Home Concrete & Supply, LLC v. United States
2011 U.S. App. LEXIS 2334
| 4th Cir. | 2011Background
- 1999 transactions formed Home Concrete via short sales and capital contributions creating outside basis equal to proceeds.
- Home Oil transferred most its assets to Home Concrete; taxpayers then contributed interests back to Home Oil.
- Home Concrete elected §754 step-up to inside basis, reporting a modest gain from sale of assets.
- IRS did not investigate the transactions until 2003; FPAA issued September 7, 2006 increasing taxable income.
- District court held that overstated basis omitted gross income triggering §6501(e)(1)(A) six-year period; safe harbor argument rejected.
- Court to decide whether Colony controls, and whether Treasury Regulation §301.6501(e)-1 is applicable or entitled to deference.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether overstated basis omits gross income to extend limitations. | Colony controls; overstated basis does not omit income. | Overstatement may constitute omission under regulation or interpretation. | Colony controls; overstated basis is not an omission. |
| Does Colony apply beyond trade/business scenarios? | Colony applies only to trade/bus cases. | Colony applies to all taxpayers. | Colony applies universally; not limited to trade/business. |
| Whether Treasury Regulation §301.6501(e)-1 retroactively applies and merits Chevron deference. | Regulation should apply retroactively; deserves deference. | Regulation does not apply to 1999 year; not entitled to deference. | Regulation does not apply retroactively; not entitled to Chevron deference. |
| Whether the safe harbor §6501(e)(1)(B)(ii) disclosure applies. | Adequate disclosure would toll under safe harbor. | Safe harbor not satisfied given omission analysis. | Not reached; decision rests on Colony; safe harbor not controlling. |
Key Cases Cited
- Colony, Inc. v. Commissioner, 357 U.S. 28 ((1958)) (overstatement of basis not an omission under §6501(e)(1)(A))
- Bakersfield Energy Partners, L.P. v. Comm'r, 568 F.3d 767 ((9th Cir. 2009)) (Colony does not limit to trade/business context; agency interpretations not controlling when statute unambiguous)
- Salman Ranch, Ltd. v. United States, 573 F.3d 1362 ((Fed. Cir. 2009)) ( rejects limiting Colony to trade/business, supports universal application)
- UTAM, Ltd. v. Comm'r, 98 T.C.M. 422 ((Tax Ct. 2009)) (similar timeline; discusses regulation applicability)
- Grapevine Imports, Ltd. v. United States, 77 Fed. Cl. 505 ((Fed. Cl. 2007)) (supports broad reading of Colony)