Grapevine Imports, Ltd. v. United States
2011 U.S. App. LEXIS 4967
| Fed. Cir. | 2011Background
- Grapevine Imports, Ltd. and T-Tech, Inc. faced an IRS FPAA reducing basis in Grapevine for 1999 related to a complex short-sale transaction involving two Tigues.
- Tigues allegedly overstated their basis in Grapevine to reduce capital gains, transferring proceeds and closing obligations through Grapevine.
- Grapevine challenged the FPAA as time-barred under three-year limits, while the government argued a six-year extended-period applied due to a substantial omission from gross income.
- Court of Federal Claims ruled in Grapevine's favor, following Colony and Salman Ranch that basis overstated items did not constitute omissions from gross income.
- Treasury issued temporary, then final regulations (2010) interpreting §6501(e)(1)(A) and §6229(c)(2) to treat basis overstatements as omissions in many contexts, triggering the six-year period.
- The Federal Circuit applied Chevron deference to the new Treasury regulations, reversed the CFC judgment, and remanded for proceedings consistent with the regulations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether basis overstatement is an omission from gross income | Grapevine relies on Colony and Salman Ranch that overstated basis is not an omission. | Government contends Colony and Salman Ranch do not control outside their contexts; regulations interpret ambiguity. | Ambiguity found; regulations deference applied, so regulation governs. |
| Whether the new Treasury regulations are entitled to Chevron deference | Grapevine argues regulations should not supersede prior judicial interpretations. | U.S. argues regulations are reasonable interpretations and deserve Chevron deference. | Regulations are entitled to Chevron deference; they are a reasonable interpretation. |
| Whether the Treasury regulations apply retroactively to Grapevine's 1999 return | Retroactivity should be limited; regulations cannot alter past final judgments. | Regulations may apply retroactively where Congress intends and within statutory bounds. | Regulations properly apply retroactively within statutory framework. |
Key Cases Cited
- Colony, Inc. v. Comm'r of Internal Revenue, 357 U.S. 28 (1958) (held overstated basis not an 'omission' triggering extended period under prior law)
- Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009) (panel held Colony did not conclusively resolve outside trade context)
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (establishes two-step framework for agency deference to regulations)
- Brand X Internet Services v. United States, 545 U.S. 967 (2005) (agency construction prevails if statute is ambiguous and reasonable)
- Mayo Foundation for Medical Education & Research v. United States, 131 S. Ct. 704 (2011) (affirms Chevron deference framework for Treasury interpretations)
- United States v. Mead Corp., 533 U.S. 218 (2001) (narrows Chevron analysis when interpreting agency interpretations)
- Smiley v. Citibank (S.D.), N.A., 517 U.S. 735 (1996) (recognizes regulatory interpretations may arise in litigation context)