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PARTNERS & PARTNERSHIPS

rather than farming activities and pro- taxpayers had made the same argument The taxpayers petitioned the Tax Court
posed adjustments disallowing a number regarding limitation periods, the court for a redetermination of federal income
of deductions taken by the partnership. had repeatedly found such claims ef- tax deficiencies for those years. The
The taxpayers had deducted the losses fectively sought refunds attributable to Tax Court dismissed the petition as
allocated to them from the partnership. partnership items that thus were barred untimely because the taxpayers failed
On audit of the taxpayers’ return, the under former Sec. 7422(h). Therefore, to file the petition within 150 days of
IRS assessed additional taxes attribut- the Fifth Circuit held that the district when the IRS issued the first FPAA.8
able to the limited partnership interests. court did not have jurisdiction to hear The taxpayers argued that their peti-
The taxpayers paid the tax and sued for the claim. tion was timely because Sec. 6223(f)
a refund, arguing that the assessment Regarding the taxpayers’ claim that barred the IRS from issuing more than
was untimely under Sec. 6501 because the assessment was improper because one FPAA pertaining to a partnership’s
the FPAAs were issued more than three it was not preceded by a deficiency tax year. They also argued that the
years after the filing dates of their joint notice, the Fifth Circuit held that the second FPAA was the only valid one
individual tax returns that reflected the district court did not have jurisdiction and that their petition was filed within
partnerships’ losses. In addition, they to consider that claim because it imper- 150 days of that FPAA. The Tax Court
contended that the assessment was missibly varied from the taxpayers’ ad- concluded that the first FPAA was the
invalid because it was not preceded by ministrative claim. Even if the district only valid FPAA and, therefore, the
the issuance of a notice of deficiency, as court had jurisdiction, the taxpayers’ taxpayers’ petition was untimely. The
required under Sec. 6213. The district argument would fail, the Fifth Circuit taxpayers appealed the decision to the
court ruled in favor of the taxpayers. said, because it involved a misunder- Fifth Circuit, which found that the Tax
The IRS appealed the ruling to standing of the meaning of the term Court had properly dismissed the peti-
the Fifth Circuit.6 That court in 2022 “deficiency” as defined by Sec. 6211(a). tion as untimely filed.
reversed the district court’s ruling on In another case,7 the IRS issued
both of the issues and remanded the two FPAAs to a partnership that made Partnership item issues
case to the district court, instructing it adjustments to its tax returns for two Several court cases decided during
to dismiss the taxpayer’s case for lack of years. The only material difference the period turned on whether the
jurisdiction. Regarding the timeliness between the FPAAs was that the sec- treatment of an item was properly
of the assessment, the Fifth Circuit ond FPAA corrected the name of the reported or determined at the
observed that in previous cases where partnership on the attached schedules. partnership level or at the partner level.

EXECUTIVE SUMMARY • Final regulations were issued contributions of conservation
for domestic partnerships with easements.
• Court cases decided during foreign partners. Generally, the
the reviewed period dealt with regulations extend the treatment • As several cases in 2022 indicate,
issues under the former unified of domestic partnerships as the IRS, in addition to auditing
audit rules of the Tax Equity aggregates of their partners for individuals that it believes have
and Fiscal Responsibility Act purposes of determining income taken improper conservation
(TEFRA) that included the inclusions under Sec. 951 and easement deductions, is pursuing
statute of limitation and whether provisions applicable by refer- criminal cases against promotors
an item of income or deduction ence to it. of fraudulent syndicated conser-
was properly determined vation easement schemes.
as a partner or partnership • A number of court cases dealt
item. Other issues addressed with the “protected in perpetuity” • IRS letter rulings addressed late
included the economic and substantiation requirements or missed elections under Sec.
substance of partnership and other issues regarding the 754 and those regarding choice
transactions and debt vs. equity validity of taxpayers’ claimed of entity and qualified opportunity
characterizations. deductions for charitable fund self-certification of assets.

6. Baxter, No. 21-20258 (5th Cir. 8/31/22). 8. Stevens, T.C. Memo. 2020-118.
7. SNJ Ltd., 28 F.4th 936 (9th Cir. 2022), aff’g Stevens, T.C. Memo. 2020-118.

30 February 2023 The Tax Adviser