Federal Headlines

Overstatement of Basis Was Not Omission of Gross Income; Six-Year Assessment Limitation Period Did Not Apply (Beard, TCM)

The IRS could not use the extended six-year limitations period to assess a deficiency where an individual overstated his basis in two S corporations following their sale, thereby lowering the amount of gross income reported on his return. Overstatement of basis is not an omission of gross income for purposes of Code Sec. 6501(e)(1)(A); therefore, the notice of deficiency sent to the taxpayer was untimely because it was not issued within the three-year limitations period.

Under Colony, Inc., SCt, 58-2 USTC ¶9593, and Bakersfield Energy Partners, LP, 128 TC 207, Dec. 56,966, the extended limitations period applies where specific income receipts have been "left out" of the gross income computation, not where an understatement results from overstatement of reported basis. The IRS's arguments that Bakersfield was wrongly decided, and that Colony should be limited to cases involving the sale of goods or services, was rejected.

K.H. Beard, TC Memo. 2009-184, Dec. 57,903(M)

Other References:

Code Sec. 6501

CCH Reference - 2009FED ¶38,971.13

CCH Reference - 2009FED ¶38,971.76

Tax Research Consultant

CCH Reference - TRC IRS: 30,152.15

State Headlines

Wisconsin --Corporate Income Tax: E-File Mandate Announced for Combined Returns

The Wisconsin Department of Revenue has issued a corporation franchise and income tax notice announcing that, beginning with tax year 2009, all combined returns are required to be filed electronically in accordance with Rule Sec. Tax 2.67(1)(b), which was recently adopted (TAXDAY, 2009/08/11, S.26). For any amount owed from a combined return, the Department encourages taxpayers to make payment electronically by credit card or through direct debit/withdrawal or ACH Credit. Each process enables taxpayers to warehouse a payment in advance until the actual due date. There are provisions for requesting a waiver if the e-file requirement causes an undue hardship. Any waiver request must be in writing and must explain in detail why the requirement causes an undue hardship. Waiver requests can be submitted by e-mail, FAX, or regular mail.

The Department's notice is available at http://www.dor.state.wi.us/taxpro/news/090810.html.