Saturday, January 29, 2011

APPEALS COURT BREATHES NEW LIFE INTO OVERSTATED BASIS ISSUE

On several occasions, we have written about cases where courts have held that the six-year extended statute of limitations for a 25% omission of gross income from an income tax return will not apply when the unreported income arises from the taxpayer overstating his basis in a sold asset. It now appears that the IRS' dogged persistence in fighting these cases has paid off, at least in one court.

In a decision of the Seventh Circuit Court of Appeals, the court has reversed the Tax Court in its decision and held that an overstatement of basis is an omission of gross income for this purpose.

This decision is contrary to holdings in the Nine Circuit and in the Court of Appeals for the Federal Circuit. Thus, the stage is set for a possible US Supreme Court resolution of this issue.

Beard v Comm., (CA 7, 1/26/2011)

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