Opinion ID: 206582
Heading Depth: 2
Heading Rank: 3

Heading: Salman Ranch and the New Regulations

Text: Before briefing began, Grapevine moved to consolidate this appeal with another Son of BOSS case then pending before another panel, Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed.Cir.2009). The government opposed consolidation, but asked for this case to be held in abeyance until the Salman Ranch case was decided on the possibility that Salman Ranch would conclusively resolve the time bar question. We agreed with the government and stayed briefing in this case. The Salman Ranch opinion ably sets forth that case's progress before the court. Briefly put, the government again argued that the Colony decision should be limited to the context of income from the sale of goods or services by a trade or business. Id. at 1371. The Salman Ranch panel disagreed. It concluded that the Colony decision did not turn on the taxpayer's trade or business, and that enactment of § 6501(e)(1)(A) did not mandate any different result. Id. at 1373-77. Thus, the panel held for the taxpayer and ruled the government's claims time-barred. Shortly after Salman Ranch issued, the Treasury Department issued temporary regulations implementing the Department's own interpretation of the statute of limitations and the statute's interaction with Colony. Treas. Regs. §§ 301.6229(c)(2)-1T, .6501(e)-1T, 74 Fed. Reg. 49,321 (Sept. 28, 2009). The Department subsequently issued final regulations replacing the temporary regulations. Treas. Regs. §§ 301.6229(c)(2)-1, .6501(e)-1, 75 Fed.Reg. 78,897 (Dec. 17, 2010). The preamble to the final regulations states: The Treasury Department and the Internal Revenue Service disagree . . . that the Supreme Court's reading of the predecessor to section 6501(e) in Colony applies to sections 6501(e)(1) and 6229(c)(2).... 75 Fed.Reg. at 78,897. The regulations go on to set forth the Department's view that, outside the context of income from sale of goods or services by a trade or business, an understatement of gross income resulting from an overstatement of unrecovered cost or other basis constitutes an omission from gross income for purposes of 6501(e)(1)(A). Treas. Reg. § 301.6229(c)(2)-1(a)(1)(iii) (2010); see also Treas. Reg. § 301.6501(e)-1(a)(1) (2010). In other words, the new Treasury regulations set forth the view of Colony that the government urged before both the Court of Federal Claims in this case, and before the Salman Ranch panel. They state that Colony did not conclusively resolve the statutory interpretation issue, and that overstatement of basis (outside the trade or business context) can trigger the extended limitations period. The government contends that the new Treasury regulations should control the outcome of the present appeal. Grapevine resists, arguing that the new regulations cannot change this court's interpretation of the limitations statutes, and, even if they can, they do not apply in this case.