In United States v. Home Concrete & Supply, LLC, the US Supreme Court affirmed the decision of the Fourth Circuit, holding that Section 6501(e)(1)(A) of the Internal Revenue Code, which extends the limitations period for the government to assess a deficiency against a taxpayer, does not apply when a taxpayer overstates the basis in property that he has sold, thereby understating the gain received from the sale. Justice Scalia filed a concurring opinion. Justice Kennedy filed a dissenting opinion, which was joined by Justices Ginsburg, Sotomayor, and Kagan.
The case involved a 1999 sale of a heating oil and concrete business, Home Concrete & Supply LLC. The transaction totaled about $10.6 million, according to court records. A tax shelter, structured by a law firm that was later shut down by the IRS, enabled the partnership holding the oil business to report a gain of just $69,000 from the sale. By the time the IRS audited the partnership, the three-year statute of limitations had expired. The IRS argued that a six-year statute of limitations should apply. The six-year statute typically applies in cases in which the taxpayer has omitted income.
Justice Breyer writing for the plurality, the Court affirmed the lower court’s invalidation of Treas. Reg. § 301.6501(e)-1, holding that the Court’s earlier decision in Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), “determines the outcome of this case” and that language in IRC § 6501(e)(1)(A) extending the limitations period for IRS deficiency assessments “does not apply to an overstatement of basis.”
The plurality rejected the IRS’s argument that a recently issued Treasury Regulation interpreting the statute’s operative language in the IRS’s favor should be granted deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) and National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U. S. 967 (2005). The Court determined that Congress’s intent with § 6501(e) was clear at the time of the Colony decision and continues to be clear today. The decision in Brand X only authorized an agency to adopt regulations contrary to a judicial decision, like Colony, when a statute’s silence or ambiguity represents a congressional delegation of gap-filling authority to the agency. The Court found no such delegation here.
To read the Court’s opinion click here.