Academic journal article Journal of Accountancy

Son of Boss Adjustment Timely for IRS

Academic journal article Journal of Accountancy

Son of Boss Adjustment Timely for IRS

Article excerpt

A federal court has concluded that a suspected "Son of BOSS" transaction that caused an overstatement of basis in the calculation of gain from a sale of real estate is a gross income omission that allows the IRS six years to assess a deficiency The ruling, in Salman Ranch Ltd. v. U.S., adds to the list of several recent lower court rulings that have reached conflicting legal conclusions on similar fact patterns.

The Court of Federal Claims denied the taxpayer's argument that the assessment was subject to the three-year statute of limitations of IRC [section] 6501(a). The court said the six-year extended period of [section] 6501(e)(1)(A) applied because the overstated basis resulted in an over-25% omission from gross income.

The ruling is in accord with a Florida district court's ruling in Brandon Ridge Partners v. U.S., 100 AFTR2d 2007-5347 ("Tax Matters," JofA, Nov. 07, page 79). On the other hand, decisions in Bakersfield Energy Partners v. Commissioner, 128 TC no. 17, and Grapevine Imports Ltd. v. U.S., 100 AFTR2d 2007-5065 (Court of Federal Claims), this past summer said an overstatement of basis was not sufficient to extend the three-year period.

In Salman, the partners entered into a suspected Son of BOSS transaction (so called because it is a variant of a shelter known as "Bond and Options Sales Strategy") involving a short sale of U.S. Treasury notes. Based on the undisclosed short sale, the partners reported a stepped-up basis of $6,850,2.76 on sale proceeds of $7,188,588 for Salman Ranch in New Mexico. …

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