Carpenter Family Invs. v. Comm’r, 2011 U.S. Tax Ct. LEXIS 17 (T.C. Apr. 25, 2011)

In Carpenter Family Invs. v. Comm'r, 2011 U.S. Tax Ct. LEXIS 17 (T.C. Apr. 25, 2011), a FPAA issued after the 3-year limitations period was held untimely under IRC § 6501(a).  At issue was a "series of basis-inflating tax avoidance transactions," alleged by the Service to constitute a Son-of-Boss shelter, as described in Notice 2000-44 (I.R.S. 2000). The Service argued that these transactions generated a stock sale's artificially stepped-up inside basis, and therefore that the partnership taxpayer's net long-term gains were significantly understated.

The Tax Court followed the Court of Appeals for the Ninth Circuit, which held that COLONY, INC. v. COMMISSIONER OF INTERNAL REVENUE, 357 U.S. 28 (U.S. 1958) controls the meaning of the phrase "omits from gross income" as it now appears in IRC § 6501(e)(1)(A). Bakersfield Energy Partners, LP v. Commissioner, 568 F.3d at 778. In Colony, the Supreme Court held that the phrase "omits from gross income" does not contemplate an overstatement of basis.

In addition to its ruling that the FPAA was untimely, the Tax Court further held taxpayer consents executed after the FPAA was issued to be invalid. The Tax Court granted taxpayer's motion for summary judgment.

LEXIS.com users can view the enhanced version of Carpenter Family Invs. v. Comm'r, 2011 U.S. Tax Ct. LEXIS 17 (T.C. Apr. 25, 2011).

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