DocketNumber: No. 2125-98
Judges: "Ruwe, Robert P. WELLS",COHEN,CHIECHI,VASQUEZ,GALE,THORNTON,MARVEL,WHALEN,BEGHE,"Halpern, James S.",Parr,"Carolyn Miller","Foley, Maurice B",CHABOT,PARR
Filed Date: 6/29/2000
Status: Precedential
Modified Date: 10/19/2024
An appropriate order will be issued.
R's notice of final partnership administrative adjustment
(FPAA) treated 1990 transfers of business assets to P's
partnership as taxable sales by P rather than as nontaxable
transfers in exchange for partnership interests under sec. 721,
I.R.C. P, a partner other than the tax matters partner, filed
the petition and then moved for summary judgment on the ground
that the period of limitations for assessing any tax resulting
from this partnership proceeding has expired. R alleges that
failure to report the sale on P's return resulted in omission of
more than 25 percent of reported gross income so that, pursuant
to
not expire until 6 years after P's return was filed. The FPAA
was issued several days before the expiration of 6 years from
the filing of P's 1990 return.
HELD: (1)
minimum period of limitations, applicable to all partners;2000 U.S. Tax Ct. LEXIS 40">*41 (2)
specific partners of a longer period of limitations such as the
6-year period in
was inadequate disclosure of P's alleged omission of income, the
running of the 6-year period of limitation was suspended when
the FPAA was issued pursuant to
the issue of adequate disclosure of the allegedly omitted income
presents genuine issues of material fact. Summary judgment will
be denied.
114 T.C. 533">*534 OPINION
RUWE, JUDGE: This case is a partnership-level action based on a petition filed pursuant to
The Internal Revenue Code prescribes no period during which TEFRA partnership-level proceedings, which begin with the mailing of the notice of final partnership administrative adjustment, must be commenced. However, if partnership-level proceedings are commenced after the time for assessing 114 T.C. 533">*535 tax against the partners has expired, the proceedings would be2000 U.S. Tax Ct. LEXIS 40">*43 of no avail because the expiration of the period for assessing tax against the partners, if properly raised, would bar any assessments attributable to partnership items.
Generally, in order to be a party to a partnership action, a partner must have an interest in the outcome. If the statute of limitations applicable to a partner bars the assessment of tax attributable to the partnership items in issue, that partner would generally not have an interest in the outcome. See
Petitioner is a Delaware corporation with its principal place of business in Wayne, New Jersey. Rhone-Poulenc Surfactants and Specialties, L.P., is a Delaware limited partnership. 5114 T.C. 533">*536 Petitioner is a partner in the partnership other than the tax matters partner. By notice of final partnership administrative adjustment dated September 12, 1997 (the FPAA), respondent proposed adjustments with respect to the partnership for its 1990 taxable (calender) year. The parties have presented us with questions of law that, were we to answer them as petitioner requests, would leave us without any genuine issue of fact. However, we do not answer those questions as petitioner requests. We are left with a genuine issue of fact. Therefore, summary disposition is inappropriate. See Rule 121(b). 6
Respondent has not adjusted any item of income, loss, deduction, or credit of the partnership, but he has challenged the partnership's treatment of a certain transfer of property. Petitioner is a subsidiary of GAF Corporation, a Delaware corporation (GAF). The transfer was made by petitioner and another subsidiary of GAF, and the property in question consists of assets related to businesses carried on by those two subsidiaries. 7 The partnership characterized the transfer as a contribution of property to the partnership in exchange for an interest in the partnership. Respondent's challenge is based on his conclusion that the transfer constituted a sale and not a contribution of the property to the partnership. Respondent reaches that conclusion based on two sometimes independent hypotheses: (1) There was no partnership, and (2) the transferor of the property received no partnership interest in exchange therefor. 8 The parties are in agreement that this case involves one or more partnership items. 9
2000 U.S. Tax Ct. LEXIS 40">*46 114 T.C. 533">*537 The partnership filed its 1990 income tax return, Form 1065, U.S. Partnership Return of Income (the return), on either September 15 or 17, 1991. 10
1. INTRODUCTION
The principal disagreement between the parties concerns the relationship between2000 U.S. Tax Ct. LEXIS 40">*47
2. PETITIONER'S CLAIMS
Petitioner claims (and respondent agrees) that (1) more than 3 years elapsed between both the due date and filing of the partnership return and the issuance of the FPAA, and (2) the partnership did not omit any amount from gross income. On that basis, petitioner claims that any assessment of tax with respect to respondent's adjustments is barred by the 3-year 114 T.C. 533">*538 period of limitations found in
2000 U.S. Tax Ct. LEXIS 40">*49 3. RESPONDENT'S CLAIMS
Respondent argues that, if his adjustments are sustained, a substantial gain will be recognized to petitioner on account of the transfer. Respondent claims that petitioner's omission of that gain from its corporate return constitutes a substantial omission of income, which was not adequately disclosed by petitioner, with the consequence that the
1. INTRODUCTION
Two views have long competed regarding the basic nature of a partnership. The "aggregate theory" considers a partnership to be no more than an aggregation of individual partners. The "entity theory" 2000 U.S. Tax Ct. LEXIS 40">*50 characterizes a partnership as a separate entity. See generally 1 Bromberg & Ribstein, Bromberg and Ribstein on Partnership, sec. 1.03 (1988). The substantive law with respect to the income taxation of partners and partnerships is found in subchapter K, chapter 1, subtitle A of the Internal Revenue Code (subchapter K). Authorities on partnership taxation have stated that subchapter K does not espouse either the aggregate or the entity theory of partnerships but rather blends the two theories. See 1 McKee et al., Federal Taxation of Partnerships and Partners, par. 1.02 (2d ed. 1990). That blending of the aggregate and entity theories is a primary source of uncertainty in the application of subchapter K, see id. at par. 1.02[3], and, no doubt, is responsible, at least in part, for our description of the provisions of subchapter K as "distressingly complex and confusing".
Subtitle F of the Code is concerned with procedure and administration. Both
Before TEFRA, adjustments with respect to partnership items were made to each partner's income tax return at the time (and if) that return was examined. See H. Conf. Rept. 97-760, at 599 (1982),
2000 U.S. Tax Ct. LEXIS 40">*53 The TEFRA partnership provisions that we are required to interpret in this case are those referring to the period of limitations for assessing tax. In interpreting these provisions, we must keep in mind the Supreme Court's admonition that "Statutes of limitation sought to be applied to bar rights of the Government, must receive a strict construction in favor of the Government."
2. RELATIONSHIP BETWEEN
a. INTRODUCTION
Simply put, respondent believes that
b.
PERIODS OF LIMITATIONS
To understand the parties' arguments, it is necessary to understand the Code's structure with respect to periods of limitations. In pertinent part,
in this section, the amount of any tax imposed by this title
shall be assessed within 3 years after the return was
filed * * *
* * * * * * *
(e) Substantial Omission of Items. -- Except as otherwise
provided in subsection (c) --
(1) Income taxes. -- In the case of any tax imposed by
subtitle A --
(A) General rule. -- If the taxpayer omits from
gross income an amount properly includible therein
2000 U.S. Tax Ct. LEXIS 40">*55 which is in excess of 25 percent of the amount of
gross income stated in the return, the tax may be
assessed, or a proceeding in court for the collection
of such tax may be begun without assessment, at any
time within 6 years after the return was filed. For
purposes of this subparagraph --
* * * * * * *
(ii) In determining the amount omitted from
gross income, there shall not be taken into
account any amount which is omitted from gross
income stated in the return if such amount is
disclosed in the return, or in a statement
attached to the return, in a manner adequate to
apprise the Secretary of the nature and amount of
such item.
In pertinent part,
in2000 U.S. Tax Ct. LEXIS 40">*56 this section, the period for assessing any tax imposed by
subtitle A with respect to any person which is attributable to
any partnership item (or affected item) for a partnership
taxable year shall not expire before the date which is 3 years
after the later of --
(1) the date on which the partnership return for such
taxable year was filed, or
114 T.C. 533">*542 (2) the last day for filing such return for such year
(determined without regard to extensions). [Emphasis
added.]
2000 U.S. Tax Ct. LEXIS 40">*58 The Court has often stated our understanding that
c. FIELD SERVICE ADVICE MEMORANDA; INTERNAL REVENUE
MANUAL
Petitioner relies on two Internal Revenue Service field service advice memoranda (the FSA's) in arguing that respondent has accepted petitioner's position. Even if the FSA's supported petitioner's claim, the FSA's have no precedential status. See
Petitioner also quotes from the Internal Revenue Manual (IRM) in support of its position. Whatever force as authority the IRM may have, 16 the quoted provisions from IRM section 114 T.C. 533">*544 4226.31(13)(13) are ambiguous and unpersuasive (e.g., "The filing date of an investor's return is the beginning of the three year
2000 U.S. Tax Ct. LEXIS 40">*61 d. NO INCONSISTENCY
Petitioner directs our attention to various TEFRA partnership provisions and other provisions of the Code and regulations in an attempt to show a statutory scheme that petitioner argues requires us to interpret
First, petitioner cites five sections of the Code that, by explicitly or implicitly referring to a period of limitations in
2000 U.S. Tax Ct. LEXIS 40">*64 e. CONGRESSIONAL INTENT
Because respondent's position introduces partner specific considerations into the period of limitations issue, petitioner believes that respondent's position introduces the aggregate 114 T.C. 533">*546 theory where Congress meant the entity theory to prevail. As stated, 21 although Congress enacted the TEFRA partnership provisions to allow a unified proceeding to determine partnership items, the TEFRA partnership provisions blend the entity and aggregate theories. Petitioner has failed to convince us that Congress intended the entity theory to govern the limitations equation. Indeed,
2000 U.S. Tax Ct. LEXIS 40">*66 114 T.C. 533">*547 f. INTERNAL SUPERFLUITIES
Finally, petitioner argues that respondent's position creates internal superfluities in
Again, petitioner's arguments are not persuasive. An interpretation that renders a statutory provision superfluous should be avoided, since it would offend "the well-settled rule of statutory construction that all parts of a statute, if at all possible, are to be given effect."
2000 U.S. Tax Ct. LEXIS 40">*69
Petitioner further argues that respondent's position makes
g. NONFILERS
In response to petitioner's policy arguments, respondent notes that petitioner's position leaves a gap with respect to nonfilers; i.e., partners who fail to file their own returns. Respondent states:
under petitioner's proposed interpretation of
timely filed partnership return reports income, the Commissioner
would be unable to assess tax attributable to such income more
than three years after the partnership return is filed despite
the fact that a partner, the only party against whom tax may be
assessed, has filed no return.
Respondent's point is well taken. Congress has determined that the period for assessment does not run with respect to nonfilers. See
h. CONCLUSION
Respondent carried out the unified examination of the partnership that Congress had in mind when it enacted the TEFRA partnership provisions. As a result of that examination, respondent determined that an adjustment was necessary and issued a notice of final partnership administrative adjustment. Since respondent did not make any change in the gross income of the partnership, the special rule of
3. FPAA SUSPENDED THE
a. INTRODUCTION
Petitioner next claims that, even if the 6-year period specified in
b. FACTS
Petitioner filed its 1990 Federal income tax return, Form 1120, U.S. Corporation Income Tax Return, on or about September 15, 1991. On September 12, 1997, respondent issued the FPAA. The FPAA was issued before the expiration of 6 years from the date petitioner filed its corporate return. On February 4, 1998, in2000 U.S. Tax Ct. LEXIS 40">*76 response to the FPAA, petitioner timely filed the petition in this case. The question we must answer is whether the issuance of the FPAA and the filing of the petition suspended the running of the 6-year period of limitations contained in
114 T.C. 533">*552
Administrative Adjustment. -- If notice of a final partnership
administrative adjustment with respect to any taxable year is
mailed to the tax matters partner, the running of the period
specified in subsection (a) (as modified by other provisions of
this section) shall be suspended --
(1) for the period during which an action2000 U.S. Tax Ct. LEXIS 40">*77 may be
brought under
under
adjustment, until the decision of the court becomes final),
and
(2) for 1 year thereafter. [Emphasis added. 28]
The question we must answer is what is "the period specified in subsection (a)", the running of which is suspended? Subsection (a) initially refers to "the period for assessing any tax * * * which is attributable to any partnership item". As we have previously held, this is generally the period prescribed in
2000 U.S. Tax Ct. LEXIS 40">*79 "Statutes of limitation sought to be applied to bar rights of
the Government, must receive a strict construction in favor of
the Government." E.I. du Pont de Nemours & Co. v. Davis, 264
U.S. 456, 462 (1924). See also Lucas v. Pilliod Lumber Co., 281
U.S. 245, 249 (1930). More recently, Judge Roney, in speaking
for the former Fifth Circuit, has observed that "limitations
statutes barring the collection of taxes otherwise due and
unpaid are strictly construed in favor of the Government." Lucia
v.
Our interpretation of
The TEFRA partnership provisions, which provide for partnership issues to be determined at the partnership level, parallel the deficiency procedures to the extent that notice (the FPAA) and the right to petition this Court must generally be given prior to making any assessments attributable to partnership items or affected items. See secs. 6225 and 6226.
Our conclusion that the reference in
* * * * * * *
(3) Coordination with
under
DESCRIBED IN SUBSECTION (a) only if the agreement expressly
provides that such agreement applies to tax attributable to
partnership items. [Emphasis added. 31]
2000 U.S. Tax Ct. LEXIS 40">*83 114 T.C. 533">*555 As previously explained, the above-quoted provision was intended to allow taxpayers and the Commissioner to extend the period of limitations for assessments of tax attributable to partnership items only where the extension agreement expressly provides that it applies to tax attributable to partnership items. Thus, the conference committee report for TEFRA states: "An agreement under
2000 U.S. Tax Ct. LEXIS 40">*85 Interpreting "the period specified in subsection (a)" in
2000 U.S. Tax Ct. LEXIS 40">*87 114 T.C. 533">*557 Our conclusion that the period of limitations referred to in
The PERIOD FOR ASSESSMENT is suspended upon mailing of a
notice of FPAA until the expiration of the period during which a
petition for judicial review may be filed by any partner (or, if
an action is brought during such period, until the decision of
the court has become final) and for one year thereafter. [H.
Conf. Rept. 97-760,
emphasis added.]
Based on all the foregoing considerations, we believe that our interpretation of
2000 U.S. Tax Ct. LEXIS 40">*88 4. ADEQUATE DISCLOSURE
Finally, petitioner argues that the 6-year period is inapplicable because petitioner's return adequately disclosed any omitted income. See
The motion shall be denied. To reflect the foregoing,
Reviewed by the Court.
HALPERN, J., CONCURRING IN PART AND DISSENTING IN PART:
I agree with the majority's analysis of the relationship between
We must determine what Congress intended by its reference, in
In pertinent part,
[T]he period for assessing any tax imposed by subtitle A with
respect to any person which is attributable to any partnership
item (or affected item) for a partnership taxable year shall not
expire before the date which is2000 U.S. Tax Ct. LEXIS 40">*93 3 years after the later of --
(1) the date on which the partnership return for such
taxable year was filed, or
(2) the last day for filing such return for such year
(determined without regard to extensions).
In pertinent part,
114 T.C. 533">*561 C. NOTICE OF DEFICIENCY REQUIRED TO SUSPEND THE
PERIOD
I do not believe that, in adding the TEFRA partnership provisions, 2Congress changed the general rule that, in order to suspend the
The 3-year minimum period is a minimum period common to all of the partners. Partner-specific factors are irrelevant to a defense based on the expiration of the 3-year minimum period. Expiration of the 3-year minimum period is determined solely with reference to the filing of the partnership return. Any partner can defend for all the partners on the basis that the 3-year minimum period has expired. In other words, if a defense based on the expiration of the 3-year minimum period is raised in a partnership proceeding, any disposition of that defense is conclusive for all of the parties to the proceeding.
The same2000 U.S. Tax Ct. LEXIS 40">*95 cannot be said with respect to the later-to-end period. When the later-to-end period is the period of limitations prescribed by
The majority has painted itself into a corner by refusing to reconsider
The majority reads the reference to "the period described in subsection (a)" in paragraph (3) of
2000 U.S. Tax Ct. LEXIS 40">*100 The majority's concern that respondent could be caught off guard if most, but not all, of the partners agree to extend the statute of limitations during the 3-year minimum period (under
My interpretation of Congress' intent based on the plain language of
In enacting the partnership audit and litigation
procedures, Congress contemplated the use of a unified
proceeding in which all items of partnership income, loss,
deduction, or credit that affect each partner's tax liability
would be uniformly adjusted at the partnership level. * * *
We reached the following conclusion: "In the litigation2000 U.S. Tax Ct. LEXIS 40">*101 context, Congress adopted the so-called 'entity theory' of partnership jurisprudence." Id. (quoting
My reading of the period specified in subsection (a) as the 3-year minimum period is consistent with the application of an entity theory to the litigation of partnership items. In my view, policy dictates that the period for issuing an FPAA that can automatically affect all of the partners should be the 3-year minimum period, which is keyed to the partnership return. Under the majority's interpretation of the period specified in subsection (a) as the later-to-end period, the aggregation of partners, each asserting an individual defense to the administrative adjustment made by respondent to partnership items, is antithetical to the unified nature of a partnership proceeding. I would interpret
I believe that the better reading of
WHALEN and BEGHE, JJ., agree with this concurring opinion.
* * * * *
PARR, J., DISSENTING: I agree with Judge Foley's dissenting opinion and write separately only to note that in addition to misinterpreting the plain meaning of the words in the statute at issue, the majority today reverses the position maintained by this Court for more than a decade and disregards the policy concerns that served as the impetus for the TEFRA partnership provisions.
Although the language of the statute leaves little doubt, the answer to any question of whether
The period of assessment with respect to partnership items
(or affected items) for any partnership taxable year shall not
expire before 3 years from the date of filing the partnership
return2000 U.S. Tax Ct. LEXIS 40">*103 or, if later, the last date prescribed for filing such
return determined without extensions. [H. Conf. Rep. 97-760, at
606 (1982),
Accordingly, it is clear that the "minimum period" provided by
The only exceptions to this rule are provided by statute for the filing of a false partnership return, a substantial omission of partnership income, no partnership return, or a partnership return prepared by the Secretary under section 6020(b)(2). See
In holding that
Furthermore, in
Consequently, the tax treatment of all partnership2000 U.S. Tax Ct. LEXIS 40">*105 items with
respect to these partnerships is final in accordance with the
tax returns filed by these partnerships. Clearly, there can be
no partnership proceedings to adjust or modify the partnership
items as reported * * * .([1])
2000 U.S. Tax Ct. LEXIS 40">*106 Therefore, normal extensions of a partner's personal limitations period pursuant to
This is because Congress intended TEFRA to provide uniform treatment of partnership items to all the partners. It is clear that for this result to obtain,
2000 U.S. Tax Ct. LEXIS 40">*107 As the majority states, the intent of TEFRA is to provide a unified proceeding that will result in consistent treatment of partnership items to all partners:
Before TEFRA, adjustments with respect to partnership items were
made to each partner's income tax return at the time (and if)
that return was examined. * * * The tax writing committees
explained the TEFRA partnership provisions as follows: "[T]he
tax treatment of items of partnership income, loss, deductions,
and credits will be determined at the partnership level in a
unified partnership proceeding rather than in separate
114 T.C. 533">*568 proceedings with the partners." * * * Thus,
provides for the determination of all partnership items at the
partnership level rather than at the partner level. [Majority
op. pp. 11-12; citations omitted.]
Despite its acknowledgment of the purpose of the TEFRA partnership rules, the majority holds that if the partner's personal limitations period has not expired, then the partnership's limitations period is irrelevant with respect to that partner so that the Commissioner may make a partnership-level2000 U.S. Tax Ct. LEXIS 40">*108 determination of a partnership item, which would apply to only the partner with the unexpired personal limitations period. This result is contrary to the statutory scheme and frustrates the TEFRA goal to minimize inconsistent treatment of partners.
In addition to providing inconsistent treatment of partnership items, the majority's holding will complicate the administration of the TEFRA statutes because it will cause nonpartnership items to be adjudicated in TEFRA partnership-level proceedings, which result is inconsistent with TEFRA policy. 5
2000 U.S. Tax Ct. LEXIS 40">*109 For example, if the FPAA is issued after the 3-year period of limitations provided in
In contrast, if
Accordingly, I respectfully dissent.
FOLEY, J., DISSENTING: The majority highlights the anomalous results, gaps in the application of the statutory scheme, and tax policy concerns if
114 T.C. 533">*570 In essence, the majority's holding rests on the Supreme Court's pronouncement that a statute of limitations receives strict construction in favor of the Government. See
1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. The TEFRA partnership provisions have been amended since their enactment in 1982 and now constitute
3.
brought under subsection (a) or (b) with respect to a partnership for
any partnership taxable year --
(1) each person who was a partner in such partnership at
any time during such year shall be treated as a party to such
action, and
(2) the court having jurisdiction of such action shall
allow each such person to participate in the action.
(1) In order to be party to action. -- Subsection (c) shall
not apply to a partner after the day on which --
(A) the partnership items of such partner for the
partnership taxable year became nonpartnership items by
reason of 1 or more of the events described in subsection
(b) of
(B) the period within which any tax attributable to
such partnership items may be assessed against that partner
expired.↩
4. We note that in 1997 Congress amended
Notwithstanding subparagraph (B), any person treated under
subsection (c) as a party to an action shall be permitted to
participate in such action (or file a readjustment petition
under subsection (b) or paragraph (2) of this subsection) solely
for the purpose of asserting that the period of limitations for
assessing any tax attributable to partnership items has expired
with respect to such person, and the court having jurisdiction
of such action shall have jurisdiction to consider such
assertion.↩
5. For convenience, we use the terms "partnership" and "partner" without deciding whether a partnership existed or petitioner was a partner in that partnership, conclusions that respondent disputes.↩
6. Petitioner has requested a hearing on the motion. The parties' submissions fully set forth their respective positions, and we see no need for any further argument. Therefore, we have not granted petitioner's request for a hearing.↩
7. For simplicity, when discussing the transfer, we use the term "petitioner", without distinction, to refer to petitioner, its parent (GAF corporation), and its sister subsidiary.↩
8. For example, respondent claims, in the alternative: (1) There was no partnership, (2) if there were a partnership, the transfer was not to it but to a related party, and (3) if there were a partnership and the transfer were to it, the transfer was not in exchange for an interest in the partnership but, rather, was a sale to the partnership.↩
9. Sec. 301.6231(a)(3)-1(a)(4), Proced. & Admin. Regs., provides that the term "partnership item" includes "contributions to the partnership". The fact that the partnership might be determined to be a sham in proceedings under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, does not preclude the applicability of the TEFRA provisions. See sec. 6233;
10. The parties disagree on this point, but that disagreement is of no consequence to our disposition of petitioner's motion.↩
11. The parties are in agreement that this case involves one or more partnership items. Respondent claims that, if his determination of partnership items is sustained, nonpartnership items of one or more partners will be affected (affected items), resulting in computational adjustments to the tax liabilities of those partners. See
12. A "partnership item" is any item required to be taken into account for the partnership's taxable year to the extent regulations provide that such item is more appropriately determined at the partnership level rather than at the partner level. See
13. For example, the 3-year minimum period described in
14. We are aware that
15.
16. The Internal Revenue Manual does not have the force of law. See
17. Petitioner cites: (1) Sec. 6503(a)(1) ("the period of limitations provided in
18. A similar analysis disposes of petitioner's identical argument with regard to various regulations which reference the
19.
* * * * * * *
(7) Special rule for certain amended returns. -- Where,
within the 60-day period ending on the day on which the time
prescribed in this section for the assessment of any tax imposed
by subtitle A for any taxable year would otherwise expire, the
Secretary receives a written document signed by the taxpayer
showing that the taxpayer owes an additional amount of such tax
for such taxable year, the period for the assessment of such
additional amount SHALL NOT EXPIRE BEFORE the day 60 days after
the day on which the Secretary receives such document. [Emphasis
added.]↩
20. In 2 Willis et al., Partnership Taxation, par. 20.08[1] (6th ed. 1999), it is explained:
limitation period for the assessment of tax attributable to
partnership items or affected items for a partnership taxable
year "shall not expire" before three years after the later of
the date on which the partnership return was filed or the due
date (without extensions) for filing the return. This language
pointedly is different from the language in the general
limitation statute that states that tax "shall be assessed
within 3 years" from the stated date. The effect of this
provision, therefore, is to retain the normal three-year
limitation period extended for partnership or affected items to
at least three years (or more in some circumstances) after the
filing of the partnership return. Consequently, the Service has
the longer of the period from the filing of the partner's return
or the filing of the partnership return within which to assess
tax with respect to partnership items and affected items.↩
21. See discussion supra pp. 10-11.↩
22.
23. See supra note 4, containing the complete addition to
24.
(1) False return. -- If any partner has, with the intent to
evade tax, signed or participated directly or indirectly in the
preparation of a partnership return which includes a false or
fraudulent item --
(A) in the case of partners so signing or
participating in the preparation of the return, any tax
imposed by subtitle A which is attributable to any
partnership item (or affected item) for the partnership
taxable year to which the return relates may be assessed at
any time, and
(B) in the case of all other partners, subsection (a)
shall be applied with respect to such return by
substituting "6 years" for "3 years."
(1) False return. -- In the case of a false or fraudulent
return with the intent to evade tax, the tax may be assessed, or
a proceeding in court for collection of such tax may be begun
without assessment, at any time.↩
25. TRA sec. 1284(a), 111 Stat. 1038, amended
26. TRA sec. 1233(c), 111 Stat. 1023-1024, amended Code
27. The FPAA was too late to suspend the minimum 3-year period provided for in
28.
(1) for the period during which an action may be brought
under
administrative adjustment is brought during such period, until
the decision of the court in such action becomes final), and
The amendment applies to partnership tax years with respect to which the period under Code
29. See also
30. The tax referred to in
31. TRA sec. 1233(c), 111 Stat. 1023-1024, amended Code
32. We recognize that
33. In
As we see it, the rationale of the Court of Appeals could
lead to unintended and adverse consequences for taxpayers and
the Internal Revenue Service. For example, if the information
return rather than the shareholder's return starts the running
of the statutory period for assessment, then the time would
expire 3 years after the filing of the information return even
if the shareholder did not file a return. While section
6501(c)(3) extends the assessment period indefinitely as to
taxpayers who fail to file returns, the effect of the Ninth
Circuit's decision would be to engraft an exception for
taxpayers who are shareholders of S corporations. Those
taxpayers would have a 3-year period with respect to flow-
through items -- a result clearly incorrect as a matter of law,
policy, and judicial prerogative. Cf. Badaracco v. Commissioner,
See also
where in interpreting the statute of limitations in
Court stated:
We agree with the conclusion of the Court of Appeals in the
instant cases that Congress could not have intended to "create a
situation in which persons who committed willful, deliberate
fraud would be in a better position" than those who understated
their income inadvertently and without fraud. * * *↩
34. Recently, the Supreme Court again had occasion to comment on its approach to construing statutes of limitations when it stated:
Even if it could credibly be argued that
ambiguous because it does not expressly indicate how it is to be
applied to S corporations and their stockholders, the
Commissioner's construction of the section is a reasonable one
to say the least, and we should accept it absent convincing
grounds for rejecting it. As noted in Badaracco v. Commissioner,
collection of taxes otherwise due and unpaid are strictly
construed in favor of the Government.'"
v.
35. As a general rule, information contained in a partnership return will be taken into consideration in determining whether an omitted item was adequately disclosed on the return of a partner for purposes of
1. Without qualification, Judges Parr and Foley dissent from the majority's opinion. They do not distinguish between the majority's holdings that (1) with respect to the assessment of deficiencies attributable to partnership items and affected items,
Moreover, sec. 6222(a) provides that a partner shall, on the partner's return, treat a partnership item consistently with the treatment of that item on the partnership's return (the consistency requirement). Failure to comply with the consistency requirement opens the partner to the immediate assessment of any deficiency attributable to such inconsistency. See sec. 6222(c). Failure to comply with the consistency requirement is not taken into account under
2. Sec. 402(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, 648, added subchapter C to chapter 63, subtitle F of the Internal Revenue Code (the TEFRA partnership provisions). The TEFRA partnership provisions now comprise
3. I assume that respondent would make a preliminary determination that the partners to whom he would send such notices of deficiency do, indeed, have open
4. I recognize that the deficiency procedures provided for in subchapter B, chapter 63, subtitle F of the Internal Revenue Code (subchapter B), do not generally apply to the assessment and collection of any computational adjustment resulting from a partnership proceeding. See sec. 6230(a)(1). Unless subchapter B applies, respondent may have no authority to send the notice of deficiency contemplated in sec. 6212(a). Without such authority (which, here, respondent apparently does have), the sending of the notice of deficiency might not be effective under sec. 6503(a)(1) to suspend the
5.
limitations under
The period prescribed by subsection(a)(1) for filing of a
request for an administrative adjustment shall be extended --
(1) for the period within which an assessment may be made
pursuant to an agreement (or any extension thereof) under
(2) for 6 months thereafter.↩
2. The Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1233(c), 111 Stat. 1023-1024, amended
3.
Where, before expiration of the time prescribed in this section
for the assessment of any tax imposed by this title, * * * ,
both the Secretary and the taxpayer have consented in writing to
its assessment after such time, the tax may be assessed at any
time prior to the expiration of the period agreed upon. * * *
4. Furthermore, although it is not an issue in the instant case, respondent asserts that if petitioner's view is accepted, a non-filing partner would escape taxation on a properly reported partnership item. Majority op. p. 29. However, there is no limitation on assessing against a non-filer. See
The separateness of a proceeding with respect to a partner and a proceeding with respect to a partnership is evident from the legislative history which provides:
A judicial determination of a partner's income tax
liability not resulting from a partnership proceeding will not
bar any adjustment to such liability attributable to the
treatment of partnership items pursuant to a proceeding under
these rules. [H. Conf. Rept. 97-760, at 610 (1982), 1982-2 C.B.
600, 668.]
See also sec. 6222(c) (if the partner fails to notify the Secretary of its inconsistent treatment of a partnership item, the Secretary may make a computational adjustment to conform the partnership item to the partnership return and may assess immediately the tax deficiency arising from the adjustment); sec. 301.6222(a)-1T(c), Example (1), Temporary Income Tax Regs.,
However, if the partnership did not file a return, i.e., the partnership is a non-filer,
Implicit in
5. The separate treatment of partnership and nonpartnership items in partnership proceedings is integral to the statutory framework of TEFRA and reflects the intent of Congress. For instance,
Neither the Secretary nor the taxpayer will be permitted to
raise nonpartnership items in the course of a partnership
proceeding nor may partnership items, except to the extent they
become nonpartnership items under the rules, be raised in
proceedings relating to nonpartnership items of a partner.
The separate statute of limitations applicable to
nonpartnership items of a partner may have expired when the
computational adjustment of a partner's tax liability
attributable to a FPAA or final court decision is made. In such
case neither the Secretary (to reduce a refund) nor a partner
(to reduce an assessment) may raise nonpartnership items in
determining the partner's tax liability resulting from such
computational adjustment. [H. Conf. Rept. 97-760, at 611
(1982),
See also
Griswold v. United States ( 1995 )
Weinberger v. Hynson, Westcott & Dunning, Inc. ( 1973 )
Transpac Drilling Venture, 1983-2 by James M. Dobbins v. ... ( 1996 )
Harris v. Commissioner ( 1994 )
Colony, Inc. v. Commissioner ( 1958 )
Bufferd v. Commissioner ( 1993 )
Joseph P. Lucia v. United States of America ( 1973 )
Leo L. Lowy v. Commissioner of Internal Revenue ( 1961 )
david-h-foxman-and-dorothy-a-foxman-v-commissioner-of-internal-revenue ( 1965 )
Robert Fehlhaber v. Commissioner, Internal Revenue Service ( 1992 )
Joseph R. Dileo, Mary A. Dileo, Walter E. Mycek, Jr., ... ( 1992 )
Lucas v. Pilliod Lumber Co. ( 1930 )
E. I. Dupont De Nemours & Co. v. Davis ( 1924 )
Badaracco v. Commissioner ( 1984 )
Norman E. Anderson the Zeitgeist Co. v. United States ( 1995 )
Marko Durovic v. Commissioner of Internal Revenue ( 1973 )
resolution-trust-corporation-as-conservator-for-american-savings-loan ( 1991 )
george-edward-quicks-trust-ua-2333-41-mercantile-trust-company-national ( 1971 )