Friday, April 17, 2015

More on the Allen Issue - Oral Argument in BASR (4/17/15)

With too much time on my hands, I decided to listen to the oral arguments in the Court of Appeals for the Federal Circuit in  BASR Partnership v. United States, 113 Fed. Cl. 181 (9/30/13 Filed; As Revised 10/29/13), here.  The oral argument may be downloaded here.  For background discussion of the case, see BASR Briefs On Issue of Unlimited Statute of Limitations for NonTaxpayer Fraud (Federal Tax Crimes Blog 8/26/14), here.  I will give some off-the-cuff impressions after the oral argument.

Here is how I slice and dice it (perhaps simplistically):

1.  The issue is whether § 6501(c)(1), here, applies to nontaxpayer fraud.

2.  The plain meaning of § 6501(c)(1) requires fraud but does not textually differentiate between the taxpayer's fraud and any other persons' fraud.  That does not resolve the issue stated in #1, because textual reading does not always control.  I cannot predict whether the Court of Appeals for the Federal Circuit will go outside the bounds of the text.

3.  Much of the oral argument dealt with esoterica of the TEFRA partnership provisions.  I think that is pretty much irrelevant if, as the Government argues and the Court of Federal Claims has already held, Section 6501 is the applicable statute of limitations, then any minimum statute of limitations in § 6229, here, shorter than the § 6501 statute is irrelevant.  But that simply begs the questi§ 6501(c)(1), properly interpreted, applies to nontaxpayer fraud.

4.  I previously thought it relevant that the Government's reading of § 6501(c)(1) might moot § 6229(c)(1)'s prescription of a 6-year statute for fraud on the partnership return not involving the partner committing the fraud.  If § 6501(c)(1) nevertheless prescribes an unlimited statute for a partnership fraudulent item flowing through to the nonfraudulent partner's return, then § 6229(c)(1)'s 6-year statute is irrelevant because it will always be shorter than the § 6501(c)(1) unlimited statute.  On more reflection, this concern seems to be a superficial one. Congress' enactment of a provision that, depending upon the interpretation of an earlier enacted statute, might be rendered irrelevant does not mean that the earlier enacted provision should be interpreted to avoid the irrelevancy.  All the subsequent enactment shows is that Congress in the subsequent enactment either did not think of its interaction with the earlier statute or misconstrued the scope of the earlier statute.  It does not mean that the earlier statute properly interpreted cannot apply as properly interpreted.  Stated alternatively, Congress did not by § 6229(c)(1) amend § 6501(c)(1), so the issue should be how § 6501(c)(1) should be interpreted in the absence of § 6229(c)(1).  And, even if Congress in enacting § 6501(c)(1) had said in the legislative history that it meant to amend § 6501(c)(1) or based its language in § 6229(c)(1) on an assumption that § 6501(c)(1) would not apply, then the enactment would have no effect on the interpretation of § 6501(c)(1).


  1. Seriously ... a reminder has to be delivered. Who goes searchign on the IRS website to see whether there are any reminders? Makes about as much sense as someone saying "I had a Swiss bank statement posted on my kitchen wall, therefore by posting it there I notified the Treasury and IRS of the account."

  2. IRS hits Sam Wyly with $3.2 BILLION tax bill

  3. ChiTownTaxAttorneyApril 19, 2015 at 12:28 PM

    Maybe I read too quickly or not enough, "But it is commonplace of statutory construction that the specific governs the general." Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384, 112 S. Ct. 2031, 2037, 119 L. Ed. 2d 157 (1992). Similarly, Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change." Lorillard v. Pons, 434 U.S. 575, 580, 98 S. Ct. 866, 870,
    55 L. Ed. 2d 40 (U.S. 1978). If we can presume Congress is aware of judicial and even regulatory interpretations of a statute, we certainly can presume they are aware of the statutes which itself enacted!

    And if you read § 6229(c)(1), it plainly does not let the partner involved in the false or fraudulent return off the “SOL hook”, but gives innocent partners reasonable relief after six years. Side-notably, the SOL for most tax crimes is only five years. It seems to me that applying § 6501(c)(1) also “would violate the canon against interpreting any statutory provision in a manner that would render another provision superfluous.” Bilski v. Kappos, 561 U.S. 593, 607-08, 130 S. Ct. 3218, 3228, 177 L. Ed. 2d 792 (2010). What else is then left of § 6229(c)(1)?

  4. ChiTownTaxAttorney,

    You are ably stating the the "innocent partner" defense in this situation.

    I am not sure that interpretive maxims -- often called minims -- compel the result you seek. I will work from the known to the unknown.

    1. Let's start with the proposition now clearly established that 6501 can apply even if the statutes in 6229 do not. I think that is an established proposition in all courts that have addressed the issue.

    2. Let's say that Congress was aware in enacting 6339(c)(1) that a possible interpretation of 6501(c)(1) was that nontaxpayer fraud sufficed. Then, if Congress wanted to foreclose that interpretation, it would have (i) enacted 6229(c)(1) and (ii) amended 6501 to make the two provisions coordinate.

    3. But what if Congress were not aware of that possible interpretation of 6501(c)(1) and enacted only 6229(c)(1)? Can it be good statutory construction that the enactment of 6229(c)(1) is a deemed amendment to 6501(c)(1)? While I have not researched that issue, that does not fit in any of my known modes of statutory construction.

    4. If indeed Congress did not mean any sub silentio unstated amendment restricting 6501(c)(1) in cases where 6229(c)(1) could apply, then the interpretation of 6501 should stand on its own even if it has some conflict with the later enacted 6501(c)(1).

    5. So we are back to the proper interpretation of 6501(c)(1) unfettered by any implication from or inconsistency with 6229(c)(1).

    6, That does not control how 6051(c)(1) should be interpreted. It only tells us that 6229(c)(1) is pretty much irrelevant to that issue.

    7. A variation on that is that, even if 6229(c)(1) were relevant and, in the final analysis controlling, it would leave 6501()(1) to apply in non-TEFRA cases (both partnership non-TEFRA cases and in nonpartnership cases) where nontaxpayer the return reflects nontaxpayer fraud. Then, if in all other such cases, nontaxpayer fraud will invoke the unlimited statute of limitations, what possible policy could be served by exemption partnership fraud reported on the individual partner's returns from the application of 6501(c)(1)? I can't really articulate any. And it seems to me that issue has already been decided when the Courts held that 6229 is not exclusive and that an open taxpayer statute of limitations under 6501 for any purpose (partner level extensions, 25% omissions, etc.) could apply even if 6229 did not. Once that issue is decided, then the only issue is the proper application of 6501 (including 6501(c)(1)).

    But, at the end of the day, all I have done is stated another view of the matter. I really can't say that this view or any other view will prevail over your view.

    Jack Townsend

  5. Thanks for that link. I had picked up that link earlier and decided that it did not offer enough to post a separate entry on it.

    I presume that the issue will be litigated in the bankruptcy court which many tax lawyers view as a more favorable forum than the other forums for this type of issue (where, despite the taxpayers' claims of innocent reliance on tax and other professionals (including securities law professionasl), they have not been successful yet in convincing a court of their innocence).

    Jack Townsend


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