The Fifth Circuit held that IRC § 6229(a) sets no deadline by which the IRS must issue an FPAA (final partnership administrative adjustment). Its interpretation of the relationship between the limitations period in sections 6501(a) and 6229(a) mirrors that of the Tax Court, the D.C. Circuit and the Federal Circuit (see Rhone-Poulenc Surfactants & Specialties LP v. Commissioner, 114 TC 533; Andantech LLC v. Commissioner, 331 F.3d 972 (D.C. Cir. 2003); and AD Global Fund LLC ex rel. N. Hills Holding Inc. v. U.S., 481 F.3d 1351 (Fed. Cir. 2007)).
Curr-Spec Partners filed its 1999 Form 1065 on Oct. 11, 2000. More than four years later, on Oct. 13, 2004, the IRS issued an FPAA claiming the partnership was a sham, disallowing all income, deductions, gains and losses; treating partnership transactions as individual partner transactions; and assigning no basis for partnership interests. Curr-Spec argued section 6229(a) sets an independent three-year statute of limitations for assessing tax attributable to partnership items. The IRS argued that at least three partners claimed NOL carryforwards of 1999 partnership items on their individual 2000 and 2001 returns, and thus the statute of limitations for individual returns under section 6501(a) remained open.
The court noted section 6229(a) states the statute of limitations period “shall not expire before” three years from the date the partnership return was filed or, if later, when it was due. The Fifth Circuit said the phrase “shall not expire before” is unambiguous; that is, it can extend but never shorten the section 6501(a) period for assessing individual tax liabilities attributable to partnership items. After the FPAA becomes final, the IRS may assess tax on the individual partners whose tax returns remain open under section 6501(a).
Curr-Spec Partners LP v. Commissioner , docket no. 08-60815 (5th Cir., Aug. 11, 2009)
By Melanie J. Earles, CPA, DBA, professor of accounting, Tennessee Technological University, Cookeville, Tenn.