Tax Legal Services · Primary-source case analysis

Colony: A Basis Overstatement Was Not an Omission From Gross Income

By Aneeta Mishra and Timothy Chan

Published September 6, 2026

The Colony, Inc. v. Commissioner concerned residential-lot sales for which the taxpayer reported receipts but allegedly included improper development costs in basis, reducing reported gross profit by more than twenty-five percent.

The dispute concerned basis rather than hidden receipts

The Commissioner did not claim that sales proceeds were omitted or that the returns were fraudulent.

The assessment came after the ordinary period

Waivers were executed more than three but less than five years after filing, so validity depended on the extended omission period.

Omission meant leaving out an income item

The Court read the statutory phrase as directed to specific receipts left out of gross income, not an error arising from overstated cost of property sold.

The assessment was time-barred

The Court reversed because the ordinary three-year period controlled. Current cases require attention to later statutory amendments and current limitations rules.

Key takeaways

• Identify whether the return omitted receipts or misstated basis.
• Build a filing-date and consent-extension timeline.
• Apply the statute governing the actual tax year.
• Check later amendments before treating Colony as the current rule.