Fact that TMP Had Been Dissolved Five Years Earlier Did Not Render FPAA Invalid, Petition by Notice Partner Filed One Day Late

Being a date late in filing a Tax Court petition is a problem, as the Tax Court loses jurisdiction once the time period for the filing expires.  In the case of Berkshire 2006-5 LLP et al. v. Commissioner, TC Memo 2016-25 the taxpayer looked to overcome that problem by noting that the tax matters partners of the partnership in question had been dissolved before the final partnership administrative adjustment (FPAA) was issued.

The case involves the scheduled to be repealed TEFRA partnership examination procedures[1], which applied to the partnership in question.  Under IRC §6223(a) the IRS is required to send a copy of the FPAA to the tax matters partner (TMP).  Under IRC §6226(a) the TMP may file a petition challenging the FPAA with the Tax Court within 90 days after the FPAA is mailed to the TMP.

If the TMP fails to file a Tax Court petition, IRC §6226(b) allows a notice partner (a partner whose name and address is furnished to the IRS) to file a petition within 60 days (or 150 days after the TMP mailing).  The IRS has 60 days after mailing the FPAA to the TMP to mail a copy of the FPAA to the notice partners (which effectively gives those partners 90 days notice before their deadline for filing a petition).

In this case the TMP had a bit of a problem.  As the Court describes the matter:

Berkshire Resources, LLC (Berkshire Resources), was the general partner and TMP for all three partnerships. In 2009 the Securities and Exchange Commission filed fraud complaints against the principals of Berkshire Resources, and the State of Wisconsin administratively dissolved Berkshire Resources on June 10, 2009.

On June 5, 2014 the IRS issued the FPAA for the partnership, denying a deduction for all of the intangible drilling costs reported by the partnership.  The IRS then mailed the TMP notices as follows:

The Commissioner issued each partnership’s FPAA on June 5, 2014, and mailed an FPAA addressed to each “Tax Matters Partner” at each partnership’s address on that date. That same day the Commissioner also mailed a copy of each partnership’s FPAA to “Berkshire Resources” as TMP to three different addresses, i.e., each of three separate FPAAs was sent to each of three separate addresses, for a total of nine FPAAs in addition to the three FPAAs sent to “Tax Matters Partner”.

One of the notice partners did file a petition, but it was one day after the 150 day period ended.  So the taxpayer attempted to argue that the FPAA wasn’t properly issued—after all, the TMP had been defunct for five years before the FPAA was issued, so the partner argued that the original mailing date shouldn’t start the clock running.

Unfortunately for the partner, the TEFRA partnership examination provisions generally require the partnership to give notice of a new TMP or new address for the TMP.  As the Court notes:

The last known address rules that apply to notices of deficiency do not apply to FPAAs. Instead, the Commissioner must send the FPAA to the address listed on the partnership return for the year in issue. The Commissioner is not required to update the partnership’s address unless someone sends a written statement on behalf of the partnership to notify the Commissioner of the new information. This statement generally must be mailed to the Internal Revenue Service (IRS) service center where the partnership return was filed and must contain: the partnership’s name; a statement that the information provided is furnished to correct or supplement earlier information; the corrected or additional information; the tax year to which the information relates; the name, address, taxpayer identification number, and signature of the person supplying the information; and the name of each partner for whom this information is supplied.

The IRS sent a number of notices to various addresses, both of the partnership and of the TMP.  The Court continues:

Mr. Hattler does not allege that the Commissioner was properly notified of a new address or that the FPAAs were sent to the wrong address. He merely alleges that the Commissioner should have known that the address for the partnership was no longer valid; however, he does not allege that the IRS was properly notified of a change of address in the manner required under section 6223(c). Accordingly, the Commissioner satisfied the notice requirement and properly sent the FPAAs for each partnership to the TMP.

What about the fact that the TMP had been dissolved?  That doesn’t matter under the TEFRA rules, as the IRS can satisfy the provision by mailing to the “Tax Matters Partner” at the partnership’s address, which it did (in addition to multiple mailings to addresses it knew of for the listed TMP).

Finally the taxpayer argues the IRS should have appointed a new TMP, since it was aware that the old one had been dissolved.  The Court disagreed, noting:

The Commissioner’s authority to select a TMP is very limited. First, the partnership must not have designated a TMP or the [*9] TMP’s authority must have terminated. Then, the TMP is the general partner with the largest profits interest by operation of law. Only if that test is “impracticable to apply” can the Commissioner select a TMP. And in any event, there is simply nothing in section 6231(a)(7) that requires the Commissioner to select a TMP.

The Court notes that the partner in question was timely notified, so he wasn’t prejudiced in terms of filing the petition that was entirely under his control.  He filed his petition one day late—and, unfortunately for the partner, this a “bright line” rule, and he clearly fell on the wrong side of that line.

[1] The TEFRA provisions were prospectively repealed by the Bipartisan Budget Act of 2015, but will continue to apply to examinations of returns of covered partnerships for tax years beginning before January 1, 2018 unless the partnership elects to have the new system apply when it files returns for years beginning after November 2015.