Columbia/St David's v. CIR ( 2001 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 00-60813
Summary Calendar
_____________________
COLUMBIA/ST DAVID’S HEALTHCARE SYSTEM LP; ET AL
Petitioners
ST DAVID’S HEALTHCARE SYSTEM, INC
Petitioner-Appellant
v.
COMMISSIONER OF INTERNAL REVENUE
Respondent-Appellee
_________________________________________________________________
Appeal from the Decision of the
United States Tax Court
(7005-00)
_________________________________________________________________
June 19, 2001
Before KING, Chief Judge, and JONES and STEWART, Circuit Judges.
PER CURIAM:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
Petitioner-Appellant St. David’s Health Care System, Inc.
appeals from the Tax Court’s judgment, which granted Respondent-
Appellee the Commissioner of Internal Revenue’s motion to dismiss
for lack of jurisdiction. For the following reasons, we AFFIRM.
I. FACTUAL AND PROCEDURAL HISTORY
Petitioner-Appellant St. David’s Health Care System, Inc.
(“St. David’s”), a not-for-profit corporation, is a partner in
Columbia/St. David’s Healthcare System, L.P. (the “Partnership”).
The Partnership was formed for the purpose of owning and
operating hospitals and related health care facilities in Austin,
Texas. St. David’s is a notice partner in the Partnership, as
defined by § 6231(a)(8) of the Internal Revenue Code (the
“Code”). See I.R.C. § 6231(a)(8) (2000).1 Round Rock Hospital,
Inc. (“Round Rock”) is also a member of the Partnership and is
the Tax Matters Partner (the “TMP”). As the TMP, Round Rock is
the primary liaison between the Partnership and the Internal
Revenue Service (the “IRS”) on all tax matters relating to the
Partnership. See id. § 6231(a)(7).2
1
Section 6231(a)(8) defines a “notice partner” as “a
partner who, at the time in question, would be entitled to notice
under subsection (a) of section 6223.” I.R.C. § 6231(a)(8).
2
Section 6231(a)(7) provides in relevant part:
The tax matters partner of any partnership is--
(A) the general partner designated as the tax matters
partner as provided in regulations, or
(B) if there is no general partner who has been so
designated, the general partner having the largest
profits interest in the partnership at the close of the
2
On December 31, 1996, the Partnership’s taxable year for
1996 ended, and the Partnership timely filed its 1996 tax return
with the IRS. The IRS audited the return during the years of
1998 through 2000. On January 27, 2000, the IRS issued to the
TMP a notice of final partnership administrative adjustment
(“FPAA”), which, as required under the Code, was then delivered
to all notice partners of the Partnership, including St. David’s.
See I.R.C. § 6223(a). The FPAA made adjustments to several
partnership items contained within the Partnership’s 1996 return.
One of the adjustments was an increase in the Partnership’s
taxable income in the amount of $14,445,441, which resulted from
the disallowance of a bad-debt deduction with respect to St.
David’s precontribution allowance for bad debts. A second
adjustment was a $1,995,335 modification to a disguised sale.
Section 6226(a)(1) of the Code provides that, within ninety
days of the date on which a notice of FPAA is mailed to the TMP,
the TMP “may file a petition for a readjustment of the
partnership items for such taxable year” with the Tax Court, the
appropriate district court, or the Court of Federal Claims. See
I.R.C. § 6226(a)(1). On April 25, 2000, the TMP filed such a
petition for readjustment, seeking readjustment of the IRS’s
taxable year involved (or, where there is more than 1
such partner, the 1 of such partners whose name would
appear first in an alphabetical listing).
I.R.C. § 6231(a)(7).
3
disguised sale adjustment. Then, on June 22, 2000, St. David’s,
as a notice partner, filed a separate petition for readjustment
in the Tax Court, seeking readjustment with respect to the bad-
debt deduction.
The Respondent-Appellant the Commissioner of Internal
Revenue (the “Commissioner”) filed a motion to dismiss the
readjustment petition filed by St. David’s, arguing that the Tax
Court lacked jurisdiction over the petition because of the TMP’s
previously filed petition, which concerned the same FPAA. The
Tax Court granted the Commissioner’s motion to dismiss.
St. David’s timely appealed.
II. STANDARD OF REVIEW
We review a decision of the Tax Court by applying the same
standards employed in reviewing a decision of a district court in
civil actions tried without a jury. See Street v. Commissioner,
152 F.3d 482, 484 (5th Cir. 1998); see also I.R.C. § 7482.
Accordingly, we review the Tax Court’s grant of a motion to
dismiss for lack of subject-matter jurisdiction de novo. See
Rodriguez v. Texas Comm’n on the Arts, 199 F.3d 279, 280 (5th
Cir. 2000); EP Operating Ltd. P’ship v. Placid Oil Co., 26 F.3d
563, 566 (5th Cir. 1994). We must take as true all of the
complaint’s uncontroverted factual allegations, see Saraw P’ship
v. United States, 67 F.3d 567, 569 (5th Cir. 1995), and will
affirm the dismissal if “‘the court lacks the statutory or
4
constitutional power to adjudicate the case.’” Home Builders
Ass’n v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir.
1998) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d
1182, 1187 (2d Cir. 1996)).
III. THE TAX COURT DID NOT HAVE JURISDICTION TO HEAR THE
READJUSTMENT PETITION FILED BY ST. DAVID’S
The issue before us on appeal is whether St. David’s, as a
partner other than the TMP, was entitled to file and adjudicate a
readjustment petition contesting the IRS’s adjustment of
partnership items in a FPAA after the TMP had previously filed a
readjustment petition concerning the same FPAA. St. David’s
argues that it is entitled to file such a petition because its
petition concerned readjustment of a partnership item unrelated
to the partnership item contested in the TMP’s petition. The Tax
Court held that “because a valid, timely petition was previously
filed by the tax matters partner,” the court had no jurisdiction
over the readjustment petition filed by St. David’s. We agree
and also conclude, as did the Tax Court, that the readjustment
requested by St. David’s may be “addressed in the unified TEFRA
partnership proceedings” already pending before the Tax Court.
A. The Statutory Framework
To simplify procedures for determining the tax liability of
the individual partners of a partnership, in the Tax Equity and
Fiscal Responsibility Act of 1982 (the “TEFRA”), Congress added
5
sections 6221 through 6232 to the Code. See Pub. L. No. 97-248,
§ 402, 96 Stat. 324 (1982); see also Transpac Drilling Venture,
1983-63 v. Crestwood Hosps., Inc., 16 F.3d 383, 387 (Fed. Cir.
1994). These sections were added so that the tax treatment of
certain partnership items, such as income, loss, deductions, and
credits, would be “determined at the partnership level in a
unified proceeding rather than in separate proceedings with the
partners.” H.R. CONF. REP. NO. 97-760, at 600 (1982), reprinted
in 1982 U.S.C.C.A.N. 1190, 1372; see also Brookes v. United
States, 20 Ct. Cl. 733, 737 (1990).
Pursuant to the TEFRA, the IRS is required to give partners
notice once it begins an administrative proceeding relating to a
partnership item. See I.R.C. § 6223(a)(1). If the
administrative proceeding results in any adjustments to
partnership items, the IRS is to mail to the TMP a notice of
FPAA. See id. § 6223(a)(2), (d). As mentioned supra in Part I,
within ninety days after the day on which a notice of FPAA is
mailed to the TMP, the TMP may file a “petition for readjustment
of the partnership items” with the Tax Court, an appropriate
district court, or the Court of Federal Claims. See id.
§ 6226(a).3 If the TMP fails to file a readjustment petition
3
Section 6226(a) states:
Petition by tax matters partner.--Within 90 days after
the day on which a notice of a final partnership
administrative adjustment is mailed to the tax matters
partner, the tax matters partner may file a petition
6
within those ninety days, however, § 6226(b) permits a partner
other than the TMP to file such a petition. See I.R.C.
§ 6226(b).4
If an action is brought under either subsection (a) or
subsection (b) of § 6226, “each person who was a partner in such
partnership at any time during such year shall be treated as a
party, and . . . the court having jurisdiction of such action
shall allow each such person to participate in the action.”
I.R.C. § 6226(c). Any partner who satisfies the requirements of
§ 6226(d) “may participate in the action by filing a notice of
election to participate with the Court.” TAX CT. R. 245(b).
Moreover, that partner may file an amendment to the TMP’s
for a readjustment of the partnership items for such
taxable year with--
(1) the Tax Court,
(2) the district court of the United States for the
district in which the partnership’s principal place of
business is located, or
(3) the Court of Federal Claims.
I.R.C. § 6226(a).
4
Section 6226(b) provides:
Petition by partner other than tax matters partner
. . . If the tax matters partner does not file a
readjustment petition under subsection (a) with respect
to any final partnership administrative adjustment, any
notice partner (and any 5-percent group) may, within 60
days after the close of the 90-day period set forth in
subsection (a), file a petition for a readjustment of
the partnership items for the taxable year involved
with any of the courts described in subsection (a).
I.R.C. § 6226(b).
7
petition in order to seek readjustment of other partnership items
that were designated in the FPAA, but were not contested by the
TMP. See id. R. 245(e). These procedures, i.e., permitting a
partner to elect to participate as a party to the TMP’s action
and to file an amendment to the TMP’s petition, act to “meet[]
TEFRA’s objective of ensuring that all partners may . . .
litigate a dispute with the IRS in a single proceeding.” Chimblo
v. Commissioner, 177 F.3d 119, 121 (2d Cir. 1999) (second
alteration in original) (internal quotations and citations
omitted), cert. denied, 528 U.S. 1154 (2000).
B. Analysis
St. David’s argues that because the TMP did not file its
readjustment petition to readjust “every” partnership item listed
in the FPAA, St. David’s was permitted to file its own
readjustment petition with the Tax Court. Specifically, St.
David’s asserts that it was entitled to file a petition to
readjust the bad-debt adjustment because the TMP failed to
contest that adjustment in its petition. The argument advocated
by St. David’s hinges on the meaning of the term “any” contained
in § 6226(b), which permits a notice partner to file a
readjustment petition “[i]f the tax matters partner does not file
a readjustment petition under subsection (a) with respect to any
final partnership administrative adjustment.” I.R.C. § 6226(b)
(emphasis added). St. David’s relies on the dictionary
definition of the term “any” and contends that, in the context of
8
§ 6226(b), the term “any” should actually mean “every.” Such an
interpretation, argues St. David’s, would require the TMP to file
a readjustment petition contesting every adjustment listed in the
FPAA before a partner (other than the TMP) would be precluded
from filing a separate petition. We disagree with this
interpretation for two reasons.
1. Reason One: The Law Regarding Subsequently Filed Petitions
When the TMP Has Previously Filed
First, the Tax Court, as an Article I court, possesses
jurisdiction to adjudicate controversies only as Congress has
expressly provided in the Code. See I.R.C. § 7442; see also In
re Grand Jury Proceedings, 687 F.2d 1079, 1097 (7th Cir 1982).
The Tax Court’s jurisdictional power to review a FPAA is
primarily found in § 6226.5 See I.R.C. § 6226(f) (“A court with
which a petition is filed in accordance with this section shall
have jurisdiction to determine all partnership items of the
partnership for the partnership taxable year to which the notice
of [FPAA] relates[.]”). Under § 6226(b), the Tax Court has
jurisdiction over a notice partner’s petition filed after the
ninety-day period for TMP filing, only if the TMP failed to file
within the ninety-day period prescribed in § 6226(a). See I.R.C.
§ 6226(b) (“If the tax matters partner does not file a
readjustment petition under subsection (a) with respect to any
5
See supra notes 3 & 4.
9
final partnership administrative adjustment, [then] any notice
partner . . . may, within 60 days after the close of the 90-day
period set forth in subsection (a), file a petition for a
readjustment[.]”). As such, it is well established that the Tax
Court “lack[s] jurisdiction over petitions for readjustment of
partnership items filed by notice partners in the presence of
earlier, valid petitions filed by [the TMP].” Cambridge Research
& Dev. Group v. Commissioner, 62 T.C.M. (CCH) 654, 654 (1991);
see also Transpac Drilling Venture, 1983-2 v. United States, 83
F.3d 1410, 1412 (Fed. Cir. 1996); Transpac Drilling Venture,
1983-63 v. United States, 26 Ct. Cl. 1245, 1247 (1992); Brookes,
20 Ct. Cl. at 737; Cablevision of Conn. v. Commissioner, 65
T.C.M. (CCH) 2147, 2149, 2150 (1993).
St. David’s attempts to distinguish some of these cases by
asserting that the items contested in the TMP petitions in those
cases were the same as those challenged in the subsequently filed
petitions. St. David’s argues that because the adjustment
contested by St. David’s is not duplicative of that contested by
the TMP in this case, St. David’s should be permitted to file a
separate petition. This argument does not alter the fact that
these cases speak in terms of filing a “petition” and do not
distinguish among the different types of adjustments contained
within the FPAA. See Transpac Drilling Venture, 1983-63, 26 Ct.
Cl. at 1247 (“[Section] 6226(b) permits others to file a petition
within 60 days following the expiration of the original 90 day
10
period if the TMP failed to file a readjustment petition within
that time.” (emphasis added)); Brookes, 20 Ct. Cl. at 737 (“[The
TMP’s petition] was filed within the 90-day period during which
only the tax matters partner may file a petition, and the tax
matters partner did in fact file, thereby terminating any right
in plaintiffs to do so.” (emphasis added)); Cablevision of Conn.,
65 T.C.M. (CCH) at 2150 (agreeing that “[b]ecause [the TMP] filed
a timely petition pursuant to section 6226(a), . . . the petition
filed by Dolan must be dismissed” (emphasis added)); Cambridge
Research & Dev. Group, 62 T.C.M. (CCH) at 654 (“We lack
jurisdiction over petitions for readjustment of partnership items
filed by notice partners in the presence of earlier, valid
petitions filed by tax matters partners.” (emphasis added)); see
also H.R. CONF. REP. NO. 97-760, at 603 (1982), reprinted in 1982
U.S.C.C.A.N. 1190, 1375 (“If the TMP does not file a petition,
any notice partner or 5-percent group with an interest in the
outcome may within 60 days following such 90-day period, file a
petition with any of the courts in which the TMP may file a
petition.” (emphasis added)); cf. TAX CT. R. 241(d)(3)(D)
(requiring a separate numbered paragraph in a partner’s (other
than a TMP) petition for readjustment to state that “the tax
matters partner has not filed a petition for readjustment of
partnership items within the period specified in Code Section
6226(a)” (emphasis added)).
11
We conclude that these cases demonstrate that when the TMP
has filed a valid and timely readjustment petition within the
ninety-day time period established by the Code, see I.R.C.
§ 6226(a), any other partner is precluded from filing a separate
petition, even if the TMP’s petition seeks readjustment of only
some of the partnership items contained within the FPAA.6
6
In their interpretations of the phrase “with respect to
any final partnership administrative adjustment” in § 6226(b),
the parties are concerned only with the meaning of the term
“any.” We note, however, that proper interpretation of this
phrase may not, in fact, turn on the term “any” and may, instead,
hinge on the meaning of a “final partnership administrative
adjustment.” Both parties seem to regard a “final partnership
administrative adjustment” as a single adjustment to a
partnership item, which would then be listed in the notice of
FPAA along with other FPAAs. Therefore, under either party’s
interpretation, a notice of FPAA could contain several FPAAs.
Although the Code and its implementing regulations
apparently contain no explicit definition of a “final partnership
administrative adjustment,” it appears that a FPAA is actually
one document that may contain adjustments for several partnership
items. See, e.g., I.R.C. § 6226(e)(1) (“A readjustment petition
under this section may be filed . . . only if the partner filing
the petition deposits with the Secretary . . . the amount by
which the tax liability of the partner would be increased if the
treatment of partnership items on the partner’s return were made
consistent with the treatment of partnership items on the
partnership return, as adjusted by the final partnership
administrative adjustment.” (emphasis added)); id. § 6226(f) (“A
court with which a petition is filed in accordance with this
section shall have jurisdiction to determine all partnership
items of the partnership . . . to which the notice of final
partnership administrative adjustment relates[.]” (emphasis
added); see also, e.g., id. § 6223(a)(2) (requiring notice of
“the final partnership administrative adjustment resulting from
[the administrative] proceeding” (emphasis added)). Accordingly,
we believe that it may be better to read the phrase “any final
partnership administrative adjustment” in § 6226(b) to refer to
the single document that results from the administrative
proceeding contemplated in § 6223 and § 6224 of the Code. If
this is the proper reading of the section, then because the TMP
filed a readjustment petition that challenged certain partnership
12
2. Reason Two: The TEFRA’s Purpose of a Unified Proceeding and
the Protection of the Partners’ Interests
Our second reason for disagreeing with the interpretation
advanced by St. David’s is that such an interpretation would
undermine the purposes behind the TEFRA. As discussed supra in
the text, the TEFRA was enacted to provide for a unified
proceeding to handle the tax matters of the individual partners
of a partnership, rather than allowing for several separate
proceedings with the partners. See H.R. CONF. REP. NO. 97-760, at
600 (1982), reprinted in 1982 U.S.C.C.A.N. 1190, 1372. To permit
St. David’s to file a separate petition (thus generating a
separate proceeding) while the TMP’s petition is already pending
in front of the Tax Court is at odds with this stated purpose.
Instead, contrary to the argument by St. David’s that it will be
without an adequate remedy, St. David’s, as a notice partner in
the Partnership, will be able to participate in the single
proceeding that is already pending before the Tax Court, as
contemplated by the TEFRA. See Chimblo, 177 F.3d at 121 (“Any
partner with an interest in the outcome of the proceeding [is]
item adjustments contained in the FPAA for the Partnership’s 1996
taxable year, it filed as to “any” FPAA.
Although we do not speak to which interpretation is correct,
we make this point only to show that the parties’ focus on the
word “any” may be misplaced. But regardless of how the statute
is read, the rule stated in the text above is not altered, and
the result is the same no matter which interpretation is
employed.
13
entitled to participate in an action brought by the tax matters
partner or a notice partner, thereby meeting TEFRA’s objective of
ensuring that all partners may . . . litigate a dispute with the
IRS in a single proceeding.” (alterations in original) (internal
quotations and citations omitted)); see also Davenport Recycling
Assocs. v. Commissioner, 220 F.3d 1255, 1257 n.6 (11th Cir. 2000)
(same). Moreover, interested notice partners, like St. David’s,
may file an amendment to a TMP’s petition to assert readjustment
of partnership items not covered by that petition. See TAX. CT.
R. 245(b), (e). In fact, on July 20, 2000, St. David’s did just
that, making it a party to the pending readjustment action. By
electing to participate and amending the TMP’s petition to
contest the bad-debt adjustment, St. David’s has ensured that its
interests will be protected.7
In sum, it is undisputed that the TMP filed a readjustment
petition challenging the FPAA issued with respect to the
7
The assertion by St. David’s that it does not know
“where [it will] be left” after the TMP settles and “folds its
tent and slips away” is without merit. Once a partnership action
has been filed with the Tax Court and after St. David’s has
elected to participate in the proceeding, St. David’s becomes a
party to the action and must agree to any subsequent settlement
agreement. See I.R.C. § 6226(c)(1) (“[E]ach person who was a
partner in such partnership at any time during [the partnership
taxable year] shall be treated as a party to such action[.]”
(emphasis added)); see also TAX CT. R. 248(b), (c) (entitled
“Settlement agreements” and providing that the partners
participating in the action must enter into the agreement or must
not object to Commissioner’s motion for entry of decision by the
court). Moreover, St. David’s has the right to seek judicial
review of the Tax Court’s decision. See I.R.C. § 6226(g).
14
Partnership’s 1996 taxable year, and the separate petition filed
by St. David’s related to the same FPAA. Accordingly, the Tax
Court correctly dismissed the petition filed by St. David’s
because it lacked jurisdiction to hear the case.
IV. CONCLUSION
For the foregoing reasons, the Tax Court’s judgment granting
the Respondent-Appellee’s motion to dismiss for lack of
jurisdiction is AFFIRMED.
15