Basis Overstatement Still Does Not Trigger Six-Year Limitations Period

Michael G. Stevens, JD, LLM, CPA

Once again, the Tax Court has dealt with a remarkably vexing issue: whether an overstatement of basis should allow the IRS to extend the statute of limitations for the assessment of tax from three years to six. The court not only has stuck to its guns in handing a limited liability company (LLC) taxed as a partnership a victory over the IRS, but to add insult to injury, the court held that the IRS's then–newly issued temporary regulations (sections 301.6229[c][2]-lT and 301.6501[e]-1T) on this issue were invalid. Intermountain Insurance Service of Vail, LLC v. Comm'r (134 TC No. 11 [2010]) adds to an increasing body of case law against the IRS. While the IRS has been repeatedly knocked down, it has since replaced the temporary regulations with final regulations, T.D. 9511, discussed below. Tax advisors should expect the IRS to get off the mat and continue to challenge taxpayers. The background and evolution of this issue are fascinating because they involve the struggle to interpret relatively straightforward words in a fundamental, procedural statute.