Abstract
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) created the unified audit and litigation proceedings for partnerships (the TEFRA Partnership Proceedings), adding sections 6221 through 6233 to the Code. The TEFRA Partnership Proceedings include a statute of limitations for assessing any tax attributable to partnership items. This statute of limitations, located in section 6229, treats all partners uniformly, allowing the Service to assess the partnership’s tax liability without having to monitor each individual partner’s separate statute of limitations. For almost 20 years, taxpayers, the Service, and courts agreed that section 6229 was the exclusive statute of limitations for the TEFRA Partnership Proceedings. However, in 2000, in Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner, the Tax Court held that section 6229 was merely a minimum or an alternative statute of limitations. Rhone-Poulenc stands for the proposition that the statute of limitations for TEFRA Partnership Proceedings must be determined by looking not only to section 6229, but also by looking to section 6501, which is unique to each partner’s separate statute of limitations. The Court of Federal Claims, the D.C. Circuit, the Federal Circuit, the Fifth Circuit, and the Ninth Circuit (Rhone-Poulenc progeny courts) have adopted Rhone-Poulenc. Other circuits have not addressed the issue.
This Comment argues that, in enacting the TEFRA Partnership Proceedings, Congress intended that “once the statute of limitations has run at the partnership level, the partnership’s return becomes final and there can be no adjustment of items on a partner’s return attributable to the partnership.” This Comment further argues that the Rhone-Poulenc interpretation is contrary to the statutory language, the legislative purpose, and the legislative intent of the TEFRA Partnership Proceedings; has led to inconsistent treatment of partners; and has caused nonpartnership items to be adjudicated in the TEFRA Partnership Proceedings.
More than three million business entities in the file partnership tax returns. A substantial number of those business entities, including most limited liability corporations (LLCs) and partnerships, are subject to the TEFRA Partnership Proceedings. The issues discussed in this Comment have practical implications for litigation, tax assessments, and adjustments of all those entities. If section 6229 is not the exclusive statute of limitations for the TEFRA Partnership Proceedings—and the statute of limitations can instead be determined based on section 6501 and the individual partners’ statutes of limitations—it is unclear to partnerships as to when the Service is barred from making adjustments to their returns and assessing tax against their partners. Therefore, either the Supreme Court or Congress should step in to clarify the statute of limitations for the TEFRA Partnership Proceedings.
Part II of this Comment considers the rationale behind the TEFRA Partnership Proceedings, and highlights crucial differences between partnership and nonpartnership items and the separation of partnership-level proceedings from partner-level proceedings. Part III reviews the existing case law on the interpretation of section 6229 and addresses the reasons behind the Tax Court and the Rhone-Poulenc progeny courts’ holdings that section 6229 is merely an alternative statute of limitations. Part IV then critiques this case law, and argues that common tools of statutory construction, along with the legislative history of the TEFRA Partnership Proceedings, establish section 6229 as the exclusive statute of limitations.