Basr Partnership, by and Through, William F. Pettinati, Sr., Tax Matters Partner v. United States
113 Fed. Cl. 181
| Fed. Cl. | 2013Background
- In 1999 the Pettinatis and related entities formed BASR Partnership and contributed short Treasury positions and Page Printing stock; BASR filed partnership and partner returns (filed/received by IRS in 2000).
- IRS audited BASR and on January 20, 2010 issued a Final Partnership Administrative Adjustment (FPAA) disallowing claimed basis adjustments and imposing accuracy-related penalties.
- BASR (through its Tax Matters Partner William Pettinati, Sr.) sued in the Court of Federal Claims under I.R.C. § 6226 seeking a refund, arguing the FPAA was time‑barred.
- Central legal question: whether the FPAA was timely — i.e., whether the limitations-extension for fraudulent returns in I.R.C. § 6501(c)(1) or the partnership‑specific rule in I.R.C. § 6229(c)(1) governs, and whether the requisite "intent to evade tax" exists.
- The government conceded the Pettinati taxpayers themselves did not have the requisite intent to evade tax; the government argued fraud by third parties (attorneys/advisors) or agents can trigger § 6501(c)(1).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which statute governs timeliness of FPAA: § 6229(c)(1) or § 6501(c)(1)? | § 6229(c)(1) (partnership‑specific) controls; § 6501(c)(1) should not be applied to partnership items to displace the specific rule. | § 6501 is the baseline three‑year statute and applies to partnership items; § 6229 supplements/extends it but does not displace § 6501. | Court reads § 6501 and § 6229 together but applies § 6501(a)/(c)(1) here because § 6501’s fraud exception requires taxpayer intent. |
| Does § 6501(c)(1)’s "intent to evade tax" include intent of non‑taxpayer agents (e.g., attorneys, preparers)? | Absent taxpayer intent, § 6501(c)(1) does not apply; partnership rule § 6229(c)(1) requires partner intent and is the appropriate provision when partner intent is lacking. | Fraudulent intent of agents who caused false returns should toll § 6501(c)(1); taxpayer cannot avoid responsibility by blaming agents. | Court holds the plain text of § 6501 limits the fraud exception to fraud by the taxpayer (taxpayer intent required); agent fraud does not extend § 6501(c)(1) for these taxpayers. |
| Were the taxpayers' returns filed within the applicable limitations period? | Because taxpayers lacked intent to evade, the three‑year period of § 6501(a) applies and the 2010 FPAA is untimely (returns filed/received in 2000). | Because the returns were false and caused by fraudulent conduct connected to return preparation, the government contends an extended period applies. | Held: FPAA was untimely; Court granted summary judgment for BASR and disallowed the adjustments and penalties as time‑barred. |
| Should courts adopt a factual inquiry like City Wide Transit to decide whether agent fraud is sufficiently connected to the return to toll § 6501? | Courts should not read § 6501 to extend for agent fraud absent taxpayer intent; do not adopt City Wide’s broader factual approach. | Government urges broader approach and cites City Wide Transit as supporting agent‑based tolling in some circumstances. | Court declines to adopt City Wide’s factual inquiry and follows the plain meaning that § 6501(c)(1) requires taxpayer intent. |
Key Cases Cited
- AD Global Fund, LLC v. United States, 481 F.3d 1351 (Fed. Cir.) (explains § 6501 and § 6229 operate together; § 6229 does not create an independent limitations period)
- Prati v. United States, 603 F.3d 1301 (Fed. Cir.) (sections 6501 and 6229 operate in tandem for partnership items)
- Grapevine Imports, Ltd. v. United States, 636 F.3d 1368 (Fed. Cir.) (addressed whether overstatement of basis is an omission from gross income for limitations purposes)
- United States v. Home Concrete & Supply LLC, 132 S. Ct. 1836 (U.S.) (held overstatement of basis in sold property is not an omission from income for limitations purposes)
- City Wide Transit, Inc. v. Commissioner, 709 F.3d 102 (2d Cir.) (permitted application of § 6501(c)(1) where tax preparer’s fraud was tied to return preparation)
- Transpac Drilling Venture 1983-2 v. United States, 83 F.3d 1410 (Fed. Cir.) (interprets § 6229(c)(1) fraud requirement and partner protection)
- Badaracco v. Commissioner, 464 U.S. 386 (U.S.) (limitations statutes construed in favor of the government in tax collection contexts)