Source: https://www.justice.gov/osg/brief/curr-spec-partners-lp-v-commissioner-opposition
Timestamp: 2019-04-18 11:22:05+00:00

Document:
1. Whether 26 U.S.C. 6229(a) provides only a minimum period for assessments attributable to partnership items and thus may extend, but not shorten, the statute of limi tations in 26 U.S.C. 6501(a) for assessments against indi vidual partners.
2. Whether the Tax Court has jurisdiction, in a partnership-level proceeding, to consider whether the stat ute of limitations for assessments attributable to partner ship items remains open for a particular partner.
The opinion of the court of appeals (Pet. App. 1a-22a) is reported at 579 F.3d 391. The opinion of the Tax Court (Pet. App. 23a-34a) is not reported but is re printed in 94 T.C.M. (CCH) 314.
The judgment of the court of appeals was entered on August 11, 2009. A petition for rehearing was denied on October 16, 2009 (Pet. App. 35a). The petition for a writ of certiorari was filed on January 14, 2010. The jurisdic tion of this Court is invoked under 28 U.S.C. 1254(1).
The relevant statutory provisions are reproduced in an appendix to this brief. App., infra, 1a-10a.
1. Partnerships are pass-through entities that do not pay federal income tax but are required to file annual information returns. 26 U.S.C. 6031; 26 C.F.R. 1.701-1, 1.6031-1(a)(1); United States v. Basye, 410 U.S. 441, 448 (1973). All income, gains, losses, de ductions, and credits are allocated among the individual partners, who must report the allocations on their indi vidual income-tax returns. 26 U.S.C. 701-704; Conway v. United States, 326 F.3d 1268, 1271 (Fed. Cir. 2003). Income tax is thus assessed against the individual part ners rather than against the partnership.
a. A unified procedure for determining the proper tax treatment of partnership items was established in Section 402(a) of the Tax Equity and Fiscal Responsibil ity Act of 1982 (TEFRA), Pub. L. No. 97-248, 96 Stat. 324, 648.1 Under TEFRA, the Internal Revenue Service (IRS or Service) must issue a notice of final partnership administrative adjustment (FPAA) in order to adjust items reported on a partnership return. See 26 U.S.C. 6223(a)(2) and (d)(2), 6225(a). The FPAA does not itself assess income tax, but once the FPAA becomes final, its adjustments to partnership items are allocated to the individual partners, and any resulting tax liability is assessed against them. See 26 U.S.C. 6201, 6225, 6230(a)(1).
Certain partners may contest the FPAA by filing a petition in (among other fora) the United States Tax Court. See 26 U.S.C. 6226(a)-(b). In that partnership- level proceeding, the Tax Court has "jurisdiction to determine all partnership items of the partnership for the partnership taxable year to which the [FPAA] re lates, the proper allocation of such items among the partners, and [penalties]." 26 U.S.C. 6226(f). "Partner ship item" is further defined by regulations promul gated by the Secretary of the Treasury at 26 C.F.R. 301.6231(a)(3)-1(b). In a partnership-level proceeding, the Tax Court is also authorized to determine whether a particular partner has no interest in the outcome of the proceeding because "the period of limitations for assessing any tax attributable to partnership items has expired with respect to [that partner]" 26 U.S.C. 6226(d)(1). The Tax Court's decision is subject to review in the court of appeals. 26 U.S.C. 7482.
b. The statute of limitations for tax assessments is set forth in 26 U.S.C. 6501. As relevant here, Section 6501(a) states that "the amount of any tax imposed by this title [26 U.S.C.] shall be assessed within 3 years after the return was filed." Section 6501(a) further pro vides that "the term 'return' means the return required to be filed by the taxpayer (and does not include a re turn of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit)." Sec tion 6501(n)(2) states: "For extension of period in the case of partnership items * * * , see section 6229." Section 6229(a), in turn, states that "the period for as sessing any [income tax] with respect to any person which is attributable to any partnership item (or af fected item) for a partnership taxable year shall not ex pire 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 (2) the last day for filing such return for such year (determined without regard to extensions)."
2. Curr-Spec Partners, L.P., was the vehicle for an abusive "Son-of-BOSS" tax shelter scheme. Pet. App. 23a.2 The IRS examined Curr-Spec's partnership return for the taxable year 1999 and determined, inter alia, that the partnership was a sham and should be disre garded for tax purposes. Id. at 24a. Accordingly, the Service issued an FPAA in 2004. Ibid. The Service rec ognized that although it was barred by the statute of limitations from assessing additional tax against the partners for 1999, the individual partners had claimed net operating losses attributable to partnership items, carried forward from 1999 to 2000 and later years, for which the assessment period remained open. Id. at 24a- 25a.
3. J. Winston Krause filed a petition in the Tax Court challenging the FPAA, conceding all issues except the timeliness of the FPAA. Pet. App. 2a-3a, 14a n.6. Krause did not dispute that the FPAA was issued within three years after the dates on which Curr-Spec's indi vidual partners had filed returns for 2000 and 2001 claiming losses carried forward from 1999 partnership items. Id. at 25a, 27a-28a. Rather, Krause argued that, regardless of the date of filing of a partner's individual return reporting items passed through to him from the partnership, 26 U.S.C. 6229(a) requires an FPAA to be issued within three years after the date the partnership return was filed. Pet. App. 6a-7a.
The Tax Court disagreed, relying on uniform author ity holding that Section 6229(a) does not "provide an assessment period that is independent of the period de scribed in [S]ection 6501." Pet. App. 27a (citing And antech L.L.C. v. Commissioner, T.C. Memo 2002-97, aff'd in part, 331 F.3d 972 (D.C. Cir. 2003); Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533, 540-551 (2000) (en banc),3 appeal dis missed, 249 F.3d 175 (3d Cir. 2001)). The court held that, although the assessment period for 1999 had ex pired for all partners, the period was still open for 2000 and 2001. Pet. App. 27a-29a. The Tax Court also re jected Krause's argument that it lacked jurisdiction to consider the dates on which the partners had filed their individual returns, explaining that its authority to do so was implicit in Rhone-Poulenc. Id. at 34a n.4. Follow ing that decision, Krause and the government stipulated to entry of a Tax Court decision conforming to the FPAA. Curr-Spec Partners, LP v. Commissioner, No. 1350-05 (May 28, 2008).
4. The court of appeals affirmed. Pet. App. 1a-22a. The court held that 26 U.S.C. 6229(a) does not establish an independent three-year limitations period within which an FPAA must be issued, but merely provides a minimum time period that may extend, but can never shorten, the three-year statute of limitations for assess ments contained in 26 U.S.C. 6501(a). Pet. App. 6a-10a. The court of appeals further held that the Tax Court had jurisdiction pursuant to 26 U.S.C. 6226(d)(1) to consider whether the partners' individual assessment periods under Section 6501(a) remained open. Pet. App. 5a-6a, 16a nn.19 & 20.
The court of appeals held that 26 U.S.C. 6229(a) pro vides only a minimum period for assessing tax attribut able to partnership items. Under that reading, Section 6229(a) can extend the limitations period provided in Section 6501(a) but can never shorten the period for an assessment of tax against an individual partner. That holding is correct and consistent with the holding of ev ery other court of appeals to consider the issue, as well as with the interpretation of Section 6229(a) adopted by the Tax Court sitting en banc.
The court of appeals further held that, under 26 U.S.C. 6226(d), the Tax Court had jurisdiction in this partnership-level proceeding to determine whether the Section 6501(a) limitations period had expired as to Curr-Spec's partners' 2000 tax year and thereafter. That holding is also correct. And even if Curr-Spec's contrary interpretation of Section 6226(d) were well- founded, neither Curr-Spec nor the individual partners could derive any advantage from a decision of this Court so holding. To the contrary, this Court's adoption of that reading would require dismissal of the Tax Court petition, leaving the FPAA (and the partners' resultant tax liabilities) undisturbed. Further review is not war ranted.
A. Curr-Spec contends that 26 U.S.C. 6229(a) is a statute of limitations, and that the FPAA at issue in this case was untimely because it was issued more than three years after the filing of the partnership return for the taxable year 1999. See, e.g., Pet. 8 (stating that "the Commissioner issued its FPAA purporting to change Curr-Spec's 1999 partnership tax return beyond the three-year period of 26 U.S.C. § 6229"). That reading of Section 6229(a) is incorrect and contrary to uniform ap pellate authority. Properly understood, Section 6229(a) can extend, but can never shorten, the limitations period (see 26 U.S.C. 6501(a)) for assessing an individual part ner's tax.
1. As every court of appeals to consider the question (including the court below) has held, Section 6229(a) is not a statute of limitations. By its terms, Section 6229(a) provides only that the period for assessing tax attributable to partnership items "shall not expire be fore" three years from the date the partnership return is due or filed. Section 6229(a) identifies no point after which assessment becomes impermissible, and it there fore cannot have the effect of barring an assessment that would otherwise be timely. Rather, it operates un der certain circumstances to extend the limitations pe riod in Section 6501(a), which provides (with exceptions not applicable here) that "any tax" imposed by the In ternal Revenue Code "shall be assessed within" three years after the filing of the individual's return. The cross-reference in Section 6501(n)(2)-which describes Section 6229 as an "extension of period"-confirms that understanding.
Thus, all taxes, including those arising from adjust ments to partnership items, generally must be assessed against an individual partner within three years after the date he filed his individual return. Section 6229(a) provides, however, that the assessment period for taxes attributable to partnership items cannot be less than three years after the filing date of the partnership return. If a partnership return is filed later than an individual partner's return, Section 6229(a) extends the period for assessing tax against the individual partner until three years after the partnership return is filed. Taken together, Sections 6229(a) and 6501(a) ensure that the Service has at least three years to examine a partner's return and the underlying partnership return together before it must act to assess any additional tax against a partner.
2. Every court of appeals to consider the matter has agreed that Section 6229(a) does not create an independ ent limitations period, but rather can only extend the limitations period in Section 6501(a). See Pet. App. 2a, 14a nn.3 & 4; AD Global Fund, LLC ex rel. North Hills Holding, Inc. v. United States, 481 F.3d 1351, 1354-1355 (Fed. Cir. 2007); Andantech L.L.C. v. Commissioner, 331 F.3d 972, 976-977 (D.C. Cir. 2003); see also Rhone- Poulenc Surfactants & Specialties, L.P. v. Commis sioner, 114 T.C. 533, 540-551 (2000) (en banc), appeal dismissed, 249 F.3d 175 (3d Cir. 2001).
None of the decisions cited by Curr-Spec or amicus SRK Wilshire Partners (SRK) holds otherwise. The court in one of those cases held that the challenged as sessment was untimely under all of the relevant provi sions. Callaway v. Commissioner, 231 F.3d 106 (2d Cir. 2000) (holding assessment untimely because all applica ble limitations periods, including 26 U.S.C. 6501(a), had expired). In other cases the courts held that the chal lenged assessments were timely under other provisions, and therefore had no occasion to consider whether Sec tion 6229(a) could operate as an independent limitations bar under different circumstances. See CC&F W. Oper ations Ltd. P'ship v. Commissioner, 273 F.3d 402 (1st Cir. 2001) (holding assessment timely under extended limitations period of 26 U.S.C. 6229(c)(2)); Madison Re cycling Assocs. v. Commissioner, 295 F.3d 280 (2d Cir. 2002) (holding assessment timely under agreed exten sion provision of 26 U.S.C. 6229(b)(1)); Monetary II Ltd. P'ship v. Commissioner, 47 F.3d 342, 343 (9th Cir. 1995) (same); Anderson v. United States (In re Anderson), No. 94-5165, 1995 WL 481196 (10th Cir. Aug. 8, 1995) (unpublished decision) (holding assessment timely under special limitations period of 26 U.S.C. 6229(f)), cert. de nied, 516 U.S. 1119 (1996). Still other decisions mention Section 6229(a) only incidentally in the course of resolv ing unrelated issues. See, e.g., Monahan v. Commis sioner, 321 F.3d 1063 (11th Cir. 2003) (addressing effect of settlement agreement).
B. Curr-Spec contends that the Tax Court lacked jurisdiction in this partnership-level proceeding to con sider the limitations issues in this case. That contention is not properly presented here because neither Curr- Spec nor the individual partners would obtain any tangi ble benefit if this Court agreed with Curr-Spec's juris dictional argument. In any event, Curr-Spec's conten tion that the Tax Court lacked jurisdiction is contradic ted by 26 U.S.C. 6226(d)(1), which expressly confers jurisdiction over the precise limitations issue presented here. Finally, even setting Section 6226(d)(1) aside, courts have long recognized that a limitations issue af fecting all individual partners-like the argument Curr- Spec makes-is a partnership item over which the Tax Court has jurisdiction in a partnership-level proceeding.
1. Curr-Spec's central contention is that "TEFRA jurisdiction flowing from [Section] 6226(f) bars" "indi vidual partner statutes of limitations under [Section] 6501(a) * * * from being litigated in Curr-Spec's partnership-level case below." Pet. 8. Even if that argu ment were legally sound, it would be entirely self-de feating, since it would mean that the Tax Court lacked jurisdiction to consider whether an assessment against any of the partners was time-barred. Because Krause conceded the FPAA's correctness in all other respects, the Tax Court would have been obliged to dismiss the petition Krause filed. And while Curr-Spec appears to assume that such a dismissal would have redounded to the partners' benefit, exactly the opposite is true: a dis missal would have left the FPAA undisturbed. See 26 U.S.C. 6226(h) ("If an action brought under this sec tion is dismissed * * *, the decision of the court dis missing the action shall be considered as its decision that the [FPAA] is correct."). Thus, even if this Court accepted Curr-Spec's jurisdictional argument, it would not affect the outcome of the partnership-level proceed ing.
2. In any event, the Tax Court did have jurisdiction to consider whether Curr-Spec's partners' individual assessment periods under Section 6501(a) remained open. If a given partner's assessment period had ex pired for all tax years, that partner would not have been a party to the Tax Court proceeding, and the FPAA would have been moot as to that partner. Section 6226 expressly contemplates, and authorizes the Tax Court to resolve, the question whether the period for assessing tax against a particular individual partner remains open.
As a baseline, Section 6226(c) provides that each per son who was a partner during the partnership taxable year shall be treated as a party to the proceeding chal lenging the FPAA. That provision is then qualified by Section 6226(d)(1)(B), which states that a partner shall not be treated as a party after "the period within which any tax attributable to [the adjusted] partnership items may be assessed against that partner expire[s]." Thus, if the FPAA will not affect a particular partner because that partner has a limitations defense to any assessment arising from adjustments in the FPAA, that partner cannot challenge the FPAA. In order to invoke Section 6226(d)(1)(B), however, the individual partner must appear in the partnership-level proceeding, and the court in that proceeding has jurisdiction to decide whether the limitations period for assessing tax against him remains open. See 26 U.S.C. 6226(d)(1) (providing that such a person "shall be permitted to participate * * * solely for the purpose of asserting that the period of limitations for assessing any tax attributable to part nership items has expired with respect to such person, and the court having jurisdiction of such action shall have jurisdiction to consider such assertion"); Pet. App. 6a; BLAK Invs. v. Commissioner, 133 T.C. No. 19, 2009 WL 4981301, at *4-5 (Dec. 23, 2009); G-5 Inv. P'ship v. Commissioner, 128 T.C. 186, 190-192 (2007); Kligfeld Holdings v. Commissioner, 128 T.C. 192, 207 (2007). That grant of jurisdiction helps to prevent the waste of limited judicial resources that could otherwise occur if the Tax Court decided the merits of an FPAA, only to find in subsequent partner-level proceedings (of which there could be many depending on the number of part ners) that no tax could be assessed based on the adjustments in the FPAA.
Curr-Spec's assertion that the limitations period had expired as to all partners is clearly covered by Section 6226(d)(1). Curr-Spec's only response (Pet. 10) is that the Tax Court may exercise its jurisdiction under Sec tion 6226(d)(1) only when a partner so requests. But Curr-Spec cites no authority for that one-sided reading, and the statutory text does not support it. Section 6226(d)(1) states that the court "shall have jurisdiction" to consider whether "the period within which any tax attributable to [the adjusted] partnership items may be assessed against that partner [has] expired." Moreover, Curr-Spec's interpretation of Section 6226(d)(1) would apparently permit a partner with no stake in the out come of the partnership-level proceeding to elect to par ticipate in it nevertheless. That would pose troubling standing questions for partnership-level proceedings in and appeals to Article III courts (where many such mat ters are heard, see 26 U.S.C. 6226(a)(2)-(3), (c) and (g), 7482). See Warth v. Seldin, 422 U.S. 490, 498-499 (1975) ("[T]he standing question is whether the plaintiff has 'alleged such a personal stake in the outcome of the con troversy' as to warrant his invocation of federal-court jurisdiction.") (quoting Baker v. Carr, 369 U.S. 186, 204 (1962)).
diction to determine all partnership items for the part nership taxable year to which the FPAA relates. Curr- Spec argues (Pet. 6-8) that the limitations issue here is not a "partnership item." But as Curr-Spec concedes, "eight and perhaps nine or ten Circuits * * * 'have reasoned that because the FPAA limitation issue af fects the partnership as a whole,'" it "thus is a partner ship item." Pet. 14 (emphasis added) (quoting Weiner, 389 F.3d at 156-157).
If it had been legally sound, the limitations defense that Curr-Spec asserted below-i.e., that any assess ments based on the FPAA in this case are barred by 26 U.S.C. 6229(a) because the FPAA was issued more than three years after the partnership return was filed-would have been a complete defense to the FPAA, applicable to all partners. That general applicability is the hallmark of a partnership item, and numerous courts have therefore treated similar limitations questions as partnership items. See Keener v. United States, 551 F.3d 1358, 1362-1364 (Fed. Cir.) (Section 6229(a)), cert. denied, 130 S. Ct. 153 (2009); AD Global, 481 F.3d 1351 (same); Andantech, 331 F.3d 972 (same); Weiner, 389 F.3d at 159 (same); see also Davenport Recycling Assocs. v. Commissioner, 220 F.3d 1255, 1259 & n.9 (11th Cir. 2000) (extension of limitations period as to all partners by agreement of tax management partner un der 26 U.S.C. 6229(b)(1)(B)); Kaplan v. United States, 133 F.3d 469, 473 (7th Cir. 1998) (same); Chimblo v. Commissioner, 177 F.3d 119, 125 (2d Cir. 1999) (reject ing taxpayers' untimely attempt to "raise the partner ship's statute of limitations defense") (emphasis added), cert. denied, 528 U.S. 1154 (2000).
Thus, contrary to amicus SRK's claim (Br. 8-10), the relevant appellate decisions uniformly treat limitations questions like the one at issue here as partnership items. Conversely, amicus's discussion of "cases that consid ered whether nonpartnership items may be determined in a partnership proceeding," Br. 8, is simply irrelevant, since none of the published decisions amicus cites (see Br. 14-15) casts doubt on Section 6229(a)'s status as a partnership item.
1 TEFRA has since been amended by, inter alia, the Tax Reform Act of 1984, Pub. L. No. 98-369, § 714(p), 98 Stat. 964, the Small Business Job Protection Act of 1996, Pub. L. No. 104-188, § 1307(c)(3)(B), 110 Stat. 1782, and the Taxpayer Relief Act of 1997, Pub. L. No. 105-34, §§ 1231-1243, 111 Stat. 1020-1029. TEFRA in its current form is codified at 26 U.S.C. 6221-6234.
2 The petition for a writ of certiorari names Curr-Spec Partners, L.P., as the petitioner. Although identified in the caption of the court of appeals' decision below, Curr-Spec was not a proper party to the proceedings. The partners, and not the partnership, are the parties in a proceeding challenging an FPAA. 26 U.S.C. 6226; Chef's Choice Pro duce, Ltd. v. Commissioner, 95 T.C. 388, 394-395 (1990). The Tax Court petition that commenced this case was filed by J. Winston Krause (counsel of record for Curr-Spec in this Court), who identified himself as "successor-in-interest" to Curr-Spec's tax matters partner, Curr- Spec Managers, LLC. Neither the partnership nor the LLC was still in existence at the time the Tax Court petition was filed, but Krause was a notice partner who could file a petition in his own right under 26 U.S.C. 6226(b). To avoid ambiguity, this brief will refer to "Curr- Spec" or "Krause" as appropriate.
3 For simplicity, we refer to decisions that were reviewed by the en tire Tax Court as having been decided "en banc." See Pet. App. 13a n.2.
4 Amicus SRK also points (Br. 6) to informal advice from the Ser vice's Chief Counsel, IRS CCA 200951035, 2009 WL 4884136 (June 24, 2009). Amicus misapprehends that advice. The actual advice, issued in response to an inquiry regarding partnership items in a tiered bank ruptcy, consisted of only a simple statement ("There is no conversion."). The remainder of the text on Westlaw, beginning with "CHAPTER 21," was merely an attachment copied from a bankruptcy manual that predated the D.C. Circuit decision in Andantech in 2003. The out-of- date attachment is not the Service's official position on the statute of limitations in TEFRA proceedings (26 U.S.C. 6110(k)(3)), much less a "tentative rejection by the IRS of a position it has litigated and won in a series of cases," as amicus claims (Br. 6). See Rhone-Poulenc, 114 T.C. at 543; Chief Counsel Notice, IRS CCN N(35)000-154, 1998 WL 34358890 (Oct. 19, 1998) (revoking Litigation Guideline Memorandum, IRS LGM TL-43, 1988 WL 898060 (Jan. 22, 1988)); Litigation Guideline Memorandum, IRS LGM 199905040, 1999 WL 50721 (Feb. 5, 1999).

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