Partnership tax deficiency.

• Author: Laffie, Lesli S.

In Galletti, 3/23/04, the Supreme Court unanimously ruled that the IRS need not separately assess partnership taxes against each of the partners individually to trigger the extended statute of limitations (SOL) for initiating a collection action against the partners to enforce derivative liability for tax debts. The Court overruled the Ninth Circuit, which had held the assessment against the partnership did not operate against the individual partners.

Writing for the Court, Justice Clarence Thomas said that the government's timely assessment of taxes against a partnership is "sufficient to extend the statute of limitations to collect the tax in a judicial proceeding, whether from the partnership itself, or from those liable for its debts."

At issue was the proper interpretation of Sec. 6502, which states that if a tax is properly assessed within three years of filing the return, the SOL for tax collection extends to 10 years from the assessment date.

Abel and Sarah Galletti and Francesco and Angela Briguglio were general partners of Marina Cabrillo Partners. From 1992-1995, the partnership failed to pay Federal employment taxes, prompting the IRS to assess the partnership in 1994, 1995 and 1996.

In October 1999, the Gallettis filed a joint petition for Chapter 13 relief; the Briguglios filed such a joint petition in February 2000. The IRS filed proofs of claim against all the debtors for the unpaid taxes it had assessed against the partnership.

Lower court rulings: The debtors objected to the claims on the grounds the IRS had assessed only the partnership, not the individual partners, and that the SOL had run. The IRS conceded it had not assessed the debtors individually within the usual three-year limit, but argued that its timely assessments against the partnership extended the time for collecting from the debtors.

The bankruptcy court sustained the debtors' objections. The...