Free Order on Motion for Summary Judgment - District Court of Federal Claims - federal

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In the United States Court of Federal Claims
No. 05-999T (Filed: October 10, 2007) ************************************* EPSOLON LIMITED, by and through * SLIGO (2000) COMPANY, INC., * Tax Matters Partner, * * Plaintiff, * * v. * * THE UNITED STATES, * * Defendant. * *************************************

Tax Refund Suit; TEFRA; Cross-Motions for (Partial) Summary Judgment; 26 U.S.C. § 6501(a); 26 U.S.C. § 6229(a), (d); 26 U.S.C. § 7609(e)(2); RCFC 56; Rhone-Poulenc; Andantech; AD Global; Grapevine; Powell.

A. Duane Webber and George M. Clarke, III, Baker & McKenzie, LLP, Washington, DC, for plaintiff. David R. House, Tax Division, Court of Federal Claims Section, United States Department of Justice, Washington, DC, for defendant. OPINION AND ORDER SWEENEY, Judge Before the court are Plaintiff's Motion for Summary Judgment ("Plaintiff's Motion" or "Pl.'s Mot.") and Cross-Motion of the United States for Partial Summary Judgment, or in the Alternative, Motion Under Rule 56(f) ("Defendant's Cross-Motion" or "Def.'s Cross-Mot."). The issue presented is whether the Internal Revenue Service ("IRS") failed to timely issue a Notice of Federal Partnership Administrative Adjustment ("FPAA"), thus rendering certain partnership items final and barring the IRS from proceeding against the partnership and the partners for additional taxes owed with respect to these items. For the reasons set forth below, the court grants Defendant's Cross-Motion and denies Plaintiff's Motion. I. BACKGROUND The instant case stems from tax shelter transactions that KPMG, LLP ("KPMG"), a professional firm that provides audit, tax, and advisory services, with the assistance of the law

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firm of Brown & Wood, LLP ("Brown & Wood"),1 promoted and sold to its clients. These transactions have been investigated by the IRS and have been the basis of much litigation. Thus, after providing the factual background of the case sub judice, it is also necessary to set forth a brief summary of related cases and events in order to provide context and clarity to the parties' respective motions. A. The United States Court of Federal Claims Litigation 1. Factual Background2

The law firms of Brown & Wood and Sidley & Austin, LLP merged in May 2001, to become Sidley Austin Brown & Wood, LLP ("SABW"), and subsequently, on January 1, 2006, SABW became known as Sidley Austin. See United States v. KPMG, LLP, 316 F. Supp. 2d 30, 39 (D.D.C. 2004) ("KPMG DC II"); Sidley Austin Home Page, http://www.sidley.com/about/ about.asp (last visited October 1, 2007). Brown & Wood prepared opinion letters for KPMG's clients regarding the transactions that became the subject of an IRS investigation. See Plaintiff's Exhibit ("Pl.'s Ex.") J at 3-6 (copies of Brown & Wood letters to clients stating that the firm would serve as counsel to the client for certain investment transactions that involved "the acquisition of an interest in a foreign corporation through an S corporation and . . . various digital foreign currency option trades . . . ."). The facts recited are undisputed by the parties unless otherwise noted and are derived mainly from the Complaint ("Compl."); Plaintiff's Motion; Defendant's Cross-Motion; Plaintiff's Response and Reply to Cross-Motion of the United States for Partial Summary Judgment, or, in the Alternative, Motion Under Rule 56(f), Epsolon's Motion for 56(f) Relief and Leave to Conduct Discovery, and Brief in Support Thereof ("Plaintiff's Response and Reply" or "Pl.'s Resp. & Reply"); Reply of the United States to Plaintiff's Response and Reply to Cross-Motion of the United States for Partial Summary Judgment, and Alternative Rule 56(f) Motion ("Def.'s Reply"); Plaintiff's Proposed Findings of Fact ("Pl.'s PFUF"); Defendant's Response to Plaintiff's Proposed Findings of Uncontroverted Fact ("Def.'s Resp. to Pl.'s PFUF"); Defendant's Proposed Findings of Uncontroverted Fact ("Def.'s PFUF"); Plaintiff's Response to Defendant's Proposed Findings of Uncontroverted Fact ("Pl.'s Resp. to Def.'s PFUF"); Plaintiff's Reply to Defendant's Response to Plaintiff's Proposed Findings of Uncontroverted Fact ("Pl.'s Reply to Def.'s Resp. to Pl.'s PFUF"); Plaintiff's Supplemental Proposed Findings of Uncontroverted Fact ("Pl.'s Supp. PFUF"); Defendant's Response to Plaintiff's Supplemental Proposed Findings of Uncontroverted Fact ("Def.'s Resp. to Pl.'s Supp. PFUF"); plaintiff's exhibits; defendant's exhibits ("Def.'s Ex. __"); and the transcript of the May 21, 2007 oral argument held on the parties' cross-motions ("Tr."). Because the parties did not paginate the exhibits that accompanied their briefs, the court will refer to the exhibits with the page numbers assigned by the court's electronic case management system. -22

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On April 10, 2002, Epsolon Limited ("plaintiff" or "Epsolon"), a partnership, by and through its tax matters partner Sligo (2000) Company, Inc. ("Sligo"),3 filed its United States Return of Partnership Income, Form 1065, for the tax year ending December 31, 2001 ("Partnership Return").4 Pl.'s Reply to Def.'s Resp. to Pl.'s PFUF ¶ 1; see also Pl.'s Ex. A (a copy of the Partnership Return). One of the supporting tax schedules filed with the Partnership Return, Schedule K-1, reflects that Sligo, an S Corporation, is essentially the sole owner of Epsolon. Pl.'s Ex. A at 13. KPMG prepared the Partnership Return, which claimed a loss of $13,890,954 for Epsolon. Id. at 2. The Partnership Return was sent via return receipt requested, and bears an April 15, 2002 received date by the IRS. Pl.'s Reply to Def.'s Resp. to Pl.'s PFUF ¶¶ 2-3; see also Pl.'s Ex. B (a copy of the return receipt for the Partnership Return); Tr. 8-9 (stating that the Partnership Return was deemed filed April 15, 2002). Also on April 10, 2002, Keith Tucker, managing member of Epsolon,5 and his wife, Laura B. Tucker (collectively "the Tuckers"), jointly filed Form 1040, United States Individual Income Tax Return, for the tax year ending December 31, 2001 ("Individual Return").6 Pl.'s Reply to Def.'s Resp. to Pl.'s PFUF ¶ 6; see also Pl.'s Ex. D (a copy of the Individual Return). The Individual Return claimed $13,742,247 in losses from "partnerships, S corporations, trusts, etc." Pl.'s Ex. D at 3. The Tuckers submitted Schedule E, Supplemental Income and Loss, with their Individual Return, which reflects an identical amount of loss ($13,742,247) resulting from their "[t]otal partnership and S corporation income." Id. at 12. The Individual Return and supporting documents were mailed to the IRS on or before April 15, 2002, and were deemed filed on that date. Pl.'s Reply to Def.'s Resp. to Pl.'s PFUF ¶¶ 6-8; see also Pl.'s Ex. E (a copy of the return receipt for the Individual Return). On June 17, 2005, the IRS issued an FPAA for tax year 2001 to Epsolon, and sent it to Robert H. Albaral of the law firm Baker & McKenzie, LLP ("Baker & McKenzie"), who had

In Defendant's Cross-Motion, the government notes that while it references "partnership" and other entities in this case, it does not concede that a viable partnership or the alleged entities existed. Def.'s Cross-Mot. 3 n.4. While defendant disagrees that Epsolon and Sligo were valid entities, defendant states that it is possible that the parties' motions can be decided on the issue of whether the FPAA was timely issued without determining the validity of the entities. Def.'s Resp. to Pl.'s PFUF ¶ 1. The Partnership Return reflects that Epsolon's principal corporate office is located in Dublin, Ireland. Pl.'s Ex. A at 2; Compl. ¶ 3. Sligo provided a Newark, Delaware address. Pl.'s Ex. A at 3; Compl. ¶ 4. Mr. Tucker is the ultimate economic owner of ninety-nine percent of Epsolon through Mr. Tucker's wholly owned S corporation, Sligo. See Pl.'s Resp. to Def.'s PFUF ¶ 1. Defendant agrees that the Individual Return was filed on or about April 10, 2002, but disagrees that the return was accurate as filed. -36 5 4

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power of attorney to receive Epsolon's tax material. Pl.'s Reply to Def.'s Resp. to Pl.'s PFUF ¶ 5; Pl.'s Ex. C. The FPAA was accompanied by Form 4605-A, Examination Changes Partnerships, Fiduciaries, Small Business Corporations, and Domestic International Sales Corporations ("Form 4605-A"). Pl.'s Ex. C at 15-16. Form 4605-A identified "Epsolon Limited c/o Sligo (2000) Co. Inc." as the taxpayer and notified Epsolon that the IRS had increased "[o]ther income" attributable to the partnership by $13,890,954. Id. at 15. The FPAA also was accompanied by an Explanation of Items for Epsolon Limited ("Explanation"). Id. at 17-21. In the Explanation, the IRS advised Epsolon "that you have failed to establish the actual existence of Epsolon Limited, or that Epsolon Limited otherwise constituted a partnership for federal income tax purposes." Id. at 17. Further, the Explanation stated: [Epsolon's] alleged foreign currency options transactions lacked any genuine business purpose apart from tax reduction. Epsolon Limited and its transactions lacked economic substance and constituted economic shams for federal income tax purposes. . . . . . . Sligo (2000) LLC and Sligo (2000) Company, Inc., as well as the options transactions in which they engaged, lacked any genuine business purpose apart from tax reduction. .... . . . [C]losure of the loss legs of any Epsolon Limited foreign currency options was purposely delayed until after the effective date of Epsolon Limited's purported election to be treated as a partnership for U.S. income tax purposes, and that any losses from those positions were economically incurred and substantially locked in prior to the effective date of the election, when Epsolon Limited was purportedly a controlled foreign corporation (CFC) of Sligo (2000) Company, Inc. . . . [A]ny losses from foreign currency options positions of Epsolon Limited are deemed to have been recognized by Epsolon Limited CFC prior to its election to be treated as a partnership for United States tax purposes. Accordingly, the partners in Epsolon Limited are not entitled to claim losses therefrom. .... The losses claimed by Epsolon Limited and its partners are . . . disallowed because it has not been established that the losses, or any portion thereof, were actually sustained, or constituted real economic losses. Id. at 17-19. On September 15, 2005, plaintiff, by and through its tax matters partner Sligo, filed a Complaint in the United States Court of Federal Claims ("Court of Federal Claims") pursuant to -4-

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section 6226 of the Internal Revenue Code,7 seeking a readjustment of partnership items.8 Compl. ¶ 1. Plaintiff challenges the June 17, 2005 FPAA on two grounds. First, plaintiff argues that the FPAA is untimely. Id. ¶ 2. Second, plaintiff disputes the proposed adjustments in the FPAA, arguing that the Commissioner of the IRS ("Commissioner") inaccurately determined an increase in income in the amount of $13,890,954 and penalties under section 6662.9 Id. On March 22, 2006, the IRS assessed the tax associated with this partnership proceeding on the Tuckers. Pl.'s Ex. T; Pl.'s Supp. PFUF ¶ 15; Def.'s Resp. to Pl.'s Supp. PFUF ¶ 15. 2. Procedural Background In response to plaintiff's Complaint, on January 13, 2006, defendant filed a Motion to Stay the Proceedings ("Motion to Stay"). Defendant contended that because the government was prosecuting a tax shelter conspiracy in the United States District Court for the Southern District

All statutory references to "section" or "Code" will be to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, unless otherwise designated.
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7

Section 6226, in pertinent part, provides:

(a) Petition by tax matters partner. -- Within 90 days after the day on which a notice of final partnership administrative adjustment is mailed to the tax matters partner, the tax matters partner may file a petition for readjustment of the partnership items for such taxable year with -(1) the Tax Court, (2) the district court of the United States for the district in which the partnerships' principal place of business is located, or (3) the Court of Federal Claims. 26 U.S.C. § 6226 (2000). Further, section 6226(e) requires that before or on the day a readjustment petition is filed under section 6226, the partner must deposit with the IRS "the amount by which the tax liability of the partner would be increased if the treatment of partnership items on the partner's return were made consistent with the treatment of partnership items on the partnership return, as adjusted by the final partnership administrative adjustment." Id. § 6226(e)(1). Thus, pursuant to section 6226(e)(1), Sligo deposited $6,100,000 with the IRS on September 12, 2005. Compl. ¶ 7. Section 6662 provides for the imposition of accuracy-related penalties on the underpayment of taxes. -59

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of New York ("Southern District of New York") arising from the same or similar transaction(s) to the case sub judice, in which several key witnesses had invoked their Fifth Amendment rights against self-incrimination, discovery could not proceed in the instant case. Specifically, defendant intended to pursue whether plaintiff filed a false or fraudulent return with the intent to evade the payment of taxes. Thus, because discovery in the case sub judice could interfere with, and possibly prejudice, the Southern District of New York criminal case, defendant argued that the stay was appropriate. In its Motion to Stay, defendant represented that the Southern District of New York case would proceed to trial on September 11, 2006. Thus, anticipating that the Southern District of New York proceeding would be resolved expeditiously, the undersigned imposed a stay in the instant case. On January 3, 2007, defendant informed the court by status report that the trial in the Southern District of New York case had been rescheduled to September 17, 2007, a date that was more than one year after the original trial date. Accordingly, the court held a status conference with the parties on January 22, 2007, to discuss further proceedings in the instant case that would not interfere with the criminal case set for trial in New York. Because the parties agreed that the summary judgment motions on the limitations issues could be decided without seeking discovery from any defendant or witness in the Southern District of New York case, the court directed the parties to complete briefing by June 5, 2007. B. The Government's Summons Enforcement Litigation Against KPMG in the United States District Court for the District of Columbia ("DC Litigation") From January through May 2002, as part of the investigation into KPMG's role in the promotion and participation in transactions the IRS considered to be abusive tax shelters, the IRS served KPMG with several administrative summonses.10 United States v. KPMG, LLP, 237 F. Supp. 2d 35, 36 (D.D.C. 2002) ("KPMG DC I"). Because KPMG refused to produce all documents responsive to the summonses, on July 9, 2002, the government brought suit to enforce nine of the summonses in the District Court for the District of Columbia.11 See id. During that proceeding, KPMG asserted, inter alia, taxpayer communication confidentiality and attorneyclient privileges under section 7525.12 Id. at 37. The District Court for the District of Columbia

The enforcement proceeding in the United States District Court for the District of Columbia ("District Court for the District of Columbia") did not involve the type of transaction allegedly involved in the instant case, the short option strategy ("SOS") type of the Son of BOSS ("Bond and Option Sales Strategy") shelter. The government was represented by Stuart D. Gibson of the United States Department of Justice ("DOJ").
12 11

10

Section 7525, Confidentiality Privileges Relating to Taxpayer Communications,

provides: -6-

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instructed KPMG to produce its privilege log along with a copy of each document referenced therein to a magistrate judge who would assist the court in determining whether the documents were indeed privileged.13 Id. at 48. On May 4, 2004, the District Court for the District of Columbia, based upon the recommendations of the magistrate judge, granted the government's petition to compel KPMG's compliance with the nine summonses. KPMG DC II, 316 F. Supp. 2d at 45. The district court allowed KPMG ten days to identify the participants in the tax shelters identified or suspected to be abusive and to produce all documents previously withheld. Id. As to the Brown & Wood opinion letters, the court afforded KPMG two choices. Id. Within ten days of the court's order, KPMG could either (1) submit a privilege log explaining why each opinion letter should not be produced, or (2) concede the issue by filing a notice and immediately producing the opinion letters. Id. Finally, within that same ten-day period, KPMG was required to produce or certify to the IRS that it had produced "all documents responsive to the eight summonses other than the FLIP/OPIS summons, except for those documents that KPMG continue[d] to withhold on a claim of privilege"; and within thirty days, counsel for the parties were required to confer about documents sought by the remaining eight summonses and file a status report describing the documents at issue or other matters requiring court resolution. Id. at 46. On June 3, 2004, KPMG notified the court that some of its clients continued to instruct KPMG to withhold documents from the IRS that were responsive to the remaining eight summonses. Joint Status Report, United States v. KPMG, LLP, No. 02-M-C00295 (D.D.C. June 3, 2004). The court directed KPMG to notify its clients who had entered into transactions described in the eight summonses that KPMG was required to produce to the IRS the documents responsive to the summonses. Agreed Order, United States v. KPMG, LLP, No. 02-M-C00295 (D.D.C. June 8, 2004). Additionally, the court permitted any client of KPMG who objected to the production of documents an opportunity to intervene by filing the appropriate motion. Id. On July 8, 2004, KPMG advised the court that because none of its clients had moved to intervene, KPMG was in the process of producing the relevant documents to the IRS. Joint Status Report, United States v. KPMG, LLP, No. 02-M-C00295 (D.D.C. July 8, 2004). On November 9, 2005, the parties represented that no other issues required the court's resolution; thus, on January 13, 2006, the court issued an order closing the case. Joint Notice, United States

With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney. 26 U.S.C. § 7525(a)(1). The Brown & Wood letters referenced in note 1, supra, were among the documents that KPMG asserted were privileged. KPMG DC II, 316 F. Supp. 2d at 45. -713

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v. KPMG, LLP, No. 02-M-C00295 (D.D.C. Nov. 9, 2005); Joint Status Report, United States v. KPMG, LLP, No. 02-M-C00295 (D.D.C. Jan. 13, 2006). C. Mr. Tucker's John Doe Identity Protection Suit Against KPMG in the United States District Court for the Northern District of Texas ("Texas Litigation") In September 2000, the IRS issued a bulletin, Notice 2000-44, requiring that organizers and promoters of specific tax shelters, including the SOS shelter allegedly utilized in the instant case, maintain lists of clients and provide those lists to the IRS upon request. Notice 2000-44, 2000-36 I.R.B. 255 (Sept. 5, 2000). In April 2002, KPMG received an administrative summons from the IRS, requesting the names of its clients as well as documents relating to transactions identical to or substantially similar to those described in Notice 2000-44 ("Notice 2000-44 Summons").14 See Doe v. KPMG, LLP, 325 F. Supp. 2d 746, 748 (N.D. Tex. 2004) ("KPMG Texas"). In August 2003, KPMG notified its clients who had purchased the tax shelters described in the Notice 2000-44 Summons that their names were responsive to the summons, and that KPMG intended to disclose their identities and relevant documents subject to section 7525(a). Id.; see also KPMG 5th Cir., 398 F.3d at 687 (noting that KPMG also notified the IRS that it would reveal the names and documents responsive to the summons). KPMG provided the IRS with the requested SOS transaction information, which was substantially similar to the violative transactions described in Notice 2000-44, but omitted the names of the taxpayers from the documents. KPMG 5th Cir., 398 F.3d at 687. KPMG then informed its clients that although no information would be revealed prior to September 8, 2003, the firm could not flatly refuse to comply with the summons because the SOS transaction information was responsive to the IRS request. Id. at 688. Then, in September 2003, two plaintiffs, "John Doe 1" and "John Doe 2" (collectively "John Does 1 and 2"), filed suit in the United States District Court for the Northern District of Texas ("Northern District of Texas") against KPMG to prevent the disclosure of their identities to the government. KPMG Texas, 325 F. Supp. 2d at 747-48. In 2000, John Does 1 and 2 each had purchased one of the SOS shelters from KPMG in order to reduce their federal income tax liabilities for tax years 2000 and 2001.15 KPMG 5th Cir., 398 F.3d at 687. John Does 1 and 2

The IRS did not seek enforcement of the Notice 2000-44 summonses in the DC Litigation "because KPMG had assured the IRS that it had complied in full with the applicable summons." Doe v. KPMG, LLP, 398 F.3d 686, 687 n.3 (5th Cir. 2005) ("KPMG 5th Cir."). It was later revealed that John Doe 1 was Mr. Tucker. See Pl.'s Resp. to Def.'s PFUF ¶ 1. Mr. Tucker served as the Chief Executive Officer and Chairman of the Board of Directors of Waddell & Reed Financial, Inc., a financial services firm. See Declaration of Keith A. Tucker ("Tucker Decl.") ¶ 3. John Doe 2 was Robert L. Hechler, former President and Chief Operating -815

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asserted that they had retained KPMG's tax consulting services through particular limited liability companies to prepare their respective federal income tax returns, including their individual returns and their S corporation returns, and that their communications were privileged. KPMG Texas, 325 F. Supp. 2d at 748. Specifically, John Does 1 and 2 argued that their engagement agreements with KPMG provided that a "`confidentiality privilege under Internal Revenue Code Section 7525 may pertain to certain communications between KPMG personnel and Client[s] regarding federal tax advice provided pursuant to this engagement.'" Id. (citation omitted). John Does 1 and 2 were represented by Mr. Albaral of Baker & McKenzie, Dallas, Texas, and Gregory S. Lynam and Thomas V.M. Linguanti of Baker & McKenzie, Chicago, Illinois. Id. at 747. As a result of KPMG's August 2003 disclosure to the IRS that it had information responsive to the Notice 2000-44 Summons, the IRS realized that there were taxpayers yet to be identified who had utilized these allegedly abusive tax shelters. KPMG 5th Cir., 398 F.3d at 688. Thus, the IRS was concerned that the statute of limitations might run in the Texas Litigation before the IRS could determine the identities of and assess additional income taxes owed by John Does 1 and 2. Id. Accordingly, on March 19, 2004, the IRS requested that John Does 1 and 2 sign a consent agreement extending the statute of limitations while the case was pending. Id. Both refused. Id. Consequently, on March 25, 2004, the government moved to intervene as a defendant in the Texas Litigation to "protect its interests and the public fisc." KPMG Texas, 325 F. Supp. 2d at 749. According to the government, the underreporting for federal income taxes ranged between $2 million and $6 million per year. Id. The government, again represented by Mr. Gibson, claimed that, as a result of the underreporting, John Does 1 and 2 received tax benefits of between $4 million and $12 million for tax year 2000. Id. The district court allowed the government to intervene on March 25, 2004. Id. On April 12, 2004, the Northern District of Texas ruled that John Does 1 and 2 did not possess a privilege claim as to their identities. Id. at 752. Thus, the Northern District of Texas denied plaintiffs' request for injunctive relief and unsealed documents related to John Does 1 and 2.16 Id. at 755.

Officer of Waddell & Reed, Inc., a subsidiary of Waddell & Reed Financial, Inc. Pl.'s Ex. Q at 2. On April 2, 2004, the court had issued "an order equitably tolling the statute of limitations based on [26 U.S.C.] § 6503(a)(1) and other equitable principles." KPMG Texas, 325 F. Supp. 2d at 749 & n.4 (noting that the order equitably tolled the statute of limitations until the court issued a final judgment on the merits and for sixty days thereafter); see KPMG 5th Cir., 398 F.3d at 688. John Does 1 and 2 appealed the court's decision to equitably toll the statute of limitations. KPMG 5th Cir., 398 F.3d at 688. The United States Court of Appeals for the Fifth Circuit ("Fifth Circuit") reversed the lower court, holding that the "district court [did not have] statutory authority to use equitable tolling to overcome the statute of limitations." Id. at 690. -916

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D. The Government's Summons Enforcement Litigation Against SABW in the United States District Court for the Northern District of Illinois ("Illinois Litigation") Within the same time frame that KPMG was being investigated, the IRS also was investigating the sale of potentially abusive tax shelters by a former partner at SABW. United States v. Sidley Austin Brown & Wood, LLP, No. 03-C-9355, 2004 WL 816448, at *1 (N.D. Ill. Apr. 15, 2004) ("SABW I"). On October 14, 2003, the United States District Court for the Northern District of Illinois ("Northern District of Illinois") issued an order permitting the IRS to serve SABW with a "John Doe" summons ("SABW Summons").17 See Declaration of John Lindquist ("Lindquist Decl.") ¶ 3;18 Def.'s Ex. 1. On October 15, 2003, the IRS served the summons upon SABW, which sought: IN THE MATTER OF THE TAX LIABILITIES OF JOHN DOES, United States taxpayers who, during any part of the period January 1, 1996 through October 15, 2003, participated in a transaction which was or later became a `listed transaction' or other `potentially abusive tax shelter' organized or sold by the law firm of Sidley Austin Brown & Wood LLP and its predecessor, Brown & Wood LLP. Def.'s Ex. 2 at 6. Further, the rider to the summons required SABW to produce: the name, address and taxpayer identification number for each United States taxpayer who, during any part of the period January 1, 1996 through October 15, 2003, participated in a transaction which was or later became a `listed transaction' or other `potentially abusive tax shelter' organized or sold by the law firm of Sidley Austin Brown & Wood LLP and its predecessor Brown & Wood LLP. Id. at 8; Def.'s PFUF ¶¶ 3-4; Pl.'s Resp. to Def.'s PFUF ¶¶ 3-4. By letter dated October 27, 2003, SABW provided the IRS with the identities of some of the participants in the described transactions, but withheld the identities of those clients who had either failed to explicitly consent or had actually objected to the disclosure of their identities pursuant to the SABW Summons. Def.'s PFUF ¶ 6; Pl.'s Resp. to Def.'s PFUF ¶ 6; see also Def.'s Ex. 3 (a copy of the October 27, 2003 letter from SABW to Mr. Lindquist); Tr. 13-14 (stating that SABW advised the IRS and the DOJ that various unnamed taxpayers had engaged in transactions that were described in the SABW Summons). Although he was a participant in one

"A `John Doe' summons is, in essence, a direction to a third party to surrender information concerning taxpayers whose identity is currently unknown to the IRS." Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 313 n. 4 (citation & quotations omitted). John A. Lindquist, III, a trial attorney employed by the DOJ's Tax Division, secured authorization for service of an IRS "John Doe" summons to SABW. Lindquist Decl. ¶ 1-2. -1018

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of the described transactions, Mr. Tucker's identity was not among those revealed by SABW to the IRS in its October 27, 2003 letter.19 Def.'s PFUF ¶ 6; Pl.'s Resp. to Def.'s PFUF ¶ 6. On December 29, 2003, the IRS petitioned the Northern District of Illinois to enforce the SABW Summons. Def.'s PFUF ¶ 7; Pl.'s Resp. to Def.'s PFUF ¶ 7; Lindquist Decl. ¶ 7; Def.'s Ex. 4; SABW I, 2004 WL 816448, at *1. Pursuant to a January 12, 2004 order, the court ordered SABW to provide the government with copies of all letters it received from its clients, with client names redacted. Def.'s PFUF ¶ 9; Pl.'s Resp. to Def.'s PFUF ¶ 9. The government received multiple redacted letters from SABW, including two letters dated January 22, 2004, from Mr. Linguanti of Baker & McKenzie, who, as described above, represented John Does 1 and 2 in the Texas Litigation. Def.'s Ex. 6. Mr. Linguanti informed SABW that his clients continued to assert attorney-client privilege as to their identities. Id.; Def.'s PFUF ¶ 10; Pl.'s Resp. to Def.'s PFUF ¶ 10; Lindquist Decl. ¶ 10. On February 6, 2004, the Northern District of Illinois issued an order permitting anyone who objected to the disclosure of their identity to intervene in the summons enforcement proceeding. Def.'s PFUF ¶ 11; Pl.'s Resp. to Def.'s PFUF ¶ 11; Lindquist Decl. ¶ 11; Def.'s Ex. 7. As a result, Baker & McKenzie filed a Motion to Intervene and Motion for Protective Order ("Motion to Intervene") on February 26, 2004, on behalf of two clients identified as "Baker Doe 1" and "Baker Doe 2" (collectively "the Baker Does").20 Def.'s PFUF ¶ 12; Pl.'s Resp. to Def.'s PFUF ¶ 12; Lindquist Decl. ¶ 12; Def.'s Ex. 8; Tr. 14. On March 5, 2004, Mr. Lynam of Baker & McKenzie's Chicago office, in compliance with a March 5, 2004 order, sent to Mr. Lindquist redacted engagement letters between Brown & Wood and the Baker Does.21 Pl.'s Supp. PFUF ¶ 2; Def.'s Resp. to Pl.'s Supp. PFUF ¶ 2; Pl.'s Ex. J. The engagement letters, both dated December 26, 2000, stated that Brown & Wood would: [A]ct as special U.S. federal income tax counsel . . . in connection with certain investment transactions in which you have engaged involving the acquisition of an interest in a foreign corporation through an S corporation and your entering into

The parties agree that Mr. Tucker engaged Brown & Wood to perform services, but they disagree as to the nature of those services. Def.'s PFUF ¶ 5; Pl.'s Resp. to Def.'s PFUF ¶ 5.
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19

It was later determined that the Baker Does were Mr. Tucker and Mr. Hechler.

The parties' proposed findings of uncontroverted fact state that the court order was issued on March 4, 2004; however, a copy of the order found on the electronic case management system of the Northern District of Illinois reflects that the order was issued on March 5, 2004. -11-

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various digital foreign currency option trades, both in your individual capacity and through the foreign corporation. Pl.'s Ex. J at 3, 5. By letter dated March 9, 2004, government counsel Mr. Gibson advised Armando Gomez of the Washington, D.C. office of Skadden, Arps, Slate, Meagher & Flom ("Skadden"), KPMG's counsel in the DC Litigation, that the DOJ was "concerned that KPMG [had] not disclosed all the tax shelters it was involved in developing and/or promoting, as demanded in the summonses at issue in this case." Pl.'s Ex. K at 2. The letter further stated that the DOJ had come into possession of the December 26, 2000 engagement letters, which bore a fax banner reflecting that the documents were transmitted from KPMG's New York office on February 5, 2001. Id. at 5. Mr. Gibson requested that Mr. Gomez advise what role, if any, KPMG played in the transactions. Id. Between March 9, 2004, and March 30, 2004, Mr. Gibson and personnel at Skadden discussed KPMG's agreement to cooperate with the IRS by identifying all previous tax shelters and tax shelter participants. Declaration of Stuart D. Gibson ("Gibson Decl.") ¶ 4. By letter dated March 31, 2004, Robert S. Bennett of Skadden responded to Mr. Gibson, stating that "[a]s we have discussed, the John Doe plaintiffs in [the Texas Litigation] may have been the recipients of the engagement letters referenced in one of your letters to us dated March 9, 2004."22 Pl.'s Ex. L at 2. Mr. Bennett also welcomed the government's decision to intervene in the Texas Litigation because "KPMG has no interest in protecting the John Does' identities."23 Id. at 3. He further stated that the "John Doe plaintiffs in that matter may have been the recipients of the engagement letters" to which Mr. Gibson had referenced. Id.

However, Mr. Gibson states that his March 9, 2004 letter confirms his "recollection" that when he wrote the letter to Mr. Gomez, he was unaware whether the December 26, 2000 engagement letters "had anything to do with" the Baker Does. Gibson Decl. ¶ 4. Mr. Gibson further declares that Mr. Bennett's March 31, 2004 letter "indicates that [Mr. Bennett] was not entirely certain that the [December 26, 2000 engagement letters] related to the `John Doe plaintiffs' in the injunction case." Id. As noted previously, the cases in the various federal district courts overlapped as to timing. Indeed, during an April 1, 2004 hearing, Mr. Gibson advised the District Court for the District of Columbia that: "[T]here is a hearing in Chicago on a summons enforcement case [in the Northern District of Illinois] in which [the John Does in the Texas Litigation] are trying to withhold their names in that case. So they are fighting a multifront war and we hope either today or some time next week we'll be able to get those names." Pl.'s Supp. PFUF ¶ 5; Pl.'s Ex. M at 21-22. Defendant objects to this statement as irrelevant, and asserts that the summons enforcement with respect to KPMG is separate and apart from the issue of whether SABW's response to the summons served on it was finally resolved. Def.'s Resp. to Pl.'s Supp. PFUF ¶ 5. -1223

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The government opposed the Motion to Intervene filed by the Baker Does in the Illinois Litigation. United States' Response in Opposition to Intervention, Sidley Austin Brown & Wood, LLP, No. 03-C-9355 (N.D. Ill. Mar. 18, 2004); United States' Supplemental Memorandum in Opposition to Intervention, Sidley Austin Brown & Wood, LLP, No. 03-C-9355 (N.D. Ill. Apr. 13, 2004). However, on April 14, 2004, the Baker Does filed a Motion to Withdraw Motion to Intervene and Motion for Protective Order ("Motion to Withdraw"). Def.'s Ex. 9; Def.'s PFUF ¶ 13.24 The Motion to Withdraw informed the court that the Baker Does' identities had been disclosed to the government by an individual other than their counsel, SABW, and that with the Baker Does' identities public, there was no point in pursuing protection. Def.'s Ex. 9 at 15. As a result of the disclosure, counsel for the Baker Does instructed counsel for SABW to provide the clients' names to the government if SABW believed that the names were responsive to the SABW Summons. Id. at 15-16; Def.'s PFUF ¶ 14; Pl.'s Resp. to Def.'s PFUF ¶ 14. The Northern District of Illinois granted the Motion to Withdraw on April 15, 2004. Lindquist Decl. ¶ 15; Def.'s PFUF ¶ 9; Pl.'s Resp. to Def.'s PFUF ¶ 9. Upon withdrawal of the Baker Does' Motion to Intervene, government counsel Mr. Lindquist requested that counsel for SABW disclose the identities of the Baker Does, but SABW counsel responded that he would not comply without a court order or written consent from the Baker Does.25 Def.'s PFUF ¶ 16. Defendant represents that shortly thereafter, SABW counsel informed Mr. Lindquist that SABW had requested that counsel for the Baker Does provide SABW with written consent to disclose the summoned identities of the Baker Does to the IRS, but the Baker Does refused.26 Def.'s PFUF ¶ 17; Lindquist Decl. ¶ 17.

Plaintiff agrees that on April 14, 2004, Mr. Tucker, through counsel, filed an unopposed Motion to Withdraw Motion to Intervene and Motion for Protective Order. Pl.'s Resp. to Def.'s PFUF ¶ 13. However, plaintiff adds that Mr. Tucker sought to withdraw the Motion to Intervene and Motion for Protective Order because the government possessed the identifying information relating to Mr. Tucker that was requested by the SABW Summons. Id. Plaintiff asserts that it has no knowledge as to whether such a conversation occurred and, without being able to conduct discovery, cannot verify the correctness of the proposed finding. Pl.'s Resp. to Def.'s PFUF ¶ 16. However, plaintiff argues that this fact is not necessary to resolve the issue presented because it is established that, as of April 14, 2004, defendant possessed the information requested in the summons with respect to Mr. Tucker. Id. Thus, plaintiff contends that if the court is inclined to find that there is a question as to whether defendant possessed such information, the referenced conversation is one matter as to which plaintiff should be permitted to conduct discovery. Id. Again, plaintiff denies that such a request was made, and asserts that this fact is not necessary to resolve the issue presented because, as of April 14, 2004, defendant possessed the information requested in the SABW Summons with respect to Mr. Tucker. Pl.'s Resp. to Def.'s PFUF ¶ 17. Accordingly, plaintiff asserts that if the court is inclined to find that there is a -1326 25

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Forty-six of SABW's clients, collectively known as "the Does," were granted permission to intervene in the Illinois Litigation on April 15, 2004.27 SABW I, 2004 WL 816448, at *1, 10. The Does challenged the SABW Summons on the ground that it was ambiguous. United States v. Sidley Austin Brown & Wood, LLP, No. 03-C-9355, 2004 WL 905930, at *1 (N.D. Ill. Apr. 28, 2004) ("SABW II"). On April 28, 2004, the Northern District of Illinois ruled that the SABW Summons did not require SABW "impermissibly to draw legal conclusions regarding unduly vague terms in order to comply with the terms of the summons. The [Does] have failed to meet their heavy burden of showing the summons is unenforceable as written." SABW II, 2004 WL 905930, at *6. Thus, the Northern District of Illinois granted the government's petition to enforce the SABW Summons. Id.; see also Def.'s Ex. 10 (a copy of the judgment granting the government's petition to enforce the "John Doe" summons). On April 30, 2004, the Northern District of Illinois issued an order staying enforcement of the SABW Summons with respect to the intervening Does "for the period during which this proceeding remains pending, including all appeals, including the period until all appeals are disposed of, or until expiration of the period in which all appeals may be taken or a request for rehearing may be made."28 Lindquist Decl. ¶ 19; Def.'s Ex. 11 at 24-25. On June 29, 2004, after the expiration of the period for which an appeal of the Northern District of Illinois' April 28, 2004 order could be taken under Rule 26(a) of Federal Rules of Appellate Procedure, SABW, via e-mail, disclosed to government counsel what it represented was the "balance of the names and address[es] of the interveners in the John Doe action." Def.'s PFUF ¶ 20; Pl.'s Resp. to Def.'s PFUF ¶ 20; see also Def.'s Ex. 12 (a copy of the e-mail communication from SABW to Mr. Lindquist providing the balance of the names and addresses of intervenors in the Illinois Litigation). The list produced by SABW included the name "Keith Tucker" under the heading "Diversified - Spread Options." Def.'s PFUF ¶ 21. However, the information produced by SABW did not include Mr. Tucker's social security number, or the

question as to whether defendant possessed such information, the referenced request is one matter as to which plaintiff should be permitted to conduct discovery. Id. The Northern District of Illinois named the various "Does" who intervened by the firm representing them, and the Baker Does were not among those who intervened. SABW I, 2004 WL 816448, at *1 & n.1. Plaintiff agrees that on April 30, 2004, the Northern District of Illinois issued the referenced order; however, plaintiff asserts that such a fact is not necessary to resolve the issue presented. Pl.'s Resp. to Def.'s PFUF ¶ 19. Plaintiff further notes that the Fifth Circuit has found that a similar order issued in connection with this litigation, on which the referenced order was actually based, was invalid and could not operate to extend periods of limitation with respect to the assessment of federal taxes. Pl.'s Resp. to Def.'s PFUF ¶ 19 (citing Doe v. United States, 398 F.3d 686, 690 (5th Cir. 2005), rev'g John Doe 1 v. KPMG, LLP, No. 3:03-CV-2036-H, 2004 U.S. Dist. LEXIS 5592 (N.D. Tex. Apr. 2, 2004)). -1428 27

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names and Employment Identification Numbers for any participating entities including, but not limited to, Sligo and Epsolon.29 Id. Defendant asserts that at the time the list was produced, counsel for SABW, upon inquiry by government counsel, represented that the additional summoned material was not readily available because its New York offices had been destroyed by the September 11, 2001 terrorist attack. Id. ¶ 22. But see Pl.'s Resp. to Def.'s PFUF ¶ 22 (stating that plaintiff has no knowledge as to whether such an inquiry occurred and disagreeing that this statement is necessary to resolve the parties' motions). Upon demand by government counsel, SABW subsequently recovered the names of the taxpayer entities that participated in these transactions.30 Def.'s PFUF ¶ 22. On March 3, 2005, counsel for SABW hand-delivered to government counsel a supplemental production in response to the SABW Summons in which Sidley Austin, for the first time, identified the names of participating entities, including, but not limited to, Sligo and Epsolon.31 Def.'s PFUF ¶ 23. II. SUMMARY JUDGMENT STANDARD Under Rule 56(c) of the Rules of the Court of Federal Claims ("RCFC"), summary judgment is appropriate only when there is "no genuine issue as to any material fact" and "the moving party is entitled to judgment as a matter of law." RCFC 56 is patterned on Rule 56 of the Federal Rules of Civil Procedure ("FRCP") and is similar in language and effect.32 Summary

Plaintiff agrees that the referenced production contained the name Keith Tucker and the other information; however, plaintiff asserts that this fact is not necessary to resolve the issue presented because it is established that, as of April 14, 2004, defendant possessed the information requested in the summons with respect to Mr. Tucker (including his name, address, and social security number). Pl.'s Resp. to Def.'s PFUF ¶ 21; Pl.'s Resp. & Reply 15-17. Plaintiff states that it has no knowledge as to whether such an inquiry and related discussion occurred and, without being able to conduct discovery, cannot verify the correctness of the proposed finding. Pl.'s Resp. to Def.'s PFUF ¶ 22. However, plaintiff maintains that this fact is not necessary to resolve the issue presented because, as of April 14, 2004, defendant possessed the information requested in the SABW Summons with respect to Mr. Tucker. Id.; Pl.'s Resp. & Reply 15-17. Nevertheless, plaintiff asserts that if the court is inclined to find that there is a question as to whether defendant possessed such information, discovery is necessary. Pl.'s Resp. to Def.'s PFUF ¶ 22. Plaintiff agrees that the referenced production contained the names of Sligo and Epsolon, but argues that defendant already possessed such information. Pl.'s Resp. to Def.'s PFUF ¶ 23. In general, the rules of this court are patterned on the FRCP. Therefore, precedent under the FRCP is relevant to interpreting the rules of this court, including RCFC 56. See Jay v. -1532 31 30

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judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." RCFC 56(c). RCFC 56(c) provides that the moving party bears the burden of demonstrating that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Creppel v. United States, 41 F.3d 627, 630-31 (Fed. Cir. 1994); Meyers v. Asics Corp., 974 F.2d 1304, 1306 (Fed. Cir. 1992). "[D]isputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment will not be granted if "the dispute about a material fact is `genuine,' that is, if the evidence is such that a reasonable [trier of fact] could return a verdict for the nonmoving party." Id. When reaching a summary judgment determination, the judge's function is not to weigh the evidence, but to determine whether there is a genuine issue for trial. Id. at 249. The judge is not required to make findings of fact, but instead, must determine whether there "are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250. When the record could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial, and the motion must be granted. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "On summary judgment the inferences to be drawn from the underlying facts contained in such materials must be viewed in the light most favorable to the party opposing the motion." United States v. Diebold, Inc., 369 U.S. 654, 655 (1962); see also Litton Indus. Prods., Inc. v. Solid State Sys. Corp., 755 F.2d 158, 163 (Fed. Cir. 1985); H.F. Allen Orchards v. United States, 749 F.2d 1571, 1574 (Fed. Cir. 1984). The initial burden on the party moving for summary judgment to produce evidence showing the absence of a genuine issue of material fact may be discharged if the moving party can demonstrate that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party makes such a showing, the burden shifts to the nonmoving party to demonstrate that a genuine factual dispute exists by presenting evidence that establishes the existence of an element of its case. Id. at 322. "`Cross-motions are no more than a claim by each party that it alone is entitled to summary judgment.'" Cross Med. Prods., Inc. v. Medtronic, 424 F.3d 1293, 1302 (Fed. Cir. 2005) (quoting Bubble Room, Inc. v. United States, 159 F.3d 553, 561 (Fed. Cir. 1998)). However, if the court rejects one claim, this determination does not mean that "`the other is necessarily justified.'" B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 593 (6th Cir. 2001)

Sec'y of HHS, 998 F.2d 979, 982 (Fed. Cir. 1993); Imperial Van Lines Int'l, Inc. v. United States, 821 F.2d 634, 637 (Fed. Cir. 1987). -16-

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(citation omitted); see also Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000); Allstate Ins. Co. v. Occidental Int'l, Inc., 140 F.3d 1, 2 (1st Cir. 1998). The fact that both parties have moved for summary judgment does not relieve the trial court of its responsibility to determine the appropriateness of summary disposition. See Prineville Sawmill Co. v. United States, 859 F.2d 905, 911 (Fed. Cir. 1988) ("[T]his court determines for itself whether the standards for summary judgment have been met."), cited in Stratos Mobile Networks USA, LLC v. United States, 213 F.3d 1375, 1379 (Fed. Cir. 2000). When considering crossmotions for summary judgment, the court may not grant summary judgment in favor of either party if disputes remain concerning material facts. Mingus Constructors Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987). "Rather, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Id. Denial of both motions is warranted if genuine disputes exist over material facts. Id. A fact is material if it will make a difference in the outcome of a case under the governing law. Anderson, 477 U.S. at 248. In the present case, both parties believe that there are no material facts in dispute as to the timeline of events. Def.'s Reply 16; Plaintiff's Supplemental Memorandum ("Pl.'s Supp. Mem.") 2. The parties have filed extensive proposed findings of fact and cross-motions for summary judgment with supporting briefs and exhibits, and participated in an oral argument on their cross-motions. The court agrees with the parties that there are no material facts in dispute, and no additional facts are necessary to resolve the issues presented. Thus, consideration of the parties' cross-motions for summary judgment is appropriate. III. PARTNERSHIPS AND THE RELEVANT STATUTE OF LIMITATIONS PROVISIONS This case involves the statute of limitations provisions of the Code, the interplay between the limitations periods that apply to partnership proceedings and those that apply to individuals, and whether the applicable limitations period was suspended. A. Partnerships Partnerships are not subject to federal income taxes, although they must file informational returns. 26 U.S.C. § 701; Kaplan v. United States, 133 F.3d 469, 471 (7th Cir. 1998); Grapevine Imps. Ltd. v. United States, 71 Fed. Cl. 324, 326 (2006). Instead, under section 702 of the Code, items of partnership income, deductions, credits, and losses are allocated among the individual partners to be reported on their respective returns. See United States v. Basye, 410 U.S. 441, 448 (1973). "[I]n response to the special problems posed by the taxation of partnership activities," Kaplan, 133 F.3d at 471, Congress enacted the Uniform Partnership Procedures of the Tax Equity and Fiscal Responsibility Act of 1982, 26 U.S.C. §§ 6221-6234 (2000) ("TEFRA"). TEFRA was enacted to "`improve the auditing and adjustments of income tax items attributable to partnerships.'" Weiner v. United States, 389 F.3d 152, 154 (5th Cir. 2004) (quoting Alexander v. United States, 44 F.3d 328, 330 (5th Cir. 1995)), cert. denied, 544 U.S. 1050 -17-

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(2005). It "created a single unified procedure for determining the tax treatment of all partnership items at the partnership level, rather than separately at the partner level." In re Crowell, 305 F.3d 474, 478 (6th Cir. 2002). Pursuant to TEFRA, partnerships are required to file informational returns reflecting the distributive shares of income, gains, deductions, and credits attributable to their partners, while individual partners are required to report their pro rata share of tax on their individual income tax returns. See 26 U.S.C. § 701; Weiner, 389 F.3d at 154; Kaplan, 133 F.3d at 471. Under TEFRA, the threshold determination of whether an item is a "partnership item" or a "nonpartnership item" governs the application of the TEFRA procedures.33 The treatment of partnership items is determined at the partnership level. 26 U.S.C. §§ 6211(c), 6221, 6230(a)(1). The treatment of nonpartnership items, id. § 6231(a)(4), is resolved at the individual partner level, using, inter alia, the normal deficiency procedures of the Code. Id. §§ 6212(a), 6230(a)(3); see Crnkovich v. United States, 202 F.3d 1325, 1328 (Fed. Cir. 2000) (per curiam). If the IRS decides to adjust any partnership items reflected on the partnership's tax return, the IRS must notify the individual partners of the adjustment through an FPAA. 26 U.S.C. §§ 6223(a)(2), (d)(2), 6225(a); Kaplan, 133 F.3d at 471. Various provisions of the Code define the statute of limitations on assessments made with respect to FPAA adjustments and the tolling of those periods. See, e.g., 26 U.S.C. §§ 6229, 6501. For ninety days following the issuance of an FPAA, the tax matters partner has the exclusive right to file a petition for readjustment of the partnership items in the Tax Court, the Court of Federal Claims, or a United States District Court. Id. § 6226(a); see also Monahan v. Comm'r, 321 F.3d 1063, 1065 (11th Cir. 2003). After that period expires, other partners are given sixty days to file a petition for readjustment. 26 U.S.C. § 6226(b)(1). If a partner's tax liability might be affected by the outcome of the litigation of partnership items, that partner may participate in the proceeding. Id. § 6224(a), (c). The IRS may assess additional tax liability against individual partners within one year of the conclusion of the partnership's tax determination. Id. § 6229(d). The partner may contest the tax liability by paying the assessment and filing a refund action in this court. Id. § 6226(e). Further, "[s]ection 6226(c) binds partners to the result obtained by a legal challenge brought by one partner, thereby preventing numerous lawsuits concerning the same factual and legal issues." Kaplan, 133 F.3d at 471. If a partner settles his partnership tax liability with the IRS, the partner can no longer participate in the partnership level litigation, and the partner is bound instead by the terms of the settlement agreement. 26 U.S.C. §§ 6224(c)(1), 6228(a)(4). In addition, partnership items convert to nonpartnership items when the IRS enters into a settlement agreement with the partner with respect to such items. Id. § 6231(b)(1)(C).

A "partnership item" is "any item required to be taken into account for the partnership's taxable year under any provision of subtitle A to the extent . . . such item is more appropriately determined at the partnership level than at the partner level." 26 U.S.C. § 6231(a)(3). -18-

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B. Statute of Limitations Provisions Several provisions of the Code that affect the limitations period are implicated in the instant case. First, section 6501(a) sets forth a general period of limitations of three years within which the IRS must assess taxes. Id. § 6501(a). However, the section 6501(a) period is suspended if a party who is served with a summons fails to timely comply with the summons. Id. § 7609(e)(2). Specifically, section 7609(e)(2) provides that the section 6501(a) period shall be suspended beginning on the date that is six months after the service of the summons and until compliance with the summons is complete. Id. Finally, section 6229(a) provides a statute of limitations period for assessing tax attributable to a partnership item. Id. § 6229(a). The court will discuss each of these provisions in greater detail below. IV. DISCUSSION The three issues before this court are: (1) whether section 6229(a) operates as a possible extension of the section 6501(a) statute of limitations period, Pl.'s Resp. & Reply 17-21, Def.'s Reply 6-8, Pl.'s Supp. Mem. 2; (2) whether the statute of limitations period set forth in section 6501(a) was suspended by section 7609(e)(2) until SABW complied with the SABW Summons, Pl.'s Resp. & Reply 13-17, Def.'s Reply 10-19, Pl.'s Supp. Mem. 2; and (3) whether issuing the June 17, 2005 FPAA suspended the section 6501(a) statute of limitations period, Pl.'s Resp. & Reply 21-24, Def.'s Reply 8-10, Pl.'s Supp. Mem. 2. The parties agree that the period of limitations on assessment of tax under 26 U.S.C. § 6501 would have expired on April 15, 2005, but for any applicable exceptions. Tr. 9. However, defendant cross-moves for partial summary judgment on the ground that the FPAA was issued at a time when the section 6501(a) statute of limitations period for assessing taxes attributable to partnership items was open for Mr. Tucker's 2001 taxable year by reason of the suspension of the statute of limitations in section 7609(e)(2) due to a pending IRS summons. A. Did Section 6229(a) Operate to Extend the Limitations Period Set Forth in Section 6501(a)? 1. The Code The parties' first area of disagreement is two-fold: (1) whether the limitations provision of section 6229(a) or section 6501(a) applies, and (2) whether section 6229(a) can extend the statute of limitations set forth in section 6501(a). Section 6501 sets forth the general statute of limitations for assessing tax on items reported on a tax return. Section 6501(a) provides: General rule.--Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in -19-

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court without assessment for the collection of such tax shall be begun after the expiration of such period. For purposes of this chapter, the term "return" means the return required to be filed by the taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit). 26 U.S.C. § 6501(a). In addition to this general provision, the Code specifically provides a statute of limitations for partnership items. Section 6229(a), Period of Limitations for Making Assessments, provides in relevant part: General rule.--Except as otherwise provided in this section, the period for assessing any tax imposed by subtitle A with respect to any person which is attributable to any partnership item (or affected item) for a partnership taxable year shall not expire before the date which is 3 years after the later of-(1) the date on which the partnership return for such taxable year was filed, or (2) the last day for filing such return for such year (determined without regard to extensions. Id. § 6229(a).34 2. Case Law Interpreting the Interplay of Sections 6229(a) and 6501(a) a. AD Global Fund, LLC ex. rel. North Hills Holding, Inc. v. United States In AD Global Fund, LLC ex rel. North Hills Holding, Inc. v. United States, 67 Fed. Cl. 657 (2005) ("AD Global I"), the Court of Federal Claims ruled that the issuance of an FPAA challenging the reporting of partnership items suspended the three-year statute of limitations on income tax assessments under section 6501(a). 67 Fed. Cl. at 694. AD Global Fund's 1999 tax year partnership return was deemed filed on April 17, 2000. Id. at 659. In May 2003, the IRS issued a Notice of Beginning of Partnership Administrative Proceeding to AD Global Fund. Id. On October 9, 2003, the IRS issued an FPAA setting forth proposed adjustments and accuracyrelated penalties to the partnership items reported on the partnership return. Id. On March 8, 2004, AD Global Fund filed a complaint for readjustment of partnership items pursuant to section 6226. Id. Subsequently, plaintiff sought summary judgment, arguing that the IRS failed to assess tax attributable to partnership items within the three-year period mandated by section

Although there are exceptions to section 6229(a), such as those found in section 6229(b), which provides for the extension of the limitations period by agreement, and section 6229(c), which sets no statute of limitations in cases of fraud, neither exception applies here. -20-

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6229(a). Id. at 660. In response, defendant countered that section 6229(a) sets forth a minimum period for the assessment of tax; thus, it was proper for the IRS to assess tax attributable to partnership items within the section 6501(a) period after the 6229(a) period expired. Id. Further, defendant asserted that the issuance of the FPAA suspended the statute of limitations period set forth in section 6501(a). Id. After a detailed review of case law and legislative history, the Court of Federal Claims denied AD Global Fund's motion, holding that section 6229(a) provided a minimum period for assessments for partnership items that may extend the period set forth in section 6501(a).35 Id. at 694. On November 8, 2005, the Court of Federal Claims certified its ruling for interlocutory appeal. AD Global Fund, LLC ex rel. North Hills Holding, Inc. v. United States, 68 Fed. Cl. 663 (2005). On March 2, 2007, the Federal Circuit affirmed, holding that section 6229(a) "does not provide a separate statute of limitations, but simply creates a minimum period that may extend the regular statute of limitations for partnership items." AD Global Fund, LLC ex rel. North Hills Holding, Inc. v. United States, No. 06-5046, 2007 WL 624366, at *2 (Fed. Cir. Mar. 2, 2007) ("AD Global II"). The Federal Circuit based its ruling, in part, on the fact that section 6229(a) does not contain mandatory words establishing a time within which assessments must be made. AD Global II, 2007 WL 624366, at *3; see also Crnkovich, 202 F.3d at 1335 n.7; Grapevine, 71 Fed. Cl. at 329-30. Thus, the Federal Circuit reasoned, "[b]ecause § 6229 does not state an end date or otherwise set forth a maximum period, it does not, on its face, create a statute of limitations." AD Global II, 2007 WL 624366, at *3. The Federal Circuit also held that its "interpretation may extend the regular statute of limitations in § 6501(a) for assessments to individual partners . . . ." Id. b. Grapevine Imports Ltd. v. United States The Court of Federal Claims in Grapevine concurred with a majority of the analysis set forth in AD Global I regarding the interplay of sections 6229 and 6501; thus, the court adopted AD Global I's holding. 71 Fed. Cl. at 328. Grapevine concerned the April 19, 2000 filing of plaintiff Grapevine Imports, Ltd.'s ("Grapevine") partnership return for tax year 1999, which reflected a net short-term loss of $21,884. Id. at 326. On or before April 15, 2000, the husband and wife partners who formed Grapevine, Joseph J. Tigue and Virginia B. Tigue (collectively "the Tigues"), jointly filed their 1999 individual tax return, which included transactions In arriving at its conclusion, the Court of Federal Claims thoroughly analyzed the case law, as will be discussed below. 67 Fed. Cl. at 663-71. When discussing the case law, the court noted that the cases it relied upon were persuasive, not binding, authority since none had been decided by the United States Court of Appeals for the Federal Circuit ("Federal Circuit") or the United States Supreme Court ("Supreme Court"). Id. at 663. Thus, for additional guidance, the court turned to the plain meaning of section 6229. Id. at 671-76. However, the court concluded that because two readings of section 6229(a) were possible, the "plain meaning [could not] be determined by reference to the text alone." Id. at 676. Thus, in conjunction with case law, the court weighed legislative history to reach its conclusion. Id. at 676-91. -2135

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involving the partnership and reflected a total loss of $973,087. Id. The Tigues carried this loss forward to future tax years, in addition to a $1,127,481 net operating loss carried forward from 1998. Id. On August 17, 2001, the Tigues jointly filed their 2000 individual tax return in which the 1998 net operating loss had the effect of eliminating their taxable income of $730,161. Id. On June 19, 2003, the IRS issued a John Doe summons to the Tigues' tax consultants, Jenkens & Gilchrist ("Jenkens"), but because Jenkens refused to comply with the summons, the government filed a summons enforcement action in the Northern District of Illinois. Id. On May 14, 2004, the Northern District of Illinois directed Jenkens to comply with the summons within three days, which Jenkens did on May 17, 2004. Id. On December 17, 2004, the IRS issued an FPAA to Grapevine's tax matters partner, T-Tech, adjusting the partners' basis in Grapevine by $10,000,000 for the 1999 tax year. Id. On March 8, 2005, Joseph Tigue, the sole owner of TTech, made deposits of $1,594,205 and $221,170 for tax years 1999 and 2000, respectively, pursuant to section 6226(e), in anticipation of filing a refund act