JM Assets: A Treasury Regulation Could Not Extend the Partnership Adjustment Deadline Beyond the Statute

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In JM Assets, LP v. Commissioner, the reviewed Tax Court interpreted the Bipartisan Budget Act partnership-audit limitations period. It held that the IRS issued its final partnership adjustment too late and that a Treasury regulation could not extend the statutory deadline on the facts presented.

The partnership submitted a modification request

After the IRS proposed an imputed underpayment, the partnership submitted the materials required for a modification request on February 14, 2023. The IRS issued its final partnership adjustment on December 1, 2023.

The dispute was whether the 270-day period ran from actual complete submission or from the later close of the regulatory request window.

The statute used the actual submission date

Section 6235(a)(2) measures from the date everything required to be submitted is submitted. The court found that language unambiguous on these facts.

The regulation instead used the date on which the period for requesting modification ended, which would hold the limitations period open longer.

The contrary regulation could not control

The reviewed court stated that a regulation falls outside delegated rulemaking authority when it attempts to change an unambiguous statute. It held the timing regulation contrary to section 6235 to the extent it extended the deadline here.

The court expressly limited its conclusion and did not decide how the regulation applies when a partnership fails to submit everything required.

Adequate disclosure defeated the alternative extension

The IRS also sought to invoke the extended period for a substantial omission of income. The court found the partnership had adequately disclosed the nature and amount of the disputed income and denied leave to add the futile alternative theory.

The final partnership adjustment was untimely. The case underscores the need to preserve the proposal, modification submission, completeness evidence, return disclosures, and mailing date.