T .C . Memo . 2007-28 9

T .C . Memo . 2007-28 9

UNITED STATES TAX COUR T

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

TAX MATTERS PARTNER, Petitioner v .

COMMISSIONER OF INTERNAL REVENUE, Respondent *

Filed September 24, 2007 .

Docket No . 1350-05 .

J . Winston Krause , for petitioner .

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

MEMORANDUM OPINIO N

WELLS,

Judge : The instant matter is a so-called Son-of-Bos s

cases and is before the Court on the following motions :

* The Court issued an opinion in this case, T .C . Memo . 2006266, on Dec . 14, 2006, which was withdrawn by order dated Jan . 3,

2007 .

1 See Kligfeld Holdings v . Commissioner , 128 T .C . 192 (2007) ;

see also G-5 Inv . Pship . v . Commissioner , 128 T .C . 186 (2007) .

SERVED SEP 2 4 2007

- 2 (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 a second amended petition . For the

reasons stated below, we shall grant petitioner's motion for

leave to file a 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 Form

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 .

On October 13, 2004, respondent issued Curr-Spec Managers,

L .L .C ., Tax Matters Partner (petitioner), a notice of final

partnership administrative adjustment (FPAA) for the taxable year

1999 . 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

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 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 concedes that the FPAA was issued more than 3

years after the partnership filed its 1999 return . Respondent

contends, however, that at least three partners claimed a net

operating loss (NOL) carryforward of a 1999 partnership item in

2000 and 2001 . Respondent wishes to disallow the claimed NOL

carryforwards if the adjustments in the FPAA are upheld .

Respondent contends that the FPAA was issued less than 3 years

after the partners filed their respective 2000 and 2001 ta x

2 Petitioner filed a petition in January 2005 and an amended

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

collectively as the petition .

- 4 -

returns and, therefore, the assessment period for those years has

not expired .

2 .

Respondent's Motion for Summary Judgment and Petitioner's

Motion for Leave To File A 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 that

the partnership was a sham or to the other adjustments discussed

above . Respondent filed a motion for summary judgment, asserting

that any issues not raised in the petition are deemed conceded

under Rule 34 (b) (4) .

After respondent had filed the motion for summary judgment,

petitioner filed a motion for leave to file a 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) ;

- 5 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 .

Dahlstrom v . Commissioner , 85

T .C . 812, 821 (1985) .

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,

- 6 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 .

In Rhone-Poulenc Surfactants & Specialties, L .P . v .

Commissioner ,

supra , we addressed the interaction of sections

6229 and 6501 . We rejected the taxpayer's argument that section

6229 provides an assessment period that is independent of the

period described in section 6501 . We 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 .

at 540-541 . 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) .

The instant case presents a slightly different issue from

Rhone-Poulenc and Andantech , however, because respondent issued

the FPAA for the taxable year 1999 while conceding that the

assessment period for that year had expired . Respondent instead

seeks to assess tax for the taxable years 2000 and 2001 that is

attributable to a 1999 partnership item . We recently addressed a

- 7 similar situation and held that a 1999 FPAA was timely even

though the assessment period for that year had expired . See

Kligfeld Holdings v . Commissioner , 128 T .C . 192 (2007) ; see also

G-5 Inv . Pship . v . Commissioner , 128 T .C . 186 (2007) . Petitioner

does not dispute that the FPAA was issued within 3 years of the

time the partners filed their respective 2000 and 2001 tax

returns . Accordingly, under the holding of

Kligfeld Holdings and

similar cases, the assessment period has not expired and remains

suspended .

We note, however, that none of the above-cited cases was

appealable to the Court of Appeals for the Fifth Circuit .3 Under

the Golsen rule, we follow the law of the Court of Appeals to

which a case is appealable .

Golsen v . Commissioner , 54 T .C . 742,

757 (1970), affd . 445 F .2d 985 (10th Cir . 1971) . We therefore

consider whether 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 from decisions entered against them in

refund suits . The taxpayers earlier had been parties t o

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 Commissione r

3 The parties agree that the instant case is appealable to

the Court of Appeals for the Fifth Circuit .

- 8 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 Courts lacked

jurisdiction to decide the statute of limitations issue because

it was a partnership item .

Id .

at 157 . Under TEFRA, th e

treatment of all partnership items must be determined at the

partnership level . Sec . 6221 . Accordingly, the District Courts

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

Weiner v . United States ,

supra at 157 . In

reaching its conclusion, the Court of Appeals stated that 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 its face,

Weiner might suggest that the Court of Appeal s

for the Fifth Circuit views the assessment period under section

6229 as independent of the period provided in section 6501 . The

Court of Appeals in Weiner , however, 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

- 9 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 U .S . Court of Federal Claims would also distinguish Weiner

from the facts of the instant case . In Grapevine Imports, Ltd .

v . United States , 71 Fed . Cl . 324 (2006), the court concluded

that the above-quoted language from Weiner as to the date of

expiration of the assessment period was dictum and that the Court

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

between sections 6229(a) and 6501 ."

Id .

at 330 .

We conclude that the period for assessing tax against the

partners has not expired . Neither Weiner nor any of the other

cases cited by petitioner dictate 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 . '

' Petitioner also argues at length 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 we examined the

partners' filing dates to decide when the assessment period under

sec . 6501 expired . Although petitioner contends its position

does not conflict with our existing caselaw, petitioner has not

explained how the Court can apply the holding of Rhone-Poulenc

without examining the partners' filing dates . Petitioner' s

(continued . . .)

- 10 II .

Whether Petitioner May Amend Its Petition A Second Time

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 a second time 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 o f

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

freely when justice so requires ." Rule 41 is similar to rul e

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 .

4( . . .continued)

argument is without merit .

Id .

- 11 The granting 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 .

(citations

omitted) ; 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

approximately 11 months after the amended petition was filed .

See supra note 4 . 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

- 12 (1992) (denying 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 . Corlev ,

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 a

motion filed 1 day before a pretrial conference and 19 months

after the complaint was filed) ;

Rhodes v . Amarillo Hospital

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 that there is no undue

delay in the instant case .

Respondent contends that respondent will be prejudiced if

petitioner's motion is granted because additional discovery will

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 . School 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 no t

5 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 .

- 13 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 . School 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 .

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

- 14 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 Zaidi v .

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

Corp .,

Bamm, Inc . v . GAF

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 again .

Having decided that petitioner may amend its petition again,

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

second amended petition assigns error to the adjustments in the

FPAA, 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 .