MK HILLSIDE PARTNERS; M.A. Katz, a partner other than the Tax Matters Partner, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
No. 14-71504
United States Court of Appeals, Ninth Circuit.
June 23, 2016
Argued and Submitted May 5, 2016 Pasadena, California
GRANTED.
Joan I. Oppenheimer (argued) and Damon W. Taaffe, Attorneys, Tax Division; Tamara W. Ashford, Acting Assistant Attorney General; United States Department of Justice, Washington, D.C.; for Respondent-Appellee.
Before: RAYMOND C. FISHER, MILAN D. SMITH, JR., and JACQUELINE H. NGUYEN, Circuit Judges.
OPINION
M. SMITH, Circuit Judge:
In an action seeking judicial review of the IRS‘s adjustment of a partnership‘s tax return, the tax court has jurisdiction, pursuant to
FACTS AND PRIOR PROCEEDINGS
In 1998, Appellant Marcus Katz entered into two “collar” option contracts covering stock shares he owned.2 Katz terminated the collars in September of 1999, which generated a credit of $198,000. In October of 1999, Katz contributed stock to MK Hillside Partners (MK Hillside), a partnership between Katz and his wholly owned corporation, MK Hillside Investors, Inc. Katz also contributed real estate to the partnership. The partnership then sold the stock and real estate.
Katz‘s and MK Hillside‘s 1999 tax returns were received on September 25, 2000. Katz‘s return did not list the $198,000 credit from the collar termination, and MK Hillside‘s return reported no gain on the real estate sale. The IRS did not issue a notice of deficiency for Katz‘s 1999 taxes.3 In July of 2006, Katz agreed to extend the time to assess his 1999 tax liability, including tax attributable to partnership items, until January 31, 2008. The IRS issued a Final Partnership Administrative Adjustment (FPAA) to MK Hillside on January 2, 2008, finding that MK Hillside was a sham, lacked economic substance, and was formed and used principally to avoid taxes.
Katz filed a petition in the tax court contesting that finding and asserting the statute of limitations.4 The IRS responded that the Section 6501(e)(1) six-year statute of limitations applied because Katz‘s omission of the $198,000 on his 1999 return constituted more than 25% of the gross income reported on the return. Katz moved for summary judgment, arguing, inter alia, that he no longer had an interest in the partnership proceeding under Section 6226(d)(1), and, in the alternative, that the tax court lacked jurisdiction to consider at the partnership stage whether, due to a gross understatement of nonpartnership income, his 1999 tax year remained open at the time he agreed to extend his assessment period.
The tax court denied summary judgment, holding that a trial would be necessary to determine whether Katz in fact omitted substantial income from his 1999 return, in which case his personal limitations period would have been six years and would have remained open at the time Katz agreed to extend his limitations period. To avoid a trial, the parties agreed to a Stipulation of Facts and a Second Stipulation of Settled Issues. Based on those stipulations, the tax court held that the period for assessing tax on the 1999 MK Hillside partnership items was open as to Katz.
STANDARD OF REVIEW
“Decisions of the tax court are reviewed on the same basis as decisions from civil bench trials in the district court. Thus, we review the tax court‘s conclusions of law de novo and its factual findings for clear error.” DHL Corp. & Subsidiaries v. Comm‘r, 285 F.3d 1210, 1216 (9th Cir. 2002) (citations omitted. Similarly, because we review a district court‘s application of the doctrine of judicial estoppel for abuse of discretion, Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001), we likewise review the tax court‘s application of judicial estoppel to the facts of this case for abuse of discretion.
ANALYSIS
I. Legal Standards
A. Partnership Taxation
“A partnership does not pay federal income taxes; instead, its taxable income and losses pass through to the partners.” United States v. Woods, — U.S. —, 134 S.Ct. 557, 562, 187 L.Ed.2d 472 (2013) (citing
Generally, an individual‘s tax return remains open for three years after the return is filed.
B. A Partner‘s Ability to Assert a Personal Statute of Limitations in an FPAA Proceeding
Partners are treated as parties to a petition for readjustment of the FPAA if they have an interest in the outcome.
This language is the primary focus of the parties’ dispute. Katz contends that “to consider” cannot mean “to determine,” except perhaps if the determination is based on certain undisputed facts. The IRS contends that “to consider” an assertion that the statute of limitations has run necessarily requires either accepting or rejecting the assertion.
C. The Tax Court‘s Jurisdiction
“[T]he Tax Court, as an Article I court, is a court of limited jurisdiction and may only exercise jurisdiction to the extent authorized by Congress.” Adkison v. Comm‘r, 592 F.3d 1050, 1052 (9th Cir. 2010) (citing Estate of Branson v. Comm‘r, 264 F.3d 904, 908 (9th Cir. 2001)). TEFRA provides that:
A court with which a petition is filed in accordance with this section shall have jurisdiction to determine all partnership items of the partnership for the partnership taxable year[,] ... the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item.
II. Because the Tax Court Had Jurisdiction to “Consider” Katz‘s Argument, it Necessarily Had Jurisdiction to Reject It, At Least for Purposes of the Partnership Proceeding
A. Katz‘s Statutory Construction Argument Fails
“If the statutory language is unambiguous, its plain meaning controls unless Congress has ‘clearly expressed’ a contrary legislative intention.” Price v. Comm‘r, 887 F.2d 959, 963-64 (9th Cir. 1989) (quoting United States v. 594,464 Pounds of Salmon, 871 F.2d 824, 826 (9th Cir. 1989)). Conversely, if we find the statutory language indeterminate, we resolve the dispute “by looking to ‘the structure of [TEFRA] and its other provisions.‘” Woods, 134 S.Ct. at 563 (quoting Maracich v. Spears, — U.S. —, 133 S.Ct. 2191, 2200, 186 L.Ed.2d 275 (2013) (alteration in Woods)).
Katz grounds his argument on the difference in word choice between statutory subsections. While
Katz next argues that dictionary meanings apply, and cites the following definitions of “consider“: to “think carefully about,” to “think or deem to be; regard as,” to “take into account; bear in mind.” The American Heritage Dictionary of the English Language 392 (4th ed. 2000). Those definitions, listed first, second, and fourth, respectively, do not fit the context of the statute nearly as well as the third definition, which Katz neglected to mention: to “form an opinion about; judge.” Id. As the government observes, it is unlikely that Congress enacted ”
Katz also raises a meritless argument based on a dictionary‘s usage example: “[h]e considered the cost before buying the new car.” The Random House Dictionary of the English Language 312 (1967). Katz argues from this example that “[l]ike the fixed cost of a car, a court can consider established facts (the filing date of a return, etc.) but must not ‘determine’ if a tax return position is accurate for statute of limitations or deficiency procedures.” Car salespersons might dispute the argument‘s premise that the cost of a car is “fixed.” But even if the example given had involved consideration of an immutable item, it would still be just that—a single nonlimiting example. It would not show that one can consider only “fixed” items.
The closest analogy Katz draws is to
The Tax Court in redetermining a deficiency of income tax for any taxable year or of gift tax for any calendar year or calendar quarter shall consider such facts with relation to the taxes for other years or calendar quarters as may be necessary correctly to redetermine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the tax for any other year or calendar quarter has been overpaid or underpaid.
Indeed, Katz ultimately does not propose a “pure contemplation” interpretation. Instead, Katz argues that the tax court should dismiss partners from the partnership case based on consideration of:
any undisputed fact, including but not limited to: (1) whether a partner filed a personal return for the tax year in issue; (2) the date of the filing of the return; (3) whether the IRS is currently examining the partner for the tax year at issue in the partnership-level proceeding; (4) whether the IRS issued a notice of deficiency to the partner; and (5) whether the partner executed any extension of the applicable statute of limitations.
This “undisputed facts” interpretation follows from none of the bases Katz asserts: the plain language of the statute, dictionary meanings and examples, or analogy to
Katz‘s argument is also in tension with Woods, which held that “[p]rohibiting courts in partnership-level proceedings
While Woods did not involve
B. Katz‘s Judicial Estoppel Argument Fails
Katz argues that the IRS is judicially estopped from arguing that omission of a nonpartnership item can extend the time to assess tax on partnership items due to a purportedly contrary position it took in oral argument in Curr-Spec Partners, L.P. v. Commissioner, 579 F.3d 391 (5th Cir. 2009). The tax court, citing New Hampshire v. Maine, 532 U.S. 742, 755-56, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001), rejected this argument, “declin[ing] to apply the doctrine in this case based solely on the statement of an attorney made during oral argument in a different case.”
Although “[a]dditional considerations may inform the doctrine‘s application in specific factual contexts,” “several factors typically inform the decision whether to apply” judicial estoppel:
First, a party‘s later position must be “clearly inconsistent” with its earlier position. Second, ... whether the party has succeeded in persuading a court to accept that party‘s earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create “the perception that either the first or the second court was misled.” ... A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.
New Hampshire, 532 U.S. at 750-51 (citations omitted).
Whether or not counsel‘s answer to a question at oral argument in Curr-Spec was inconsistent with the IRS‘s position here, the statutory construction the tax court adopted here is consistent with the decision in Curr-Spec, which held that “the Tax Court does not overreach its jurisdiction in partnership-level proceedings when, for limitations purposes, it considers whether a partner‘s individual tax return remains open to assessment.” 579 F.3d at 401. Curr-Spec is thus not in conflict with the IRS‘s position or the Tax Court‘s holding here that “in a partnership-level proceeding we may consider the partner‘s period of limitations for the narrow purpose of determining whether the partnership-level action may proceed.”
Katz points to language in Curr-Spec stating that “[a]s counsel for the Commissioner represented at oral argument ... ‘[i]t‘s only to the extent that a partner‘s individual statute of limitations is still open that we could do an assessment.‘” 579 F.3d at 398-99. This language does not address Katz‘s purported distinction between “considering” and “determining” a partner‘s assertion that the statute of limi-
Curr-Spec concluded that the practical result of its holding was that the IRS “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.” Id. at 399. That holding in no way conflicts with the IRS‘s position here.
We need not, and do not, reach the IRS‘s other arguments for affirmance.6 Nor do we make any prediction regarding the preclusive effect of the tax court‘s holding in the partnership-level proceeding on any subsequent partner-level proceedings.7
CONCLUSION
The decision of the Tax Court is AFFIRMED.