Meruelo v. Commissioner
2012 U.S. App. LEXIS 17208
| 9th Cir. | 2012Background
- Meruelo–MCM is a disregarded entity; 1999 Intervest ownership via MCM yields partnership items treated at partner level.
- Intervest's 1999 Form 1065 listed MCM as a member but did not disclose MCM’s disregarded status or Meruelo’s actual 1999 membership.
- Meruelos filed a joint return for 1999 reporting a large foreign currency loss from Intervest passthrough; return did not identify Intervest or Meruelo’s membership.
- IRS issued a Notice of Deficiency (NOD) on Oct 10, 2003, before any FPAA and within the normal 3-year TEFRA period.
- Meruelos challenged the NOD’s validity, arguing lack of pending partnership proceedings and premature issuance; IRS moved to stay due to criminal investigation.
- Tax Court held NOD valid because no partnership-level proceeding existed and the normal limitations period had not expired, with potential for later partnership proceedings under TEFRA c, but not to invalidate the NOD.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a NOD is valid if no TEFRA partnership level proceeding is pending. | Meruelo argues NOD premature due to no FPAA/acceptance of Intervest return. | Merelos see absence of pending partnership proceeding as fatal to NOD validity. | NOD valid; no pending partnership proceeding required for NOD under TEFRA. |
| Whether IRS could issue NOD before FPAA and before accepting Intervest’s return as filed. | Meruelo contends IRS considered future partnership adjustments; thus NOD premature. | IRS may issue NOD absent FPAA/acceptance; future actions do not invalidate NOD. | NOD valid; acceptance of Intervest’s return as filed not required to preclude NOD. |
| Whether TEFRA’s limitations period affects NOD validity when fraud exceptions exist. | Meruelo argues limitations and potential FPAA timing foreclose NOD. | TEFRA permits late adjustments under § 6229(c) without invalidating NOD issued within period. | NOD permissible; § 6229(c) allows late partnership adjustments without invalidating NOD. |
Key Cases Cited
- Roberts v. Commissioner, 94 T.C. 853 (Tax Court 1990) (acceptance of partnership return as filed where no partnership proceeding pending)
- Gustin v. Commissioner, 83 T.C.M. (CCH) 1341 (Tax Court 2002) (NOD valid when no partnership proceedings; FPAA not issued; limitations expired)
- Adkison v. Commissioner, 592 F.3d 1050 (9th Cir. 2010) (TEFRA jurisdiction limits; partnership items governed by TEFRA)
- Napoliello v. Commissioner, 655 F.3d 1060 (9th Cir. 2011) (IRS normally may assess after notice of deficiency; jurisdiction depends on NOD)
- Curr-Spec Partners, L.P. v. Commissioner, 579 F.3d 391 (5th Cir. 2009) (TEFRA exceptions to normal statute; FPAA timing considerations)
- Bakersfield Energy Partners, LP v. Commissioner, 568 F.3d 767 (9th Cir. 2009) (recognizing §6229(c) extensions; partnership adjustments possible after period)
- GAF Corp. v. Commissioner, 114 T.C. 519 (Tax Court 2000) (TEFRA framework; NODs and partnership-level proceedings overview)