United States v. Home Concrete & Supply, LLC
Issues
Whether the Internal Revenue Service may benefit from an extended six year statute of limitations, provided for in cases of income omissions under 26 U.S.C. 6501(e)(1)(A), to assess additional taxes when the taxpayer reports understated income due to inflation of basis from a property transaction.
In 2006, the IRS adjusted Respondent Home Concrete’s 1999 tax return, claiming that Home Concrete overstated its basis in sold assets. The Fourth Circuit found that this adjustment was untimely under the general three year statute of limitations for IRS actions, concluding that overstatements of basis are not omissions that would trigger an extended six year statute of limitations. Petitioner, the United States, argues that the language and purpose behind the statute clarify that overstating a sold asset’s basis triggers the extended period, and that the Fourth Circuit should have deferred to the IRS's statutory interpretation contained within a Treasury Department regulation finalized during the appeal. Home Concrete argues that Supreme Court precedent applies here, eliminating ambiguity in the statutory interpretation. The Supreme Court’s decision will resolve a circuit split over the proper limitations period; the decision will also address the degree of deference due to a Treasury regulation that may be interpreted as conflicting with Supreme Court precedent, and that may be viewed as applying retroactively. The Court’s decision may affect the IRS’s timeframe to detect certain complex tax schemes, and the time period within which taxpayers are subject to audits.
Questions as Framed for the Court by the Parties
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.
n 1999, Respondent Robert Pierce sought to sell his ownership in the Home Oil and Coal Company (“Home Oil”). See Home Concrete & Supply, LLC et. al. v. United States, 634 F.3d 249, 251 (4th Cir.
Edited by
Additional Resources
Wex: Chevron Deference
Journal of Accountancy, Karyn Friske and Darlene Pulliam: Circuit Split Deepens on Six-Year Period for Basis Overstatements (May 2011).
Martindale, Dustin Covello: Even after Mayo, Fourth Circuit’s Home Concrete Opinion May Have Paved the Way for Invalidating the 6501(e) Regs (Feb. 16, 2011).