According to the Supreme Court the IRS only has three years to seek back taxes based on an overstated tax basis. According to a case where a business understated the gain from the sale of an asset because an inflated tax basis was used.
The Service stated it had six years, not the usual three-year period, to go after the company, because the understatement exceeded 25% of adjusted gross income. But the Court said that because the sale was shown on the firm’s return, the six-year period wasn’t triggered.