Judgment summary
This case concerns whether the IRS timely issued a Notice of Final Partnership Adjustment (FPA) to Katanga Properties, LLC under the centralised partnership audit regime established by the Bipartisan Budget Act of 2015.
Petitioner moved for summary judgment, arguing that the FPA, mailed on March 25, 2025, was issued after the limitations period had expired. The Tax Court denied the motion, holding that the FPA was timely under I.R.C. § 6235(a)(1) and (b) because the parties had executed an agreement extending the relevant limitations period.
Background
Petitioner is an LLC treated as a partnership for federal tax purposes and is subject to the BBA centralized partnership audit regime. Petitioner filed its 2020 Form 1065 on June 10, 2021, and designated R. Brent Evans as Partnership Representative (PR) using Form 8979.
On May 27, 2022, respondent issued a Notice of Selection for Examination regarding the 2020 return. The parties agreed to extend the limitations period for adjustments under section 6235(a)(1) until May 30, 2025, by executing Form 872-M, signed by petitioner on January 27, 2023, and countersigned by the IRS on February 21, 2023.
On April 16, 2024, the IRS issued a Notice of Proposed Partnership Adjustment (NOPPA) to the PR and petitioner. The PR did not request modification of the imputed underpayment. On March 25, 2025, the IRS mailed the FPA, disallowing a charitable contribution deduction claimed for tax year 2020. Petitioner timely filed a Petition on June 23, 2025, alleging the FPA was untimely.
Core dispute
The dispute centred on which paragraph of I.R.C. § 6235(a) governed the timeliness of the FPA. Petitioner argued that section 6235(a) sets sequential deadlines, with paragraph (1) governing the NOPPA, paragraph (2) governing FPAs issued after a modification request, and paragraph (3) governing FPAs issued where no modification request is made. Petitioner further argued that the Form 872-M extension agreement extended only the deadline for the NOPPA under paragraph (1), so paragraph (3), providing a 330-day period, was the operative deadline for the FPA.
Respondent argued that section 6235(a) requires the 'later of' the periods in paragraphs (1), (2), and (3), and that the extension agreed by Form 872-M extended the paragraph (1) deadline to May 30, 2025, which was later than the paragraph (3) deadline, making the FPA timely.
Court findings
The Court agreed with respondent's reading of the statute. It held that section 6235(a) authorises the Commissioner to make adjustments at any time before the latest of the periods set out in paragraphs (1), (2), and (3), reading the paragraphs disjunctively based on the statutory use of 'or' and 'later of'.
The Court found that section 6231(b) governs the timing of notices in conjunction with section 6235(a) and does not create a separate, independent limitations scheme. It rejected petitioner's argument that section 6231 sets deadlines for mailing notices distinct from the deadline for making adjustments under section 6235(a), finding that both the NOPPA and FPA are part of the same adjustment process.
The Court concluded that any extension agreed under section 6235(b) extends the limitations period for making adjustments generally, and must be considered when determining the latest of the periods in paragraphs (1), (2), and (3). The NOPPA was issued timely on April 16, 2024, and the parties' Form 872-M extended the section 6235(a)(1) period to May 30, 2025, which was later than the section 6235(a)(3) deadline.
Outcome
The Court held that the FPA, mailed on March 25, 2025, was issued timely pursuant to section 6235(a)(1). Petitioner's Motion for Summary Judgment was denied. An appropriate order was to be issued.
Major issues / areas of contention
- Whether the FPA was issued within the limitations period under I.R.C. § 6235(a).
- Whether section 6235(a) requires application of the 'later of' the periods in paragraphs (1), (2), and (3), or whether paragraph (3) alone governs where no modification request is made.
- Whether an extension agreement under section 6235(b), executed via Form 872-M, extends only the NOPPA deadline or the broader limitations period for making adjustments.
- Whether section 6231(b) establishes a separate timing regime for notices distinct from the section 6235(a) limitations period.