The year 2012 was quite an interesting one for tax controversy. Whereas 2011 brought a win for the Treasury on deference issues in Mayo Foundation for Medical Ed. v. United States, 131 S. Ct. 704 (2011), 2012 was the year courts reminded us that deference is limited and but one side of the coin: with deference comes an obligation to abide by the Administrative Procedure Act. It was also a year in which splits among circuits on various tax issues made the news. See, e.g., United States v. Quality Stores, Inc., 693 F.3d 605 (6th Cir. 2012) (FICA taxability of certain payments). And, in a particularly interesting development, 2012 saw a number of cases in which the Internal Revenue Service (IRS) relied more on debt-equity classification arguments to challenge transactions instead of economic substance. On the administrative side, 2012 was one of change for the IRS as it announced a realignment of the Large Business and International (LB&I) Division, terminated its Tiered Issue Process in favor of a new approach, and refined its Quality Examination Process. As we settle into a new year, we take a look back at some of the important tax items that made news in 2012 and that may have continuing importance in the forseeable future.
1. Home Concrete – U.S. Supreme Court Puts Limits on Treasury Overreach
On April 25, 2012, a divided five-to-four U.S. Supreme Court held in U.S. v. Home Concrete & Supply, LLC, et., al., 132 S.Ct. 1836 (2012), that the extended six-year statute of limitations under IRC Section 6501(e)(1)(A) is not triggered by a taxpayer’s overstatement of basis in property, even if the overstatement of basis results in an understatement of gain greater than 25% of the gross income stated on the taxpayer’s return. The Court’s holding followed an interpretation of the statute announced by the Supreme Court in a prior case, Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), which the Court held to remain good, controlling law, notwithstanding the Treasury’s attempt to produce a different result by adopting a regulation that interpreted the statute differently. Nevertheless, no opinion was able to garner a majority of the Court’s justices, indicating that the Supreme Court remains divided on questions of deference to agency interpretations and that the issue of deference will continue to generate controversy in the future.
Please see full publication below for more information.