Opposition Brief — Curr-Spec Partners v. Commissioner

No. 09-871 PP Bei SS, Sls

Jn the Supreme Court of the Gnited States

CURR-SPEC PARTNERS, L.P., PETITIONER

Vv,

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FORTHE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

ELENA KAGAN

Solicitor Ge neral

Counsel of Record

JOHN A. DICICCO

Acting Assistant Attorney

(reneral

GILBERT 8. ROTHENBERG

Acting Deputy Assistant

Attorne Y General

MICHAEL J. HAUNGS

KAREN G. GREGORY

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdo}.gov

N09) 1)

wa IL -w

POO’?

~ &

QUESTIONS PRESENTED

Partnerships are pass-through entities that do not

themselves pay federal income tax, but nonetheless file

annual information returns stating their income, gains,

losses, deductions, and credits. Those items are then al-

located among the individual partners, and any resulting

income-tax liability is assessed against the individual

partners. To adjust “partnership items,” the Internal

Revenue Service must issue a notice of final partnership

administrative adjustment (F}PAA). Adjustments in the

FPAA may affect the tax liability of the individual

partners, against whom additional income-tax liabilities

arising from the adjustments will be assessed. Certain

partners may (as was done here) challenge the FPAA in

a partnership-level proceeding in the Tax Court. The

questions presented are as follows:

1. Whether 26 U.S.C. 6229(a) provides only a minimum

period for assessments attributable to partnership items

and thus may extend, but not shorten, the statute of limi-

tations in 26 U.S.C. 6501(a) for assessments against indi-

vidual partners.

2. Whether the Tax Court has jurisdiction, in a

partnership-level proceeding, to consider whether the stat-

ute of limitations for assessments attributable to partner-

ship items remains open for a particular partner.

TABLE OF CONTENTS

RPE EIDUOW ccc ccc cccecceveceseeseses aan res

ee aw ke ob eae elk ~ aang l

Statutory provisions involved .............. seca ks Bho

ee ee pacea hs elk sa Rene ee

Argument .... | ; | 6

Pe . 15

Appendix Statutory provisions .......... = Pre

TABLE OF AUTHORITIES

Cases:

AD Global Fund, LLC ex rel. North Hills Holding,

Inc. v. United States, 481 F.3d 1351 (Fed. Cir

LE ANAS ee ee Pe PAF ‘, 14

Andantech L.L.C. v. Commissione

TC. Memo 2002-97, aff'd in part, 331 F.3d 972

(D.C. Cir. 2008) ........ ee :

331 F.3d 972 (D.C. Cir. 2003) 8 14

Anderson v. United States dn re And rsov),

No. 94-5165, 1995 WL 481196 (10th Cir

Aug. &, 1995), cert. denied, 516 U.S. 1119 (1996

Baker v. Carr, 369 U.S. 186 (1962) . 7 vr eS

Bakersfield Energy Partners, LP v. Commissioner,

568 F.3d 767 (9th Cir. 2009) .... - q

BLAK Invs. v. Commissions r, 133 T.C. No. 19.

2009 WL 4981301 (Dee. 23, 1009)

Callaway Vv. Commissioner, 231 F.3d 106 (2d Cir

2000) .... oe ; ; - ; .

CUR&k W. Operations Lid. P'ship v. Commisstone?

273 F.3d 402 (1st Cir. 2001) ) pas 9

IV

Cases—Continued: Page

Chef’s Choice Produce, Ltd. v. Commissioner,

ow EO Ll: ee a ere 4

Chimblo v. Commissioner, 177 F.3d 119 (2d Cir.

1999), cert. denied, 528 U.S. 1154 (2000) ........... }4

Conway Vv. United States, 326 F.3d 1268 (Fed. Cir.

ED cocoa aad ea a ae a ee ee ee ae eee ee ee 2

Davenport Recycling Assocs. v. Commissioner,

220 F.3d 1255 (11th Cir. 2000) .................00.. 14

Field v. U/nited States, 381 F.3d 109 (2d Cir. 2004) ....... i)

G-5 Inv. P’ship v. Commissioner, 128 T.C. 186 (2007) ... 12

Kaplan v. United States, 138 F.3d 469 (7th Cir. 1998) .. 14

Keener v. L/nited States, 551 F.3d 1358 (Fed. Cir.),

cert. denied, 130 S. Ct. 153 (2009) .................. 14

Kligfeld Holdings v. Commassioner, 128 T.C. 192

ER re ek ea ck ke eons Ueda ree Tae 12

Madison Recycling Assocs. v. Commissioner,

re Se ee cae Sas ED 6. 6 0 vo hss e ses eck Rs bee et )

Monahan v. Commissioner, 321 bk’ .3d 1063

Boy Be Sb i: Rete nnn A Re era mar eee Ea i)

Monetary IT Ltd. P’ship v. Commissioner, 47 F.3d

Gee Cate Gs RO? So oc cco kas euneacse bees AS

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

Commissioner, 114 T.C. 5338 (2000), appeal

dismissed, 249 I .3d 175 (8d Cir. 2001) ...... .. 08,10

l/nited States v. Basye, 410 U.S. 441 (1973) Zz

l/nited States v. Martinez (In re Martinez),

564 F.3d 719 (Sth Cir. 2009) ............... rere

Warth v. Seldin, 422 U.S. 490 (1975)

Cases—Continued: Page

Weiner v. United States, 389 F.3d 152 (Sth Cir. 2004),

cert. denied, 544 U.S. 1050 (2005) ............... 10, 14

Constitution, statutes and regulations

8B ge RS SE >) GR a 13

Small Business Job Protection Act of 1996, Pub. L.

No. 104-188, § 1807(c)(3)(B), 110 Stat. 1782 ....... ; =

Tax Equity and Fiscal Responsibility Act of 1982,

Pub. L. No. 97-248, 96 Stat.324 ..............c0ee. 2

RD, OS UN WO nck ec cscceascesrnovece. i-@

Tax Reform Act of 1984, Pub. L. No. 98-369, § 714(p),

a a re ae a pre be 2

Taxpayer Relief Act of 1997, Pub. L.. No. 105-34,

§§ 1231-1243, 111 Stat. 1020-1029 . Ge.

26 U.S.C. 701-704 ........ eas oe ia aaars > 2

GR 8 be.) ee err ote 2

26 U.S.C. 6110(K)(38) . : . SF oe ee oe ey wee 10

aR Ee rr HO PRO eres

26 U.S.C. 6221-6234 ....... ae algae eat arated eae

26 U.S.C. G223(aX(Z) ........06. erate coat eae an 2

26 U.S.C. 6223(d)(2) .. has Pare Z

26 U.S.C. 62285 . 2

26 U.S.C. 6225(a) ?

- BRR See. ee - ~» 4, de, 22

BSP Sem VE |) Se ke a i

26 U.S.C. 6226(a)(2)-(3) ... a ! seve 1d 18

26 U.S.C. 6226(b) .... . awala ees ee Na

26 U.S.C. 6226(e) .... ; ; . 12. 138. Sa

VI

Statutes and regulations—Continued Page

26 U.S.C. 6226(d) . OH, oa

26 UES.C. 622604)O1) - sh. te ia. 8

26 U.S.C. 6226(d)(1)(B) 12, 3a

26 U.S.C. 6226(f . . , 13, da

26 U.S.C. 6226(¢) 13, da

26 U.S.C. 6226(h) ...... Ll, 5a

26 U.S.C. 6229 (, oa

26 U.S.C. 6229(a) mm, dA

26 U.S.C. 6229(b)(1) 9,5

26 U.S.C. 6229(b)( DB 14, 6

26 U.S.C. 6229(c)(2) 9, 6a

26 U.S.C. 6229(f

1 U.S.C. 6230(a)(1)

7, U.S.C. 6501

6 U.S.C. 6501(a) , 6 x 11, 8a

26 U.S.C, 6501(n)(2) 7. 10a

26 | >. ( {482

ection 1.40]

section L.b0sl-1(a)

Section 301.6251(a)(3)-1U

hief Counsel Advisory, IRS CCA 2OOUVSLOSS,

2009 WIL, 4884136 Clune 24. 20090 ; LQ)

hief Counsel Notice. IRS CON N«¢35)000 14,

LGU WL 84258890 (Oct. 19. 1998) it)

Miscellaneou Continued

Litigation Guideline Memorandum. IRS LGM TI,-42

LOS8 WL S98060 (Jan. 22. 1988)

Litigation Guideline Memorandum. [RS LGM

:

1999 WI, 507271 (Feb

POQQ0D504A0

Jn the Supreme Court of the GAnited States

RRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

| i) >] ne Ps

( ourt Pet \p] 25 s4a) not reported bD

printed in 94 T.C.M. (CCH) 314

IU RISDICTION

lhe lWvment ot tne rt I appe Al Was ent read

\uvust 11. 2009. A petition for rehearing was denied o

October 16, 2009 (ret. App. sva Phe petitior ior a Wt

f certiorari was filed on January 14, 2010, The jurisdi

STATUTORY PROVISIONS INVOLVED

ihe relevant statutory p! »reprod

, i ; ; -_— { A was ! 1/)

ippend Is | eC] A ra, J LU

a

STATEMENT

1. Partnerships are pass-through entities that

do not pay federal income tax but are required to

file annual information returns. 26 U.S.C. 6031;

26 C.F.R. 1.701-1, 1.6031-1(a)(1); United States v. Basye,

110 U.S. 441, 448 (1973). All income, gains, losses, de-

ductions, and credits are allocated among the individual

partners, who must report the allocations on their indi

vidual income-tax returns. 26 U.S.C. 701-704; Conway

v. United States, 326 F.3d 1268, 1271 (Fed. Cir. 2003).

Income tax is thus assessed against the individual part-

ners rather than against the partnership.

a. A unified procedure for determining the proper

tax treatment of partnership items was established in

Section 402(a) of the Tax Equity and Fiscal Responsibil

ity Act of 1982 (TEFRA), Pub. L. No. 97-248, 96 Stat.

324, 648.’ Under TEFRA, the Internal Revenue Service

(IRS or Service) must issue a notice of final partnership

administrative adjustment (F PAA) in order to adjust

items reported on a partnership return. See 26 U.S.C

§223(a)(2) and (d)(2), 6225(a). The F PAA does not itself

assess income tax, but once the F PAA becomes final, its

adjustments to partnership items are allocated to

the individual partners, and any resulting tax liability

is assessed against them. See 26 U.S.C. 6201, 6225,

6250(a)(1).

Certain partners may contest the F PAA by filing a

petition in (among other fora) the United States Tax

TEE RA has since been amended by, inferalia, the Tax Reform Act

£1954, Pub. L. No. 98-369, § 714(p), 98 Stat. 964, the Small Business

lob Protection Act of 1996, Pub. L. No. 104-188. §& L3807(c)C3)B)

110 Stat. 1782, and the Taxpayer Reliet Act of 1997, Pub. L.. No. 105-34

231-1245, 111 Stat. 1020-1029 TEFRA in its current forn

dified at 26 U.S.C. 6221-6234

3

Court. See 26 U.S.C. 6226(a)-(b). In that partnership-

level proceeding, the Tax Court has “jurisdiction to

determine all partnership items of the partnership for

the partnership taxable year to which the [FPAA] re-

lates, the proper allocation of such items among the

partners, and [penalties].” 26 U.S.C. 6226(f). “Partner-

ship item” is further defined by regulations promul-

gated by the Secretary of the Treasury at 26 C.F.R.

301.6231(a)(3)-1(b). In a partnership-level proceeding,

the Tax Court is also authorized ti determine whether

a particular partner has no interest in the outcome of

the proceeding because “the period of limitations for

assessing any tax attributable to partnership items has

expired with respect to [that partner]’ 26 U.S.C.

6226(d){1). The Tax Court’s decision is subject to review

in the court of appeals. 26 U.S.C. 7482.

b. The statute of limitations for tax assessments is

set forth in 26 U.S.C. 6501. As relevant here, Section

6501(a) states that “the amount of any tax imposed by

this title [26 U.S.C.] shall be assessed within 3 years

after the return was filed.” Section 6501(a) further pro-

vides that “the term ‘return’ means the return required

to be filed by the taxpayer (and does not include a re-

turn of any person from whom the taxpayer has received

an item of income, gain, loss, deduction, or credit).” Sec-

tion 6501(n)(2) states: “For extension of period in the

case of partnership items * * * , see section 6229.”

Section 6229(a), in turn, states that “the period for as-

sessing any [income tax] with respect to any person

which is attributable to any partnership item (or af-

fected item) for a partnership taxable year shall not ex-

pire 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 (determined without regard to

extensions).”

2. Curr-Spec Partners, L.P., was the vehicle for an

abusive “Son-of-BOSS” tax shelter scheme. Pet. App.

23a.” The IRS examined Curr-Spec’s partnership return

for the taxable year 1999 and determined, inter alia,

that the partnership was a sham and should be disre-

garded for tax purposes. /d. at 24a. Accordingly, the

Service issued an F PAA in 2004. /bid. The Service rec-

ognized that although it was barred by the statute of

limitations from assessing additional tax against the

partners for 1999, the individual partners had claimed

net operating losses attributable to partnership items,

carried forward from 1999 to 2000 and later years, for

which the assessment period remained open. Jd. at 24a-

zZoa.

3. J. Winston Krause filed a petition in the Tax

Court challenging the F' PAA, conceding all issues except

the timeliness of the FPAA. Pet. App. 2a-3a, 14a n.6.

Krause did not dispute that the F PAA was issued within

three years after the dates on which Curr-Spece’s indi-

The petition for a writ of certiorari names Curr-Spec Partners,

LL.P., as the petitioner. Ajthough identified in the caption of the court

of appeals’ decision below, Curr-Spec was not a proper party to the

proceedings. The partners, and not the partnership, are the parties in

a proceeding challenging an F PAA. 26 U.S.C. 6226; Chef's Chorce Pro-

duce, Ltd. v. Commissioner, 95 TC. 388, 394-395 (1990). The Tax Court

petition that commenced this case was filed by J. Winston Krause

(counsel of record for Curr-Spee in this Court), who identified himself

as “‘successor-in-interest” to Curr-Spec’s tax matters partner, Curr-

spec Managers, I.LC. Neither the partnership nor the [IL.LC was still

in existence at the time the Tax Court petinon was filed, but Krauss

Was a notice partner who could file a petition in his own mght under

26 U.S C, 6226(b). To avoid ambiguity, this bnef will refer to “Curr

Spee” or “Krause” as appropriate

*)

vidual partners had filed returns for 2000 and 2001

claiming losses carried forward from 1999 partnership

items. /d. at 25a, 27a-28a. Rather, Krause argued that,

regardless of the date of filing of a partner’s individual

return reporting items passed through to him from the

partnership, 26 U.S.C. 6229(a) requires an FPAA to be

issued within three years after the date the partnership

return was filed. Pet. App. 6a-7a.

The Tax Court disagreed, relying on uniform author-

ity holding that Section 6229(a) does not “provide[] an

assessment period that. is independent of the period de-

scribed in [Slection 6501.” Pet. App. 27a (citing And-

antech L.L.C. v. Commissioner, T.C. Memo 2002-97, affd

in part, 331 F.3d 972 (D.C. Cir. 2003); Rhone-Poulenc

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

114 T.C. 533, 540-551 (2000) (en bane),” appeal dis-

missed, 249 F.3d 175 (3d Cir. 2001)). The court held

that, although the assessment period for 1999 had ex-

pired for all partners, the period was still open for 2000

and 2001. Pet. App. 27a-29a. The Tax Court also re-

jected Krause’s argument that it lacked jurisdiction to

consider the dates on which the partners had filed their

individual returns, explaining that its authority to do so

was implicit in Rkone-Poulenc. Id. at 34a n.4. Follow-

ing that decision, Krause and the government stipulated

to entry of a Tax Court decision conforming to the

FPAA. Curr-Spec Partners, LP v. Commissioner, No.

1350-05 (May 28, 2008).

4. The court of appeals affirmed. Pet. App. la-22a.

The court held that 26 U.S.C. 6229(a) does not establish

an independent three-year lmitations period within

For simpheity, we refer to decisions that were reviewed by the en-

ture Tax Court as having been decided “en banc.” See Pet. App. 13a n.2.

6

which an F PAA must be issued, but merely provides a

minimum time period that may extend, but can never

shorten, the three-year statute of limjtations for assess-

ments contained in 26 U.S.C. 6501(a). Pet. App. 6a-10a.

The court of appeals further held that the Tax Court had

jurisdiction pursuant to 26 U.S.C. 6226(d)(1) to consider

whether the partners’ individual assessment periods

under Section 6501(a) remained open. Pet. App. 5a-6a,

l6ann.19 & 20.

ARGUMENT

The court of appeals held that 26 U.S.C. 6229(a) pro-

vides only a minimum period for assessing tax attribut-

able to partnership items. Under that reading, Section

6229(a) ean extend the limitations period provided in

Section 6501(a) but can never shorten the period for an

assessment of tax against an individual partner. That

holding is correct and consistent with the holding of ev-

ery other court of appeals to consider the issue, as well

as with the interpretation of Section 6229(a) adopted by

the Tax Court sitting en banc.

The court of appeals further held that, under 26

U.S.C. 6226(d), the Tax Court had jurisdiction in this

partnership-level proceeding to determine whether the

Section 6501(a) limitations period had expired as to

Curr-Spece’s partners’ 2000 tax year and thereafter.

That holding is also correct. And even if Curr-Spec’s

contrary interpretation of Section 6226(d) were well-

founded, neither Curr-Spec nor the individual partners

could derive any advantage from a decision of this Court

so holding. To the contrary, this Court’s adoption of

that reading would require dismissal of the Tax Court

petition, leaving the F PAA (and the partners’ resultant

=~]

tax liabilities) undisturbed. Further review is not war-

ranted.

A. Curr-Spee contends that 26 U.S.C. 6229(a) is a

statute of limitations, and that the FPAA at issue in this

case was untimely because it was issued more than three

years after the filing of the partnership return for the

taxable year 1999. See, e.g., Pet. 8 (stating that “the

Commissioner issued its FPAA purporting to change

Curr-Spec’s 1999 ppg A tax return beyond the

three-year period of 26 U.S.C. § 6229”). That reading of

Section 6229(a) is incorrect a ec.itrary to uniform ap-

pellate authority. Properly understood, Section 6229(a)

can extend, but can never shorten, the limitations period

(see 26 U.S.C. 6501(a)) for assessing an individual part-

ner’s tax.

1. As every court of appeals to consider the question

(including the court below) has held, Section 6229(a)

is not a statute of limitations. By its terms, Section

6229(a) provides only that the period for assessing tax

attributable to partnership items “shall not expire be-

fore” three years from the date the partnership return

is due or filed. Section 6229(a) identifies no point after

which assessment becomes impermissible, and it there-

fore cannot have the effect of barring an assessment

that would otherwise be timely. Rather, it operates un-

der certain circumstances to extend the limitations pe-

riod in Section 6501(a), which provides (with exceptions

not applicable here) that “any tax” imposed by the In-

ternal Revenue Code “shall be assessed within” three

years after the filing of the individual's return. The

cross-reference in Section 6501(n)(2)—which describes

Section 6229 as an “extension of period”—confirms that

understanding.

8

Thus, all taxes, including those arising from adjust-

ments to partnership items, generally must be assessed

against an individual partner within three years after

the date he filed his individual return. Section 6229(a)

provides, however, that the assessment period for taxes

attributable to partnership items cannot be less than

three years after the filing date of the partnership

return. If a partnership return is filed later than an

individual partner’s return, Section 6229(a) extends the

period for assessing tax against the individual partner

until three years after the partnership return is filed.

Taken together, Sections 6229(a) and 6501(a) ensure

that the Service has at least three years to examine a

partner’s return and the underlying partnership return

together before it must act to assess any additional tax

against a partner.

2. Every court of appeals to consider the matter has

agreed that Section 6229(a) does not create an independ-

ent limitations period, but rather can only extend the

limitations period in Section 6501(a). See Pet. App. 2a,

l4ann.3 & 4; AD Global Fund, LLC ex rel. North Hills

Holding, Inc. v. United States, 431 F.3d 1351, 1354-1355

(Fed. Cir. 2007); Andantech L.L.C. v. Commissioner,

331 F.3d 972, 976-977 (D.C. Cir. 2003); see also Rhone

Poulenc Surfactants & Specialties, L.P. v. Commias-

stoner, 114 T.C. 5383, 540-551 (2000) (en banc), appeal

dismissed, 249 F.3d 175 (3d Cir. 2001).

None of the decisions cited by Curr-Spee or amicus

SRK Wilshire Partners (SRK) holds otherwise. The

court in one of those eases held that the challenged as-

sessment was untimely under all of the relevant provi-

sions. Callaway v. Commissioner, 231 F.3d 106 (2d Cir.

2000) (holding assessment untimely because all applica

ble limitations periods, including 26 U.S.C. 6501(a), had

o

expired). In other cases the courts held that the chal-

lenged assessments were timely under other provisions,

and therefore had no occasion to consider whether See-

tion 6229(a) could operate as an independent limitations

bar under different cireumstances. Sce CC&F W. Oper-

ations Ltd. P’ship v. Commissioner, 273 F.3d 402 (1st

Cir. 2001) (holding assessment timely under extended

limitations period of 26 U.S.C. 6229(c)(2)); Madison Re-

cycling Assocs. v. Commissioner, 295 F.3d 280 (2d Cir.

2002) (holding assessment timely under agreed exten-

sion provision of 26 U.S.C. 6229(b)(1)); Monetary [7 Ltd.

P’ship v. Commissioner, 47 F.3d 342, 343 (9th Cir. 1995)

(same); Anderson v. United States (In re Anderson),

No. 94-5165, 1995 WL 481196 (10th Cir. Aug. 8, 1995)

(unpublished decision) (holding assessment timely under

special liniitations period of 26 U.S.C. 6229(f)), cert. de-

nied, 516 U.S. 1119 (1996). Still other decisions mention

Section 6229(a) only incidentally in the course of resolv-

ing unrelated issues. See, e.g., Monahan v. Commis-

sioner, 321 F.3d 1063 (11th Cir. 2008) (addressing effect

of settlement agreement).

Thus, any fleeting suggestion in those cases that Sec-

tion 6229(a) is a statute of limitations is dicta. Indeed,

some of the circuits offering such dicta have, in later

cases, recognized (again in dicta) that Section 6229(a)

operates only to extend an otherwise applicable limita-

tions period. See Bakersfield Energy Partners, LP vy.

Commissioner, 568 F.3d 767, 770 n.5 (9th Cir. 2009)

(Section 6229(a) “provides a minimum time period in

which the IRS can assess a tax deficiency,” and thus is

not an independent statute of limitations.); veld v.

United States, 381 F.3d 109, 112 n.1 (2d Cir. 2004)

(“[Slection 6229(a), by its terms, does not purport to

lomzt the time available to assess tax, but only to eatend

10

limitations otherwise applicable.”). Likewise, the court

of appeals recognized in the decision below that its own

comments about Section 6229(a) in prior cases had been

dicta. See Pet. App. 1la-13a, 19a n.43 (dismissing as

dicta characterizations of Section 6229(a) made in

Werner v. United States, 389 F.3d 152, 154-155 (5th Cir.

2004), cert. denied, 544 U.S. 1050 (2005), and United

States v. Martinez Un re Martinez), 564 F.3d 719, 724,

726 (5th Cir. 2009)). Because every appellate court to

interpret Section 6229(a) in its holding has correctly

concluded that the provision is not a statute of limita-

tions, further review is unwarranted.’

B. Curr-Spee contends that the Tax Court lacked

jurisdiction in this partnership-level proceeding to con-

sider the limitations issues in this case. That contention

is not properly presented here because neither Curr-

Spec nor the individual partners would obtain any tangi

ble benefit if this Court agreed with Curr-Spec’s juris-

dictional argument. In any event, Curr-Spee’s conten-

* Amicus SKK also points (Br. 6) to informal advice from the Ser-

vice’s Chief Counsel, IRS CCA 200951035, 2009 WL 4884136 (June 24,

2009). Amicus misapprehends that advice. The actual advice, issued 1n

response to an inquiry regarding partnership items in a tiered bank

rupteyv, consisted of only a simple statement (“There 1s no conversion.’’).

The remainder of the texton Westlaw, beginning with “CHAPTER 21,”

was merely an attachment copied from a bankruptcy manual that

predated the D.C. Circuit decision in Andantech in 2003. The out-ot-

date allachment is not the Service's official position on the statute of

limitations in TEF RA proceedings (26 U.S.C. 6110(k)(3)), much less a

“tentative rejection by the [RS of a position it has litigated and won in

a series of cases,” as amicus Claims (Br. 6). See Rhone-Poulenc, 114

TC. at 543; Chief Counsel Notice. IRS CCN N(35)000-154, 1998 WI,

34358890 (Oct. 19, 1998) (revoking Litigation Guideline Memorandum,

IRS LGM TL-43, 1988 WL &98060( Jan. 22, 1988)); Litigation Guideline

Memorandum, IRS LGM 199905040, 1999 WL, 50721 (Feb. 5, 1999).

1]

tion that the Tax Court lacked jurisdiction is contradic-

ted by 26 U.S.C. 6226(d)(1), which expressly confers

jurisdiction over the precise limitations issue presented

here. Finally, even setting Section 6226(d)(1) aside,

courts have long recognized that a limitations issue af-

fecting all individual partners—like the argument Curr-

Spec makes—is a partnership item over which the Tax

Court has jurisdiction in a partnership-level proceeding.

1. Curr-Spee’s central contention is that “TEFRA

jurisdiction flowing from [Section] 6226(f) bars” “indi-

vidual partner statutes of limitations under [Section]

6501(a) * * * from being litigated in Curr-Spec’s

partnership-level case below.” Pet. 8. Even if that argu-

ment were legally sound, it would be entirely self-de-

feating, since it would mean that the Tax Court lacked

jurisdiction to consider whether an assessment against

any of the partners was time-barred. Because Krause

eonceded the FPAA’s correctness in all other respects,

the Tax Court would have heen obliged to dismiss the

petition Krause filed. And while Curr-Spec appears to

assume that such a dismissal would have redounded to

the partners’ benefit, exactly the opposite is true: a dis-

missal would have left the FPAA undisturbed. See

26 U.S.C. 6226(h) (“If an action brought under this see

tion is dismissed * * the decision of the court dis-

missing the action shall be considered as its decision

that the |F PAA] is correct.”). Thus, even if this Court

accepted Curr-Spec’s jurisdictional argument, it would

not affect the outcome of the partnership-level proceed-

ing.

2. In any event, the Tax Court did have jurisdiction

to consider whether Curr-Spec’s partners’ individual

assessment periods under Section 64501(a) remained

open. If a given partner's assessment period had ex

12

pired for all tax years, that partner would not have been

a party to the Tax Court proceeding, and the FPAA

would have been moot as to that partner. Section 6226

expressly contemplates, and authorizes the Tax Court to

resolve, the question whether the period for assessing

tax against a particular individual partner remains open.

As a baseline, Section 6226(¢) provides that each per-

son who was a partner during the partnership taxable

year shall be treated as a party to the proceeding chal-

lenging the FPAA. That provision is then qualified by

Section 6226(d)(1)(B), which states that a partner shall

not be treated as a party after “the period within which

any tax attributable to [the adjusted] partnership items

may be assessed against that partner expire|s].” Thus,

if the FPAA will not affect a particular partner because

that partner has a limitations defense to any assessment

arising from adjustments in the FPAA, that partner

cannot challenge the FPAA. In order to invoke Section

6226(d)(1)(B), however, the individual partner must

appear in the partnership-level proceeding, and the

court in that proceeding has jurisdiction to decide

whether the limitations period for assessing tax against

him remains open. See 26 U.S.C. 6226(d)(1) (providing

that such a person “shall be permitted to participate

* * * solely for the purpose of asserting that the period

of limitations for assessing any tax attributable to part-

nership items has expired with respect to such person,

and the court having jurisdiction of such action shall

have jurisdiction to consider such assertion”); Pet. App.

6a; BLAK Invs. v. Commissioner, 133 T.C. No. 19, 2009

WL 4981301, at *4-5 (Dec. 23, 2009); G-5 Inv. P’ship v.

Commissioner, 128 T.C. 186, 190-192 (2007); Kligfeld

Holdings v. Commissioner, 128 T.C. 192, 207 (2007).

That grant of jurisdiction helps to prevent the waste of

limited judicial resources that could otherwise occur if

the Tax Court decided the merits of an FPAA, only to

find in subsequent partner-level proceedings (of which

there could be many depending on the number of part

ners) that no tax could be assessed based on the

adjustments in the FPAA.

Curr-Spec’s assertion that the limitations period had

expired as to all partners is clearly covered by Section

6226(d)(1). Curr-Spec’s only response (Pet. 10) is that

the Tax Court may exercise its jurisdiction under Se

tion 6226(d)(1) only when a partner so requests. But

Curr-Spec cites no authority for that one-sided reading

and the statutory text does not support it. Section

6226(d)(1) states that the court “shall have jurisdiction”

to consider whether “the period within which any tay

attributable to [the adjusted] partnership items may be

assessed against that partner [has] expired.” Moreover,

Curr-Spec’s interpretation of Section 6226(d)(1) would

apparently permit a partner with no stake in the out

come of the partnership-level proceeding to elect to par

ticipate in it nevertheless. That would pose troubling

standing questions for partnership-level proceedings in

and appeals to Article III courts (where many such mat

ters are heard, see 26 U.S.C, 6226(a)(2)-(3), (c) and (¢),

7482). See Warth v. Seldin, 422 U.S. 490, 498-499 (1975)

(“[T]Jhe standing question is whether the plaintiff has

‘alleged such a personal stake in the outeome of the con

troversy as to warrant h7s invocation of federal-court

jurisdiction.”) (quoting Baker v. Carr, 8369 U.S. 186, 204

(1962)).

3. Itven setting Section 6226(d)(1) aside, a lor y line

of cases establishes that the T'ax Court had jurisdictio:

under 26 U.S.C. 6226f) to decide Curr Spec’ tatute

of-limitations argument. Section 6226() confe) i)

diction to determine all partnership items for the part

nership taxable year to which the F PAA relates. Curr

Spec argue (Pet. 6-8) that the limitations issue here is

not a “partnership item.” But as Curr-Spec concedes,

“eight and perhaps nine or ten Circuits ‘have

reasoned that because the FPAA limitation issue af

fects the partnership as a whole,’” it “thus is a partner

hip item.” Pet. 14 (emphasis added) (quoting Weiner,

389 F.3d at 156-157),

If it had been legally sound, the limitations defense

that Curr-Spec asserted below .€., that any assess

ments based on the FPAA in this case are barred by

26 U.S.C. 6229(a) because the FPAA was issued more

than three years after the partnership return was

filed—-would have been a« omplete defense to the FPAA,

applicable to all partners. That general applicability is

the hallmark of a partnership item, and numerous courts

have therefore treated similar limitations questions as

partnership items. See Aeener v. United States, 551

F.8d 1358, 1362-1364 (red. Cir.) (Section 6229(a)), cert

denied, 180 8S. Ct. 158 (2009); AD Global, 481 F.3d 1351

(sume); Andantech, 331 F.8d 972 (same); Werner,

$89 F.3d at 159 (same); see also Davenport Recycling

issocs. Vv. Commesstoner, 220 F.3d 1255, 1259 & n.9

(Lith Cir, 2000) (extension of limitations period as to al)

partners by ayreement! of lax management partner un-

der 26 U.S.C. 6229(b)(1)(B)); Aaplan v. United States,

133 F.3d 469, 473 (7th Civ, 1998) (same); Chimobio \

Commissioner, 177 F.3d 119, 125 (2d Cir. 1999) (reject

ing taxpayers’ untimely attempt to “raise the partner

ship's statute of limitations defense”) (emphasis added),

cert. denied, 528 U.S. 11454 (2000)

Thus, contrary to amicus SRK’'s claim (Br. &-10), the

relevant appellate decisions uniformly treat limitation

_onve e| im) discussion of “cases that ec

red whether nonpartnership items may be determined

“4 partnership proceeding,” Br. & Imply irrelevant

nee none if the publishe 1 deci mS amicus Cite e'

! 14 mubt . on 627% (a tati

nership ite

APPENDIAN

es

1. 26 U.S.C. 6226 provides in pertinent part

Judicial review of final partnership administrative adjust-

ments

(a) Petition by tax matters partner

Within 90 days after the day on which a notice ot

final partnership administrative adjustment is mailed t

the tax matters partner, the tax matters partner may

lle a petition for a readjustment of the partnershiy

tems for such taxable year with

(] the Tax Court,

the district court of the United States for the

district in Which the partnership's principal! place ol

business is located, or

}) the Court of Federal Clain

(hb) Petition by partner other than tax matters partner

(1) In general

lf the tax matters partner does not file a read

justment petition under subsection (a) with respect

to any final partnership administrative adjustment,

uny notice partner (and any 5-percent group) may,

within 60 days after the close of the 90-day period set

forth in subsection (a), file a petition for a readjust

ment of the partnership items for the taxable year

involved with any of the courts described in subsec

tion (a)

9

ad

(2) Priority of the Tax Court action

If more than 1 action is brought under paragraph

(1) with respect to any partnership for any partner-

ship taxable year, the first such action brought in the

Tax Court shall go forward.

(3) Priority outside the Tax Court

If more than 1 action is brought under paragraph

(1) with respect to any partnership for any taxable

year but no such action is brought in the Tax Court,

the first such action brought shall go forward.

(4) Dismissal of other actions

If an action is brought under paragraph (1) in ad-

dition te the action which goes forward under para-

graph (2) or (3), such action shall be dismissed.

(5) Treatment of premature petitions

If—

(A) a petition for a readjustment of partnership

items for the taxable year involved is filed by a no-

tice partner (or a 5-percent group) during the 90-

day period described in subsection (a), and

(B) no action is brought under paragraph (1)

during the 60-day period described therein with

respect to such taxable year which is not dis-

missed,

such petition shall be treated for purposes of para-

graph (1) as filed on the last day of such 60-day peri-

od.

(c)

4

oad

(6) Tax matters partner may intervene

The tax matters partner may intervene in any

action brought under this subsection.

Partners treated as parties

If an action is brought under subsection (a) or (b)

with respect to a partnership for any partnership tax-

able year—

(d)

(1) each person who was a partner in such part-

nership at any time during such year shall be treated

as a party to such action, and

(2) the court having jurisdiction of such action

shall allow each such person to participate in the ae-

tion.

Partner must have interest in outcome

(1) in order to be party to action

Subsection (c) shall not apply to a partner after

the day on which—

(A) the partnership items of such partner for

the partnership taxable year became nonpartner-

ship items by reason of 1 or more of the events

described in subsection (b) of section 6231, or

(B) the period within which any tax attributable

to such partnership items may be assessed against

that partner expired.

Notwithstanding subparagraph (B), any person

treated under subsection (c) as a party to an action

shall be permitted to participate in such action (or

file a readjustment petition under subsection (b) or

paragraph (2) of this subsection) solely for the pur-

4a

pose of asserting that the period of limitations for

assessing any tax attributable to partnership items

has expired with respect to such person, and the

court having jurisdiction of such action shall have

jurisdiction to consider such assertion.

(2) To file petition

No partner may file a readjustment petition under

subsection (b) unless such partner would (after the

application of paragraph (1) of this subsection) be

treated as a party to the proceeding.

(f) Scope of judicial review

A court with which a petition is filed in accordance

with this section shall have jurisdiction to determine all

partnership items of the partnership for the partnership

taxable year to which the notice of final partnership ad-

ministrative adjustment relates, the proper allocation of

such items among the partners, and the applicability of

any penalty, addition to tax, or additional amount which

relates to an adjustment to a partnership item.

(g) Determination of court reviewable

Any determination by a court under this section shall

have the force and effect of a decision of the Tax Court

or a final judgment or decree of the district court or the

Court. of Federal Claims, as the case may be, and shall

be reviewable as such. 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.

5a

(h) Effect of decision dismissing action

If an action brought under this section is dismissed

(other than under paragraph (4) of subsection (b)), the

decision of the court dismissing the action shall be con-

sidered as its decision that the notice of final partner-

ship administrative adjustment is correct, and an appro-

priate order shall be entered in the records of the court.

2. 26 U.S.C. 6229 provides in pertinent part:

Period of limitations for making assessments

(a) General rule

Except as otherwise provided in this section, the

period for assessing any tax imposed by subtitle A with

respect to any person which is attributable to any part

nership item (or affected item) 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 (determined without regard to extensions).

(b) Extension by agreement

(1) In general

The period described in subsection (a) (including

an extension period under this subsection) may be

extended—

ba

(A) with respect to any partner, by an agree-

ment entered into by the Secretary and such part-

ner, and

(B) with respect to all partners, by an agree-

ment entered into by the Secretary and the tax

matters partner (or any other person authorized

by the partnership in writing to enter into such an

agreement),

before the expiration of such period.

o* “s * *

(c) Special rule in case of fraud, etc.

(1) False return

If any partner has, with the intent to evade tax,

signed or participated directly or indirectly in the

preparation of a partnership return which includes a

false or fraudulent item

(A) in the case of partners so signing or par-

ticipating in the preparation of the return, any tax

imposed by subtitle A which is attributable to any

partnership item (or affected item) for the part-

nership taxable year to which the return relates

may be assessed at any time, and

(Bb) inthe case of all other partners, subsection

(a) shall be applied with respect to such return by

substituting “6 years” for “3 years”.

(2) Substantial omission of income

If any 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

Definitions and special rules

’ Definitions

it ?

>) Partnership item

he ¢?? id } | T é i |

} imine} r 1) l Le rs ] r"¢ t Lah ’ ,

runt for e partne t bie runde

rovision « ibtitle A to the regulations |]

ribed by the Secretary } de that, for purposs

[tl il ( Iten r )} priate

Trrige l { < | i} I Mi} rT tne ) f

I

1) Nonpartnership item

ne te no! irtnersi

h is (or is treat partnership ite

>’ Attected item

i Tie t Tred t if ren |

| r aTié¢ ? r) irl é ’

(6) Computational adjustment

The term “computational adjustment” means the

change in the tax liability of a partner which proper

ly reflects the treatment under this subchapter of a

partnership item. All adjustments required to apply

the results of a proceeding with respect to a partner

ship under this subchapter to an indirect partner

shall be treated as computational adjustments.

{. 26 U.S.C. 6501 provides in pertinent part:

I.imitations on assessment and collection

(a) General rule

Except as otherwise provided in this section, the

amount of any tax imposed by this title shall be assessed

within 3 years after the return was filed (whether or not

such return was filed on or after the date prescribed) or,

if the tax is payable by stamp, at any time after such tax

became due and before the expiration of 3 years after

the date on which any part of such tax was paid, and no

proceeding in court without assessment for the col-

lection of such tax shall be begun after the expiration of

such period. For purposes of this chapter, the term “re

turn” means the return required to be filed by the tax-

payer (and does not include a return of any person from

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

loss, deduction, or credit).

‘f

)

Exceptions

(1) False return

[In the case of a false or fraudulent return with the

intent to evade tax, the tax may be assessed, or a

proceeding in court for collection of such tax may be

begun without assessment, at any time

(2) Willful attempt to evade tax

In case of a willful attempt in any manner to de

feat or evade tax imposed by this title (other than tax

imposed by subtitle A or B), the tax may be assessed,

or a proceeding in court for the collection of such tax

may be begun without assessment, at any time

(3) Noreturn

In the case of failure to file a return, the tax may

be assessed, or a proceeding in court for the collec-

tion of such tax may be begun without assessment, at

any time.

(4) Extension by agreement

(A) In general

Where, before the expiration or the time pre

scribed in this section for the assessment of any

tax imposed by this title, except the estate tax

provided in chapter 11, both the Secretary and the

taxpayer have consented in writing to its assess-

ment after such time, the tax may be assessed at

any time prior to the expiration of the period

agreed upon. The period so agreed upon may be

extended by subsequent agreements in writing

made before the expiration of the period previous

ly agreed upon.

10u

(B) Notice to taxpayer of right to refuse or limit

extension

The Secretary shall notify the taxpayer of the

taxpayer's right to refuse to extend the period of

limitations, or to limit such extension to particular

issues or to a particular period of time, on each oc-

casion when the taxpayer is requested to provide

such consent.

(n) Cross references

(2) For extension of period in the case of partner-

ship items (as defined in section 6231(a)(3)), see

section 6229.