Salman Ranch, Ltd. v. Commissioner
647 F.3d 929
| 10th Cir. | 2011Background
- Partnership Salman Ranch owns a New Mexico ranch; 1999 short-seller proceeds of $10,982,373 were transferred to the Partnership with the corresponding obligation to close the short sales; the Partnership satisfied the obligation by purchasing replacement bonds.
- In November 1999, the Partnership technically terminated under IRC 708(b)(1)(B), enabling basis adjustments under 754 and 743(b)(1); the adjustment increased basis without reducing for the closing obligation.
- December 1999 sale of ranch portion for $7,188,588 and option to purchase remainder; option exercised in 2001, second sale of ranch for $7,260,084 with payments in 2001-2002.
- 2001 and 2002 tax returns showed basic sale figures and installment income, but did not explain the link between the stepped-up basis and the short-sale transactions; IRS later determined these as a Son of BOSS shelter and issued FPAAs for 1999, 2001, 2002 beyond 3 years but within 6 years.
- Salman Ranch II and prior litigation concluded the six-year period did not automatically apply to basis overstated outside trade contexts; subsequently, the IRS issued regulations in 2009–2010 adopting a broader interpretation that overstated basis can be an omission from gross income for purposes of the six-year period when not in a trade context; the Partnership filed in Tax Court challenging the 2001 and 2002 FPAAs as time-barred under 6501(a).
- This appeal tests whether the new Treasury regulations should control, whether collateral estoppel binds the court to Salman Ranch II, and whether the six-year period applies to the 2001 and 2002 FPAAs; the district court granted summary judgment for the Partnership, which the IRS appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the new treasury regulations warrant Chevron deference. | Salman Ranch argues Colony controls and regulations are not applicable. | IRS argues regulations correctly interpret ambiguity in §6501(e)(1)(A). | Regulations receive Chevron deference; they are a permissible construction. |
| Whether collateral estoppel binds this case to Salman Ranch II. | Salman Ranch contends Salman Ranch II precludes deviation. | Regulation creates intervening authority altering the legal landscape. | Collateral estoppel does not apply; the regulations permit deference to the IRS construction. |
| Whether six-year period applies to the 2001 and 2002 FPAAs due to basis overstatement. | Colony-based view deemed six-year period inapplicable for basis overstatements outside trade context. | Regulations define omission from gross income to include basis overstatement outside trade context; six years apply. | Six-year period applies; FPAAs timely under §6501(e)(1)(A). |
| Whether Colony, Grapevine, and Salman Ranch II control interpretation of §6501(e)(1)(A) or whether the IRS regulations govern. | Colony controls interpretation; regulations should not be applied. | Regulations fill ambiguity; Chevron deference to IRS interpretation. | Colony remains ambiguous; regulations are controlling via Chevron step two. |
Key Cases Cited
- Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009) (six-year period not limited to trade context per Grapevine decision guidance)
- Colony v. Commissioner, 357 U.S. 28 (Sup. Ct. 1958) (overstatement of basis ambiguous; five-year vs three-year context; early interpretation of omits from gross income)
- Grapevine Imports, Ltd. v. United States, 636 F.3d 1368 (Fed. Cir. 2011) (Congress's meaning remains ambiguous; chevron deference to IRS construction upheld)
- Beard v. Commissioner, 633 F.3d 616 (7th Cir. 2011) (discussion on §6501(e)(1)(A) and context of gross income outside trade)
- Mayo Foundation for Med. Educ. & Research v. United States, 131 S. Ct. 704 (S. Ct. 2011) (tax context Chevron review reaffirmed; agency deference proper when reasonable)
- Grapevine Imports, Ltd. v. United States, 636 F.3d 1368 (Fed. Cir. 2011) (final regulation applicable; Chevron deference to IRS interpretation affirmed)
- Sunnen v. United States, 333 U.S. 591 (Sup. Ct. 1948) (collateral estoppel context noted in tax regulation evolution)
- Beard v. Commissioner, 633 F.3d 616 (7th Cir. 2011) (discussion of §6501(e)(1)(A) interpretations)