165 T.C. 1
T.C.2025Background
- JM Assets, LP, a partnership, filed its 2018 tax return reporting proceeds from several real property sales as installment sales, attaching the relevant forms to its return.
- The IRS examined the 2018 return, notified JM Assets of an imputed underpayment, and JM Assets submitted a timely request for modification of the underpayment calculation.
- Dispute arose over when the statute of limitations began to run for the IRS to issue a Final Partnership Adjustment (FPA) following JM Assets' modification request.
- The IRS issued the FPA more than 270 days after JM Assets submitted its modification request, relying on a regulation interpreting the relevant statutory timeline.
- JM Assets challenged the timeliness of the FPA as contrary to the statute and sought summary judgment; the IRS alternatively argued for an extended limitations period due to alleged substantial omission of income.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statutory period for IRS to issue FPA after modification request | Timeline is 270 days from date taxpayer submits "everything required" for modification | Timeline is 270 days from end of modification request period, not actual submission | Court held statute is clear: 270 days from when everything is submitted; IRS regulation is invalid to the extent it extends this period |
| Validity of Treasury Regulation §301.6235-1(b)(2)(A) | Regulation unlawfully extends period beyond unambiguous statute | Regulation is a valid exercise of delegated authority under 6225(c) | Court held regulation is invalid where it conflicts with the statute |
| Applicability of extended (six-year) statute for substantial omission of income | No substantial omission; all relevant transactions and amounts were adequately disclosed on return | Partnership omitted over 25% of income by mischaracterizing installment sales | Court held there was adequate disclosure, so six-year extension does not apply |
| Granting IRS leave to amend pleadings on substantial omission theory | Grant should be denied as amendment would be futile | Grant leave to allow alternative argument on substantial omission of income | Court denied leave, finding IRS argument futile both factually and legally |
Key Cases Cited
- Varian Med. Sys., Inc. & Subs. v. Commissioner, 163 T.C. 76 (2024) (reaffirming that regulations cannot override unambiguous statutory text)
- Colony, Inc. v. Commissioner, 357 U.S. 28 (1958) (substantial omission of income does not include disclosed transactions—"clue test")
- United States v. Home Concrete & Supply, LLC, 566 U.S. 478 (2012) (reaffirmed Colony’s interpretation of substantial omission for purposes of extended statute of limitations)