Home Concrete & Supply, LLC v. United States

Case: 09-2353 Document: 54 Date Filed: 02/07/2011 Page: 44 HOME CONCRETE v. UNITED STATESOn June 11, 1999, Home Oil transferred substantially all ofits business assets to Home Concrete as a capital contribution.Three days later, the taxpayers (except Home Oil) transferredpercentages of their respective partnership interests in HomeConcrete to Home Oil as capital contributions to Home Oil.On August 31, 1999, Home Concrete sold substantially all ofits assets to a third-party purchaser for $10,623,348.In April 2000, Home Concrete and the taxpayers timelyfiled their tax returns for the 1999 tax year. Home Concreteelected to adjust, or "step-up," its inside basis under 26 U.S.C.("I.R.C.") § 754 to equal the taxpayers’ outside bases. SeeI.R.C. § 743(b)(1). Home Concrete then adjusted its insidebasis to $10,527,350.53, including the amount of short saleproceeds earlier contributed by the taxpayers. As a result,Home Concrete reported a modest $69,125.08 gain from thesale of its assets.Home Concrete’s 1999 tax return reported the basic componentsof the transactions. Its § 754 election form gave, foreach partnership asset, an itemized accounting of the partnership’sinside basis, the amount of the basis adjustment, andthe post-election basis. The sum of the post-election bases isindicated at the end of the form. On its face, Home Concrete’sreturn also showed a "Sale of U.S. Treasury Bonds" acquiredon May 18, 1999 at a cost of $7,359,043, and a sale of thoseBonds on May 19, 1999 for $7,472,405. The return alsoreported the resulting gain of $113,362. Similarly, the taxpayers’individual returns showed that "during the year the proceedsof a short sale not closed by the taxpayer in this tax yearwere received."Notwithstanding these disclosures, the Internal RevenueService ("IRS") did not investigate the taxpayers’ transactionsuntil June 2003. The IRS issued a summons to Jenkins & Gilchrist,P.C., the law firm that assisted the taxpayers with thetransactions, on June 19, 2003. The parties agree that substan-