On January 26, 2011, the Seventh Circuit ruled as valid the Service's application of the six-year statute of limitations, rather than the standard three-year period, to a Son-of-BOSS (Bond and Option Sales Strategy) transaction and the overstatement on a tax return of basis related to the transaction. Beard v. Comm'r, 2011 U.S. App. LEXIS 1575 (7th Cir. 2011). The transaction in issue was held to be an omission from gross income for extended six-year limitations period purposes under IRC Section 6501(e). The grant of summary judgment by the tax court was therefore reversed.
Using a short sale to artificially increase the basis of a partnership interest before selling the interest limits the capital gains tax on the sale. This practice constitutes a Son-of-BOSS transaction, which has been invalidated as lacking economic substance in Notice 2000-44 (I.R.S. 2000).
The transaction In Beard involved purchases of Treasury Notes and short sale transfers to two companies in which the taxpayer had a majority interest. The Seventh Circuit distinguished Beard from COLONY, INC. v. COMMISSIONER OF INTERNAL REVENUE, 357 U.S. 28 (U.S. 1958), which upheld the standard three-year statute of limitations. Colony was therefore not controlling. The Beard decision turned on key differences between transaction dynamics involved in Beard vis a vis Colony and on the Seventh Circuit's interpretation of congressional intent underlying IRC Section 6501(e)(1)(A)(i) and (ii) in view of those differences.
LEXIS.com users can view the enhanced version of Beard v. Comm'r, 2011 U.S. App. LEXIS 1575 (7th Cir. 2011).
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