Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Rules and Regulations 49321 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 301 

[TD 9466] 

RIN 1545–BI94 

Definition of Omission From Gross 

Income 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final and temporary regulation. 

SUMMARY: This document contains 

temporary regulations (replacing an 

existing final regulation) defining an 

omission from gross income for 

purposes of the six-year minimum 

period for assessment of tax attributable 

to partnership items and the six-year 

period for assessing tax. The temporary 

regulations resolve a continuing issue as 

to whether an overstatement of basis in 

a sold asset results in an omission from 

gross income. The regulations will affect 

any taxpayer who overstates basis in a 

sold asset creating an omission from 

gross income exceeding twenty-five 

percent of the income stated in the 

return. The text of these temporary 

regulations also serves as the text of the 

proposed regulations set forth in the 

notice of proposed rulemaking on this 

subject in the Proposed Rules section in 

this issue of the Federal Register. 

DATES: Effective date: These regulations 

are effective on September 24, 2009. 

Applicability date: The rules of this 

section apply to taxable years with 

respect to which the applicable period 

for assessing tax did not expire before 

September 24, 2009. 

FOR FURTHER INFORMATION CONTACT: 

William A. Heard III at (202) 622–4570 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background and Explanation of 

Provisions 

These temporary regulations amend 

the Procedure and Administration 

Regulations (26 CFR part 301) relating to 

sections 6229(c)(2) and 6501(e). Section 

6229(c)(2) provides that if a partnership 

‘‘omits from gross income an amount 

properly includible therein which is in 

excess of 25 percent of the amount of 

gross income stated’’ in its return, the 

minimum period for assessing tax 

attributable to its partnership items is 

extended to six years. The quoted 

language is identical to language used in 

section 6501(e). An omission from gross 

income is not further defined in section 

6229(c) as it is in section 6501(e)(1)(A). 

But, as noted by the courts, section 

6229(c) merely serves to extend the 

section 6501 period for each separate 

partner to a minimum expiration date 

computed from the date the partnership 

return is filed or due to be filed, 

whichever is later. See section 

6501(n)(2). In extending each partner’s 

section 6501 period under section 6229, 

Congress is presumed to give the 

language in section 6229, which is 

identical to language in section 6501, 

identical meaning. Having defined a 

phrase in section 6501, Congress need 

not redefine the same phrase when it is 

later used to extend that same statute of 

limitations. Ascribing a different 

interpretation to an identical phrase 

would result in partners being treated 

differently based on the happenstance of 

whether the transaction is reported on a 

partnership return rather than on a 

partner’s return. For instance, in Son of 

Boss transactions described in Notice 

2000–44, 2000–2 CB 255 (Sept. 5, 2000), 

gross income can be generated by the 

partnership when it sells an inflated 

basis asset, or directly by the partner if 

the asset is first distributed to the 

partner before being sold. Thus, section 

6501(e)(1)(A) defines an omission from 

gross income both for purposes of 

section 6501 and for any extension of 

section 6501 under section 6229. The 

temporary regulations confirm this 

point. Further, in light of the different 

interpretations given by courts to the 

meaning of section 6501(e)(1)(A), the 

temporary regulations clarify the 

meaning of this section. See 

§ 601.601(d)(2)(ii)(b). 

Section 6501(e)(1)(A) provides that if 

the taxpayer omits from gross income an 

amount properly includible therein that 

is in excess of 25 percent of the amount 

of gross income stated in the return, the 

tax may be assessed, or a proceeding in 

court for the collection of such tax may 

be begun without assessment, at any 

time within 6 years after the return was 

filed. Subsection (i) of this provision 

provides that, in 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 (if such amounts are required to 

be shown on the return) prior to 

diminution by the cost of such sales or 

services. 

These temporary regulations clarify 

that, outside of the trade or business 

context, gross income for purposes of 

sections 6501(e)(1)(A) and 6229(c)(2) 

has the same meaning as gross income 

as defined in section 61(a). Under 

section 61(a), gross income includes 

‘‘gains derived from dealings in 

property’’ and the regulations under 

section 61(a) further explain that gain 

equals ‘‘the excess of the amount 

realized over the unrecovered cost or 

other basis for the property sold or 

exchanged.’’ Accordingly, outside the 

context of a trade or business, any basis 

overstatement that leads to an 

understatement of gross income under 

section 61(a) constitutes an omission 

from gross income for purposes of 

sections 6501(e)(1)(A) and 6229(c)(2). 

Relying on the Supreme Court’s 

opinion in Colony v. Commissioner, 357 

U.S. 28 (1958), which dealt with an 

omission from gross income in the 

context of a trade or business, the 

United States Court of Appeals for the 

Ninth Circuit and Federal Circuit 

recently construed section 6501(e)(1)(A) 

in cases outside the trade or business 

context contrary to the interpretation 

provided in these temporary 

regulations, holding that an ‘‘omission’’ 

does not occur by an overstatement of 

basis. Bakersfield Energy Partners v. 

Commissioner, 568 F.3d 767 (9th Cir. 

2009); Salman Ranch Ltd v. United 

States, 573 F.3d 1362 (Fed. Cir. 2009). 

The Treasury Department and the 

Internal Revenue Service disagree with 

these courts that the Supreme Court’s 

reading of the predecessor to section 

6501(e) in Colony applies to sections 

6501(e)(1)(A) and 6229(c)(2). When 

Congress enacted the 1954 Internal 

Revenue Code, it was aware of the 

disagreement among the courts that 

existed at the time regarding the proper 

scope of section 275(c) of the 1939 

Internal Revenue Code. The changes 

that Congress enacted as part of the 

1954 Internal Revenue Code predated 

the Supreme Court’s opinion in Colony 

and were intended to resolve the matter 

for the future. Therefore, by amending 

the Internal Revenue Code, including 

the addition of a special definition of 

‘‘gross income’’ with respect to a trade 

or business, Congress effectively limited 

what ultimately became the holding in 

Colony, to cases subject to section 275(c) 

of the 1939 Internal Revenue Code. 

Moreover, under section 6501(e)(1)(A) 

of the 1954 Internal Revenue Code, 

which remains in effect under the 1986 

Internal Revenue Code, when outside of 

the trade or business context, the 

definition of ‘‘gross income’’ in section 

61 applies. In this regard, the Treasury 

Department and the Internal Revenue 

Service agree with the opinions in 

Home Concrete & Supply, LLC v. United 

States, 599 F.Supp.2d 678, 690 

(E.D.N.C. 2008) (overstatement of basis 

can constitute an omission from gross 

income for purposes of the six-year 

period of limitations) and Brandon 

Ridge Partners v. United States, 2007– 

2 U.S.T.C. (CCH) ¶ 50,573, 100 


CPrice-Sewell on DSKGBLS3C1PROD with RULES
49322 Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Rules and Regulations 

A.F.T.R.2d (RIA) 5347, 5351–53 (M.D. 

Fla. 2007) (same). 

Consistent with the Ninth Circuit’s 

suggestion in Bakersfield, these 

temporary regulations clarify what 

constitutes an ‘‘omission from gross 

income’’ under sections 6501(e)(1)(A) 

and 6229(c)(2), as amended in 

connection with the enactment of the 

1954 Internal Revenue Code and 

continuing in effect under the 1986 

Internal Revenue Code. The reasonable 

interpretation of the provisions of 

sections 6501(e)(1)(A) and 6229(c)(2) 

provided in these temporary 

regulations, acknowledged by both the 

Ninth and Federal Circuits to be 

ambiguous, is entitled to deference even 

if the agency’s interpretation may run 

contrary to the opinions in Bakersfield 

and Salman Ranch. See Nat’l Cable & 

Telecomms. Ass’n v. Brand X Internet 

Servs., 545 U.S. 967, 982–83 (2005); 

Swallows Holding, Ltd. v. 

Commissioner, 515 F.3d 162, 170 (3rd 

Cir. 2008). Because these temporary 

regulations are a clarification of the 

period of limitations provided in 

sections 6501(e)(1)(A) and 6229(c)(2) 

and are consistent with the Secretary’s 

application of those provisions both 

with respect to a trade or business (that 

is, gross income means gross receipts), 

as well as outside of the trade or 

business context (that is, section 61 

definition of gross income applies), they 

are applicable to all cases with respect 

to which the period for assessing tax 

under the applicable provisions has not 

expired before the date of filing of these 

regulations with the Federal Register. 

Although these temporary regulations 

do not provide guidance on this issue, 

section 6501(e)(1)(A)(ii) additionally 

provides that the amount omitted from 

gross income does not include any 

amount disclosed on the return, or in a 

statement attached to the return, in a 

manner adequate to apprise the Internal 

Revenue Service of the nature and 

amount of the item. This adequate 

disclosure exception to the six-year 

statute of limitations applies to 

omissions from gross income resulting 

from basis overstatements (as provided 

for in these temporary regulations) in 

the same manner as it applies to other 

omissions from gross income. 

Accordingly, taxpayers who adequately 

disclose the nature and amount of the 

omissions from gross income resulting 

from dealings in property will not be 

subject to the extended six-year statute 

of limitations. 

Special Analyses 

It has been determined that these 

temporary regulations are not a 

significant regulatory action as defined 

in Executive Order 12866. Therefore, a 

regulatory assessment is not required. It 

also has been determined that section 

553(b) of the Administrative Procedure 

Act (5 U.S.C. chapter 5) does not apply 

to these regulations. For the 

applicability of the Regulatory 

Flexibility Act (5 U.S.C. chapter 6) refer 

to the Special Analyses section of the 

preamble of the cross-reference notice of 

proposed rulemaking published in the 

Proposed Rules section in this issue of 

the Federal Register. Pursuant to 

section 7805(f) of the Internal Revenue 

Code, these regulations have been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on their 

impact on small business. 

Drafting Information 

The principal author of these 

regulations is William A. Heard III of 

the Office of the Associate Chief 

Counsel (Procedure and 

Administration). 

List of Subjects in 26 CFR Part 301 

Employment taxes, Estate taxes, 

Excise taxes, Gift taxes, Income taxes, 

Penalties, Reporting and recordkeeping 

requirements. 

Amendments to the Regulations 

■ Accordingly, 26 CFR part 301 is 

amended as follows: 

PART 301—PROCEDURE AND 

ADMINISTRATION 

■ Paragraph 1. The authority citation 

for part 301 is amended by adding the 

entry in numerical order to read in part 

as follows: 

Authority: 26 U.S.C. 7805 * * * 

Section 301.6229(c)(2)–1T is also issued 

under 26 U.S.C. § 6230(k). * * * 

■ Par. 2. Section 301.6229(c)(2)–1T is 

added to read as follows: 

§ 301.6229(c)(2)–1T Substantial omission 

of income (temporary). 

(a) Partnership return—(1) General 

rule. (i) If any partnership omits from 

the gross income stated in its return an 

amount properly includible therein that 

is in excess of 25 percent of the amount 

of gross income stated in its return, 

subsection (a) of section 6229 shall be 

applied by substituting ‘‘6 years’’ for ‘‘3 

years.’’ 

(ii) For purposes of paragraph (a)(1)(i) 

of this section, the term gross income, as 

it relates to a trade or business, means 

the total of the amounts received or 

accrued from the sale of goods or 

services, to the extent required to be 

shown on the return, without reduction 

for the cost of those goods or services. 

(iii) For purposes of paragraph (a)(1)(i) 

of this section, the term gross income, as 

it relates to any income other than from 

the sale of goods or services in a trade 

or business, has the same meaning as 

provided under section 61(a), and 

includes the total of the amounts 

received or accrued, to the extent 

required to be shown on the return. In 

the case of amounts received or accrued 

that relate to the disposition of property, 

and except as provided in paragraph 

(a)(1)(ii) of this section, gross income 

means the excess of the amount realized 

from the disposition of the property 

over the unrecovered cost or other basis 

of the property. Consequently, except as 

provided in paragraph (a)(1)(ii) of this 

section, an understated amount of gross 

income resulting from an overstatement 

of unrecovered cost or other basis 

constitutes an omission from gross 

income for purposes of section 

6229(c)(2). 

(iv) An amount shall not be 

considered as omitted from gross 

income if information sufficient to 

apprise the Commissioner of the nature 

and amount of the item is disclosed in 

the return, including any schedule or 

statement attached to the return. 

(2) [Reserved] 

(b) Effective/applicability date. The 

rules of this section apply to taxable 

years with respect to which the 

applicable period for assessing tax did 

not expire before September 24, 2009. 

(c) Expiration date. The applicability 

of this section expires on or before 

September 24, 2012. 

§ 301.6501(e)–1 [Removed]. 

■ Par. 3. Section 301.6501(e)–1 is 

removed. 

■ Par. 4. Section 301.6501(e)–1T is 

added to read as follows: 

§ 301.6501(e)–1T Omission from return 

(temporary). 

(a) Income taxes—(1) General rule. (i) 

If the taxpayer omits from the gross 

income stated in the return of a tax 

imposed by subtitle A of the Internal 

Revenue Code an amount properly 

includible therein that is in excess of 25 

percent of the gross income so stated, 

the tax may be assessed, or a proceeding 

in court for the collection of that tax 

may be begun without assessment, at 

any time within 6 years after the return 

was filed. 

(ii) For purposes of paragraph (a)(1)(i) 

of this section, the term gross income, as 

it relates to a trade or business, means 

the total of the amounts received or 

accrued from the sale of goods or 

services, to the extent required to be 

shown on the return, without reduction 

for the cost of those goods or services. 


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Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Rules and Regulations 49323 

(iii) For purposes of paragraph (a)(1)(i) 

of this section, the term gross income, as 

it relates to any income other than from 

the sale of goods or services in a trade 

or business, has the same meaning as 

provided under section 61(a), and 

includes the total of the amounts 

received or accrued, to the extent 

required to be shown on the return. In 

the case of amounts received or accrued 

that relate to the disposition of property, 

and except as provided in paragraph 

(a)(1)(ii) of this section, gross income 

means the excess of the amount realized 

from the disposition of the property 

over the unrecovered cost or other basis 

of the property. Consequently, except as 

provided in paragraph (a)(1)(ii) of this 

section, an understated amount of gross 

income resulting from an overstatement 

of unrecovered cost or other basis 

constitutes an omission from gross 

income for purposes of section 

6501(e)(1)(A). 

(iv) An amount shall not be 

considered as omitted from gross 

income if information sufficient to 

apprise the Commissioner of the nature 

and amount of the item is disclosed in 

the return, including any schedule or 

statement attached to the return. 

(2) [Reserved] 

(b) Effective/applicability date. The 

rules of this section apply to taxable 

years with respect to which the 

applicable period for assessing tax did 

not expire before September 24, 2009. 

(c) Expiration date. The applicability 

of this section expires on or before 

September 24, 2012. 

Linda E. Stiff, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: September 23, 2009. 

Michael Mundaca, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. E9–23426 Filed 9–24–09; 4:15 pm] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[Docket No. USCG–2009–0202] 

RIN 1625–AA09 

Drawbridge Operation Regulations; 

Raritan River, Arthur Kill and Their 

Tributaries, Staten Island, NY and 

Elizabeth, NJ 

AGENCY: Coast Guard, DHS. 

ACTION: Final rule. 

SUMMARY: The Coast Guard changed the 

drawbridge operating regulations 

governing the operation of the Arthur 

Kill (AK) Railroad Bridge at mile 11.6, 

across Arthur Kill and the New Jersey 

Transit (NJTRO) Railroad Bridge at mile 

0.5, across the Raritan River. This final 

rule is expected to better meet the 

present needs of navigation and 

enhanced needs of rail traffic resulting 

from the resumption of rail traffic across 

the Arthur Kill (AK) Bridge. 

DATES: This rule is effective October 28, 

2009. 

ADDRESSES: Comments and related 

materials received from the public, as 

well as documents mentioned in this 

preamble as being available in the 

docket, are part of docket (USCG–2009– 

0202) and are available online by going 

to http://www.regulations.gov, inserting 

USCG–2009–0202 in the ‘‘Keyword’’ 

box, and then clicking ‘‘Search.’’ This 

material is also available for inspection 

or copying at the Docket Management 

Facility (M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC, 20590– 

0001, between 9 a.m. and 5 p.m., 

Monday through Friday, except Federal 

holidays. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this rule, call or 

e-mail Mr. Gary Kassof, Project Officer, 

First Coast Guard District, telephone 

212–668–7165,e-mail 

gary.kassof@uscg.mil. If you have any 

questions on viewing the docket, call 

Renee V. Wright, Program Manager, 

Docket Operations, telephone 202–366– 

9826. 

SUPPLEMENTARY INFORMATION: 

Regulatory Information 

On June 24, 2009, we published an 

interim rule entitled ‘‘Drawbridge 

Operation Regulations’’; Raritan River, 

Arthur Kill and their tributaries, Staten 

Island and Elizabeth, New Jersey, in the 

Federal Register (74 FR 29941). We 

received no comments on the interim 

rule. No public meeting was requested, 

and none was held. 

Background and Purpose 

The Arthur Kill (AK) Railroad Bridge 

at mile 11.6, across Arthur Kill, has a 

vertical clearance of 31 feet at mean 

high water, and 35 feet at mean low 

water in the closed position. The New 

Jersey Transit (NJTRO) Railroad Bridge 

at mile 0.5, across the Raritan River, has 

a vertical clearance of 8 feet at mean 

high water and 13 feet at mean low 

water in the closed position. 

The previous drawbridge operating 

regulations listed at 33 CFR 117.747, 

required the draws of all bridges across 

the Raritan River, Arthur Kill and their 

tributaries to open on signal at all times; 

except that, from 7:30 a.m. to 10 a.m. 

and from 5 p.m. to 7:30 p.m., the draws 

may be opened for the passage of vessels 

for periods no longer than ten minutes 

or remain closed for the passage of land 

traffic for no longer than ten minutes. 

The New Jersey Transit Railroad 

Bridge at mile 0.5, across the Raritan 

River and the Arthur Kill (AK) Railroad 

Bridge at mile 11.6, across Arthur Kill 

were the only drawbridges operating 

under this regulation. 

Rail traffic was suspended for many 

years on the rail line that crosses the 

Arthur Kill (AK) Bridge. During the time 

rail traffic was suspended across Arthur 

Kill the Arthur Kill (AK) Railroad 

Bridge was locked in the full open 

position. 

Several years ago the Arthur Kill (AK) 

Railroad Bridge was mechanically and 

structurally rehabilitated as part of New 

York City Economic Development 

Corporation’s Full Freight Access 

Initiative, and restored to good 

operating condition in 2007 enabling 

restoration of rail freight service across 

the Arthur Kill (AK) Railroad Bridge to 

the Staten Island Landfill facility and 

the New York Container Terminal, 

formerly known as the Howland Hook 

Terminal. Rail traffic began crossing the 

re-opened bridge in June of 2007. 

After a short period of time, it became 

apparent, that the then existing 

drawbridge operation regulations, 

would no longer effectively meet the 

present complex needs of navigation 

and the revitalized volume of rail traffic 

that would be crossing the Arthur Kill 

(AK) Railroad Bridge. 

The bridge owner, New York City 

Economic Development Corporation 

(NYCEDC), requested a change to the 

drawbridge operation regulations to 

help facilitate the resumption of rail 

traffic crossing the Arthur Kill (AK) 

Railroad Bridge. 

As a result of the above described 

transition in the needs of commerce, the 

Coast Guard conducted an evaluation, 

comprised of three temporary test 

deviations and an interim rule, with 

public comment periods, to help 

determine the best drawbridge operation 

regulations to meet the present and 

future needs of marine and rail 

transportation. 

Each test deviation modified the 

previous test as a result of their 

observed effectiveness and comments 

received from the public. 

After evaluating the results of our 

third temporary deviation the Coast 

Guard concluded that the operating 

procedure tested in the third deviation 


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