The U.S. Supreme Court in a 5–4 decision affirmed the Fourth Circuit’s holding in Home Concrete & Supply, LLC, that a taxpayer’s overstatement of basis in property sold was not an omission from gross income for purposes of the extended six-year statute of limitation under Sec. 6501(e)(1)(A).
The Supreme Court’s decision resolves a split in the courts, with the Fifth and Ninth Circuits and the Tax Court having held similarly that overstating basis does not extend the statute. The Seventh, Tenth, Federal, and District of Columbia Circuits had ruled for the government on the issue (see previous Tax Matters coverage: Dec. 2011, page 62; Aug. 2011, page 58; and May 2011, page 58); the Supreme Court, subsequent to its decision in Home Concrete, vacated and remanded those decisions on appeal.
In a majority opinion written by Justice Stephen Breyer, the Court’s decision is primarily a victory for stare decisis (by which courts follow precedent and do not lightly overturn settled principles of law). According to Breyer, because the Court’s decision in Colony, Inc., 357 U.S. 28 (1958), interpreted language from the Internal Revenue Code of 1939 that was “materially indistinguishable” from that at issue here, the current Court could not give identical language a different interpretation without overruling Colony. Breyer dismissed as “fragile” and “weak” the government’s arguments that more recent amendments to Sec. 6501 (although not to the language at issue here) meant that Congress intended to change the statutory rule interpreted in Colony, and that Colony should therefore not apply. The majority opinion was joined in full by Chief Justice John Roberts and Justices Clarence Thomas and Samuel Alito, and in part by Justice Antonin Scalia.
A dissenting opinion by Justice Anthony Kennedy (joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan) agreed with the government’s argument that the amendments to the statute since Colony was decided meant that the Colony decision should no longer apply. The dissent argued that an ambiguous provision should not have to be read the same way after it was reenacted with additional language, which suggests that Congress would not only allow a different interpretation but may have even intended one.
In a separate concurring opinion, Scalia criticized one part of Breyer’s opinion, in which he did not join. That part of the opinion discusses Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and the plurality’s reasoning as to why the Court’s opinion in Colony precluded the IRS from issuing new regulations to change the interpretation of the statute. Scalia argued that the Court should have simply found the new regulation unreasonable instead of revising the meaning of Chevron “yet again in a direction that will create confusion and uncertainty.”
- Home Concrete & Supply, LLC, Sup. Ct. Dkt. No. 11-139 (U.S. 4/25/12), aff’g 634 F.3d 249 (4th Cir. 2011)