Supreme Court Decision Alert - April 25, 2012

Originally published April 25, 2012

Keywords: taxation, statue of limitations, capital gains, statute of limitations

Today the Supreme Court issued one decision, described below, of interest to the business community.

Taxation—Statute of Limitations

United States v. Home Concrete & Supply, LLC, No. 11-139 (previously discussed in the September 27, 2011 Docket Report).

The Supreme Court held today in United States v. Home Concrete & Supply, LLC, No. 11-139, that an overstatement of the taxpayer's basis in a partnership interest, which thereby limits the capital gains tax on a sale of that interest, is not an "om[ission] from gross income" under 26 U.S.C. § 6501(e)(1)(A). The overstatement is therefore subject to the ordinary three-year statute of limitations for tax deficiencies, 26 U.S.C. 6501(a), rather than the special six-year limitations period that applies to certain omissions under Section 6501(e)(1)(A).

Justice Breyer wrote an opinion, most of which was joined by Chief Justice Roberts and Justices Scalia, Thomas, and Alito, and was to that extent the opinion of the Court. A portion of Justice Breyer's opinion was joined only by Chief Justice Roberts and Justices Thomas and Alito, and thus reflects the views merely of a plurality of the Court. Justice Scalia wrote an opinion concurring in part and concurring in the judgment. The majority held that the case is controlled by the Court's decision in Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), which interpreted identical language in an earlier version of the tax code to apply only when "specific receipts or accruals of income are left out of the computation of gross income," not when gross income is understated through other means.

Although it did not agree on a single rationale for doing so, a majority of the Court also held that the Colony holding has not been superseded by a subsequent Treasury Department regulation providing that "omission from gross income" includes an understatement of gross income attributable to an overstatement of basis. Writing for the four-Justice plurality, Justice Breyer concluded that, although there is "linguistic ambiguity" in the statute, deference to the agency's interpretation is not warranted under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984), given the principle of stare decisis and the Court's prior determination in Colony that Congress had "directly spoken" to the issue, and had thus left no statutory...