Court Opinion

ID: 9410687
Source: CourtListenerOpinion
Date Created: 2023-07-24 05:00:55.152043+00
Date Added: 2024-06-11T17:20:59.494964
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
Nos. 22-1084 & 22-1085
RONALD M. GOLDBERG and GAIL GOLDBERG,
                                  Petitioners-Appellants,
                                v.

COMMISSIONER OF INTERNAL REVENUE,
                                             Respondent-Appellee.
                    ____________________

             Appeals from the United States Tax Court.
                  Nos. 12871-18L & 13148-18L.
                    ____________________

     ARGUED JANUARY 11, 2023 — DECIDED JULY 14, 2023
                ____________________

   Before WOOD, BRENNAN, and SCUDDER, Circuit Judges.
    SCUDDER, Circuit Judge. Ronald and Gail Goldberg owe
more than $500,000 in federal taxes stemming from their in-
terests in two partnerships. The Goldbergs believe the statute
of limitations for the IRS’s assessment of these taxes has
passed, and they assert that the IRS’s failure to mail them ad-
equate notice when it started auditing their partnerships ex-
cuses their own failure to raise this challenge in earlier tax
proceedings. Because the Goldbergs received notice and had
a prior opportunity to contest the partnership tax liabilities—
2                                      Nos. 22-1084 & 22-1085

independent of any alleged failing on the IRS’s part—we af-
ﬁrm the Tax Court’s decision to sustain the IRS’s lien and levy
on the Goldbergs’ property to collect the outstanding tax lia-
bilities.
I. Partnership Taxation Under the Tax Equity and Fiscal
   Responsibility Act
    Reviewing the Tax Court’s decision requires some back-
ground in partnership taxation. Bear with us as we parse the
provisions governing the calculation of partnership taxes, the
collection of those taxes from individual partners, and the ad-
ministrative proceedings where calculation and collection oc-
cur. As with many areas of tax law, technical jargon and acro-
nyms abound, but we try to unpack everything in plain Eng-
lish.
   The Tax Equity and Fiscal Responsibility Act, or TEFRA,
governed partnership tax liability determinations until the
2017 tax year, including the audits at issue in this appeal. See
26 U.S.C. §§ 6221–6234 (2012). Because partnerships are not
themselves taxable entities, a partnership’s tax liabilities are
assessed on individual partners in proportion to their owner-
ship interest. Individual partners report their share of a part-
nership’s income on their individual tax returns, usually on a
Form 1040, and the partnership itself supplies that infor-
mation on another form, referred to as a Schedule K-1.
   In enacting TEFRA, Congress sought to streamline the
overarching liability calculation process by requiring partner-
ship tax determinations to occur in a single proceeding fol-
lowed by separate collections from individual partners, rather
than having multiple ongoing proceedings for each partner.
See Arthur Willis, Philip Postlewaite & Jennifer Alexander,
Nos. 22-1084 & 22-1085                                          3

Partnership Taxation ¶ 20.01 (2023) (describing TEFRA’s cen-
tralized partnership-level process).
    To ensure uniformity, Congress provided that determina-
tions made at the partnership level would be ﬁnal and bind-
ing on all partners. See 26 U.S.C. § 6223. Under TEFRA, part-
ners could opt out of the partnership-level proceeding—and
the binding partnership-level determinations—by settling
separately or electing to convert their items into nonpartner-
ship items for individual review. See id. §§ 6221, 6223(e)(3).
Partners also reserved the right to challenge partnership-level
determinations during the ongoing proceedings through the
tax matters partner chosen by the partnership to represent the
interests of all other partners. See id. § 6224(c)(3)(A); see also
id. § 6231(a)(7) (deﬁning “tax matters partner”).
    TEFRA included several safeguards to ensure partners re-
ceived adequate notice of the partnership-level proceedings
before the liability determinations became ﬁnal. See id. § 6223.
Partners were ﬁrst entitled to receive a “notice of beginning of
administrative proceedings,” commonly shorthanded as an
NBAP. As its name implies, the NBAP signaled that the IRS
had started reviewing the partnership’s tax liabilities. See id.
§ 6223(a)(1). If the IRS made any tax adjustments to partner-
ship-level items, the Service next had to furnish notice of a
“ﬁnal partnership administrative adjustment,” or FPAA, that
communicated these ﬁnal, binding adjustments to the part-
ners. See id. § 6223(a)(2). TEFRA authorized notice by mail us-
ing the partners’ addresses listed in the partnership’s tax re-
turn. See id. § 6223(c)(1).
   Before the taxes could be assessed, partners had one ﬁnal
chance for review. The tax matters partner had 90 days to ﬁle
a petition with the Tax Court, see id. § 6226(a), and upon such
4                                       Nos. 22-1084 & 22-1085

a ﬁling, all partners became parties to the subsequent pro-
ceedings, see id. § 6226(c)(1). If the tax matters partner did not
ﬁle a petition, then the other partners had an additional 60
days to ﬁle their own petition. See id. § 6226(b)(1). Once this
review period ended, the partnership-level liability determi-
nations bound all partners who had not opted out. See id.
§ 6230(c)(4); see also Kaplan v. United States, 133 F.3d 469, 471
(7th Cir. 1998) (“Section 6226(c) binds all partners to the result
obtained by a legal challenge brought by one partner, thereby
preventing numerous [duplicative] lawsuits.”).
    The IRS also had to play by certain rules. Indeed, TEFRA
provided relief when the IRS failed to timely mail the NBAP
notifying partners that an audit had commenced. A partner’s
available recourse depended on the status of the partnership-
level proceedings at the time the partner received either the
FPAA or actual notice of the tax adjustments. If the IRS’s audit
had concluded at the time the partner received notice, the
partner could opt out of the ﬁnal determination and convert
the partnership items to nonpartnership items for individual
consideration. See 26 U.S.C. § 6223(e)(2). If the IRS’s partner-
ship-level audit was still ongoing at the time of notice, how-
ever, the Tax Code provided that the partner “shall be a party
to the proceeding” unless the partner settled or converted the
relevant partnership items into nonpartnership items—the
two options already available to partners receiving timely no-
tice. Id. § 6223(e)(3).
II. Factual Background
    These provisions of the Tax Code apply to the case before
us. The IRS would like to collect taxes from Ronald and Gail
Goldberg stemming from Ronald’s partnership in the Mata-
dor Arch Program and the Alpha Oil Program—two entities
Nos. 22-1084 & 22-1085                                          5

in the oil and gas industry. Gail is liable for these taxes and
penalties because she ﬁled joint tax returns with Ronald in
1998 and 2000, the tax years that Ronald was a partner at the
ﬁrms. See id. § 6231(a)(2); 26 C.F.R. § 301.6231(a)(2)-1(a) (ex-
plaining spousal tax liability).
   A. The Goldbergs’ Partnership Tax Liabilities
   The IRS began auditing the Matador and Alpha partner-
ships in 2001 and 2002. In connection with those proceedings,
the IRS believes it timely sent the required NBAPs to Ronald
by certiﬁed mail to notify him the audits had started. The
Goldbergs later denied receiving an NBAP for either audit,
and they also disputed the IRS’s proof that these NBAPs were
mailed to them. For both the Matador and Alpha proceedings,
the IRS further believes it timely sent Ronald the required
FPAAs via certiﬁed mail to notify him of the ﬁnal tax adjust-
ments. Prior to ﬁling their petition in this court, the Goldbergs
did not dispute the IRS’s evidence showing that the Service
had mailed the FPAAs to Ronald’s address.
   In early 2008, after the audits concluded, the tax matters
partners for both Alpha and Matador petitioned for readjust-
ment of the partnership item determinations listed in their re-
spective FPAAs. The tax matters partners’ petitions pro-
ceeded to the Tax Court for review.
    On October 5, 2010, while the Tax Court’s review of the
FPAAs was underway, Ronald sent a letter to the IRS Com-
missioner challenging his tax liability for both the Alpha and
Matador partnership items. In his letter, Ronald stated that he
believed the three-year statute of limitations for the tax assess-
ments had expired, so the IRS could not collect any overdue
and unpaid taxes from him. The Commissioner responded in
6                                        Nos. 22-1084 & 22-1085

a letter explaining that the limitations period had not expired
given the ongoing review of the tax matters partners’ petitions
in the Tax Court. The Commissioner invited Ronald to raise
his statute-of-limitations challenges directly in the Tax Court
proceedings before the adjustments became ﬁnal. The Gold-
bergs took no action, however.
    In June 2013 the Tax Court concluded its review of the
Matador and Alpha tax adjustments and entered judgment.
No further challenges—by the tax matters partners or by any
partners—were brought to contest the Tax Court’s orders. The
resulting liability determinations became ﬁnal and binding on
all partners in September 2013. The IRS then notiﬁed the
Goldbergs of the adjustments and, after they refused to pay,
initiated collection proceedings.
    B. The IRS’s Partnership Tax Collection Authority
    We pause to address the IRS’s collection authority before
introducing the facts of its attempt to collect from the Gold-
bergs.
    When a taxpayer fails to pay the IRS following a tax as-
sessment, the Service can take legal action to collect the over-
due taxes. One option is to ﬁle a Notice of Federal Tax Lien
publicly establishing the IRS’s claim to the taxpayer’s prop-
erty. See 26 U.S.C. § 6321. If a taxpayer refuses to pay within
10 days after the IRS’s initial notice and demand, the Service
can issue a levy notice and seize the taxpayer’s property in
satisfaction of the unpaid tax liability. See id. § 6331. After re-
ceiving notice from the IRS, and before the lien or levy is en-
forced, taxpayers can seek review from the IRS Oﬃce of Ap-
peals in a proceeding known as a Collection Due Process, or
CDP, hearing. See id. §§ 6320(a)(3)(B), 6330(a)(3)(B). The
Nos. 22-1084 & 22-1085                                           7

Oﬃce of Appeals must entertain any hearing request for a re-
view of a lien or levy if the taxpayer makes a timely written
request and states the grounds for the challenge. See id.
§§ 6320(b)(1), 6330(b)(1).
    In reviewing the taxpayer’s petition at the CDP hearing,
the settlement oﬃcer must consider the Secretary’s evidence
verifying “the requirements of any applicable law or admin-
istrative proceeding have been met,” see id. § 6330(c)(3)(A),
(1); the matters raised by the taxpayer, see id. § 6330(c)(3)(B);
and the balance of interests between the collection and its in-
trusiveness on the taxpayer, see id. § 6330(c)(3)(C). The oﬃcer
then issues a notice of determination declaring whether the
tax assessment is sustained and, if so, whether an alternative
collection process will be followed instead of the lien or levy.
    At the CDP hearing, the taxpayer generally may raise “any
relevant issue” to the IRS’s collection action, including collec-
tion alternatives and spousal defenses. Id. § 6330(c)(2)(A). But
taxpayers cannot contest the tax liability underlying the levy
or lien if the taxpayer previously had an opportunity to lodge
a challenge. See id. § 6330(c)(2)(B). By its terms, § 6330(c)(4)(C)
of the Tax Code expressly precludes taxpayers from raising an
issue if “a ﬁnal determination has been made with respect to
such issue in a proceeding brought under subchapter C of
chapter 63,” which refers to TEFRA—the chapter concerning
the tax treatment of partnership items. So a taxpayer cannot
challenge ﬁnal and binding partnership-item liability deter-
minations in a CDP hearing.
    A taxpayer wishing to contest the decision of the Oﬃce of
Appeals can petition the Tax Court for review. See id.
§ 6330(d). But the Tax Court can consider only those issues
8                                       Nos. 22-1084 & 22-1085

properly raised in the CDP hearing. See Our Country Home
Enters., Inc. v. Comm’r, 855 F.3d 773, 780 (7th Cir. 2017).
    Putting the administrative review process together, then,
we see that a partner who fails to challenge the IRS’s adjust-
ments to partnership-level items during a TEFRA proceeding
cannot later challenge their partnership tax liabilities in a CDP
hearing. And because the partner cannot raise the issue of li-
ability in a CDP hearing, the partner also loses the ability to
bring that challenge before the Tax Court. Put diﬀerently, the
TEFRA proceeding is the proper—and when notice is
properly furnished, only—venue for partners to challenge
partnership-tax liabilities.
    C. The IRS’s Assessment of Taxes on the Goldbergs
    These administrative processes apply to the Goldbergs’
situation.
       1. Collection Due Process Hearing
    In 2014 the Commissioner assessed taxes and penalties on
the Goldbergs to collect the outstanding taxes stemming from
the adjustments the IRS made to the Matador and Alpha lia-
bilities in the partnership-level proceedings, which were ﬁnal-
ized in the Tax Court’s 2013 decision. The Commissioner ex-
plained in a letter to the Goldbergs that they could not chal-
lenge the assessments because they had failed to object during
the partnership-level TEFRA proceedings. When the Gold-
bergs did not pay the overdue and adjusted taxes in response
to the assessment notice, the IRS ﬁled a notice of a lien and
then a levy to collect the outstanding partnership taxes. The
Goldbergs did not respond to the IRS’s Notice of Federal Tax
Lien, but they did respond to the later levy notice and re-
quested a CDP hearing to challenge the collection.
Nos. 22-1084 & 22-1085                                        9

    In June 2016 the IRS Oﬃce of Appeals heard the Gold-
bergs’ petition. The Goldbergs challenged their underlying
tax liability on statute-of-limitations grounds—the same ar-
gument Ronald raised to the Commissioner in his October
2010 letter. The Goldbergs also argued that they could law-
fully bring this post-audit challenge because they believed
that the IRS failed to send the statutorily required notices of
beginning of administrative proceedings—the so-called
NBAPs. The IRS’s failure to mail the NBAPs, the Goldbergs
insisted, excused their own failure to object while TEFRA pro-
ceedings were ongoing. The Goldbergs took this position
even though they had received actual notice of the TEFRA
proceedings from another partner.
    Two years later, in 2018, the settlement oﬃcer issued her
decision sustaining the IRS’s proposed lien and levy. The of-
ﬁcer found that the Goldbergs had failed to challenge their
underlying tax liabilities during the TEFRA proceedings de-
spite being “advised of the beginning of the TEFRA audit and
the ﬁnal audit ﬁndings” through mailing of NBAPs and
FPAAs. Because the Goldbergs’ challenge to the lien was un-
timely, the oﬃcer issued an unappealable decision letter sus-
taining the lien. The oﬃcer issued an appealable notice of de-
termination for the levy because that challenge was timely.
The Goldbergs then petitioned the Tax Court for review.
       2. Tax Court Decision
    The Tax Court dismissed the petition for review of the lien
because the Oﬃce of Appeals properly issued an unappeala-
ble decision letter given the Goldbergs’ petition on that matter
was time-barred.
10                                     Nos. 22-1084 & 22-1085

   In considering the Goldbergs’ statute-of-limitations chal-
lenge to the levy, the Tax Court rejected their argument that
they lacked notice to properly raise the issue in the TEFRA
proceedings. The Tax Court determined the Oﬃce of Appeals
correctly concluded that the IRS mailed the ﬁnal partnership
administrative adjustment notices, or FPAAs, based on the
Service’s evidentiary showing during the CDP hearing—a
ﬁnding the Goldbergs did not dispute before the Tax Court.
The Tax Court also noted Ronald Goldberg’s 2010 corre-
spondence with the Commissioner during the Tax Court’s
earlier review of the partnerships’ tax adjustments.
    All of this meant that the Goldbergs had actual notice of
the ongoing TEFRA proceedings while they were underway,
notwithstanding their allegations that the IRS failed to mail
them NBAPs at the start of the proceedings. The Tax Court
therefore concluded that TEFRA required the Goldbergs to
raise these challenges during the partnership-level audit. See
26 U.S.C. § 6223(e)(3). But they never did so. The Goldbergs’
statute-of-limitations challenge thus amounted to an im-
proper attempt to appeal their underlying tax liability, one
that the Tax Court could not entertain. See id. §§ 6230(c)(4),
7422(h).
    Finding no legal errors in the Oﬃce of Appeals’ review of
the Goldbergs’ petition, the Tax Court went on to hold that
the settlement oﬃcer properly accounted for the considera-
tions required by § 6330(c)(3) and did not abuse her discretion
in sustaining the IRS’s levy on the Goldberg’s property. The
Tax Court therefore aﬃrmed the settlement oﬃcer’s decision.
     The Goldbergs now appeal.
Nos. 22-1084 & 22-1085                                          11

III. Analysis
    The Tax Court got this right. A straightforward application
of TEFRA and its implementing provisions to the facts leads
us to conclude that the Goldbergs cannot escape their partner-
ship tax liabilities by asserting that the IRS failed to mail the
NBAPs when the IRS did mail the FPAAs and the Goldbergs
had actual notice of the partnership-level proceedings.
   A. The IRS Met Its Statutory Requirements by Mailing
   the FPAAs
   The Goldbergs’ biggest hurdle in demonstrating that they
did not have an opportunity to object during the TEFRA pro-
ceedings is the IRS’s showing that it properly mailed the
FPAAs. The Goldbergs never challenged the Oﬃce of Ap-
peals’ or the Tax Court’s ﬁnding that the FPAAs were
mailed—and that the Goldbergs therefore received the
FPAAs—until they ﬁled suit in this court. Regardless, we see
no error in the Tax Court’s review of the Oﬃce of Appeals’
determination.
    The Oﬃce of Appeals reviewed the IRS’s internal records
and mailing lists to establish that that the FPAAs were validly
sent via certiﬁed mail in 2007. The Goldbergs did not object,
leaving the Oﬃce of Appeals entitled to take the IRS’s show-
ing as substantial evidence to demonstrate proper mailing—
and thus adequate notice to the Goldbergs—of the FPAAs.
See, e.g., Keado v. United States, 853 F.2d 1209, 1213–19 (5th Cir.
1988) (aﬃrming a settlement oﬃcer’s ﬁnding based on similar
evidence); see also 26 U.S.C. § 6330(c)(3)(A) (giving the settle-
ment oﬃcer authority to verify that notices were sent based
on the IRS’s evidence). In reviewing the Oﬃce of Appeals’ de-
cision, the Tax Court observed that the Goldbergs had not
12                                     Nos. 22-1084 & 22-1085

challenged the settlement oﬃcer’s FPAA ﬁnding, and con-
cluded there were otherwise no errors with that determina-
tion.
    Given the Tax Court’s proper ﬁnding that the IRS mailed
the FPAAs, our legal conclusion ﬂows directly from the Tax
Code. When the IRS fails to mail an NBAP—as the Goldbergs
allege here—the relief is statutory. Section 6223(e) provides
remedies based on the status of the partnership-level determi-
nation at the time the “Secretary mails the partner notice of
the proceeding”—here, the FPAAs that the IRS mailed to the
Goldbergs in 2007.
    Because the FPAAs were mailed in 2007 but the partner-
ship tax adjustment amounts were not ﬁnalized by the Tax
Court until 2013, the Goldbergs’ relief is provided under
§ 6223(e)(3), titled “Proceedings still going on.” When part-
ners receive an FPAA after having failed to receive an NBAP,
they can opt for an individual settlement or conversion to
nonpartnership items. Although the Goldbergs qualiﬁed for
this relief, they never elected to pursue either of these reme-
dies. That was their fatal mistake because the statute aﬀords
no other relief. The Tax Code makes clear that partners who
fail to opt out of the partnership-level proceedings are bound
to the ﬁnal FPAA determinations. See id. § 6221 (“[T]he tax
treatment of any partnership item … shall be determined at
the partnership level.”).
   And because the Goldbergs had this opportunity to chal-
lenge the underlying tax liability given the IRS’s valid FPAA
mailings before the partnership proceedings ended, they
were expressly precluded from bringing this challenge in a
CDP hearing. See id. § 6330(c)(2)(B), (4)(C). The Tax Court did
Nos. 22-1084 & 22-1085                                      13

not err in aﬃrming the Oﬃce of Appeals’ decision to disallow
such a challenge in the Goldbergs’ CDP hearing.
   B. The Goldbergs Received Actual Notice of the TEFRA
   Proceedings
   The Tax Court correctly identiﬁed a second reason sup-
porting denial of the Goldbergs’ petition: Ronald had actual
notice of the TEFRA proceedings, in addition to the notice
provided by the FPAAs.
    Remember what happened in October 2010. It was then
that Ronald corresponded by letter with the IRS Commis-
sioner while the TEFRA proceedings were ongoing. In that
letter, Ronald contended that the IRS could not collect taxes
for adjustments made to the Alpha and Matador partnership
items because he believed the three-year statute of limitations
had expired. At no time—in this appeal or in the administra-
tive proceedings before the IRS—has Ronald contested the au-
thenticity of his October 2010 letter. Nor has he ever sug-
gested, let alone demonstrated, that he did anything beyond
sending the letter. At oral argument, he explained that he re-
ceived notice in 2010 from another partner, and not the IRS,
so he contended that the IRS’s failed NBAP mailing aﬀords
him separate statutory relief. But he oﬀers no satisfactory ex-
planation for why he did not accept the Commissioner’s invi-
tation to participate in the TEFRA proceedings by challenging
the tax assessment on statute-of-limitations grounds.
    Ronald’s inaction brought with it a legal consequence. The
Tax Code is clear that taxpayers may challenge their underly-
ing tax liability in a CDP hearing only when they “did not
otherwise have an opportunity to dispute such tax liability.”
Id. § 6330(c)(2)(B). This limitation applies here. Ronald
14                                      Nos. 22-1084 & 22-1085

Goldberg had an actual opportunity to dispute his tax liability
in 2010 while the Tax Court reviewed the Alpha and Matador
FPAAs, and he declined to take that opportunity to raise the
statute-of-limitations challenge he now brings to a third tri-
bunal (our court) more than a decade later.
   Nor can the Goldbergs show that the partnership adjust-
ment proceedings violated their due process rights. The Com-
missioner provided the Goldbergs with a chance to partici-
pate in the proceedings—through valid mailing of an FPAA
and by speciﬁc invitation in the October 2010 correspond-
ence—and they declined. We see no due process issues here,
where the Goldbergs had notice and opportunity to be heard.
    To be sure, we do not conclude that Ronald’s actual notice
alone supports a ﬁnding that he is precluded from challeng-
ing his liability. We recognize that § 6223(e)’s provision of re-
lief seems predicated on the IRS’s valid mailing of at least one
of the NBAP or FPAA. See id. § 6223(e)(2) (providing relief
when “the Secretary mails the partner notice of the proceed-
ing” and proceedings are ﬁnished); see also id. § 6223(e)(3)
(providing relief when § 6223(e)(2) “does not apply” and pro-
ceedings are ongoing). In a situation where the IRS failed to
properly mail both the NBAP and FPAA, we are less certain
of the statutory relief aﬀorded to that tax partner. But those
are not the facts here, so we save that issue for another day.
     C. The Goldbergs’ Remaining Arguments
   The Goldbergs urge a diﬀerent conclusion and ask us to
dismiss the case or remand for reconsideration of their stat-
ute-of-limitations challenge to the underlying tax liability. But
we ﬁnd no basis for doing so.
Nos. 22-1084 & 22-1085                                       15

    The Goldbergs have spilled much ink on the IRS’s alleged
failure to mail the NBAPs. They may be right that the IRS
never mailed the notices. The IRS insists that it did but cannot
tell us with certainty. For our part, we are conﬁdent that we
do not have to resolve this factual dispute to resolve the Gold-
bergs’ appeal. The IRS’s mailing of the NBAPs is not control-
ling because the Tax Code authorized two forms of notice: the
notice that proceedings had begun (the NBAP) and the notice
that proceedings had concluded (the FPAA). Under the reme-
dies provided in § 6223(e), either type of notice suﬃces to give
partners the opportunity to participate in the TEFRA proceed-
ings, and the mailing of both is not necessary for them to do
so. The Goldbergs can point to no provision of the Tax Code
that provides them with relief beyond that which the statute
aﬀorded them here.
    One ﬁnal matter warrants mention. The Goldbergs insist
that the Tax Court erred by denying their motion to compel
discovery for additional information about the IRS’s NBAP
mailings. Given the deferential standard of review and our
determination that the Tax Court’s decision did not depend
on additional evidence of the IRS’s mailings, we reject the
Goldbergs’ argument. The Tax Court did not abuse its discre-
tion in denying the Goldbergs’ motion to compel discovery
for evidence that the court deemed irrelevant.
   For these reasons we AFFIRM.