IRS losses tax shelter case limiting its audit scope

The Internal Revenue Service (IRS) took far too long to claw back taxes from a company's tax shelter, the Supreme Court ruled Wednesday.

The court's 5-4 decision said the IRS could not take more than three years to challenge Home Concrete & Supply LLC, which used a tax shelter known as "Son of Boss" – a ruling with implications for many other cases.

The tax collection agency argued that it could collect the taxes using a six-year statute of limitations during oral arguments held in January, said Bloomberg.

The court disagreed with that argument but did not, however, address the legality of the tax shelter. 

The Associated Press reported that the court said taxpayer overstatements do not give the government extra time to audit and impose penalties.

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Son of a Boss is a term coined by Treasury officials for certain tax shelter schemes that appeared in the late 1990s.

"Boss" stands for “Bond and Option Sales Strategy.”

The shelter works to decrease taxes on capital gains on the sale of a business or other appreciating asset, inflating the cost of the asset to make the sale of it seem smaller than it really is, said the Wall Street Journal.

Lower courts have not been able to come to a definitive decision on the statute of limitations in such tax shelter instances.

The company lost their case in district court to the IRS, but won in February 2011 in an appeals court.

The IRS appealed to the Supreme Court, which agreed to take the case in November.