G-5 Inv. P'ship v. Comm'rG-5 Inv. P'ship v. Comm'r
Lead Opinion
This сase is a partnership-level action based on a petition filed pursuant to section 6226.
The following facts are based upon the parties’ pleadings. See Rule 120. They are stated solely for the purpose of deciding the motion for judgment on the pleadings and not as findings of fact in this case. See Fed. R. Civ. P. 52(a).
Background
G-5 Investment Partnership (G-5) filed a Form 1065, U.S. Return of Partnership Income, for 2000 on October 4, 2001. Henry M. Greene and his wife, Julie M. Greene (partners),
On April 12, 2006, respondent issued a notice of final partnership administrative adjustment (fpaa) for 2000. The fpaa was issued more than 3 years after the filing of the partnership return and the filing of the partners’ individual 2000 and 2001 Federal income tax returns, but before the expiration of 3 years from the dates the partners filed their individual 2002-04 Federal income tax returns.
In the motion for judgment on the pleadings, petitioners contend respondent is barred by the statute of limitations under sections 6501(a) and 6229(a) from assessing an income tax liability attributable to G-5’s рartnership items for 2000
Discussion
A. Judgment on the Pleadings
Rule 120 provides that, after the pleadings in a case are closed but within such time as not to delay the trial, a party may move for judgment on the pleadings. The granting of a motion for judgment on the pleadings is proper only where the pleadings do not raise a genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Abrams v. Commissioner,
B. Background
Section 6226 is one of a group of provisions concerning the tax treatment of partnership items
A taxpayer may seek judicial review of an FPAA by filing a petition for readjustment of the partnership items with this Court. Sec. 6226. The proсedures under TEFRA parallel deficiency
The Commissioner must give nоtice of both the beginning and the ending of administrative proceedings. Sec. 6223(a). The ending notice is the issuance of the FPAA, which must be mailed no earlier than the 120th day after the notice of the beginning of the administrative proceedings was mailed. Sec. 6223(d)(1). TEFRA partnership provisions do not contain a period of limitations within which an FPAA must be issued, unlike the period of limitations applicable to the issuance of an FPAA to a large partnership.
C. Statute of Limitations in TEFRA Proceedings
Section 6501(a) provides that the amount of any tax shall be аssessed within 3 years from the date a taxpayer’s return is filed.
Section 6229 establishes the minimum period for the assessment of any tax attributable to partnership items (or affected items) notwithstanding the period provided for in section 6501. Section 6229 is not a stand-alone statute of limitations but can extend the section 6501 period of limitations
Stated another way, sections 6229 and 6501 provide alternative periods within which to assess tax with respect to partnership items, with the later expiring period governing in a particular case. AD Global Fund, L.L.C. v. United States,
The issuance of an FPAA suspends the running of any applicable period of limitations under sections 6229 and 6501 until the FPAA adjustments become final or conclusively established,
Once the partnership proceeding is completed, if an affected item requires determinations to be made at the partner level, the Commissioner may issue a notice of deficiency to a partner for additional deficiencies attributable to an
Petitioners do not dispute that the FPAA was issued within 3 years of the time they filed their 2002-04 individual income tax returns. Petitioners do dispute whether respondent may assess a tax liability for the 2002-04 taxable years where the underlying partnership item adjustments relate to transactions that were completed and reported on G-5’s partnership return in 2000, a year closed to assessment by section 6501.
In deficiency proceedings, section 6501 does not preclude an examination into events occurring in prior years which are closed to assessment for the purpose of correctly determining income tax liability for years which are still open. Sec. 6214(b); Hill v. Commissioner,
Although thе rule, which allows the review of a year closed by the period of limitations to adjust or recompute items that would cause a tax liability in an open year, pertains to deficiency proceedings, there is no TEFRA partnership provision thаt precludes extending this rule to partnership proceedings. Petitioners offer no reason the same rule should not apply to the assessment of a tax liability arising from a TEFRA partnership proceeding. The Court has jurisdiction to determine all partnership items for the taxable year to which the FPAA relates and the proper allocation of such items among the partners. Sec. 6226(f). Therefore, after the Court’s decision in this TEFRA partnership proceeding becomes final, respondent mаy assess a tax liability for a year open under
In this case, although the periods prescribed by sections 6229(a) and 6501(a) have run for 2000 and 2001, the FPAA determined adjustments to partnership items (capital losses) that may have income tax consеquences to the partners at the partner level in 2002-04, years open under the period of limitations. If the adjustments to partnership items in the FPAA are sustained, respondent may assess a computational adjustment or determine a deficiency against the partners for those open years. However, respondent concedes that, because the tax years 2000 and 2001 are closed, respondent is barred from assessing any deficiencies, penalties or additions to tax with respeсt to the partners’ 2000 and 2001 tax years.
This Court finds that respondent’s issuance of the FPAA on April 12, 2006, for G-5’s 2000 tax year was not barred by any period of limitations
An appropriate order denying petitioners’ motion for judgment on the pleadings will be issued.
Notes
Unless otherwise indicated, all section rеferences are to the Internal Revenue Code (Code), as amended, and Rule references are to the Tax Court Rules of Practice and Procedure.
For convenience, the Court uses the terms “partnership” and “partner” without deсiding whether a partnership existed, a matter which respondent disputes.
The term “indirect partner” means a person holding an interest in a partnership through one or more pass-thru partners. Sec. 6231(a)(10). The term “pass-thru partner” means a partnеrship, estate, trust, S corporation, nominee, or other similar person through whom other persons hold an interest in the partnership with respect to which proceedings under subch. C are conducted. Sec. 6231(a)(9).
H. Miles Investments, L.L.C., is a single-member limited liability сompany and a pass-thru partner with petitioner Henry M. Greene as its member.
In respondent’s objection to the motion for judgment on the pleadings, he concedes the limitation periods are closed with respect to the partners’ 2000 and 2001 tax years.
Partnership items are items required to be taken into account for the partnership’s taxable year, to the extent regulations provide that such items are more appropriately determined at the partnership level than at the partner level. Sec. 6231(a)(3); sec. 301.6231(a)(3)-l, Proced. & Admin. Regs.
An “affected item” is any item whose existence or amount depends on any partnership item. Sec. 6231(a)(5). Examples of affected items include: Capital loss carryforwards, net operаting loss carrybacks, investment tax credit carrybacks, a partner’s basis in his partnership interest, passive losses, and sec. 465 at-risk limitations. Harris v. Commissioner,
SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUSTMENTS.
(a) General Rule. — * * * no adjustment under this subpart to any partnership item for any partnership taxable year may be made after the date which is 3 years after the later of—
(1) the date on which the partnership return for such taxable year was filed, or
(2) the last day for filing such return for such year (determined without regard to extensions).
There are exceptions to the 3-year period which are not applicable in this case. See, e.g., sec. 6501(c), (d), (e), (f), (h).
Adjustments may become final or conclusively established as a result of an unchallenged FPAA, a judicial determination pursuant to a sec. 6226 proсeeding, a settlement agreement pursuant to sec. 6224(c), or a request for administrative adjustment pursuant to sec. 6227.
A computational adjustment is any change in a partner’s tax liability to reflect the proper treatment of a partnership item. Sec. 6231(a)(6).
Challenges to readjustments of affected items requiring partner-level determinations are not precluded by the finality of a partnership proceeding, although relitigation of distributable partnership income is barred. Woody v. Commissioner,
See Kligfeld Holdings v. Commissioner,