Mr. J. Louis Monarch, of Washington, D.C., for petitioner.

Mr. Raphaell Dechter, of Los Angeles, Cal., for respondents. [321 U.S. 219, 220]

Mr. Justice JACKSON delivered the opinion of the Court.

The Lane-Wells Company is a transferee and successor of the taxpayer Technicraft Engineering Corporation and as such is liable for its taxes. The Commissioner, the Board of Tax Appeals,1 and the Circuit Court of Appeals2 have held that Technicraft was a personal holding company in 1934, 1935, and 1936, and that question is no longer open.

For the years named, Technicraft filed the usual corporation income tax returns on Treasury Form 1120. On this form the following appeared: Is the corporation a personal holding company within the meaning of section 351 of the Revenue Act of 1934 (or the appropriate year)? (If so, an additional return on Form 1120H must be filed.) To this each year Technicraft answered, No. In none of the years in question did it file a personal holding company return on Form 1120H. It was advised, and in good faith believed, that it was not a personal holding company within the meaning of the Act.

The Commissioner relies upon the taxpayers alleged default in two respects. First, the deficiency notices were given within three years of the filing of the corporate return on Form 1120 for the year 1936, but not within three years of such returns for 1934 and 1935 and not within four years (the period as to a transferee) of the 1934 return. Hence, a part of the tax is barred by the statute of limitations if the return filed is the only one required to start the statute. Second, the Commissioner has assessed and the Board has upheld as to each year a 25 per cent penalty for failure to file the personal holding company return. [321 U.S. 219, 221] The Court of Appeals for the Ninth Circuit reversed the decision of the Board of Tax Appeals. It held the one return sufficient to start the running of the limitation statute as to both income taxes and personal holding company taxes and held that there was no default warranting imposition of the penalty. This decision conflicted with that of the Court of Appeals for the Second Circuit in Simpson & Co. v. Commissioner, 128 F. 2d 742, and we granted certiorari, 320 U.S. 724, 64 S.Ct. 41.

Prior to 1934, as now, personal holding companies were liable for the regular corporation income taxes under Title I of the Revenue Acts and they, like all other corporations, were subject to additional tax upon an accumulation of profits where there was present a purpose of avoiding surtaxes upon shareholders. 3 The obscurity of corporate taxpayers purposes and difficulties of proof made the latter tax something of a dead letter in practice, and a new tax was devised to provide for a tax which will be automatically levied upon the holding company without any necessity for proving a purpose of avoiding surtaxes. 4 The new tax was included in a separate title of the Revenue Act of 1934, Title IA- Additional Income Taxes, and constituted Section 351, entitled Surtax on Personal Holding Companies. As part (c) thereof it enacted that administrative provisions, including penalties, applicable in respect of the taxes imposed by Title I should apply in respect of the tax imposed by this section. 5 It seems [321 U.S. 219, 222] clear that this section created a new tax separate from that on income of ordinary corporations.

Among the administrative provisions of Title I incorporated by reference in the personal holding company tax section are 54(a),6 which requires one liable for such tax to make such returns, and comply with such rules and regulations, as the Commissioner, with the approval of the Secretary, may from time to time prescribe, and 62, which directs the Commissioner to prescribe and publish all needful rules and regulations for the enforcement of this ti