Omissions from Gross Income and Retroactivity

14 Pages Posted: 7 Apr 2011 Last revised: 24 Jan 2012

Date Written: April 4, 2011


The regulations defining an omission from gross income for purposes of the extended statute of limitations to include understatements of gross income resulting from overstated basis have focused renewed attention on the retroactivity rule in the original 1954 version of section 7805(b) regulations. By its terms, this original 1954 version of section 7805(b) authorizes retroactive regulations.

However, because of the substantial expansion of agency rulemaking discretion authorized long after the 1954 enactment of the original version of section 7805(b) by the Supreme Court's decisions in Chevron and Brand X, and the recent confirmation in Mayo that this expanded agency discretion applies to tax regulations, it is not reasonable to conclude that Congress, in enacting the original 1954 version of section 7805(b), intended to authorize retroactive application of the expanded agency discretion that was not authorized by the Supreme Court until many years later. Thus, the traditional Anderson, Clayton factors for evaluating the propriety of retroactive regulations under section 7805(b) should be viewed as obsolete. Instead, retroactive tax regulations should be evaluated using the same standards that apply to retroactive regulations issued by any other agency, informed by the principles of Bowen and Landgraf. Under these principles, the overstated basis regulations should be considered impermissibly retroactive.

Keywords: Chevron, Brand X, retroactivity, Landgraf, Intermountain, Mayo

Suggested Citation

Smith, Patrick J., Omissions from Gross Income and Retroactivity (April 4, 2011). Tax Notes, Vol. 131, No. 1, 2011. 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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