In a reviewed opinion that holds significant implications for partnerships subject to the centralized partnership audit regime, the United States Tax Court recently issued its decision in Jones Bluff, LLC v. Commissioner, 166 T.C. No. 6 (2026). At the heart of the litigation was whether a partnership possesses the legal standing to assert the Fifth Amendment due process rights of its individual members to invalidate a Notice of Final Partnership Adjustment (FPA).

Facts of the Case

Jones Bluff, LLC (Petitioner) is an Alabama limited liability company treated as a partnership for federal tax purposes. For the 2019 tax year, the partnership was subject to the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 (BBA), and its designated partnership representative was Green Rock Management, LLC.

Upon its formation, Petitioner acquired a tract of land in Coosa County, Alabama. In December 2019, Petitioner granted a conservation easement over the property to Pelican Coast Conservancy, Inc., and subsequently filed Form 1065, claiming a charitable contribution deduction of $36,290,000 under I.R.C. § 170.

In 2021, the Internal Revenue Service (IRS) selected Petitioner’s return for examination. In October 2023, the IRS issued an FPA disallowing the entire $36,290,000 charitable contribution deduction, asserting an imputed underpayment of $13,427,300, and assessing penalties totaling $5,359,968. In response, Petitioner submitted Form 8988, Election for Alternative to Payment of the Imputed Underpayment – IRC Section 6226, effectively electing to "push out" the adjustment to its reviewed-year partners, and timely petitioned the Tax Court.

Taxpayer’s Request for Relief

Petitioner filed a Motion for Summary Judgment seeking to invalidate the FPA on constitutional grounds. Specifically, Petitioner argued that the BBA partnership audit rules violate the Due Process Clause of the Fifth Amendment to the U.S. Constitution. The Fifth Amendment explicitly dictates that no person shall "be deprived of life, liberty, or property, without due process of law". Similarly, the Fourteenth Amendment, Section 1, extends this protection, preventing states from depriving "any person of life, liberty, or property, without due process of law".

Petitioner contended that the BBA deprives individual partners of property without due process because the statutory framework does not provide individual partners with direct notice or an opportunity to be heard. Recognizing that the constitutional rights in question belonged to the individual partners rather than the partnership entity, Petitioner argued that it possessed standing to raise this claim on behalf of its members under the third-party standing doctrine.

The Court’s Analysis of the Law

Judge Kerrigan, writing for the majority, began the Court’s analysis by contrasting the legacy TEFRA rules with the current BBA regime. While TEFRA treated individual partners as parties to judicial actions and afforded them participation rights (I.R.C. § 6226(c) (TEFRA)), the BBA was enacted to streamline audits by allowing "audits, adjustments, and payments to all occur at the partnership level" (SN Worthington Holdings LLC v. Commissioner, 162 T.C. 228, 233 (2024)). Under the BBA, "individual partners may not initiate judicial proceedings... the partnership is the only party that can". Furthermore, the BBA establishes that "the liability derived from the partnership adjustments is the partnership’s liability as an entity".

Turning to the procedural issue of standing, the Court bifurcated its analysis into Article III standing and third-party standing. The Court acknowledged that Petitioner met the traditional Article III elements—injury in fact, causation, and redressability—as articulated in Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Therefore, Petitioner had standing to challenge the FPA itself.

However, invoking constitutional protections on behalf of another party requires a plaintiff to overcome the prudential limitations of third-party standing. The Court cited Kowalski v. Tesmer, 543 U.S. 125, 129 (2004), noting the general rule that a party cannot "rest his claim to relief on the legal rights or interests of third parties". To bypass this restriction, a litigant must demonstrate (1) a "close relationship" with the person who possesses the right, and (2) a "hindrance to the possessor’s ability to protect their own interests".

In addition to standing, the Court analyzed the doctrine of ripeness. Citing Texas v. United States, 523 U.S. 296, 300 (1998), the Court explained that claims are not ripe if they rest upon "contingent future events that may not occur as anticipated, or indeed may not occur at all".

Application of the Law to the Facts

Applying the third-party standing factors, the Court assumed without deciding that Petitioner shared a "close relationship" with its individual members. However, Petitioner’s argument fatally stumbled on the second prong: hindrance. The Court observed that under the BBA, the underlying liability is an entity-level liability. To the extent members face tax liabilities, it is because of the partnership’s affirmative section 6226 "push out" election, "not the enforcement of a restriction against the partnership".

Crucially, the Court determined there is no hindrance preventing individual members from asserting their own constitutional claims in the future. The Court concluded: "The statute does not hinder the members from presenting their due process claims, so it would not be appropriate to allow petitioner to assert those claims on the members’ behalf". The members "remain free to raise their constitutional claims in future litigation," such as in a partner-level refund action or a collection due process proceeding under I.R.C. §§ 6330(c)(2) or 6320(b)(4).

Regarding ripeness, the Court found that any deprivation of the members’ property was purely speculative at this stage. Because the BBA assesses liability at the partnership level, passing that liability to the partners would only happen through the partnership’s future actions—either by issuing section 6226 statements after the decision becomes final or by failing to pay the imputed underpayment. The Court declared: "Petitioner’s actions therefore are ‘contingent future events’ that render the claims it is making on behalf of the individual members not ripe at this time".

Conclusions of the Court

The Tax Court held that Petitioner lacked the requisite third-party standing and that the claims were not ripe for adjudication. Consequently, the Court ruled: "P cannot raise a due process claim under U.S. Const. amend. V on behalf of its individual members," denying Petitioner’s Motion for Summary Judgment and upholding the FPA as valid.

In a concurring opinion joined by four other judges, Judge Buch expanded on the historical context of partnership due process challenges. Judge Buch dismantled the premise of Petitioner’s motion, pointing out that even under the prior TEFRA regime, not all partners were entitled to direct IRS notice. Relying on precedent such as Kaplan v. United States, 133 F.3d 469 (7th Cir. 1998), Judge Buch emphasized that TEFRA’s limited notice provisions "survived a due process challenge vis-a-vis non-notice partners". Judge Buch concluded that when communication within a partnership breaks down, "it is not the fault of the Commissioner," signaling that the BBA’s centralized representative framework would likely withstand substantive due process scrutiny if brought by the proper party at the proper time.

Prepared with assistance from NotebookLM.