655 F.3d 1323
Fed. Cir.2011Background
- TEFRA governs partnership audits and allows a unified proceeding to determine partnership items with notices to all partners.
- Bush and Shelton settled TEFRA proceedings via Closing Agreements that did not adjust partnership items but set formulas for each partner's at-risk amounts.
- Post-settlement, the IRS issued notices of adjustment and assessed taxes against the Bushes and Shelton based on the at-risk formulas.
- Taxpayers paid the assessments and then sued, arguing no deficiency notices were required before assessment.
- The Court of Federal Claims ruled for the government, holding that post-settlement adjustments were computational adjustments, not requiring deficiency notices.
- On rehearing, the Federal Circuit agreed the post-settlement assessments were computational adjustments under 6231(a)(6) and affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are post-settlement assessments computational adjustments? | Bush/Shelton: assessments arise from partner-level changes, not computational adjustments. | United States: assessments are computational adjustments reflecting TEFRA-driven treatment of partnership items. | Yes; assessments are computational adjustments under 6231(a)(6). |
| Did any 'affected items' require partner-level determinations triggering deficiency notices? | Settlement created partner-level determinations (e.g., at-risk amounts) needing notices. | No partner-level determinations; settlements merely set formulas for at-risk amounts. | No; no deficiency notices were required. |
| If deficiency notices were required, would refunds be available or how would statutes of limitations apply? | If notices were required, taxpayers could seek refunds and consider statute issues. | Deficiency-notice requirements and refunds depend on collection mechanisms; not applicable here. | Not reaching separate refund or statute-of-limitations questions; affirmed based on computational-adjustment result. |
Key Cases Cited
- Callaway v. Comm'r, 231 F.3d 106 (2d Cir. 2000) (TEFRA computational adjustments can be made without deficiency notices after partnership-level determinations)
- Desmet v. Comm'r, 581 F.3d 297 (6th Cir. 2009) (post-TEFRA adjustments may be computational when no partner-level factual determinations remain)
- Olson v. United States, 172 F.3d 1311 (Fed. Cir. 1999) (assessments can be computational when no individualized factual determinations are required)
- Keener v. United States, 76 Fed.Cl. 455 (Fed. Cir. 2009) (affects how partnership items and at-risk items are treated in TEFRA contexts)
- Bob Hamric Chevrolet v. United States, 849 F. Supp. 500 (N.D. Tex. 1994) (examples of when factual inquiries affect liability and require notices)