T .C . Memo . 2006-26 6

1)

RECORDE D

I SERVIC E

IF MI ~

T .C . Memo . 2006-26 6

CAL . __

xtS TA.T . .1 7

W

S .T . JUDG E

UNITED STATES TAX COURT

\Jek1 S

FILE S

CURR-SPEC PARTNERS, LP, CURR-SPEC MANAGERS, LLC,

TAX MATTERS PARTNER, Petitioner v .

COMMISSIONER OF INTERNAL REVENUE, Responden t

Filed December

Docket No . 1350-05 .

14, 2006 .

J . Winston Krause , for petitioner .

Donna F . Herbert and Jonathon H . Sloat , for respondent .

MEMORANDUM OPINION

WELLS,

Judge : The instant matter is before the Court on the

following motions : (1) Petitioner's motion to dismiss for lack

of jurisdiction and to strike, (2) petitioner's motion for

summary judgment, (3) respondent's motion for summary judgment,

and (4) petitioner's motion for leave to file second amende d

SERVED DM 14 206

- 2 petition . For the reasons stated below, we shall grant

petitioner's motion for leave to file second amended petition and

deny the remaining motions . Unless otherwise indicated, all Rule

references are to the Tax Court Rules of Practice and Procedure,

and all section references are to the Internal Revenue Code, as

amended .

Background

Curr-Spec Partners, L .P . (the partnership), filed a For m

1065, U .S . Partnership Return of Income, for the taxable year

1999 on or about October 11, 2000 . The partnership reported

$6,239,938 of capital contributions, a net loss of $2,343, and

distributions to partners of $6,237,595 .

Respondent issued Curr-Spec Managers, L .L .C ., Tax Matters

Partner (petitioner), a notice of final partnership

administrative adjustment (FPAA) on October 13, 2004 .

Respondent determined, among other things : (1) The partnership

was a sham ; (2) as a result, all transactions engaged in by the

partnership would be treated as engaged in directly by the

partners ; (3) all income, deductions, gains, and losses reported

by the partnership would be disallowed ; and (4) the partners

would be treated as having no bases in their respective

- 3 partnership interests . Petitioner filed a timely petition for

review of respondent's determination . '

1 .

Petitioner's Motion To Dismiss for Lack of Jurisdiction

and To Strike and Petitioner's Motion for Summary Judgmen t

In August 2006, petitioner filed a motion to dismiss for

lack of jurisdiction and to strike . The motion states that

because the FPAA was issued more than 3 years after the

partnership filed its 1999 partnership return, the period of

limitations for assessing tax attributable to partnership items

has expired . Petitioner asks the Court to strike the portion of

respondent's answer that addresses matters outside the Court's

jurisdiction . Petitioner also filed a motion for summary

judgment that advances similar arguments .

Respondent's pleadings state that the FPAA was issued less

than 3 years after the partners of the partnership filed their

respective 1999 Federal income tax returns . Respondent therefore

argues that the assessment period has not expired and that the

Court has jurisdiction .

2 .

Respondent's Motion for Summary Judgment and Petitioner's

Motion for Leave To File Second Amended Petitio n

The FPAA makes a number of adjustments to the 1999

partnership return . Although the petition asserts that the FPAA

was untimely, it does not assign error to the determination tha t

' Petitioner filed a petition in January 2005 and an amended

petition in September 2005 . For convenience, we refer to these

collectively as the petition .

the partnership was a sham or to the other adjustments discussed

above . Respondent filed a motion for summary judgment in August

2006, asserting that any issues not raised in the petition are

deemed conceded under Rule 34(b)(4) .

In September 2006, petitioner filed a motion for leave to

file second amended petition . The motion states that "Petitioner

wishes to amend its petition to more particularly comply with

[Rule] 34(b)(4) by alleging further factual basis for

respondent's various errors as contained in * * * [the FPAA] ."

The proposed second amended petition assigns error to each

adjustment in the FPAA .

Discussion

I .

Whether the Assessment Period Has Expire d

Summary judgment is appropriate "if the pleadings, answers

to interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law ." Rule 121(b) ;

Sundstrand Corp . v . Commissioner , 98 T .C . 518, 520 (1992), affd .

17 F .3d 965 (7th Cir . 1994) . The moving party bears the burden

of proving that there is no genuine issue of material fact, and

factual inferences will be read in a manner most favorable to the

party opposing summary judgment .

T .C . 812, 821 (1985) .

Dahlstrom v . Commissioner , 85

- 5 The instant case is a partnership-level proceeding subject

to the unified audit and litigation procedures of the Tax Equity

and Fiscal Responsibility Act of 1982 (TEFRA), Pub . L . 97-248,

sec . 401, 96 Stat . 648 . The Internal Revenue Code prescribes no

period during which TEFRA partnership-level proceedings, which

begin with the mailing of an FPAA, must be commenced .

Rhone-

Poulenc Surfactants & Specialties, L .P . v . Commissioner , 114 T .C .

533, 534 (2000) . If partnership-level proceedings are commenced

after the time for assessing tax against the partners has

expired, however, the proceedings will be of no avail because the

expiration of the period for assessing tax against the partners

will bar any assessments attributable to the partnership items .

Id .

at 534-535 .

In general, section 6501(a) provides that the amount of any

tax imposed shall be assessed within 3 years after the return was

filed . The term "return" means the return required to be filed

by the taxpayer (and does not include a return of any person from

whom the taxpayer has received an item of income, gain, loss,

deduction, or credit) .

Id . . Section 6229(a) provides, however,

that the period for assessing tax attributable to partnership

items 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 .

- 6 Petitioner contends that, because the FPAA was issued more

than 3 years after the partnership filed its 1999 tax return, the

assessment period has expired . Petitioner argues, in essence,

that section 6229 provides an assessment period that is

independent of the period described in section 6501 . The Court

considered and rejected this argument in Rhone-Poulenc

Surfactants & Specialties, L .P . v . Commissioner ,

supra at 540-

541 . The Court held that sections 6229 and 6501 provide

alternative periods within which to assess tax with respect to

partnership items, with the later expiring period governing in a

particular case .

Id .

We also held that the issuance of an FPAA

suspends the period to assess tax under section 6501 .

Id .

at

552-553 . We followed this holding in Andantech L .L .C . v .

Commissioner , T .C . Memo . 2002-97, affd . in relevant part and

remanded in part 331 F .3d 972 (D .C . Cir . 2003) .

Petitioner does not dispute that the FPAA was issued within

3 years of the time the partners filed their respective tax

returns . Accordingly, under the holding of Rhone-Poulenc and

similar cases, the assessment period under section 6501(a) has

not expired and remains suspended . Petitioner notes, however,

that none of the above-cited cases was appealable to the Court of

Appeals for the Fifth Circuit .2 Under the Golsen rule, we follow

2 The parties agree that the instant case is appealable to

the Court of Appeals for the Fifth Circuit .

- 7 the law of the Court of Appeals to which a case is appealable .

Golsen v .

54 T .C . 742, 757 (1970 ),

Commissioner ,

985 (10th Cir .

1971 ) .

affd . 445 F .2d

Petitioner contends that we must reach a

contrary result under Fifth Circuit law .

In Weiner v . United States ,

389 F . 3d 152

( 5th Cir . 2004),

the taxpayers appealed decisions entered against them in refund

suits .

The taxpayers earlier had been parties to partnership-

level proceedings in the Tax Court . Pursuant to settlements of

their claims to flow-through deductions from the partnerships

involved in those proceedings ,

the Commissioner assessed tax and

interest against them .

The taxpayers then commenced the refund

suits in District Court ,

contending that the assessments were

barred by the statute of limitations .

Id .

at 153-154 .

The Court of Appeals held that the District Court lacked

jurisdiction to decide the statute of limitations issue because

it was a partnership item .

Id .

at 156 . Under TEFRA, the

treatment of all partnership items must be determined at the

partnership level . Sec .

6221 .

Accordingly ,

the District Court

could not decide the statute of limitations issue in a partnerlevel proceeding .

its conclusion ,

Weiner v . United States ,

supra .

In reaching

the court stated the Commissioner has "three

years from the later of (1) the date a partnership return is due,

or (2) the date the partnership return is filed, to issue an

FPAA ."

Id .

at 154-155 (citing section 6229(a)) .

On the basis of the holding in Weiner v . United States ,

supra , petitioner appears to argue that the Court of Appeals for

the Fifth Circuit views the assessment period under section 6229

as independent of the period provided in section 6501 . W e

disagree . The court in Weiner did not mention section 6501 or

discuss any of the cases which hold that sections 6229 and 6501

establish alternative assessment periods . Furthermore, because

the Court of Appeals concluded that the statute of limitations

issue was a partnership item, the result would have been the same

regardless of whether the assessment period was controlled by

section 6229 or 6501 . See id .

at 155 ("The more precise question

in this case * * * is whether the taxpayers' refund requests are

attributable to any partnership item such that the District Court

would be deprived of jurisdiction .") . The Court of Federal

Claims addressed a similar argument in Grapevine Imps ., Ltd . v .

United States , 71 Fed .

Cl .

324, 330 (2006) and concluded that the

above-quoted language from Weiner was dictum and that the Court

of Appeals was "not focused on the issue involving the interplay

between sections 6229(a) and 6501 ."

- 9 We conclude that the period for assessing tax against the

partners has not expired . Neither Weiner v . United States ,

supra , nor any of the other cases petitioner cites dictates a

contrary result . Accordingly, we shall deny petitioner's motion

to dismiss for lack of jurisdiction and to strike and

petitioner's motion for summary judgment . '

II .

Whether Petitioner May Amend Its Petitio n

Rule 34(b)(4) provides that the petition in a deficiency or

liability action shall contain "Clear and concise assignments of

each and every error which the petitioner alleges to have been

committed by the Commissioner * * * . * * * Any issue not raised

in the assignments of error shall be deemed to be conceded . "

Rule 241(d)(1)(C) provides a similar rule for a petition in a

partnership action .

Petitioner seeks to amend its petition to assign error to

the adjustments in the FPAA . Rule 41(a) provides in part :

"A party may amend a pleading once as a matter of course at any

time before a responsive pleading is served . * * * Otherwise a

party may amend a pleading only by leave of Court or by written

consent of the adverse party, and leave shall be given freel y

3 Petitioner also contends that we cannot consider when the

partners filed their respective tax returns because the filing

dates are nonpartnership items . This position contradicts the

holding of Rhone-Poulenc Surfactants & Specialties, L .P . v .

Commissioner , 114 T .C . 533 (2000), where the Court examined the

partners' filing dates to determine when the assessment period

under sec . 6501 expired . Petitioner's argument therefore fails .

- 10 when justice so requires ." Rule 41(a) is similar to rule 15(a)

of the Federal Rules of Civil Procedure, which also declares that

leave to amend "shall be given freely when justice so requires ."

Kramer v . Commissioner , 89 T .C . 1081, 1084-1085 (1987) (citing

Foman v . Davis , 371 U .S . 178 (1962)) . We have looked to holdings

under rule 15(a) of the Federal Rules of Civil Procedure for

guidance in interpreting Rule 41(a) .

Id .

The grant or denial of an opportunity to amend a pleading is

within the discretion of the trial court . See Foman v . Davis ,

supra at 182 . The Court of Appeals for the Fifth Circuit has

held, however, that rule 15(a) of the Federal Rules of Civil

Procedure "severely restricts" the trial court's discretion and

"evinces a bias in favor of granting leave to amend ."

Dussouy v .

Gulf Coast Inv . Corp . , 660 F .2d 594, 597 (5th Cir . 1981) . Unless

there is a substantial reason to deny leave to amend, the

discretion of the trial court is not broad enough to permit

denial .

Id .

at 598 . "The types of reasons that might justify

denial of permission to amend a pleading include undue delay, bad

faith or dilatory motive on the part of the movant, repeated

failure to cure deficiencies by amendments previously allowed,

and undue prejudice to the opposing party ."

Id . ; see also

Pinson

v . Commissioner , T .C . Memo . 2000-393 .

Respondent argues that we should deny petitioner's motion

because of undue delay, noting that the motion was filed

- 11 approximately 11 months after the amended petition was filed .

See

supra note 1 . Unless the delay is excessive, however, mere

passage of time need not result in refusal of leave to amend .

Dussouy v . Gulf Coast Inv . Corp . ,

supra

(reversing denial of

motion for leave to amend filed 41 days after a party was

dismissed from the case) ; cf .

Russo v . Commissioner , 98 T .C . 28

(1992) (denying a motion filed 8 years after the petition was

filed) .

We also note that the instant case was not scheduled for

trial when petitioner filed its motion .' It is therefore

distinguishable from many of the cases in which the denial of a

motion for leave to amend was upheld . See, e .g .,

Ashe v . Corley ,

992 F .2d 540 (5th Cir . 1993) (upholding denial of a motion for

leave to amend filed 1 week before trial) ;

Jackson v . Columbus

Dodge, Inc . , 676 F .2d 120 (5th Cir . 1982) (upholding denial of

motion filed 1 day before a pretrial conference and 19 months

after the complaint was filed) ;

Rhodes v . Amarillo Hosp . Dist . ,

654 F .2d 1148 (5th Cir . 1981) (upholding denial of a motion filed

30 months after the initial complaint and 3 weeks before trial) .

Accordingly, we conclude there is no undue delay .

Respondent contends that respondent will be prejudiced if

petitioner's motion is granted because additional discovery wil l

4 The instant case was calendared for trial on the Oct . 30,

2006, San Antonio, Texas, trial session but was continued after

the parties filed a joint motion for continuance of trial .

- 12 -

be necessary . The need for additional discovery is a factor to

consider in granting or denying a motion for leave to amend . See

Ross v . Houston Indep . Sch . Dist . , 699 F .2d 218, 229 (5th Cir .

1983) . Additional discovery often will be required, however,

when a petition is amended . The nonmoving party generally is not

prejudiced if it can present evidence as to the issues raised by

the amendment . See Steiner v . Commissioner , T .C . Memo . 1995-122 ;

see also Ross v . Houston Indep . Sch . Dist . ,

supra

(upholding

denial of a motion for leave where the amendment would require

additional discovery, add 26 new parties, and likely require

several additional years for preparation and trial of the case) ;

cf .

Kramer v . Commissioner ,

supra at 1085 (denying a motion for

leave filed after trial because the Commissioner could not offer

evidence as to the newly raised issue) .

We also note that, aside from the statute of limitations

issue discussed above, petitioner appears to address only the

adjustments made in the FPAA . Thus, the instant case is not one

where the amendment would establish "an entirely new factual

basis" for the movant's claims . Cf .

Little v . Liquid Air Corp . ,

952 F .2d 841, 846 (5th Cir . 1992) . In sum, any burden of

additional discovery does not overcome the factors in favor of

granting leave to amend . See Dussouy v . Gulf Coast Inv . Corp . ,

supra .

- 13 Finally, respondent appears to argue that petitioner has

shown bad faith . Respondent contends that petitioner's motion is

"an apparent attempt to escape judgment as a matter of law based

on respondent's motion for summary judgment" . Respondent cites

several cases upholding the denial of a motion for leave to amend

that was filed after the opposing party had filed a motion for

summary judgment . See, e .g .,

Little v . Liquid Air Corp . ,

supra ;

Overseas Inns S .A . P .A . v . United States , 911 F .2d 1146 (5th Cir .

1990) ;

Layfield v . Bill Heard Chevrolet Co . , 607 F .2d 1097 (5th

Cir . 1979) .

As respondent acknowledges, however, there is no per se rule

requiring the trial court to deny a motion for leave to amend

after a motion for summary judgment has been filed . See Za idi v .

Ehrlich , 732 F .2d 1218, 1220 (5th Cir . 1984) ;

Bamm, Inc . v . GAF

Corp . , 651 F .2d 389, 391-392 (5th Cir . 1981) . Considering that

the instant case was not scheduled for trial when petitioner

filed its motion and that the issues are largely confined to the

adjustments made in the FPAA, we conclude that it is appropriate

to allow petitioner to amend its petition .

Having decided that petitioner may amend its petition, we

shall deny respondent's motion for summary judgment . The second

amended petition assigns error to the adjustments in the FPAA,

- 14 -

thus raising genuine issues as to material facts . Summary

judgment therefore is inappropriate . See Rule 121(b) ;

Sundstrand

Corp . v . Commissioner , 98 T .C . at 520 .

To reflect the foregoing,

An appropriate order wil l

be issued .