Burks v. United States
633 F.3d 347
| 5th Cir. | 2011Background
- This is a consolidated Fifth Circuit appeal addressing whether an overstatement of basis in Son of BOSS shelters constitutes an omission from gross income under 26 U.S.C. § 6501(e)(1)(A).
- The IRS issued Final Partnership Administrative Adjustments after more than three but less than six years from the taxpayers' returns, arguing the six-year period applied due to omission of gross income exceeding 25% of reported gross income.
- Burks (and MITA) and related taxpayers challenged, arguing the three-year period applied because overstatement of basis is not an omission from gross income; the government argued Colony and Phinney require the six-year period.
- The Tax Court sided with the taxpayers, relying on Colony andPhinney, while district court had treated Phinney differently; the government appealed.
- The court holds that an overstatement of basis is not an omission from gross income for purposes of § 6501(e)(1)(A), so the three-year period applies, and Treasury Regulations defining omissions do not control the outcome here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does an overstatement of basis constitute an omission from gross income? | Burks argues overstatement of basis is not an omission. | U.S. argues Colony/Phinney and § 6501(e)(1)(A) support six-year period. | Overstatement of basis is not an omission; three-year period applies. |
| Is Colony controlling under the revised § 6501(e)(1)(A)? | Colony should apply to determine omissions under the revised statute. | Phinney narrowed Colony; six-year period may apply for omissions or misstatements that place the government at a disadvantage. | Colony remains applicable; overstatement of basis does not trigger the six-year period. |
| Do subsections (i) and (ii) of § 6501(e)(1)(A) affect Colony's application outside trade contexts? | Colony should apply broadly without reducing to a trade context. | Subsection (i) and (ii) might limit or modify Colony's reach. | Colony applies; subsection (i) does not render Colony superfluous outside trade context. |
| Do Treasury Regulations defining omissions retroactively control the outcome? | Regulations should apply and define omissions to include basis overstating. | Regulations are not controlling where the statute is unambiguous; retroactivity is improper. | Regulations do not control; six-year is not triggered and retroactivity is not resolved because statute is unambiguous. |
Key Cases Cited
- Colony, Inc. v. Comm'r, 357 U.S. 28 (Supreme Court 1958) (omits from gross income; extended period when income omitted or misreported)
- Phinney v. Chambers, 392 F.2d 680 (5th Cir. 1968) (misreporting the nature of an item can constitute an omission if it places IRS at a disadvantage)
- Salman Ranch Ltd v. United States (Salman Ranch II), 573 F.3d 1362 (Fed. Cir. 2009) (colony interpretation extended to revised statute; rejection of superfluity theory)
- Bakersfield Energy Partners v. Comm'r, 568 F.3d 767 (9th Cir. 2009) (Colony interpretation not limited to trade/business context)