Managing the interplay between a partnership and its partners' statutes of limitations.

• Author: Keenan, John R.

Managing the statute of limitations (SOL) on assessment can be complicated, particularly for partnerships and partners. The SOL on partnership and partner assessments are found in Secs. 6501(a) and 6229(a). The difficulty is determining which statute applies. A recent court case examined this issue.

In AD Global Fund, LLC, 67 Fed. C1. 657 (2005), op. modified, 11/8/05, the plaintiff filed a motion for summary judgment, asserting that the IRS failed to issue a Notice of Final Partnership Administrative Adjustment (FPAA) within the Sec. 6229(a) limitation period, thereby barring the Service from assessing additional tax on partnership items. The IRS contended that it may assess tax attributable to partnership items within the assessment period set forth in Sec. 6501(a) after the Sec. 6229(a) period has expired. The Court of Federal Claims analyzed the interaction between Secs. 6501(a) and 6229(a) and agreed with the IRS'S interpretation of the interplay of these sections; thus, it denied the plaintiff's motion for summary judgment.

Background

AD Global Fund (the plaintiff) is a limited liability company treated as a partnership for Federal income tax purposes and subject to the Unified Partnership Procedures of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA); see Secs. 6221-6234. The plaintiff's 1999 Form 1065, U.S. Return of Partnership Income, was filed on April 17, 2000. On or about May 27, 2003, the IRS issued a Notice of Beginning of Partnership Administrative Proceeding (NBAP) to the plaintiff regarding the 1999 return. On Oct. 9, 2003, the IRS mailed an FPAA to the plaintiff's tax matters partner (TMP) with respect to the 1999 return.

The plaintiff timely filed a complaint in the Court of Federal Claims, challenging the IRS's ability to assess additional tax on the proposed partnership adjustments contained in the FPAA. It asserted that the IRS's failure to issue an FPAA within the three-year period under Sec. 6229(a) precluded the IRS from assessing any additional tax relating to any partnership items. The complaint initiating this lawsuit was filed by North Hills Holding, Inc. (NHH), a partner other than the plaintiff's TMP. The court's opinion does not specifically state the date on which NHH filed its 1999 Federal income tax return. For an assessment of additional tax against NHH to be timely made under Sec. 6501(a), the entity's 1999 return would have had to have been filed after Oct. 8, 2000.

Tax Treatment of...