dissenting: I agree with Judge Foley’s dissenting opinion and write separately only to note that in addition to misinterpreting the plain meaning of the words in the statute at issue, the majority today reverses the position maintained by this Court for more than a decade and disregards the policy concerns that served as the impetus for the TEFRA partnership provisions.
Although the language of the statute leaves little doubt, the answer to any question of whether section 6229(a) provides the period of limitations for assessment with respect to partnership items for any taxable year is made clear by the legislative history of TEFRA. The House conference report states:
The period of assessment with respect to partnership items (or affected items) for any partnership taxable year shall not expire before 3 years from the date of filing the partnership return or, if later, the last date prescribed for filing such return determined without extensions. [H. Conf. Rep. 97-760, at 606 (1982), 1982-2 C.B. 600, 665.]
Accordingly, it is clear that the “minimum period” provided by section 6229(a) is no more than the time that is the later of 3 years from the date that the partnership return was filed or the latest date prescribed for filing the partnership return without extensions. For instance, if a calendar year partnership files its return on February 15, and the last date prescribed for filing its return without extensions is April 15, the period of assessment does not expire until 3 years after April 15.
The only exceptions to this rule are provided by statute for the filing of a false partnership return, a substantial omission of partnership income, no partnership return, or a partnership return prepared by the Secretary under section 6020(b)(2). See sec. 6229(c)(1)-(4). In addition a partner may extend the section 6229(a) period of limitations for himself, or the tax matters partner may, with the agreement of the Secretary, extend the statutory limitations period for all partners. See sec. 6229(b)(1). Therefore, the section 6229(a) period of limitations is not extended by a partner’s later expiring section 6501 limitations period.
In holding that section 6229 provides nothing more than a “minimum period” of limitations as an alternative to the section 6501 limitations period, the majority abandons our own precedent that section 6229(a) establishes the limitations period for assessment of partnership items. See Wind Tech. Associates, III v. Commissioner, 94 T.C. 787, 788 (1990) (“Section 6229(a) provides generally for a 3-year period of limitations for the assessment of tax attributable to partnership items. * * * The running of the limitations period is suspended when an FPAA for the taxable year is mailed to the tax matters partner.” (Citation omitted.)); Barbados #7 Ltd. v. Commissioner, 92 T.C. 804, 808 (1989) (“Section 6229(a) provides for a 3-year limitation period for the assessment of tax attributable to a partnership item.”).
Furthermore, in Roberts v. Commissioner, 94 T.C. 853, 857 (1990), the section 6229(a) limitations period had expired when the FPAA’s were issued, and we found that
Consequently, the tax treatment of all partnership items with respect to these partnerships is final in accordance with the tax returns filed by these partnerships. Clearly, there can be no partnership proceedings to adjust or modify the partnership items as reported * * * .[1]
Sections 6229 and 6501 provide parallel but independent statutes of limitation. Section 6229(b)(2),2 which is the only subsection of section 6229 that refers to section 6501, provides that any agreement under section 6501(c)(4)3 shall apply with respect to the period described in subsection (a) only if the agreement expressly provides that such agreement applies to tax attributable to partnership items.
Therefore, normal extensions of a partner’s personal limitations period pursuant to section 6501(c)(4) are not applicable to extend the period of limitations with respect to partnership items unless the agreement expressly so provides.
This is because Congress intended TEFRA to provide uniform treatment of partnership items to all the partners. It is clear that for this result to obtain, sections 6229 and 6501, while parallel in their provisions, must be independent.4 Thus, treatment of one partner separate from the others requires a special agreement by that partner.
As the majority states, the intent of TEFRA is to provide a unified proceeding that will result in consistent treatment of partnership items to all partners:
Before TEFRA, adjustments with respect to partnership items were made to each partner’s income tax return at the time (and if) that return was examined. * * * The tax writing committees explained the TEFRA partnership provisions as follows: “[T]he tax treatment of items of partnership income, loss, deductions, and credits will be determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with the partners.” * * * Thus, section 6221 provides for the determination of all partnership items at the partnership level rather than at the partner level. * * * [Majority op. pp. 539-540; citations and fn. ref. omitted.]
Despite its acknowledgment of the purpose of the TEFRA partnership rules, the majority holds that if the partner’s personal limitations period has not expired, then the partnership’s limitations period is irrelevant with respect to that partner so that the Commissioner may make a partnership-level determination of a partnership item, which would apply to only the partner with the unexpired personal limitations period. This result is contrary to the statutory scheme and frustrates the TEFRA goal to minimize inconsistent treatment of partners.
In addition to providing inconsistent treatment of partnership items, the majority’s holding will complicate the administration of the TEFRA statute because it will cause nonpartnership items to be adjudicated in TEFRA partnership-level proceedings, which result is inconsistent with TEFRA policy.5
For example, if the FPAA is issued after the 3-year period of limitations provided in section 6229(a), and none of the special rules of section 6229(c) apply, each partner will be obligated separately to assert its own section 6501 statute of limitations defense in the TEFRA partnership-level proceeding. In this circumstance, each partner’s proof will require the court to adjudicate items that have no relevance to the partnership; e.g., whether the partner filed a return, whether the partner executed a valid section 6501(c)(4) extension that did not expire before the FPAA was issued, whether the partner omitted from gross income an amount (including non-partnership income) properly includable therein which is in excess of 25 percent of the amount of gross income stated in the return, etc.
In contrast, if section 6229 is the only assessment period for TEFRA partnership items, the only relevant facts will be the partnership-related facts. This will result in adjustments in the tax treatment of partnership items in one proceeding at the partnership level, rather than in separate proceedings with the partners. Thus, interpreting section 6229(a) as it is written and as Congress intended effects an entity approach that results in minimizing the inconsistent and unfair treatment of the same partnership item.
Accordingly, I respectfully dissent.
Chabot and Foley, JJ., agree with this dissent.See also 1 McKee et al., Federal Taxation of Partnerships & Partners, par. 9.07[6], at 9-204 n.1027 (3d ed. 1997) (once the limitations period has run, the tax treatment of all partnership items is final in accordance with the returns filed by the partnership).
Deficiency proceedings do apply, however, to the assessment of affected items which require partnership-level determinations and to the assessment of partnership items that have become nonpartnership items. See sec. 6230(a)(2)(A); Roberts v. Commissioner, 94 T.C. 853, 859, 861 (1990).
The Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1233(e), 111 Stat. 1023, amended sec. 6229(b) by redesignating par. (2) as par. (3) and by inserting after par. (1) a new par. (2), effective for agreements entered into after Aug. 5, 1997.
Sec. 6501(c)(4), titled Extension by agreement, provides:
Where, before expiration of the time prescribed in this section for the assessment of any tax imposed by this title, * * * , both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. * * *
Sec. 6501(c)(4) provides only for the extension of the sec. 6501 limitations period. Therefore, if sec. 6501 were the controlling statute of limitations for assessments attributable to partnership items, a normal sec. 6501(c)(4) agreement would extend the sec. 6229(a) period for assessment of partnership items, which would make sec. 6229(b)(2) superfluous.
Furthermore, although it is not an issue in the instant case, respondent asserts that if petitioner’s view is accepted, a nonfiling partner would escape taxation on a properly reported partnership item. Majority op. p. 550. However, there is no limitation on assessing against a nonfiler. See sec. 6501(c)(3). Therefore, a nonfiling partner would gain no immunity on a partnership item by way of sec. 6229, because if the item was properly reported by the partnership there would be no partnership-level issue, and sec. 6229 would never come into play.
The separateness of a proceeding with respect to a partner and a proceeding with respect to a partnership is evident from the legislative history, which states:
A judicial determination of a partner’s income tax liability not resulting from a partnership proceeding will not bar any adjustment to such liability attributable to the treatment of partnership items pursuant to a proceeding under these rules. [H. Conf. Rept. 97-760, at 610 (1982), 1982-2 C.B. 600, 668.]
See also sec. 6222(c) (if the partner fails to notify the Secretary of its inconsistent treatment of a partnership item, the Secretary may make a computational adjustment to conform the partnership item to the partnership return and may assess immediately the tax deficiency arising from the adjustment); sec. 301.6222(a)-1T(c), Example (1), Temporary Income Tax Regs., 52 Fed. Reg. 6779 (Mar. 5, 1987) (if the partnership reports income in one calendar year, the partners are required to report income in that calendar year).
However, if the partnership did not file a return, i.e., the partnership is a nonfiler, sec. 6229(c)(3) provides that any tax attributable to a partnership item may be assessed at any time. Again, note that the secs. 6501 and 6229 provide similar remedies, but they do so separately.
Implicit in sec. 6229(c) is that the sec. 6229 limitations period controls the partner-level limitations period with respect to partnership items. That is, if the partnership-level limitations period has not expired, then even if the partner-level limitations period has run, the Commissioner may assess the tax that is attributable to any partnership item.
The separate treatment of partnership and nonpartnership items in partnership proceedings is integral to the statutory framework of TEFRA and reflects the intent of Congress. For instance,
Neither the Secretary nor the taxpayer will be permitted to raise nonpartnership items in the course of a partnership proceeding nor may partnership items, except to the extent they become nonpartnership items under the rules, be raised in proceedings relating to nonpartnership items of a partner.
The separate statute of limitations applicable to nonpartnership items of a partner may have expired when the computational adjustment of a partner’s tax liability attributable to a FPAA or final court decision is made. In such case neither the Secretary (to reduce a refund) nor a partner (to reduce an assessment) may raise nonpartnership items in determining the partner’s tax liability resulting from such computational adjustment.
[H. Conf. Rept. 97-760, at 611 (1982), 1982-2 C.B. 600, 668.]
See also Maxwell v. Commissioner, 87 T.C. 783, 788 (1986) (Court cannot consider partnership items in a partner’s personal case or nonpartnership items in the partnership proceeding).