Court Opinion

ID: 24738
Source: CourtListenerOpinion
Date Created: 2010-04-25 08:25:49+00
Date Added: 2024-06-11T11:49:53.801112
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT

                       _____________________

                           No. 00-60813

                          Summary Calendar
                       _____________________

     COLUMBIA/ST DAVID’S HEALTHCARE SYSTEM LP; ET AL

                                    Petitioners

     ST DAVID’S HEALTHCARE SYSTEM, INC

                                    Petitioner-Appellant

          v.

     COMMISSIONER OF INTERNAL REVENUE

                                    Respondent-Appellee

_________________________________________________________________

                 Appeal from the Decision of the
                      United States Tax Court
                             (7005-00)
_________________________________________________________________
                           June 19, 2001

Before KING, Chief Judge, and JONES and STEWART, Circuit Judges.

PER CURIAM:*

     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
     Petitioner-Appellant St. David’s Health Care System, Inc.

appeals from the Tax Court’s judgment, which granted Respondent-

Appellee the Commissioner of Internal Revenue’s motion to dismiss

for lack of jurisdiction.    For the following reasons, we AFFIRM.

                  I. FACTUAL AND PROCEDURAL HISTORY

     Petitioner-Appellant St. David’s Health Care System, Inc.

(“St. David’s”), a not-for-profit corporation, is a partner in

Columbia/St. David’s Healthcare System, L.P. (the “Partnership”).

The Partnership was formed for the purpose of owning and

operating hospitals and related health care facilities in Austin,

Texas.   St. David’s is a notice partner in the Partnership, as

defined by § 6231(a)(8) of the Internal Revenue Code (the

“Code”).    See I.R.C. § 6231(a)(8) (2000).1   Round Rock Hospital,

Inc. (“Round Rock”) is also a member of the Partnership and is

the Tax Matters Partner (the “TMP”).     As the TMP, Round Rock is

the primary liaison between the Partnership and the Internal

Revenue Service (the “IRS”) on all tax matters relating to the

Partnership.    See id. § 6231(a)(7).2

     1
        Section 6231(a)(8) defines a “notice partner” as “a
partner who, at the time in question, would be entitled to notice
under subsection (a) of section 6223.” I.R.C. § 6231(a)(8).
     2
           Section 6231(a)(7) provides in relevant part:

     The tax matters partner of any partnership is--
     (A) the general partner designated as the tax matters
     partner as provided in regulations, or
     (B) if there is no general partner who has been so
     designated, the general partner having the largest
     profits interest in the partnership at the close of the

                                  2
     On December 31, 1996, the Partnership’s taxable year for

1996 ended, and the Partnership timely filed its 1996 tax return

with the IRS.   The IRS audited the return during the years of

1998 through 2000.   On January 27, 2000, the IRS issued to the

TMP a notice of final partnership administrative adjustment

(“FPAA”), which, as required under the Code, was then delivered

to all notice partners of the Partnership, including St. David’s.

See I.R.C. § 6223(a).   The FPAA made adjustments to several

partnership items contained within the Partnership’s 1996 return.

One of the adjustments was an increase in the Partnership’s

taxable income in the amount of $14,445,441, which resulted from

the disallowance of a bad-debt deduction with respect to St.

David’s precontribution allowance for bad debts.    A second

adjustment was a $1,995,335 modification to a disguised sale.

     Section 6226(a)(1) of the Code provides that, within ninety

days of the date on which a notice of FPAA is mailed to the TMP,

the TMP “may file a petition for a readjustment of the

partnership items for such taxable year” with the Tax Court, the

appropriate district court, or the Court of Federal Claims.       See

I.R.C. § 6226(a)(1).    On April 25, 2000, the TMP filed such a

petition for readjustment, seeking readjustment of the IRS’s

     taxable year involved (or, where there is more than 1
     such partner, the 1 of such partners whose name would
     appear first in an alphabetical listing).

I.R.C. § 6231(a)(7).

                                  3
disguised sale adjustment.    Then, on June 22, 2000, St. David’s,

as a notice partner, filed a separate petition for readjustment

in the Tax Court, seeking readjustment with respect to the bad-

debt deduction.

     The Respondent-Appellant the Commissioner of Internal

Revenue (the “Commissioner”) filed a motion to dismiss the

readjustment petition filed by St. David’s, arguing that the Tax

Court lacked jurisdiction over the petition because of the TMP’s

previously filed petition, which concerned the same FPAA.      The

Tax Court granted the Commissioner’s motion to dismiss.

     St. David’s timely appealed.

                     II. STANDARD OF REVIEW

     We review a decision of the Tax Court by applying the same

standards employed in reviewing a decision of a district court in

civil actions tried without a jury.    See Street v. Commissioner,

152 F.3d 482, 484 (5th Cir. 1998); see also I.R.C. § 7482.

Accordingly, we review the Tax Court’s grant of a motion to

dismiss for lack of subject-matter jurisdiction de novo.       See

Rodriguez v. Texas Comm’n on the Arts, 199 F.3d 279, 280 (5th

Cir. 2000); EP Operating Ltd. P’ship v. Placid Oil Co., 26 F.3d

563, 566 (5th Cir. 1994).    We must take as true all of the

complaint’s uncontroverted factual allegations, see Saraw P’ship

v. United States, 67 F.3d 567, 569 (5th Cir. 1995), and will

affirm the dismissal if “‘the court lacks the statutory or

                                  4
constitutional power to adjudicate the case.’”    Home Builders

Ass’n v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir.

1998) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d

1182, 1187 (2d Cir. 1996)).

    III. THE TAX COURT DID NOT HAVE JURISDICTION TO HEAR THE

           READJUSTMENT PETITION FILED BY ST. DAVID’S

     The issue before us on appeal is whether St. David’s, as a

partner other than the TMP, was entitled to file and adjudicate a

readjustment petition contesting the IRS’s adjustment of

partnership items in a FPAA after the TMP had previously filed a

readjustment petition concerning the same FPAA.   St. David’s

argues that it is entitled to file such a petition because its

petition concerned readjustment of a partnership item unrelated

to the partnership item contested in the TMP’s petition.    The Tax

Court held that “because a valid, timely petition was previously

filed by the tax matters partner,” the court had no jurisdiction

over the readjustment petition filed by St. David’s.    We agree

and also conclude, as did the Tax Court, that the readjustment

requested by St. David’s may be “addressed in the unified TEFRA

partnership proceedings” already pending before the Tax Court.

                   A. The Statutory Framework

     To simplify procedures for determining the tax liability of

the individual partners of a partnership, in the Tax Equity and

Fiscal Responsibility Act of 1982 (the “TEFRA”), Congress added

                                5
sections 6221 through 6232 to the Code.       See Pub. L. No. 97-248,

§ 402, 96 Stat. 324 (1982); see also Transpac Drilling Venture,

1983-63 v. Crestwood Hosps., Inc., 16 F.3d 383, 387 (Fed. Cir.

1994).    These sections were added so that the tax treatment of

certain partnership items, such as income, loss, deductions, and

credits, would be “determined at the partnership level in a

unified proceeding rather than in separate proceedings with the

partners.”    H.R. CONF. REP. NO. 97-760, at 600 (1982), reprinted

in 1982 U.S.C.C.A.N. 1190, 1372; see also Brookes v. United

States, 20 Ct. Cl. 733, 737 (1990).

     Pursuant to the TEFRA, the IRS is required to give partners

notice once it begins an administrative proceeding relating to a

partnership item.    See I.R.C. § 6223(a)(1).    If the

administrative proceeding results in any adjustments to

partnership items, the IRS is to mail to the TMP a notice of

FPAA.    See id. § 6223(a)(2), (d).     As mentioned supra in Part I,

within ninety days after the day on which a notice of FPAA is

mailed to the TMP, the TMP may file a “petition for readjustment

of the partnership items” with the Tax Court, an appropriate

district court, or the Court of Federal Claims.       See id.

§ 6226(a).3   If the TMP fails to file a readjustment petition

     3
          Section 6226(a) states:

     Petition by tax matters partner.--Within 90 days after
     the day on which a notice of a final partnership
     administrative adjustment is mailed to the tax matters
     partner, the tax matters partner may file a petition

                                    6
within those ninety days, however, § 6226(b) permits a partner

other than the TMP to file such a petition.   See I.R.C.

§ 6226(b).4

     If an action is brought under either subsection (a) or

subsection (b) of § 6226, “each person who was a partner in such

partnership at any time during such year shall be treated as a

party, and . . . the court having jurisdiction of such action

shall allow each such person to participate in the action.”

I.R.C. § 6226(c).   Any partner who satisfies the requirements of

§ 6226(d) “may participate in the action by filing a notice of

election to participate with the Court.”   TAX CT. R. 245(b).

Moreover, that partner may file an amendment to the TMP’s

     for a readjustment of the partnership items for such
     taxable year with--
     (1) the Tax Court,
     (2) the district court of the United States for the
     district in which the partnership’s principal place of
     business is located, or
     (3) the Court of Federal Claims.

I.R.C. § 6226(a).
     4
         Section 6226(b) provides:

     Petition by partner other than tax matters partner
     . . . If the tax matters partner does not file a
     readjustment petition under subsection (a) with respect
     to any final partnership administrative adjustment, any
     notice partner (and any 5-percent group) may, within 60
     days after the close of the 90-day period set forth in
     subsection (a), file a petition for a readjustment of
     the partnership items for the taxable year involved
     with any of the courts described in subsection (a).

I.R.C. § 6226(b).

                                 7
petition in order to seek readjustment of other partnership items

that were designated in the FPAA, but were not contested by the

TMP.    See id. R. 245(e).   These procedures, i.e., permitting a

partner to elect to participate as a party to the TMP’s action

and to file an amendment to the TMP’s petition, act to “meet[]

TEFRA’s objective of ensuring that all partners may . . .

litigate a dispute with the IRS in a single proceeding.”     Chimblo

v. Commissioner, 177 F.3d 119, 121 (2d Cir. 1999) (second

alteration in original) (internal quotations and citations

omitted), cert. denied, 528 U.S. 1154 (2000).

                              B. Analysis

       St. David’s argues that because the TMP did not file its

readjustment petition to readjust “every” partnership item listed

in the FPAA, St. David’s was permitted to file its own

readjustment petition with the Tax Court.    Specifically, St.

David’s asserts that it was entitled to file a petition to

readjust the bad-debt adjustment because the TMP failed to

contest that adjustment in its petition.    The argument advocated

by St. David’s hinges on the meaning of the term “any” contained

in § 6226(b), which permits a notice partner to file a

readjustment petition “[i]f the tax matters partner does not file

a readjustment petition under subsection (a) with respect to any

final partnership administrative adjustment.”    I.R.C. § 6226(b)

(emphasis added).    St. David’s relies on the dictionary

definition of the term “any” and contends that, in the context of

                                   8
§ 6226(b), the term “any” should actually mean “every.”         Such an

interpretation, argues St. David’s, would require the TMP to file

a readjustment petition contesting every adjustment listed in the

FPAA before a partner (other than the TMP) would be precluded

from filing a separate petition.       We disagree with this

interpretation for two reasons.

  1. Reason One: The Law Regarding Subsequently Filed Petitions

                When the TMP Has Previously Filed

     First, the Tax Court, as an Article I court, possesses

jurisdiction to adjudicate controversies only as Congress has

expressly provided in the Code.        See I.R.C. § 7442; see also In

re Grand Jury Proceedings, 687 F.2d 1079, 1097 (7th Cir 1982).

The Tax Court’s jurisdictional power to review a FPAA is

primarily found in § 6226.5   See I.R.C. § 6226(f) (“A court with

which a petition is filed in accordance with this section shall

have jurisdiction to determine all partnership items of the

partnership for the partnership taxable year to which the notice

of [FPAA] relates[.]”).   Under § 6226(b), the Tax Court has

jurisdiction over a notice partner’s petition filed after the

ninety-day period for TMP filing, only if the TMP failed to file

within the ninety-day period prescribed in § 6226(a).          See I.R.C.

§ 6226(b) (“If the tax matters partner does not file a

readjustment petition under subsection (a) with respect to any

     5
         See supra notes 3 & 4.

                                   9
final partnership administrative adjustment, [then] any notice

partner . . . may, within 60 days after the close of the 90-day

period set forth in subsection (a), file a petition for a

readjustment[.]”).    As such, it is well established that the Tax

Court “lack[s] jurisdiction over petitions for readjustment of

partnership items filed by notice partners in the presence of

earlier, valid petitions filed by [the TMP].”    Cambridge Research

& Dev. Group v. Commissioner, 62 T.C.M. (CCH) 654, 654 (1991);

see also Transpac Drilling Venture, 1983-2 v. United States, 83

F.3d 1410, 1412 (Fed. Cir. 1996); Transpac Drilling Venture,

1983-63 v. United States, 26 Ct. Cl. 1245, 1247 (1992); Brookes,

20 Ct. Cl. at 737; Cablevision of Conn. v. Commissioner, 65

T.C.M. (CCH) 2147, 2149, 2150 (1993).

     St. David’s attempts to distinguish some of these cases by

asserting that the items contested in the TMP petitions in those

cases were the same as those challenged in the subsequently filed

petitions.   St. David’s argues that because the adjustment

contested by St. David’s is not duplicative of that contested by

the TMP in this case, St. David’s should be permitted to file a

separate petition.    This argument does not alter the fact that

these cases speak in terms of filing a “petition” and do not

distinguish among the different types of adjustments contained

within the FPAA.     See Transpac Drilling Venture, 1983-63, 26 Ct.

Cl. at 1247 (“[Section] 6226(b) permits others to file a petition

within 60 days following the expiration of the original 90 day

                                  10
period if the TMP failed to file a readjustment petition within

that time.” (emphasis added)); Brookes, 20 Ct. Cl. at 737 (“[The

TMP’s petition] was filed within the 90-day period during which

only the tax matters partner may file a petition, and the tax

matters partner did in fact file, thereby terminating any right

in plaintiffs to do so.” (emphasis added)); Cablevision of Conn.,

65 T.C.M. (CCH) at 2150 (agreeing that “[b]ecause [the TMP] filed

a timely petition pursuant to section 6226(a), . . . the petition

filed by Dolan must be dismissed” (emphasis added)); Cambridge

Research & Dev. Group, 62 T.C.M. (CCH) at 654 (“We lack

jurisdiction over petitions for readjustment of partnership items

filed by notice partners in the presence of earlier, valid

petitions filed by tax matters partners.” (emphasis added)); see

also H.R. CONF. REP. NO. 97-760, at 603 (1982), reprinted in 1982

U.S.C.C.A.N. 1190, 1375 (“If the TMP does not file a petition,

any notice partner or 5-percent group with an interest in the

outcome may within 60 days following such 90-day period, file a

petition with any of the courts in which the TMP may file a

petition.” (emphasis added)); cf. TAX CT. R. 241(d)(3)(D)

(requiring a separate numbered paragraph in a partner’s (other

than a TMP) petition for readjustment to state that “the tax

matters partner has not filed a petition for readjustment of

partnership items within the period specified in Code Section

6226(a)” (emphasis added)).

                                11
     We conclude that these cases demonstrate that when the TMP

has filed a valid and timely readjustment petition within the

ninety-day time period established by the Code, see I.R.C.

§ 6226(a), any other partner is precluded from filing a separate

petition, even if the TMP’s petition seeks readjustment of only

some of the partnership items contained within the FPAA.6

     6
        In their interpretations of the phrase “with respect to
any final partnership administrative adjustment” in § 6226(b),
the parties are concerned only with the meaning of the term
“any.” We note, however, that proper interpretation of this
phrase may not, in fact, turn on the term “any” and may, instead,
hinge on the meaning of a “final partnership administrative
adjustment.” Both parties seem to regard a “final partnership
administrative adjustment” as a single adjustment to a
partnership item, which would then be listed in the notice of
FPAA along with other FPAAs. Therefore, under either party’s
interpretation, a notice of FPAA could contain several FPAAs.
     Although the Code and its implementing regulations
apparently contain no explicit definition of a “final partnership
administrative adjustment,” it appears that a FPAA is actually
one document that may contain adjustments for several partnership
items. See, e.g., I.R.C. § 6226(e)(1) (“A readjustment petition
under this section may be filed . . . only if the partner filing
the petition deposits with the Secretary . . . the amount by
which the tax liability of the partner would be increased if the
treatment of partnership items on the partner’s return were made
consistent with the treatment of partnership items on the
partnership return, as adjusted by the final partnership
administrative adjustment.” (emphasis added)); id. § 6226(f) (“A
court with which a petition is filed in accordance with this
section shall have jurisdiction to determine all partnership
items of the partnership . . . to which the notice of final
partnership administrative adjustment relates[.]” (emphasis
added); see also, e.g., id. § 6223(a)(2) (requiring notice of
“the final partnership administrative adjustment resulting from
[the administrative] proceeding” (emphasis added)). Accordingly,
we believe that it may be better to read the phrase “any final
partnership administrative adjustment” in § 6226(b) to refer to
the single document that results from the administrative
proceeding contemplated in § 6223 and § 6224 of the Code. If
this is the proper reading of the section, then because the TMP
filed a readjustment petition that challenged certain partnership

                               12
 2. Reason Two: The TEFRA’s Purpose of a Unified Proceeding and

            the Protection of the Partners’ Interests

     Our second reason for disagreeing with the interpretation

advanced by St. David’s is that such an interpretation would

undermine the purposes behind the TEFRA.   As discussed supra in

the text, the TEFRA was enacted to provide for a unified

proceeding to handle the tax matters of the individual partners

of a partnership, rather than allowing for several separate

proceedings with the partners.   See H.R. CONF. REP. NO. 97-760, at

600 (1982), reprinted in 1982 U.S.C.C.A.N. 1190, 1372.     To permit

St. David’s to file a separate petition (thus generating a

separate proceeding) while the TMP’s petition is already pending

in front of the Tax Court is at odds with this stated purpose.

Instead, contrary to the argument by St. David’s that it will be

without an adequate remedy, St. David’s, as a notice partner in

the Partnership, will be able to participate in the single

proceeding that is already pending before the Tax Court, as

contemplated by the TEFRA.   See Chimblo, 177 F.3d at 121 (“Any

partner with an interest in the outcome of the proceeding [is]

item adjustments contained in the FPAA for the Partnership’s 1996
taxable year, it filed as to “any” FPAA.
     Although we do not speak to which interpretation is correct,
we make this point only to show that the parties’ focus on the
word “any” may be misplaced. But regardless of how the statute
is read, the rule stated in the text above is not altered, and
the result is the same no matter which interpretation is
employed.

                                 13
entitled to participate in an action brought by the tax matters

partner or a notice partner, thereby meeting TEFRA’s objective of

ensuring that all partners may . . . litigate a dispute with the

IRS in a single proceeding.”    (alterations in original) (internal

quotations and citations omitted)); see also Davenport Recycling

Assocs. v. Commissioner, 220 F.3d 1255, 1257 n.6 (11th Cir. 2000)

(same).   Moreover, interested notice partners, like St. David’s,

may file an amendment to a TMP’s petition to assert readjustment

of partnership items not covered by that petition.    See TAX. CT.

R. 245(b), (e).   In fact, on July 20, 2000, St. David’s did just

that, making it a party to the pending readjustment action.    By

electing to participate and amending the TMP’s petition to

contest the bad-debt adjustment, St. David’s has ensured that its

interests will be protected.7

     In sum, it is undisputed that the TMP filed a readjustment

petition challenging the FPAA issued with respect to the

     7
        The assertion by St. David’s that it does not know
“where [it will] be left” after the TMP settles and “folds its
tent and slips away” is without merit. Once a partnership action
has been filed with the Tax Court and after St. David’s has
elected to participate in the proceeding, St. David’s becomes a
party to the action and must agree to any subsequent settlement
agreement. See I.R.C. § 6226(c)(1) (“[E]ach person who was a
partner in such partnership at any time during [the partnership
taxable year] shall be treated as a party to such action[.]”
(emphasis added)); see also TAX CT. R. 248(b), (c) (entitled
“Settlement agreements” and providing that the partners
participating in the action must enter into the agreement or must
not object to Commissioner’s motion for entry of decision by the
court). Moreover, St. David’s has the right to seek judicial
review of the Tax Court’s decision. See I.R.C. § 6226(g).

                                 14
Partnership’s 1996 taxable year, and the separate petition filed

by St. David’s related to the same FPAA.     Accordingly, the Tax

Court correctly dismissed the petition filed by St. David’s

because it lacked jurisdiction to hear the case.

                            IV. CONCLUSION

     For the foregoing reasons, the Tax Court’s judgment granting

the Respondent-Appellee’s motion to dismiss for lack of

jurisdiction is AFFIRMED.

                                  15