David K. Hostetler; Kenneth E. Wright and Winifred J. Wright v. Commissioner., United States Tax Court - Memorandum Decision, T.C. Memo. 1992-508, Docket No. 34722-86., Filed September 3, 1992

David K. Hostetler; Kenneth E. Wright and Winifred J. Wright v. Commissioner.

United States Tax Court - Memorandum Decision

T.C. Memo. 1992-508

Docket No. 34722-86.

Filed September 3, 1992.

Declan J. O'Donnell, 6841 S. Yosemite St., Englewood, Colo., for the petitioners. Randall L. Preheim, for the respondent.

Memorandum Findings of Fact and Opinion

WHITAKER, Judge. This matter is before the Court on petitioners' motion for summary judgment filed pursuant to Rule 121. ¹ Respondent determined a deficiency in, increased interest on, and an addition to, David K. Hostetler's (petitioner Hostetler) Federal income tax for the taxable year, and in the amounts, set forth below:

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¹ Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code of 1954 in effect for the years in issue.

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¹ To be determined.

Respondent determined deficiencies in, increased interest on, and additions to, Kenneth E. and Winifred J. Wright's (petitioners Wright) Federal income taxes for the taxable years, and in the amounts, set forth below:

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¹ To be determined.

A notice of deficiency was mailed to petitioner Hostetler on July 1, 1986, and to petitioners Wright on May 28, 1986. Petitioner Hostetler resided in San Diego, California, and petitioners Wright resided in Castro Valley, California, at the time the petition herein was filed. The issue for decision is whether the period of limitations upon assessment applicable to a partner's distributive share of partnership items is controlled by the filing of the partnership's information return, or by the filing of the partner's individual income tax return, as extended by any agreements relating thereto. ²

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² The taxable years at issue antedate the enactment of secs. 6221-6233 which provide that the tax treatment of partnership income, loss, deductions, and credits is to be determined at the partnership level in a unified partnership proceeding for partnership taxable years beginning after Sept. 3, 1982.

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Findings of Fact

Petitioner Hostetler was a validly subscribed member of North Sea Realty, Ltd. (North Sea Realty), a limited partnership, for the taxable year ending December 31, 1979. Petitioners Wright were validly subscribed members of North Sea Realty for the taxable years ending December 31, 1979, and December 31, 1980. On April 15, 1980, petitioner Hostetler filed his 1979 individual income tax return. On April 15, 1980, and on May 26, 1981, petitioners Wright filed their 1979 and 1980 individual income tax returns, respectively. On October 17, 1980, and on April 15, 1981, North Sea Realty filed its 1979 and 1980 partnership information returns, respectively. On August 23, 1982, petitioner Hostetler executed a Form 872-A, thereby extending the time to assess individual income tax against petitioner Hostetler for the taxable year 1979. On or about April 5, 1983, and on November 28, 1983, petitioners Wright executed Forms 872-A, thereby extending the time to assess individual income tax against petitioners Wright for the taxable years 1979 and 1980, respectively.

Pursuant to Form 872-A, the amount of income tax due for a taxable year may be assessed on or before the 90th day after: (1) Respondent receives a notice of termination from petitioners, (2) respondent mails a notice of termination to petitioners, or (3) respondent mails a notice of deficiency for the applicable period. Petitioner Hostetler executed a Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, on May 13, 1986. Respondent received the notice of termination on May 21, 1986. As of July 1, 1986, the date a notice of deficiency was mailed to petitioner Hostetler, fewer than 90 days had passed since respondent's receipt of the notice of termination; consequently, the period of limitations upon assessment had not expired with respect to petitioner Hostetler's taxable year 1979. Respondent neither received a notice of termination from petitioners Wright, nor mailed a notice of termination to petitioners Wright, for the taxable years 1979 and 1980. Consequently, as of May 28, 1986, the date a notice of deficiency was mailed to petitioners Wright, the period of limitations upon assessment had not expired with respect to petitioners Wright's taxable years 1979 and 1980. As of May 28, 1986, more than 3 years had elapsed since the filing of North Sea Realty's 1979 and 1980 partnership information returns.

On January 31, 1992, petitioners filed a motion for summary judgment asserting that the period of limitations upon assessment had expired with respect to their distributive share of losses from North Sea Realty prior to the issuance of the notices of deficiency. ³

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³ On Feb. 11, 1992, petitioners filed an amended petition wherein it was represented that "the parties have settled all issues on the merits of the case in a proposed Stipulation, subject to a determination of jurisdiction as requested herein." Similarly, in the motion for summary judgment, petitioners represent that "no trial on the merits is expected because the parties have executed a Stipulation, subject to jurisdiction." In the notice of objection to motion for summary judgment, however, respondent asserts that neither a stipulation of settled issues nor a closing agreement has been executed by the parties. Consequently, petitioners' motion for summary judgment is properly viewed as a motion for partial summary judgment. See Rule 121(c).

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Opinion

The sole issue for decision is whether the period of limitations upon assessment applicable to a partner's distributive share of partnership items is controlled by the filing of the partnership's information return, or by the filing of the partner's individual income tax return, as extended by any agreements relating thereto. Petitioners contend that the period of limitations is controlled by the filing of the partnership's information return. Conversely, respondent contends that the period of limitations is controlled by the filing of the partner's individual income tax return. Respondent agrees that there is no genuine issue as to any material fact relating to the applicable period of limitations upon assessment, and that a decision on this issue may be rendered as a matter of law. See Rule 121(b).

Petitioners cite Kelley v. Commissioner [89-1 USTC ╤ 9360], 877 F.2d 756 (9th Cir. 1989), revg. and remanding [Dec. 43,314(M)] T.C. Memo. 1986-405, as authority for the proposition that the period of limitations upon assessment applicable to a partner's distributive share of partnership items is controlled by the filing of the partnership's information return. In Kelley v. Commissioner, supra, the Ninth Circuit held that the Commissioner may not adjust a taxpayer-shareholder's individual income tax return based upon an adjustment to a subchapter S corporation's information return when the period of limitations had run as to the subchapter S corporation's return. Id. at 759. We previously considered and rejected the Ninth Circuit's decision in Kelley in determining the period of limitations applicable to a partner's distributive share of partnership items. In Stahl v. Commissioner [Dec. 47,395], 96 T.C. 798 (1991), we held that the filing of a partnership information return does not affect the period of limitations upon assessment applicable to the determination of a deficiency against individual partners of a partnership. Similarly, in Siben v. Commissioner [91-1 USTC ╤ 50,215], 930 F.2d 1034 (2d Cir. 1991), affg. [Dec. 46,804(M)] T.C. Memo. 1990-435, the Second Circuit held that the applicable period of limitations was controlled by the partners' individual income tax returns rather than by the partnership return. See also Durovic v. Commissioner [73-2 USTC ╤ 9728], 487 F.2d 36 (7th Cir. 1973), affg. on this issue [Dec. 30,204] 54 T.C. 1364 (1970). We consider Stahl v. Commissioner, supra, and Siben v. Commissioner, supra, to be dispositive of this issue; consequently, we hold that the period of limitations upon assessment applicable to a partner's distributive share of partnership items is controlled by the filing of the partner's individual income tax return, as extended by any agreements relating thereto.

In accordance with the holding set forth above, petitioners' motion for summary judgment will be denied.

An appropriate order will be issued.

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