Jаmes T. RODGERS; Claudette M. Rodgers, Plaintiffs-Appellants v. UNITED STATES of America, Defendant-Appellee; Avrum M. Stein; Joan Stein, Plaintiffs-Appellants v. United States of America, Defendant-Appellee; David S. Holland; Jacque N. Holland, Plaintiffs-Appellants v. United States of America, Defendant-Appellee; Linvel M. Bingham; Vicki L. Bingham, Plaintiffs-Appellants v. United States of America, Defendant-Appellee
No. 15-20494 CONSOLIDATED WITH 15-41176
United States Court of Appeals, Fifth Circuit.
FILED November 30, 2016
843 F.3d 181
Richard Caldarone, Michael J. Haungs, Esq., Supervisory Attorney, U.S. Department of Justice, Tax Division, Appellate Section, Washington, DC, Herbert W. Linder, U.S. Department of Justice, Tax Division, Dallas, TX, for Defendant-Appellee.
Before HIGGINBOTHAM, SMITH, and OWEN, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
These consolidated tax refund suits are the latest in a line of cases stemming from faulty American Agri-Corp (“AMCOR“) investments. In the 1980s, Plaintiffs James and Claudette Rodgers, Avrum and Joan Stein, David and Jacque Holland, and Linvel and Vicki Bingham (“Taxpayers“), were partners in AMCOR рartnerships that the Internal Revenue Service (“IRS“) investigated as shams.1 Taxpayers settled with the IRS and paid the amounts assessed, but now seek refunds claiming that the IRS‘s assessments were untimely and that the IRS failed to issue notices of deficiency. Our decision in Irvine v. United States2 forecloses both arguments. Here, like in Irvine, the district courts lack subject matter jurisdiction to hear these refund claims. Additionally, the variance doctrine forecloses Taxpayers’ argument that the IRS failed to issue notices of deficiency because Taxpayers did not make such an argument in their claims for refund before the IRS. Both district courts granted summary judgment for the IRS. We affirm.
I. Statutory Background
The Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA“), which amended the Internal Revenue Code, is the statute at the center of this case.3 As the Supreme Court explained in U.S. v. Woods:
A partnership does not pay federal income taxes; instead, its taxable income and losses pass through to the partners. 26 U.S.C. § 701 . A partnership must report its tax items on an information return,§ 6031(a) , and the partners must report their distributive shares of the partnership‘s tax items on their own individual returns,§§ 702 ,704 . Before 1982, the IRS had no way of correcting errors on a partnership‘s return in a single, unified proceeding.4
In an effort to address these difficulties, Congress enacted TEFRA.5 “TEFRA requires partnerships to file informational returns reflecting the partnership‘s income, gains, deductions, and credits. Individual partners then report their proportionate share of the items on their own tax returns.”6 TEFRA established three categories for items considered in the tax treatment of a partnership: “partnership items,” “nonpartnership items,” and “affected items.”7 TEFRA also created a two-stage procedure for the IRS to determine partnership-related tax matters: first, the IRS assesses partnership items, making any adjustments it deems necessary, and then it may initiate proceedings against individual partners.8
(“(3) Partnership item.—The term ‘partnership item’ means, with respect to a partnership, any item required to be taken into account for the partnership‘s taxable year under any provision of subtitle A to the extent regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the partnership level than at the partner level. (4) Nonpartnership item.—The term ‘nonpartnership item’ means an item which is (or is treated as) not a partnership item. (5) Affected item.—The term ‘affected item’ means any item to the extent such item is affected by a ‘partnership item.‘“).A. Two-Stage Proceedings
At the first step, “[i]f the IRS adjusts any partnership items on a рartnership‘s informational income tax return, it must notify the individual partners by issuing [a Notice of Final Partnership Administrative Adjustment (“FPAA“)].”9 When the FPAA becomes final, the IRS may tax the individual partners for their shares of the adjusted partnership items.10 Partners can, however, challenge the FPAA in partnership-level proceedings before the FPAA becomes final. Within 90 days after a FPAA issues, the “tax matters partner” (“TMP“)11 may file a petition for readjustment of the partnership items in Tax Court or federal district court.12 If the
“If a partner individually settles his or her partnership tax liability with the IRS, ‘the partner will no longer be able to participate in the partnership level litigation, and will be bound instead by the terms of the settlement agreement.‘”16 “The TMP may bind ‘non-notice’ partners to a settlement agreement resolving partnership items if the TMP expressly states in the agreement that it ‘shall bind the other partners.‘”17
B. Statutes of Limitations
The general tax assessment statute of limitations is codified at
- the date on which the partnership return for such taxable year was filed, or
- the last day for filing such return for such year (determined without regard to extensions).
Section 6229(a) “does not establish an independent statute of limitations for issuing FPAAs.”20 This means, as this Court explained in Curr-Spec Partners, L.P. v. Commissioner of Internal Revenue, that the Commissioner may issue an FPAA at any time, subject only to the practical limitation that the FPAA may affect only those partners whose individual returns remain open under
Under
C. Notices of Deficiency
In general, upon the IRS‘s determination of a tax deficiency,
D. Jurisdictional Limitations
TEFRA limits the district courts’ subject matter jurisdiction. Although district courts generally have jurisdiction over a partner‘s refund claim,30
II. Facts
These consolidated cases are part of a series of tax refund suits that stem from limited partnerships managed by AMCOR. This Court has described AMCOR partnerships before:
These partnerships had as stated goals acquiring agricultural land, investing in agricultural ventures, and growing crops. AMCOR solicited investments from high-income professionals across the country. Each partner in an AMCOR partnership would receive a projected tax loss from crops planted in the first year of roughly twice that partner‘s investment. Investors paid the farming expenses up front and deducted the amount invested on their tax returns. The next year, when the crops were harvested, the amount of loss in excess of the amount invested would be subject to taxes. However, the farming expenses typically exceeded any income realized from the farming activities.32
Here, Taxpayers were partners in four different AMCOR partnerships. The Steins were partners in Agri-Venture Associates (“AVA“) in 1984; the Binghams were partners in Emperor Seedless-85 (“ES85“) in 1985; the Hollands were partners in Canyon Desert Vineyards (“CDV“) in 1985; and the Rodgers were partners in Agri-Venture Fund (“AVF“) in 1985 and 1986.33 By 1987, all of the partnerships and Taxpayers had filed their tax returns for the years at issue. Notably, however, AVA‘s 1984 partnership tax return was signed by “Joseph Voyer, Treasurer,”34 based on which the parties dispute the validity of the return.
“In 1987, the IRS began an investigation and audit into the AMCOR partnerships to determine whether they were impermissible tax shelters.”35 The IRS asserts that in 1988, the TMPs for AVF, CDV and ES85 signed Forms 872-P, which extended the IRS‘s assessment periods for each of the partnerships until either April 30, 1991, or, if a FPAA was sent to the partnership, “until one year after the date on which the determination of partnership items became final.” Taxpayers disagree and assert that the “admissible evidence disproves that ‘[i]n 1988, the [TMP] for the partnerships including [AVF, CDV, and ES85] signed’ alleged extensions.”36
In April of 1991, the IRS issued FPAAs for each of the four partnerships. Shortly thereafter, partners in each of the partnerships initiated suits in the Tax Court which challenged the FPAAs for, among other reasons, violating the statute of limitations. Notably, Taxpayers allege they did not participate in these suits, arguing that the version of
Between 1997 and 1999, Taxpayers each settled with the IRS.40 In these settlements, which were silent as to the statute of limitations issue, Taxpayers agreed to pay additional income tax and interest as a result of the IRS‘s adjustments to partnership items. Taxpayers paid the IRS in full, and now seek to recover these payments in these refund suit.
Meanwhile, on February 2, 1998, the IRS and Tax Court partners filed a joint motion to withdraw their earlier motions for reconsideration of the 1993 Order. But between April 9, 1999 and June 29, 2000, the TMPs intervened and ultimately agreed to try the statute of limitations issue, which developed into Agri-Cal Venture Associates v. Commissioner of Internal Revenue (”Agri-Cal“). Agri-Cal was the consolidated case of several partnerships, including AVF (in which the Rodgers were partners) and AVA (in which the Steins were partners).41 Taxpayers argue that the IRS and the TMPs did not intend other partnerships to be bound by Agri-Cal,42 although there was a stipulation that CDV (in which the Hollands were partners) and ES85 (in which the Binghams
None of the рartnerships has sustained the affirmative defense of statute of limitations; the FPAA‘s issued to AVA and TFV for the 1984 and 1985 taxable years are valid. The FPAA‘s issued to AVF, DV-85, and HFA-II for the 1985 taxable year are valid.43
The Tax Court found the assessments valid for the 1984 year, because the AVA partnership never filed a valid return (it was signed by Joseph Voyer, not a partner), so the statute of limitations never began to run.44 The Tax Court found the assessments valid for the 1985 year, because the Forms 872 sufficiently extended the three-year statute of limitations.45
After the Agri-Cal decision, the IRS and TMPs engaged in negotiations in an attempt to settle all the AMCOR suits.46 The agreements were entered on July 19, 2001, and included the following: “That the assessment of any deficiencies in income tax that are attributable to the adjustments to partnership items for the years 1984 and 1985 are not barred by the provisions of
Around the same time as the Agri-Cal litigation and the post-Agri-Cal negotiаtions, Taxpayers filed claims with the IRS in an attempt to be refunded what they paid to the IRS after their settlements.47 Among other arguments, Taxpayers asserted the assessments were invalid because the IRS assessed after the statute of limitations had run. Taxpayers did not assert, however, that the IRS failed to issue required notices of deficiency. In 2001, the IRS denied the refund claims of the Rodgers, Steins and Binghams, finding the claims “precluded under
Taxpayers subsequently brought a refund action in two federal district courts,49 the Rodgerses, Steins, and Hollands in a consolidated action in the Southern District of Texas and the Binghams in the Eastern District of Texas. In both cases,
Taxpayers also argued in both district courts that the IRS was required to issue notices of deficiency before making the assessments at issue. Both district courts rejected this claim, albeit for different reasons. In Bingham, the district court rejected Taxpayers’ notice of deficiency claim, finding it barred by the “variance doctrine,” because Taxpayers failed to assert this argument in their initial refund suit. The district court in Rodgers rejected taxpayers’ argument “on the merits” because ”
III. Standard of Review
This Court reviews both a district court‘s grant of summary judgment and its determination of subject matter jurisdiction de novo.50 “Summary judgment is appropriate when ‘there is no genuine dispute as tо any material fact and the movant is entitled to judgment as a matter of law.‘”51
IV. Discussion
At the heart of both of Taxpayers’ claims is a question of jurisdiction. This Court has explained, “[i]n a partner-level refund action,” such as this one, “courts do not have jurisdiction over partnership items.”52
A. Statute of Limitations Claim
Because
Section 7422(h) states: “No action may be brought for a refund attributable to partnership items ... .”53 This means “[i]f the refund is attributable to partnership items, section 7422(h) applies and deprives the court of jurisdiction. If ... the refund is attributable to nonpartnership items, then section 7422(h) is irrelevant, and the general grant of jurisdiction is effective.”54 The
Taxpayers advance a multitude of reasons that the IRS‘s assessments of the taxes at issue were untimely and the district courts have jurisdiction to hear their refund claims. Taxpayers contend that they in fact prevailed on the limitations issue in the proceedings below such that refund jurisdiction is not barred, that the IRS failed to identify a valid partnership-level extension, that their case is distinguishable from Irvine, and that the district courts’ interpretation of Irvine directly conflicts with our earlier decisions in Curr-Spec Partners, L.P. v. Commissioner of Internal Revenue and Duffie v. United States. The IRS responds that Irvine compels the outcome that the district courts lacked subject matter jurisdiction over the limitations claim, that Irvine is consistent with precedent and cannot be distinguished, and that Taxpayers did not prevail on the limitations issue in the proceedings below.
Both district courts concluded that the statute of limitations claim cannot be determined without reference to the government‘s asserted bases for extensions under
This outcome is compelled by Irvine.57 Like Taxpayers here, the Irvine plaintiffs “were partners in AMCOR limited partnerships in the 1980s”58 who asserted that they were improperly “assessed by the IRS after the
The Irvine Court identified the dispositive question as “whether the [plaintiffs‘] claim that the additional tax assessments were time-barred is a claim for a refund аttributable to partnership or nonpartnership items.”61 It noted the “significant interplay between
ernment asserted
The same claims compel the same result. Here, Taxpayers maintain, “[t]he IRS did not assess within the Taxpayers’
Taxpayers vigorously dispute the validity of the IRS‘s asserted bases for extension. For example, they assert that the TMP extensions were invalid because they were not signed by the actual TMP at the time, and that Taxpayers could not participate in the Tax Court lawsuits challenging the FPAAs because the version of
B. Notice of Deficiency Claim
Taxpayers also argue the IRS assessments are invalid because the IRS failed to issue deficiency notices as required by
Section 6213(a) describes the gеneral procedures for taxpayers who wish to challenge a deficiency by petitioning the Tax Court. Section 6230(a) provides that generally deficiency notices are not required for computational adjustments, but
The IRS primarily takes issue with Taxpayers’ analysis because
The Rodgers court found Taxpayers’ deficiency argument foreclosed by Irvine. It explained, “[Taxpayers‘] argument ... hinges on their position that
Taxpayers aver deficiency notices were required based on the
Refund courts do not have jurisdiction to adjudicate Taxpayers’ contention because it assumes that the IRS did not properly extend their assessment deadlines under
Furthermore, contrary to Taxpayers’ claim, Irvine does not conflict with Curr-Spec76 and Duffie.77 In Curr-Spec, this Court held “that
In Duffie, the parties disputed whether
Taxpayers additionally argue that Rodgers erred, because if the
Additionally and alternatively, Taxpayers’ deficiency argument is foreclosed by the variance doctrine.
The claim must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof ... A claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund or credit.
As this Court recently explained, “[t]his regulation codifies the variance doctrine.”84 This means that “[a]bsent a waiver by the Government, a taxpayer is barred from raising in a refund suit grounds for recovery which had not previously been set forth in its claim for а refund.”85
The IRS maintains that Taxpayers’ notice of deficiency claim is barred by the variance doctrine, as they did not raise it in their administrative refund claims. Taxpayers respond that their deficiency claim was fairly contained in the general language of their administrative claims, citing the following paragraph:
The assessment of tax and interest was made after the statute of limitations had already expired. Any amount assessed and collected after the statute of limitations has expired constitutes an overpayment pursuant to
Internal Revenue Code § 6401 .
Neither this paragraph nor the rest of Taxpayers’ administrative claims “set forth in detail” Taxpayers’ notice of deficiency ground “upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof.”86 It is not enough to argue that the statute of limitations claim “inherently include[s]” the notice of deficiency claim. Such an understanding would defeat the purpose of “assur[ing] that the Commissioner is apprised of the exact nature of the claim and the facts upon which the claim is advanced
Taxpayers further argue that the IRS had a duty to conduct a meaningful investigation based on the administrative claim assertions, and had they done so, the IRS would have ascertained that deficiency notices were required. But this is not correct either. It is the Taxpayers’ duty to inform the IRS of grounds for recovery in their refund claim, not the other way around.88
Taxpayers also contend that the IRS waived its variance argument because it violated procеdure and failed to conduct an investigation into Taxpayers’ statute of limitations grounds in their administrative claim. As an initial matter, “a taxpayer asserting a waiver bears an extremely heavy burden of proving such a waiver.”89 And in any event, the IRS addressed Taxpayers’ statute of limitations claim:
Your claim for refund of the tax paid under the settlement agreement entered into with Appeals, Form 870-P(AD), concerning the partnership is denied. Your claim is precluded under
I.R.C. 7422(h) . TEFRA requires that all challenges to adjustments of partnership items be made in a single, unified agency proceeding, at the partnership level.90
Though cursory, the IRS‘s reliance on
Moreover, the exception to the variance doctrine “in cases where the Government‘s unilateral action itself creates the substantial variance,” does not apply here.91 The variance arose from Taxpayers’ failure to assert a deficiency notice ground in its refund claim, not any later action by the IRS of which Taxpayers could not havе been aware, as was the case in El Paso CGP Co. v. United States.92
Finally, Taxpayers argue the IRS waived the variance doctrine argument for failing to brief it in its motion for summary judgment. But even if the variance doctrine was not jurisdictional and could thus be waived by a party,93 the IRS did not
In sum, because “the variance doctrine requires that the grounds for recovery advanced in federal court must be the same as advanced before the IRS,”95 and because Taxpayers’ did not advance deficiency notice grounds under
And even if it was not so barred, it would fail on the merits. Taxpayers’ argument that their deficiencies were attributable to a violation of their assessment deadline misunderstands “deficiency.” Deficiency is defined at
“the amount by which the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of—
- the sum of
- (A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus
- (B) the amounts previously assessed (or collected without assessment) as a deficiency, over—
- the amount of rebates, as defined in subsection (b)(2), made.
Taxpayers argue that their deficiency was $0. But this conclusion is based on Taxpayers’ argument that the IRS‘s assessment was untimely, which this court may not consider for the reasons stated earlier in this decision, and nevertheless contravenes the statutory definition of deficiency. Section 6211(a) first looks to the “tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44,” not the tax a taxpayer believes should have been imposed by such subtitles, or chapters. The taxes imposed here exceeded $0.96 Accordingly, even if the courts could consider Taxpayers’ notice of deficiency claim, it would not be successful.
V. Conclusion
For the reasons stated above, we affirm the decisions of the district courts.