Transpac Drilling Venture, 1983-63 by Crestwood Hospitals, Inc. v. U.S.

• Decision Date: 08 February 1994
• Docket Number: No. 93-5045,93-5045
• Citation: 16 F.3d 383
• Parties: -1032, 94-1 USTC P 50,067 TRANSPAC DRILLING VENTURE, 1983-63 by CRESTWOOD HOSPITALS, INC., Transpac Drilling Venture, 1983-1 by Crestwood Hospitals, Inc., Transpac Drilling Venture, 1983-2 by James M. Dobbins, Transpac Drilling Venture, 1983-4 by Bryan D. Burr, Plaintiffs-Appellants, and Transpac Drilling Venture, 1983-14, by Alister Corporation, Transpac Drilling Venture, 1983-38 by Lindsey & Hall, Inc., Plaintiffs, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 383

16 F.3d 383

73 A.F.T.R.2d 94-1032, 94-1 USTC P 50,067

TRANSPAC DRILLING VENTURE, 1983-63 by CRESTWOOD HOSPITALS INC., Transpac Drilling Venture, 1983-1 by Crestwood Hospitals, Inc., Transpac Drilling Venture, 1983-2 by James M. Dobbins, Transpac Drilling Venture, 1983-4 by Bryan D Burr, Plaintiffs-Appellants and Transpac Drilling Venture, 1983-14, by Alister Corporation Transpac Drilling Venture, 1983-38 by Lindsey & Hall, Inc., Plaintiffs, v. UNITED STATES, Defendant-Appellee.

No. 93-5045.

United States Court of Appeals, Federal Circuit.

Feb. 8, 1994.

Arthur H. Boelter, Boelter & Gale, of Seattle, Washington, argued for plaintiffs-appellants. With him on the brief was John J. White, Jr. and Shawn M. Soderberg.

Sarah K. Knutson, Attorney, Department of Justice, of Washington, D.C., argued for defendant-appellee. With her on the brief were Michael L. Paup, Acting Assistant Attorney General, Gary R. Allen and Teresa E. McLaughlin, Attorneys.

Before NIES, Chief Judge, BENNETT, Senior Circuit Judge, and RADER, Circuit Judge.

NIES, Chief Judge.

In the Internal Revenue Code of 1986 (26 U.S.C. Sec. 11 et seq.), section 6226(b)(3) permits the "tax matters partner" of a limited partnership to file a petition on behalf of the partnership to contest adjustments to partnership income made by the Internal Revenue Service. The appeal in this case, which comes to us from the United States Court of Federal Claims (Margolis, J.), concerns this provision of the code. 26 Cl.Ct. 1245. The trial court dismissed the subject petitions concerning tax years 1983 and 1984, on the ground that none of the parties filing for the partnerships, Crestwood Hospital, Inc., James M. Dobbins, or Bryan D. Burr, was a "tax matters partner" (TMP) authorized to do so under the statute. We agree and, accordingly, affirm the judgments.

I. BACKGROUND

Transpac Drilling Venture 1983-63, 1983-1, 1983-2, and 1983-4 (hereinafter TDV 1983-63, TDV 1983-1, TDV 1983-2 and TDV 1983-4) is each a limited partnership organized under the laws of Delaware. Crestwood Hospital, Inc., Bryan Burr, and James M. Dobbins were limited partners in one or more of these partnerships during the tax years 1983 and 1984.

Douglas C. Adams was one of two general partners for each of the limited partnerships during the tax years at issue. Adams was designated the TMP in the partnership agreements for the partnerships, dealt with the IRS as TMP, and held himself out to be TMP of the respective partnerships until January 30, 1990. The other general partner, Churchill Oil & Gas Corporation, forfeited its corporate charter in September 1984.

During 1986 or 1987, the Government began investigating Adams in connection with possible criminal violations for his activities with respect to the development, promotion and sale of tax shelter investment programs, including the various Transpac Drilling Ventures. On September 4, 1987, Adams entered into a plea agreement with the Offices of the United States Attorneys for the Southern District of New York and the District of New Jersey, pursuant to which Adams agreed, inter alia, to plead guilty to charges of conspiracy and aiding and abetting fraud by an investment counselor and to file amended personal federal income tax returns for the tax years at issue. The IRS was not a party to the plea agreement and remained free to pursue any lawful civil remedies it deemed appropriate against Adams.

The IRS conducted partnership level examinations of the TDV partnerships' tax returns filed for the taxable years 1983 and 1984 during 1988 and 1989 treating Adams as the TMP. At the conclusion of the examinations, the IRS issued notices of Final Partnership Administrative Adjustments (FPAAs) and mailed them to Adams, as TMP, on November 7 (TDV 1983-63), 9 (TDV 1983-1 and 1983-2), and November 17 (TDV 1983-4), 1989. Copies of the FPAA were also sent to the limited partners, including Crestwood, Burr and Dobbins, who are termed "notice" partners. ¹

Under the statutory framework, either the "tax matters partner" or any "notice partner" may challenge the FPAA in proceedings brought in the Tax Court, the appropriate United States District Court, or the Court of Federal Claims. Only one such petition for readjustment may go forward. See I.R.C. Sec. 6226(b). If the TMP files a petition for readjustment in the Tax Court, the Court of Federal Claims or the appropriate federal district court, within 90 days of issuance of the statutory notice, any other action is precluded. I.R.C. Sec. 6226(a), (b)(1). If the 90-day period expires without the filing of such a petition by the TMP, then any notice partner may file a readjustment petition within the next 60 days in any of the courts in which the TMP could have filed. If more than one notice partner files a readjustment petition, then the first petition filed in the Tax Court (if any) goes forward, and all other petitions are dismissed. I.R.C. Sec. 6226(b)(2). If no petition is filed in the Tax Court, then the first petition filed in a district court or in the Court of Federal Claims goes forward, and all other petitions are dismissed. I.R.C. Secs. 6226(b)(3), (4).

The statute effectively permits the TMP to select the forum for the litigation by filing a timely petition. The selection of the forum may be considered by a TMP as an important advantage since significant differences exist between the various fora. Additionally, it must be noted that the aforementioned requirements for filing a petition are jurisdictional in nature because a petition filed within 90 days by a partner who is not a TMP does not effectively commence suit. See Computer Programs Lambda, Ltd. v. Commissioner, 89 T.C. 198, 202, 1987 WL 42563 (1987).

I.R.C. Sec. 6231(a)(7)(A) permits a partnership to designate its TMP "as provided in regulations," so long as the person or entity chosen is a general partner in the partnership. If the partnership should fail to designate a TMP, then "the general partner having the largest profits interest in the partnership at the close of the taxable year involved" becomes the TMP. I.R.C. Sec. 6231(a)(7)(B). However, by regulation certain general partners are excluded from serving as TMP, e.g., one who is under investigation for criminal tax evasion. The I.R.C. further provides that the Secretary of the Treasury may designate a TMP for a partnership if no general partner has been designated as such, and it would be "impracticable to apply subparagraph (B)." I.R.C. Sec. 6231(a)(7).

Adams, who received notice while TMP, filed no petitions. It is accepted for purposes of decision here that he orally resigned as TMP on January 30, 1990, and orally named a limited partner to act as TMP at that time. On February 9, 1990, a petition in the Court of Federal Claims for each partnership was filed by the named limited partner claiming to be the successor TMP. ² On February 12, 1990, after these petitions for readjustment were filed, Adams executed a document "Resignation of Tax Matters Partner and Appointment of New Tax Matters Partner," for each of the partnerships in question. In each document, Adams stated that he was resigning as TMP, and that he was appointing taxpayers Crestwood, Dobbins and Burr as general partners of the respective partnerships for the tax years 1983 and 1984 "for the limited purpose of serving as TMP." Taxpayers each executed acceptances of their respective appointments on April 9, 1990. In March 1990, appellants also submitted consents by a majority in interest of the limited partners for the filing partner to serve as TMP in two of the partnerships.

The IRS administrative files do not contain any record of the resignation of Adams as any partnership's TMP or the designation of a successor. The first notice the IRS received was by the petitions filed in the Court of Federal Claims in February 1990, which state that on or about January 30, 1990 the original TMP, Adams, "resigned as TMP and agreed to the appointment of [the limited partner who filed] as TMP and as a general partner for the limited purpose of serving as TMP." ³

The Government moved to dismiss each of the subject petitions for lack of jurisdiction on the ground that the petitions were filed during the 90-day period reserved exclusively for filing by a TMP and none of the petitioners who filed had that status. The trial court agreed. In addition, the court rejected appellant's various arguments for retroactive ratification of the petitions.

After the 90-day period during which only a TMP may file suit, other limited partners in three of the four partnerships filed timely petitions in the U.S. Tax Court. Other protective petitions were filed in the Court of Federal Claims. The dispute is essentially over which forum will adjudicate the matters. If the petitions filed in the Court of Federal Claims within the 90-day period were effective, those suits preempt any in the Tax Court and vice versa.

II. STANDARD OF REVIEW

Whether the Court of Federal Claims properly granted the government's motion to dismiss for lack of jurisdiction is a question of law subject to de novo review on appeal. Rocovich v. United States, 933 F.2d 991, 993 (Fed.Cir.1991).

III. ANALYSIS

A. Tax Equity and Fiscal Responsibility Act

A partnership is required to file an annual information tax return even though it is not a taxable entity for federal income tax purposes. I.R.C. Secs. 701, 6031; 26 C.F.R. Sec. 1.701-1. Each partner is liable for income tax in his or her individual capacity with respect to his or her share of partnership items of income, loss, deduction and credit. I.R.C. Sec. 702; 26 C.F.R. Sec. 1.702-1. Prior to 1982, adjustments to the tax treatment of partnership items had to be determined in separate proceedings involving each individual partner, resulting in duplication of administrative and judicial effort, inconsistent results and difficulty in reaching comprehensive settlements. See Maxwell v. Commissioner, 87...