Partnership taxation is animated by two conflicting goals: Subchapter K of the Internal Revenue Code simultaneously seeks to provide individuals operating as a partnership with freedom to structure their affairs as they see fit and to constrain that freedom when they structure their affairs in ways that seem abusive.
Where there has been a perceived abuse of the partnership form, the IRS has a variety of tools to address it; these tools include judicial doctrines, such as the substance over form doctrine, as well as statutory provisions. For example, the Fourth Circuit recently addressed a partnership case and concluded that what the taxpayers characterized as an investment was actually a disguised sale under Section 707 of the Code.… Read More
Theoretically, The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) is simple:
- The partnership is audited, and partnership items are subject to adjustment at the partnership level. I.R.C. § 6221.
- Assessments are made at the conclusion of the partnership proceeding. I.R.C. § 6225(a).
- Adjustment to partnership items are typically implemented at the partner level through “computational adjustments” that usually do not require a notice of deficiency. I.R.C. § 6230(a)(1).
Actually, however, TEFRA quickly becomes complicated when applied to a particular fact pattern.
On November 24, 2015, a case in the Court of Federal Claims demonstrated that the theoretically simple process of making “computational adjustments” is anything but simple.… Read More
In the course of an audit, taxpayers are frequently presented with a request to extend the assessment statute of limitations to permit the audit to be concluded.
Section 6501 of the Internal Revenue Code authorizes extensions so long as they are entered into before the limitations period expires. When an extension is requested, the taxpayer is permitted to limit it to specific issues. See I.R.C. § 6501(c)(4)(B). If the scope of the extension is later disputed, courts apply contract principles to determine whether the taxpayer’s extension covered the particular issue in dispute.
A recent case from the Ninth Circuit shows that particular care must be used in looking at the language of the extension agreement in the context of tiered partnerships.… Read More
The limitation period for filing a refund claim is governed by Section 6511 of the Internal Revenue Code, and typically claims must be within three years of the filing of the taxpayer’s return or two years of payment. I.R.C. § 6511(a). There are, however, exceptions.
For partnerships, because of the procedure for handling administrative adjustments, Section 6511(g) imposes a special rule: if the refund claim is based on a tax item “which is attributable to any partnership item (as defined in section 6231 (a)(3)), the provisions of section 6227 and subsections (c) and (d) of section 6230 shall apply in lieu of the provisions of this subchapter.” Section 6230 sets up special limitations periods for refund claims attributable to partnership items:
- for refund claims based upon an erroneous computation or penalty, the claim must be made within six months;
- for refund claims that are based on a settlement of an administrative adjustment request, a final partnership administrative adjustment or a court decision, the claim must be presented within two years of the relevant event.
… Read More
In my initial post discussing Historic Boardwalk Hall LLC v. Commissioner, 2012 U.S. App. LEXIS 18107 (3d Cir. Aug. 27, 2012), I furnished a broad brush summary of the Third Circuit’s opinion, which held that Pitney-Bowes Credit Corp. was not entitled to the benefit of historic rehabilitation credits that had been allocated to it from an entity taxed as a partnership because Pitney-Bowes Credit was not a bona fide partner. This post will drill into the case in more detail.
At the outset, I should note that this is not an economic substance doctrine case. While the government had raised economic substance as an alternate basis to challenge the claimed tax treatment, it conceded at oral argument that the case should focus on whether Pitney-Bowes Credit was a bona fide partner.… Read More
While the Internal Revenue Code is obviously designed to raise revenue to fund governmental operations, it also is used to promote a variety of public policies that Congress considers important. For example, Congress wants to promote historic rehabilitation, and there is a Code provision for that: Section 47 provides a credit for qualified rehabilitation expenditures. I.R.C. § 47.
In Historic Boardwalk Hall LLC v. Commissioner, 2012 U.S. App. LEXIS 18107 (3d Cir. Aug. 27, 2012), the Third Circuit invalidated a transaction that provided historic rehabilitation tax credits associated with the rehabilitation of Historic Boardwalk Hall in Atlantic City, New Jersey to Pitney-Bowes Credit Corp.… Read More
Section 6226 of the Internal Revenue Code provides for judicial review of final partnership administrative adjustments, which can occur when a partnership is audited. The tax matters partner has ninety days from the notice of the final adjustments to file a petition for review. I.R.C. § 6226(a). If the tax matters partner does not file a petition then other partners may file a petition within sixty days after the expiration of the deadline for the tax matters partner to file. I.R.C. § 6226(b).
In A.I.M. Controls, L.L.C. v. Commissioner, 2012 U.S. App. LEXIS 3713 (5th Cir. Feb. 24, 2012), the Fifth Circuit held that the deadline for a non-tax matters partner to seek review was jurisdictional and not subject to equitable tolling.… Read More