Barbados 6, Ltd. v. Commissioner

Sterrett, Chief Judge, dissenting: I respectfully dissent. The majority opinion holds that petitioner-tax matters partner (tmp) filed a timely petition with the Tax Court by acting in the capacity of a notice partner. This holding effectively grants to that person designated as the tmp a 150-day period to petition the Court, rather than the 90-day period set forth in section 6226, I.R.C. 1954.

Subsection (a) of section 6226 provides that, during the 90 days following the mailing of a final partnership administrative adjustment (fpaa), only the tmp may file a petition for readjustment. Subsection (b) of section 6226 provides that, in the event the tmp fails to so act, then within the succeeding 60 days any notice partner or 5-percent group may file a petition. I disagree with the majority’s conclusion that the tmp may, alternatively, file a petition pursuant to subsection (b) as a notice partner.

The new partnership audit provisions (secs. 6221-6233), require all partners to treat partnership items consistently with their treatment on the partnership return (sec. 6222(a)), unless the Service receives notice of any inconsistency (sec. 6222(b)). The Service is authorized to conduct its audit at the partnership level (sec. 6223). This unified proceeding is to avoid duplicative efforts and inconsistent treatment by the various partners, particularly in large partnerships whose partners reside in numerous jurisdictions or who file returns based on different taxable years. An integral feature of this statutory scheme, designed to achieve uniformity, is the designation of one partner as the tmp pursuant to section 6231(a)(7). This case presents the Court’s first opportunity to interpret the role of the tmp.

The tmp has a duty to act on behalf of the partnership. See, for examples, secs. 6223(g), 6224(c)(3), 6227(b), 6228(a), 6229(b)(1)(B), and 6230(e). Other members of the partnership may qualify as "notice partners” (sec. 6231(a)(8)), who enjoy certain rights, for example, to receive notices of administrative proceedings (sec. 6223(a)), and who need not be bound by a settlement agreement entered into by the tmp (sec. 6224(c)(3)).

The issue presented is whether the tmp has filed a timely petition under section 6226(b) as a notice partner. I would conclude, contrary to the majority, that the partner who is afforded the duties and responsibilities of the tmp cannot, alternatively, act in the capacity of a notice partner for other purposes of the partnership audit. The legislative history of section 6226 refers to notice partners as separate and distinct from the tmp. The Conference Committee report states:

If the TMP does not file a petition, any notice partner or 5-percent group with an interest in the outcome may within 60 days following such 90-day period, file a petition with any of the courts in which the TMP may file a petition. * * * [H. Rept. 97-760, (Conf.) (1982), 1982- 2 C.B. 600 , 664.]

The TMP is reserved the right to intervene in any action commenced under this subsection (b) (sec. 6226(b)(5)); as the Conference report states, "The tmp may intervene in an action brought by another partner.” H. Rept. 97-760, supra.

The majority opinion notes that the heading of section 6226(b) refers to a "Petition by Partner Other Than Tax Matters Partner.” This need not be interpreted as "a general description of the context in which the majority of petitions would be filed under section 6226(b),” as the majority contends (p. 906), but rather as the statutory scheme devised by Congress; only the tmp may file a petition pursuant to section 6226(a), and only notice partners and 5-percent groups may file a petition pursuant to section 6226(b). Congress did not provide that subsection (b) applies to the tmp as well. For comparison, section 6226(g) provides, "With respect to the partnership, only the tax matters partner, a notice partner, or a 5-percent group may seek review of a determination by a court under this section.” Also, section 6228(a)(6) provides, "With respect to the partnership, only the tax matters partner, a notice partner, or a 5-percent group may seek review of a determination by a court under this subsection.” The majority opinion also notes that the Tax Court’s own Rules of Practice and Procedure distinguish between a petition filed "by the tax matters partner within the period specified in Code Section 6226(a),” as compared to a petition filed "by a partner other than the tax matters partner subject to the conditions and within the period specified in Code Section 6226(b).” Rule 240(c)(1)(h). Each partner is entitled to only one notice of the final partnership administrative adjustment, absent fraud, malfeasance, or misrepresentation of fact (sec. 6223(f)); petitioner is not entitled to receive one notice as the tmp and a second notice in the "capacity of a notice partner.”

The majority opinion states that the statutory scheme is designed to ensure all partners the opportunity to litigate a dispute with the Service (p. 906). However, these audit provisions are designed to litigate disputes involving partnership items by a single audit, in a unified partnership proceeding, since all partners must report partnership items consistently with the partnership return. When a petition is filed by the tmp pursuant to section 6226(a), or by a notice partner pursuant to section 6226(b), all partners with an interest in the outcome are deemed to be parties to the action (sec. 6226(c) and (d)), just as all partners have the right to participate in any administrative proceeding (sec. 6224(a)). The statute encourages the tmp to act on behalf of the partnership by providing the initial 90-day period in which only the tmp may commence its action. So as not to impair the rights of the other partners, an additional 60 days is provided to commence an action should the tmp fail to file a petition in the first instance.

The majority opinion expresses great concern over a hypothetical situation in which the tmp is precluded from filing a petition and therefore is unable to protect its own interest as a partner. There are no facts in this case which indicate that the tmp’s rights have been so impaired, or that petitioner was unable to file its petition during the initial 90 days. Given that a Federal statute provides the authority to the tmp to petition the Court, it appears unlikely that this statute would be superseded by a State law or partnership agreement provision to the contrary. If petitioner had intended to treat a partnership item differently on his own return from its treatment on the partnership return, he could have done so and notified the Service of this treatment under section 6222(b).

Petitioner-TMP failed to file its petition within 90 days after the mailing of the fpaa. Since a timely petition was not filed, the Court lacks jurisdiction and respondent’s motion to dismiss should be granted.

Hamblen and Clapp, JJ., agree with this dissent. Hamblen, Judge, dissenting: I also respectfully disserit as I thoroughly agree with the dissent of Chief Judge Sterrett. The majority opinion holds that a tax matters partner (tmp) who fails to timely file a petition within the 90-day.provision of section 6226(a), may timely file a petition with the Tax Court as a notice partner within the 60-day provision of section 6226(b). The majority result operates to extend the filing period provisions of section 6226 to 150 days as to the designated tmp. Thus, the majority here holds that a tmp who intended to file a petition within the 90-day. provision of section 6226(a) and so designates such petition as filed by the tmp, but inadvertently failed to timely file such petition within the 90-day provision of6226(a), may cure the ills of such inadvertence merely by redesignating the petitioner status as that of a notice partner within the 60-day provisions of section 6226(b). My view is that Congress intended to preclude a tmp from such dual status for purposes of filing a petition under section 6226.

My conclusion is founded upon a commonsense approach of statutory interpretation under section 6226. The heading of section 6226(b) refers to a "Petition by Partner Other Than Tax Matters Partner.” The majority correctly states that the title of a statute or a heading of a section cannot limit the text of a statute. While this statement is correct, titles and headings may be of aid in resolving an ambiguity within the statutory text. See 1 J. Mertens, Law of Federal Income Taxation, sec. 3.19, at 32 (1981 rev.) Here, the statute is somewhat ambiguous as section 6226(b)(1) refers to any notice partner, however, section 6226(b)(5) further provides that the tmp may intervene in any action filed by a notice partner. In my view, the intent of Congress was to preclude dual partner status under section 6226(a) and (b) for purposes of petition for judicial review, as is evident within the purview of section 6226(b)(5), where Congress provided the tmp a right to intervene in any action commenced by a notice partner under section 6226(b). I cannot reconcile the logical sequence of these provisions with the opinion adopted by the majority, and I simply cannot believe Congress would engage in such an extensive exercise in semantics, considering section 6226 in its entirety, simply to provide a tmp 150 days to ñle a petition here while limiting notice partners to 60 days.

Sterrett, C.J., agrees with this dissent.