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05-11-2012 Supreme Court Strikes Blow to IRS on Assessment of Deficiencies

Delivered on April 25, 2012, the U.S. Supreme Court opinion of U.S. v. Home Concrete & Supply, LLC, et al., 566 U.S. ______, addresses the interpretation of § 6501 of the U.S. Code. Under § 6501(a), the Government normally must assess a deficiency against a taxpayer within three years after that taxpayer has filed his or her return. However, § 6501(e)(1)(A) extends the assessment period to six years under certain conditions. If a taxpayer fails to report income valued at more than 25% of the amount of gross income reported in the return, then the Government's window for assessing deficiencies becomes six years, instead of three.

The plurality opinion in Home Concrete holds that a taxpayer's overstatement of basis does not trigger the extended six-year period for assessment of deficiencies. The Court relied on its prior decision in Colony, Inc. v. Commissioner, 357 U.S. 28, which addressed the interpretation of substantially the same statute. In Colony, the Court acknowledged that overstating basis does incorrectly understate a taxpayer's income. However, the Colony Court held that the phrase "omits . . . an amount" limits the statute's application to only those instances in which a specific receipt is left out of the computed gross income on a return.

The Court in Home Concrete held that the Colony opinion decided the issue. To interpret substantially the same statute differently would risk overturning the Colony decision, and the Court was not willing to do that based on principles of stare decisis. The Government pointed out that several parts of the Code had changed since the Colony opinion, but the Court concluded that those changes in statutory language were not significant enough to warrant holding that Congress intended the updated version of § 6501 to have a different meaning. Further, the Court refused to defer to a recent Treasury Regulation interpreting § 6501 to apply the six-year period to overstatements of basis. The Court held that the Colony opinion has already interpreted the language in § 6501, so there is no room for the IRS to issue a different interpretation.

The Home Concrete decision is a significant loss for the IRS and could prove very applicable in cases of property received from the estate of a decedent.

Fraser Stryker is a leader in tax and estate planning. Attorneys in the Firm's Taxation and Estate Planning Practice Groups advise individuals, beneficiaries, and fiduciaries on a wide variety of tax, estate planning, and estate and trust administration matters. For additional information on this or other tax or estate planning issues, please contact Daniel J. Guinan, or Adam D. Grieser in Fraser Stryker's Taxation and Estate Planning Practice Groups.


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