143 T.C. 149">*150 GOEKE, Judge: This matter is before us on petitioners' motion for partial summary judgment under Rule 121(a).¹

Respondent issued a notice of deficiency concerning petitioners' Federal income tax for the taxable years 2006 to 2009. Petitioners contend that the notice is invalid as it relates to 2006 and 2007 because respondent did not send it within the three-year limitations period provided by section 6501(a). Respondent argues that a six-year limitations period applies under section 6501(e) because petitioners omitted from their returns gross income exceeding 25% of the gross income they reported. We must determine the appropriate limitations period; we hold that a six-year limitations period applies.

Petitioners resided in California when they filed their petition.

Petitioners filed their 2006 and 2007 Forms 1040, U.S. Individual Income Tax Return, on September 17, 2007, and October2014 U.S. Tax Ct. LEXIS 37">*38 2, 2008, respectively. Respondent sent petitioners a notice of deficiency on September 26, 2012, determining income tax deficiencies for taxable years 2006 to 2009.

In the notice of deficiency, respondent alleged that petitioners had omitted from their 2006 and 2007 returns gross 143 T.C. 149">*151 income of $629,850 and $431,957, respectively.² On those returns petitioners reported gross income totaling $271,440 and $340,591, respectively, excluding their shares of the passthrough entity activity we describe below.

During the years at issue petitioners were 80.04% partners in Barkett Family Partners, a limited partnership. They were also 100% shareholders of Unicorn Investments, Inc., an S corporation. These entities reported extensive investment activity on their 2006 and 2007 returns. Combined, they reported capital gains from the sale of investments of approximately $123,000 for 2006 and $314,000 for 2007.³ They reported amounts re alized from the sale of2014 U.S. Tax Ct. LEXIS 37">*39 investments of more than $7 million for 2006 and more than $4 million for 2007.⁴ On their 2006 and 2007 returns petitioners reported their shares of the entities' gains and losses. For simplicity's sake, we will refer to the investment activities as if petitioners had engaged in them directly, i.e., not via the passthrough entities.

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678">90 T.C. 678, 90 T.C. 678">681 (1988). The Court may grant summary judgment when there is no genuine dispute of material fact and a decision may be rendered as a matter of law. Rule 121(a) and (b); Sundstrand Corp. v. Commissioner, 98 T.C. 518">98 T.C. 518, 98 T.C. 518">520 (1992), aff'd,17 F.3d 965">17 F.3d 965 (7th Cir. 1994). The moving party bears the burden of proving that there is no genuine dispute of material fact, and the Court will draw any factual inferences in the light most favorable to the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812">85 T.C. 812, 85 T.C. 812">821 (1985).

Under the general rule set forth in section 6501(a), the Internal Revenue Service (IRS) must assess tax or send a notice of deficiency within three years after a return is filed. The limitations period2014 U.S. Tax Ct. LEXIS 37">*40 extends to six years under section 6501(e)(1) "[i]f the taxpayer omits from gross income an amount properly includible therein and * * * such amount is in excess of 25 percent of the amount of gross income stated in the return".

Respondent issued the notice of deficiency here more than three years but less than six years after petitioners filed their 2006 and 2007 returns. Thus, the notice is timely with respect to those returns only if the six-year limitations period applies.

To determine the appropriate limitations period, we must divide the amount of gross income petitioners omitted from their return by the amount of gross income they stated in their return. If the omitted amount is more than 25% of the included amount, the six-year limitations period applies. The parties agree that for the purpose of this calculation, the omitted amounts are $629,850 and $431,957 for taxable years 2006 and 2007, respectively. They disagree over the amounts of gross income petitioners stated in their returns. Petitioners argue that the gross income they stated in their returns should include the amounts realized they reported from the sale of investment assets; respondent argues that it should include only2014 U.S. Tax Ct. LEXIS 37">*41 the gain they reported from those sales, i.e., amounts realized less bases of assets sold.

We have considered this issue before and have held that "capital gains, and not the gross proceeds,⁵ are to be treated as the 'amount of gross income stated in the return' for purposes of section 6501(e)." Insulglass Corp. v. Commissioner, 84 T.C. 203">84 T.C. 203, 84 T.C. 203">203 (1985); see also Schneider v. Commissioner, T.C. Memo. 1985-139. We decided those cases on the basis of section 61(a), which defines gross income as "all income 143 T.C. 149">*153 from whatever source derived", including "[g]ains derived from dealings in property". (Emphasis added.)

In 2010 the Secretary promulgated section 301.6501(e)-1, Proced. & Admin. Regs., which provides instructions consistent with our jurisprudence. T.D. 9511, 2011-6 I.R.B. 455. The regulation also explains how to determine whether gross income has been omitted from a taxpayer's return. The Supreme Court addressed the validity of the regulation in United States v. Home Concrete & Supply, LLC, 566 U.S. ___, ___, 132 S. Ct. 1836">132 S. Ct. 1836, 132 S. Ct. 1836">1842, 182 L. Ed. 2d 746">182 L. Ed. 2d 746 (2012), and determined that the portion concerning omitted gross income was invalid. Petitioners argue that the Home Concrete decision also invalidated the regulation's instructions concerning the calculation of gross income and consequently our cases on the matter. For the reasons we discuss below, we disagree.

To fully explain2014 U.S. Tax Ct. LEXIS 37">*42 the import of the Home Concrete decision, we must first discuss the Supreme Court's decision in Colony, Inc. v. Commissioner, 357 U.S. 28">357 U.S. 28, 78 S. Ct. 1033">78 S. Ct. 1033, 2 L. Ed. 2d 1119">2 L. Ed. 2d 1119, 1958-2 C.B. 1005 (1958). In Colony the taxpayer had overstated its basis in property it had sold and had consequently underreported its gain on the sale. The Commissioner argued that the underreported gain constituted "omitted gross income" for the purpose of determining whether the extended limitations period applied. The Court disagreed, citing the limitations statute's legislative history. The Court determined that in enacting the statute, Congress intended to give the Commissioner additional time to review a taxpayer's return when the taxpayer had reported no information about a given transaction. In such cases, the Court said, the Commissioner is particularly disadvantaged because the return does not alert him to suspicious activity requiring further investigation. When an understatement results from misreported information, rather than a complete omission, the IRS is at no such disadvantage, and the understatement should not contribute to triggering the limitations period extension.

As we noted above, in 2010 the Secretary promulgatedsection 301.6501(e)-1, Proced. & Admin. Regs., which explained when gross income should be2014 U.S. Tax Ct. LEXIS 37">*43 considered omitted for the purpose of triggering the extended limitations period. The regulation provides that when taxpayers understate their income from a property sale because they overstated their basis in the property, the amount of the understatement shall be 143 T.C. 149">*154 considered omitted income. Sec. 301.6501(e)-1(a)(1)(iii), Proced. & Admin. Regs. The regulation's guidance directly conflicts with Colony, which held that such an understatement is not omitted gross income.

The Court resolved the conflict between the regulation and the Colony holding in Home Concrete. There the taxpayer had overstated its basis in a partnership it had sold and had consequently underreported its gain on the sale. The Commissioner again argued, this time under the regulation, that the underreported gain constituted "omitted gross income". The Court held, after an administrative law discussion we will omit here, that the regulation was invalid because it conflicted with the Colony holding. The Court followed its Colony analysis and held that the underreported gain was not omitted gross income and that it did not belong in the numerator of the statute of limitations calculation. The Home Concrete holding addressed only when2014 U.S. Tax Ct. LEXIS 37">*44 gross income is to be considered omitted. It did not address how to calculate gross income.⁶

Petitioners attempt to use the Home Concrete decision to support their position that "gross income" includes amounts realized from the sale of investment property without a corresponding basis adjustment. They state their argument as follows:

Only when * * * [amounts realized]^{72014 U.S. Tax Ct. LEXIS 37">*45} are left out of the computation of gross income are they omitted for purposes of the six-year statute of limitations of section 6501(e)(1)(A). If * * * [amounts realized] are not left out of the computation of gross income, they are not omitted; when they are not omitted, they are included; when they are included, they are stated in the return; when they are stated in the return, they are included in the denominator of the 25% percent omitted calculation of section 6501(e)(1)(A).