IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 15-20596

UNITED STATES OF AMERICA, 

 Plaintiff – Appellant,

v.

DAVID W. STEWART; TARA F. STEWART; RICHARD K. PLATO; TINA M. 

PLATO, 

 Defendants – Appellees.

Appeal from the United States District Court 

for the Southern District of Texas

USDC No. 4:10-CV-00294

Before DAVIS, ELROD, and HIGGINSON, Circuit Judges.

PER CURIAM:*

This case stems from the United States Internal Revenue Service (IRS) 

attempting to claw back tax refunds paid to Defendant taxpayers. The district 

court granted summary judgment in full in favor of Defendants. For the 

reasons stated below, we REVERSE the district court’s grant of summary 

judgment and RENDER judgment in favor of the United States. 

 

* 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.

United States Court of Appeals

Fifth Circuit

FILED

October 13, 2016

Lyle W. Cayce

Clerk

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I.

Defendants David Stewart and Richard Plato are two of the five partners 

that comprise Odyssey Energy Capital I, LP (Odyssey). The partners at 

Odyssey managed a portfolio of oil and gas properties owned by Hydrocarbon 

Capital, LLC (Hydrocarbon). In 2004, Hydrocarbon sold its portfolio managed 

by Odyssey, and Odyssey received a 20 percent interest worth approximately

$20 million. 

In 2005, Odyssey filed its federal partnership tax return for 2004, 

reporting “ordinary income” of $20,106,410. Each Odyssey partner received a 

Schedule K-1 form to report his share of the partnership. Stewart reported 

taxable income of $5,941,529 on his individual tax return, and Plato reported 

$2,740,824.1 In 2007, Odyssey determined that its income from 2004 was not 

“ordinary income” but rather “capital gains.” Accordingly, Odyssey amended 

its 2004 return to reflect the change and re-issued amended Schedule K-1 

forms to its partners. After receiving their new Schedule K-1 forms from 

Odyssey, Stewart and Plato each amended their 2004 individual returns and 

ultimately received refunds from the government. Two of the other Odyssey

partners also received refunds.

A fifth partner also filed an amended tax return for 2004, but the 

government denied his refund request. The government eventually opened an 

investigation into the fifth partner’s amended tax return. During this

investigation, the government requested records from Odyssey’s business with 

Hydrocarbon and ultimately denied that partner’s refund.2 As a result of the 

 

1 Defendants David Stewart and Richard Plato filed their 2004 taxes jointly with their 

respective wives, Tara Stewart and Tina Plato. As such, Mrs. Stewart and Mrs. Plato also 

are defendants in this matter. 

2 The facts concerning this fifth partner’s case, as well as additional background 

regarding the Odyssey-Hydrocarbon business arrangement and its tax implications are 

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investigation, the government concluded that Odyssey’s 20 percent interest 

was compensation for services and therefore the fifth partner’s earnings should 

be taxed as ordinary income, not as capital gains. The investigation also 

brought to the government’s attention the refunds it had issued to Defendants.

The government determined it had erred in approving Defendants’ refunds and 

brought suit in 2010 for return of the refunds. In 2015, the district court 

granted summary judgment in full for the Defendants, holding that because 

the income was properly characterized as capital gains, the amended tax 

returns were correct, and the tax refunds were not erroneous. This appeal by 

the United States followed. 

II.

The primary issue in this case is whether either Odyssey’s or Defendants’

amended returns were sufficient to adjust the partnership income from 

“ordinary income” to “capital gains.” We hold they were not sufficient. 

In order for partnerships or partners to properly amend an income tax 

return, they must file an Administrative Adjustment Request (AAR) under 

I.R.C. § 6227. See Samueli v. C.I.R., 132 T.C. 336, 341 (2009) (“An AAR must

be filed in accordance with section 6227 for a partner to change the treatment 

of a partnership item on the partner’s return.” (emphasis added)). IRS 

regulations require that a partnership or partner seeking to make an 

adjustment of a partnership item, such as the reclassification of income in this 

case, “file[ ] on the form prescribed by the Internal Revenue Service for that 

purpose in accordance with that form’s instructions.” 26 C.F.R. §§ 301.6227(c)-

1, (d)-1. IRS Form 8082 is the form prescribed by the IRS for AARs. See 

Samueli, 132 T.C. at 342 (“The Commissioner has prescribed Form 8082, 

 

addressed extensively in this court’s decision in Rigas v. United States, 486 F. App’x 491 (5th 

Cir. 2012). 

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Notice of Inconsistent Treatment or Administrative Adjustment Request 

(AAR), as the form to be used by a partner requesting an administrative 

adjustment.”). The “Instructions for Form 8082” specifically identify taxpayers 

who “are requesting an administrative adjustment to correct a previously filed 

partnership . . . return” among those who must file a Form 8082.

In this case, Odyssey purportedly changed the characterization of the 

$20 million from ordinary income to capital gains simply by filing an amended 

tax return. Defendants filed their own amended returns based on the amended 

Schedule K-1s provided by Odyssey. However, neither Odyssey nor any of the 

Defendants filed a Form 8082; therefore, no proper request for an 

administrative adjustment was made by either Odyssey or the Defendant 

partners and Odyssey’s income from Hydrocarbon cannot properly have been 

adjusted at the partnership level. See Rigas v. United States, 486 F. App’x 491, 

500 (5th Cir. 2012) (holding that another of Odyssey’s partner’s amended 

return “does not qualify as an AAR filed pursuant to 26 U.S.C. § 6227(d)”); see 

also Samueli, 132 T.C. at 343 (“[S]ection 6227 does not authorize the 

Commissioner to consider as a partner AAR a request for an administrative 

adjustment that fails to conform to the applicable statutory requirements.”). 

III.

While Defendants did not comply with section 6227, they could have 

potentially satisfied the AAR requirements with “substantial compliance.” 

This court addressed this same substantial compliance issue in Rigas. The 

taxpayer in Rigas, John Rigas, who is the fifth Odyssey partner mentioned 

above, argued he had substantially complied with section 6227’s regulatory 

requirements. See 486 F. App’x at 499–500. Both Rigas and Defendants in this 

case provided nearly identical short statements on their amended returns

explaining why they were filing an amended return. This court, citing Samueli, 

132 T.C. 336, held that the short statement on Rigas’s amended return did not 

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constitute “substantial compliance” because it was not sent to the appropriate 

service center and did not contain the level of detail required for an AAR.

Rigas, 486 F. App’x at 499–500. Due to the stark factual similarities between 

Rigas and Defendants in the present case, we hold Defendants did not 

substantially comply with the regulatory requirements of an AAR. See id.3

IV.

Because neither Odyssey’s nor Defendants’ amended returns qualifies as 

an AAR in either form or substance, Odyssey’s income should not have been 

adjusted from ordinary income to capital gains and the refunds issued to 

Defendants were erroneous. According to federal regulations, the government 

can seek to recover “[a]ny portion of a tax imposed by this title, refund of which 

is erroneously made, within the meaning of section 6514, may be recovered by 

civil action brought in the name of the United States.” I.R.C. § 7405. The 

statute of limitations on erroneous refund suits is two years from the date of 

the refund. See I.R.C. §6532 (“Recovery of an erroneous refund by suit under 

section 7405 shall be allowed only if such suit is begun within 2 years after the 

making of such refund . . . .”). The record indicates the government initiated 

this suit just within the limitations period. As such, the government is entitled 

to a refund.

For the foregoing reasons, we REVERSE the district court’s grant of 

summary judgment and RENDER judgment in favor of the United States. 

 

3 To the extent Defendants argue that the IRS waived the formal requirements for a 

partnership AAR by supposedly recognizing and processing the amended Form 1065 as an 

AAR, that argument also fails. Defendants’ selective proffering of internal IRS documents 

does not establish an administrative wavier. See Angelus Milling Co. v. Comm’r of Internal 

Revenue, 325 U.S. 293, 297–98 (1945) (holding that a waiver of the rules may be found only 

when there is an “unmistakable” showing “that the Commissioner understood the specific 

claim that was made even though there was a departure from form in its submission”). 

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