William McCue, Florida Coastal School of Law student, Bachelors of Business Administration,Accounting from University of North Florida, and former tax accountant with two CPA firms in Florida.
In Bush v. United States, nineteen partners of Dillion Oil Technology Partnership were assessed penalties by the IRS for substantial underpayments of tax. The partnership experienced considerable losses that the individual partners claimed as deductions on their respective federal personal income tax returns. The IRS rejected most of the deductions. The tax was paid and sued for a refund. The dispute centered on whether the losses were associated with tax motivated transactions. The determination of whether a transaction is tax motivated is a partnership-level decision because it reflects the intent of the partnership in undertaking the transaction. The determination is not an individual partner-level decision. However, the partners are still liable for the partnership and the partners paid the tax and penalties in 2004. In 2006, the partners, as individuals, initiated a suit for refund.
The determinative issue became one of jurisdiction and the lack of a proper plaintiff. The Court of Federal Claims held that individual partners may not bring tax challenges relating to subject matter “attributable to a partnership item.” A tax transaction is “attributable to a partnership item” if it is due to, caused by, or generated by the partnership in conducting business. Claims that are attributable to the partnership must be brought in a partnership-level suit by the Partnership Representative or the Tax Matters Partner. Accordingly, the Court dismissed for lack of subject matter jurisdiction under the Tax Equity and Fiscal Responsibility Act, 1 I.R.C.7422 (h). The Federal Circuit affirmed the dismissal, calling the claim an impermissible collateral attack. For the full text of the opinion see http://docs.justia.com/cases/federal/appellate-courts/cafc/12-5051/12-5051-2013-05-30.pdf