Beginning of SOL on assessments for nonpartnership items.

• Author: Gingerich, Fenton
• Position: Statute of limitations

E, K and others were partners (Ps) in GIA partnership during tax years 1983-1986. In April 1990, the IRS disallowed loss and deduction items for GIA's equipment-leasing activities in a Notice of Final Partnership Administrative Adjustment. Attorney R represented Ps and petitioned the Tax Court for readjustment of the taxes.

In January 1991, R wrote to IRS attorneys to inquire about the possibility of settlement and to request a closing agreement to settle items not before the Tax Court, such as penalties and "phantom income." In response, the IRS offered the partners a settlement (IRS Offer).

A series of counteroffers and rejections ensued. In an Oct. 17, 1992 letter, the IRS confirmed the terms of the original offer. On Oct. 22, 1992, the IRS demanded that R's clients accept or reject the IRS offer before Dec. 1, 1992. R wrote to the IRS on Nov. 13, 1992, requesting an extension and also addressed the need for a closing agreement, but only as to "all issues that are not partnership item issues and therefore are not before the Court in this proceeding." R clarified that he would ask his clients to accept the IRS Offer, "[n]otwithstanding this request," attached a modal acceptance form for his clients to sign (R acceptance form) and asked the IRS attorneys, "Will you please confirm by fax that a letter in this form received in your office within the time specified would constitute a valid acceptance of the settlement?" The IRS attorney responded on Nov. 17, 1992: "We ... agree with your outline of the settlement terms set out in the Draft Acceptance Form. In addition, we agree to your request for an additional 30 days to solicit acceptance of the settlement. Attached is our anticipated closing agreement language." On Dec. 30, 1992, R mailed a series of the R acceptance forms, signed by Ps.

On Feb. 18, 1993, IRS attorneys expressed a reservation to the settlement, writing in bold type that "no settlement occurs until closing agreements are signed by your clients and countersigned by the appropriate Service representative." On Sept. 10, 1993, R submitted signed closing agreements for Ps, countersigned by the appropriate IRS representative on Sept. 22, 1993.

SOL Dispute

The parties dispute the date on which the statute of limitations (SOL) began to run. The taxpayers allege it began the day the R acceptance forms were submitted, Dec. 30, 1992; the IRS contends it began Sept. 22, 1993, the date the IRS countersigned the closing agreements. The...