T.C. Memo. 2007-289
UNITED STATES TAX COURT
CURR-SPEC PARTNERS, LP, CURR-SPEC MANAGERS, LLC,
TAX MATTERS PARTNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 1350-05. Filed September 24, 2007.
J. Winston Krause, for petitioner.
Donna F. Herbert and Jonathon H. Sloat, for respondent.
MEMORANDUM OPINION
WELLS, Judge: The instant matter is a so-called Son-of-Boss
case1 and is before the Court on the following motions:
*
The Court issued an opinion in this case, T.C. Memo. 2006-
266, on Dec. 14, 2006, which was withdrawn by order dated Jan. 3,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).
- 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.2
1. Petitioner’s Motion To Dismiss for Lack of Jurisdiction and
To Strike and Petitioner’s Motion for Summary Judgment
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 tax
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 Petition
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 Expired
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 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
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, the
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 partner-
level 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 Appeals
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.4
4
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 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
freely when justice so requires.” Rule 41 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. Id.
4
(...continued)
argument is without merit.
- 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.5 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 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 not
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); 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 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 will
be issued.