Court Opinion

ID: 4474034
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:10:43.306509+00
Date Added: 2024-06-11T12:48:01.831634
License: Public Domain

Halpern, J., concurring in part and dissenting in part: I. Introduction I agree with the majority’s analysis of the relationship between sections 6229(a) and 6501 and its conclusions that (1) section 6229 and section 6501 provide alternative periods for the assessment of any tax attributable, to partnership items and affected items and (2) section 6229(a) provides a 3-year minimum period (the 3-year minimum period) for such assessments. I also agree with the majority that the question of whether there was adequate disclosure of any omitted income, which would negate the application of the 6-year limitations period provided by section 6501(e)(1)(A) (the 6-year period), raises genuine issues of material fact, making summary judgment improper. I do not agree with the majority that respondent’s issuance of a notice of final partnership administrative adjustment (fpaa) on September 12, 1997, 3 days prior to the expiration of the 6-year period (assuming that it does, in fact, apply in this case) suspended the running of such limitations period pursuant to section 6229(d). I concur, however, with the result reached by the majority (that the running of the 6-year period was suspended on September 12, 1997) because of the concurrent issuance of a notice of deficiency under section 6212(a).1  11. Dispute With the Majority Section 6229(d) provides that, upon the mailing of an FPAA to the tax matters partner, “the running of the period specified in subsection (a) * * * shall be suspended”. On the facts of this case, there are three candidates for “the period specified in subsection (a)” (the period specified in subsection (a)). They are: (1) The 3-year minimum period, which ended 3 years after the partnership return was filed, (2) the 6-year period, which ended 6 years after petitioner’s return was filed, and (3) the period that ended on the later to end of the 3-year minimum period and the 6-year period (the later-to-end period). The majority holds that the period specified in subsection (a) is the later-to-end period. I believe that it is the 3-year minimum period. That dispute would be academic, however, given the facts of this case, if the majority would adopt my analysis in the companion case, GAF Corp. & Subs. v. Commissioner, 114 T.C. 519 (2000), and overrule Maxwell v. Commissioner, 87 T.C. 783 (1986), and the cases that have followed it, to the extent that they hold that we lack subject matter jurisdiction to redetermine a deficiency in tax attributable to affected items until the related partnership proceeding (if any) is completed. If the majority were to do so, then it would be compelled to hold that the notice of deficiency issued in GAF Corp., not the FPAA, was valid to suspend the 6-year period, petitioner’s motion for summary judgment could still be denied, and this case could still proceed to determine whether, in fact, there was a 6-year period applicable under section 6501(e)(1)(A) and, if so, whether respondent’s proposed adjustments should be sustained on the merits. III. Discussion A. Introduction We must determine what Congress intended by its reference, in section 6229(d), to the period specified in subsection (a). I believe that both technical and policy considerations lead to the conclusion that it is the 3-year minimum period and not, as the majority holds, the later-to-end period. B. Section 6229(a) and (d) In pertinent part, section 6229(a) provides: the period for assessing any tax imposed by subtitle A with respect to any person which is attributable to any partnership item (or affected item) for a partnership taxable year shall not expire 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). In pertinent part, section 6229(d) provides that, if an FPAA is mailed to the tax matters partner, the running of the period specified in subsection (a) shall be suspended. The verb “to specify” means “to state explicitly or in detail”. The American Heritage Dictionary 1730 (3d ed. 1992). The only period explicitly set forth in subsection (a) of section 6229 is the 3-year minimum period. Indeed, the sole purpose of section 6229(a) is to “specify” a 3-year minimum period as an alternative to the section 6501 period under circumstances in which the latter expires sooner. The language of the statute (section 6229(d)), thus, plainly, refers to the 3-year minimum period. C. Notice of Deficiency Required To Suspend the Section 6501 Period I do not believe that, in adding the TEFRA partnership provisions,2 Congress changed the general rule that, in order to suspend the section 6501 period particular to any partner, respondent must mail to that partner a notice of deficiency. See sec. 6503(a)(1). The 3-year minimum period is a minimum period common to all of the partners. Partner-specific factors are irrelevant to a defense based on the expiration of the 3-year minimum period. Expiration of the 3-year minimum period is determined solely with reference to the filing of the partnership return. Any partner can defend for all the partners on the basis that the 3-year minimum period has expired. In other words, if a defense based on the expiration of the 3-year minimum period is raised in a partnership proceeding, any disposition of that defense is conclusive for all of the parties to the proceeding. The same cannot be said with respect to the later-to-end period. When the later-to-end period is the period of limitations prescribed by section 6501 for the assessment and collection of any tax (the section 6501 period), it is specific to each partner. Each partner is entitled to participate in the partnership proceeding for the purpose of asserting a period of limitations defense. See sec. 6226(d)(1). If the majority is correct that an FPAA issued to the tax matters partner can suspend each partner’s section 6501 period (with respect to partnership items and affected items), then each partner who believes that her section 6501 period had expired prior to the issuance of the FPAA will be required to defend against the FPAA. Indeed, unless all of the partners successfully raise a period of limitations defense against the FPAA, I assume that respondent would be entitled to continue the partnership action on the theory that there is at least one partner whose section 6501 period is still open. The majority has painted itself into a corner by refusing to reconsider Maxwell v. Commissioner, supra. See GAF Corp. & Subs. v. Commissioner, 114 T.C. 519 (2000). The majority does not agree that the period specified in subsection (a) is the 3-year minimum period because an FPAA issued thereafter would be ineffective to suspend any partner’s unexpired section 6501 period. Of course, I agree with the majority that it is unlikely that Congress intended to create a preassessment procedure for partners to contest partnership determinations that could be manipulated to frustrate, by delay, respondent’s ability to collect any tax. Nevertheless, absent any extension of the 3-year minimum period, once that period has expired, the unity of a single entity-level period of limitations is at an end. The partnership items will still be determined in a unified partnership proceeding, but a partner is a party to that proceeding only if the section 6501 period particular to that partner has not expired. See sec. 6226(d)(1). Section 6503(a)(1) specifically provides that the running of the section 6501 period shall be suspended after the mailing of a notice of deficiency under section 6212(a). In order for respondent to proceed against one or more partners, for deficiencies attributable to partnership items or affected items, beyond the 3-year minimum period, but within the partner’s section 6501 period, respondent should directly notify such partners of the partnership proceeding by notices of deficiency issued pursuant to section 6212.3 Assuming that I am right that Maxwell v. Commissioner, supra, is wrong, my approach presents a technically more straightforward approach to the statute.4  D. Other Technical Considerations The majority reads the reference to “the period described in subsection (a)” in paragraph (3) of section 6229(b) as a reference to the later-to-end period. Paragraph (1)(B) of that same section contains the identical language: “The period described in subsection (a) * * * may be extended * * * (B) with respect to all partners, by an agreement entered into by the Secretary and the tax matters partner * * *, before the expiration of such period.” (Emphasis added.) Because of the interplay between sections 6229(b) and 6227(b),5 it does not make sense to read section 6229(b)(1)(B) as referring to the later-to-end period. Section 6227(a)(1) generally provides a 3-year period of limitations on the filing of administrative adjustment requests (partnership refund claims). If a section 6229(b) agreement (which, by virtue of section 6227(b), operates to extend the period for making partnership refund claims) may be entered into at any time within the later-to-end period, and if that period is 6 years, for example, it will be possible for such section 6229(b) agreement to “extend” the 3-year limitations period on partnership refund claims even after that period has expired. That possibility exists because section 6227(b), unlike section 6511(c)(1) (which similarly extends the section 6511(a) 3-year limitations period on refund claims in general), is not specifically limited in its application to circumstances in which the agreement to extend the period for assessments was entered into during the basic 3-year limitations period on filing refund claims. That apparent difference (which also makes no sense) between sections 6227(b) and 6511(c)(1) disappears, however, if we interpret the reference in section 6229(b)(1) to “[t]he period described in subsection (a)” as a reference to the 3-year minimum period. The majority’s concern that respondent could be caught off guard if most, but not all, of the partners agree to extend the period of limitations during the 3-year minimum period (under section 6229(b)(1)(A), I assume), is easily remedied if respondent insists on an extension binding on all partners under section 6229(b)(1)(B). If no such extension is forthcoming, respondent can issue an FPAA and suspend the 3-year minimum period pursuant to section 6229(d). E. Policy Considerations My interpretation of Congress’ intent based on the plain language of section 6229(d) is consistent with what I believe Congress intended to accomplish in enacting the TEFRA partnership provisions. In Chefs Choice Produce, Ltd. v. Commissioner, 95 T.C. 388, 393 (1990), we described Congress’ intent as follows: In enacting the partnership audit and litigation procedures, Congress contemplated the use of a unified proceeding in which all items of partnership income, loss, deduction, or credit that affect each partner’s tax liability would be uniformly adjusted at the partnership level. * * * We reached the following conclusion: “In the litigation context, Congress adopted the so-called ‘entity theory’ of partnership jurisprudence.” Id. (quoting Tempest Associates, Ltd. v. Commissioner, 94 T.C. 794, 802 (1990)). My reading of the period specified in subsection (a) as the 3-year minimum period is consistent with the application of an entity theory to the litigation of partnership items. In my view, policy dictates that the period for issuing an FPAA that can automatically affect all of the partners should be the 3-year minimum period, which is keyed to the partnership return. Under the majority’s interpretation of the period specified in subsection (a) as the later-to-end period, the aggregation of partners, each asserting an individual defense to the administrative adjustment made by respondent to partnership items, is antithetical to the unified nature of a partnership proceeding. I would interpret section 6229(d) consistently with the entity theory of partnership reflected in Congress’ establishment of the 3-year minimum period. I would, therefore, interpret the phrase “the period specified in subsection (a)” as a reference to the 3-year minimum period. IV. Conclusion I believe that the better reading of section 6229(d) is that the period specified in subsection (a) is the 3-year minimum period. I reach the same result as the majority, however, because of my position in GAF Corp. & Subs. v. Commissioner, supra. Whalen and Beghe, JJ., agree with this concurring in part and dissenting in part opinion.   Without qualification, Judges Parr and Foley dissent from the majority’s opinion. They do not distinguish between the majority’s holdings that (1) with respect to the assessment of deficiencies attributable to partnership items and affected items, sec. 6229(a) provides an alternative, minimum period of limitations to the period set forth in sec. 6501(a), and (2) the Sept. 12, 1997, notice of final partnership administrative adjustment suspended the running of the 6-year period (assuming it is applicable). I agree with the majority’s first holding. With respect to that holding, Judges Parr and Foley, apparently believing that the statute is clear on its face, have failed to answer the majority’s analysis that sec. 6501(a) unequivocally provides the period of limitations within which the amount of any tax shall be assessed and, with respect to tax attributable to partnership items and affected items, sec. 6229(a) merely provides that such sec. 6501 period shall not expire “before” a certain date. Moreover, sec. 6222(a) provides that a partner shall, on the partner’s return, treat a partnership item consistently with the treatment of that item on the partnership’s return (the consistency requirement). Failure to comply with the consistency requirement opens the partner to the immediate assessment of any deficiency attributable to such inconsistency. See sec. 6222(c). Failure to comply with the consistency requirement is not taken into account under sec. 6229. Therefore, if, as Judges Parr and Foley imply, sec. 6229 provides the exclusive period of limitations for assessing tax with respect to partnership items and affected items, inconsistent treatment of partnership items provides no basis for an extended period of limitations under sec. 6501. It is difficult to believe that Congress intended such a result in the case of a fraudulent inconsistency or an inconsistency resulting in a substantial omission of income. See sec. 6501(c)(1), (e)(1).    Sec. 402(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, 648, added subch. C to ch. 63, subtit. F of the Internal Revenue Code (the TEFRA partnership provisions). The TEFRA partnership provisions now comprise secs. 6221 through 6234.    1 assume that respondent would make a preliminary determination that the partners to whom he would send such notices of deficiency do, indeed, have open sec. 6501 periods.    I recognize that the deficiency procedures provided for in subch. B, ch. 63, subtit. F of the Internal Revenue Code (subch. B) do not generally apply to the assessment and collection of any computational adjustment resulting from a partnership proceeding. See sec. 6230(a)(1). Unless subch. B applies, respondent may have no authority to send the notice of deficiency contemplated in sec. 6212(a). Without such authority (which, here, respondent apparently does have), the sending of the notice of deficiency might not be effective under sec. 6503(a)(1) to suspend the sec. 6501 period. That may be an appropriate result, however, since no partner-level determination is required.    Sec. 6227(b) provides: SEC. 6227(b). Special Rule in Case of Extension of Period of Limitations Under Section 6229. — The period prescribed by subsection(aXl) for filing of a request for an administrative adjustment shall be extended— (1) for the period within which an assessment may be made pursuant to an agreement (or any extension thereof) under section 6229(b), and (2) for 6 months thereafter.