IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 94-40453

MEDICAL & BUSINESS FACILITIES,

LTD., GERALD STEVENS, TAX MATTERS

PARTNER,

Petitioner-Appellant,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

No. 94-40527

MEDICAL & BUSINESS FACILITIES,

LTD., PHILLIP S. BROOKS,

TAX MATTER PARTNER,

Petitioner-Appellee,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellant.

________________________________________________________________

Appeals from the United States Tax Court

________________________________________________________________ (July 25, 1995)

Before REYNALDO G. GARZA, HIGGINBOTHAM, and PARKER, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

A general partner of Medical & Business Facilities, Ltd.

signed consent forms for tax years 1983 through 1986, agreeing to

extend the period of limitations during which the Internal Revenue2

Service could assess a deficiency. MBFL is now arguing that the

general partner was not authorized to execute the consents and the

IRS's assessment is time ba rred. We agree and reverse the Tax

Court's finding in favor of the Commissioner.

I.

Medical & Business Facilities, Ltd. was a partnership engaged

in the business of buying medical assets and leasing those assets

to medical enterprises. The partnership was initially formed by

Gerald Stevens and James Wyllie in 1980 as a general partnership.

In 1981, additional partners were admitted and an amendment to the

partnership agreement was filed with the State of Lou isiana,

reg istering the partnership as a partnership in commendam. A

partnership in commendam is similar to a common law limited

partnership. See La. Civ. Code Ann. art. 2837 (West 1994).

The amended partnership agreement vested management and

control of the business in a managing general partner and a

management committee that was made up of the firm's general

partners. The managing general partner and the management

committee were to act collectively on all decisions with respect to

the management and control of the business, and their actions were

binding on the partnership and all of the partners. Gerald Stevens

was the managing general pa rtner and owned the largest single

profit interest in MBFL.

In September 1982, Stevens moved to California. Phillip

Brooks, a general partner, was appointed the a ssistant managing3

general partner. His responsibility was to carry on the

partnership's business activities in Stevens' absen ce. Brooks

resigned from this position on June 25, 1983, although he remained

a member of the management committee. In June 1983, Stevens

resigned as managing general partner.

In 1983, Brooks prepared a second amendment to the partnership

agreement. This amendment purported to vest management and control

of the busine ss in a management committee consisting of five

general partners. Although the amendment lacked the signatures of

some of the general a nd limited partners, it was filed with the

State of Louisiana on January 28, 1986 and MBFL operated under the

new m anagement structure. Brooks was one of the five members of

the firm's new management committee. The committee hired Albert J.

Derbes, III, a tax lawyer and certified public accountant, to act

as manager of the partnership.

Stevens executed the partnership's tax information return for

1983, and Brooks executed th e 1984, 1985, and 1986 returns. In

1985, the IRS discovered that MBFL had claimed too high a

depreciation deduction for tax years 1983, 1984, and 1985. On May

6, 1985, IRS agent Joette Pfeiffer contacted the accountant who

prepared MBFL's 1983 tax retu rn to find out who was MBFL's tax

matters partner for 1983 . The accountant contacted Derbes, who

informed Pfeiffer that Brooks was the TMP.

On April 8, 1986, Pfeiffer met with Derbes and Brooks. During

that meeting, Bro oks executed a form authorizing Derbes to

represent MBFL before the IRS. Pfeiffer also asked Derbes to have1 On a few of the forms, Brooks signed his name in the

space label led "Authorized Representative." In those instances,

however, Brooks' name was typed directly above his signature in the

space labelled "Tax Matters Partner."

4 the partnership's TMP execute a form consenting to the extension of

t ime to assess tax. Brooks indicated that he was not certain

whether he cou ld execute the form because he did not know which

partner was going to act as MBFL's TMP. Pfeiffer then informed

Derbes and Brooks that if the partnership failed to designate a

TMP, the IRS would designate one for it. Derbes and Brooks left

the room, and P feiffer inspected MBFL's books and records,

including the original and amended partnership agreements. Before

Pfeiffer left that day, Derbes produced a consent signed by Brooks

extending the limitations period for the 1983 tax year to December

31, 1987. Both Derbes and Brooks believed that Brooks had the

authority to sign the consent.

Over the next few years, Brooks executed consents further

extending the limitations period for tax years 1983 through 1986.

On each form, Brooks signed on the line designate d for the TMP. 1

Brooks executed the consents in an effort to gain time to

substantiate the deductions and avoid involvement in a complicated

tax dispute at a time of severe financial difficulty for the

partnership.

On June 28, 1991, Derbes filed a Freedom of Information Act

request w ith the IRS, seeking documents pertaining to MBFL's tax

years 1983 through 1986. One of the documents that the IRS

produced was a memorandum prepared in July 1989 by an attorney at5

the IRS. The memorandum questioned the validity of the consents

executed by Brooks for tax years 1983, 1984, and 1985, concluding

that Brooks had not been properly designated as the TMP and,

accordingly, lacked the authority to execute the consents.

On August 15, 1991, MBFL filed a protest with the IRS,

claiming that the period of limitations for assessment had expired

for tax years 1983, 1984, and 1985 because Brooks lacked the

authority to execute the consent forms extending the period of

limitations. On December 26, 1991, the Commissioner mailed notices

of final partnership administrative adjustment for years 1983

through 1986. MBFL filed a petition in the Tax Court contesting

the adjustments on their merits and on the basis that the period of

limitations had expired for years 1 983 through 1985. MBFL

subsequently conceded the merits of the adjustments, leaving only

the issue of whether the adjustments were barred by limitations.

On May 17, 1993, the Tax Court held a trial. On January 31, 1994,

the Tax Court ruled that the consents executed by Brooks were

effective and, therefore, the period of limitations for tax years

1983, 1984, and 1985 had not expired. MBFL filed a timely notice

of appeal.

II.

The statutory period for assessing any income tax attributable

to partnership items for a partners hip's tax year expires three

years after the partnership files its partne r ship information

return or three years after the last day for filing such return,6

whichever is later. I.R.C. § 6229(a). Section 6229(b)(1)(B),

however, perm its extension of that time "with respect to all

partners, by an agreement entered into by the Secretary and the tax

matters partner (or any other person authorized by the partnership

in writing to enter into such an agreement)." The parties both

agree that for the periods relevant to this appeal, Brooks was not

the TMP. S ee id. § 6231(a)(7) (defining TMP). Thus, the issue is

whether the partnership authorized Brooks in writing to execute the

consents. While there was no specific agreement authorizing Brooks

to execute the consents, the Tax Court concluded that MBFL's

partnership agreement provided the requisite wr i ting and that

Brooks' authority under that agreement encompassed execution of the

consents. We disagree.

We first consider whether Brooks' status as a general partner

in MBFL vested him with either actual or apparent authority to

execute the consents extending the limitations period. Second, we

address the Commissioner's argument that MBFL should be e stopped

from disclaiming Brooks' authority as the TMP.

A.

In order to vest Brooks with actual authority to sign the

consents, the partnership had to have executed a document providing

Brooks with that authority. I.R.C. § 6229(b)(1)(B). A number of

Tax Court cases have held that a partnership agreement is a

sufficient writing under § 6229(b)(1)(B). S ee Georgetown

Petroleum-Edith Forrest v. Commissioner

, 67 T.C.M. (CCH) 1952

(1994); Iowa Investors Baker v. Commissioner , 64 T.C.M. (CCH) 6117

(1992); Cambridge Research & Dev. Group v. Commissioner

, 97 T.C.

287 (1991). In the above cases, however, the partnership

agreements expressly granted the general partners broad authority

to act for the partnership. In Iowa Investors

, for example, the

partner that signed the consents had the authority to "'manage all

partnership affairs, including . . . tax services . . . on behalf

of the partnership to individual partners.'" 64 T.C.M. 611.

Similarly, in Cambridge Research

, the general partners, one of whom

signed the contested consent, were authorized to "'manage and

conduct the Partnership business. They may, for the furtherance of

the business of the Partnership, borrow or lend money and pledge,

mortgage, sell, assign, license or otherwise dispose of any or all

of the Partnership property and in genera l take any action or do

anything in furtherance of the partnership business .'" 97 T.C. at

289 (emphasis added by Tax Court). Finally, in G eorgetown

Petroleum

, the partnership agreement authorized the general

partner, who executed the consent form, "to make such tax elections

and determinations as appear to be appropriate, and grant[ed] the

general partner exclusive management and control of the business of

the Partnership." 67 T.C.M. 1952.

MBFL's partnership agreement, by contrast, does not contain a

broad grant of auth ority to any individual general partner.

Indeed, there was significant trial testimony that general partners

were not permitted individually to make decisions bin ding on the

partnership. Section 2.01 of the first amendment to the

partnership agreement states:8 The overall management and control of t he business and

affairs of the Partne rship shall be vested in the Managing

General Partner and the Management Committee consisting of the

Managing General Partner and the General Partners, all of whom

will be collectively referred to as "The Management". The

Management will act collectively on all decisions with respect

to the management and control of the Pa rtnership and their

actions shall be binding on the Partnership and all Partners

provided that they act within the scope of their authority as granted by these partnership articles.

Below, MBFL argued that because the only way in which the

general partners were a uthorized to act was collectively and

because Brooks' signing of the consents did not meet this

requirement, the consents were invalid. The Tax Court disagreed.

It read section 2.01 in conjunction with Article VII of the

partnership agreement and with Louisiana law. Under Louisiana law,

a general partner is a mandatary and may bind the partnership for

actions taken within the ordinary course of business. La. Civ.

Code Ann. art. 2814 (West 1994). Article VII of the partnership

agreement restricts the authority of MBFL's general partners.

Under that article, a general partner may not, without the approval

of the management:

(a) Assign, transfer, pledge, compromise, or release any

of its claims or debts, except upon payment in full, or

arbitrate or consent to arbitration of any of its disputes or

controversy;

(b) Borrow money in the Partnership name or use

collateral owned by the Partnership as s ecurity for loans

except as provided in Article II Section 2.01 hereof;

(c) Lease or mortgage any Partnership real estate or

interest therein or enter into any contract for such purposes.

The Tax Court c oncluded that since Article VII of the

partnership agreement restricted a general partner's mandatary

authority under only three circumstances, section 2.01's collective2 The foregoing analysis would not change if the second

amendment to the partnership agreement were found to be valid. The

second amendment does not purport to amend Article VII; nor does it

broadly grant authority to any single general partner:

The overall management and co ntrol of the business and

affairs of the Partnership shall be vested in the Management

Committee comprised of five (5) General Partners serving one

(1) year terms. The Management Committee will act

collectively on all decisions with respect to the management

and control of the Partnership and its actions s hall be

binding on the Partnership and all Partners provided that they

act within the scope of their authority as granted by these

partnership articles.

9 decision making mandate applied only to those three circumstances.

If this is true, then section 2.01 cannot be the so urce in the

partnership agreement of a grant of general authority to an

individual general partner for matters outside the scope of Article

VII.

Even if we were to disagree with the Tax Court and adopt the

view that section 2.01 applied to decisions beyond the scope of

Article VII, the partnership agreement still could not be read as

granting broad authority to any single general partner. Under this

view, section 2.01 would instead require collective decision making

for all decisions concerning the "management and control of the

business and affairs of the Partnership." 2

The only remaining source of actual authority that would

permit Brooks, as a general partner, to bind the partnership is

found in article 2814 of the Louisiana Civil Code. This provision

grants agency authority to general partners acting in the ordinary

course of the partnership's business. A statute, however, is not

a sufficient written authorization. S ee I.R.C. § 6229(b)(1)(B)10

(consent may be executed by "any other person authorized by the

partnership in writing to enter into such an agreement") (emphasis

added).

B.

The Tax Court held that Louisiana law "empo wer[s] every

general partner of a Louisiana partnership wi th the authority to

bind the partnership when dealing with a third party in all

transactions (other than those transactions involving the

alienation, lease, or encumbrance of the partnership immovables),

where a partner makes a manifestation of his authority to bind the

partnership and the third party relies, in good faith, on the

partner's purported authority." We find this reliance on Brooks'

apparent authority to be unavailing.

When a person other than the partnership's TMP is executing a

consent to extend the limitations period, § 6229(b)(1)(B) requires

that person to be authorized in writing by the partnership to

execute the consent. As discussed above, the partnership agreement

does not vest Brooks with actual authority to sign the consents.

Nor do we find in the rec ord any written document by the

partnership that would vest Brooks with the apparent authority to

execute the consents. S ee Restatement (Second) of Agency § 8 cmt.

a (1958) ("Apparent auth ority results from a manifestation by a

person that another is his agent, the manifestation being made to

a third person and not, as when [actual] authority is created, to

the agent."); see also Independent Fire Ins. Co. v. Able Moving &3 The parties stipulated that Gerald Stevens was the

largest shareholder. Thus, the IRS could not have been relying on

the statutory provision that states that in the absence of a designation, the partner with the largest profits interest is the

TMP. See I.R.C. § 6231(a)(7)(B).

11 Storage Co. , 650 So. 2d 750, 752 (La. 1995) (applying Restatement

(Second) of Agency § 8).

C.

For the first time on appeal, the Commissioner contends that

MBFL is estopped from arguing that Brooks was not its TMP. In

order for equitable estoppel to apply, the government must show

that MBFL was aware of the facts, that MBFL intended the IRS to act

on its representation that Brooks was the TMP, that the government

did not know of the facts, and that the government reasonably

relied on MBFL's representations to its substantial detriment. S ee

Keado v. United States

, 853 F.2d 1209, 1217-18 (5th Cir. 1988)

(quoting Moody v. United States

, 783 F.2d 1244, 1246 (5th Cir.

1986)).

Section 6231(a)(7), in relevant part, provides that "[t]he

[TMP] of any partnership is

. . . the general partner designated as

the tax matters partner as provided in regula tions." 3 The

regulations, promulgated Mar ch 5, 1987, provide that the TMP is

designated when, among other things, a designation is filed with

the IRS. S ee Treas. Reg. § 301.6231(a)(7)-1T (if designation is

made at the time return is filed, designation is on or attached to

the partnership return; otherwise, statement desig nating TMP is

filed at the service center in which the partnership return was

filed).12

Because any designation of a TMP would be filed with the IRS

itself, the IRS cannot reasonably rely on the representations of a

third party as to the identity of a TMP. C f. Herrington v.

Commissioner , 854 F.2d 755, 758 (5th Cir. 1988) (duty of taxpayer

to report consistently "does not apply when the inconsistency

concerns a pure question of law and both the taxpayer and the

Commissioner had equal access to the facts"), c ert. denied

, 490

U.S. 1065 (1989); see also Lewis v. Commissioner

, 18 F.3d 20, 26

(1st Cir. 1994) ("[T]he misstatement must be one on which the

government reasonably relied.") ( emphasis added). Thus, the

Commissioner's estoppel argument applies to only one of the

consents executed by Brooks. On April 8, 1986, Brooks executed a

consent for the tax year 1983. At that time, there was no

regulation dictating the way in which a partnership designated its

TMP. The fact that estoppel applies to that consent, however, does

not change the result in this cas e. The 1986 consent merely

extended the limitations period to December 31, 1987 for tax year

19 83. Subsequent consents extended that period to December 31,

1991. The final partnership administrative adjustment was issued

on December 26, 1991, far beyond the valid consent's extension

date.

III.

The final issue in this appeal was raised by the Commissioner

and is no t contested by the parties. The assessments for 1983,

1984, and 1985 involve reduction of claimed depreciation13

deductions. In 1986, MBFL sold its assets and based its report of

long-term capital gains on the pre-assessment bases of the assets.

W hen the Tax Court found that the statute of limitations had not

run and that the assessments were permitted, it also found that

MBFL had conc omitantly lower long-term capital gains and was

entitled to a red uction in its 1986 tax liability. Because we

c onclude that the assessments are barred, MBFL's claimed

depreciation deductions do not change, the bases of MBFL's assets

do not change, and any long-term capital gain treatment resulting

from the sale of those assets does not change.

IV.

For the foregoing reasons, we REVERSE the judgment of the Tax

Court and RENDER judgment for MBFL.