The Surface Transportation and Veterans Health Care Choice Improvement Act also amends a provision of the Code to change the result in a U.S. Supreme Court case that we previously covered in this newsletter. United States v. Home Concrete (April 25, 2012) dealt with the extended statute of limitations for proposing additional tax liability in the case of certain omissions from gross income on the taxpayer’s return.
The IRS normally has three years after a taxpayer files an income tax return to audit the return and propose additional tax liability. The IRS has six years, however, if the taxpayer omits from the return an amount of gross income that is more than 25 percent of the amount of gross income reported on the return. Home Concrete resolved an issue that had been litigated in various circuit courts regarding whether a taxpayer who overstated the tax basis of an asset, and thereby underreported the amount of tax gain that resulted from the sale of the asset, had omitted gross income from the return. The Supreme Court had appeared to put this issue to rest by holding that understating the tax basis of an asset does not cause an omission from income for purposes of making applicable the six-year rather than the three-year statute of limitations.
Congress changed this result by amending the statute specifically to provide that an “understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.” This change applies to tax returns filed after July 31, 2015.