Crnkovich v. U.S.
| Decision Date | 01 February 2000 |
| Citation | 202 F.3d 1325 |
| Parties | (Fed. Cir. 2000) LAWRENCE P. CRNKOVICH, NAOLA A. CRNKOVICH, WILLIAM N. LATTIN, SUSAN LATTIN, GILBERT BACON, ARLENE J. BACON, WALTER B. CARMICHAEL, MARTHA CARMICHAEL, EDMOND MALOUF,and KATHERINE MALOUF, Plaintiffs, and WILLIAM P. SKINNER and MARY W. SKINNER,Plaintiffs-Appellees, v. UNITED STATES, Defendant-Appellant, 99-5069 DECIDED: |
| Court | U.S. Court of Appeals — Federal Circuit |
Dana R. Taylor, Hagen, Dye, Hirschy & DiLorenzo, P.C., of Portland, Oregon, argued for plaintiffs-appellees.
Thomas J. Sawyer, Attorney, Tax Division, Appellate Section Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Loretta C. Argrett, Assistant Attorney General, and Richard Farber, Attorney.
Before RADER, SCHALL, AND GAJARSA, Circuit Judges.
The United States Court of Federal Claims granted judgment to William P. Skinner and Mary W. Skinner on their tax refund claims. See Skinner v. United States, No. 95-599-T (CFC Feb. 10, 1999) (judgment). In its thorough and well-reasoned opinion, the trial court held that the Internal Revenue Service did not assess the Skinners within the applicable statutory time period. Crnkovich v. United States, 41 Fed. Cl. 168, 180 (1998). Final judgment was entered in favor of the Skinners after the United States chose not to contend that the Skinners had impliedly waived the requirement that the government assess them within the statutory period.
This court reviews the Court of Federal Claims' grant of summary judgment de novo. Hatter v. United States, 64 F.3d 647, 649 (Fed. Cir. 1995) Under that standard, this court concludes that the Court of Federal Claims correctly construed the law governing the statutory time period for assessment of the Skinners' taxes as shown by their stipulation agreement. Because the Court of Federal Claims' analysis needs no amplification, this court adopts as its own the opinion of the Court of Federal Claims to the extent that it relates to the Skinners' case, a copy of which is attached as an appendix.
COSTS
Each party shall bear its own costs.
v.
THE UNITED STATES, Defendant.
Tax; taxation of partnerships under the Tax Equity and Fiscal Responsibility Act (TEFRA); statute of limitations for tax assessments of partnerships under TEFRA and I.R.C. §§ 6501(a), 6229(a) and (f); conversion from partnership to non-partnership items by entering a settlement agreement under I.R.C. § 6231(b)(1)(C); evaluation of whether a Form 906 agreement or a stipulation in a Tax Court proceeding constitutes a "settlement agreement" under I.R.C. § 6231(b)(1)(C).
Dana R. Taylor, Portland, Oregon, for plaintiffs.
William K. Drew, with whom were Loretta C. Argrett, Assistant Attorney General, Mildred L. Seidman, Chief, and David Gustafson, Assistant Chief, Washington, D.C., for defendant.
Before the court are five consolidated income tax actions involving common legal issues. In two of the actions, Crnkovich v. United States, No. 95-567T, and Skinner v. United States, No. 95-599T, the parties have presented one of these issues to the court in cross-motions for summary judgment. In Crnkovich, the plaintiffs, Lawrence P. and Naola A. Crnkovich (the Crnkoviches), seek to recover alleged overpayments for tax years 1983 through 1986. In Skinner, the plaintiffs, William P. and Mary W. Skinner (the Skinners), seek to recover alleged overpayments for tax years 1985 and 1988. 1 In their respective motions for summary judgment, both the Crnkoviches and the Skinners contend that they did not owe the disputed taxes because the Internal Revenue Service (IRS) did not make the required assessments of tax liability until after the applicable statute of limitations for assessments had expired. For the reasons set forth below, the court denies the Crnkoviches' motion for summary judgment, grants defendant's cross-motion for summary judgment with respect to the Crnkoviches' claim, and withholds judgment on the Skinners' motion for summary judgment and defendant's cross-motion with respect to the Skinners' claim pending further briefing by defendant.
The tax disputes herein arise from separate partnership agreements that the Crnkoviches and the Skinners entered with a common general partner, Sol Finkelman. From 1977 through 1986, the Crnkoviches were limited partners in Duluth Properties Co. (Duluth). During 1982 and the tax years at issue here, the Skinners were limited partners in Progressive Properties Co. (Progressive). Both partnerships purchased commercial real estate property using nonrecourse seller financing. As a result of these investments, each partnership suffered losses which were passed on to the limited partners, including the Crnkoviches and the Skinners, respectively, who in turn used these losses to offset their income. The IRS subsequently determined that the property acquisitions lacked economic substance and were not bona fide arm's length transactions. Hence, the IRS issued notices of deficiency to Finkelman, the Crnkoviches, and the Skinners, as well as other partners, for tax years prior to 1983, which is prior to the tax years at issue here. The notices of deficiency to Finkelman and the Crnkoviches covered tax years 1977 through 1982 and the notice to the Skinners covered tax year 1982. In response to these notices, Finkelman filed two petitions in the Tax Court covering tax years 1975 through 1982 and the Skinners filed their own Tax Court petition for tax year 1982. Thereafter, the IRS issued "Notices of Final Partnership Administrative Adjustment" (FPAAs) for Duluth's 1983 through 1986 tax years and for Progressive's 1983, 1985, 1986, and 1988 tax years. On behalf of each partnership, Finkelman filed a Tax Court petition challenging the FPAA amounts.
After Finkelman filed the Tax Court actions on behalf of himself and the partnerships, the Crnkoviches and the Skinners entered into agreements with the IRS concerning their individual tax liabilities stemming from the operation of the partnerships. As described in more detail below, in their respective agreements, the Crnkoviches and the Skinners agreed to be bound by any resolution of certain common tax issues in the Tax Court actions filed by Finkelman covering tax years prior to 1983 (hereinafter referred to as the Finkelman case or the controlling case).
In the Finkelman case, the Tax Court ultimately resolved the allowability of depreciation for the acquired property in a manner adverse to Finkelman. Finkelman v. Comm'r, T.C. Memo 1989-72, aff'd without published opinion, 937 F.2d 612 (9th Cir. 1991), cert. denied, 503 U.S. 918 (1992). Under I.R.C. § 7481, the Tax Court's decision became final on April 3, 1992. Approximately one year later, the IRS notified the Crnkoviches and the Skinners as to the amount of taxes they each owed. The IRS calculated the amounts due by applying to their respective cases the resolution of the depreciation and partnership loss issues in the Finkelman case. After paying the assessed amounts and unsuccessfully seeking refunds administratively, both the Crnkoviches and the Skinners filed the instant actions. In their motion for summary judgment, plaintiffs argue that once they entered into their respective agreements with the IRS concerning their individual tax liabilities stemming from the operations of their respective partnerships, the statute of limitations in I.R.C. § 6229(f) became controlling and required the IRS, within one year, either to secure a waiver from plaintiffs or to assess the taxes due from plaintiffs for the years in issue. Because the IRS assessed the taxes due more than one year after signing the agreements, plaintiffs contend that the IRS was time barred from making such assessments and collecting such taxes. In its cross-motion, defendant contends that the assessments were timely filed.
To place plaintiffs' statute of limitations argument in context, it is necessary to understand how the 1982 enactment of the Tax Equity and Fiscal Responsibility Act (TEFRA), Pub. L. No. 97-248, 96 Stat. 324, affected partnership taxation procedures. A fundamental principle underlying partnership taxation is that a partnership is not liable at the entity level for the payment of income taxes. See I.R.C. § 701. Rather, a partnership must file an information return (Form 1065) each year reporting items of income, deduction, and credit (I.R.C. § 6031) and these items of income, deduction, and credit are allocated among the partners who bear the tax consequences for them. See I.R.C. § 702. The allocation to each partner is reported on a Schedule K-1 to the partnership's Form 1065 return, and the partner must report his or her distributive share of these partnership items. Id.
Through tax year 1982, consistent with the principle that partners rather than partnerships are responsible for paying taxes, administrative and judicial proceedings regarding partnership items were conducted at the level of the individual partner. Hence, the IRS was forced to conduct distinct investigations for and, where appropriate, enter separate settlement agreements with each individual partner. But in 1982, Congress changed this approach when it enacted TEFRA, which created I.R.C. §§ 6221 through 6233 (). The TEFRA partnership provisions, which became effective at the beginning of taxable year 1983, generally require resolution of tax issues as to partnership items at the partnership level. Pursuant to I.R.C. § 6221, "[e]xcept as otherwise provided in this subchapter, the tax treatment of any partnership item shall be determined at the partnership level." Partnership...
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