Isler v. United States
129 Fed. Cl. 67
| Fed. Cl. | 2016Background
- In 1984 Robert and Susan Isler were partners in Oasis Date Associates (ODA); their 1984 partnership items were adjusted by the IRS after examination.
- On April 9, 1997 the Islers signed a Form 870-P(AD) settlement resolving four specified partnership-item adjustments; they also made an advance payment and the IRS later assessed tax and interest for 1984.
- The Islers filed administrative refund claims in 1999 which the IRS denied; they then sued in the U.S. Court of Federal Claims in 2001 seeking a refund (claims included untimely assessment under 26 U.S.C. § 6501/6229, penalty interest, interest abatement, interest netting, and an offset).
- Over time several claims were dismissed or stipulated away; the only remaining claim by 2016 challenged that the IRS assessed tax after the applicable statutes of limitation (i.e., an untimely-assessment/refund claim).
- The Government moved to dismiss for lack of subject-matter jurisdiction under RCFC 12(b)(1), arguing the untimely-assessment issue is a “partnership item” barred from partner-level refund suits by TEFRA § 7422(h).
- The court applied Federal Circuit precedent (Keener, Prati) and Treasury regulations holding statute-of-limitations challenges to assessment are partnership items and concluded the Court of Federal Claims lacks jurisdiction; the April 9, 1997 settlement did not explicitly convert that issue to a nonpartnership item.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an untimely-assessment challenge (application of §§ 6501/6229) is a partnership item for TEFRA purposes | Isler: the 1997 settlement resolved all partnership items, including timeliness, so § 7422(h) bar does not apply | Gov: timeliness of assessment is a partnership item under Keener/Prati and thus barred from partner-level suit by § 7422(h) | Held for Gov: timeliness is a partnership item and CFC lacks jurisdiction |
| Whether the April 9, 1997 Form 870-P(AD) settlement converted the untimely-assessment issue into a nonpartnership item under 26 U.S.C. § 6231(b)(1)(C) | Isler: the settlement admitted by the Government settled all 1984 partnership items, so the jurisdictional bar is lifted | Gov: the settlement did not address the limitations-on-assessment issue; Form 870-P(AD) applies only to listed items | Held for Gov: settlement did not resolve timeliness; conversion requires explicit inclusion of the item |
| Whether the Government’s 2004 admission that the settlement "settled all of [their] 1984 ODA partnership items" binds the court to treat timeliness as settled | Isler: the Government admission proves the settlement covered the timeliness issue | Gov: the same filing expressly said the settlement did not address the limitations period; the admission does not control legal effect | Held for Gov: the record shows settlement did not address timeliness; admission not dispositive |
| Whether the Court of Federal Claims can adjudicate the remaining refund claim | Isler: having preserved the timeliness issue in partnership-level proceedings, the claim may be litigated in a partner-level refund suit | Gov: TEFRA § 7422(h) bars partner-level suits for partnership items regardless of preservation; Keener/Prati require dismissal | Held for Gov: case dismissed for lack of jurisdiction under § 7422(h) and controlling precedent |
Key Cases Cited
- Keener v. United States, 551 F.3d 1358 (Fed. Cir. 2009) (treats statute-of-limitations challenges to assessments as partnership items and limits CFC jurisdiction under TEFRA)
- Prati v. United States, 603 F.3d 1301 (Fed. Cir. 2010) (applies Keener; holds untimely-assessment claims must be raised at partnership level)
- Hinck v. United States, 550 U.S. 501 (2007) (Tax Court is the exclusive forum for review of § 6404(e) interest-abatement determinations)
- Schell v. United States, 589 F.3d 1378 (Fed. Cir. 2009) (settlement conversion under § 6231(b)(1)(C) is item-by-item; Form 870-P(AD) settlements are limited to specified items)
- United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1 (2008) (general rule that refund suits may be brought in district court or CFC where conditions satisfied)
- United States v. Woods, 134 S. Ct. 557 (2013) (background on pre-TEFRA partner-level proceedings and rationale for partnership-level resolution)