Russian Recovery Fund Ltd. v. United States
101 Fed. Cl. 498
Fed. Cl.2011Background
- TEFRA readjustment action under 26 U.S.C. §§ 6221-6233; RRA as tax matters partner for RRF challenges FPAA for 2000 year.
- FPAA seeks to disallow RRF 2000 losses allocated to FFIP; effects flow through to indirect partners (Zimmerman and DiBiase).
- FFIP filed its own 2000/2001 returns; Zimmerman’s 2001 return reported prior-year RRF losses; DiBiase’s 2001 return reflected carry-forward from FFIP.
- FFIP extended assessment period for FFIP through 2006 via Form 872-P; dispute centers on whether this extension reaches RRF items and indirect partners.
- Court previously held FPAA cannot adjust an individual partner’s non-recourse items and that jurisdiction extends over partnership items; issues now focus on timeliness and open-returns for Zimmerman and DiBiase.
- Cross-motions for summary judgment: plaintiffs (Zimmerman/DiBiase and their partners) argue FPAA untimely for all; defendant argues FPAA timely and suspends limitations for open returns.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to raise statute defense | RRA may raise limitations defense for indirect partners. | Individual partners may raise; TEFRA demands partnership-level handling. | RRA may raise limitations defense on behalf of indirect partners. |
| Timeliness of FPAA under 6501 and 6229 | FPAA issued >3 years after 2000 return; untimely for all partners. | TEFRA allows FPAA any time; 6501/6229 create minimum extension; open returns may be adjusted. | Section 6501 and 6229 work together to create a minimum period; FPAA can be timely even if issued after 3 years. |
| Effect of FPAA on Zimmerman 2001 return | FPAA to RRF cannot suspend Zimmerman’s 2001 return if not attributable to RRF items. | FPAA suspends limitations for open returns attributable to RRF items; Zimmerman’s 2001 return is open. | FPAA to RRF timely suspends Zimmerman's 2001 limitations for items attributable to 2000 RRF losses. |
| Attributable to - Zimmerman 2001 losses after FFIP carry-forward | Losses carried to 2001 FFIP items break link to 2000 RRF items; not attributable to RRF. | Carry-forward remains computational adjustment back to RRF origin; still attributable. | Losses on Zimmerman’s 2001 return remain attributable to 2000 RRF losses; FPAA to RRF valid for suspension. |
| DiBiase 2001 return and FFIP extension impact | FFIP extension only for FFIP items; cannot extend for DiBiase via RRF items. | FFIP extension may suspend for affected items through FFIP; ties back to RRF items. | FFIP extension does not suspend DiBiase’s 2001 return; DiBiase’s 2001 year remains closed. |
Key Cases Cited
- AD Global Fund, LLC v. United States, 481 F.3d 1351 (Fed.Cir.2007) (TEFRA §6229(a) creates minimum period; not a separate limitation)
- Curr-Spec Partners v. Comm., 579 F.3d 391 (5th Cir.2009) (TEFRA timing; FPAA may issue anytime but must affect open returns)
- Keener v. United States, 551 F.3d 1358 (Fed.Cir.2009) (limitations defense as partnership item; handled at partnership level)
- Sente Investment Club Partnership v. Commissioner, 95 T.C. 243 (Tax Ct.1990) (losses are partnership items; adjustments at partnership level; computational adjustments later)
- Kligfeld Holdings v. Commissioner, 128 T.C. 192 (Tax Ct.2007) (origin of assessment year vs. adjustment year; TEFRA treats items by source)
- Prochorenko v. United States, 243 F.3d 1359 (Fed.Cir.2001) (but-for tracing limitations; partnership items must be dealt with at partnership level)
- Electrolux Holdings, Inc. v. United States, 491 F.3d 1327 (Fed.Cir.2007) (definition of 'attributable to' as due to, caused by, or generated by)
- Burnet v. Sanford & Brooks Co., 282 U.S. 359 (Supreme Court 1931) (annual accounting principle foundational to tax.)
- Hillsboro National Bank v. Commissioner, 460 U.S. 370 (Supreme Court 1983) (tax benefit rule; exceptions to strict annual accounting)
- Mayo v. United States, 131 S. Ct. 704 (Supreme Court 2011) (regulatory deference for Treasury interpretations)
- Grapevine Imports, Ltd. v. United States, 636 F.3d 136 (Fed.Cir.2011) (cites Mayo in context of deference to regulations)
- Sente Investment Club Partnership v. Commissioner, 95 T.C. 243 (Tax Ct.1990) (see above)
- First Chicago v. C.I.R., 742 F.2d 1102 (7th Cir.1984) (tracing and computation adjustments in TEFRA context)