Tax Controversy Updates:
Temporary regulations define omission from gross income for purposes of statute of limitations
On September 23, 2009 the Internal Revenue Service
released temporary and proposed regulations, Temp. Treas. Reg. Section 301.6501(e)-1T,
TD 9466, that define an 
omission from gross income for purposes of the six-year
minimum period for assessment of tax attributable to partnership items and
the six-year period for assessing tax. The temporary regulations provide that
outside the context of a trade or business, any basis overstatement that leads
to an understatement of gross income under IRC Section 61(a) constitutes an
omission from gross income for purposes of IRC Sections 6501(e)(1)(A) and 6229(c)(2).
The effective date for this temporary regulation, September 24, 2009, is for
any taxpayer’s return that is open under the 6-year statute on the effective
date.
The Internal Revenue Service is already testing the validity of this temporary regulation through the government’s filing of a petition for a panel rehearing of an earlier adverse opinion on this issue in Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. Ct. of App. July 30, 2009). Similar motions have been filed by the government in two other pending cases in which the courts’ opinions were contrary to the Internal Revenue Service’s position with regard to a basis overstatement constituting an omission of gross income.