Yesterday the Supreme Court granted cert in United States v. Home Concrete & Supply, LLC, No. 11-139 (S. Ct.) [Home Concrete & Supply, LLC v. United States, 634 F.3d 249 (4th Cir. 2011)], which raises the same issue as the D.C. Circuit’s opinion in Intermountain Ins. Serv. of Vail, LLC, v. Comm’r, No. 10-1204 (D.C. Cir. June 21, 2011, amended Aug. 18, 2011) (Tatel, J., joined by Sentelle, C.J., & Randolph, S.J.), but reaches the opposite result.
Following Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), the Fourth Circuit held that “[a]n overstated basis in property is not an omission from gross income that extends the limitations period in § 6501(e)(1)(A).” 634 F.3d at 258, slip op. at 15, and therefore the IRS’s asssessment more than three years after taxpayer filed the relevant return was untimely.
The D.C. Circuit held otherwise. Deferring to Treasury regulations that interpreted the relevant statute of limitations differently than the Supreme Court had in Colony, 26 C.F.R. §§ 301.6501(e)-1T; 301.6229(c)(2)-1T (2010), Judge Tatel‘s opinion held that the statute of limitations was ambiguous as to the treatment of overstated basis and the regulation reasonably interpreted the statute’s reference to an “omi[ssion] from gross income [of] an amount properly includible therein” to include an overstatement of basis. Under the Supreme Court’s Brand X line of cases, deference was no less appropriate because the regulations were promulgated in response to litigation after the underlying Tax Court case was decided and effectively reversed the Supreme Court’s interpretation in Colony. Slip op. at 26. Although the regulations’ effective date fell after the expiration of the three-year limitation period, the agency reasonably interpreted its own regulations to apply to cases pending as of the effective date.
Cases raising the same issue have been decided in the Fifth, Seventh, Ninth, Tenth, and Federal Circuits. The D.C. Circuit’s Intermountain decision accords with the decisions of the Seventh Circuit and the Federal Circuit in Beard v. Comm’r, 633 F.3d 616 (7th Cir. 2011) and Grapevine Imps., Ltd. v. United States, 636 F.3d 1368 (Fed. Cir. 2011).
Questions Presented in the Government’s Cert Petition in Home Concrete:
As a general matter, the Internal Revenue Service (IRS) has three years to assess additional tax if the agency believes that the taxpayer’s return has understated the amount of tax owed. 26 U.S.C. 6501(a). That period is extended to six years, however, if the taxpayer “omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the [taxpayer’s] return.” 26 U.S.C. 6501(e)(1)(A). The questions presented are as follows:
1. Whether an understatement of gross income attributable to an overstatement of basis in sold property is an “omi[ssion] from gross income” that can trigger the extended six-year assessment period.
2. Whether a final regulation promulgated by the Department of the Treasury, which reflects the IRS’s view that an understatement of gross income attributable to an overstatement of basis can trigger the extended six-year assessment period, is entitled to judicial deference.
- Alan Horowitz, Supreme Court Agrees to Hear Home Concrete Case to Address Six-Year Statute Issues (Tax Appellate Blog, Sept. 27, 2011).