Curr-Spec Partners, L.P. v. C.I.R.

• Decision Date: 11 August 2009
• Docket Number: No. 08-60815.,08-60815.
• Citation: 579 F.3d 391
• Parties: CURR-SPEC PARTNERS, L.P., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

579 F.3d 391

CURR-SPEC PARTNERS, L.P., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 08-60815.

United States Court of Appeals, Fifth Circuit.

August 11, 2009.

J. Winston Krause (argued), Krause & Associates, LP, Susan Schlesinger Vance (argued), Alexander Dubose & Townsend, LLP, Austin, TX, for Petitioner-Appellant.

Karen G. Gregory, U.S. Dept. of Justice, Robert R. Di Trolio, U.S. Tax Court, Michael J. Haungs (argued), Joan I. Oppenheimer, Nathan J. Hochman, U.S. Dept. of Justice, Tax Div. Appellate Section, Clarissa C. Potter, I.R.S., Washington, DC, for Respondent-Appellee.

Appeal from a Decision of the United States Tax Court.

Before REAVLEY, WIENER, and SOUTHWICK, Circuit Judges.

WIENER, Circuit Judge:

Petitioner-Appellant Curr-Spec Partners, L.P. ("Curr-Spec"), asks us to interpret the interplay between the limitation provisions of Internal Revenue Code ("IRC") § 6229(a) and IRC § 6501(a). Specifically, we are asked to determine whether IRC § 6229(a) provides an independent limitations period for Respondent-Appellee Commissioner of Internal Revenue's (the "Commissioner's") issuance of a notice of Final Partnership Administrative Adjustment ("FPAA"). The Tax Court ruled in favor of the Commissioner, holding that IRC § 6229(a) does not provide a separate statute of limitations for partnership items and that the relevant limitations periods are those of each individual partner—generally three years after the date of filing the individual's return— as set forth in IRC § 6501(a).¹ The Tax Court reasoned that the limitations period of IRC § 6229(a) can prolong—but can never shorten—the period within which the Commissioner may assess individual tax liabilities attributable to partnership items. Although this issue of statutory interpretation is res nova in this circuit, the Tax Court sitting as an en banc-like court,² the D.C. Circuit,³ and the Federal Circuit⁴ have each resolved it in favor of the Commissioner. Affirming the Tax Court's decision, we now join these other courts and hold that IRC § 6229(a) does not establish an independent statute of limitations for issuing FPAAs.

I. FACTS AND PROCEEDINGS

On October 11, 2000, the partnership, Curr-Spec, filed a Form 1065, U.S. Partnership Return of Income, for the taxable year 1999. More than four years later, on October 13, 2004, the Commissioner issued an FPAA determining that (1) the partnership was a sham, (2) as a result, all transactions in which it engaged would be treated as engaged in by the individual partners directly, (3) all income, deductions, gains, and losses reported by the partnership would be disallowed, and (4) the partners would be treated as having no basis in their respective partnership interests. Curr-Spec timely filed a petition in the Tax Court seeking review of the Commissioner's determination. Curr-Spec then filed motions (1) to dismiss for lack of jurisdiction and to strike, and (2) for summary judgment, contending, inter alia, that because the FPAA was issued more than three years after both the due date of the partnership's 1999 return and the date on which it was filed, the period of limitations for assessing tax attributable to partnership items had expired. Curr-Spec based its argument on its interpretation of IRC § 6229(a) as an independent three-year statute of limitations (subject to specific extensions) for issuing an FPAA.

The Commissioner responded that at least three Curr-Spec partners had claimed net operating loss carryforwards of a 1999 partnership item on their respective individual 2000 and 2001 returns. The Commissioner proposed to assess tax based on the claimed carryforwards on these partners' 2000 and 2001 returns, under the theory that the FPAA was issued less than three years after the partners had filed their respective individual tax returns for those tax years, viz., within the statute of limitations for individual returns as set forth in IRC § 6501(a).

The Tax Court ruled in favor of the Commissioner, emphasizing that the Internal Revenue Code "prescribes no period during which TEFRA⁵ partnership-level proceedings, which begin with the mailing of an FPAA, must be commenced." The court held that IRC § 6229(a) does not provide an assessment period independent of the three-year individual limitations period of IRC § 6501(a); that instead IRC § 6229(a) provides a three-year minimum, which can extend IRC § 6501(a)'s period, but cannot curtail it.

This timely appeal followed, in which Curr-Spec challenges only the timeliness of the FPAA.⁶

II. ANALYSIS

A. Standard of Review

We review a Tax Court decision the same way that we would review a district court decision.⁷ In the instant case, Curr-Spec presents purely an issue of statutory interpretation, which we review de novo.⁸

B. Statutory Framework

"[TEFRA] ... prescribes the administrative and litigation procedures for addressing partnership tax issues."⁹ "[It] requires partnerships to file informational returns reflecting the distributive shares of income, gains, deductions, and credits attributable to its partners. Accordingly, the individual partners are responsible for reporting their pro rata share of tax on their income tax returns."¹⁰ Items more appropriate for determination at the partnership level are designated "partnership items," which are to be treated at the partnership level; other items are designated "nonpartnership items," which are to be treated at the individual partner level.¹¹

When the IRS proposes an adjustment of taxes at the partnership level, it issues a notice of adjustment, the FPAA, which is analogous to the statutory notice of deficiency furnished to individuals.¹² After the FPAA becomes final, the Commissioner may assess tax to the individual partners whose tax returns for the year or years in question remain open under IRC § 6501(a), for those partners' distributive shares of the adjusted partnership items.¹³

IRC § 6501(a) is the three-year statute of limitations which is generally applicable to the Commissioner's assessment of tax.¹⁴ That section states:

General rule.—Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed ..., and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period....¹⁵

IRC § 6229(a), which Curr-Spec contends is a three-year statute of limitations for issuing an FPAA—and which, in the Commissioner's and the Tax Court's views, can only extend but not shorten the IRC § 6501(a) period—states:

General rule.—Except as otherwise provided in this section, the period for assessing any tax imposed by subtitle A with respect to any person which is attributable to any partnership item (or affected item) for a partnership taxable year shall not expire before 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).¹⁶

C. IRC § 6229(a) Does Not Establish an Independent Statute of Limitations for the Issuance of an FPAA

1. Jurisdiction

As an initial matter, Curr-Spec contends that in a partnership proceeding, courts have no jurisdiction to consider the filing date of a partner's individual return because that is not a partnership item but rather a nonpartnership item.¹⁷ The scope of the Tax Court's jurisdiction in partnership proceedings, Curr-Spec argues, is limited to determination of "all partnership items of the partnership for the partnership taxable year to which the [FPAA] relates, the proper allocation of such items among partners, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item."¹⁸ Yet, Congress has made clear that any partner "shall be permitted to participate in [partnership-level litigation] solely for the purpose of asserting that the period of limitations for assessing any tax attributable to partnership items has expired with respect to such person, and the court having jurisdiction of such action shall have jurisdiction to consider such assertion."¹⁹ Armed with Congress's express blessing, the Tax Court does not exceed its jurisdiction when it considers the filing date of a partner's individual return.²⁰

2. Merits

Curr-Spec asserts that even if the Tax Court is not jurisdictionally barred from referencing the filing date of a partner's individual return, a plain reading of IRC § 6229 and IRC § 6501 in pari materia yields Curr-Spec's desired result, viz., that IRC § 6229(a) is an independent three-year limitations period for the issuance of an FPAA, which period begins to run on the later of the date that the partnership files its informational return or the date that it is due. In Curr-Spec's view, the TEFRA partnership procedures establish a time line governing when an FPAA may be issued, which is entirely independent of and distinct from—and which supercedes—the general time line specified by IRC § 6501. The Commissioner counters that IRC § 6229(a), by its terms, sets no limitation period for the issuance of an FPAA. The Commissioner argues that— for partnership items—IRC § 6229(a) works to extend the IRC § 6501(a) limitations periods of the individual partners under circumstances when those periods would otherwise expire less than three years following the later of the filing date or due date for the filing of the partnership's return, disregarding extensions.

"When the plain language of a statute is unambiguous and does not lead to an absurd result, our inquiry begins and ends with the plain meaning of that language."²¹ The unambiguous language of IRC § 6229(a) and IRC § 6501(a) mandates our conclusion that IRC § 6501(a) creates a three-year limitations period within which the Commissioner must assess "any tax" on individual...