D.C. Circuit: Six Year Statute of Limitations Applies to Overstatements of Basis

The Court of Appeals for the District of Columbia Circuit reversed the Tax Court on the question of whether or not the six year statute of limitations under sections 6229(c)(2) and 6501(e)(1)(A) applied to an overstatement of basis. The Court of Appeals followed the rationale of other recent government victories on this issue, see Grapevine (Fed. Cir.) and Beard (7th Cir.). The Court of Appeals also adopted the government’s argument that Chevron deference apply to the government’s regulation (adopted after litigation began) interpreting the application of the six year statute.

Read the opinion here.
Intermountain Insurance Service of Vail, LLC v. Commissioner, Docket No. 10-1204 (D.C. Cir. June 21, 2011)

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Tax Court: Penalties Apply for Taxpayer Who Does Not Show Reliance on Tax Advice

In a reviewed opinion, the Tax Court has found that a sophisticated taxpayer (i.e., a hedge fund manager) could not avoid penalties by relying on the reasonable cause defense under Sec. 6664(c)(1) where the taxpayer presented no evidence that the omitted income was because he relied on advice given by the tax return preparer.

Read the opinion here:
Woodsum v. Commissioner, 136 T.C. No. 29 (2011)

Tax Court: Reliance on VP of Tax is Not Reasonable Cause to Avoid Penalties

The Tax Court finds that a consolidated group of companies which hired a former outside consultant (both a CPA and an Attorney) as their Vice President of Taxes was subject to penalties under Section 6664 on unreported personal holding company tax for the tax years in which he was their in-house advisor. The taxpayer was able to rely upon the reasonable cause exception from penalties for the tax year in which the same consultant was an independent paid provider.

Read the opinion here:
7 W Enterprises v. Commissioner, 136 T.C. No. 26 (2011)

Court of Federal Claims Lacks Jurisdiction over Partner’s Outside Basis

In what may very well be the last decision of many rendered to the plaintiff’s in Jade Trading, LLC, the Court of Federal Claims, on remand from the Court of Appeals for the Federal Circuit, determined that under the Tax Equity and Fiscal Responsibility Act (TEFRA) it did not have jurisdiction to impose penalties on partners which relied on the partner’s outside basis.

Read the opinion here:
Jade Trading, LLC v. United States, No. 03-2164T (Fed. Cl. April 29, 2011)