Supreme Court Finds No Extended Limitations Period for Basis Overstatement

Cole Schotz
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The U.S. Supreme Court recently held that an overstatement of basis did not trigger the extended six-year statute of limitations assessment period under Internal Revenue Code Section 6501(e)(1)(A) (United States v. Home Concrete & Supply LLC, U.S., No. 11-139, 4/25/12).

The Court in a 5-4 split decision affirmed a U.S. Court of Appeals for the Fourth Circuit decision holding that an understatement of income resulting from overstatement of basis in goods sold is not an omission from gross income triggering the extended assessment period.

Under Section 6501(e), the normal three (3) year statute is extended to six (6) years if the taxpayer omits gross income in excess of 25% of the amount stated on the return.  This decision essentially clarified the Court’s 1958 ruling in Colony, Inc. v. Commissioner in determining that misstatements of basis in property do not fall within the scope of Section 6501(e)(1)(A) which calls for the extended limitations period.  In addition, the decision rejected the Government’s argument that a recently promulgated Treasury Regulation interpreting the statute in its favor should be given deference since Colony had already interpreted the statute and any construction inconsistent with Colony was not available.
 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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