New Tax Issue on 6 Year Statutes For Asset Basis Understatements

by James Davis - Posted In: Tax

In a recently decided case, Beard v. Comm., (CA 7 01/26/2011), the Court of Appeals for the Seventh Circuit reversed the Tax Court and held that an overstatement of basis is an omission of gross income for purposes of the 6-year limitations period of Code Sec. 6501(e)(1)(A) .  Normally, the statute of limitations is 3 years except where there is a substantial omission of income.  The Beard case holds that an omission of income resulting from a sale of an asset whose basis is overstated can result in application of the 6-year statute.  The Tax Court and two other Circuit Courts of Appeal have held to the contrary, that the 3-year statute applied and has thus resulted in a conflict between Circuits.  Taxpayers should be certain to retain documents establishing the cost basis of capital assets for the duration of the period of their ownership plus 7 years after sale.

Tags: James B. Davis