Basis Overstatement Statute of Limitation Increase

On July 31^st, H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, was signed into law.  This has caused major changes to important tax filing deadlines.  These changes will affect broad categories of taxpayers for tax years beginning after December 31, 2015.

Here is one of the the major changes that you need to be aware of:

Basis Overstatement Statute of Limitation Increase

One of the most potentially painful effects of this bill is to increase the statute of limitations provisions with respect to basis overstatements.

Typically, the IRS must assess tax three years after a return is filed or due unless an exception to the statute of limitations applies.  An extended six year statute of limitations applies in situations where a taxpayer omitted more than 25% of income reported.  In the past, overstating basis in a property sold has not qualified as a omission of income for the purposes of this extended statute of limitations, even if it had an economic effect reducing income reported by more than 25%.  This bill specifically amends Internal Revenue Code §6501(e)(1) to provide than an omission from gross income includes an overstatement of basis. [i] 

With this extended statute of limitations, taking steps to verify the basis of any property sold is an even more important audit protection.

 

---

[i] Id., Sec. 2005

 

Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Pub. L. No. 114-41, https://www.congress.gov/bill/114th-congress/house-bill/3236/text.​.