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MISSISSIPPI STATE TAX COMMISSION, ET AL. v. 3300 CORPORATION

NOVEMBER 12, 1987

MISSISSIPPI STATE TAX COMMISSION, ET AL.
v.
3300 CORPORATION



BEFORE DAN LEE, P.J., AND SULLIVAN AND ANDERSON, JJ.

ANDERSON, JUSTICE, FOR THE COURT:

This is an appeal from an order of the Chancery Court of Hinds County granting summary judgment in favor

of the 3300 Corporation - in effect holding that the tax commission's amended assessment of income tax against the corporation was invalid.

 The 3300 Corporation (hereinafter the corporation) is a Nevada corporation with its principal place of business in Dallas, TX. It is qualified to do business in Mississippi under our statutes and does in fact do business here. On December 19, 1983, the corporation received notice from the tax commission that the commission would undertake an examination of the corporation's Mississippi tax returns for 1980, 1981, and 1982. This examination was completed on November 2, 1984. Five days later, the commission made an assessment for additional income taxes against the corporation in the amount of $4,002,546 for fiscal year 1980. This was based on the commission's position that certain income from the liquidation of Mississippi Mining & Minerals Company, a corporation of which the 3300 Corporation was a stockholder, should have been reported as taxable income. At the same time, the commission found that no additional income tax for the fiscal year 1981 was due. Later the commission changed its mind about the liquidation income and concluded that it was not taxable. Therefore, on June 24, 1985, it issued an amended assessment concluding that no additional income taxes were due for the 1980 fiscal year. At the same time, however, the commission alleges it became aware of the sale of MA-II Corporation, a subsidiary of 3300 Corporation. The commission took the position that income from this sale was taxable income for fiscal year 1981 and issued an amended assessment in the amount of $1,439,577 for fiscal year 1981. It is this assessment that is in controversy in the present case. The corporation's tax return for fiscal year 1981 was filed on December 15 of that year. The assessment was amended and issued on June 24, 1985, more than three years later. Thus, the corporation contends that amended assessment was improper under Mississippi Code Annotated 27-7-49 (1972), which states in part:

 (1) Returns shall be examined by the commissioner or his duly authorized agents within three (3) years from the due date or the date the return was filed, whichever is later, and no determination of a tax over-payment or deficiency shall be made by the commissioner, and no suit shall be filed with respect to income within the period covered by such return, after the expiration of said three-year period, except as hereinafter provided.

 (2) When an examination of a return made under this article has been commenced, and the taxpayer notified thereof, by certified mail, within the three-year examination period provided in subsection (1) of this section, the determination of the correct tax liability may be made by the commissioner after the expiration of said three-year examination period, provided that said determination shall be made with reasonable promptness and diligence.

 * * *

 (4) The three-year examination period provided in subsection (1) of this section shall not be applicable in the case of a false or fraudulent return with intent to evade a tax.

 The corporation pursued its administrative remedies without success and filed a bill in the chancery court of Hinds County praying, among other things, that the amended asssessment was improper under the terms of the statute and therefore void. The chancellor agreed with this argument and granted a motion for summary judgment in favor of the corporation. The tax commission appeals this decree.

 The single assignment of error is that the chancellor erred in granting summary judgment and striking down the amended assessment. Under this assignment of error, however, several arguments are briefed. We will discuss them as necessary.

 I. THE STATUTORY THREE-YEAR PERIOD DID NOT RUN AFTER THE COMMISSION GAVE NOTICE TO THE CORPORATION OF THE PENDING REASSESSMENT.

 As noted above, the statute says, "return shall be examined by the commissioner. . . within three years from the due date or the date the return was filed, whichever is later . . . except as hereinafter provided." Obviously, the amended assessment was improper unless it can be brought under one of the exceptions "hereinafter provided." The commission's theory is based on subsection 2 of the statute, which states that:

 Whenever an examination of a return made under this article has been commenced, and

 the taxpayer notified thereof by certified mail within the three year examination period, . . . the determination of the correct tax liability may be made by the commissioner after the expiration of the said three year examination period, provided that said ...


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