Intermountain Insurance Service of Vail v. Commissioner of Internal Revenue Service
397 U.S. App. D.C. 7
| D.C. Cir. | 2011Background
- Intermountain sold assets in 1999 and reported a loss, claiming a basis in the assets that produced a negative gain.
- The IRS asserted approximately $2 million of income was omitted due to basis overstatements, and issued an FPAA in 2006 reversing the reported basis to $0.
- Intermountain sought Tax Court summary judgment arguing the FPAA was untimely under the standard 3-year statute; IRS urged a 6-year extended period under 6501(e)(1)(A) and 6229(c)(2).
- Colony, Inc. held that basis overstatements do not qualify as omissions within the pre-1954 language; Congress later added subsection (i) to 6501(e)(1)(A) in 1954 to address trade/business context.
- Tax Court initially held Colony controlled and granted summary judgment to Intermountain, but the IRS issued temporary regulations expanding omissions to include basis overstatements outside the trade context.
- The DC Circuit reverses the Tax Court, holding that the final regulations are valid, apply to the case, and that Colony does not control the interpretation of 6501(e)(1)(A) and 6229(c)(2) outside the trade context.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does basis overstatement trigger the six-year statute? | Intermountain: no, basis overstatements are not omissions. | Commissioner: yes, basis overstatements omit income, triggering six years. | Yes; six-year period may apply. |
| Is Colony controlling for 6501(e)(1)(A) outside trade context? | Intermountain: Colony controls. | Commissioner: Colony does not control outside trade context. | Colony does not control outside trade context. |
| Are final regulations entitled to Chevron deference? | Intermountain: regulations should not be given Chevron deference. | Commissioner: regulations deserve Chevron deference. | Regulations are entitled to Chevron deference. |
| Do the regulations apply to Intermountain given applicability dates? | Intermountain: regulations do not apply; pre-regulation law governs. | Commissioner: regulations apply to open years after 9/24/2009. | Regulations apply to this case. |
| Was there proper open-mindedness in final regulation promulgation? | Open-mindedness may be lacking due to litigation-triggered regulation. | Final regulations were promulgated with open-minded consideration. | Regulations were validly promulgated; open-mindedness satisfied. |
Key Cases Cited
- Colony, Inc. v. Commissioner, 357 U.S. 28 (1958) (basis overstatements—not clearly within original 275(c) language; legislative history decisive)
- Bakersfield Energy Partners v. Comm'r, 568 F.3d 767 (9th Cir. 2009) (basis overstatements treated as omissions in some circuits)
- Home Concrete & Supply, LLC v. United States, 634 F.3d 249 (4th Cir. 2011) (limits of Colony's applicability to 6501(e)(1)(A))
- Burks v. United States, 633 F.3d 347 (5th Cir. 2011) (Colony interpreted to apply outside trade context by some circuits)
- Beard v. Comm'r, 633 F.3d 616 (7th Cir. 2011) (Colony not controlling; regulatory interpretation possible)
- Grapevine Imports, Ltd. v. United States, 636 F.3d 1368 (Fed. Cir. 2011) (regulations can displace Colony under Brand X framework)