United States v. Home Concrete & Supply, LLC
566 U. S. ____ (2012) (2012)
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Rule of Law:
An overstatement of basis in property, which leads to an understatement of gross income on a tax return, does not constitute an "omission from gross income" that would trigger the extended six-year statute of limitations under 26 U.S.C. § 6501(e)(1)(A). A prior Supreme Court interpretation of a statute's meaning forecloses a later, contrary agency regulation if the Court's decision, using traditional tools of construction, concluded Congress had a specific intent and did not leave a gap for the agency to fill.
Facts:
- The taxpayers sold certain property.
- In April 2000, the taxpayers filed tax returns for the relevant year, reporting the sale.
- On their returns, the taxpayers overstated the basis of the property they had sold.
- This overstatement of basis resulted in an understatement of the gross income received from the sale.
- The amount of understated gross income exceeded 25 percent of the total gross income stated on the returns.
Procedural Posture:
- The Commissioner of Internal Revenue asserted a tax deficiency against the taxpayers.
- The deficiency was asserted more than three years, but less than six years, after the taxpayers filed their returns.
- The taxpayers challenged the deficiency in federal court.
- The United States Court of Appeals for the Fourth Circuit, the intermediate appellate court, held in favor of the taxpayers, concluding the extended six-year limitations period did not apply.
- The United States (the Government) petitioned the Supreme Court of the United States for a writ of certiorari, which was granted.
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Issue:
Does a taxpayer's overstatement of basis in sold property, which results in an understatement of gross income, constitute an "omission from gross income" under 26 U.S.C. § 6501(e)(1)(A), thereby extending the statute of limitations for the government to assess a tax deficiency from three to six years?
Opinions:
Majority - Justice Breyer
No, a taxpayer's overstatement of basis is not an 'omission from gross income' under the statute. The Court is bound by its precedent in Colony, Inc. v. Commissioner, which interpreted identical statutory language from the 1939 Code. In Colony, the Court held that the word 'omits' refers to situations where specific receipts or accruals are left out of the computation entirely, not situations where an item is disclosed but a component of its calculation, like basis, is erroneous. The government's argument that a 2010 Treasury Regulation interpreting the statute differently should receive deference under Chevron fails because Colony, while noting the statute was not 'unambiguous,' used traditional tools of statutory construction to find Congress had a specific intent and did not leave a 'gap' for the agency to fill. Therefore, stare decisis requires adherence to the Colony decision.
Dissenting - Justice Kennedy
Yes, an overstatement of basis can constitute an 'omission from gross income' under the current statute. The majority's reliance on Colony is misplaced because that case interpreted a predecessor statute from 1939. When Congress reenacted the provision as part of the 1954 Code, it added new language and context, such as a special exception for businesses in § 6501(e)(1)(A)(i), which suggests that overstatements of basis were meant to be covered in other situations. These statutory changes created, at a minimum, an ambiguity that the Treasury Department was empowered to resolve. The Department's 2010 regulation, which interprets the statute to include overstatements of basis, is a reasonable construction entitled to Chevron deference and should be upheld.
Concurring - Justice Scalia
No, a taxpayer's overstatement of basis is not an 'omission from gross income,' but the majority's reasoning for rejecting the government's agency deference argument is flawed. The doctrine of stare decisis requires the Court to follow its holding in Colony, and that should be the end of the analysis. The majority contorts administrative law principles from National Cable & Telecommunications Assn. v. Brand X to reach its desired result. Under a direct application of Brand X, because Colony explicitly found the statute to be ambiguous, the subsequent agency regulation should have been upheld. This outcome demonstrates that Brand X itself is wrongly decided and should be abandoned, not that a new layer of 'gap-filling' analysis should be created for pre-Chevron cases.
Analysis:
This decision reaffirms the strong force of statutory stare decisis, particularly in tax law where taxpayers rely on settled interpretations of the Internal Revenue Code. It significantly cabins the power of administrative agencies to overturn prior judicial interpretations under the Brand X framework. The Court clarifies that a judicial finding of statutory 'ambiguity' in a pre-Chevron case does not automatically create a 'gap' for an agency to fill; if the prior court decision found a specific congressional intent through other interpretive tools, that judicial interpretation stands and forecloses a contrary agency regulation.
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