Friday, November 23, 2012

Reminder on Sweep of Form 872-I, Partner Level Consent to Extend Statute of Limitations (11/23/12)

The Tax Court recently issued a decision reminding taxpayers and practitioners how sweeping the scope of the Form 872-I is.  WHO515 Investment Partners v. Commissioner, T.C. Memo. 2012-316, here.  The Form 872-I, here, is titled titled Consent to Extend the Time to Assess Tax As Well As Tax Attributable to Items of a Partnership.  The Form is executed by the partner in the partnership and thus, by extending the Section 6501, here, limitations periods with special reference to partnership adjustments, in effect, pre-empts the special minimum partnership limitation provisions in the TEFRA rules.  The Form 872-I thus specifically says:
Without otherwise limiting the applicability of this agreement, this agreement also extends the period of limitations for assessing any tax (including additions to tax and interest) attributable to any partnership items (see section 6231 (a)(3)), affected items (see section 6231 (a)(5)), computational adjustments (see section 6231(a)(6)), and partnership items converted to nonpartnership items (see section 6231 (b)). 
I have modified my Federal Tax Procedure book as follows (with the context indicating the new materials in bold):
E. Statutes of Limitation. 
TEFRA provides a special statute of limitations rule for assessing tax to the partners for partnership items and affected items.  The partner’s assessment periods of limitations are determined under § 6501, and TEFRA does not change that rule.  TEFRA does, however, provide a rule that may extend the partner’s statute of limitations for partnership and affected items beyond the statute of limitations provided in § 6501.  TEFRA provides that each partner's § 6501 assessment period for tax attributable to partnership and affected items will not expire before the date that is three years after the later of: (i) the date on which the partnership return for the taxable year was filed or (ii) the last day for filing the return for that year (determined without regard to extensions).  The net effect of this rule is that the partner’s statute of limitations as to the partnership and affected items may be extended under TEFRA but will not be shortened.  This has practical effect in those cases where the special TEFRA extension period has expired but the partner’s statute of limitations is still open (e.g., (i) by partner-level consent the partner’s statute of limitations (including by special Form 872-1, Consent to Extend the Time to Assess Tax As Well As Tax Attributable to Items of a Partnership, (ii) by the partner-level 6 year statute for 25% omission, or (iii) for partner-level fraud).
These changes are in the footnoted version, p. 667 and nonfootnoted version p. 486.

The authority for the Form is Section 6501(c)(4).  Hence, just as any other consent authorized by that section (most prominently the Form 872, the Form must be executed while the statute is open.  See Consents to Extend the Statute of Limitations Must Be Properly Executed During Open Period (Federal Tax Procedure Blog 9/12/12), here.

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