Free Memorandum - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS GRAPEVINE IMPORTS, LTD., a Texas Limited Partnership, T-TECH, INC., a Texas Corporation as Tax Matters Partner Plaintiffs, v. United States of America, Defendant. § § § § § § § § § § § § §

Case No. 05-296T Judge Francis M. Allegra

MEMORANDUM IN SUPPORT OF PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

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TABLE OF CONTENTS

TABLE OF CONTENTS .............................................................................................................. i TABLE OF AUTHORITIES ...................................................................................................... vi I. STATEMENT OF CASE ..................................................................................................2 A. Because Section 6229(a) Provides the Exclusive Limitations Period for Partnership Items, the Statute of Limitations Bars All Adjustments......................................................................................................3 Even If the IRS's View of Section 6229(a) as a Minimum Period Is Correct, Any Increase to the Tax Liability of Grapevine's Partners for the 1999 Tax Year Is Nevertheless Barred by the Three-Year Limitations Period Set Forth in Section 6501(a). ......................................................................................................7 Even If the Service's View of Section 6229(a) as a Minimum Period Is Correct, Any Assessment of Tax for the 2000 Tax Year Is Barred by the Statute of Limitations Because the Period Under Section 6501 Was Not Suspended by the Issuance of the FPAA.............................................................................................7 The Government's Purported Adjustment to the Net Operating Loss Deduction for the 2000 Tax Year Does Not Provide a Basis for Circumventing the Statute of Limitations Otherwise Applicable to Partnership Items. .......................................................8

B.

C.

D.

II. III. IV. V.

QUESTIONS PRESENTED .............................................................................................8 STANDARD OF REVIEW ...............................................................................................9 STATEMENT OF MATERIAL FACTS.........................................................................9 ARGUMENTS AND AUTHORITIES...........................................................................11 A. According to Supreme Court Precedent, a Statute Must Be Construed in a Natural, Direct Manner Without Altering the Statute's Plain Language.....................................................................................11 1. 2. Gould and Its Predecessors Refuse to Look Beyond the Clear Language of a Statute. .............................................................................12 Badaracco and its Predecessors Require a Clear Intention to Waive a Sovereign's Right to Collect Taxes, but After Such an Intention Is Found, Hold That a Statute Should be Interpreted According to Its Most Natural Reading.................................................14

B.

Section 6229(a) Is the Exclusive Limitations Period Applicable Partnership Level Adjustments. .........................................................................24 1. Applicable Rules of Statutory Construction..........................................26 i

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C.

Reading Section 6229 as a Whole in a Manner Consistent with Rules of Construction Makes Clear that Congress Intended the Three-Year Limitations Period in Section 6229(a) to Provide the Exclusive Limitations Period for Partnership-Level Adjustments..........................................................................................................28 a. b. c. d. The Title of Section 6229 Denotes a "Period of Limitations" ­ Not a Minimum Safe Harbor. ............................28 The First Seven Words Define Its Scope. ..................................29 "Shall Not Expire Before" Is Explained Within Section 6229................................................................................................30 Section 6229(b)(3) Can Only Be Given Meaning if Section 6229(a) Is Construed to Provide an Exclusive Limitations Period; the Government's Argument Renders Section 6229(b)(3) Superfluous....................................31 Other Portions of Section 6229 Refer to the Period "Specified" or "Described" in Subsection (a) of Section 6229, Which Confirms the Applicable Scope of that Limitations Period. ......................................................................36 Separate Exceptions Are Needed Because the Two Limitations Statutes Are Separate. ............................................37 Contrary to the IRS's Current Contentions, Congress Confirmed in Section 6229(d), (e), (f), and (h) that the Three-Year Partnership Period in 6229(a) Both "Runs" and "Expires." ..............................................................................37 Section 6229(b)(2)(B), Which Permits the Tax Matters Partner to Extend the Limitations Period for All Partners, Can Only Be Reconciled With Section 6229(a) When Section 6229(a) Is Properly Construed as an Exclusive Limitations Period for Partnership Items. ...............38

e.

f. g.

h.

2.

Read as Part of TEFRA, Section 6229 Again Conveys the Comprehensive, Controlling "Period Of Limitations ... Attributable to Partnership Items.".......................................................41 a. Construing Section 6229(a) as the Exclusive Limitations Period Creates Parity Between the Limitations Period for Making Assessments and the Limitations Period for Filing Refund Claims in Section 6227. .......................................41 Language in Section 6228 Confirms That Section 6229(a) Provides the Limitations Period Applicable to Partnership Items.........................................................................42

b.

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c.

Language in Section 6503(a)(1) Also Confirms That Section 6229(a) Provides an Independent and Parallel Limitations Period Applicable to Partnership Items................43 Taxpayers' Interpretation Is Also More Consistent With Cross-References Provided in Section 6511 and Section 6504. .................................................................................43

d.

3.

Several Authorities Have All Recognized Section 6229 as the Exclusive Limitations Period for Partnership-Level Adjustments..............................................................................................44 a. Congress' Understanding Regarding the Effect and Significance of Section 6229 at the Time of Enactment Is Particularly Significant in Construing Section 6229(a) in This Case, Because Its Understanding Was Based in Part on Representations Made by the IRS.................45 TEFRA Was Designed to Remedy Problems Associated With Conducting Partner-Level Audits Under PreTEFRA Rules. ..............................................................................45 The History of Section 6229(a) Confirms its Exclusive Nature............................................................................................46 The Joint Committee Also Construed Section 6229(a) as the Limitations Period for Partnership Items and Provides Compelling Evidence of Congressional Intent. .........52 Until Rhone-Poulenc, the Judiciary Consistently Viewed Section 6229(a) as Providing the Exclusive Limitations Period for Partnership Items. .....................................................57 In Rhone-Poulenc, the Internal Revenue Service Reversed Its Position Regarding Section 6229(a) and Laughed All the Way to the Bank. .............................................59

b.

c. d.

e.

f.

4.

The Government's Interpretation Frustrates TEFRA's Purpose to Treat Taxpayers Consistently and Avoid Duplicative Proceedings. .........................................................................61 a. b. The Government's Interpretation of Section 6229(a) Fails to Promote Consistency......................................................61 The Government's Interpretation of Section 6229(a) Fails to Remedy the Duplication of Administrative and Judicial Resources........................................................................62

5.

Numerous Anomalous and Inconsistent Results Develop from the Government's Interpretation, Which Prove That Congress Could Not Have Intended Section 6229(a) to be Subordinate to Section 6501 With Respect to Partnership Items..................................63

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a.

The Government's Position Increases the Risk that FPAAs Will Be Mailed to the Wrong Address, Thereby Increasing the Chance of Waiving the Statute of Limitations Defense. ....................................................................63 If the Government's Interpretation Is Correct, Congress Failed to Provide a Method for Asserting the Statute of Limitations in the TEFRA Provisions as Originally Enacted in 1982, Requiring Partners to Fully Litigate the Merits of a Case Notwithstanding Expiration of the Statute of Limitations. ...................................64

b.

6. D.

The Government's Interpretation Frustrates the Purposes for the Statute of Limitations........................................................................68

Even If the Service's View of Section 6229(a) as a Minimum Period Is Correct, Any Increase to the Tax Liability of Grapevine Partners for the 1999 Tax Year Is Nevertheless Barred by the Three-Year Limitations Period in Section 6501(a)...................................................................................................................71 1. Any Increase in the Federal Income Tax Liability of the Tigues' 1999 Tax Year Is Barred by the Three-Year Limitations Period Set Forth in Code Section 6501(a) Because the FPAA Was Issued More Than Three Years After the Tigues Filed Their 1999 Form 1040. ......................................................71

E.

Even if the IRS's View of Section 6229(a) as a Minimum Period is Correct, Any Assessment of Tax for the 2000 Tax Year Is Barred by the Statute of Limitations Because the Statute of Limitations Period Under Section 6501 Was Not Suspended With the Issuance of an FPAA. ......................................................72 1. The Plain Meaning of Sections of 6229(d) And 6503(a) Reveals That The Government's Construction of Section 6229(a) Is Flawed And Produces A Gaping Hole In The Statutory Scheme. .....................................................................................................73 a. b. c. Section 6229(d) Only Suspends the Period "Specified" in Section 6229(a). ........................................................................73 Only Statutory Notices of Deficiency Suspend the Section 6501 Period......................................................................73 The Tax Court's "Strict Construction" of Section 6229(d) Amounts to Reconstruction and Oddly Relies on Supreme Court Authority in Which the Government Argued, and the Supreme Court Agreed, That Congress Has Had No Problem Unambiguously Suspending Section 6501. .................................................................................75

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2.

The Court in AD Global Agreed That the Period Specified in Section 6229(a) for Purposes of the Suspension Provision in Section 6229(d) "More Likely" Refers to the Three-Year Period in Section 6229(a) and Not to the Three-Year Period in Section 6501. .............................................................................................77 a. In This Case, The Government Issued No Statutory Notice of Deficiency (Not Even an Invalid Notice of Deficiency) To Suspend The Section 6501 Limitations Period. ...........................................................................................78

3.

The Existence of a Net Operating Loss Does Not Provide the Service with Carte Blanche For Circumventing the Limitations Period Set Forth In Section 6229............................................................80

VI.

CONCLUSION ................................................................................................................83

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TABLE OF AUTHORITIES CASES AD Global Fund, LLC. v. Commissioner, 2005 WL 2271722 (Ct. Fed. Cl. Sept. 16, 2005) .................................................................................................. passim Alexander v. United States, 44 F.3d 328 (5th Cir. 1995).........................................................25, 61 American Net and Twine Co. v. Worthington, 141 U.S. 468 (1891).......................................................................................................................................12, 13 Andantech L.L.C. v. Commissioner, 331 F.3d 972 (D.C. Cir. 2003) ...............................................................................................................................................6 Anderson v. United States (In re Anderson), 62 F.3d 1428, No. 94-5165, 1995 WL 481196 (10th Cir. Aug. 8, 1995) (unpublished table decision) ............................................................................................................5 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ...................................................................9 Atkins v. United States, 439 F.2d 175 (Ct. Cl. 1971).....................................................................28 Bailiss v. Sec'y of Dept. of Health & Human Servs., 37 Fed. Cl. 64 (1996) ..................................................................................................................................27 Badaracco v. Commissioner, 464 U.S. 386 (1984) ............................................................... passim Barbados #7 Ltd. v. Commissioner, 92 T.C. 804 (1989) ...............................................................21 Barenholtzer v. United States, 784 F.2d 375 (Fed.Cir. 1986) .......................................................81 Bowers v. New York & Albany Lighterase Co., 273 U.S. 346 (1927).................................................................................................................................15, 16, 22 Boyd v. Commissioner, 101 T.C. 365 (1993).............................................................................4, 59 Brown v. Sec'y, Dept. of Health & Human Servs., 920 F.2d 918 (Fed. Cir. 1990).......................................................................................................................27 Callaway v. Commissioner, 231 F.3d 106 (2d Cir. 2000) ..................................................... passim Cambridge Research & Dev. Group v. Commissioner, 97 T.C. 287 (1991)..........................................................................................................................4, 58 Cannon v. Univ. of Chicago, 941 U.S. 677 (1979) .......................................................................28

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CC & F Western Operations L.P. v. Commissioner, 273 F.3d 402 (1st Cir. 2001) ...........................................................................................................................4 Chimblo v. Commissioner, 177 F.3d 119 (2d Cir. 1999) ..............................................................40 Clary v. United States, 333 F.3d 1345 (Fed. Cir. 2003) ................................................................28 Colony, Inc. v. Commissioner, 357 U.S. 28 (1958). ..........................................................18, 19, 20 Crandon v. United States, 494 U.S. 152 (1990) ...........................................................................28 Crawford v. United States, 376 F.2d 266 (Ct. Cl. 1967) ...............................................................27 Croggon v. United States, 91 Ct. Cl. 35, No. 43024, 1940 WL 4080 (Mar. 4, 1940) ................................................................................................................27 Davis v. O'Hara, 266 U.S. 314 (1924) ..........................................................................................12 Edmond v. United States, 117 S. Ct. 1573 (1997) .........................................................................27 Eidman v. Martinez, 184 U.S. 580 (1902) ...............................................................................13, 17 E. I. DuPont de Nemours & Co. v. Davis, 264 U.S. 456 (1924).................................................................................................................................15, 22, 23 Elec. Sys. Assoc., Inc. v. United States, 895 F.2d 1398 (Fed. Cir. 1990) .......................................................................................................................................27 Exxon Corp. v. Commissioner, 102 T.C. 721 (1994).....................................................................53 Federal Nat'l. Mortgage Assoc., v. United States 379 F.3d 1303 (2004)..............................................................................................................................55, 56 Fed. Power Commissioner v. Memphis Light, Gas & Water Div., 411 U.S. 458 (1973) ........................................................................................................53, 57 Fox v. United States, 96-2 U.S. 1996 WL 523731, at *6 (E.D. Cal. 1996) .............................................................................................................................64 GAF Corp. and Subsidiaries v. Commissioner, 114 T.C. 519 (2000).............................................................................................................................................78 Giesler v. United States, 232 F.3d 864 (Fed. Cir. 2000) .................................................................9 Gould v. Gould, 245 U.S. 151 (1917) ......................................................................................11, 14 HCSC-Laundry v. United States, 450 U.S. 1 (1981) .....................................................................27 Hudson Distrib., Inc. v. Eli Lilly & Co., 377 U.S. 386 (1964) ......................................................28

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Jeffers v. United States, 556 F.2d 986 (Ct. Cl. 1977) ....................................................................27 Jones v. United States, 526 U.S. 227, 238 (1999) .........................................................................56 Kaplan v. United States, 133 F.3d 469 (7th Cir. 1998) ...........................................................24, 61 Last v. United States, 37 Fed. Cl. 1 (1996) ....................................................................................69 Lindahl v. Office of Pers. Mgmt., 470 U.S. 768 (1985) .................................................................45 Lucia v. United States, 474 F.2d 565 (1973) ................................................................................23 Lumenetics v. Commissioner, T.C.M. 1992-630 .......................................................................4, 59 Madison Recycling Assocs. v. Commissioner, 295 F.3d 280 (2d Cir. 2002)...................................................................................................................................5 Maxwell v. Commissioner, 87 T.C. 783 (1986) ...............................................................................5 Med. & Bus. Facilities, Ltd. v. Commissioner, 60 F.3d 207 (5th Cir. 1995)............................................................................................................................4, 58 Monetary II L.P. v. Commissioner, 47 F.3d 342 (9th Cir. 1995) ..........................................................................................................................................4, 58 Monahan v. Commissioner, 321 F.3d 1063 (11th Cir. 2003) ....................................................4, 58 NLRB v. Lion Oil Co., 352 U.S. 282 (1957) ............................................................................27, 37 Olson v. United States, 172 F.3d 1311 (Fed. Cir. 1999)..........................................................25, 62 Pacific Coastal Co. v. McLaughlin, 61 F.2d 73 (9th Cir. 1932) aff'd. 288 U.S. 426 (1933)...................................................................................................22 Parker N. Am. Corp. v. Resolution Trust Corp.(In re Parker), 24 F.3d 1145 (9th Cir. 1994) .........................................................................................................27 Phoenix Elecs., Inc. v. United States, 164 F.Supp. 614 (D. Mass. 1958)....................................................................................................................................81 In re Portola Packaging, Inc., I110 F.3d 786 (Fed. Civ. 1997) ..............................................................................................................................................27 Principal Mut. Life Ins. Co. v. United States, 295 F.3d 1241, 1247 (2002)....................................................................................................................................56 Rhone-Poulenc Surfactants & Specialties L.P. v. Commissioner, 114 T.C. 533 (2000), appeal dismissed and rem'd, 249 F.3d 175 (3d Cir. 2001). ...................................................................................... passim viii

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Roberts v. Commissioner, 94 T.C. 853 (1990) ...................................................................5, 25, 80 Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246 (Fed. Cir. 2000) .......................................................................................................................................28 Rothensies v. Elec. Storage Battery Co., 329 U.S. 296 (1946)..........................................69, 70, 71 Shelden v. United States, 7 F.3d 1022 (Fed. Cir. 1993) ..................................................................9 Slovacek v. United States, 36 Fed. Cl. 250 (1996).........................................................4, 25, 62, 66 Sullivan v. United States, 46 Fed. Cl. 480 (2000)..........................................................................69 The Colony, Inc. v. Commissioner, 357 U.S. 28 (1958) ..........................................................18, 19 The Falconwood Corp. v. United States, 2005 W.L. 2106570......................................................14 Thiess v. Witt, 100 F.3d 915 (Fed. Cir. 1996)................................................................................27 Todd v. Commissioner, 862 F.2d 540 (5th Cir. 1988) ...................................................................53 Transpac Drilling Venture, 1983-63 v. United States, 16 F.3d 383, 387 (Fed. Cir. 1994).......................................................................................................62 Triangle Investors L.P. v. Commissioner, 95 T.C. 610, 61516 (1990)........................................................................................................................................64 Trost v. Commissioner, 95 T.C. 560, 563 (1990) ..........................................................................65 TRW, Inc. v. Andrews, 534 U.S. 19 (2001) .................................................................27, 33, 35, 44 United States v. Cannelton Sewer Pipe Co., 364 U.S. 76 (1960).............................................................................................................................................53 United States v. Giles, 300 U.S. 41 (1937) ....................................................................................37 United States v. Smith, 499 U.S. 160 (1991) .................................................................................28 Ventas, Inc. v. United States, 381 F.3d 1156 (Fed. Cir. 2004) ......................................................28 Warner-Lamber Co. v. Teva Pharms. USA, Inc., 477 U.S. 242 (1986) .......................................................................................................................................9 White v. Aronson, 302 U.S. 16 (1937) ...........................................................................................12 Williams v. United States, 165 F.3d 30, No. 97-5280, 1998 WL 537579 (6th Cir. Aug. 7, 1998) (unpublished table decision) ......................................................................4

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Wind Energy Tech. Assocs. v. Commissioner, 94 T.C. 787 (1990)...............................................................................................................................................5 STATUTES 26 U.S.C. § 172..............................................................................................................................70 26 U.S.C. § 469..............................................................................................................................70 26 U.S.C. § 1363............................................................................................................................72 26 U.S.C. § 1366............................................................................................................................72 26 U.S.C. § 6221..............................................................................................................................3 26 U.S.C. § 6222........................................................................................................................3, 26 26 U.S.C. § 6223............................................................................................................3, 26, 63, 65 26 U.S.C. § 6224..............................................................................................................................3 26 U.S.C. § 6225..............................................................................................................................3 26 U.S.C. § 6226.................................................................................................................... passim 26 U.S.C. § 6227..................................................................................................................3, 26, 41 26 U.S.C. § 6228............................................................................................................3, 41, 42, 43 26 U.S.C. § 6229.................................................................................................................... passim 26 U.S.C. § 6230.................................................................................................................... passim 26 U.S.C. § 6231.................................................................................................................... passim 26 U.S.C. § 6232..............................................................................................................................3 26 U.S.C. § 6233..............................................................................................................................3 26 U.S.C. § 6234..............................................................................................................................3 26 U.S.C. § 6501.................................................................................................................... passim 26 U.S.C. § 6502............................................................................................................................43 26 U.S.C. § 6503.................................................................................................................... passim 26 U.S.C. § 6504.................................................................................................................41 43, 44 26 U.S.C. § 8002............................................................................................................................53
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RULES RCFC 56(c) .....................................................................................................................................9 REGULATIONS Treas. Reg. § 301.6223 ............................................................................................................64, 66 LEGISLATIVE MATERIALS UNITED STATES DEPARTMENT OF TREASURY, THE PRESIDENT'S 1978 TAX PROGRAM: DETAILED DESCRIPTIONS AND SUPPORTING ANALYSES OF THE PROPOSALS 121-31 (1978) ......................................................................................................................................46, 47 The President's 1978 Tax Reduction and Reform Proposals: Hearings Before the House Comm. on Ways and Means, 95th Cong. 5828-40 (1978). )...........................................................................................................46, 47 S. Doc. No. 97-5, at 154 (1981).....................................................................................................54 LIBRARY OF CONGRESS, BILL SUMMARY & STATUS FOR 97th CONG., H.R. 4961 (1982), available at http://www.thomas.loc.gov...........................................................51 LIBRARY OF CONGRESS, BILL SUMMARY & STATUS FOR 97th CONG., H.R. 6300 (1982), available at http://www.thomas.loc.gov........................................................................................ 55 Compliance Gap: Hearing Before the Subcomm. on Oversight of the Internal Revenue Service of the Senate Comm. on Finance, 97th Cong. 94-163 (1982). ............................................... passim Tax Compliance Act of 1982, H.R. 6300, 97th Cong. (2d Sess.1982). .........................................44 Tax Compliance Act of 1982 and Related Legislation: Hearing Before the House Comm. on Ways and Means, 97th Cong. (1982). .................................................................................... passim H.R. CONF. REP. NO. 97-760, at 599-611 (1982), reprinted in 1982 U.S.C.C.A.N. 1190, 1371-83. ........................................................................................... 40, 44, 51 STAFF OF HOUSE COMM. ON WAYS AND MEANS, 97th CONG., COMPILATION OF CONFEREE'S DECISIONS ON H.R. 4961: THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982 (Comm. Print 1982). ..........................................................................................................44, 51, 53 STAFF OF JOINT COMM. ON TAXATION, 97th CONG., SUMMARY OF THE REVENUE PROVISIONS OF H.R. 4961 (THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982) 59-63 (Comm. Print 1982). .................................................................................................................................... passim

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STAFF OF JOINT COMM. ON TAXATION, 97th CONG., GENERAL EXPLANATION OF THE REVENUE PROVISIONS OF THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982 267-82 (Comm. Print 1982). ......................................................................................................................................44, 53 H.R. CONF. REP. NO. 105-220 (1997). ..........................................................................................68 SECONDARY MATERIALS Jerome Kurtz, Auditing Partnerships, TAX NOTES, May 29, 1978, at 581. ..................................................................................................................................47 AMERICAN LAW INSTITUTE, FEDERAL INCOME TAX PROJECT SUBCHAPTER K: PROPOSALS ON THE TAXATION OF PARTNERS 394-427 (1982). ....................................................................................48 Ad Hoc Committee of Section of Taxation of American Bar Association, Section of Taxation Proposal as to Audit of Partnerships, 32 TAX LAW. 551 (1979). .................................................47 Mortimer M. Caplin & Stuart L. Brown, Partnership Tax Audits and Litigation After TEFRA, TAXES, Feb. 1983, at 75. .........................................................................................................46, 52 BLACK'S LAW DICTIONARY 726 (5th ed., abridged 1983) ..............................................................73 I.R.S INTERNAL GUIDANCE I.R.S. Litigation Guideline Memorandum TL-81 (Rev.) (Mar. 7, 1991). ....................................59 I.R.S. Field Service Advice 1999-1081 (July 21, 1992). ....................................................5, 60, 66 I.R.S. Litigation Guideline Memorandum TL-43 (Rev.) (Jan. 14, 1993). ............................................................................................................................5, 60, 66 I.R.S. Litigation Guideline Memorandum TL-73 (Mar. 23, 1993). ..................................................................................................................................5, 60, 66 I.R.S. Chief Counsel Advisory 2004-14-4045 (Apr. 2, 2004).................................................63, 69 4 Audit, Internal Revenue Manual (CCH) § 4226.31(13). ...........................................................60 SUPREME COURT BRIEFS Petitioner's Brief, The Colony, Inc. v. United States, 357 U.S. 28 (1958) (No. 306)..............19, 20 Respondent's Brief, The Colony, Inc. v. United States, 357 U.S. 28 (1958) (No. 306). .........19, 20 Petitioners' Brief, Badaracco v. Commissioner, 464 U.S. 386 (1984) (No. 82-1453)..................22 Respondents' Brief, Badaracco v. Commissioner, 464 U.S. 386 (1984) (No. 82-1453 and 821509). .......................................................................................................................................22, 77

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS GRAPEVINE IMPORTS, LTD., a Texas Limited Partnership, T-TECH, INC., a Texas Corporation as Tax Matters Partner Plaintiffs, v. United States of America, Defendant. § § § § § § § § § § § § §

Case No. 05-296T Judge Francis M. Allegra

MEMORANDUM IN SUPPORT OF PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT Pursuant to Rule 56 of the Rules of the Court of Federal Claims ("RCFC"), Plaintiffs Grapevine Imports, Ltd. ("Grapevine") and T-Tech, Inc. ("T-Tech") (collectively "Plaintiffs") seek summary judgment in this partnership tax proceeding on the following four grounds: 1. Defendant the United States of America ("Defendant" or the "Government") failed to issue a Final Partnership Administrative Adjustment ("FPAA") proposing adjustments to Grapevine's 1999 tax year within the three-year limitations period in 26 U.S.C. § 6229(a);1 2. Alternatively, Defendant may not assess tax against Grapevine's partners for the 1999 tax year because the statute of limitations set forth in Section 6501(a) has expired; and

1

All citations to Title 26 of the United States Code (the "Internal Revenue Code" or "the Code") in this Memorandum shall simply refer to the section discussed. For example, a citation to 26 U.S.C. § 6226 will be "Section 6226." Page 1

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3.

Alternatively, Defendant may not assess any tax against Grapevine's partners for the 2000 tax year because such an assessment is outside Section 6501's three-year limitations period, which is not suspended by the issuance of an FPAA.

4.

Defendant may not make an adjustment to partnership items in 1999--a year barred by the statute of limitations--to reduce a net operating loss deduction in a later year;

Plaintiffs brought this action for judicial review under Section 6226, challenging the Internal Revenue Service's ("IRS" or the "Service") proposed adjustments to Grapevine's partners' income tax liability for 1999 and 2000 as described in a Final Partnership Administrative Adjustment issued to Grapevine on December 17, 2004 (the "Grapevine FPAA"). Plaintiffs request that the Court determine that the FPAA's proposed adjustments are time-barred and grant Plaintiffs' Motion for Summary Judgment. In support of this Motion, Plaintiffs would show the Court as follows: I. STATEMENT OF CASE

On occasion, courts are required to remind the Government that the Internal Revenue Code (the "Code") means what it says and that Congress says what it means. This is precisely such a case. Here, the Government maintains that it can issue an FPAA and recover tax even though it issued its FPAA outside the three-year statute of limitations specifically provided for partnership-level adjustments in Section 6229(a). The Government's position is profoundly flawed. The Government has erroneously determined that Section 6229(a) is not the exclusive limitations period applicable to partnership-level adjustments, despite the plain language of Section 6229, its legislative history, and other interpretations--including the IRS's own--to the contrary. The Government contends that, even if the statute of limitations on partnership-level adjustments has expired, it can nevertheless make adjustments to reduce a net operating loss
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deduction for an infinite number of years after the return is filed. The Government erroneously believes that an FPAA extends the statute of limitations provided in Section 6501. It is incorrect in each of these arguments. For a statute of limitations to mean anything, it must be given its intended effect. That is, once the prescribed period has expired, the year is closed, and the Government cannot make further adjustments. The Government should not be permitted to carve out its own exceptions, as it has attempted to do in this case, without the express authority from Congress. A. Because Section 6229(a) Provides the Exclusive Limitations Period for Partnership Items, the Statute of Limitations Bars All Adjustments. The IRS failed to make any partnership adjustment, issue any partnership notice, or assess any tax with respect to Grapevine or its partners within the three-year period described in Section 6229(a). Instead of recognizing Section 6229(a)'s clear limitations period, a provision the IRS itself helped to create, the IRS is seeking to apply the statute of limitations applicable to individuals and other non-partnership taxpayers, Section 6501, to avoid the expired limitations period for partnership items. All parties involved in Section 6229's enactment, including its proponents (the Department of the Treasury ("Treasury"), two IRS Commissioners, the American Bar Association ("ABA"), and American Law Institute ("ALI")), its authors (the ABA, Treasury, and congressional committees), and Congress all understood that the Section 6229 limitations period would provide the exclusive limitations period for partnership items. Read as a whole and as part of the comprehensive, carefully-integrated TEFRA Unified Partnership Procedures ("TEFRA"),2 the plain meaning of Section 6229 bars partnership adjustments after expiration of

2

Sections 6221 through 6234. Page 3

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that three-year period. Construing Section 6229(a) as an exclusive limitations period also creates harmony with the rest of the Code, particularly TEFRA. In contrast, the Government's reading of Section 6229(a)--that it provides only a minimum limitations period or a safe harbor--creates serious conflicts, inconsistencies, and anomalies. The Government's reading is also inconsistent with the very purposes of TEFRA. Importantly, Plaintiffs' interpretation not only furthers TEFRA's goals, but also avoids all of the conflicts, inconsistencies, and anomalies inherent in the Government's interpretation. In the years after TEFRA's enactment, several courts have either expressly or implicitly recognized that Section 6229(a) is the exclusive limitations period applicable to partnership items.3 In various internal IRS publications, the IRS has itself recognized that Section 6229(a) describes the exclusive limitations period for partnership items for a number of years.4

See Callaway v. Commissioner, 231 F.3d 106, 110 (2d Cir. 2000) ("In general, a three year limitations period runs from the later of the date of filing of the partnership return or its due date . . . As to assessments attributable to partnership items, these provisions supersede the individual partner's general three-year limitations period that begins to run on the filing of the taxpayer's return."); Weiner v. United States, 389 F.3d 152, 154 (5th Cir. 2004) ("The IRS is given three years from the later of (1) the date a partnership return is due, or (2) the date the partnership return is filed, to issue an FPAA."); Med. & Bus. Facilities, Ltd. v. Commissioner, 60 F.3d 207, 209-10 (5th Cir. 1995) ("The statutory period for assessing any income tax attributable to partnership items for a partnership's tax year expires three years after the partnership files its partnership information return or three years after the last day for filing such return, whichever is later."); Monetary II L.P. v. Commissioner, 47 F.3d 342, 344 (9th Cir. 1995) ("Generally, the limitations period for assessing any income tax attributable to a partnership expires three years after the partnership files its return for the tax years in question."); Monahan v. Commissioner, 321 F.3d 1063, 1065 n.2 (11th Cir. 2003) ("Normally, the period for assessing any tax with respect to a partnership item for a specific partnership taxable year is three years from the date the partnership return is filed."); Cambridge Research & Dev. Group v. Commissioner, 97 T.C. 287, 292 (1991) ("The general rule of section 6501(a) does not apply, however, to income tax attributable to partnership items ... The period for assessing any income tax attributable to partnership items (or affected items) for a partnership taxable year will not expire before 3 years after the partnership files its information return for the taxable years in question."); Boyd v. Commissioner, 101 T.C. 365, 370 (1993) ("[S]ection 6501(a) does not apply to income tax attributable to partnership items . . . Income tax attributable to partnership items must generally be assessed within 3 years after the later of the date the partnership files its information return or the due date of the partnership return."); Lumenetics v. Commissioner, 64 T.C.M. (CCH) 1161 (1992) ("Section 6229(a) establishes a three-year period of limitations on assessing any tax imposed by subtitle A of title 26 with respect to any person which is attributable to any partnership item. The three-year period begins with the later of the date the partnership return was filed, or the last day for filing such return."); Slovacek v. United States, 36 Fed. Cl. 250, 255 (1996) ("The statute of limitations for partnership assessments is set out in Section 6229(a)"); CC & F Western Operations L.P. v. Commissioner, 273 F.3d 402, 405 (1st Cir. 2001) ("The limitations provisions that directly govern are contained in sections 6229(a) and (c) of the 1954 Code, enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982"); Williams v. United States, 165 F.3d 30 (6th Cir. 1998) (table decision) ("The three year statute of limitations for assessing any tax attributable to partnership items for MRA's 1982 tax year was Page 4

3

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In Rhone-Poulenc Surfactants & Specialties L.P. v. Commissioner,5 the IRS reversed course and convinced a majority of the Tax Court to disregard the exclusive nature of Section 6229(a)'s limitation period and view it as an extension of the three-year period in Section 6501(a).6 Surely the IRS was surprised that a court accepted this argument, since one of its Litigation Guideline Memoranda observed that "Because of our view that the period of limitations under section 6229 and section 6501 are separate statutes, we are generally unwilling to defend cases on the basis of the limitations period under section 6501 still being open."7 The majority in Rhone-Poulenc concluded that Section 6229 should be construed in a manner that is exactly the opposite of how the Tax Court had construed the same language in a number of prior cases.8 The dissenting judges in Rhone-Poulenc, concluded that the majority opinion was result-driven, conflicted with well-established precedent, violated TEFRA's fundamental purposes, and ignored the plain meaning of Section 6229:9 "The majority, however,

set to expire on April 15, 1986 under Section 6229(a) of the Internal Revenue Code"); Anderson v. United States, 62 F.3d 1428 (10th Cir. 1995) ("Under 26 U.S.C. § 6229(a), the IRS initially had a three-year period (beginning the date each partnership return was filed) in which to assess taxes attributable to partnership items."); Madison Recycling Assocs. v. Commissioner, 295 F.3d 280, 286 (2d Cir. 2002) (noting that FPAA should have been issued by April 15, 1986 under Section 6229(a) where partnership return was filed March 14, 1983); Maxwell v. Commissioner, 87 T.C. 783, 788 (1986) ("Special statutes of limitations apply to assessment of deficiencies attributable to partnership items"); Wind Energy Tech. Assoc. III v. Commissioner, 94 T.C. 787, 794 (1990) (noting that Commissioner's motion for summary judgment "seeks a determination that the FPAA was validly issued within the three-year limitations period of section 6229(a)."); Roberts v. Commissioner, 94 T.C. 853, 857 (1990) (noting that limitations period for TEFRA partnerships 1983 years expired April 15, 1987 pursuant to Section 6229(a)). 4 See I.R.S. Litigation Guideline Memorandum TL-43 (Rev.) at 75 (Jan. 14, 1993) (noting that Section "6229 is the exclusive period of limitations for partnership and affected items" and that Code "[s]ection 6501 applies only to nonpartnership items"), at Appendix 390; I.R.S. Litigation Guideline Memorandum TL-73 at 32 n.15 (Mar. 23, 1993) ("Because of our view that the period of limitations under section 6229 and section 6501 are separate statutes, we are generally unwilling to defend cases on the basis of the limitations period under section 6501 still being open"), at Appendix 420; I.R.S. Field Service Advice 1999-1018 at 1 (July 21, 1992) ("The Service cannot assess a deficiency attributable to partnership items after the period of limitations under section 6229 has expired"), at Appendix 384. 5 114 T.C. 533, 534 (2000). 6 Id. at 534. 7 See I.R.S. Litigation Guideline Memorandum TL-73 at 32 n.15 (Mar. 23, 1993), at Appendix 420. 8 114 T.C. at 534 9 Id. at 559-70. Page 5

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stretches the applicability of the statute to ensure that the Government prevails. reconstruction, not strict construction."10

That is

Significantly, the Rhone-Poulenc opinion was the product of a sharply-divided court. Three of the concurring judges in Rhone-Poulenc agreed with the opinion only because the IRS issued a statutory notice of deficiency with the FPAA.11 Specifically, the concurring judges did not agree with the majority's opinion that an FPAA would operate to toll the statute of limitations in Section 6501.12 Three other judges wholly disagreed with the majority.13

Significantly, because no statutory notices of deficiency were issued in this case, six of the fourteen judges in Rhone-Poulenc would agree that the adjustments here are barred by the statute of limitations. Other courts have followed Rhone-Poulenc. In a different case on appeal from the Tax Court, the Court of Appeals for the District of Columbia Circuit, without significant analysis or discussion, upheld the Rhone-Poulenc ruling under Section 6229(a).14 On September 16, 2005, the Court of Federal Claims issued a decision in the case of AD Global Fund, LLC v. United States,15 in which the Court agreed with the Government that Section 6229(a) is only a minimum limitations period and that Section 6501(a) is the applicable limitations period for partnership items.16 The Court determined that both the relevant statutory provisions and the applicable legislative history are ambiguous and held in favor of the Government, invoking a presumption that statutes of limitation should be construed in favor of the Government.17 For the reasons

10 11

Id. at 570. Id. at 558-59. 12 Id. at 561. 13 Id. at 565-70. 14 Andantech L.L.C. v. Commissioner, 331 F.3d 972 (D.C. Cir. 2003). 15 2005 WL 2271722 (Fed. Cl. Sept. 16, 2005). 16 Id. at *39-40. 17 Id. at *39. Page 6

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discussed below, the holding in AD Global, like the holding in Rhone-Poulenc, is incorrect and must not be followed here. B. Even If the IRS's View of Section 6229(a) as a Minimum Period Is Correct, Any Increase to the Tax Liability of Grapevine's Partners for the 1999 Tax Year Is Nevertheless Barred by the Three-Year Limitations Period Set Forth in Section 6501(a). Alternatively, even if the Court were to determine that Section 6229 provides only a minimum limitations period and that Section 6501 provides the general limitations period for partnership-level adjustments, an assessment of tax for the 1999 tax year is nevertheless barred, even under Section 6501. The individuals affected by this litigation, Mr. and Mrs. Tigue ("the Tigues") filed their joint federal income tax return for the 1999 tax year on or before April 17, 2000. The Grapevine FPAA was issued on December 17, 2004, which is clearly outside the three-year period described in Section 6229(a). C. Even If the Service's View of Section 6229(a) as a Minimum Period Is Correct, Any Assessment of Tax for the 2000 Tax Year Is Barred by the Statute of Limitations Because the Period Under Section 6501 Was Not Suspended by the Issuance of the FPAA. In addition, even if the Government's interpretation of Section 6229(a) is correct, an assessment for the 2000 tax year is nevertheless barred because the limitations period in Section 6501 is not extended by the issuance of an FPAA. Six of the judges in Rhone-Poulenc agreed with this argument.18 As applied to the undisputed facts in this case, the limitations period under Section 6501 for the 2000 tax year expired no later than January 17, 2005, when the Grapevine FPAA is properly viewed as not extending the limitations period in Section 6501. While the Grapevine FPAA was issued before this date, it did not suspend the limitations period under

18

See Rhone-Poulenc, 114 T.C. at 558.

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Section 6501. For this reason, any tax assessment for the Tigues' 2000 tax year is barred by the statute of limitations under any argument. D. The Government's Purported Adjustment to the Net Operating Loss Deduction for the 2000 Tax Year Does Not Provide a Basis for Circumventing the Statute of Limitations Otherwise Applicable to Partnership Items. In addition, the Government may not justify its adjustments outside Section 6229(a)'s three-year limitations period by focusing on the effect that the adjustments would have on a nonpartnership net operating loss deduction in a later year, as it seeks to do in this case. Congress did not provide an exception to either the TEFRA provisions or the statute of limitations applicable to partnership-level adjustments that would accommodate untimely partnership-level adjustments solely for the purpose of reducing a non-partnership net operating loss deduction in a later year. Any attempt to justify adjustments on this basis represents an attempt to create an exception to the statute of limitations that is not in the Code. II. 1. adjustments? 2. If the Court answers the first question in the negative, are any assessments to QUESTIONS PRESENTED

Is Section 6229(a) the exclusive limitations period applicable to partnership-level

Grapevine's partners' individual tax liability for the 1999 tax year, which are attributable to the adjustments set forth in the Grapevine FPAA, nevertheless barred under Section 6501(a)'s threeyear period? 3. If the Court answers the first question in the negative, does the issuance of an

FPAA suspend the limitations period in Section 6501 so that the statute of limitations for the individual partner's 2000 tax year remains open?

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4.

If the Court answers the first question in the affirmative, does an adjustment to a

non-partnership net operating loss deduction in a later year provide a basis for circumventing the limitations period otherwise applicable to partnership-level adjustments under Section 6229(a)? III. STANDARD OF REVIEW

A motion for summary judgment must be granted if "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law."19 In ruling on a motion for summary judgment, a court must apply the burden of proof that would apply at a trial on the merits.20 Where the parties stipulate to the facts relevant to a Court's determination of a motion for summary judgment, a court must simply resolve any questions of pure law and apply that law to the undisputed facts of the case.21 IV. STATEMENT OF MATERIAL FACTS

Grapevine is a partnership formed in 1996.22 For the 1999 tax year, Grapevine filed an IRS Form 1065 as a partnership.23 In 1999, T-Tech held a one-percent general partner interest and Joseph and Virginia Tigue each held a 49.5-percent limited partner interest.24 For the 1999 tax year, Grapevine reported a short-term capital loss from the sale of United States Treasury Notes in the amount of $21,884 on its IRS Form 1065.25 That return was filed on or before April 17, 2000.26

See RCFC 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Giesler v. United States, 232 F.3d 864, 869 (Fed. Cir. 2000). 20 Warner-Lambert Co. v. Teva Pharms. USA, Inc., 418 F.3d 1326 (Fed. Cir. 2005). 21 See Shelden v. United States, 7 F.3d 1022, 1026 (Fed. Cir. 1993). 22 See Proposed Findings of Uncontroverted Facts ("Prop. Fin.") ¶ 1. 23 See id. ¶ 6 24 See id. ¶¶ 2, 3. 25 See Exhibit A to J. Tigue Declaration, Schedule K, Line d. 26 See Prop. Fin. ¶ 6. Page 9

19

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On December 31, 1999, T-Tech sold its interest as general partner in Grapevine for $110,265, and reported a capital gain of $100,906 on its IRS Form 1120S for tax-year ending 1999.27 On the same day that T-Tech sold its general partner interest, the Tigues sold their limited partnership interests in Grapevine.28 The following year, the Tigues reported taxable income was offset in its entirety by a net operating loss deduction that carried over from 1998 and 1999.29 On December 17, 2004, the IRS issued the Grapevine FPAA against Grapevine for tax year ending December 31, 1999.30 The Grapevine FPAA proposes a $10 million negative adjustment to Grapevine's outside basis and a $21,884 increase in capital gain.31 The effect of the Government's proposed adjustments is to increase the Tigues' federal taxable income for the 1999 taxable year as a result of the above reduction in the outside basis of Grapevine and increase to Grapevine's capital gain income.32 The Government's proposed adjustments would have the further effect of eliminating a net operating loss deduction claimed on the Tigues' 2000 federal income tax return, thereby increasing taxable income for the 2000 tax year.33 The Tigues' 1999 federal income tax return was filed on or before April 17, 2000.34 Their 2000 federal income tax return was filed on or before August 15, 2001.35

27 28

See Prop. Fin. ¶ 5; Exhibit B to J. Tigue Declaration. See Prop. Fin. ¶ 4. 29 See Prop. Fin ¶ 14. 30 See Prop. Fin. ¶ 13. 31 See Exhibit F to J. Tigue Declaration; Exhibit A to V. Tigue Declaration. 32 See Prop. Fin. ¶ 18. 33 See id. 34 See id. ¶ 7. 35 See Prop. Fin. ¶ 8. Page 10

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V. A.

ARGUMENTS AND AUTHORITIES

According to Supreme Court Precedent, a Statute Must Be Construed in a Natural, Direct Manner Without Altering the Statute's Plain Language. Decades of Supreme Court precedent support Plaintiffs' contention that Section 6229

should be construed in a natural, direct manner, giving words their ordinary meaning and resisting attempts to alter this literal construction by incorporating other provisions into a statute of limitation's plain language. Instead of following this approach, a highly divided Tax Court reached beyond the plain language of Sections 6229(a) and 6229(d), citing to, but improperly applying, Supreme Court precedent holding that statutes of limitations are to be strictly construed in favor of the Government.36 Likewise, in AD Global,37 the Court incorrectly observed a conflict in Supreme Court precedent where none exists: The Gould38 and Badaracco39 construction rules are in apparent conflict because at issue is a tax statute, which should be construed in favor of the taxpayer; it is also a possible statute of limitations, which should be construed in favor of the Government. . . However, it is the Badaracco standard that applies in this case.40 Compounding the problem, the AD Global Court surrendered to this improperly-applied rule of construction, ruling for the Government because its argument was plausible, though "convoluted,"41 "labyrinthine,"42 and less than likely.43 Closer analysis of the precedent leading up to Gould and Badaracco demonstrate that those cases can be reconciled, even though the general language of the presumptions appears in conflict. The common lesson of the Supreme Court's jurisprudence in these two areas is that a litigant--whether a taxpayer or the Government--whose argument relies on reading provisions
36 37

Rhone-Poulenc Surfactants and Specialties, L.P. v. Commissioner, 114 T.C. 533, 553, 570 (2000). 2005 WL 2271722 (2005). 38 Gould v. Gould, 245 U.S. 151 (1917). 39 Badaracco v. Commissioner, 464 U.S. 386 (1984). 40 AD Global, 2005 WL 2271722 at *39. 41 Id. at *20. 42 Id.

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into a statute that are simply not in the statute's language will not prevail.

The Gould

presumption in favor of the taxpayer seeks to give taxpayers the benefit of the doubt because "tax laws, like all other laws, are made to be obeyed ... [and] should therefore be intelligible to those who are expected to obey them."44 Likewise, with regard to the Badarraco presumption in favor of the Government, the sovereign's right to collect taxes will not be waived unless the Government has plainly done so.45 In other words, regardless of how they are articulated, these "presumptions" are actually protections against implying language or meaning that is not supported by the language in the statute. 1. Gould and Its Predecessors Refuse to Look Beyond the Clear Language of a Statute.

The Gould presumption that taxing statutes should be construed in favor of the taxpayer is rooted in American Net and Twine Co. v. Worthington.46 There, the taxpayer argued that its gilling twine should not be subject to the higher duty imposed upon thread as the Government argued.47 In determining the applicable duty, the Supreme Court noted that while gilling twine may be composed of thread, the Court was bound to give some effect to the words "gilling twine" and if there was no other article imported with the same name, then Congress must have intended gilling twine to be subject to the lower duty.48 In reaching its conclusion, the Supreme Court reviewed the statements made by the promoters of the act to Congress to determine the "exigencies of the fishing interest, and the reasons for fixing the duty at this amount."49 The Supreme Court held for the taxpayer, stating:

43 44

Id. ("The court finds plaintiff's interpretations to be more likely.") White v. Aronson, 302 U.S. 16, 20 (1937). 45 Davis v. O'Hara, 266 U.S. 314, 317 (1924). 46 141 U.S. 468 (1891). 47 Id. at 472. 48 Id. at 473. 49 Id. at 473-74. Page 12

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where Congress has designated an article by a specific name, and imposed a duty upon it, general terms in the same act, though sufficiently broad to comprehend such article, are not applicable to it; in other words, the article will be classified by its specific designation, rather than under a general description. We think that the intention of Congress that these goods should be classified as "gilling twine" is plain; but, were the questions one of doubt, we should still feel obliged to resolve that doubt in favor of the [taxpayer] since the intention of Congress to impose a higher duty should be expressed in clear and unambiguous language.50 After American Net and Twine Co., the Supreme Court faced the question of whether the inheritance tax laws of the United States applied to the intangible personal property within the United States of a non-resident alien who had never resided in the United States and died abroad and whose beneficiary also was a non resident.51 In holding for the taxpayer in Eidman v. Martinez, the Supreme Court stated: The inheritance tax law of the United States . . . applies to property "passing by will or by the intestate laws of any state or territory." As the property in this case did not pass under any will executed in any state or territory of the United States, or by the intestate laws of any such state or territory, the case is not within the literalism of the act, unless we are to use the word "state" in a sense broad enough to include a foreign state or territory.52 The Supreme Court observed the custom that revenue laws should be liberally interpreted in favor of the taxpayer and that any intent of Congress to impose or increase tax upon imports should be expressed in clear and unambiguous language.53 Despite the recitation of this rule of construction, the Supreme Court based its decision on the plain language of the statute in question, as well as the context of related provisions, and stated, "it would be difficult to find language more expressive of an intent to confine a tax to persons domiciled in this country."54

50 51

Id. at 474 (emphasis added). Eidman v. Martinez, 184 U.S. 580-81 (1902). 52 Id. at 582 (emphasis added). 53 Id. at 583 (citing American Net & Twine Co. v. Worthington, 14 1 U.S. 468 (1891)). 54 Id. at 590-91. Page 13

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In Gould v. Gould,55 the Supreme Court addressed the issue of whether alimony was taxable to the recipient under the laws then in effect.56 After restating the statutory definition of income, the Supreme Court observed: In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt, they are construed most strongly against the Government, in favor of the citizen.57 According to the Supreme Court, alimony paid to a divorced wife fell fairly within the definition in the statute.58 In reaching this conclusion, the Supreme Court noted that under the statutory scheme neither the husband's net income was reduced by the amount of alimony paid nor the wife's income increased by the amount of alimony received.59 The Federal Circuit recently reaffirmed the Gould presumption in The Falconwood Corp. v. United States.60 Citing Gould's directive to construe statutes levying taxes "most strongly against the Government, and in favor of the citizen," the Federal Circuit held that it would give the regulation in question only its plain meaning and nothing else and ruled in favor of the taxpayer. 61 2. Badaracco and its Predecessors Require a Clear Intention to Waive a Sovereign's Right to Collect Taxes, but After Such an Intention Is Found, Hold That a Statute Should be Interpreted According to Its Most Natural Reading.

The Badaracco presumption that statutes of limitation be construed in favor of the Government arises from a distinct line of cases recognizing that as the sovereign, the United States has the unfettered discretion to limit its ability to pursue its rights to collect revenue. To
55 56

245 U.S. 151 (1917). Id. at 152. 57 Id. at 153 (citing American Net & Twine Co. v. Worthington, 141 U.S. 468 (1891)) (emphasis added). 58 Id. 59 245 U.S. at 154. 60 2005 WL 2106570 (Fed. Cir. Sept. 2, 2005).

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