IRS can assess partnership, but collect from partners.

• Author: Lynch, Jim

In Galletti, S.Ct., 3/23/04, the Supreme Court decided that the IRS could collect a partnership tax liability from the general partners without first assessing the tax against them. This result is not the boon to the IRS that it may appear; however, it does create several potential problems for practitioners and their clients.

Under Sec. 6501(a), generally, "the amount of any tax ... shall be assessed within 3 years after the return was filed ... and no proceeding in court without assessments for the collection of such tax shall be begun after the expiration of such period." Sec. 6203 requires the assessed liability to be recorded "in the office of the Secretary [of the Treasury] in accordance with rules or regulations prescribed by the Secretary." According to Sec. 6303(a), notice of the assessment must be given within 60 days to "each person liable for the unpaid tax, stating the amount and demanding payment thereof." Assuming all this is properly done, Sec. 6502 provides that if tax is properly assessed within three years, the limitations period is extended by 10 years from the assessment date.

Facts

The taxpayers in Galletti, Abel and Sarah Galletti, and Francesco and Angela Briguglio, were general partners in Marina Cabrillo Company, a California partnership. During the years 1992-1995 inclusive, the company incurred large Federal payroll tax liabilities that it failed to pay. The failure continued even after the IRS timely assessed the taxes against the partnership. The assessment gave the IRS an additional 10 years to collect the unpaid taxes, under Sec. 6502.

On Oct. 20, 1999, and Feb. 4, 2060, the Gallettis and the Briguglios, respectively, filed joint petitions for relief under Chapter 13 of the Bankruptcy Code. The IRS filed proofs of claim against the Gallettis for $395,179.89 and against the Briguglios for $403,264.06 for Marina Cabrillo's unpaid payroll taxes.

The taxpayers acknowledged their liability for the taxes under California law and agreed that the taxes had been properly assessed against the partnership. However, the taxes had never been assessed against them individually, as general partners. The taxpayers claimed that, because the three-year statute of limitations under Sec. 6501 had expired, the Service could no longer attempt to collect the tax from them.

The taxpayers asserted that the Service had to assess them individually because, as individual general partners, they were primarily liable for the partnership's...