Hindsight Is 20/20: JM Assets and the Blow to Tax Certainty, Part 1
by Jenni Black
Jenni Black is a managing director in Citrin Cooperman’s national tax office and the practice leader of the tax procedure and controversy practice.
In this post, Black examines the Tax Court opinion in JM Assets and she argues that by determining reg. section 301.62351(b)(2)(i) is “invalid,” the court opinion removes quite a bit of certainty for both taxpayers and the government.
This article reflects the author’s personal views and not necessarily those of Citrin Cooperman.
On July 2, the Tax Court released a full T.C. opinion in the case JM Assets LP 1 In its opinion, the Tax Court determined that reg. section 301.6235-1(b)(2)(i), which provides when everything required to be submitted as part of a modification request is “so submitted” for purposes of the period of limitations, is “invalid” (reason for quotes explained in the next article).2 I’ll be honest, I really expected this case to go the other way. The court determined, in this case, the date the partnership submitted “everything
1 JM Assets LP v. Commissioner, 165 T.C. No. 1 (2025). This article does not discuss the court’s ruling that there was no substantial omission of income for purposes of extending the period of limitations.
2 In the interest of full disclosure, I am the primary author of the regulation at issue, although it (as with the rest of Bipartisan Budget Act regulations) was a massive team effort. So maybe this makes me a bit of a mama bear when it comes to this case.
required to be submitted” for its modification request was prior to the date the regulations would say everything was submitted. The court found this made the regulation contrary to the statute and, thus, “invalid.” At the same time, the court’s opinion could be read to hold that the statutory text can mean two different things based on the facts, instead of having a “single” “best” meaning. But they say hindsight is 20/20 and the court’s analysis seems to hinge on facts not necessarily knowable at the time a partnership submits its request. But aside from having to go “Back to the Future,” the court’s opinion in JM Assets, by determining reg. section 301.62351(b)(2)(i)3 is “invalid,” removes quite a bit of certainty for both taxpayers and the government. And we all like tax certainty, right?
But “wait, slow down, love, not so fast,”4 let’s take a step back and explain what this is all about. Section 6235 prescribes the period of limitations on making adjustments (not assessments) to Bipartisan Budget Act partnerships. The period of limitations on making adjustments is determined by reference to the latter of three dates (simplified for ease of reading):
1.three years from when the partnership return (or administrative adjustment request) is filed;
2.if a modification request is filed by the partnership, 270 days from the date “on which everything required to be submitted to the Secretary pursuant to [section 6225(c)] is so submitted”; or
3 The Tax Court did not address reg. section 301.6235-1(b)(2)(ii), which modifies reg. section 301.6235-1(b)(2)(i), so it is unclear whether this provision is also invalid. But, based on the court’s ruling, I would guess that it is because it will matter if the submission is incomplete.
4 You don’t play around with the “Funky Cold Medina.”
3.330 days after the date of the notice of proposed partnership adjustment (NOPPA).
It’s the second date that is at issue in JM Assets. Under section 6225(c)(7), anything required to be submitted for a modification request “shall be” submitted to the IRS no later than the “close of the 270-day period beginning on the date on which the [NOPPA] is mailed” by the IRS (unless the modification period is extended with the consent of the IRS).5 Once the IRS issues the NOPPA, it cannot issue a notice of final partnership adjustment (FPA) for 270 days, unless the partnership waives this period.6 Accordingly, a partnership has 270 days to submit whatever it is going to submit as part of any request to modify the imputed underpayment without worrying that an FPA will be issued and the IRS has a separate 270 days from when “everything required to be submitted” under the modification rules “is so submitted” to review the partnership’s request and issue an FPA.
Reg. section 301.6235-1(b)(2)(i) provided that everything required to be submitted for modification was “so submitted” on the later of two events — (1) when the modification period expires (if the partnership can’t submit any additional information, then the IRS has everything it’s going to get); or (2) the date the partnership signs a waiver which waives the remainder of the partnership’s time to submit a request for modification which basically tells the IRS the partnership isn’t submitting anything else. The waiver serves two purposes — if the partnership isn’t planning on submitting a modification request, the partnership can waive the modification period (so the partnership and the IRS aren’t sitting around twiddling their thumbs for 270 days) and it waives the FPA restriction which allows the IRS to go ahead and issue the FPA.7 Reg. section 301.62351(b)(2)(ii) provided that an incomplete
5 Because there are technically three separate 270 day periods at issue in this article, to avoid confusion, I will refer to the time period under section 6225(c)(7) as the “modification period,” the time period described in section 6235(a)(2) as the “270-day period,” and the period in section 6231(b)(2)(A) as the “FPA restriction.” It would have been nice if Congress had mixed it up a bit.
6 Section 6231(b)(2)(A).
7 The waiver is Form 8981, “Waiver of the Period Under IRC Section 6231(b)(2)(A) and Expiration of the Period for Modification Submissions Under IRC Section 6225(c)(7).”
modification submission didn’t impact treating everything required to be submitted as “so submitted” on the date the modification period expired (either through time or waiver).
The Facts of JM Assets
Putting aside what the specific adjustments were in this case, the IRS audited JM Asset’s 2018 Form 1065, “U.S. Return of Partnership Income,” under the centralized partnership audit regime enacted by the BBA. The IRS issued the partnership a NOPPA on June 9, 2022, making adjustments to the partnership’s return. At this point, JM Assets had until March 6, 2023, to submit a request for modification, if it planned on doing so. It did, and JM Assets submitted a modification request to the IRS on February 14, 2023, but did not waive the remainder of the modification period.8 The IRS approved JM Asset’s modification request on June 5, 2023, and issued an FPA on December 1, 2023. In computing the expiration of the period of limitations on making adjustments, the IRS followed reg. section 301.6235-1(b)(2)(i) and added 270 days to the end of the modification period (March 6, 2023) and not the date JM Assets submitted its modification request. For those who don’t want to do the math, if the period of limitations was based on when JM Assets submitted its modification request, the section 6235 period of limitations would expire on November 13, 2023, prior to the date the FPA was issued by the IRS.
In determining when “everything required to be submitted” was “so submitted” in this case, the Tax Court focused on three facts — (1) the partnership did not submit any additional information after it submitted its initial request; (2) the IRS didn’t ask for any additional information; and (3) the IRS approved the modification request based on the information provided with the modification request. Considering these facts, the court held that
8 The court notes that “nothing in the statute (or regulations) requires a waiver for a submission to be complete.” That is correct but it’s also not the point. By signing the waiver, the partnership affirmatively says it’s not submitting any more information or amending its request. Without the waiver, the partnership is free to supplement and amend its request until the modification period ends. If there is still a possibility the submitted modification request can change, the IRS has no way of knowing if the submission is, in fact, complete.
everything was “so submitted” when JM Assets filed its modification request, and not at the end of the modification period, as prescribed in the regulations. With all due respect to the court, this analysis suffers from the benefit of hindsight.
As mentioned, under reg. section 301.62351(b)(2), the date everything required to be submitted for modification was either the date when the partnership can’t submit any additional information, or the date the partnership signed a waiver basically saying, “I’m done, let’s move on.” This provided clarity for the government and taxpayers in several ways. First, it was clear partnerships could submit information for modification up until the end of the modification period, even if they previously submitted a request for modification. Second, it gave partnerships comfort that the IRS could not request additional information after the end of the modification period and extend the period of limitations. Finally, the regulations gave both taxpayers and the government a bright line for determining when the period of limitations expired. Tax certainty.
At the time JM Assets submitted its modification request, the IRS had no way to know if the partnership would submit any additional information in the time that remained, whether it would need additional information to review the partnership’s request, or whether it was going to approve the request. Since JM Assets did not waive the remainder of the modification period, it could have submitted more information, including requesting additional modifications, up until the end of the modification period. In this case, that was only an additional 20 days, but what if it wasn’t?
Taking a simple example which ignores whether a day is a holiday or weekend, let’s pretend the IRS issued the NOPPA on January 1, 2023, which gave the partnership until September 28, 2023, to request modification. In this example, the partnership submits a modification request on April 1, 2023. And instead of being a small relatively straightforward modification request, let’s say the modification request was large, including multiple bases for modification, and relied on the tax attributes and actions of indirect partners as part of the modification request (so it will take a long time to review). The IRS is now faced with an uncomfortable decision — does it
start reviewing the modification request now (realizing it may have to start all over again or do substantially more work later if the partnership amends its modification request) or does it wait until it is sure the partnership isn’t submitting any changes before it reviews the request? If the IRS decides to wait until the end of the modification period such that it is sure it is reviewing the complete request, it will only have 90 days to review the request, provide the partnership the results, and issue the FPA.9 But section 6235(a)(2) gives the IRS 270 days to review the request, not 90 days.
The court’s ruling in JM Assets puts the IRS between a rock and a hard place. When the court was evaluating when JM Assets submitted everything required to be submitted for modification, it had the benefit of knowing what happened next — that JM Assets didn’t provide more information, and the IRS didn’t ask for any information. But at the time the events were happening, this information was not knowable. As illustrated by my example above, because the IRS will have no way of knowing if the partnership plans on amending or supplementing its modification request at the time it is filed, the IRS must decide between potentially wasting its limited resources processing the request as is, or potentially reducing the time it was given to review the request. Similarly, the partnership will not know if the IRS will ask for additional information after the request was submitted (and the IRS won’t know this either until it starts processing the request). Therefore, the partnership will not know when the period of limitations will expire as more information may be needed so not “everything required” was “so submitted.” Tax uncertainty. This is not good tax administration.
In my next article (because, let’s be honest, it’s a lot to read at one time (like most of my articles)) I will discuss whether the Tax Court actually held reg. section 301.6235-1(b)(2) was invalid and discuss the impact the opinion has on tax certainty.
9 Two hundred seventy days from April 1, 2023, is December 27, 2023. If the IRS waits until the end of the modification period (September 28, 2023) to review the request, there are 90 days between September 28, 2023, and December 27, 2023.