Procedure & administration: definition of omission from gross income for partnership items and the six-year period for assessing tax.

• Author: Kim, Grace

The IRS has issued temporary (replacing an existing final regulation) and proposed regulations (T.D. 9466, REG-108045-08) defining an omission from gross income for purposes of the six-year minimum period for assessment of tax attributable to partnership items and the six-year period for assessing tax. Most significantly, the temporary regulations resolve the continuing issue of whether an overstatement of basis in a sold asset results in an omission from gross income. The temporary regulations apply to tax years for which the applicable period for assessing tax did not expire before September 24, 2009.

Temporary Regs.

Sec. 6229(c)(2) provides that if a partnership omits from gross income an amount properly includible therein that is in excess of 25% of the amount of gross income stated in its return, the period for assessing tax attributable to its partnership items is extended to six years. Similarly, Sec. 6501(e)(1)(A) provides that if a taxpayer omits from gross income an amount properly includible therein that is in excess of 25% of the amount of gross income stated in the return, the period of time for assessment is extended to six years. Sec. 6501(e)(1)(A) also defines the term "gross income." The temporary regulations confirm that the Sec. 6501(e)(1)(A) definition of an omission from gross income applies for purposes of Sec. 6229.

The temporary regulations also define gross income, as it relates to a trade or business, as the total of the amounts received or accrued from the sale of goods or services, to the extent required to be shown on the return, without reduction for the cost of those goods or services (Temp. Regs. Sees. 301.6229(C)(2)-1T(a)(1)(ii) and 301.6501(e)-1T(a) (1) (ii)). They further state that gross income, as it relates to any income other than from the sale of goods or services in a trade or business, has the same meaning as provided under Sec. 61(a) and includes the total of the amounts received or accrued, to the extent required to be shown on the return (Temp. Regs. Sees. 301.6229(C)(2)-1T(a)(1)(iii) and 301.6501(e)-1T(a)(1)(iii)). The regulations under Sec. 61(a) explain that gross income includes "gains derived from dealings in property" and that these gains are "the excess of the amount realized over the unrecovered cost or other basis for the property sold or exchanged" (Regs. Sec. 1.61-6(a)). The temporary regulations also provide that, outside the trade or business context, an understated amount of gross...