Adkison v. Cir ( 2010 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PETER D. ADKISON, 
Petitioner-Appellant, No. 08-70485
v.
 Tax Ct. No.
2532-06
COMMISSIONER OF INTERNAL
REVENUE, OPINION
Respondent-Appellee.

Appeal from a Decision of the
United States Tax Court
Argued and Submitted
September 2, 2009—Seattle, Washington
Filed January 21, 2010
Before: Michael Daly Hawkins, M. Margaret McKeown, and
Jay S. Bybee, Circuit Judges.
Opinion by Judge Bybee
1295
1298 ADKISON v. CIR
COUNSEL
Cori Flanders-Palmer (argued), Chicoine & Hallert, P.S.,
Seattle, Washington; John M. Colvin, Chicoine & Hallert,
P.S., Seattle, Washington, for the petitioner-appellant.
Teresa E. McLaughlin (argued), United States Department of
Justice, Tax Division, Washington, D.C.; Randolf L. Hutter,
United States Department of Justice, Tax Division, Washing-
ton, D.C. for the respondent-appellee.
ADKISON v. CIR 1299
OPINION
BYBEE, Circuit Judge:
Peter Adkison appeals the Tax Court’s dismissal of his
claim for relief under 26 U.S.C. § 6015 for lack of jurisdic-
tion. Section 6015(c)1 allows a former spouse who once filed
a joint return and now, no longer married, meets certain
requirements to claim relief from joint and several liability for
a tax deficiency. The Tax Court held that it lacked jurisdiction
because Adkison’s deficiency stemmed from a partnership
interest that is the subject of an ongoing partnership proceed-
ing under the Tax Equity and Fiscal Responsibility Act
(TEFRA) and regulated by a separate set of provisions. We
agree with the Tax Court that no remedy is available to Adki-
son until the TEFRA partnership proceedings have finished,
although we arrive at that conclusion through a different path.
I
In 1999, Adkison and his then-wife, Cathleen Adkison,
filed a joint tax return claiming deductions and losses through
their investment in a partnership called Shavano Strategic
Investment Fund, LLC (“Shavano”), which had entered into
a transaction with a tax shelter referred to as Bond Linked
Issue Premium Structure or “BLIPS.” In 2002, the Internal
Revenue Service began a disclosure initiative, soliciting tax-
payers to disclose their participation in certain tax shelter
transactions, including BLIPS. By this time, the Adkisons had
divorced, but they disclosed their participation in the BLIPS
shelter, and the IRS began an audit of their 1999 joint tax
return. Although negotiations failed between Peter Adkison
and the IRS in October 2004, Adkison remitted $2.5 million
to be posted as a cash bond against his tax liability.
1
All statutes in this opinion refer to the Internal Revenue Code, which
is codified in title 26 of the United States Code.
1300 ADKISON v. CIR
In December 2004, the Internal Revenue Service Commis-
sioner sent Shavano a Notice of Final Partnership Administra-
tive Adjustment (“FPAA”) for the year 1999, as required by
26 U.S.C. § 6223. Five months later, in May 2005, Presidio
Resources, LLC, a partner in Shavano, filed a timely petition
for readjustment of partnership items under TEFRA, see 26
U.S.C. § 6226, in the United States District Court for the
Northern District of California, an action that remains pend-
ing.
Shortly after the petition for readjustment was filed in the
partnership proceeding, Adkison submitted Form 8857, an
official request for Innocent Spouse Relief, seeking individual
relief from joint and several liability on the 1999 tax defi-
ciency due to his partnership participation in the tax shelter.
The Commissioner did not respond to Adkison’s request.
Instead, on November 10, 2005, the Commissioner sent Adki-
son and his ex-wife a Notice of Deficiency, stating that they
owed $5.8 million for the 1999 tax year. The notice advised
the Adkisons that if they wished “to contest this determination
in court before making any payment,” they had “90 days . . .
to file a petition with the United States Tax Court.”
In February 2006, Adkison filed a petition with the Tax
Court, invoking the court’s jurisdiction under 26 U.S.C.
§ 6015(e). He requested two things: (1) a redetermination of
his tax deficiency, as contained in the Commissioner’s Notice
of Deficiency under 26 U.S.C. § 6213, and (2) review of the
Commissioner’s failure to respond to Adkison’s request for
separation of liabilities under 26 U.S.C. § 6015(c). Ten
months later, the Commissioner moved to dismiss the case for
lack of jurisdiction, arguing that the Notice of Deficiency was
invalid because of the Shavano partnership proceeding in the
Northern District of California. See 26 U.S.C. § 6230(a)(3).
The Commissioner advised the Tax Court that it was aware of
the potential confusion and conflict between the Shavano
partnership proceeding pending in district court and its deci-
sion to issue a Notice of Deficiency to Adkison. The Commis-
ADKISON v. CIR 1301
sioner characterized its approach both as “deliberate” and
“pruden[tial]” while it was sorting out how the deals were
done.
The Tax Court granted the Commissioner’s motion to dis-
miss for lack of jurisdiction, reasoning that because a separate
partnership proceeding involving the transaction from which
the deficiency arose was already pending, the Commissioner
did not “assert” a deficiency against Adkison within the
meaning of 26 U.S.C. § 6015(e)(1)(A). Adkison brought this
appeal.
II
We begin with the principle that the Tax Court, as an Arti-
cle I court, is a court of limited jurisdiction and may only
exercise jurisdiction to the extent authorized by Congress.
Estate of Branson v. Comm’r, 264 F.3d 904, 908 (9th Cir.
2001). Because the deficiency at issue is an affected partner-
ship item, we must examine the interrelationship between the
court’s jurisdiction to hear a claim for relief from joint and
several liability under 26 U.S.C. § 6015 and the court’s juris-
diction under 26 U.S.C. §§ 6221-34—the Tax Code provi-
sions applying to affected partnership items. Conclusions of
law, including the Tax Court’s interpretation of the Internal
Revenue Code, are reviewed de novo. Suzy’s Zoo v. Comm’r,
273 F.3d 875, 878 (9th Cir. 2001). Whether the Tax Court has
subject matter jurisdiction is a question of law and thus
reviewed de novo. Crawford v. Comm’r, 266 F.3d 1120, 1123
(9th Cir. 2001).
[1] When a married couple files a joint tax return, both fil-
ers are held jointly and severally liable for any deficiency
stemming from their joint return. 26 U.S.C. § 6013(d)(3). In
§ 6015, Congress provided an avenue of relief from joint and
several liability if a petitioning spouse shows he or she was
unaware of a mistake made in the return, if the spouses
divorced and the petitioning spouse shows no actual knowl-
1302 ADKISON v. CIR
edge of deficiency, or if equitable relief is appropriate. 26
U.S.C. § 6015(b), (c), (f). In this case, Adkison, as a divorced
spouse, claims he is entitled to relief under § 6015(c) because
he did not have actual knowledge of an understatement in his
joint tax return.
[2] Section 6015(e)(1) grants jurisdiction to the Tax Court
to hear such claims:
In the case of an individual against whom a defi-
ciency has been asserted, and who elects to have
subsection (b) or (c) apply . . . .
(A) In general. In addition to any other remedy pro-
vided by law, the individual may petition the Tax
Court (and the Tax Court shall have jurisdiction) to
determine the appropriate relief available to the indi-
vidual under this section if such petition is filed (i)
at any time after the earlier of (I) the date the Secre-
tary mails, by certified or registered mail to the tax-
payer’s last known address, notice of the Secretary’s
final determination of relief available to the individ-
ual, or (II) the date which is 6 months after the date
such election is filed or request is made with the Sec-
retary and (ii) not later than the close of the 90th day
after the date described in clause (i)(I).
26 U.S.C. § 6015(e)(1) (emphasis added).
[3] Adkison has met the statutory requirements for jurisdic-
tion in the Tax Court, and if only § 6015 were at play here,
he could proceed with his petition for relief. The Commis-
sioner sent Adkison a notice asserting a $5.8 million defi-
ciency, Adkison filed his petition and elected subsection (c)
to apply, and it had been six months since he officially
requested relief. He meets the requirements to establish juris-
diction in the Tax Court under § 6015(e). Having filed a
Notice of Deficiency stating that Adkison owed $5.8 million
ADKISON v. CIR 1303
in back taxes, the Commissioner cannot claim that the Notice
was not an assertion of a deficiency within the meaning of
§ 6015(e).
[4] What makes this case complicated is that there is a
TEFRA overlay to the spousal relief provision in § 6015.
TEFRA has specific rules for the treatment of partnership
items that may supersede the general rules for obtaining relief
from joint and several liability under § 6015. Pub. L. 97-248
§ 402(a), 96 Stat. 324, 648-71 (codified as amended at 26
U.S.C. §§ 6221-34). In TEFRA, Congress provided a unified
regulatory scheme for controlling the audit and litigation of
partnership interests. TEFRA requires that “the tax treatment
of any partnership item . . . shall be determined at the partner-
ship level,” thereby ensuring the consistent treatment of part-
nership taxes and avoiding repetitive audits and litigation. 26
U.S.C. § 6221; see also Wall v. United States, 133 F.3d 1188,
1189 (9th Cir. 1998). TEFRA applies to all partnership items,
which Congress has broadly defined as items that are “more
appropriately determined at the partnership level than at the
partner level,” 26 U.S.C. § 6231(a)(3), and any item that is
“affected by a partnership item.” Id. § 6231(a)(5).
In general, a partnership proceeding must be completed and
a valid notice of deficiency sent before the Tax Court may
examine the individual tax treatment of an affected item.
“[B]ecause the tax treatment of affected items depends on
partnership level determinations, affected items cannot be
tried as part of a partner’s personal tax case until the comple-
tion of the partnership level proceeding.” N.C.F. Energy Part-
ners v. Comm’r, 89 T.C. 741, 743-44 (1987) (superseded on
other grounds by Taxpayer Relief Act of 1997, Pub. L. 105-
34, § 1238(a), 11 Stat. 126); see also GAF Corp. v. Comm’r,
114 T.C. 519, 526 (2000); Crowell v. Comm’r, 102 T.C. 683,
694-95 (1994). This general approach to affected partnership
items has an express “special rule” for spouses who seek
relief from joint and several liability. Section 6230(a)(3)(A),
which is entitled “Coordination with deficiency proceedings:
1304 ADKISON v. CIR
Special rule in case of assertion by partner’s spouse of inno-
cent spouse relief,” states:
[I]f the spouse of a partner asserts that section 6015
applies with respect to a liability that is attributable
to any adjustment to a partnership item . . . then such
spouse may file with the Secretary within 60 days
after the notice of computational adjustment is
mailed to the spouse a request for abatement of the
assessment specified in such notice. Upon the receipt
of such notice, the Secretary shall abate the assess-
ment.
26 U.S.C. § 6230(a)(3).
[5] TEFRA thus contemplates a sequence or order by
which a putative innocent spouse may obtain relief in an
ongoing partnership proceeding. Under § 6225, the Commis-
sioner may send an assessment of a deficiency attributable to
a partnership item 150 days after an uncontested FPAA has
been mailed or, if the FPAA has been contested, at the con-
clusion of the partnership proceeding determining the amount
each partner owes. Under § 6230, a taxpayer may petition for
innocent spouse relief after a notice of computational adjust-
ment has been mailed at the conclusion of the partnership pro-
ceedings. At the conclusion of the proceedings and upon the
request of the taxpayer, the Commissioner must abate the
underlying tax deficiency to permit the spouse to assert a
claim for relief from joint and several liability pursuant to
§ 6015. See 26 U.S.C. §§ 6225, 6230.
Adkison argues that because § 6015 expressly grants the
Tax Court jurisdiction once a deficiency is asserted, he is enti-
tled to have the Tax Court exercise that jurisdiction to grant
him relief irrespective of any procedures mandated by § 6230.
Adkison claims that § 6230 only applies when the partner
contests the amount of the deficiency, a remedy available
under § 6213. The Commissioner, on the other hand, argues
ADKISON v. CIR 1305
that § 6230 divests the Tax Court of jurisdiction under § 6015
outright, even though the Commissioner asserted a deficiency
against Adkison. Because §§ 6015 and 6230 do not contem-
plate the Commissioner’s action of sending both a partnership
notice and an individual notice, we think both interpretations
are plausible; in the end, however, we think neither is correct.
[6] Contrary to Adkison’s position that § 6230 only applies
to deficiency proceedings under § 6213, § 6230 explicitly ref-
erences § 6015. TEFRA anticipates that partners—like
Adkison—might have a freestanding claim reparable under
§ 6015: “if the spouse of a partner asserts that section 6015
applies with respect to a liability that is attributable to any
adjustment to a partnership item . . . then such spouse may file
with the Secretary . . . after the notice of computational
adjustment is mailed to the spouse . . . .” 26 U.S.C.
§ 6230(a)(3)(A). Section 6230(a)(3)(A) thus applies to claims
under § 6015, regardless of any other relief the partner may
seek. Further, § 6230 effectively requires partners to contest
the amount of the deficiency in the TEFRA proceedings alone
by precluding a collateral attack on the deficiency through
§ 6213. Once the TEFRA proceedings are completed and the
notice of computational adjustment is issued the only further
adjustment the partner may seek is spousal relief from joint
and several liability:
If the spouse files a petition with the Tax Court pur-
suant to section 6213 with respect to the request for
abatement described in subparagraph (A), the Tax
Court shall only have jurisdiction pursuant to this
section to determine whether the requirements of
section 6015 have been satisfied.
26 U.S.C. § 6230(a)(3)(B). This language does not limit the
application of § 6230 only to petitions under § 6213, as Adki-
son argues; rather, it limits the Tax Court’s jurisdiction, when
a petitioning spouse has invoked § 6213, to questions of allo-
1306 ADKISON v. CIR
cation between the spouses under § 6015. It has no effect on
§ 6230’s application to a free-standing claim under § 6015.
[7] The Commissioner’s argument, however, is also
unavailing. Nothing in § 6230 divests the Tax Court of the
jurisdiction granted under § 6015(e). We are reluctant to read
limitations on jurisdiction into a statutory scheme that does
not clearly divest a court of jurisdiction. See generally United
States v. Jacobo Castillo, 496 F.3d 947, 951-54 (9th Cir.
2007) (en banc). As the Supreme Court has recently stated in
Union Pacific R.R. Co v. Brotherhood of Locomotive Eng’r &
Trainmen Gen. Comm. of Adjustment, Cent. Region, 558 U.S.
___ (2009), “Recognizing that the word ‘jurisdiction’ has
been used by courts . . . to convey many, too many, meanings,
we have cautioned . . . against profligate use of the term. Not
all mandatory prescriptions, however emphatic, are . . . prop-
erly typed jurisdictional . . . .” Slip Op. at 12 (internal cita-
tions and quotation marks omitted). The Court distinguished
provisions that confer or deprive courts of subject matter
jurisdiction from what it calls “claim-processing rules:”
whereas subject matter jurisdiction “refers to a tribunal’s
power to hear a case, a matter that can never be forfeited or
waived,’ a claim processing rule, “does not reduce the adjudi-
catory domain of a tribunal and is ordinarily forfeited if the
party asserting the rule waits too long to raise the point.” Id.
(internal citations and quotation marks omitted). In our view,
the relationship between § 6015 and § 6230 in this case is
more akin to a “claim processing rule” than a provision con-
ferring or depriving the Tax Court of subject matter jurisdic-
tion. Section 6230 prescribes how a § 6015 claim may be
processed, or in other words, a sequence by which a spouse
may claim relief from joint and several liability when a defi-
ciency is intertwined in a TEFRA proceeding, and it says
nothing about the Tax Court’s subject matter jurisdiction.
Indeed, had Congress intended for TEFRA actions to divest
the Tax Court of jurisdiction under § 6015 during the pen-
dency of TEFRA proceedings, it would have said so explic-
itly, as it did elsewhere in § 6230. See 26 U.S.C.
ADKISON v. CIR 1307
§ 6230(a)(3)(B) (“If the spouse files a petition with the Tax
Court pursuant to section 6213 with respect to the request for
abatement . . . the Tax Court shall only have jurisdiction pur-
suant to this section to determine whether the requirements of
section 6015 have been satisfied.”).
[8] The Treasury Regulations also do not aid the Commis-
sioner’s argument. In general, the Regulations do not contem-
plate the situation where the Commissioner initiates
partnership proceedings and sends an individual notice of
deficiency relating to the same liability. The regulation states:
The Internal Revenue Service will not consider pre-
mature claims for relief . . . . A premature claim is
a claim for relief that is filed for a tax year prior to
the receipt of a notification of an audit or a letter or
notice from the IRS indicating that there may be an
outstanding liability with regard to that year. Such
notices or letters do not include notices issued pursu-
ant to section 6223 relating to TEFRA partnership
proceedings.
Treas. Reg. § 1.6015-5(b)(5). The Commissioner argues that
Adkison’s claim was premature under this regulation, but
when Adkison filed his petition, he held in his hand a Notice
of Deficiency, a “notification from the IRS indicating that
there may be an outstanding liability.”2 Id. Thus, under the
2
The Commissioner cites the example in Treasury Regulation § 1.6015-
5(c) to support the proposition that the taxpayer must wait until the end
of the partnership proceedings before filing a claim. See Treas. Reg.
§ 1.6015-5(c) (stating that when a partnership interest is involved, a
spouse must wait until “the Internal Revenue Service sends him a notice
of computational adjustment or assesses the liability resulting from the
TEFRA partnership proceeding before he files a claim for relief with
respect to any such liability”). We agree with the Commissioner that in the
ordinary case, where a spouse of a partner has not received an individual
notice of deficiency, this example plainly contemplates that the spouse
wait to file his or her claim. In this case, however, Adkison received a
Notice of Deficiency during the pendency of a TEFRA proceeding. The
Commissioner concedes that in the ordinary case, the IRS will not send
a Notice of Deficiency until after the TEFRA proceedings have concluded.
1308 ADKISON v. CIR
plain import of the Treasury Regulation at issue, Adkison’s
claim was not premature and cannot divest the Tax Court of
jurisdiction.3
[9] In our view, the Commissioner, joined by the Tax
Court, has confused the availability of a remedy with the
question of the Tax Court’s jurisdiction. Sometimes jurisdic-
tion and remedy are co-extensive. See, e.g., 28 U.S.C. § 1491
(Tucker Act); 28 U.S.C. § 2671 et seq. (Federal Tort Claims
Act); see also United States v. Park Place Assoc., Ltd., 563
F.3d 907, 923-26 (9th Cir. 2009) (discussing the relationship
between waivers of sovereign immunity and subject matter
jurisdiction). More often in civil proceedings, however, they
are not. Compare FED. R. CIV. P. 12(b)(1) (defense of “lack
of subject-matter jurisdiction”) with FED. R. CIV. P. 12(b)(6)
(defense of “failure to state a claim upon which relief can be
granted”). Although we conclude the Tax Court has jurisdic-
tion over Adkison’s § 6015 petition, the Tax Court’s instincts
were correct: in light of the Shavano TEFRA proceeding in
the Northern District of California, there is no “appropriate
relief available” to Adkison. 26 U.S.C. § 6015(e)(1)(A).
TEFRA plainly contemplates that when a partnership pro-
ceeding is pending, the Commissioner will not assert a defi-
ciency against a taxpayer-partner until the partnership
proceeding determines the liability of the partnership, and
consequently, the partners. See 26 U.S.C. § 6221 (“[T]he tax
treatment of any partnership item . . . shall be determined at
the partnership level”); § 6225(a)(1) (“[N]o assessment of a
deficiency attributable to a partnership item may be made . . .
before . . . notice of a final partnership administrative adjust-
3
As the Commissioner now acknowledges, Adkison never should have
been sent the Notice of Deficiency in the first place. The Commissioner
explained that the IRS itself was not sure how the TEFRA proceedings
would play out, and it was protecting itself. We wonder whether the IRS
might have mooted Adkison’s Tax Court petition by simply withdrawing
the Notice of Deficiency. Without a Notice of Deficiency, Adkison’s peti-
tion would have been premature and the Tax Court would not have had
jurisdiction.
ADKISON v. CIR 1309
ment was mailed to the tax matters partner.”). Once the
TEFRA proceeding is concluded, the partners are entitled to
a “final partnership administrative adjustment,” id.
§ 6223(a)(2), their tax deficiency is determined, and at that
point, the spouse of a partner may file a petition for relief
under § 6015. Id. § 6230(a)(3)(A). Such petition is limited to
the allocation of the tax deficiency between the spouses, the
determination of the partnership liability “that gave rise to the
liability” being “conclusive.” Id. § 6230(a)(3)(B).
III
[10] Although we conclude that the Tax Court erred in
finding that it lacked jurisdiction, it properly denied Adki-
son’s petition because there is no relief the Tax Court can
appropriately grant until the TEFRA proceedings are con-
cluded. The judgment is AFFIRMED.