T.C. Memo. 2009-195

UNITED STATES TAX COURT

INTERMOUNTAIN INSURANCE SERVICE OF VAIL, LIMITED LIABILITY

COMPANY, THOMAS A. DAVIES, TAX MATTERS PARTNER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 25868-06. Filed September 1, 2009.

P moved for summary judgment on the ground that R’s

partnership item adjustments were made after the general 3-

year period of limitations for assessing tax had expired. R

argues that an extended 6-year period of limitations

applies.

Held: The 3-year period of limitations is applicable. 

Thus P’s motion for summary judgment will be granted.

Steven R. Anderson, for petitioner.

Gary J. Merken, for respondent.
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1Unless otherwise indicated, all section references are to

the Internal Revenue Code of 1986, as amended and in effect for

the tax year at issue (Code), and all Rule references are to the

Tax Court Rules of Practice and Procedure.

MEMORANDUM OPINION

WHERRY, Judge: This case is before the Court on

petitioner’s January 18, 2008, motion for summary judgment. The

sole issue for decision is whether a basis overstatement

constitutes a substantial omission from gross income that can

trigger an extended 6-year period of limitations. See secs.

6229(c)(2), 6501(e)(1)(A).1 We follow our opinion in Bakersfield

Energy Partners, LP v. Commissioner, 128 T.C. 207 (2007), affd.

568 F.3d 767 (9th Cir. 2009), and hold that the extended

limitations period does not apply.

Background

Intermountain Insurance Service of Vail, LLC

(Intermountain), engaged in a series of transactions--some of

which increased tax basis--culminating in the sale of business

assets on August 1, 1999, for $1,918,844. It reported the

$1,918,844 gross sales price and, after deducting $131,544 of

allowed or allowable depreciation, claimed a stepped-up

$2,061,808 basis in the assets, on a Form 4797, Sales of Business

Property, attached to its 1999 Form 1065, U.S. Partnership Return

of Income. It filed that return on September 15, 2000. 
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2Respondent provides no other reason--beyond the application

of sec. 6501(e)(1)(A)--why the period of limitations would have

remained open.

Almost 6 years later, on September 14, 2006, respondent

issued a notice of final partnership administrative adjustment

(FPAA) with respect to Intermountain’s 1999 tax year. Respondent

found that some of the transactions Intermountain engaged in were

improper and ineffective for Federal income tax purposes and

consequently determined that Intermountain had improperly claimed

a $13 expense, overstated capital contributions by $2,197,696,

overstated outside partnership basis by $2,061,808, and

improperly claimed an $87,680 loss.

Petitioner challenges the timeliness of the FPAA, arguing

that the general 3-year period of limitations had already expired

when respondent issued the FPAA. Petitioner further cites

Bakersfield Energy Partners, LP v. Commissioner, supra, for the

proposition that a basis overstatement cannot trigger an extended

6-year period of limitations under either section 6229(c)(2) or

6501(e)(1)(A). Respondent asserts that we decided Bakersfield

incorrectly and urges us to overrule it.2

Discussion

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials. Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988). A party moving for

summary judgment bears the burden of demonstrating that no
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genuine issue of material fact exists and that he or she is

entitled to judgment as a matter of law. Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994), cert. denied 513 U.S. 821 (1994). Facts are viewed

in the light most favorable to the nonmoving party. Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985). Where a motion for

summary judgment has been properly made and supported by the

moving party, the nonmoving party “may not rest upon the mere

allegations or denials” contained in that party’s pleadings but

must by affidavits or otherwise “set forth specific facts showing

that there is a genuine issue for trial.” Rule 121(d). 

The Code does not provide a period of limitations within

which the Commissioner must file an FPAA. See Curr-Spec

Partners, L.P. v. Commissioner, __ F.3d __ (5th Cir., Aug. 11,

2009), affg. T.C. Memo. 2007-289; Rhone-Poulenc Surfactants &

Specialties, L.P. v. Commissioner, 114 T.C. 533, 534-535 (2000). 

However, any partnership item adjustments made in an FPAA will be

time barred at the partner level if the Commissioner does not

issue the FPAA within the applicable period of limitations for

assessing tax attributable to partnership items. Curr-Spec

Partners, L.P. v. Commissioner, supra at ____ (slip op. at 5);

Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner,

supra at 535.
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The general period of limitations for assessing tax is 3

years from the filing of a Federal income tax return. Sec.

6501(a). That period is extended to 6 years “If the taxpayer

omits from gross income an amount properly includible therein

which is in excess of 25 percent of the amount of gross income

stated in the return”. Sec. 6501(e)(1)(A). For the assessment

of tax attributable to a partnership item, the period of

limitations remains open at least for 3 years after the date the

partnership return was filed or 3 years after the last day,

disregarding extensions, for filing the partnership return,

whichever is later. Sec. 6229(a). The period of limitations for

assessing tax attributable to partnership items remains open for

at least 6 years after the later of the two dates described in

section 6229(a) “If any partnership omits from gross income an

amount properly includible therein which is in excess of 25

percent of the amount of gross income stated in its return”. 

Sec. 6229(c)(2).

For the purpose of ruling on petitioner’s motion for summary

judgment we view the facts in the light most favorable to

respondent and assume that the adjustments that respondent made

in the FPAA to Intermountain’s partnership return are correct. 

The parties agree that respondent issued the FPAA after the 3-

year periods described in sections 6229(a) and 6501(a) had

expired. But they disagree whether a basis overstatement by
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3Respondent argues that sec. 6501(e)(1)(A) applies, but he

mostly likely meant to cite sec. 6229(c)(2). Sec. 6501(e)(1)(A)

refers to a taxpayer’s omission from gross income, the amount of

gross income stated on a taxpayer’s Federal income tax return,

and a period running from the filing of a taxpayer’s return. 

Respondent, however, has only provided information about

Intermountain’s omission from gross income, the amount of gross

income stated on Intermountain’s partnership return, and the

period running from the filing of that partnership return. These

are considerations directly relevant to sec. 6229(c)(2) and only

tangentially relevant to sec. 6501(e)(1)(A).

4Under Golsen v. Commissioner, 54 T.C. 742, 757 (1970),

affd. 445 F.2d 985 (10th Cir. 1971), we “follow a Court of

Appeals decision which is squarely in point where appeal from our

decision lies to that Court of Appeals”. See Lardas v.

Commissioner, 99 T.C. 490, 495 (1992). If the Court of Appeals

has not yet decided the issue, however, we will give effect to

our own views. Id. Petitioner states in his petition that

Intermountain has no principal place of business, suggesting

that--absent stipulation to the contrary--this case may be

appealable to the Court of Appeals for the District of Columbia

Circuit. See sec. 7482(b)(1). Respondent adds that the case may

be appealable to the Court of Appeals for the Eighth Circuit if

Intermountain continued to have a place of business while it was

winding up its affairs. If that is the case, we question whether

an appeal might actually lie in the Court of Appeals for the

Tenth Circuit because Intermountain was organized under the laws

of Colorado and, at least at one point, had its principal place

of business in that State. Ultimately we do not need to answer

the question of proper venue because none of those Courts of

Appeals has decided the issue before us. We will therefore

follow our opinion in Bakersfield Energy Partners, LP v.

Commissioner, 128 T.C. 207 (2007), affd. 568 F.3d 767 (9th Cir.

2009).

Intermountain could have extended the period of limitations for

assessing tax under either section 6229(c)(2) or

section 6501(e)(1)(A).3 Our opinion in Bakersfield Energy

Partners, LP v. Commissioner, 128 T.C. 207 (2007), is directly on

point.4 
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In Bakersfield Energy Partners, LP v. Commissioner, supra at

213-215, we held that a basis overstatement is not an omission

from gross income. We applied the Supreme Court’s holding in

Colony, Inc. v. Commissioner, 357 U.S. 28, 33 (1958), and stated

that “the extended period of limitations applies to situations

where specific income receipts have been ‘left out’ in the

computation of gross income and not when an understatement of

gross income resulted from an overstatement of basis.” 

Bakersfield Energy Partners, LP v. Commissioner, supra at 213

(paraphrasing Colony). 

The Court of Appeals for the Ninth Circuit affirmed our

opinion in Bakersfield, concluding that “Under Colony,

Bakersfield’s allegedly overstated basis is not an omission from

gross income under § 6501(e)(1)(A) or § 6229(c)(2).” Bakersfield

Energy Partners, LP v. Commissioner, 568 F.3d at 778. The Court

of Appeals for the Federal Circuit also recently held that Colony

controlled the disposition of a section 6501(e)(1)(A) case

involving a basis overstatement. Salman Ranch Ltd. v. United

States, __ F.3d __, __ (Fed. Cir., July 30, 2009) (slip op. at

28) (“Our holding today is consistent with the June 17, 2007

decision of the Ninth Circuit in [Bakersfield].”); see also Beard

v. Commissioner, T.C. Memo. 2009-184. We hereby reaffirm our
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5Respondent insists that we should not rely on Colony, Inc.

v. Commissioner, 357 U.S. 28, 33 (1958), asserting that the

Supreme Court did not interpret the applicable version of the

statute and that its holding was nevertheless limited to

situations involving trade or business income from the sale of

goods or services. As we stated in Bakersfield Energy Partners,

LP v. Commissioner, supra at 215, “We are unpersuaded by

respondent’s attempt to distinguish and diminish the Supreme

Court’s holding in [Colony].” Moreover even if we were to agree

with respondent, which we do not, we would be hesitant to

contradict the Supreme Court’s ruling in Colony. The Supreme

Court has advised lower courts that “If a precedent of this Court

[the Supreme Court] has direct application in a case, yet appears

to rest on reasons rejected in some other line of decisions, the

* * * [lower courts] should follow the case which directly

controls, leaving to this Court the prerogative of overruling its

own decisions.” Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477, 484 (1989).

holding in Bakersfield and decline respondent’s invitation to

overrule it.5

The Court has considered all of respondent’s contentions,

arguments, requests, and statements. To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing,

An order and decision for

petitioner will be entered.