The U.S. Supreme Court sided with taxpayers this week on a case out of the Fourth Circuit Court of Appeals.
The case, U.S. v. Home Concrete & Supply, LLC, was one of the notorious “Son-of-Boss” cases.
A quick primer on “Son of Boss” cases:
The IRS decided to crack down on tax-shelters in the 1990’s. “Boss” stood for “bond and option sales strategies.” Essentially, under a typical “Son of Boss” scheme, there would be paper losses which would offset real gains.
The case involved a company formed in 1999. The company, Home Concrete LLC, was an LLC formed to facilitate one of these Son of Boss schemes for two businessmen who owned an oil and coal company.
The two men were audited in 2006, over three years after they filed their 1999 tax returns. They were slammed with a $6 million tax bill.
Here’s the thing— the IRS only has three years to bring a claim on unpaid taxes. That’s their statute of limitations.
The IRS said that they had the power to go back six years when more than 25 percent of the taxpayer’s gross income was involved. They also argued that the extra three years to crack down on these cases was crucial, as Son of Boss cases can be complex.
At issue was whether the inflation in the basis was covered under the provision that allowed the IRS to apply the six year statute of limitations.
While the district court ruled against the taxpayers, the Fourth Circuit Court of Appeals held in favor of the taxpayers. Wednesday, the Supreme Court agreed.
The case will have far reaching implications in tax law and most notably in the IRS crackdown on Son of Boss tax shelters. There are thousands of Son of Boss cases netting billions of dollars for the IRS.
The ruling on the statute of limitations on these cases will no doubt affect a large number of pending tax shelter cases.
- High Court Limits IRS Time to Challenge Tax Shelters (Bloomberg News)
- Home Concrete & Supply v. US (FindLaw Cases)
- Son of Boss Tax Shelter Case and Patent Infringement Suit For Magnetic Snaps (Federal Circuit Blog)