Deficiency Notices Were Timely; Taxpayers Substantially Understated Their Income; Gross Income Included Only Gain on Sale of Investment Assets, Not Amount Realized (Barkett, TC)

For purposes of determining whether married taxpayers substantially understated their income, their gross income included only their gain from sales of investment property, not the amount that they realized on the sales. This conclusion was consistent with Reg. §301.6501(e)-1(a)(1)(iii), and with prior Tax Court decisions in Insulglass Corp., Dec. 41,880 , and W. Schneider, Dec. 41,973(M).

None of these authorities was disturbed by the Supreme Court’s decision in

Home Concrete & Supply, LLC, 2012-1 ustc ¶50,315, that invalidated the regulation’s definition of omitted gross income. Since the stipulated amount of the taxpayers’ omitted income was more than 25 percent of the amount of their gross income, deficiency notices that were issued more than three years, but less than six years after they filed their returns were timely.

G.D. Barkett, 143 TC —, No. 6, Dec. 60,003

Other References:

Code Sec. 6501

CCH Reference – 2014FED ¶38,971.60

Tax Research Consultant

CCH Reference – TRC IRS: 30,152.05



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