On July 2, 2025, the Tax Court issued its unanimous reviewed opinion in JM Assets, LP v. Commissioner, 165 T.C. 1. It held that the Service did not timely issue a final partnership adjustment (FPA) to JM Assets, LP (JM Assets). Citing the plain text of section 6235, the Tax Court held that an FPA must be issued within 270 days after the date everything required for a complete modification request under section 6225(c) has been submitted. The opinion exemplifies the Tax Court’s role in interpreting the procedural nuances of the centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015 (BBA) and its approach to statutory and regulatory interpretation following the Supreme Court’s decision in Loper Bright Ents. v. Raimondo, 603 US 369 (2024), and the Tax Court’s decision in Varian Med. Sys., Inc. v. Commissioner, 163 T.C. 76 (2024).
Background
JM Assets was a real estate management partnership subject to the centralized partnership audit regime of the BBA during taxable year 2018. In 2018, JM Assets sold real property, reporting such transactions as installment sales on its 2018 return. The Service subsequently opened a BBA audit on JM Assets. On June 9, 2022, the Service issued a Notice of Proposed Partnership Adjustment (NOPPA), concluding that JM Assets had to recognize current year gain on the sale of the real property involved. The NOPPA proposed an adjustment of approximately $5.5 million and an imputed underpayment (IU) of approximately $2 million.
On February 14, 2023, in accordance with section 6225(c), JM Assets requested a modification of the IU, specifically with respect to the tax rates for two of its partners. In a letter dated June 5, 2023, the Service approved the modification request in full. JM Assets did not file anything further, and the Service did not request any further information. On December 1, 2023, the Service issued an FPA. JM Assets filed a petition challenging the FPA.
In its petition, JM Assets argued that the FPA was untimely under section 6225(c), which provides that the Commissioner must issue an FPA within 270 days after the taxpayer submits everything necessary for its modification request. Relying on Treas. Reg. § 301.6235-1, the Service argued that when a taxpayer seeks modification of the IU, the period within which to issue an FPA under section 6235(a)(2) begins running at the conclusion of the period within which modification may be sought under section 6225(c)(7).1
Under the BBA’s centralized partnership audit regime, adjustments to a partnership’s return are made, and the resulting tax (an imputed underpayment) is presumptively collected at the partnership level. Before making an adjustment, the Service must first issue a NOPPA, including a proposed IU. Upon receipt of the NOPPA, the partnership representative may request a modification of the IU identified in the NOPPA within 270 days from the date the Service mails the NOPPA. Section 6225(c). Once the partnership representative files the modification request under section 6225(c), the deadline for the Service to mail the FPA is “the date that is 270 days . . . after the date on which everything required to be submitted to the Secretary pursuant to such section is so submitted.” Section 6235(a) (emphasis added).
Treasury and the Service issued regulations under the BBA that purported to deem when the 270-day period specified in section 6235(a)(2) began. In Treas. Reg. § 301.6235-1(b)(2), the Service defined “the date on which everything required to be submitted . . . is so submitted” as “the date [on which] the period for requesting modification ends.” Under this regulation, the Service argued, the 270-day period specified in Section 6235(a)(2) did not begin to run until the end of the modification request period, irrespective of the date that JM Assets submitted everything required to be submitted. JM Assets argued that the regulation improperly extended the period for the Service to issue an FPA beyond the period specified by the statute. Accordingly, JM Assets argued that the regulation was invalid.
Tax Court Analysis
The issue before the Tax Court was whether the period to issue an FPA under section 6235(a) had lapsed, which required an analysis of whether Treas. Reg. § 301.6235-1(b)(2) was valid as applied. The court observed from the outset that “a regulation to be valid must be reasonable and must be consistent with law.” Further, citing Loper Bright, the court observed that “statutes . . . have a single, best meaning,” and that lower courts must “exercise their judgment in deciding whether [the] agency has acted within its statutory authority.”
The Tax Court concluded that there was a direct conflict between section 6235(a) and Treas. Reg. § 301.6235-1(b)(2) because the regulation produced a deadline that was different than the one specified in the statute. The statutory language provides that the deadline is 270 days after the date on which everything that is required to be submitted is so submitted. The regulation on the other hand deems that date to be 270 days after the date the period for requesting the modification has ended. As the Tax Court noted, these were two different dates, so “the regulation must give way to the statute.” Further, the court rejected the argument that Treas. Reg. § 301.6235-1(b)(2) was entitled to deference on the grounds that the Service promulgated the regulation pursuant to its “broad authority to establish procedures with respect to modification under section 6225(c).” In so holding, the Tax Court cited Varian Medical Systems for the proposition that “even where Congress expressly delegates broad rulemaking authority, that authority does not extend to contradicting statutory text.”
Because JM Assets had submitted everything required to be submitted with its modification request on February 14, 2023, the Service had until November 13, 2023 to issue an FPA. Accordingly, the Tax Court held that the Service’s FPA issued on December 1, 2023 was untimely.
1 In the alternative, the Service argued that the FPA was timely because JM Assets made a substantial omission of income on its 2018 return. The court disposed of that argument, noting that it is well-established that understating gross income on a return by misstating cost items or basis is not an omission of gross income and finding that the income here did “not stem from a failure to report an accurate sales price, but rather it stem[med] from an increase in section 1231 gain.”
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