The Colony, Inc. v. Commissioner of Internal Revenue is a 1957 U.S Supreme Court case that centered around the interpretation of a provision in the Internal Revenue Code related to tax liability and income reporting. The petitioner, The Colony Inc., had reported profits from land sales as capital gains rather than ordinary income on its federal tax returns for years 1946 and 1947. The IRS disputed this classification, arguing it resulted in an underpayment of taxes due to lower rates applied to capital gains compared with ordinary income. The key issue was whether there had been an "omission" from gross income which would extend the statute of limitations for assessment by the IRS from three years to five years under Section 275(c) (now Section 6501(e)) of the code. In ruling in favor of The Colony Inc., Justice Harlan concluded that overstating cost basis did not constitute an omission from gross income within meaning intended by Congress when drafting section 275(c). Therefore, he held that any alleged deficiency could only be assessed within standard three-year limitation period rather than extended five-year period claimed by IRS.

In the dissenting opinion for The Colony, Inc., v. Commissioner of Internal Revenue, it was argued that the majority's interpretation of Section 275(c) of the 1939 Code was incorrect. They believed that this section should apply to situations where a taxpayer understates its gross income due to an overstatement of basis in sold property - not just when there is an omission from gross income as stated by the majority. The dissenters felt that their interpretation better aligned with Congress' intent and purpose behind enacting Section 275(c), which was to extend the statute of limitations for assessment in cases where it would be particularly difficult for IRS to discover errors within standard time limits due to taxpayers’ omissions or misstatements on returns. By limiting application only to instances involving 'omissions', they argued, could potentially allow taxpayers who have made significant errors on their tax returns escape liability simply because those mistakes were not technically 'omissions'.