Colestock v. Commissioner

102 T.C. 380 (1994)

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Colestock v. Commissioner

United States Tax Court
102 T.C. 380 (1994)

Facts

Stephen and Susan Colestock (plaintiffs) timely filed an amendment to their joint tax return for the 1984 tax year in October of 1985. In 1991, the Internal Revenue Service (IRS) (defendant) determined that the Colestocks had failed to report income from transactions with a particular corporation and issued them a notice of deficiency. Under the Internal Revenue Code (code), the ordinary three-year statute of limitations to assess a deficiency was extended to six years if the amount of omitted gain exceeded a certain threshold, which the Colestocks’ omitted gain did. The Colestocks petitioned the United States Tax Court for redetermination. While the matter was before the tax court, the tax court allowed the IRS to amend its filings to include an increased deficiency on the Colestocks’ 1984 taxes attributable to a depreciation deduction that the IRS alleged was improperly taken. The depreciation deduction on its own did not meet the threshold to trigger the statutory extension of the statute of limitations. The Colestocks filed for partial summary judgment as to the increased deficiency, arguing that the IRS was barred by the three-year statute of limitations. The IRS responded by arguing that if any item on a taxpayer’s return exceeded the statutory threshold to extend the statute of limitations, the entirety of the taxpayer’s liability for that tax year became subject to the six-year limitations period.

Rule of Law

Issue

Holding and Reasoning (Panuthos, J.)

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