A $6 million tax bill landed before the Supreme Court on Tuesday, leaving the justices to determine the will of Congress and the high court’s own decisions from more than 50 years ago. (See the Reuters preview here.)
The case centers on a law from 1954 in which Congress granted the Internal Revenue Service an extended statute of limitations to ferret out tax cheats when the taxpayer “omits from gross income” more than 25 percent of his or her tax liability.
The tax shelter at issue – known as Son of Boss transaction – claimed fake tax losses, or an “overstatement of basis.”
The IRS tried to argue X equaled Y – that an overstatement of basis was the same as an omission of gross income.
Lower courts were not kind to that IRS argument. So in 2009, the IRS wrote a regulation stating that an overstatement of basis was the same as an omission of income. Taxpayers balked, saying the regulation overstepped the service’s authority.