Omissions from Gross Income and the Chenery Rule

Tax Analysts, p. 763, August 2010

7 Pages Posted: 20 Mar 2011 Last revised: 24 Mar 2011

Date Written: August 16, 2010


In Intermountain Insurance, the Tax Court held that 2009 regulations providing that an understatement of basis constituted an omission from gross income for purposes of the special rule extending the statute of limitations on assessments to six years could not be upheld under Brand X because the Supreme Court’s Colony decision adopting a contrary rule was a Chevron step-one holding and therefore could not be overruled by a regulation. In this article, the author contends that there is an additional reason why these regulations cannot overrule Colony - namely, the Chenery principle that agency action can be upheld only on the basis articulated by the agency at the time it acted. When the regulations were promulgated, the IRS did not claim to be overruling Colony, but claimed only to be overruling the recent circuit decisions holding that Colony remains applicable under current law. The author says the regulations can be upheld only if the rationale stated by the IRS is correct, and he argues that it is not.

Keywords: Intermountain, Colony, Brand X, Chevron, Chenery

Suggested Citation

Smith, Patrick J., Omissions from Gross Income and the Chenery Rule (August 16, 2010). Tax Analysts, p. 763, August 2010. Available at SSRN:

Patrick J. Smith (Contact Author)

Ivins, Phillips & Barker ( email )

1717 K Street, NW Suite 600
Washington, DC 20006
United States

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