United States v. David Stewart
663 F. App'x 336
| 5th Cir. | 2016Background
- Odyssey Energy Capital I, LP received a 20% interest (~$20M) from a 2004 sale and originally reported the receipt as ordinary income on its 2004 partnership return; partners received Schedule K-1s reflecting ordinary income.
- In 2007 Odyssey filed an amended Form 1065 recharacterizing the item as capital gain and reissued amended K-1s; Stewart and Plato amended their individual 2004 returns and obtained refunds.
- A separate partner’s refund was investigated and denied; that investigation led the IRS to conclude the 20% interest was compensation (ordinary income) and flagged the refunds to Stewart and Plato.
- The United States sued in 2010 to recover the refunds as erroneous; the district court granted summary judgment to the taxpayers in 2015.
- The Fifth Circuit reversed, holding Odyssey and the partners did not properly file an Administrative Adjustment Request (AAR) under I.R.C. § 6227 (Form 8082), nor substantially comply, so the partnership-level item was not properly adjusted and the refunds were erroneous and recoverable within the limitations period.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Odyssey’s amended partnership return changed the partnership item without an AAR | U.S.: Amendments without an AAR do not adjust partnership items; Form 8082/§6227 required | Stewart/Plato: Amended Form 1065 and amended K-1s effected the change | Held: Not sufficient; §6227/Form 8082 required, so partnership item unchanged |
| Whether partners’ amended individual returns served as AARs | U.S.: Partner returns do not substitute for an AAR filed per §6227 | Defendants: Their amended returns and short statements substantially complied | Held: Not sufficient; partner returns were not valid AARs |
| Whether defendants substantially complied with AAR requirements | U.S.: Short statements lacked required detail and were not sent to proper center | Defendants: Substantial compliance based on content of amended returns | Held: No substantial compliance (Rigas/Samueli controlling) |
| Whether the government’s suit to recover refunds was timely and permissible | U.S.: Refunds were erroneous and suit filed within 2-year limitations | Defendants: Refunds valid so not recoverable | Held: Suit timely; refunds were erroneous and recoverable under §7405/§6532 |
Key Cases Cited
- Samueli v. C.I.R., 132 T.C. 336 (Tax Ct. 2009) (Form 8082/AAR requirement and content standards)
- Rigas v. United States, [citation="486 F. App'x 491"] (5th Cir. 2012) (short statement on amended return did not constitute AAR/substantial compliance)
- Angelus Milling Co. v. Comm’r of Internal Revenue, 325 U.S. 293 (1945) (waiver of formal requirements requires unmistakable showing the Commissioner understood the specific claim)