Section 7481(a)(2)(B) of the Code when this Court's denial of certiorari itself becomes final, i.e., upon the expiration of the 25-day period during which, under this Court's rules, a litigant may petition as of right for a rehearing of the denial of certiorari. That holding is fully consistent with the prior decisions of this Court and with its rules, and it does not conflict with any decision of another court of appeals. Accordingly, there is no reason for review by this Court. 1. The pertinent provisions of Section 7481 of the Code have existed, substantially unchanged, for more than 60 years. /2/ It has long been established that this statutory definition of when a Tax Court decision becomes "final" affects the jurisdiction of this Court. In Helvering v. Northern Coal Co., 293 U.S. 191 (1934), this Court considered the predecessor of Section 7481(a)(2)(C) of the Code, which provides that, where this Court directs that the decision of the Tax Court be affirmed, that decision becomes final 30 days after the issuance of the mandate of this Court. The Court concluded that this finality provision created a restriction on the Court's general power to reconsider its judgments throughout the Term in which they were entered. Accordingly, the Court denied the petitions for rehearing in that case, which had been filed more than 30 days after the mandates were issued, "(i)n view of the authoritative and explicit requirement of the statute and of its application to these cases" (293 U.S. at 193). In R. Simpson & Co. v. Commissioner, 321 U.S. 225 (1944), the Court considered the related question of the effect of the predecessor of Section 7481 (Section 1140 of the 1939 Code) upon the Court's power to rehear a denial of certiorari. In that case the Board of Tax Appeals had ruled against the taxpayer, the court of appeals had affirmed, and this Court had denied certiorari in November 1942. 321 U.S. at 226-227. Subsequently, after the expiration of the 25-day period allowed by the Court's rules in which to file a petition for rehearing, the taxpayer moved for leave to file a petition for rehearing out of time. The Court granted the motion, vacated its earlier denial, and granted the petition for certiorari. 319 U.S. 778 (1943). The Court, however, asked the parties to address the Court's jurisdiction to grant the rehearing petition in light of Section 1140 of the 1939 Code and Helvering v. Northern Coal Co., supra. See 321 U.S. at 227. The Court then held in Simpson that it lacked jurisdiction to grant the petition for rehearing. Noting that in a number of instances it had granted certiorari, in cases originating in the Tax Court, in response to rehearing petitions filed within the applicable 25-day period (see 321 U.S. at 228-229), /3/ the Court stated (321 U.S. at 229-230 (emphasis added; footnotes omitted)): Our rules provide for petitions for rehearing as matter of right within 25 days after judgment, and this rule has been applied to petitions for rehearings of orders denying certiorari. We have applied it to cases falling within the purview of Section 1140(b)(2) (of the 1939 Code). No mandate issues on denial of certiorari, and after a final decision the mandate does not issue until expiration of the 25-day period within which petition for rehearing may be filed. If, therefore, we follow the practice heretofore observed, by which we regard denials of certiorari as qualified until the 25-day period expires, we put the denial and the decision on a generally equal basis except as Congress has seen fit to give the latter an additional thirty days before finality. The Government after consideration of the practical aspects of the question advises that in its view our practice in these matters has been "salutary and in accordance with sound policy." There appears to be no good reason, therefore, to hold that the rule as to rehearings, in so far as it permits as matter of right the filing of petition therefor within 25 days, may not apply to this class of cases. But when under our rules our denial has become final, this statute deprives us of jurisdiction over the case. Thus, contrary to petitioner's contention (Pet. 7-9), Simpson clearly stands for the proposition that a Tax Court decision becomes "final" upon denial of certiorari within the meaning of Section 7481(a)(2)(B) only when the denial of certiorari becomes final under this Court's rules -- i.e., when the 25-day period for seeking rehearing as a matter of right from the denial of certiorari has expired (or when the disposition of a timely filed rehearing petition is resolved). The Court determined in both Simpson and Northern Coal co. that it lacks jurisdiction to reconsider a decision in a case originating from the Tax Court's decision has become final. See also Superior Coal Co. v. Commissioner, 325 U.S. 896 (1945). And the Court made clear in Simpson that this jurisdictional restriction comes into play only "when under our rules our denial has become final" (321 U.S. at 230 (emphasis added)). That finality does not occur until the time provided in the Court's rules to petition for rehearing from a denial of certiorari has expired; the Court "regard(s) denials of certiorari as qualified until the 25-day period expires" (id. at 229-230). Under petitioner's reading of Section 7481, by contrast, this Court would lack jurisdiction to reconsider any denial of certiorari in a case originating in the Tax Court because the decision would become "final" and thus unalterable by this Court as soon as it entered its order denying certiorari; this Court's rehearing rules simply would not apply to such cases. The Court manifestly rejected that conclusion in Simpson, and therefore petitioner's contention cannot be reconciled with that decision. See generally R. Stern, E. Gressman & S. Shapiro, Supreme Court Practice 623-624 (6th ed. 1986). /4/ 2. Petitioner argues (Pet. 9-11) that Simpson is irrelevant here because of a change in this Court's rules since Simpson was decided. Specifically, petitioner points to Rule 23.3: Whenever a petition for writ of certiorari to review a decision of any court is denied, an order to that effect will be entered and the Clerk forthwith will notify the court below and counsel of record. The order of denial will not be suspended pending disposition of a petition for rehearing except by order of the Court or a Justice thereof. Petitioner argues that this rule's statement that "the order of denial will not be suspended pending disposition of a petition for rehearing," which was not contained in the rules at the time Simpson was decided, is inconsistent with the idea that the Court's order denying certiorari is "qualified" until the time to petition for rehearing expires. This argument was correctly rejected by the court of appeals as "sorely misdirected" (Pet. App. 10a). Rule 23.3 simply describes the timing of the official notification to the lower court that certiorari has been denied. In contrast to a decision on the merits, for which the mandate does not issue until the rehearing time expires or a rehearing petition is denied (Sup. Ct. R. 52.2), the lower court is notified "forthwith" of the denial of certiorari even though the order is still subject to reconsideration on rehearing. See R. Stern, E. Gressman & S. Shapiro, supra, at 617-618; Richmond v. Arizona, 434 U.S. 1323, 1325 (1977) (Rehnquist, J., opinion in chambers). In stating that the order is not "suspended" by the pendency of a rehearing petition, the rule merely clarifies that this difference between a decision on the merits and a denial of certiorari exists not only when a rehearing petition is merely a possibility, but also when one has been filed. While this means that the lower court may take action based upon the order of denial, it does not mean that the order is final. It may be stayed by the Court or vacated upon rehearing. Thus, the court of appeals correctly stated that Rule 23.3 "is strictly a notice provision" that does not address the finality of an order denying certiorari. Pet. App. 10a n.5; see also Flynn v. United States, 75 S. Ct. 285, 286 (1955) (Frankfurter, J., opinion in chambers). /5/ In sum, while an order denying certiorari is entered and can take effect (unless stayed) before the rehearing time has expired, there is no "definitive determination" by the Court until the timely rehearing option has been extinguished (Flynn v. United States, 75 S. Ct. at 286). Rather, the Court's denial is "qualified" until the time to petition for rehearing has expired, and therefore the denial is not final "under (this Court's) rules" -- and hence not "final" under Section 7481 -- until that time. R. Simpson & Co. v. Commissioner, 321 U.S. at 230. Moreover, as the court of appeals suggested (Pet. App. 12a), application of petitioner's interpretation would lead to perverse results where a rehearing petition is filed or granted; the Tax Court's decision could become final and the time for assessment could be running, or even expiring, while the Court at the same time is deliberating whethr the Tax Court's "final" decision should be reversed. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General SHIRLEY D. PETERSON Assistant Attorney General GILBERT S. ROTHENBERG CHARLES BRICKEN Attorneys DECEMBER 1989 /1/ Unless otherwise noted, all statutory references are to the Internal Revenue Code of 1954 (26 U.S.C.), as amended (the Code or I.R.C.). /2/ Section 7481 originated in Section 1005 of the Revenue Act of 1926, ch. 27, 44 Stat. 110. That section was incorporated in Section 1140 of the Internal Revenue Code of 1939 with "no changes in existing law." S. Rep. No. 20, 76th Cong., 1st Sess. 1 (1939). Section 1140 of the 1939 Code later was recodified as Section 7481 of the Internal Revenue Code of 1954, again with "no material changes from existing law." H.R. Rep. No. 1337, 83d Cong., 2d Sess. A434 (1954). See Pet. 6 n.4. /3/ The Court also noted that in one instance it had granted certiorari where the rehearing petition was filed outside the 25-day period, but it discounted that case as "not establish(ing) a construction of the statute" because "the question of jurisdiction was not raised or considered" (321 U.S. at 229). /4/ As the court of appeals noted (Pet. App. 9a), the dissent in Simpson characterized the majority as holding that "the decision of the Tax Court becomes 'final' only after the expiration of the 25-day period within which a petition for rehearing may be filed" (321 U.S. at 230 (Douglas, J., dissenting)). /5/ Rule 23.3 is derived from former Supreme Court Rule 25.2 (see 13 J. Moore, H. Bendix, & B. Ringle, Moore's Federal Practice Paragraph 823.01 (2d ed. 1988)), which clearly was no more than a notification provision. Former Rule 25.2 provided in pertinent part (346 U.S. 951, 975 (1954) (emphasis added)): Whenever application for a writ of certiorari to review a decision of any court is denied, the clerk shall enter an order to that effect, and shall forthwith notify the court below and counsel of record. Such notification will not be withheld pending disposition of a petition for rehearing except by order of the court or of a justice thereof. Petitioner offers no reason for construing the language change contained in Rule 23.3 as expanding the scope of the rule to alter this Court's established practice as to the finality to be accorded an order denying certiorari prior to the expiration of the rehearing period.