Intermountain Ins. Serv. of Vail v. Comm'r of Internal Revenue

Decision Date06 May 2010
Docket NumberNo. 25868–06.,25868–06.
CourtU.S. Tax Court
Held Invalid

26 C.F.R. § 301.6229(c)(2)–1T(b), 26 C.F.R. § 301.6501(e)–1T(b)

R filed a motion to vacate the Court's prior decision and a motion to reconsider the Court's prior opinion. R's motions are premised on the retroactive application of temporary regulations issued after the Court issued its opinion and entered its decision.

Held: R's motions to reconsider and to vacate will be denied.

Steven R. Anderson, for petitioner.

Gary J. Merken, for respondent.


WHERRY, Judge:

We issued an opinion and entered our decision in this case on September 1, 2009. Relying on Bakersfield Energy Partners, LP v. Commissioner, 128 T.C. 207, 2007 WL 1712543 (2007), affd. 568 F.3d 767 (9th Cir.2009), we decided that the adjustments made in respondent's final partnership administrative adjustment (FPAA) on which this case is based are barred by the general 3–year period of limitations in section 6501(a). 1 see intermountain ins. serv. of vail, llc v. cOMMISSIONER, T.C. Memo.2009–195. Respondent subsequently issued two temporary regulations, sections 301.6229(c)(2)–1T and 301 .6501(e)–1T, Temporary Proced. & Admin. Regs., 74 Fed.Reg. 49322–49323 (Sept. 28, 2009), and on the basis of the application of those temporary regulations to this case, filed motions to vacate our decision and to reconsider our opinion.2 The sole issue now before the Court is whether the temporary regulations compel us to grant respondent's motions.


The transactions at the heart of this case took place in 1999 and were reported on the 1999 Form 1065, U.S. Partnership Return of Income, of Intermountain Insurance Service of Vail, LLC (Intermountain), filed on September 15, 2000. The details of the transactions are largely irrelevant to the issues we face today. Suffice it to say that in the previously mentioned FPAA that respondent issued on September 14, 2006, respondent determined that the transactions characterized as a tax shelter “were a sham, lacked economic substance and * * * [had] a principal purpose of * * * [reducing] substantially the present value of * * * [Intermountain's] partners' aggregate federal tax liability”. Critically, respondent's determination revolved around Intermountain's alleged overstatement of partnership basis.

Petitioner timely petitioned this Court for review of the FPAA and moved for summary judgment on the ground that respondent had issued the FPAA beyond the general 3–year period of limitations for assessing tax against Intermountain's partners. See secs. 6229(a), 6501(a). Respondent conceded that the 3–year limitations period had expired but argued that an extended 6–year period of limitations applied instead as a result of Intermountain's basis overstatement.3 See secs. 6229(c)(2), 6501(e)(1)(A). A dispute over the proper interpretation of sections 6229(c)(2) and 6501(e)(1)(A) ensued.

Generally, a 6–year limitations period is triggered when a taxpayer or partnership “omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return”. Sec. 6501(e)(1)(A) (taxpayer); see sec. 6229(c)(2) (partnership). The focus of the parties' dispute was whether an overstatement of basis constitutes an omission from gross income for purposes of triggering a 6–year limitations period.

This was not an issue of first impression. In Bakersfield Energy Partners, LP v. Commissioner, supra, we held that a basis overstatement was not an omission from gross income for purposes of sections 6229(c)(2) and 6501(e)(1)(A). In reaching our conclusion, we applied the holding of Colony, Inc. v. Commissioner, 357 U.S. 28, 33, 78 S.Ct. 1033, 2 L.Ed.2d 1119 (1958), in which the Supreme Court was faced with identical language in section 6501(e)(1)(A)'s predecessor—section 275(c) of the Internal Revenue Code of 1939. See Bakersfield Energy Partners, LP v. Commissioner, supra at 215 (We are unpersuaded by respondent's attempt to distinguish and diminish the Supreme Court's holding in Colony, Inc. v. Commissioner ”.). The Supreme Court's holding, as we described it, was “that the extended period of limitations applies to situations where specific income receipts have been ‘left out’ in the computation of gross income and not when an understatement of gross income resulted from an overstatement of basis.” Id. at 213. The Supreme Court had reviewed the statute's legislative history and determined that Congress had not intended a basis overstatement to be an omission from gross income. See Colony, Inc. v. Commissioner, supra at 33, 36.

We adhered to our precedent in Bakersfield Energy Partners, LP v. Commissioner, supra, when we issued our September 1, 2009, opinion in this case. See Intermountain Ins. Serv. of Vail, LLC v. Commissioner, T.C. Memo.2009–195. Accordingly, in our September 1, 2009, order and decision, we granted petitioner's motion for summary judgment and decided that the adjustments in respondent's FPAA were barred by the general 3–year limitations period. That was not the end of the matter, however.

On September 24, 2009, less than a month after our order and decision in this case, respondent and the Treasury Department issued temporary regulations under sections 6229(c)(2) and 6501(e)(1)(A). See secs. 301. 6229(c)(2)–1T and 301. 6501(e)–1T, Temporary Proced. & Admin. Regs., supra. These temporary regulations were simultaneously issued as proposed regulations. See sec. 7805(e). On September 28, 2009, notice was published and comments were sought for sections 301.6229(c)(2)–1 and 301.6501(e)–1, Proposed Proced. & Admin. Regs., see Notice of Proposed Rulemaking by Cross–Reference to Temporary Regulations, 74 Fed.Reg. 49354 (Sept. 28, 2009), and the temporary regulations were published in the Federal Register, see secs. 301.6229(c)(2)–1T and 301.6501(e)–1T, Temporary Proced. & Admin. Regs., supra.

The temporary regulations provide, in pertinent part, that “an understated amount of gross income resulting from an overstatement of unrecovered cost or other basis constitutes an omission from gross income for purposes of * * * [sections 6229(c)(2) and 6501(e)(1)(A) ].” See secs. 301. 6229(c)(2) –1T and 301.6501(e)–1T, Temporary Proced. & Admin. Regs., supra. The interpretation espoused by the temporary regulations runs contrary to the interpretation adopted by this Court in Bakersfield Energy Partners, LP v. Commissioner, 128 T.C. 207, 2007 WL 1712543 (2007), and by the Courts of Appeals for the Ninth and Federal Circuits in Bakersfield Energy Partners, LP v. Commissioner, 568 F.3d 767 (9th Cir.2009),4 and Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed.Cir.2009), respectively. See T.D. 9466, 2009–43 I.R.B. 551, 552 (“The Treasury Department and the Internal Revenue Service disagree with these courts that the Supreme Court's reading of the predecessor to section 6501(e) in Colony applies to sections 6501(e)(1)(A) and 6229(c)(2).”).

Bolstered by the temporary regulations, respondent, on October 16, 2009, lodged—and on November 25, 2009, was permitted to file—an otherwise late motion to vacate our September 1, 2009, decision and a motion to reconsider our September 1, 2009, opinion. As the moving party, respondent bears the burden of proving entitlement to relief. See Kraasch v. Commissioner, 70 T.C. 623, 626, 1978 WL 3306 (1978). Respondent urges us to reconsider the case, this time eschewing our prior precedent in favor of the temporary regulations. Petitioner counters that the temporary regulations are either inapplicable, invalid, or otherwise not entitled to deference. On November 25, 2009, we ordered the parties to file briefs. Pursuant to our order, the parties filed opening briefs on January 5, 2010. Petitioner and respondent filed reply briefs on January 27 and February 1, 2010, respectively.

I. Motions To Reconsider and To Vacate

Motions to reconsider and to vacate are governed by Rules 161 and 162, respectively. Those rules establish filing deadlines but provide no guidance on when the Court should grant or deny such motions. In the absence of more specific guidance, we look to caselaw and the Federal Rules of Civil Procedure. See Rule 1(b).

The decision to grant motions to reconsider and to vacate lies within the discretion of the Court. Estate of Quick v. Commissioner, 110 T.C. 440, 441, 1998 WL 341635 (1998) (motion to reconsider); Kun v. Commissioner, T.C. Memo.2004–273 (motion to vacate). Motions to reconsider are generally “intended to correct substantial errors of fact or law and allow the introduction of newly discovered evidence that the moving party could not have introduced by the exercise of due diligence in the prior proceeding.” Knudsen v. Commissioner, 131 T.C. 185, 185, 2008 WL 4977642 (2008). “Reconsideration is not the appropriate forum for rehashing previously rejected legal arguments or tendering new legal theories to reach the end result desired by the moving party.” Estate of Quick v. Commissioner, supra at 441–442. Motions to vacate are generally not granted absent a showing of unusual circumstances or substantial error, e.g., mistake, inadvertence, surprise, excusable neglect, newly discovered evidence, fraud, or other reason justifying relief. See, e.g., Fed.R.Civ.P. 60(b); Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999, 1978 WL 3327 (1978).

Importantly, an intervening change in the law can warrant the granting of both a motion to reconsider and a motion to vacate. See Alioto v. Commissioner, T.C. Memo.2008–185.5 In Alioto v. Commissioner, T.C. Memo.2006–199, the Court held that it lacked jurisdiction over “stand-alone” section 6015(f) cases. After Congress expanded the Court's jurisdiction to include such cases, see Tax...

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