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Taxpayer's Opening Brief Case: 09-2353 Document: 18 Date Filed: 03/23/2010 Page: 1 RECORD NO. 09-2353 In The United States Court of Appeals For The Fourth Circuit HOME CONCRETE & SUPPLY, LLC; ROBERT L. PIERCE; STEPHEN R. CHANDLER; REBECCA R. CHANDLER; HOME OIL AND COAL COMPANY, INCORPORATED; SUSANNE D. PIERCE, Plaintiffs – Appellants, v. UNITED STATES OF AMERICA, Defendant – Appellee. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA AT NEW BERN BRIEF OF APPELLANTS Richard T. Rice Robert T. Numbers, II Charles M. Wiley WOMBLE CARLYLE SANDRIDGE & RICE, PLLC One West Fourth Street Winston-Salem, North Carolina 27101 (336) 721-3609 Counsel for Appellants THE LEX GROUP ♦ 1108 East Main Street ♦ Suite 1400 ♦ Richmond, VA 23219 (804) 644-4419 ♦ (800) 856-4419 ♦ Fax: (804) 644-3660 ♦ www.thelexgroup.com Case: 09-2353 Document: 18 Date Filed: 03/23/2010 Page: 2 TABLE OF CONTENTS Page TABLE OF AUTHORITIES ................................................................................... iii STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION.........................................................................................................1 STATEMENT OF THE ISSUES...............................................................................2 STATEMENT OF THE CASE..................................................................................2 STATEMENT OF THE FACTS ...............................................................................5 SUMMARY OF THE ARGUMENT ........................................................................8 ARGUMENT ...........................................................................................................10 I. THE DISTRICT COURT’S ORDERS ARE REVIEWED UNDER A DE NOVO STANDARD .................................................10 II. THE DISTRICT COURT INCORRECTLY DETERMINED THAT AN OVERSTATEMENT OF BASIS CONSTITUTES AN OMISSION FROM GROSS INCOME........................................11 A. THE TIME FOR ASSESSING INCOME TAX AGAINST THE TAXPAYERS FOR THE TAX YEAR ENDING DECEMBER 31, 1999 EXPIRED BEFORE THE FPAA WAS ISSUED.......................................................11 B. THE SUPREME COURT’S DECISION IN COLONY HELD THAT AN OVERSTATEMENT OF BASIS DID NOT CONSTITUTE AN OMISSION FROM GROSS INCOME...................................................................................13 C. THE DISTRICT COURT’S REASONING FOR REJECTING COLONY IS NO LONGER VIABLE ...............16 i Case: 09-2353 Document: 18 Date Filed: 03/23/2010 Page: 3 1. Colony Construes the Statutory Language that Controls the Outcome of this Case.................................18 2. Colony is Not Limited to Cases Involving Sales of Goods or Services in the Ordinary Course of a Trade or Business ...........................................................21 3. Applying Colony in this Case Does Not Render 26 U.S.C. § 6501(e)(1)(A)(i) and (ii) Superfluous............................................................ 23 4. New Tax Court Cases Support the Taxpayers’ Position.................................................................. 27 D. ALTERNATIVELY, THE TAXPAYERS ADEQUATELY DISCLOSED THE RELEVANT TRANSACTIONS AND ARE ENTITLED TO THE PROTECTIONS OF THE SAFE HARBOR PROVISION IN 26 U.S.C. § 6501(e)(1)(A)(ii) .......................31 1. The District Court Erred by Requiring the Taxpayers to Disclose the “Substance” of the Underlying Transactions.................................................33 2. The Taxpayers’ Method of Reporting the Relevant Transactions Was Not Misleading..................................37 CONCLUSION........................................................................................................38 REQUEST FOR ORAL ARGUMENT ...................................................................39 ADDENDUM CERTIFICATE OF COMPLIANCE CERTIFICATE OF FILING AND SERVICE ii Case: 09-2353 Document: 18 Date Filed: 03/23/2010 Page: 4 TABLE OF AUTHORITIES Page(s) CASES Bakersfield Energy Partners, LP v. Commissioner, 128 T.C. 207 (2007), aff’d, 568 F.3d 767 (Fed. Cir. 2009) ............................................................... passim Benderoff v. United States, 398 F.2d 132 (8th Cir. 1968) .........................................................................33 Blaustein & Reich, Inc. v. Buckles, 365 F.3d 281 (4th Cir. 2004) .........................................................................10 Bob Jones Univ. v. United States, 461 U.S. 574 (1983) .......................................................................... 20 Brandon Ridge Partners v. United States, 2007 WL 2209129 (M.D. FL 2007) ..............................................................17 Eagan v. United States, 80 F.3d 13 (1st Cir. 1996)..............................................................................26 Grapevine Imports Ltd. v. United States, 71 Fed. Cl. 324 (2006)........................................................................... passim Harlan v. Commissioner, 116 T.C. 31 (2001).........................................................................................35 Hoffman v. Commissioner, 119 T.C. 140 (2002).......................................................................................26 Insulglass Corp. v. Commissioner, 84 T.C. 203 (1985).........................................................................................26 Merkel v. Commissioner, 192 F.3d 844 (9th Cir. 1999) .........................................................................30 iii Case: 09-2353 Document: 18 Date Filed: 03/23/2010 Page: 5 Philipp Bros. Chems., Inc. v. Commissioner, 52 T.C. 240 (1969).........................................................................................26 Phinney v. Chambers, 392 F.2d 680 (5th Cir. 1968) .........................................................................30 Quick’s Trust v. Commissioner, 54 T.C. 1336 (1970), aff’d, 444 F.2d 190 (8th Cir. 1971) .........................................................................34 Salman Ranch, Ltd. v. United States, 79 Fed. Cl. 189 (2007), rev’d, 573 F.3d 1362 (Fed. Cir. 2009) ............................................................. passim Scott v. United States, 328 F.3d 132 (4th Cir. 2003) .........................................................................14 The Colony, Inc. v. Commissioner, 357 U.S. 28 (1958)................................................................................. passim United States v. Pierce, 278 F.3d 282 (4th Cir. 2002) .........................................................................10 United States v. Turner, 389 F.3d 111 (4th Cir. 2004) .........................................................................10 Univ. Country Club, Inc. v. Commissioner, 64 T.C. 460 (1975).........................................................................................34 White v. Commissioner, 991 F.2d 657 (10th Cir. 1993) .......................................................................33 STATUTES 26 U.S.C. § 754..............................................................................................7, 12, 36 26 U.S.C. § 6221........................................................................................................2 26 U.S.C. § 6223(a)(2)...........................................................................................1, 2 iv Case: 09-2353 Document: 18 Date Filed: 03/23/2010 Page: 6 26 U.S.C. § 6226(a) ...................................................................................................1 26 U.S.C. § 6226(e)(1)...............................................................................................3 26 U.S.C. § 6229(c)(2).............................................................................................29 26 U.S.C. § 6229(d) ...................................................................................................2 26 U.S.C. § 6501......................................................................................................11 26 U.S.C. § 6501(a) ...............................................................................................3, 8 26 U.S.C. § 6501(e) .................................................................................................16 26 U.S.C. § 6501(e)(1)(A) ............................................................................... passim 26 U.S.C. § 6501(e)(1)(A)(i) .............................................................................21, 23 26 U.S.C. § 6501(e)(1)(A)(ii) .......................................................................... passim 28 U.S.C. § 1291........................................................................................................2 28 U.S.C. § 1346(e) ...................................................................................................1 I.R.C. § 275(c) (1939)...................................................................................... passim RULE Fed. R. App. P. 34(a) ...............................................................................................39 OTHER AUTHORITIES 1A Norman J. Singer, Sutherland’s Statutes and Statutory Construction (6th ed. 2002) ...........................................................................................................18 Beard v. Commissioner, T.C. Memo 2009-184.....................................10, 18, 27, 28 Connelly v. Commissioner, T.C. Memo 82-644 ......................................................26 v Case: 09-2353 Document: 18 Date Filed: 03/23/2010 Page: 7 Intermountain Insurance Service
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