In Rafizadeh v. Commissioner, 150 T.C. No. 1, the Tax Court issued an important decision for the taxpayers, holding that the six-year statute of limitations with respect to income attributable to certain “specified foreign financial assets”, is effective only for those tax years to which the reporting requirement was applicable and in effect on March 18, 2010, when the statute of limitations was expanded by the HIRE Act.
In Rafizadeh, the taxpayer timely filed his federal income tax returns for tax years 2006, 2007, 2008, and 2009, but failed to report income earned on a foreign account that he held. The IRS obtained information about that foreign account through a “John Doe” summons, which was resolved in November 2010. The IRS issued a notice of deficiency to the taxpayer on December 8, 2014, determining tax deficiencies and accuracy-related penalties for 2006-2009. The IRS agreed that the notice of deficiency was issued after the expiration of the general three-year statute of limitations period.
The Tax Court dealt with the interplay of two statutes amended by Congress in 2010, as part of the HIRE Act. Section 6501(e)(1)(A)(ii) provided that the IRS may assess tax within six years after a return is filed “if the taxpayer omits from gross income an amount properly includible therein and … such amount (I) is attributable to one or more assets with respect to which information is required to be reported under section 6038D … and (II) is in excess of $5,000”. Section 6038D, as enacted by the HIRE Act, requires reporting of additional information relating to “specified foreign financial assets”.
The issue in the Rafizadeh case was whether the expanded sic-year statute of limitations apply to the tax years for which the reporting requirements of section 6038D did not apply, i.e. tax years for which the tax returns were due before March 18, 2010 (2006, 2007 and 2008).
The Tax Court concluded that the six-year limitations period under section 6501(e)(1)(A)(ii) does not apply to the 2006, 2007 and 2008 tax years, because the statute of limitations is extended only to the omitted gross income attributable to “specified foreign financial assets” with respect to which the reporting requirements of section 6038D were applicable and in effect, therefore, giving an important victory to the taxpayer.