Source: https://law.justia.com/cases/federal/appellate-courts/F3/321/1063/539698/
Timestamp: 2019-11-12 23:02:37
Document Index: 275095460

Matched Legal Cases: ['§ 701', '§ 402', '§ 6231', '§ 301', '§ 6231', '§ 6225', '§ 6231', '§ 6651', '§ 6653', '§ 6229', '§ 6229', '§ 6226', '§ 6231', '§ 6226', '§ 6226']

Rosalie Monahan, Individually and in Her Capacity As Executrix of the Estate of Dean R. Monahan, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 321 F.3d 1063 (11th Cir. 2003) :: Justia
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Rosalie Monahan, Individually and in Her Capacity As Executrix of the Estate of Dean R. Monahan, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 321 F.3d 1063 (11th Cir. 2003)
US Court of Appeals for the Eleventh Circuit - 321 F.3d 1063 (11th Cir. 2003) February 13, 2003
Prior to 1982, "multiple proceedings were required to address the tax treatment of partnership issues, because partnerships are not separately taxable entities and partnership income and expenses `pass through' to the individual partners." Chimblo v. Commissioner, 177 F.3d 119, 121 (2d Cir. 1999) (citing IRC §§ 701, 6031). In 1982, however, Congress, as part of the Tax Equity and Fiscal Responsibility Act ("TEFRA"), see Pub. L. No. 97-248, § 402(a), 96 Stat. 324, enacted the "unified partnership audit examination and litigation provisions of the Internal Revenue Code...." Chimblo, 177 F.3d at 121. The partnership provisions in TEFRA "centralized the treatment of partnership taxation issues, and `ensure [d] equal treatment of partners by uniformly adjusting partners' tax liabilities.'" Id. (quoting Kaplan v. United States, 133 F.3d 469, 471 (7th Cir. 1998)).
The centralized procedures under TEFRA apply only to "partnership items." A "partnership item" is "any item required to be taken into account for the partnership's taxable year ... [that] is more appropriately determined at the partnership level than at the partner level." IRC § 6231(a) (3). According to the regulations implementing TEFRA adopted by the Treasury Department, partnership items "include the income, gains, losses, deductions, and credits of the partnership," as well as "distributions received and contributions made by it." Monti v. United States, 223 F.3d 76, 82 (2d Cir. 2001) (citing 26 C.F.R. § 301.6231(a) (3)-1).
Because Barrister passed through all its losses and credits to the individual partners, the IRS then sought to recover the disallowed tax credits and losses from the individual partners. "Changes in the tax liabilities of individual partners which result from the correct treatment of partnership items determined at the partnership level proceeding are defined under TEFRA as `computational adjustments.'" Chimblo, 177 F.3d at 121 (citing IRC § 6231(a) (6)). After the Tax Court resolved the issue of whether Barrington could claim the disputed losses and credits, the IRS issued a computational adjustment pursuant to IRC § 6225 against the individual partners, including the Taxpayers. The computational adjustment assessed against the Taxpayers here for their distributive share of the disallowed losses and credits claimed was $41,412. That adjustment is not at issue in this case.
What is at issue are the additional tax consequences flowing from the computational adjustment assessed against the Taxpayers, the so-called "affected items." TEFRA defines an "affected item" as "any item to the extent such item is affected by a partnership item." IRC § 6231(a) (5). "Penalties assessed against a partner based on the partner's tax treatment of partnership items on his individual return are examples of affected items." Chimblo, 177 F.3d at 121 (citations omitted). Unlike disputes over losses and credits claimed by the partnership, which are addressed at the partnership level, issues relating to affected items are addressed at the individual partner level. See Chimblo, 177 F.3d at 121.
Here, on May 3, 1996, just four days after the IRS assessed its computational adjustment against the Taxpayers in connection with the Barrister proceeding, it sent to the Taxpayers an "affected-items notice of deficiency" with respect to their 1982 return. This notice claimed that the Taxpayers were individually liable for the following: (1) a penalty for the late-filing of their 1982 return under IRC § 6651(a) (1); (2) a penalty for negligence under IRC § 6653(a) (1) and (2); and (3) a penalty for substantial underpayment of taxes. The notice also indicated that Taxpayers were liable for interest that had accrued on the penalties, and that an increased rate of interest was necessary due to the fact that the penalties resulted from a "tax-motivated transaction."5
We agree with the Tax Court and conclude that the Piggyback Agreement constitutes a settlement agreement that effectively resolves all disputed issues in this matter. "Principles governing general contract law apply to interpret settlement agreements." Resnick v. Uccello Immobilien GMBH, Inc., 227 F.3d 1347, 1350 (11th Cir. 2000) (citations omitted). The first step in construing an agreement is to determine whether the language is ambiguous. See Grun v. Pneumo Abex Corp., 163 F.3d 411, 420 (7th Cir. 1998) (citations omitted); Jones v. Georgia Pacific Corp., 90 F.3d 114, 115-16 (5th Cir. 1996). If the agreement is found to be free of ambiguity, its meaning can be declared by the court without the use of extrinsic evidence. See Neuma, Inc. v. AMP, Inc., 259 F.3d 864, 873 (7th Cir. 2001). Like the court below, we believe that the intent of the Piggyback Agreement is clear and that the Taxpayers, by entering into this agreement, effectively waived their right to raise any additional defenses in this matter.
TEFRA provides a mechanism to suspend the statute of limitations with respect to the individual partners to dovetail with the proceedings at the partnership level. Normally, the period for assessing any tax with respect to a partnership item for a specific partnership taxable year is three years from the date the partnership return is filed. 26 U.S.C. § 6229(a). Under 26 U.S.C. § 6229(b) (1) (B), however, the partnership's tax matters partner can agree to extend that period for all partners. Once the notice of FPAA with respect to a given tax year is sent to the tax matters partner, the statute of limitations is suspended for the period in which a petition for readjustment of the partnership items under 26 U.S.C. § 6226 is being reviewed, and for one year thereafter
A partnership's tax matters partner is usually either the person or entity designated to represent the partnership in tax matters or the general partner who had the largest interest in the partnership for the tax year at issue See IRC § 6231(a) (7).
If the tax matters partner fails to file a petition within the 90-day period, any partner notified of the proceeding can then file a petition in the same venues within 60 days. IRC § 6226(b) (1). Moreover, in keeping with TEFRA's goal of resolving partnership taxation issues in a single, consolidated proceeding, any partner with an interest in the outcome of a partnership-level proceeding can participate in an action brought by the tax matters partner See Chimblo, 177 F.3d at 121 (citing IRC §§ 6226(c) and (d)).
This argument was made for the first time after Chimblo was decided, after the IRS had moved for entry of decision in this case based on Chimblo, after Taxpayers had objected to the entry of decision on other grounds, and after the Tax Court had held a hearing on the IRS's motion and the Taxpayers' objections on January 23, 2001. The argument was first raised in a post-hearing brief filed on March 26, 2001.
After examining the briefs and record in this case, we have concluded that oral argument is unnecessary See Fed. R. App. P. 34(a) (2).