Assessment period remains open in partnership case.

• Author: Miller, John L.

In Blak Investments, 133 T.C. No. 19 (2009), the Tax Court applied Sec. 6501(c)(10) to extend the assessment statute of limitation for a taxpayer with an undisclosed listed transaction on a return due prior to October 22, 2004.

Background

This case involved a transaction in which two partners (1) borrowed Treasury securities and sold them in the open market (a short sale), (2) contributed the short sale proceeds, as well as the obligation to cover the short sale, to a partnership in exchange for interests in that partnership, and (3) claimed that their bases in the partnership were increased by the short sale proceeds but were not reduced by the obligation to cover the short sale. After the contribution, the partnership redeemed the partners' interests, and the partners claimed significant losses on their federal income tax returns. Neither the partnership nor the partners had adequately disclosed their participation in the transaction on their federal income tax returns for the 2001 and 2002 tax years, which were filed on October 15, 2002, and October 15, 2003, respectively. The IRS issued a final partnership administrative adjustment (FPAA) on October 13, 2006, disallowing the losses and imposing accuracy related penalties.

The Tax Court held that the transaction at issue was a listed transaction because it was substantially similar to the son-of-boss transactions described in Notice 2000-44, which determined that those are listed transactions. The more interesting issue in the case, however, was whether the effective date of Sec. 6707A precludes the application of Sec. 6501(c)(10) to the transaction at hand.

Statute of Limitation Applicable to Partnership and Partner Assessments

Secs. 6501(a) and 6229(a) contain the statute of limitation rules applicable to partnership and partner assessments. Sec. 6501(a) contains the general rule limiting the period in which the IRS can assess tax to three years from the date a return is filed. Sec. 6229(a) guides the timely issuance of an FPAA and provides that an FPAA may be issued within three years from the later of (1) the date on which the partnership return for the tax year was filed or (2) the last day for filing the return for that year, determined without regard to extensions.

Sec. 6501(c)(10) may extend the statute of limitation on assessment under certain circumstances. It provides that if a taxpayer fails to disclose on a return or statement for any tax year information required under Sec...