Basr Partnership v. United States
2015 U.S. App. LEXIS 13617
| Fed. Cir. | 2015Background
- In 1999 the Pettinati family used a tax‑advantaged structure designed by attorney Erwin Mayer (Jenkens & Gilchrist) to shift sale proceeds into BASR Partnership; Malone & Bailey prepared the tax returns relying on opinion letters.
- The partnerships are pass‑through entities; TEFRA requires partnership‑level adjustments (FPAA) with unified procedures under I.R.C. §§ 6221–6234.
- In 2010 the IRS issued a Final Partnership Administrative Adjustment (FPAA) asserting BASR’s structure lacked economic substance and increasing tax liability for 1999 returns.
- BASR sued in the Court of Federal Claims seeking readjustment/refund, arguing the FPAA was time‑barred by the three‑year limitations period in I.R.C. § 6501(a) and § 6229(a).
- Government conceded the taxpayers (BASR/partners) lacked intent to evade tax but argued Mayer’s admitted intent (a third‑party lawyer who structured the shelter) should trigger the unlimited assessment exception in I.R.C. § 6501(c)(1).
- Claims Court granted summary judgment for BASR; the Federal Circuit affirmed, holding § 6501(c)(1) requires the taxpayer’s (or closely connected authorized agent’s) intent to evade tax to suspend the three‑year period.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 6501(c)(1)’s unlimited assessment period is triggered by a third party’s intent (e.g., tax attorney) when the filed return is false | BASR: suspension applies only if the taxpayer (or its authorized agent) had intent to evade tax; third‑party intent is too remote | Government: any person’s intent that produces a fraudulent return suffices; § 6501(c)(1) refers to a “fraudulent return” not a particular actor | Held: § 6501(c)(1) is best read to require the taxpayer’s intent (or intent of someone acting as the taxpayer’s authorized agent); third‑party advisor’s intent unrelated to the filing does not trigger tolling. |
| Whether § 6229(c)(1) (TEFRA partnership fraud rule) supplants § 6501(c)(1) for partnership items | BASR: § 6229 governs limitations for partnership items and requires partner intent; thus FPAA untimely | Government: § 6501 applies generally and can be invoked independently even in partnership cases | Held: Majority treated § 6501(c)(1) as controlling on the interpretive question here but affirmed outcome because gov’t could not show taxpayer/partner intent; concurrence argued § 6229(c)(1) should govern partnership items and likewise yields untimeliness. |
| Whether IRS’s prior administrative positions and related Code provisions (e.g., § 7454, § 6663) support a broad reading of § 6501(c)(1) | BASR: other fraud provisions are focused on taxpayer culpability; history and structure support limiting intent to taxpayer | Government: historical/other provisions don’t limit § 6501(c)(1); strict construction in favor of govt and plain text support a broader reading | Held: Court found the statutory context, parallel provisions, and historical pedigree of the fraud language point to confining the requisite intent to the taxpayer (or closely tied agent); thus government’s broader reading rejected. |
Key Cases Cited
- Badaracco v. Comm'r, 464 U.S. 386 (1984) (statutes of limitation barring government collection construed strictly in favor of government)
- AD Global Fund, LLC v. United States, 481 F.3d 1351 (Fed. Cir. 2007) (sections 6501 and 6229 operate in tandem; § 6229 can extend § 6501 period for partnership items)
- Prati v. United States, 603 F.3d 1301 (Fed. Cir. 2010) (when assessment involves partnership items, § 6229 can extend § 6501 assessment period)
- Transpac Drilling Venture v. United States, 83 F.3d 1410 (Fed. Cir. 1996) (§ 6229(c)(1) protects innocent partners by requiring signer/participant intent to evade tax)
- Rhone‑Poulenc Surfactants & Specialties, L.P. v. Comm'r, 114 T.C. 533 (2000) (Tax Court: § 6229(c)(1) deals specifically with partnership returns and retains independent meaning)
- Allen v. Comm'r, 128 T.C. 37 (2007) (Tax Court held preparer fraud can toll § 6501(c)(1), but court’s reasoning distinguished on facts and not followed here)
- City Wide Transit, Inc. v. Comm'r, 709 F.3d 102 (2d Cir. 2013) (Second Circuit addressed preparer‑intent issues but did not decide whether preparer intent alone suffices to trigger § 6501(c)(1))