It’s not that often that a real tax case makes it way all the way to the U.S. Supreme Court.
The reasons for the relative scarcity of Supreme Court jurisprudence in the world of federal taxation are subject to debate. In my view, a lot of it has to do with the extreme burden that taxpayers have to overcome to win in court against the IRS. In criminal courts in the U.S., the defendant is presumed innocent until proven guilty. In tax cases in the U.S., the taxpayer is presumed to owe the money the IRS says he does until he proves otherwise.
I’ll leave the burden of proof on taxpayers for another day, because I digress.
Today, a taxpayer has made it all to the way to the Supreme Court, and, get this, today it’s the government that’s on the defensive.
The case is United States v. Home Concrete & Supply, LLC. The taxpayer, Home Concrete, won in the 4th Circuit Court of Appeals, and now the parties are arguing the case today in the Supreme Court.
So, what is this case all about?
In short, it’s about what time frame the IRS has to assess a tax liability against a taxpayer if the taxpayer claims a higher deduction that is appropriate, thereby resulting in a reported lower gross income than is correct.
In general, the IRS has 3 years to assess a tax liability. You file your return and pay your taxes. In most cases, the IRS has to claim you owe more than you paid within the next 3 years. Remember, we’re talking in general here. As in most cases in the law, it’s a little more complicated than that.
But what if you really understate your tax liability, by failing to include income items that are more than 25% of the gross income that you reported on your return? Well, if you understate your income by 25%, then the IRS has 6 years to come after you for an additional tax liability.
What the case today before the Supreme Court is about is this: what if you don’t fail to include income items on your return, but you overstate a deduction to the extent that your gross income is understated by 25% or more? Which time frame does the IRS have to come after you for more tax money? Is it 3 years or 6 years?
In Home Concrete, the deduction at issue was the basis of some real property that was sold.
This is a case that will generate a lot of interest in the tax community. I plan to delve into the issue a bit more in the next few days and to listen to the oral argument online (isn’t modern technology great?). I will be back with you in the coming days on the important tax case.