SCOTUS Showdown: Oral Arguments Heard in Home Concrete Case

SCOTUS Showdown: Oral Arguments Heard in Home Concrete Case

On January 17, 2012 before the U.S. Supreme Court, Deputy Solicitor General Malcolm Stewart and Gregory Garre, partner at Latham & Watkins, LLP presented oral argument in  United States v. Home Concrete & Supply, LLC, et al. In broad terms, at issue is whether the IRS has three years, or six, for an extended assessment.

Mr. Stewart was challenged extensively on the meaning of section 6501(e)(1)(A) in the context of the Supreme Court's decision in COLONY, INC. v. COMMISSIONER OF INTERNAL REVENUE, 357 U.S. 28 (U.S. 1958). Specifically, the linchpin of the Home Concrete controversy lies in the meaning of statutory language reciting "...omits from gross income an amount properly includible therein..."

Mr. Stewart focused on the fact that the statute's key language was enacted before the High Court's Colony decision. He argued that congressional intent was not in lock-step with the Colony rule, viewing the posture of Colony as less than controlling. Otherwise, he suggested, lawmakers would have substituted "item" for "amount" in the key statutory clause. In so doing, Congress would have clarified that the main rule would apply only when a gross receipts item was omitted entirely from the return. For the same reason, Congress would also have substituted "gross receipts" for "gross income" as applied to trade or business taxpayers.

Challenges to this and other aspects, including the promulgation of a regulation purporting to apply retroactively, suggest that the thrust of Mr. Stewart's argument did not seem to play very well in advancing the case for Chevron deference.

For his part, Gregory Garre did his best to cast Colony as controlling. He pointed out that the Solicitor General recognized Colony, as such. This supported the view that the opinion stands definitively for the principle that overstated basis and omission from gross income are not one and the same. Further, Mr. Garre's argument deployed IRS internal documents recognizing Colony as a landmark decision. This element also favored Mr. Garre's view that taxpayers have relied on Colony as unambiguous and the governing principle entitled to stare decisis effect. Taxpayer reliance on Colony, as well as taxpayer confusion over the purported retroactivity of the disputed regulation, may also serve as a counterpoint to questions raised about degrees of ambiguity, as Mr. Garre presented his argument.

The overriding precept for Mr. Garre is that the "... holding of the Court (in Colony) was that Congress addressed a specific situation of whether an overstatment of basis was an omission from gross income, and the Court said no." Mr. Garre defended this view, maintaining that Justice Harlan in Colony used "traditional tools of statutory construction" in his examination of legislative history.

Criticism by Mr. Garre of the IRS regulation purporting to apply retroactively was grounded in the absence of "a clear statement of retroactivity," as well as the inherent unfairness of neutralizing a key affirmative defense -- viz., the statute of limitations. Mr. Garre was critical of "the IRS's aggressive position on administrative power."

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View background input on this site: SCOTUS Oral Arguments on January 17th: Does Overstated Basis = Omission from Gross Income?

LEXIS users, view TaxAnalysts® news story of January 18, 2012: TaxAnalysts® Tax Notes Today: Supreme Court Grapples With Keeping COLONY Alive

RELATED LINKS: For further input on IRC Section 6501(e) principles and on oral arguments in United States v. Home Concrete & Supply, LLC, et al, see:

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