FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JULIE A. KEENE-STEVENS; 

RITCHIE N. STEVENS, 

Petitioners-Appellees, 

 v. 

COMMISSIONER OF INTERNAL 

REVENUE, 

Respondent-Appellant.

No. 21-71082 

Tax Ct. No.

9539-15 

OPINION

Appeal from a Decision of the

United States Tax Court

Argued and Submitted April 10, 2023

San Francisco, California

Filed July 3, 2023

Before: Richard A. Paez, Richard R. Clifton, and Holly A. 

Thomas, Circuit Judges.

Opinion by Judge Clifton
2 KEENE-STEVENS V. CIR

SUMMARY*

Tax

The panel reversed the Tax Court’s determination that 

taxpayers Ritchie Stevens and Julie Keene-Stevens owed 

neither deficiencies nor penalties for 2007 and 2009 through 

2012, and remanded for recalculation of the deficiencies and 

penalties for those years.

Taxpayers did not file returns for 2007 and 2012. The 

Tax Court concluded that taxpayers owed no deficiencies or 

penalties for those years, because the partnership losses 

claimed for those years exceeded the IRS’s adjusted nonpartnership deficiencies. The panel held that the unsigned, 

unfiled tax returns, on which the partnership losses were 

reported, were legally invalid because they had not been 

filed and executed under penalty of perjury, and therefore 

could not be used to offset non-partnership income in an 

individual deficiency proceeding. Accordingly, the panel 

reversed the Tax Court’s deficiency determinations for these 

years, and remanded with instructions to determine 

taxpayers’ deficiencies without regard to any partnership 

losses claimed on the legally invalid tax returns.

For 2009 through 2011, taxpayers reported no tax 

liability because of large net operating losses (NOLs) from 

partnerships subject to the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA). The Tax Court 

determined that taxpayers owed no deficiencies or penalties 

for 2009 through 2011 because the adjustments to non-

* This summary constitutes no part of the opinion of the court. It has 

been prepared by court staff for the convenience of the reader.
KEENE-STEVENS V. CIR 3

partnership items would not have resulted in a deficiency 

even if there were no net loss from partnership items. The 

panel concluded that the Tax Court erred when it excluded 

from its calculations of “net loss from partnership items” the 

portions of the net-operating-loss carryover deductions that 

were composed of eligible partnership losses in prior years. 

The panel explained that, when carried forward as 

deductions, net operating losses composed of partnership 

losses can offset a taxpayer’s non-partnership income or 

instead are part of the “net loss from partnership items” 

under Internal Revenue Code § 6234(a)(3), as it was then in 

effect. The panel remanded for the Tax Court to assess the 

non-partnership items in the recomputed deficiencies for 

those years, accounting for the TEFRA-eligible partnership 

components of the net-operating-loss deductions only in the 

§ 6234(a)(3) calculations of “net loss from partnership 

items.”

COUNSEL

Jacob E. Christensen (argued) and Francesco Ugolini, 

Attorneys, Tax Division; David A. Hubbert, Deputy 

Assistant Attorney General; United States Department of 

Justice; Washington, D.C.; William J. Wilkins, Chief 

Counsel; Internal Revenue Service; Washington, D.C.; for 

Respondent-Appellant.

A. Lavar Taylor (argued), Taylor Nelson Amitrano LLP, 

Santa Ana, California; Fritz Firman, Weber Firman, Costa 

Mesa, California; for Petitioners-Appellees.
4 KEENE-STEVENS V. CIR

OPINION

CLIFTON, Circuit Judge:

This dispute arises from the Tax Court’s determination

that Ritchie N. Stevens and Julie A. Keene-Stevens 

(Taxpayers)1 owed neither deficiencies nor penalties for 

taxable years 2007 and 2009 through 2012 as a result of 

large, alleged partnership losses. We must decide first

whether such partnership losses claimed on unfiled, 

unsigned tax returns can be used to offset non-partnership 

income in an individual deficiency proceeding. What 

complicates matters here is that the normal process by which 

partnership losses are separately adjudicated assumes the 

existence of valid tax returns. We conclude that unsigned, 

unfiled tax returns are legally ineffective and that the alleged 

partnership losses they report cannot be used to offset nonpartnership income. For taxable years 2007 and 2012, 

therefore, the Tax Court erred by accepting in these 

individual deficiency proceedings the partnership losses that 

Taxpayers claimed on unsigned, unfiled tax forms. The 

partnership losses that the Tax Court accepted offset 

Taxpayers’ income, which, according to the Tax Court, 

resulted in no deficiency. 

Second, we must decide whether, when carried forward 

as deductions, net operating losses (NOLs) composed of 

partnership losses can offset a taxpayer’s non-partnership 

income or instead are part of the “net loss from partnership 

1 The Tax Court’s decision spells the second taxpayer’s name as Julie A. 

Keen-Stevens, but her brief spells her name as Julie A. Keene-Stevens.
KEENE-STEVENS V. CIR 5

items” under Internal Revenue Code (I.R.C.) § 6234(a)(3),

2

as it was then in effect. As we explain, we conclude that to 

the extent they are composed of eligible partnership losses, 

NOLs are partnership items that should be part of the 

calculation of net loss from partnership items. For taxable 

years 2009 through 2011, therefore, the Tax Court erred by 

excluding eligible partnership losses within Taxpayers’ 

NOL carryover deductions from its calculations of “net loss 

from partnership items.” Because the Tax Court instead 

included those NOLs in its calculations of Taxpayers’ nonpartnership income tax liability, it determined that 

Taxpayers did not owe deficiencies.

We thus reverse the Tax Court’s conclusion that 

Taxpayers owed neither deficiencies nor penalties in taxable 

years 2007 and 2009 through 2012, and we remand for a 

recalculation of Taxpayers’ deficiencies and penalties for 

those years.

I. Background

A. Factual and Procedural History 

Taxpayers did not timely file any federal income tax 

returns from 2006 through 2012. For tax years 2007 and 

2012, the Tax Court found that they filed no tax returns at 

all.3 The returns they did file for 2008 through 2011 reported 

no tax liability because of large net operating losses from 

partnerships subject to the Tax Equity and Fiscal 

2 Citations in this opinion are to the versions of the statutes in effect 

during the years in question. 

3 The finding that the IRS never received a tax return for the year 2007 

is not clearly erroneous, despite Taxpayers’ assertions below.
6 KEENE-STEVENS V. CIR

Responsibility Act of 1982 (TEFRA).

4 As claimed on 

Taxpayers’ Schedule A and Schedule E forms for taxable 

years 2007 through 2012,

5 virtually all of the claimed 

$11,463,228 in losses was attributable to partnerships 

subject to TEFRA.

6 Most of the losses were reported to have 

come from one specific partnership—SNJ, Ltd.—which 

itself never filed any required annual tax returns from 2006 

through 2012. See I.R.C. § 6031 (requiring partnerships to 

file information returns); 26 C.F.R. § 1.6031(a)-1 (same).

After an audit, the Internal Revenue Service (IRS) issued 

notices of federal income tax deficiencies and associated 

penalties under I.R.C. § 6212 for taxable years 2005 through 

2012.

7 Taxpayers timely petitioned the Tax Court to review 

4 Pub. L. No. 97-248, 96 Stat. 324 (1982) (codified as amended at I.R.C. 

§§ 6221–6234 prior to 2015 repeal). TEFRA was repealed in 2015 by 

the Bipartisan Budget Act of 2015, Pub. L. No. 114–74, § 1101, 129 Stat. 

584, 625 (2015) (codified at I.R.C. §§ 6221–6231, 6233, 6234). Under 

that law, the treatment of partnership-related tax matters changed 

effective for taxable years after 2017. TEFRA was in effect during all 

taxable years at issue in this case.

5 Forms purporting to represent tax returns on behalf of Taxpayers for 

2007 and 2012 were provided during this litigation but were not signed 

under penalty of perjury nor filed with the IRS.

6 The Schedule A and E forms report net operating losses and losses from 

partnerships and S corporations. Here, those forms show that for 2007 

through 2012, only $793 in losses was attributable to an S corporation, 

Concord Sierra Restaurants. Only $38,439 in losses was attributable to 

RSJS Holdings Limited Partnership, a small partnership not subject to 

TEFRA. The remainder ($11,423,996) of the claimed $11,463,228 in net 

operating losses was from TEFRA-partnerships, mostly the SNJ, Ltd. 

partnership. 

7 The IRS conceded below that Taxpayers did not owe a deficiency for 

taxable year 2005, and the Tax Court granted a motion for summary 
KEENE-STEVENS V. CIR 7

and redetermine the deficiencies and penalties pursuant to 

I.R.C. § 6213(a).8 The Tax Court had jurisdiction to 

redetermine the deficiencies and penalties under I.R.C. 

§§ 6213(a), 6214(a), and where applicable, to enter 

declaratory judgments regarding Taxpayers’ nonpartnership items under I.R.C. § 6234 (as it was then in 

effect).

Before trying the case, the Tax Court granted the IRS’s

motion to dismiss for lack of jurisdiction so much of the case 

as related to partnership items because, as we explain more

below, at 7-10, partnership items could not be adjudicated in 

these individual deficiency proceedings. The Tax Court then 

ordered the IRS to recompute Taxpayers’ deficiencies and 

penalties reflecting that dismissal. 

The Tax Court noted that Taxpayers “presented no 

evidence challenging the adjustments underlying the 

deficiencies [the IRS] determined.” Instead, Taxpayers

argued that the IRS had not timely issued its notices of 

deficiency, an argument which the Tax Court rejected in an 

interlocutory order. After the litigation began, Taxpayers

also provided unsigned, unfiled individual income tax 

returns (Forms 1040) for years 2007 and 2012. For its part, 

the IRS argued that the Tax Court should sustain the 

recomputed deficiencies, or, where appropriate, issue 

judgment that it “lack[ed] jurisdiction to order a refund or credit of any 

overpayment with respect to . . . [Taxpayers’] 2005 tax liability.” 

Therefore, taxable year 2005 was not at issue in the decision below nor 

is it at issue in this appeal.

8 The IRS issued Taxpayers separate notices of deficiency for (1) years 

2006, 2008, 2009, and 2010; and (2) 2007, 2011, and 2012. The Tax 

Court consolidated the cases into one proceeding.
8 KEENE-STEVENS V. CIR

declaratory judgments sustaining the recomputed 

deficiencies for the non-partnership items. 

After a trial, the Tax Court issued a memorandum 

opinion (1) upholding the IRS’ recomputed deficiencies for 

taxable years 2006 and 2008;

9 (2) concluding that Taxpayers 

owed no deficiencies or penalties for taxable years 2007 and 

2012 because the partnership losses claimed on the 

unsigned, unfiled tax forms for those years were larger than 

the IRS’ adjusted non-partnership deficiencies; and 

(3) concluding that Taxpayers owed no deficiencies or 

penalties for taxable years 2009, 2010, and 2011 because the 

adjustments to non-partnership items for each of those years 

would not have resulted in a deficiency even if there were no 

“net loss from partnership items” under I.R.C. § 6234(a)(3). 

See Stevens v. Comm’r, 120 T.C.M. (CCH) 103 (2020). We 

will elaborate on the second and third conclusions, including 

our review of those conclusions, below at 11-20 and 20-28, 

respectively.

Taxpayers subsequently appealed to this Court, and the 

IRS cross-appealed. We have jurisdiction under 26 U.S.C. 

§ 7482(a)(1). Taxpayers’ appeal was dismissed for failure to 

prosecute. See Stevens v. Comm’r, No. 21-70650, 2022 WL 

4234267, at *1 (9th Cir. June 8, 2022). Thus, all that remains 

before us is the IRS’s cross-appeal over the Tax Court’s final 

adjudication that Taxpayers owed neither deficiencies nor 

penalties for taxable years 2007 and 2009 through 2012.

9 The Tax Court upheld the 2006 recomputed deficiency under I.R.C 

§ 6214 and issued a declaratory judgment upholding the 2008 

recomputed deficiency as to the non-partnership items under I.R.C. 

§ 6234(c).
KEENE-STEVENS V. CIR 9

B. Legal Framework

We begin with an overview of the relevant statutory and 

regulatory framework.

If the IRS determines that a taxpayer owes additional tax 

(i.e., has a “deficiency,” see I.R.C. § 6211), it issues a 

“notice of deficiency” giving the taxpayer an opportunity to 

petition the Tax Court before it assesses the additional tax. 

Id. §§ 6212, 6213. The Tax Court then has jurisdiction to redetermine the correct amount of the deficiency and to 

determine whether any penalties should be assessed. Id. 

§ 6214(a). The IRS generally has only three years after the 

taxpayer files a return to assess any additional taxes due. Id. 

§ 6501(a).

Partnerships are not taxed directly. Instead, partnership

gains and losses pass through to the partners, who are liable 

for their respective shares as reported on their individual tax 

returns. Id. §§ 701–02, 6031. Adjudicating partnership gains 

and losses in the context of individual deficiency 

proceedings presents a potential problem, however.

Determining whether individual partners owe more or less

tax on their share of partnership’s gains or losses in 

individual deficiency proceedings could cause “duplicative 

proceedings and the potential for inconsistent treatment of 

partners in the same partnership.” United States v. Woods, 

571 U.S. 31, 38 (2013).

Congress addressed this problem when it enacted

TEFRA (which has since been repealed but was effective 

during the relevant years here).

10 Under TEFRA, the 

10 As we have noted, TEFRA was repealed in 2015, and the treatment of 

partnership-related tax matters changed effective for taxable years after 
10 KEENE-STEVENS V. CIR

determination of partnership-related tax matters is addressed 

in two stages:

First, the IRS must initiate proceedings at the 

partnership level to adjust “partnership 

items,” those relevant to the partnership as a 

whole. . . . [Second, o]nce the adjustments to 

partnership items have become final, the IRS 

may undertake further proceedings at the 

partner level to make any resulting 

“computational adjustments” in the tax 

liability of the individual partners.

Woods, 571 U.S. at 39 (emphasis added) (citing I.R.C. 

§§ 6221, 6231(a)(3), 6231(a)(6)). Partnership items are 

“any item required to be taken into account for the 

partnership’s taxable year . . . to the extent . . . such item is 

more appropriately determined at the partnership level than 

at the partner level.”11 I.R.C. § 6231(a)(3); see also id. 

§ 6221 (“tax treatment of any partnership item . . . shall be 

determined at the partnership level”).

In other words, in an individual income tax deficiency 

case brought under Sections 6213 and 6214—like this 

case—the Tax Court lacks authority to determine the validity 

of the taxpayer’s claimed, TEFRA-eligible partnership 

2017. See Bipartisan Budget Act of 2015, Pub. L. No. 114–74, 129 Stat. 

584 (2015). Again, TEFRA was in effect during all taxable years at issue 

in this case.

11 Conversely, non-partnership item “means an item which is (or is 

treated as) not a partnership item.” I.R.C. § 6231(a)(4).
KEENE-STEVENS V. CIR 11

losses;12 the tax treatment of those claimed partnership 

losses must first be determined separately at the partnership 

level under TEFRA. See id. § 6221; 26 C.F.R. 

§ 301.6221- 1(a) (explaining that taxpayers may not place 

partnership items at issue in individual deficiency 

proceedings).

TEFRA’s two-step procedure creates a potential timing 

problem for the IRS. If a taxpayer claims a partnership loss 

on an individual return that would offset their nonpartnership income—resulting in no tax liability for that 

individual13—the IRS would be unable to determine whether 

a deficiency existed without first conducting partnershiplevel proceedings to establish the reported partnership 

losses’ validity. The time needed for those partnership-level 

proceedings might exceed the three-year period set in the 

statute of limitations imposed by Section 6501 to assess any 

resulting tax deficiency.

To solve that problem, Congress included a special 

declaratory judgment procedure in TEFRA: Section 6234. If 

Section 6234 applies, instead of issuing a notice of 

deficiency to the taxpayer, the IRS sends a “notice of 

adjustment” that reflects its determination of the taxpayer’s 

12 TEFRA excludes “any partnership having 10 or fewer partners each of 

whom is an individual (other than a nonresident alien), a C corporation, 

or an estate of a deceased partner.” See I.R.C. § 6231(a)(1)(B)(i). When 

we use the term “eligible” to describe partnership losses throughout this 

opinion, we mean to refer to losses from those partnerships subject to 

TEFRA.

13 This is an “oversheltered return.” I.R.C. § 6234(b).
12 KEENE-STEVENS V. CIR

non-partnership items.14 I.R.C. § 6234(a). The taxpayer can 

then file a “petition . . . for redetermination of the 

adjustments” with the Tax Court under I.R.C. § 6234(c).

In such a Section 6234(c) proceeding, the Tax Court may 

issue a declaratory judgment with respect to all nonpartnership items that do not need to be adjudicated in 

TEFRA partnership-level proceedings. Id. § 6234(c). That 

declaratory judgment is then binding in any subsequent 

computational adjustments to the taxpayer’s liability after

the separate, TEFRA-partnership proceedings, even if the 

limitations period would have otherwise expired by that 

time. Id. § 6234(g)(1); see also id. §§ 6231(a)(6), 6501(a).

Finally, under Section 172(c), an NOL exists when a 

taxpayer’s deductions exceed that taxpayer’s gross income 

in a given year. When that occurs, the taxpayer may claim 

the NOL as a “carryback” deduction against taxable income 

for the two preceding years and as a “carryover” or 

“carryforward” deduction to each of the next twenty years’ 

taxable income until the NOL is fully extinguished. See id.

§ 172.

II. Discussion

A. Standard of Review

“Conclusions of law, including the Tax Court’s 

interpretation of the Internal Revenue Code, are reviewed de 

novo.” SNJ Ltd. v. Comm’r, 28 F.4th 936, 941 (9th Cir. 

14 If Section 6234 should apply, but the IRS mistakenly determines that 

normal deficiency procedures apply and sends a notice of deficiency, the 

Tax Court must treat the notice of deficiency as a “notice of adjustment” 

under Section 6234 and any Tax Court action filed from that notice as an 

action brought under Section 6234(c). I.R.C. § 6234(h)(2).
KEENE-STEVENS V. CIR 13

2022) (citation omitted). “We review the Tax Court’s factual 

determinations . . . for clear error.” Id. (citation omitted).

B. Taxable Years 2007 and 2012

The Tax Court erred by effectively accepting as accurate 

partnership losses that were not reported on valid tax returns

and thus could not be adjudicated in the required, separate,

partnership-level proceedings under TEFRA.

The Tax Court correctly held that for taxable years 2007 

and 2012, Section 6234 did not apply. The Tax Court found 

that Taxpayers filed no signed tax returns in either 2007 or

2012. Section 6234 applies only if “a taxpayer files an 

oversheltered return for a taxable year.” I.R.C. § 6234(a)(1). 

Because Taxpayers filed no returns—oversheltered or 

otherwise—in 2007 and 2012, the Tax Court properly 

concluded that the Section 6234(a)(1) prerequisite was not 

met for those years.15

But the Tax Court erred when it reasoned that for 2007 

and 2012, it could not “deny [Taxpayers] a prepayment 

forum for contesting the adjustment of partnership losses, 

contrary to Congress’ intent in enacting section 6234.” The 

Tax Court acknowledged that partnership losses “reported 

on a signed and filed return may be more credible than 

[those] reported on an unsigned return provided to the 

Commissioner in the course of litigation in that facts stated 

in the former are attested to under penalties of perjury.” And 

notably, the Tax Court never found that these claimed 

partnership losses were, in fact, grounded in any economic 

reality. Nevertheless, without citation to any authority, it 

held that the “failure to file a 2007 [and 2012] return should 

15 Again, the SNJ, Ltd. partnership—to which most of the alleged losses 

were attributed—also did not file tax returns in 2007 or 2012. 
14 KEENE-STEVENS V. CIR

not deprive [Taxpayers] of a prepayment forum for 

contesting any adjustment of the loss they profess to have 

been allocated by [the TEFRA partnerships].” “[T]he 

inapplicability of section 6234,” the Tax Court explained,

“does not resuscitate” the approach rejected by Section 6234 

and exemplified in Munro v. Commissioner, 92 T.C. 71 

(1989). This reliance on Munro and the perceived 

congressional intent behind Section 6234 was mistaken.

In Munro, the IRS issued a notice of deficiency that 

prospectively disallowed the partnership losses reported by 

the taxpayers—pending later partnership-level proceedings 

to adjudicate their legitimacy—and made other adjustments 

to the taxpayers’ reported non-partnership items. Id. at 71–

72. Munro held that the partnership items claimed on the 

taxpayers’ return must be “completely ignored” in 

determining whether a deficiency existed for the 

non-partnership items. Id. at 74. This deprived the taxpayers 

of a prepayment forum to determine their tax liability; if the 

partnership losses were later verified, they were left to seek 

a refund. The IRS and Tax Courts were motivated to take 

this approach to avoid the IRS being time-barred from 

seeking payment of deficiencies on non-partnership items if 

the partnership-level proceedings lasted longer than the 

three-year statute of limitations. See I.R.C. § 6501(a). To 

solve this problem, Congress enacted Section 6234’s 

declaratory judgment procedure for non-partnership items.

Here, because Taxpayers did not file tax returns and

Section 6234’s declaratory judgment procedure did not 

apply, the Tax Court conducted an individual deficiency 

proceeding pursuant to Section 6214(a). But in that 

individual deficiency proceeding, the Tax Court effectively 

accepted as accurate the partnership losses reported on 

Taxpayers’ unsigned, unfiled tax return forms for 2007 and 
KEENE-STEVENS V. CIR 15

2012,

16 which resulted in no tax deficiency for both years. 

The Tax Court should have ignored those unreported 

partnership losses in assessing Taxpayers’ deficiencies.

1. No Valid Tax Returns with Legal Effect

To begin, Taxpayers’ 2007 and 2012 Forms 1040 were 

not valid tax returns with legal effect because they were 

neither filed nor executed under penalty of perjury. See In re 

Hatton, 220 F.3d 1057, 1060–61 (9th Cir. 2000) (defining 

requirements of a valid tax return); see also I.R.C. § 6061(a) 

(“any return, statement, or other document required to be 

made under any provision of the internal revenue laws or 

regulations shall be signed in accordance with forms or 

regulations prescribed by the Secretary”); id. § 6065 (any 

such form “shall contain or be verified by a written 

declaration that it is made under the penalties of perjury”).

For a tax return to have legal effect, the default rule is 

that it must be signed and filed under penalty of perjury. 

Brown v. United States, 22 F.4th 1008, 1012 (Fed. Cir. 2022) 

(“Sections 6061(a) and 6065 thus impose a default rule that 

individual taxpayers must personally sign and verify their 

[tax return documents]. Otherwise, the documents are 

invalid or of no legal effect.”); Selgas v. Comm’r, 475 F.3d 

697, 700–01, 701 n.7 (5th Cir. 2007) (“Even if the returns 

were filed, the fact that they were unsigned deprives them of 

legal effect.”). While the Secretary of Treasury can adjust 

that default rule by regulation, she has not done so. See 26 

C.F.R. §§ 1.6012-1 (explaining rules for individual tax 

returns, consistent with the default rule); 1.6065-1(a)

16 Here, the partnership losses totaled $6,893,357 and $11,463,228 in 

2007 and 2012 respectively. The 2012 partnership losses largely result 

from a NOL carryforward deduction pursuant to I.R.C. § 172. 
16 KEENE-STEVENS V. CIR

(reiterating the statutory rules); see also Brown, 22 F.4th at 

1013 (“To be sure, § 6061(a) gives the Secretary the 

authority to prescribe how individual taxpayers may satisfy 

the statute’s requirement. Similarly, § 6065 gives the 

Secretary discretion to suspend the verification requirement 

in certain cases. However, these statutes’ implementing 

regulations echo the statutory default rule.”).

Because Taxpayers here did not file signed tax returns 

under penalty of perjury for 2007 and 2012, their 2007 and 

2012 tax forms had no legal effect. That is unlike the 

circumstances in Munro. In that case the taxpayers filed 

valid, legally effective tax returns claiming partnership 

losses, but the Tax Court “completely ignored” those 

partnership items reported on signed, valid returns—forcing 

them to pay up front and ask for a refund later. Munro, 92 

T.C. at 74.

In overruling Munro with Section 6234, Congress

explained that the IRS and Tax Courts must “assum[e] that 

all TEFRA items whose treatment has not been finally 

determined [in separate partnership proceedings] had been 

correctly reported on the taxpayer’s return.” H.R. Rep. 105-

148, at 586 (1997) (emphasis added). The Committee Report 

specifically noted that Section 6234 was intended to create a 

“special rule to address the factual situation presented in 

Munro.” Id. 

We do not share the Tax Court’s concern that denying 

these Taxpayers “a prepayment forum for contesting the 

adjustment of partnership losses [would be] contrary to 

Congress’ intent in enacting section 6234.” The taxpayers in 

Munro had filed a tax return. 92 T.C. at 71. Taxpayers in this 

case did not file any returns in 2007 or 2012. As a result, they 

are not factually similar to the taxpayers in Munro, who 
KEENE-STEVENS V. CIR 17

played by the rules. We see nothing contrary to the intent of 

Congress in denying the benefit of Section 6234 to a 

taxpayer who never filed a return and thus failed to provide 

the Tax Court with any “correctly reported” partnership 

losses upon which that court could base its calculations. Cf.

H.R. Rep. 105-148, at 586 (1997).

2. No Mechanism for the Tax Court to Assess 

Partnership Losses on Invalid Tax Returns

As we have explained, the proceeding before the Tax 

Court was an individual deficiency proceeding under 

Section 6214(a). The Tax Court erred by accepting as 

accurate Taxpayers’ TEFRA-eligible claimed partnership 

losses because it had no jurisdiction in these proceedings to 

evaluate those losses at all. What’s more, the TEFRA rules 

and statutes provide no process to evaluate partnership losses 

claimed on invalid tax returns.

The deficiency statutes applicable here provide that “[i]n 

determining the amount of any deficiency for the purposes 

of [income tax deficiency procedures], adjustments to 

partnership-related items shall be made only as provided in 

[the TEFRA partnership provisions].” I.R.C. § 6211(c) 

(emphasis added). And under TEFRA, “the tax treatment of 

any partnership item . . . shall be determined at the 

partnership level.” Id. § 6221 (emphasis added). Indeed, the 

TEFRA regulation forbids a taxpayer in a “proceeding 

relating to nonpartnership items”—like the Section 6214 

proceeding before the Tax Court here—from “offset[ting] a 

potential increase in taxable income based on changes to 

nonpartnership items by a potential decrease based on 

partnership items.” 26 C.F.R. § 301.6221-1(a) (emphasis

added). This is exactly what Taxpayers sought to do, and 

what the Tax Court countenanced. The claimed partnership 
18 KEENE-STEVENS V. CIR

losses should have been evaluated in separate, TEFRA 

proceedings.

But there is a wrinkle in the TEFRA regulations. Those 

regulations provide that “treatment of partnership items on 

the partner’s return may not be changed except as provided 

in [TEFRA] and the regulations thereunder.” Id. (emphasis 

added). Thus, absent a valid tax return that reported

partnership items, the TEFRA statutes and regulations do not 

provide for the required partnership-level proceedings. 

Taxpayers here appear to slip between TEFRA’s cracks, but 

if so, it should not work to their advantage. They claimed 

TEFRA-eligible partnership losses—which the Tax Court 

could not adjudicate in individual proceedings. But they 

claimed those losses on unfiled, invalid tax forms—which 

could not trigger either the separate, partnership-level

proceedings or Section 6234’s declaratory judgment 

procedure for the non-partnership items. 

That does not mean that Taxpayers are entirely without 

recourse. For example, if Taxpayers were to provide tax 

returns that were signed under penalty of perjury, even if 

late, they could seek a refund after the TEFRA-partnership 

proceedings concluded, just like the taxpayers in Munro. See 

92 T.C. at 74. But unlike the Munro taxpayers, the Taxpayers 

in our case did not file any valid tax returns for these two 

years. No TEFRA-eligible partnership items existed for 

Taxpayers in taxable years 2007 or 2012 for the IRS or Tax 

Court to consider in a pre-payment context.

17

17 Taxpayers’ assertion that their unreported partnership losses were 

simply amendments to their pleadings under I.R.C. Rule 41(b) to which 

the IRS effectively consented is unsuccessful. Taxpayers could not assert 
KEENE-STEVENS V. CIR 19

3. Negative Incentives of the Tax Court’s Approach

We do not lightly reject the Tax Court’s analysis, but our 

interpretation of the applicable statutes is bolstered by the 

perverse incentives inherent in the Tax Court’s approach. 

That approach undermines Section 6234’s threshold 

requirement that taxpayers file tax returns to get its 

prepayment protections. See I.R.C. § 6234(a)(1). Instead, the 

Tax Court could incentivize a failure to file tax returns in the 

hope that, as here, purported partnership losses would be 

accepted in a deficiency proceeding and that the IRS might 

be precluded from relitigating the taxes owed, even if the 

partnership losses were later disallowed. Suppose a 

judgment was entered following a proceeding against an 

individual taxpayer, and that taxpayer’s alleged partnership 

losses were later disallowed in partnership-level 

proceedings. The concern of the IRS is that any subsequent 

action would be a further claim between the same two 

parties—the IRS and the taxpayer—about the same cause of 

action— a possible tax deficiency in the given year. That 

could trigger an assertion of claim preclusion or res judicata 

based on the first proceeding. See, e.g., Comm’r v. Sunnen, 

333 U.S. 591, 598 (1948) (“[I]f a claim of liability or nonliability relating to a particular tax year is litigated, a 

judgment on the merits is res judicata as to any subsequent 

proceeding involving the same claim and the same tax 

year.”). The parties argued this question to us, but we need 

not and do not resolve it here. The point is that the approach 

taken by the Tax Court here opens the door to arguments that 

unreported partnership losses for the first time in this individual 

deficiency proceeding because those losses effectively did not occur—

as they were not reported on valid tax returns, there was no mechanism 

for them to be adjudicated in accordance with TEFRA.
20 KEENE-STEVENS V. CIR

should not have to be faced, and that, indeed, Congress has 

precluded by requiring the submission of partnership losses 

on valid returns.

In sum, the Tax Court correctly held that Section 6234 

did not apply to taxable years 2007 and 2012, but it erred in 

using the partnership losses claimed on the invalid tax 

returns to hold that Taxpayers had no income tax 

deficiencies for those years. Those purported losses were not 

reported on valid tax returns. They could not be adjudicated 

in Taxpayers’ individual Tax Court proceedings. Neither 

could they be adjudicated—nor were they adjudicated—in 

required partnership-level proceedings. We reverse the Tax 

Court’s holding that there were no deficiencies in 2007 and 

2012 and remand with instructions for the Tax Court to

determine Taxpayers’ 2007 and 2012 deficiencies (and any 

applicable penalties and additions-to-tax)18 disregarding 

entirely the alleged partnership losses in those years.

C. Taxable Years 2009, 2010, and 2011

We conclude that the Tax Court erred when it excluded 

from its calculations of “net loss from partnership items,” see

I.R.C. § 6234(a)(3), in 2009, 2010, and 2011 the portions of 

the NOL carryover deductions that were composed of 

eligible partnership losses in prior years.

18 Because it determined that Taxpayers owed no deficiencies in 2007 

and 2012, the Tax Court rejected the penalties and additions-to-tax that 

the IRS assessed. On remand, the Tax Court must reevaluate whether 

Taxpayers owe any failure-to-file or failure-to-pay penalties or 

additions-to-tax for taxable years 2007 and 2012 pursuant to I.R.C. 

§§ 6651 and 6654.
KEENE-STEVENS V. CIR 21

The Tax Court held that Taxpayers owed no deficiency 

to the IRS for taxable years 2009, 2010, and 2011.19. For 

those years, the Tax Court applied Taxpayers’ NOL 

carryover deductions to its calculations of Taxpayers’ nonpartnership tax liability. Because those NOL carryover 

deductions were so large, they offset any non-partnership 

income, resulting in the conclusion that there were no 

deficiencies. See I.R.C. § 172.

The Tax Court then determined that the declaratory 

judgment provisions of Section 6234(c) were inapplicable 

because Taxpayers’ tax returns in those years failed to 

satisfy Section 6234(a)(3): that the IRS’ adjustments to the 

non-partnership items in the return “do not give rise to a 

deficiency . . . but would give rise to a deficiency if there

were no net loss from partnership items.” I.R.C. 

§ 6234(a)(3). In other words, the Tax Court held that even 

without the net partnership losses that Taxpayers claimed on 

their 2009, 2010, and 2011 returns,20 their adjusted taxable 

income was not enough to create a deficiency. 

19 Because it determined that Taxpayers owed no deficiencies in 2008 

through 2011, the Tax Court also rejected for taxable year 2010 the 

addition-to-tax and accuracy related penalties that the IRS assessed 

under I.R.C. §§ 6651(a)(1) and 6662(a). The Tax Court rejected for 

taxable year 2011 the addition-to-tax that the IRS assessed under I.R.C. 

§ 6651(a)(1), but the IRS conceded the 2011 penalties it assessed

pursuant to I.R.C. §§ 6651(a)(2) and 6654. Thus, on remand, the Tax 

Court must redetermine whether Taxpayers owe any penalties or 

additions-to-tax under I.R.C. §§ 6651(a)(1) and 6662 for taxable years 

2010 and 2011.

20 For 2011, the Tax Court did not determine the value of the net loss 

from partnership items, though it clearly excluded the NOL deductions 

from its analysis. Thus, on remand, the Tax Court must conduct the 

Section 6234(a)(3) analysis for taxable year 2011 in the first instance.
22 KEENE-STEVENS V. CIR

In calculating the net losses from partnerships, the Tax 

Court did not include any of Taxpayers’ claimed NOL 

carryover deductions, even though these deductions were 

composed primarily of partnership losses from prior years. 

The government contends that the Tax Court should have 

accounted for the large, alleged partnership losses 

underlying the NOL carryforward deductions when 

determining the “net loss from partnership items” under 

Section 6234(a)(3). 

We agree. A carryforward NOL should be included in 

the “net loss from partnership items” under Section 

6234(a)(3) to the extent that the NOL is made up of losses 

from TEFRA partnerships carried over from prior years. A 

TEFRA partnership loss allocated to a partner in a given year 

is a “partnership item.” See 26 C.F.R. § 301.6231(a)(3)-

1(a)(1)(i). Such a partnership item does not lose its character 

as a partnership item when carried over as an NOL deduction 

into a subsequent tax year.

Taxpayers respond that the definition of a “partnership 

item” as “any item required to be taken into account for the 

partnership’s taxable year,” I.R.C. § 6231(a)(3), limits 

partnership items to those losses (or gains) sustained by the 

partnership in that taxable year. But Taxpayers insert a time 

limit that is not found in the statute. “The preeminent canon 

of statutory interpretation requires us to presume that the 

legislature says in a statute what it means and means in a 

statute what it says there.” BedRoc Ltd., LLC v. United 

States, 541 U.S. 176, 183 (2004) (internal quotation and 

citation omitted). Contrary to Taxpayers’ claim, nothing in 

the text of the statute indicates the year in which the 

partnership must take the partnership item into account. 
KEENE-STEVENS V. CIR 23

Indeed, Section 6234(a)(3)’s plain language includes 

carryover NOLs from prior years. We “determine if a 

statute’s meaning is plain or ambiguous by looking to ‘the 

language itself, the specific context in which that language 

is used, and the broader context of the statute as a whole.’”

Connell v. Lima Corp., 988 F.3d 1089, 1097 (9th Cir. 2021) 

(quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341 

(1997)). Section 6234(a) provides:

(a) General rule.—If—

(1) a taxpayer files an oversheltered 

return for a taxable year,

(2) the Secretary makes a 

determination with respect to the 

treatment of items (other than 

partnership items) of such taxpayer

for such taxable year, and

(3) the adjustments resulting from 

such determination do not give rise 

to a deficiency (as defined in section 

6211) but would give rise to a 

deficiency if there were no net loss 

from partnership items,

the Secretary is authorized to send a notice of 

adjustment reflecting such determination to the 

taxpayer by certified or registered mail.

I.R.C. § 6234(a) (emphasis added). Unlike subsections 

(a)(1) and (a)(2), subsection (a)(3) does not include any 

qualifier that the “net loss from partnership items” occur in 

a specific taxable year. This difference between the 

subsections plainly suggests that eligible carryforward net 

operating losses should be considered part of the “net loss 

from partnership items.”
24 KEENE-STEVENS V. CIR

Even if the text of the statute were ambiguous—which it 

is not—we must identify the interpretation that is “‘more 

consistent with the broader context’ and ‘primary purpose’

of the statute.” Connell, 988 F.3d at 1097 (quoting Robinson, 

519 U.S. at 345–46). Congress enacted Section 6234(c)

largely to avoid the IRS being time-barred for nonpartnership deficiency proceedings. See H.R. Rep. 105-148,

at 585; I.R.C. § 6501(a).

With Section 6234’s declaratory judgment procedure, 

however, “[i]f the taxpayer’s partnership items were then 

adjusted [and disallowed] in a subsequent proceeding, the 

IRS has preserved its ability to collect tax on any increased

deficiency attributable to the nonpartnership items,” H.R. 

Rep. 105-148, at 587—notwithstanding the 

otherwise-applicable statute of limitations. Even the Tax 

Court acknowledged that accepting Taxpayers’ arguments 

might permit the statute of limitations to bar the IRS from 

assessing tax “that would result from the adjustments of 

nonpartnership items taken into account in the [2009, 2010, 

and 2011 notices of deficiency].”21 Thus, the interpretation 

of Section 6234(a)(3) that includes NOLs in the calculation 

(to the extent the NOL contains TEFRA partnership losses) 

is most consistent with the broader context and primary 

purpose of the law.

Finally, the Tax Court’s inconsistent treatment of the 

NOL carryforward deductions as “affected items” 

demonstrates that the deductions should have been included 

in the Section 6234(a)(3) calculation of “net loss from 

21 Again, any additional tax due on the partnership items themselves 

would still be available for the IRS to pursue. See I.R.C. § 6230(a)

(repealed 2015).
KEENE-STEVENS V. CIR 25

partnerships.”22 The Tax Court repeatedly referred to the 

NOL deductions as “affected items,” comprised mostly of 

TEFRA “partnership item components,” while also ignoring 

those NOL partnership item components in its Section 

6234(a)(3) calculations. Taxpayers argue that because a net 

operating loss carryover is an “affected item” it 

definitionally cannot be a “partnership item” to be included 

in the calculation of “net loss from partnership items.” But 

that is beside the point. The phrase “net loss from partnership 

items” includes only that portion of the NOLs consisting of 

partnership losses carried over from prior tax years, which 

remain “partnership items.” We see no inconsistency in 

recognizing that the whole NOL is an affected item because 

of its component partnership items.

Applying these principles to the values provided on 

Taxpayers’ returns here, if the proportion of the 

carryforward NOL deductions attributable to partnership 

losses were included in the Tax Court’s arithmetic in taxable 

years 2009 and 2010, then Taxpayers would have had a tax 

deficiency but for the “net loss from partnership items”—

satisfying Section 6234(a)(3) in those years.

22 An “affected item” is “any item to the extent such item is affected by 

a partnership item,” I.R.C. § 6231(a)(5) (repealed 2015), and the tax 

code “require[s] partner level determinations” to be completed before the 

Tax Court examines the individual tax treatment of an “affected item.” 

Id. § 6234(c); see also Adkison v. Comm’r, 592 F.3d 1050, 1053 (9th Cir. 

2010) (“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.”).
26 KEENE-STEVENS V. CIR

For 2009, the Taxpayers reported negative taxable 

income of $10,223,895.23 The IRS’ adjustments to 

Taxpayers’ non-partnership income increased their taxable 

income by $5,981. The Tax Court determined that 

Taxpayers’ net loss from partnership items was only 

$990,360. However, Taxpayers claimed a $9,766,818 NOL

carryforward deduction that year, almost all of which,

$9,752,075, was attributable to purported TEFRApartnership losses carried forward from 2007 and 2008.24

The true “net loss from partnership items” under Section 

6234(a)(3) that Taxpayers claimed, therefore, was 

$10,742,435—the $990,360 that the Tax Court originally 

included plus the eligible partnership NOLs that it failed to 

include. If the net loss from eligible partnership items is 

removed from Taxpayers’ adjusted gross income, Taxpayers 

would have had a positive taxable income of $524,521 for 

2009,

25 satisfying Section 6234(a)(3). 

The Tax Court’s arithmetic is similar for 2010. There, 

the Taxpayers reported a negative taxable income of 

$10,814,841.26 The IRS’ adjustments to Taxpayers’ nonpartnership income increased their taxable income by 

$729,079. The Tax Court determined that Taxpayers’ net 

loss from partnership items was only $109,569. However, 

23 This figure accounts for the adjusted gross income reduced by itemized 

deductions and exemptions claimed on Taxpayers’ 2009 return. 

24 The $14,743 remainder was a loss from RSJS Holdings, a small 

partnership not subject to TEFRA. 

25 This value is obtained from the sum of $5,981 (adjustment to nonpartnership items) + $10,742,435 (net loss from partnership items) –

$10,223,895 (adjusted gross income).

26 This figure accounts for the adjusted gross income reduced by itemized 

deductions and exemptions claimed on Taxpayers’ 2009 return. 
KEENE-STEVENS V. CIR 27

Taxpayers claimed a $10,188,499 NOL carryforward 

deduction that year, of which $10,170,250 was attributable 

to purported TEFRA partnership losses carried forward from 

2007, 2008, and 2009.27 The true “net loss from partnership 

items” that Taxpayers claimed, therefore, was 

$10,279,819—the $109,569 that the Tax Court originally 

included plus the eligible partnership NOLs that it failed to 

include. Thus, if the net loss from eligible partnership items 

is removed from Taxpayers’ adjusted gross income, 

Taxpayers would have had a positive taxable income of 

$194,057,28 again satisfying Section 6234(a)(3). 

We do not conduct this analysis for taxable year 2011, 

though the same result—that Section 6234(a)(3) is 

satisfied—seems likely. Unlike for 2009 and 2010, the Tax 

Court did not determine the 2011 value of the net loss from 

partnership items, though it clearly excluded the alleged 

TEFRA-partnership losses underlying the claimed

$10,750,110 NOL deductions when it determined Section 

6234(a)(3) did not apply. On remand, the Tax Court must 

conduct the Section 6234(a)(3) analysis for taxable year 

2011 in the first instance, including by calculating how much 

of the claimed $10,750,110 NOL carryforward deduction on 

Taxpayers’ 2011 tax returns consists of eligible partnership 

losses that should factor into the “net loss from partnership 

items” under Section 6234(a)(3).

Because for 2009, 2010, and 2011 the Tax Court should 

have included the portion of the NOL carryforward 

27 The $18,249 remainder was again the sum of losses reported from 

RSJS Holdings, a small partnership not subject to TEFRA. 

28 This value is obtained from the sum of $729,079 (adjustment to nonpartnership items) + $10,279,819 (net loss from partnership items) –

$10,814,841 (adjusted gross income).
28 KEENE-STEVENS V. CIR

deductions composed of prior-year partnership losses in its 

calculation of “net operating loss from partnership items,” 

we (1) reverse the Tax Court’s holding that it lacked 

jurisdiction under Section 6234(a)(3) for the 2009, 2010, and 

2011 returns; and (2) remand for the Tax Court to issue 

declaratory judgments pursuant to Section 6234 regarding 

the non-partnership items in the recalculated deficiencies for 

those years, this time accounting for the TEFRApartnership-loss components of the NOL deductions in its 

Section 6234(a)(3) calculations. 

III. Conclusion

The Tax Court erred in holding that Taxpayers owed 

neither deficiencies nor penalties for taxable years 2007 and 

2009 through 2012. Consistent with the foregoing analysis, 

we (1) reverse the Tax Court’s deficiency determinations for 

taxable years 2007 and 2012 and remand with instructions to 

determine Taxpayers’ deficiencies without regard to any 

partnership losses claimed on invalid, legally ineffective tax 

returns; and (2) reverse the Tax Court’s determination that it 

lacked jurisdiction to enter declaratory judgments under 

I.R.C. §§ 6234(a)(3), (c) for taxable years 2009 through 

2011 and remand for it to assess the non-partnership items 

in the Taxpayers’ 2009, 2010, and 2011 recomputed 

deficiencies, accounting for the TEFRA-eligible partnership 

components of the NOL deductions only in the

Section 6234(a)(3) calculations of “net loss from partnership 

items.” We also remand for the Tax Court to recalculate any 

penalties or additions-to-tax that Taxpayers owe for taxable 

years 2007 and 2009 through 2012 pursuant to I.R.C. 

§§ 6651, 6654, and 6662.

REVERSED and REMANDED.