- 39 -
year period of limitations begins to run when those delinquent
returns are filed. See Badaracco v. Commissioner, 464 U.S. 386,
401 (1984). If the issuance of the FPAA and the commencement of
the partnership action do not suspend the running of the normal
section 6501(a) 3-year period of limitations for the partners who
failed to timely file, and the decision of the Court does not
become final within 3 years of the date they filed delinquent
returns, the statute of limitations will bar assessment against
the partners who failed to timely file individual returns, while
the period of limitations will remain open for partners who filed
timely returns. Again, it is highly improbable that Congress
could have intended such a result.33
33In Fehlhaber v. Commissioner, 94 T.C. 863, 870 (1990), we
used a similar analysis in interpreting sec. 6501 stating:
As we see it, the rationale of the Court of
Appeals could lead to unintended and adverse
consequences for taxpayers and the Internal Revenue
Service. For example, if the information return rather
than the shareholder’s return starts the running of the
statutory period for assessment, then the time would
expire 3 years after the filing of the information
return even if the shareholder did not file a return.
While section 6501(c)(3) extends the assessment period
indefinitely as to taxpayers who fail to file returns,
the effect of the Ninth Circuit’s decision would be to
engraft an exception for taxpayers who are shareholders
of S corporations. Those taxpayers would have a 3-year
period with respect to flow-through items--a result
clearly incorrect as a matter of law, policy, and
judicial prerogative. Cf. Badaracco v. Commissioner,
464 U.S. at 401. * * *
See also Badaracco v. Commissioner, 464 U.S. 386, 395-396 (1984),
(continued...)
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