MK Hillside Partners v. Commissioner
2016 U.S. App. LEXIS 11440
| 9th Cir. | 2016Background
- In 1999 Marcus Katz entered and terminated collar option contracts, generating a $198,000 credit; he later contributed stock and real estate to MK Hillside Partners, which then sold them.
- Katz’s 1999 individual return did not report the $198,000; MK Hillside’s partnership return reported no gain on the real estate sale. The IRS issued an FPAA to MK Hillside on January 2, 2008, concluding the partnership was a sham and lacked economic substance.
- Katz filed a tax-court petition (as a partner other than the tax matters partner) challenging the FPAA and asserting the statute of limitations barred assessment of tax attributable to him.
- The IRS argued a six-year limitations period applied under §6501(e)(1) because Katz omitted >25% of gross income, and that the limitations period remained open when Katz later agreed to extend assessment time.
- The Tax Court denied Katz’s summary-judgment motion, held a trial would be needed on the omission issue, and ultimately concluded the partnership-level assessment period remained open as to Katz.
- Katz appealed, arguing that 26 U.S.C. §6226(d)(1) permits the Tax Court only to “consider” (not to determine/reject) a partner’s statute-of-limitations claim at the partnership stage; the government and Tax Court took the contrary view.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §6226(d)(1)’s grant to the Tax Court to “consider” a partner’s statute-of-limitations assertion authorizes the court to reject that assertion (i.e., make a determination) | Katz: “consider” is limited to weighing undisputed facts or dismissing partners for timeliness without making a determination; it does not permit the Tax Court to reject the claim | Gov’t: “consider” necessarily includes authority to accept or reject the partner’s claim so the court can decide whether the partnership proceeding may go forward as to that partner | Court: §6226(d)(1) authorizes the Tax Court to consider and thus to accept or reject a partner’s statute-of-limitations assertion for purposes of the partnership proceeding; affirmed |
| Whether judicial estoppel barred the IRS from taking its position here based on alleged inconsistent oral statements in another case (Curr‑Spec) | Katz: IRS took an inconsistent position in Curr‑Spec and should be estopped from asserting here that the Tax Court can determine a partner’s limitations period | Gov’t: No inconsistency with Curr‑Spec; its position here aligns with Curr‑Spec’s holding that partnership proceedings may consider whether individual returns remain open | Court: Judicial estoppel not applied; IRS’s position is consistent with Curr‑Spec and not clearly inconsistent in the relevant legal sense |
| Whether the Tax Court’s partnership-level consideration precludes partner-level proceedings or creates preclusion effects | Katz: (argued implications) partnership adjudication might bar partner-level defenses or require dismissal | Gov’t: Partnership determination is appropriate to decide who remains subject to partnership-level adjustments; partner-level disputes remain for later proceedings | Court: Did not decide preclusion effect; noted partner-level proceedings remain for subsequent determinations and did not address collateral estoppel/res judicata consequences |
| Whether the Tax Court lacked subject-matter jurisdiction absent clear statutory authorization to determine partner-specific limitations questions | Katz: limited jurisdiction; "consider" should not be read to expand Tax Court’s jurisdiction | Gov’t: TEFRA’s structure supports Tax Court authority to resolve applicability of limitations for partnership proceedings | Court: Read §6226(d)(1) in context of TEFRA; jurisdiction includes deciding the timeliness assertion for the partnership-stage purposes |
Key Cases Cited
- United States v. Woods, 134 S. Ct. 557 (Sup. Ct. 2013) (TEFRA partnership-level applicability determinations may require partner-level inquiries but are proper at partnership stage)
- Curr‑Spec Partners, L.P. v. Comm’r, 579 F.3d 391 (5th Cir. 2009) (Tax Court may consider whether a partner’s individual statute of limitations remains open in partnership-level proceedings)
- New Hampshire v. Maine, 532 U.S. 742 (2001) (judicial estoppel framework and factors for applying the doctrine)
- Smith v. Bayer Corp., 564 U.S. 299 (2011) (preclusion questions and the usual role of the second court in determining preclusive effects)