Birch Ventures v. United States, No. 15-15551 (9th Cir. 2017)
Annotate this CaseConsents to extend the statute of limitations for the assessment of tax attributable to a partnership item, signed by the taxpayer-partner, are not invalid in this case because of a third party’s alleged conflict of interest or duress. This case arose out of an elaborate tax sheltering scheme that resulted in a massive IRS investigation, multiple criminal indictments and convictions, and a U.S. Senate investigation and hearing. The Ninth Circuit held that, an alleged third-party conflict of interest, without more, did not vitiate the individual consent personally executed by the taxpayer. Even crediting Intervenor Gonzales' allegations, the alleged actions by the IRS agent did not constitute legal duress warranting relief. Accordingly, the panel affirmed the district court's grant of summary judgment to the government.
Court Description: Tax. The panel affirmed the district court’s judgment in an action raising a statute of limitations challenge to the Internal Revenue Service’s determination of tax liabilities in a partnership level proceeding under the Tax Equity and Fiscal Responsibility Act. In 2002, the IRS began investigating what it later determined to be a tax sheltering scheme and issued Final Partnership Administration Adjustments (FPAAs) to many of the limited liability companies (LLCs) that participated in that scheme. The adjustments effectively disallowed tax losses sustained through involvement in the scheme, and resulted in substantial tax liability for the LLCs. The tax matters partner for the funds that constituted the tax shelters challenged the disallowance of losses. BIRCH VENTURES V. UNITED STATES 3 Taxpayers, an individual investor (Tom Gonzales) and his single-member LLC (Birch Ventures), intervened in the action. The partnership tax return at issue was filed on April 16, 2001. Absent an extension on the statute of limitations, the IRS had until April 16, 2004, to assess taxes with respect to that return. Gonzales personally signed two consents to extend the limitations period, and the IRS issued a FPAA after the initial limitations period expired but within the extension granted by the consents. The panel held that the statute of limitations extensions signed by Gonzales were valid. The panel reasoned that an alleged third-party conflict of interest, without more, does not vitiate the individual consent personally executed by a taxpayer and that, even crediting Gonzales’s allegations in this case, the alleged actions by the IRS do not constitute legal duress warranting relief.
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