Thomas J. Heckman, Appellant,
Commissioner of Internal Revenue, Appellee
Submitted April 13, 2015.
Appeal From The United States Tax Court.
For Thomas J. Heckman, Appellant: Troy D. Renkemeyer, Renkemeyer Law Firm, Overland Park, KS.
For Commissioner of Internal Revenue, Appellee: Bruce R. Ellisen, Randolph Lyons Hutter, Gilbert Steven Rothenberg, Senior Attorney, U.S. Department of Justice, Tax Division, Appellate Section, Washington, DC; William Wilkins, Internal Revenue Service, Washington, DC.
Before MURPHY, COLLOTON, and KELLY, Circuit Judges.
COLLOTON, Circuit Judge.
This appeal involves a tax dispute that turns on the applicable statute of limitations. Thomas Heckman did not report certain gross income on a tax return for 2003 that he filed in August 2004. The Internal Revenue Service issued Heckman a notice of deficiency in July 2010. Heckman petitioned the tax court, arguing that the deficiency notice was untimely, because the statute of limitations expired three years after the filing of his return. The tax court determined that a six-year statute of limitations applied, and that the notice was therefore timely. The tax court held Heckman liable for a deficiency of $38,623 for tax year 2003, and Heckman appeals.
Heckman participated in an employee stock ownership plan established by his company, KC Investment Management, in 2001. In 2003, the plan acquired a 100% interest in Prairie Capital, LLC, and then distributed its interest in Prairie Capital to Heckman's individual retirement account. The plan distribution was worth $137,726.
Heckman filed his 2003 Form 1040 tax return, along with accompanying schedules, in August 2004. On the return, Heckman omitted the plan distribution from his gross income. Heckman also did not disclose the distribution or his interest in Prairie Capital on his individual return. For tax year 2003, Prairie Capital filed a Form SS-4 application for an Employer Identification Number and a Form 1065 information tax return. The forms identified Heckman and Heckman's individual retirement account, respectively, as members of Prairie Capital.
The IRS learned of the plan distribution through oral and written statements that Heckman provided during an unrelated audit in April 2007. In July 2010, more than three years but fewer than six years after Heckman filed his 2003 return, the IRS issued Heckman a notice of deficiency for tax year 2003. The parties now agree that the employee stock ownership plan was not eligible for favorable tax treatment under 26 U.S.C. § 401(a), and that the distribution constituted taxable income to Heckman in 2003.
In the tax court, Heckman argued that the notice of deficiency was untimely under the three-year statute of limitations of 26 U.S.C. § 6501(a) (2000). The tax court applied the six-year limitations period prescribed by § 6501(e)(1)(A) and ruled that the notice was timely.[*]
Under 26 U.S.C. § 6501(a) (2000), the IRS must assess a tax deficiency within three years after the relevant tax return was filed. Section 6501(e)(1)(A) extends the limitations period to six years if the taxpayer " omits from gross income" an amount in excess of twenty-five percent of the gross income stated on the return. The parties stipulate that the plan distribution exceeded twenty-five percent of Heckman's gross income for 2003. An amount is not considered " omitted" from gross income, however, if it is " disclosed in the return, or in a statement attached to the ...