United States v. Home Concrete & Supply, LLC

Supreme Court of the United States · 2012 · Administrative Law

Administrative LawTaxStatutory InterpretationChevron DeferenceStare Decisis26 U.S.C. §6501(e)(1)(A)limitations periodomits from gross income

Facts

The taxpayers filed the relevant returns in April 2000. Their returns overstated the basis of property they had sold, which caused them to understate the gross income received from the sales by more than the statute's 25% threshold. The Commissioner asserted deficiencies outside the normal 3-year limitations period but within the 6-year period. The case turned on whether this basis overstatement counted as an omission from gross income under §6501(e)(1)(A).

Issue

Does 26 U.S.C. §6501(e)(1)(A), which extends the assessment period to 6 years when a taxpayer 'omits from gross income' an amount exceeding 25% of stated gross income, apply when the taxpayer overstates basis in sold property and thereby understates gain? If not, can a later Treasury regulation adopting the Government's contrary interpretation receive Chevron deference?

Rule

Section 6501(e)(1)(A) does not apply to an overstatement of basis. Under Colony, the phrase 'omits from gross income an amount' is limited to situations in which specific receipts or accruals are left out of the computation of gross income, not situations where income is understated because basis is overstated; and because Colony already interpreted the statute, there is no remaining gap for the Treasury to fill with a contrary regulation.

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In Phoenix, Lena Ortiz sold a parcel of land and reported the sale on her federal return. She listed the amount realized but inflated her basis, which reduced the gain shown by more than 25% of the gross income stated on the return. Four and a half years later, the Commissioner issued a deficiency notice.

Is the deficiency notice timely under the 6-year limitations period in §6501(e)(1)(A)?

Explanation. The 6-year period applies only when the taxpayer omits from gross income an amount properly includible therein. The majority held that this phrase covers situations where specific receipts or accruals are left out, not where a taxpayer reports the transaction but overstates basis and thereby understates gain. Because the return disclosed the sale and the error arose from basis inflation, the ordinary 3-year period governs, so an assessment after 4.5 years is untimely. (Derived from United States v. Home Concrete & Supply, LLC (2012).)