In Uncategorized on 08/28/2014 at 16:49

Home Concrete, that is, the Supremes’ reiteration of Colony Corp. In the argot of my Outlying Island Off the Coast of North America, “Know what I’m sayin’?” No? Then see my blogpost “Colony Lives”, 4/26/12.

But Home Concrete isn’t set in concrete for G. Douglas Barkett and Rita M. Barkett, 143 T. C. 6, filed 8/28/14. IRS claims G. Doug and Rita understated their income from their toothsome C Corp, Barkett Dental Enterprises, to the extent of more than 25% of what should have been reported, thus triggering Section 6501(e)(1) 6SOL.

G. Doug and Rita aren’t fighting about the dental business. They’re claiming they reported the gross income they realized from their investment passthroughs, and that was enough to get them under the 25% limbo stick, even though their net gain was way less.

IRS says it’s the net, and Home Concrete’s overstatement-of-basis rationale doesn’t help.

Tax Court, per Judge Goeke, buys IRS’ argument. True, the Supremes in Home Concrete torpedoed so much of Reg. Sec. section 301.6501(e)-1 as dealt with overstated basis. But the issue for the Supremes was whether to include or exclude gross income, not how to figure it.

But if we’re not dealing with a trade or business (and here this is investing, not a trade or business), then gross income is amount realized less basis. And Judge Goeke says the Supremes recognized this. “(T)he general statutory definition of ‘gross income’ requires subtracting the cost from the sales price. Under such a definition of ‘gross income,’ the calculation would take (1) total revenue from sales, $40,000, minus (2) “the cost of such sales,” say, $25,000. The $10,000 of revenue would thus amount to 67% of the ‘gross income’ of $15,000. * * * Home Concrete & Supply, LLC, 566 U.S. at ___, 132 S. Ct. at 1842.” 142 T. C. 6, at p. 12.

Of course, whenever you see the word “general” or “generally”, you know what’s coming next.

And Judge Goeke doesn’t disappoint. “An exception to the general statutory definition appears in section 6501(e)(1)(B)(i), which provides that ‘[i]n the case of a trade or business, the term “gross income” means the total of the amounts received or accrued from the sale of goods or services * * * prior to diminution by the cost of such sales or services.” 143 T. C. 6, at p. 12.

But everyone agrees that the investment operation wasn’t a trade or business, so the exception doesn’t fly. So non-trade-or-business gross income is gain realized less basis. Those numbers push G. Doug and Rita into 6SOL.

And that’s set in concrete.

  1. […] Lew Taishoff also covered this case in a post title Set In Concrete. […]


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