Court Opinion

ID: 4474032
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:10:43.226928+00
Date Added: 2024-06-11T12:48:01.805552
License: Public Domain

Halpern, J., dissenting: I. Introduction This case is a companion to Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533 (2000) (Rhone-Poulenc). In Rhone-Poulenc, I agree with the majority that section 6229(a) provides a minimum period for the assessment of any tax attributable to any partnership item or affected item and not the exclusive period for the assessment of such tax, but I disagree with the majority that the notice of final partnership administrative adjustment (fpaa) issued in that case was timely under section 6229(a) to suspend “the period for assessing any tax imposed by subtitle A”. I concur in the result reached by the majority, however, because the taxpayer in Rhone-Poulenc has failed to show that the notice of deficiency issued to petitioner in this case (the notice of deficiency) was not timely issued under section 6503(a)(1) to suspend the running of the period of limitations provided in section 6501 for the assessment of a deficiency attributable to affected items requiring partner-level determinations (arguably 6 years, under the facts of this case and section 6501(e)(1)). My disagreement with the majority in this case is over whether the notice of deficiency (dealing only with affected items) is invalid because it was issued prior to the completion of the related partnership proceeding. I respectfully dissent from the majority’s holding, rooted in Maxwell v. Commissioner, 87 T.C. 783 (1986), that the notice of deficiency is invalid so as to require that we grant petitioner’s motion for summary judgment. II. Maxwell v. Commissioner The majority relies on Maxwell v. Commissioner, supra, and cases following it (the Maxwell line of cases) for the proposition that we lack subject matter jurisdiction to redetermine a deficiency attributable to affected items until the related partnership proceeding (if any) is completed. The majority concludes that a notice of deficiency is invalid as to affected items if issued before the conclusion of the related partnership proceeding. In the Maxwell line of cases, we relied upon the overriding principle that, in enacting the TEFRA partnership provisions,1 “Congress intended administrative and judicial resolution of disputes involving partnership items to be separate from and independent of disputes involving non-partnership items.” Maxwell v. Commissioner, supra at 788. I believe, however, that we erred in the Maxwell line of cases when, in effect, we made separation and independence synonymous with jurisdiction. III. Jurisdiction A. Introduction Subchapter B, chapter 63, subtitle F of the Internal Revenue Code (subchapter B) comprises sections 6211 through 6216, and it contains the deficiency procedures applicable to the income tax. In pertinent parts, section 6211 defines a deficiency, section 6212 provides for a notice of deficiency, section 6213(a) gives a taxpayer the right to file a petition with the Tax Court for a redetermination of the deficiency, and section 6214(a) establishes our jurisdiction to redetermine the correct amount of any deficiency. Section 6230(a)(2)(A)(i) provides: “Subchapter B shall apply to any deficiency attributable to — (i) affected items which require partner level determinations”. By the notice of deficiency, respondent determined a deficiency attributable to affected items requiring a partner-level determination. Petitioner timely filed the petition, assigning error to respondent’s determination of that deficiency. In Hannan v. Commissioner, 52 T.C. 787, 791 (1969), we stated: “it is not the existence of a deficiency but the Commissioner’s determination of a deficiency that provides a predicate for Tax Court jurisdiction.” (Emphasis added.) See also LTV Corp. v. Commissioner, 64 T.C. 589, 591 (1975). The majority ignores the imperative language of section 6230(a)(2)(A)(i) (“Subchapter B shall apply to * * * affected items”), which, when read in conjunction with subchapter B, establishes our subject matter jurisdiction over the deficiency determined in the notice of deficiency. B. Maxwell Line of Cases The majority disposes of this case without any critical analysis of the Maxwell line of cases. The facts here are different from those in Maxwell, and a consideration of that difference exposes the error of our interpretation in Maxwell: if we dismiss for lack of jurisdiction here, respondent will suffer a consequence that we did not foresee in any of the Maxwell line of cases.2 A reasonable interpretation of the statute does not require that we dismiss this type of case for lack of jurisdiction, only that, if necessary, we defer proceeding until consideration of the affected items is appropriate. Cf. Harris v. Commissioner, 99 T.C. 121, 128 (1992), affd. 16 F.3d 75 (5th Cir. 1994) (recognizing the propriety of deferring entry of decision to consider affected items). Indeed, petitioner and the participating partner in Rhone-Poulenc have agreed to a consolidation for trial if both cases are to go to trial. In Maxwell v. Commissioner, supra, we struck affected items from the petition for lack of jurisdiction to determine those items. We made specific reference to section 6229(a) as extending the period of limitations for assessing tax attributable to affected items. See id. at 791 n.6, 793. In addition, after stating that resolution of the affected items “must await the outcome of the partnership proceeding”, we observed: “Apparently, in these circumstances respondent may issue a second notice of deficiency to the partner determining an additional deficiency attributable to ‘affected items.’” Id. at 792. We also noted that the Commissioner and the tax matters partner had agreed to extend the section 6229(a) period for assessing any tax attributable to any partnership item or affected item. See sec. 6229(b); Maxwell v. Commissioner, supra at 786. Thus, in Maxwell, we recognized that the Commissioner suffered no serious disadvantage on account of our striking the affected items from the petition. If the Commissioner had issued the FPAA before the extended section 6229 period expired, that period would have been suspended as provided for in section 6229(d). Moreover, the Commissioner was not prevented from issuing another notice of deficiency. See sec. 6230(a)(2)(C). If, as I have concluded, the FPAA issued in Rhone-Poulenc did not suspend the section 6501(e)(1)(A) limitations period (assuming it is ultimately found to be applicable in this case), this case does not fit within the statutory pattern that applied in Maxwell v. Commissioner, supra, because the section 6229 3-year minimum period has already expired. If we strike the affected items from the petition in this case (leaving no deficiency in tax for redetermination), invalidate the notice, and dismiss the case in petitioner’s favor, we are, in effect, deciding the partnership case in favor of the participating partner. Stated another way, the substantive dispute in the partnership' case would already have become moot because respondent would be precluded from assessing any computational adjustments.3 That possibility leads me to reject the majority’s adoption of the Maxwell rationale that Congress intended a full resolution of partnership items before any affected items notice of deficiency could validly be issued. In the Maxwell line of cases, we held the notice of deficiency to be "invalid” and dismissed the petition for lack of jurisdiction on the ground that the notice and the petition, to the extent they involved affected items, were premature because the partnership-level proceeding had not as yet been completed. In my view, the approach taken by the Court in those cases represented no more than a rational and convenient method of separating and ordering the partnership- and partner-level proceedings. It was not mandated, however, by the absence of a final decision on the merits in the partnership proceeding. Nothing in the statute predicates our jurisdiction to redetermine deficiencies attributable to affected items requiring partner-level determinations on such finality. See supra sec. III.A. Indeed, we have easily found within our jurisdiction the redetermination of deficiencies attributable to affected items requiring partner-level determinations that were independent of a partnership-level proceeding. See Jenkins v. Commissioner, 102 T.C. 550 (1994); Roberts v. Commissioner, 94 T.C. 853 (1990). The notice of deficiency is valid, and we have no grounds to dismiss for lack of jurisdiction. In a Maxwell type of case, I would simply postpone consideration of the affected items until it was appropriate to consider them.4  IV. Conclusion Congress enacted the tefra partnership provisions to separate the determination of partnership items from the determination of nonpartnership items. Nevertheless, it bears remembering that the partnership pays no tax, and it is the partners’ tax liabilities that are at stake. The partners are obligated to pay the correct tax and are entitled to contest any computational adjustment requiring partner-level determinations in this Court. Without a clear indication of congressional purpose, we should not construe the statute so as to allow the partners to avoid a computational adjustment that ultimately may prove to be justified on the merits. I would 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. Whalen and Beghe, JJ., agree with this dissent.   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.    This assumes that I shall be vindicated in my interpretation of sec. 6229(d). See Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533, 558 (2000) (Halpern, J., concurring in part and dissenting in part).    In this case, the 6-year period provided for in sec. 6501(e)(1)(A) had only 3 days to run when respondent issued the statutory notice and, concurrently, issued to the tax matters partner the final partnership administrative adjustment (FPAA). But even in a case where the FPAA was issued months, or even years, prior to the expiration of the applicable sec. 6501 period of limitations, unless within the minimum period of sec. 6229(a), the Commissioner, in order to suspend the sec. 6501 period, may have to issue a notice of deficiency before the FPAA is resolved.    The circumstances of this case are analogous to those in which our jurisdiction over a tax controversy is stayed by the taxpayer’s filing a petition in bankruptcy. Until the close of the bankruptcy case, or earlier lifting of the stay, we suspend (and do not terminate) our consideration of the case. See 11 U.S.C. sec. 362 (1994); Freytag v. Commissioner, 110 T.C. 35, 39 (1998).