Candyce Martin 1999 Irrevocable Trust v. United States, No. 11-17879 (9th Cir. 2014)
Annotate this CaseThis appeal stemmed from the sale of the Chronicle Publishing Company. After the Martin Family Trusts formed a tiered partnership structure, the Martin heirs commenced a series of transactions designed to create losses that would offset the taxable gain realized from the Chronicle Publishing sale. On appeal, taxpayers argued that the 2000-A Final Partnership Administrative Adjustment (FPAA) was time-barred by the restrictive language in the extension agreements. The court agreed with the district court that the extension agreements between the IRS and First Step encompassed adjustments made in the 2000-A FPAA that were directly attributable to partnership flow-through items of First Ship; the FPAA to 2000-A extended the limitations period for assessing tax beyond the extension agreements and through the present litigation; however, the agreements did not extend to adjustments in the 2000-A FPAA that were not directly attributable to First Ship; and because the district court held more broadly that "the extension agreements encompass the adjustments made by the IRS in the FPAA issued to 2000-A," the court remanded to the district court to make a determination of which adjustments in the 2000-A FPAA were directly attributable to partnership flow-through items of First Ship. The court affirmed in part and reversed in part.
Court Description: Tax. The panel affirmed in part and reversed in part the district court’s denial of a petition for readjustment of partnership items, brought by a group of heirs of the founders of Chronicle Publishing Company in connection with its sale and resulting tax consequences. The heirs owned a portion of the company, either outright or through family trusts. They formed a tiered partnership structure and commenced a series of transactions designed to minimize their tax liability from the company’s sale. In connection with an IRS audit of tax returns for two partnerships involved in the transactions, the IRS executed agreements extending the limitations period for assessing taxes. The IRS then issued a Notice of Final Partnership Administrative Adjustment (FPAA) that effectively increased the heirs’ tax liability. The heirs, via two trusts that were partners in the partnerships, challenged the FPAA as time- barred. After reviewing partnership taxation law and the language of the extension agreements, the panel concluded that some of the adjustments made in the FPAA were directly due to, caused by, or generated by partnership items that flow through to the partners (appellants), and that the extension agreements therefore encompassed some of the adjustments made by the FPAA and permitted the IRS to assess new tax on appellants today.
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