SEVENTH CIRCUIT OVERTURNS TAX COURT ON 6 YEAR STATUTE

On January 26th, the Seventh Circuit Court of Appeals overturned the U.S. Tax Court's prior rulings, and held that the IRS is entitled to apply a six (6) year statute of limitations to basis overstatements on income tax returns.  The Seventh Circuit found that the Supreme Court's decision in Colony Inc. v. Commissioner, 357 U.S. 28 (1958) was distinguishable and not controlling.  The Seventh Circuit's decision, entitled Beard v. Commissioner, ___ F.7th ___, No. 09-3741, 2011 WL 222249 (Jan. 26, 2011), is the IRS's first victory on the SOL issue in the Federal Circuit Courts of Appeal.  This issue is pending in several other Circuits so it is not likely to be the last word on the issue.  But the ruling effectively provides the IRS with a powerful argument for more time to challenge basis issues in its war on tax shelters, such as Son of Boss and other partnership basis strips.  For a copy of the case, direct your request to wce@ceclaw.com.