June 22, 2011
The D.C. Circuit yesterday reversed the Tax Court in Intermountain, handing the government more ammunition to use if, as appears increasingly likely, the Supreme Court considers the question of the applicability to overstatements of basis of the six-year statute of limitations found in Code sections 6229(c)(2) and 6501(e)(1)(A). This now makes the score 4-2 for the government and represents the third straight court of appeals to adopt the government’s primary argument that courts owe Chevron deference to the relatively recent Treasury regulations interpreting the six-year statutes to apply to overstatements of basis.
The D.C. Circuit’s opinion is comprehensive, tracing the same ground as the Federal Circuit’s Grapevine decision, but also supplementing that court’s analysis. In particular, the D.C. Circuit explores in detail the background of Colony and the legislative history of the 1954 Code in order to justify the conclusion that section 6501 does not unambiguously provide that overstatements of basis do not trigger the six-year statute — even though the same statutory term “omission from gross income” in the 1939 Code was construed in Colony not to include overstatements of basis. Having reached that conclusion, the D.C. Circuit found that the Chevron step two analysis was “easy,” and there was no justification for suggesting that the Treasury regulation was an unreasonable interpretation of the statute.
One item of interest is the court’s refusal to address a couple of arguments made by Intermountain’s counsel because they were not raised in a timely fashion. The court’s analysis distinguishing current law from the 1939 Code provision addressed in Colony relies heavily on the 1954 addition of section 6501(e)(1)(A)(i), which specifically addresses “gross income” in the case of a trade or business. Intermountain contended at oral argument that this analysis ought to be irrelevant in a case that involved only section 6229, not section 6501. The court, however, refused to consider that argument, stating that Intermountain had never before argued “that the two sections have different meanings outside the trade or business context.” The court also refused to consider, as raised too late, Intermountain’s reliance on positions taken by the Commissioner on the meaning of Colony before the son-of-BOSS cases arose. One might see these arguments raised and addressed in the Supreme Court down the road.
The Intermountain opinion also governs the companion UTAM case that was argued in tandem. The D.C. Circuit did issue a separate opinion in UTAM addressing an issue unique to that case — whether a final partnership administrative adjustment (FPAA) tolls an individual partner’s limitations period under section 6501 in the same way section 6229(d) tolls the section 6229(a) “minimum period.” The court ruled for the government on that issue as well, and we plan to address that opinion in another post.
Intermountain is likely the last that will be heard from the courts of appeals on the six-year statute issue before it moves to the Supreme Court. (The Federal Circuit, as expected, denied rehearing in Grapevine on June 6. Reynolds Properties v. Commissioner, No. 10-72406, has been fully briefed in the Ninth Circuit, but oral argument is not yet scheduled.) The government’s recent successes in the courts of appeals give it a lot of momentum heading to the Court. Of course, it is often said that momentum is only as good as the next day’s starting pitcher, and in the end the Supreme Court will make up its own mind without regard to the score in the courts of appeals. The government’s anticipated petition for certiorari in Home Concrete is due July 5.