Income Tax Partner Stuart J. Bassin commented on the Federal Circuit's en banc reconsideration of a case in which the IRS made adjustments to a partner's tax liability but never issued a notice of deficiency in Tax Analysts Tax Notes Today (“News Analysis: Federal Circuit Plays It Safe in En Banc Reconsideration of Bush”) on August 30, 2011.
The U.S. Court of Appeals for the Federal Circuit, sitting en banc, held on August 24, 2011, that IRS adjustments to a partner's tax liability were computational adjustments that did not require a notice of deficiency to be provided.
According to Tax Analysts, “The new holding reverses an earlier decision by the court's original panel that was much derided by the tax bar for creating a ‘harmless error’ rule that had no apparent place in the statutory construction of the tax code.”
Bassin said the opinion "shows once more that the Tax Equity and Fiscal Responsibility Act (TEFRA) has failed in its fundamental goal of efficiently resolving partnership disputes." Because the difficulty of construing the rules continues to create judicial uncertainty, "Congress and the Service need to fix the TEFRA regime," he said.
Bassin also said the Federal Circuit's disposition of the case "further reminds us that practitioners need to pay close attention to procedural questions raised by the TEFRA system." The case was unusual because the taxpayers had settled with the IRS in 2000 and did not challenge the IRS's proposed computations but sought to avoid any tax liability by claiming that the government had committed a technical procedural error in assessing the liability, he said.