Blow to IRS in Supreme Court Ruling

The IRS waited too long – more than three years – to challenge taxpayers’ filings that used a “Son of BOSS” tax shelter, the court ruled yesterday. The ruling could help a number of taxpayers who used the shelter and cost the government nearly 1 billion dollars in revenue, lawyers said.

Son of BOSS was a phrase Treasury department officials invented to explain an assortment of tax shelters that tried to eliminate taxes on capital gains from the sale of a business or other valuable assets, for example, by falsely inflating the cost of something in order to make the profit seem smaller. The Son of BOSS strategy was promoted in several forms by advisers at certain accounting and law firms starting in the late 1990s. Thousands of taxpayers likely used the strategy long before the Treasury and Congress took measures to prevent its tax advantages, beginning in 2000.

While the IRS and Treasury were regulating Son of BOSS shelters starting in 2000, personal negotiations were tough to spot, and the IRS got a lot of its data through drawn-out investigations of promoters. Once the IRS eventually audited individual taxpayers, the three-year statute of limitations for assessing back taxes had often expired, lawyers said.

The IRS argued in several cases that a six-year statute of limitations should exist. The six-year statute generally exists in cases where the taxpayer has failed to report income.
Several taxpayers eventually settled their cases through agreements that permitted them to pay back taxes and delete penalties. Other taxpayers chose to fight in court. They contended that the six-year statute of limitations was unfair, because Son of BOSS didn’t involve omission of income. In yesterday’s 5-4 decision, the Supreme Court agreed, saying the IRS overstepped its boundaries by the six-year statute of limitations.

The case involved a 1999 sale of a Salisbury, N.C., heating oil and concrete business, Home Concrete & Supply LLC. The exchange totaled almost $10.6 million, according to court records. The tax shelter allowed the partnership that owned the oil business to report a return of only $69,000 from the sale.The company was advised on the tax shelter by Jenkens & Gilchrist LP, a Texas law firm that has since closed after an IRS investigation delete. The two individuals who used the shelter, Robert L. Pierce and Stephen R. Chandler, were excited by the outcome, according to their lawyer. The two had been fighting the IRS for a long time and had hired tax professionals to help them. They even produced favorable opinion letters from lawyers.

The Supreme Court’s decision reinforces the typical three-year statute of limitations for IRS assessments and undermines that of other courts’ rejections of regulations that were aimed to help the government pursue Son of BOSS cases. This case was a victory for taxpayers. The IRS has once again been limited to the ways in which it can assert its power over U.S. citizens. If you’re facing tax problems, don’t hesitate to call the professionals at JG Tax Group. Our knowledge and experience will guide you into a secure future with the IRS.