Opinion ID: 4528264
Heading Depth: 2
Heading Rank: 1

Heading: tefra’s statutory framework

Text: This appeal concerns determining the applicable statute of limitations for GMI’s administrative refund claims— the six-month limitations period under § 6230(c) or the general two-year limitations period under § 6511(a)—and then determining whether that limitations period began to run when the IRS provided GMI with certain notices of the amounts of LCU interest it owed. Before turning to the facts, we undertake a brief review of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), generally codified at I.R.C. §§ 6221–34, and its effect on the IRS’s auditing of partnerships. A partnership does not pay federal income taxes; instead, its taxable income and losses pass through to its partners. I.R.C. § 701. A partnership must report its tax items on an information return, I.R.C. § 6031(a), and the partners must report their distributive shares of the partnership’s tax items on their own individual returns, I.R.C. §§ 702, 704. TEFRA comes into play when the IRS reviews a partnership’s information return and disputes some aspect of it. Bush v. United States, 655 F.3d 1323, 1324–25 (Fed. Cir. 2011). Case: 19-1124 Document: 42 Page: 4 Filed: 04/23/2020 4 GENERAL MILLS, INC. v. UNITED STATES “Partnership items” are items whose treatment affects the entire partnership such as the partnership’s income, gain, loss, or credit, and so analyzing them at the partnership level makes more sense than doing so partner-by-partner. See § 6231(a)(3) (defining “partnership item”); Treas. Reg. §§ 301.6231(a)(3)–1(a), 1(b). Prior to the 1982 enactment of TEFRA, the Internal Revenue Code treated partnership items at the individual partner level. Adjustments to the tax treatment of partnership items had to be determined in separate proceedings involving each individual partner. Olson v. United States, 172 F.3d 1311, 1316 (Fed. Cir. 1999). If a partnership had numerous partners located throughout the country, the piecemeal nature of the individual partner-level determinations sometimes resulted in inconsistent treatment of the same items between different partners and in duplication of administrative and judicial resources. Id.; Bassing v. United States, 563 F.3d 1280, 1282 (Fed. Cir. 2009); see also RJT Investments X v. Comm’r, 491 F.3d 732, 737 (8th Cir. 2007) (“TEFRA was intended . . . to prevent inconsistent and inequitable income tax treatment between various partners of the same partnership resulting from conflicting determinations of partnership level items in individual partner proceedings.”). Consequently, TEFRA was enacted in order to streamline the tax audit, assessment, and litigation procedures for partnerships. Bush, 655 F.3d at 1325. Rather than undertake an arduous series of partner-by-partner audits, as had previously been required, TEFRA allows for a single, unified partnership-level procedure for auditing and litigating partnership items, thus addressing concerns about inconsistent treatment of the same partnership items across partners. Id.; Stobie Creek Investments LLC v. United States, 608 F.3d 1366, 1374 (Fed. Cir. 2010). Partnership-related matters are addressed in two stages under TEFRA: partnership level and then individual partner level. United States v. Woods, 571 U.S. 31, 39 Case: 19-1124 Document: 42 Page: 5 Filed: 04/23/2020 GENERAL MILLS, INC. v. UNITED STATES 5 (2013). During the first stage, the IRS initiates a partnership-level proceeding to adjust partnership items reported on the partnership’s information return. Id.; § 6221. Each partner has the right to participate in the IRS’s audit of the partnership’s information return. Olson, 172 F.3d at 1317; see § 6224(a). A partner may waive this right and opt out of the partnership-level proceeding by entering into a binding settlement agreement with the IRS. Olson, 172 F.3d at 1317; see §§ 6224(b), (c). Upon completion of the partnership-level proceeding, the IRS is required to mail to certain partners a copy of the resulting final partnership administrative adjustment, which notifies the partners of any adjustments to partnership items. Olson, 172 F.3d at 1317; see § 6223. During the second stage, the results of the partnershiplevel proceeding are applied to the individual partners. In the partner-level proceeding, the IRS makes “computational adjustments” to each partner’s return to reflect the adjustments to partnership items. See § 6231(a)(6) (defining “computational adjustment” as “the change in the tax liability of a partner which properly reflects the treatment under this subchapter of a partnership item”). The partner-level proceedings subsequently follow one of two procedures: direct assessment or deficiency procedure. Thompson v. Comm’r, 729 F.3d 869, 871 (8th Cir. 2013). Most computational adjustments are directly assessed against the partners. Woods, 571 U.S. at 39. If the IRS’s calculation is purely computational, the IRS directly assesses the computational adjustment and issues to the partner a notice of computational adjustment. Chai v. Comm’r, 851 F.3d 190, 196 (2d Cir. 2017). For direct assessments, the partners are permitted to challenge any error in the computational adjustments only in post-payment refund actions. Woods, 571 U.S. at 39; see §§ 6230(a)(1), (c). TEFRA added the provisions providing for direct assessment in order “to increase efficiency when the IRS audits Case: 19-1124 Document: 42 Page: 6 Filed: 04/23/2020 6 GENERAL MILLS, INC. v. UNITED STATES partnership returns that may affect a large number of individual taxpayers.” Bush, 655 F.3d at 1328; see § 6230(a). The “standard” deficiency procedures are still required for certain computational adjustments that require a factual determination at the partner level, such as, for example, a determination of negligence by the partner. Olson, 172 F.3d at 1317; see § 6230(a)(2)(A)(i). The deficiency procedures, set forth in I.R.C. §§ 6211–16, require the IRS to issue a pre-assessment notice of deficiency to each taxpayer, § 6212(a), who can file a petition in the Tax Court disputing the alleged deficiency before paying it, § 6213(a). Woods, 571 U.S. at 38. For those computational adjustments that are directly assessed against them, the partners may challenge any error in the computational adjustments by filing administrative refund claims with the IRS. See §§ 6230(a)(1), (c). For certain types of these administrative refund claims, § 6230(c) requires the taxpayer to “file[] within 6 months after the day on which the Secretary mails notice of computational adjustment to the partner.” § 6230(c)(2)(A). 1 With this legal framework in mind, we turn to the facts. 1 In the Bipartisan Budget Act of 2015, Congress amended the TEFRA procedures and struck § 6230(c)(2)(A), the provision that set forth the six-month limitations period. Pub. L. No. 114–74, § 1101, 129 Stat. 584, 625. The Bipartisan Budget Act reformed the partnership auditing procedures such that, in addition to making adjustments to partnership items at the partnership level, any additional tax liability resulting from those adjustments are assessed and collected from the partnership at the partnership level, rather than from the individual partners in the partner-level proceedings. BASR P’ship v. United States, 915 F.3d 771, 775 n.6 (Fed. Cir. 2019). The Bipartisan Budget Act is effective only for partnership tax Case: 19-1124 Document: 42 Page: 7 Filed: 04/23/2020 GENERAL MILLS, INC. v. UNITED STATES 7