By Patrick Temple-West
WASHINGTON (Reuters) - The Supreme Court ruled on Wednesday that the Internal Revenue Service took too much time to try to collect back taxes from a business in a tax shelter case, a decision with wider impact for dozens of related cases.
Ruling in favor of Home Concrete & Supply LLC, the business the IRS had been pursuing in a crackdown on "Son of Boss" tax shelters, the high court said the agency could not use an extended, six-year statute of limitations period.
The IRS had said the extended period, an exception from the normal three-year limit, was justified in the case.
But the court disagreed with the tax-collecting agency in a 5-4 decision in United States v. Home Concrete & Supply LLC.
The ruling puts in question up to $1 billion in tax revenues that the IRS was hoping to collect from about 30 related cases involving "Son of Boss" tax shelters.
Greg Garre, an attorney with Latham & Watkins LLP, who represented Home Concrete, said he was "thrilled with the result."
The IRS did not immediately have a comment on Wednesday.
First appearing in the late 1990s, "Son of Boss" shelters were some of the costliest tax schemes in U.S. history. "Boss" was an acronym for "bond and option sales strategies." The shelters involved creating paper losses to offset real gains.
The IRS started cracking down on "Son of Boss" in 2000. By 2005, 1,165 people had settled such cases with the IRS, but the complex structures used in the schemes were hard for the IRS to unravel, and it was losing some court challenges.
Broadly similar Son of Boss cases faced contradictory decisions at the Appeals Court level. Wednesday's decision provides some clarity for these cases.
"It's a great result for my client," said Robert McKenzie, a partner with Arnstein & Lehr, who represented a taxpayer in the Seventh Circuit Court of Appeals who lost to the government in a separate case.
Home Concrete was a limited liability company formed in 1999 to facilitate a Son of Boss scheme for two North Carolina businessmen, Robert Pierce and Stephen Chandler, who owned a small oil and coal company. The two filed their 1999 taxes in 2000. They were audited by the IRS, but not until 2006, and they were billed that year for unpaid taxes totaling $6 million.
The Home Concrete partners sued, arguing the IRS violated a three-year statute of limitations on its power to claim unpaid taxes. The IRS replied that it was within its power to bill taxpayers up to six years back when more than 25 percent of a taxpayer's gross income was involved.
The Home Concrete partners lost in District Court, but won in February 2011 in an appeals court. The IRS appealed, and the Supreme Court in November decided to take up the case. Oral arguments were held in January.
(Reporting By Patrick Temple-West; Editing by Kevin Drawbaugh and Leslie Adler)