Williams v. Comm'r

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, Judge: In notices of deficiency, respondent determined penalties with respect to petitioners' 1990-96 Federal income taxes, as follows:

The issue for decision is whether the periods of limitations on assessment expired for affected items upon which the penalties at issue are based. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioners resided in California at the time their petitions were filed.

From about 1971 through 1998 Walter J. Hoyt III and other members of the Hoyt family organized, promoted, and operated numerous cattle and sheep-breeding partnerships (Hoyt partnerships), as most recently described in Keller v. Commissioner, __F.3d__, 568 F.3d 710, 2009 U.S. App. LEXIS 12043 (9th Cir. June 3, 2009). *157 Petitioners participated in Shorthorn Genetic Engineering 1982-1 (SGE 1982), Shorthorn Genetic Engineering 1986-C (SGE 1986), and Shorthorn Genetic Engineering 1990-1 (SGE 1990), all Hoyt partnerships. Petitioners received Schedules K-1, Partner's Share of Income, Credits, Deductions, etc., that reported losses for SGE 1982, SGE 1986, and SGE 1990. Petitioners filed joint Federal income tax returns with attached Schedules E, Supplemental Income and Loss, claiming the partnership losses, as follows:

The Internal Revenue Service (IRS) determined that SGE 1982, SGE 1986, and SGE 1990 were subject to provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, and disallowed the partnerships' claimed losses for the years in issue. The IRS adjusted the TEFRA partnership items and sent to petitioners Notices of Final Partnership Administrative Adjustment (FPAAs). Petitioner husband, as the tax matters partner, petitioned the Court for redetermination of partnership *158 adjustments for each of the years in issue. The Court determined the FPAAs to be correct and entered decisions as follows:

The IRS's TEFRA unit determined the percentage of the affected items attributable to petitioners, as an individual partner, for each year. IRS Forms 4700-T, TEFRA Workpapers, reflected the resulting income adjustments and also showed "1 Yr Date[s]" indicating that the 1-year assessment dates after the Court's final decisions were August 3, 2007, for 1993, August 14, 2007, for 1990, 1992, and 1995, and August 15, 2007, for 1991, 1994, and 1996. Other internal IRS documents showed a "1-Year Assessment Date" of August 14, 2007, for 1990, 1992, 1993, and 1995, August 15, 2007, for 1991 and 1996, and August 20, 2007, for 1994. For each tax year in issue, the TEFRA unit generated a Form 4549, Income Tax Examination Changes, dated August 8, 2007, which reported the section 6662(a) penalty that resulted because of the affected items adjustments. On August 9, 2007, the TEFRA unit sent to petitioners the notices *159 of deficiency (which included the Forms 4549) that are the bases of this case. The TEFRA unit then sent petitioners' file to the IRS's Centralized Case Processing (CCP).

Because fewer than 60 days remained before the assessment statute expiration dates (ASEDs) for the affected items, CCP submitted to the IRS's Revenue Accounting department (Revenue Accounting) Forms 2859, Request for Quick or Prompt Assessment, to ensure quick (manual) assessments. The Forms 2859 show ASEDs of August 15, 2007, for all the years in issue. Revenue Accounting, having delegated authority to make quick assessments, "journaled" the assessments and assigned Document Locator Numbers (DLNs) onto a "23-C document" that was signed by an assessment officer and dated August 15, 2007. DLNs assigned to petitioners' file, one for each year in issue, contained the number sequence 227, which corresponds to the number of days in calendar year 2007 from January 1 to August 15. A tape was created containing the information journaled by Revenue Accounting; the information on the tape was entered into the IRS computer systems; and Forms 3552 (Part 3), Notice of Tax Due on Federal Tax Return, were generated with the DLNs confirming *160 that the actual assessments had been made. Petitioners received copies of the Forms 3552, which showed "Date of This Notice" fields as August 15, 2007, but which were postmarked August 21, 2007.

Petitioners requested and received IRS account transcripts of all years in issue. The transcripts were dated August 20, 2007, but did not reflect any assessments as having been made on August 15, 2007. Later account transcripts, dated September 4, 2007, did reflect the August 15, 2007, assessments. Forms 2866, Certificate of Official Record, and internal IRS case histories of petitioners show the assessment dates for the affected items as having been made on August 15, 2007, for all the years in issue. For trial purposes only, this case was consolidated with another case involving petitioners -- docket No. 21031-07L, relating to collection of a partnership adjustment assessed for 1996. See T.C. Memo. 2009-159, filed this date.

OPINION

Petitioners' sole argument is that the IRS did not timely assess the affected items that resulted from the FPAA proceedings and that led to the penalties at issue. Without timely assessments of these affected items, petitioners contend that there are no underpayments *161 on which to base section 6662(a) accuracy-related penalties. Respondent argues that the affected items were timely assessed on August 15, 2007, and that the penalties at issue are proper. Petitioners concede that the section 6662(a) penalties are appropriate if the Court determines that the assessments were timely.

Because the related partnership tax years occurred before August 5, 1997, the accuracy-related penalties are properly contested before the Court at the partner level. See secs. 6221, 6230(a)(2)(A)(i). But cf. Fears v. Commissioner, 129 T.C. 8, 10 (2007) (stating that because Congress, in the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1238(a), 111 Stat. 1026, amended section 6221 to provide that the applicability of any penalty (including an accuracy-related penalty) which relates to an adjustment of a partnership item shall be determined at the partnership level, the Court lacks jurisdiction to redetermine the applicability of such penalties at the partner level for partnership tax years ending after August 5, 1997). We consider the timeliness of the assessments of the affected items only to make a redetermination of the penalties at issue. The bar of periods of limitations *162 is an affirmative defense, and petitioners must show that the assessments were made after the applicable periods of limitations. See Rules 39, 142(a); Adler v. Commissioner, 85 T.C. 535, 540 (1985).

The general period of limitations on assessment is 3 years. Sec. 6501(a). For tax attributable to a partnership and affected items, however, section 6229(a) extends the general period of limitations. Sec. 6501(n). Section 6229(a) provides, as follows:

SEC. 6229(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 partnership item (or affected item) for a partnership taxable year shall not expire before the date which is 3 years after the later of --