Hindsight Is 20/20: JM Assets and the Blow to Tax Certainty, Part 2
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 continues her examination of JM Assets LP, questions whether the Tax Court actually held reg. section 301.62351(b)(2) was invalid, and discusses the impact the opinion has on tax certainty.
This article reflects the author’s personal views and not necessarily those of Citrin Cooperman.
Welcome to part two of my article discussion of the Tax Court’s opinion in JM Assets LP, 1 in which 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” (but did it really?). In the first part of the article, I discussed the regulation at issue, the court’s holding, and discussed some (unintended?) challenges for the government resulting from this case. In this article I get into the real heart of the case and 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. So join me as we go once more into the fray.
1 JM Assets LP v. Commissioner, 165 T.C. No. 1 (2025).
Did the Court Find the Regulation Invalid?
In my prior article, I assumed the court’s opinion in JM Assets determined that reg. section 301.6235-1(b)(2) is invalid and no longer enforceable. But, in another blow to tax certainty, the court seemed to say “not necessarily” (hence the quotes on “invalid” above and in the last article). In footnote 7, the court notes, “we express no view as to the application of this regulation to situations in which a partnership does not submit everything required to be submitted.” And the opinion also discusses the regulation being invalid “as applied.” Huh? The court clearly held that, if the regulation would provide a longer period of limitations than the statute, it’s invalid. Does this mean that the court may find the regulation is valid if it shortens the period of limitations?
Let’s play this out. What if the modification request submitted by JM Assets was missing a vital piece of information. According to the opinion, JM Assets requested rate modification based on two of its partners. What if the modification request inadvertently left off the amount of the adjustments allocable to one of those two partners and the IRS does not discover it until it processes the request after the modification period expires? Based on footnote 7, if the IRS asks the partnership to provide that information after the modification period expires and bases the period of limitations off when it has everything required to be submitted (that is, the amount of adjustments allocable to each partner for whom the partnership is requesting rate modification), would the court have upheld the regulation and said the period of limitations expired? As mentioned, under reg. section 301.6235-1(b)(1), it doesn’t matter if the submission was incomplete, the period of limitations is
calculated based on the end of the modification period.
Arguably, if the court were to apply reg. section 301.6235-1(b)(2) when it would shorten the period of limitations but not when it lengthens the period of limitations, this violates the standard under Loper Bright2 that the Tax Court relied upon in deciding this case. The court notes, “as the Supreme Court observed in Loper Bright, ‘statutes, no matter how impenetrable, do — in fact, must — have a single, best3 meaning.’” Single. So is it possible that the statute has two meanings for the exact same words? Can “everything required to be submitted” mean that the IRS has all the information if the information was received prior to the end of the modification period but mean at the end of the modification period if the partnership did not provide all information? If this is what footnote 7 means, I suppose the argument would be that, because section 6225(c)(7) requires “any information required to be filed or submitted” for modification to be submitted no later than the end of the modification period, this means everything required to be submitted is submitted the earlier of when all required information is submitted or the end of the modification period. But isn’t that adding words to the statute that do not exist? Section 6235(a)(2) does not say when “everything required to be submitted” is “so submitted” or when the modification period ends.4
Section 6235(a)(2) bases the period of limitations on when “everything required to be submitted” is “so submitted.” It does not place a temporal limit on that. Therefore, under the court’s opinion in JM Assets, if the partnership submits an incomplete modification request and never provides the missing information, is the
2 Loper BrightEnterprises v. Raimondo,603 U.S. 369(2024).
3 The term “best” is subjective as well. Does “best” mean the most technically accurate way to read the words or does “best” mean the best interpretation of the statute taken as a whole and considering the purpose of the statute? Obviously, it would be great if those were the same, but what if they were not?
4 In its opinion, the court appears to acknowledge that section 6225(c)(1) gives the IRS “broad” authority to establish procedures with respect to modification. This would, presumably, include what information needs to be submitted with a modification request. After all, section 6225(c)(8) provides that any modification “shall be made only” upon approval by the IRS. As the IRS is making the decision on the modification request, it would need to tell partnerships what they need to submit in order for the IRS to approve their request.
period of limitations open indefinitely? After all, even though section 6235(a)(2) refers to information required to be submitted under section 6225(c) (which would include the limit on providing information during the modification period), just because information cannot be submitted once the modification period expires doesn’t mean that everything required to be submitted was actually submitted. Whether all required information was actually submitted is an entirely different animal than whether additional information can be submitted. Under reg. section 301.6235-1(b)(2) this problem didn’t exist, as it deemed all information required to be submitted as submitted no later than the end of the modification period. Therefore, under the regulation, the submission could be deemed complete even if it wasn’t. Tax certainty.
As mentioned previously, section 6235(a)(2) refers to “the date on which everything required to be submitted to the Secretary pursuant to [section 6225(c)] is so submitted.” Section 6225(c)(7) provides that, “anything required to be submitted under [section 6225(c)] shall be submitted to the Secretary not later than the close of the 270-day period beginning on the date on which the [notice of proposed partnership adjustment] is mailed.” But section 6225(c)(7) doesn’t make information submitted before the end of the modification period the information “required to be submitted.” If it did, there would be no way for the IRS to deny the modification request based on lack of substantiation. Instead, it just puts a time limit on when the partnership can submit information to the IRS as part of a modification request, regardless of whether the information provided was “everything required to be submitted” or not. For “everything required to be submitted” to be submitted, it must be everything required, not some of what is required but now it’s too late to submit more information. For example, a partnership is required to submit Form 8982, “Affidavit for Partner Modification Amended Return Under IRC Section 6225(c)(2)(A) or Partner Alternative Procedure Under IRC Section 6225(c)(2)(B),” for every partner the partnership is requesting modification based on the partner filing an amended return. If the modification request requests amended return modification but does not attach Form
8982, the partnership has not submitted everything required to be submitted as part of a modification request, regardless of whether the modification period is open or closed.
As I don’t think the court meant footnote 7 to say that “everything required to be submitted” can mean different things based on whether the modification period is open or closed, from this point on I will assume that the court’s holding in JM Assets means that reg. section 301.6225-1(b)(2) no longer has any force or effect.
Impact on Tax Certainty
Under reg. section 301.6235-1(b)(2) only two things affected the period of limitations — when the modification period naturally ended or when the partnership signed a waiver. Without those bright lines, we are left with the ambiguous “everything required to be submitted” which arguably creates more questions than it answers.These questions make it difficult for taxpayers and the government to know when the period of limitations actually expires.
What is “everything required to be submitted”? Publication 5346, which serves as the instructions to Form 8980, “Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c),” says that all forms related to Form 8980 (for example, Form 8982, Form 8983 (“Certification of Partner Tax-Exempt Status for Modification Under IRC Section 6225(c)(3),” the form used by tax-exempt entities to certify they are tax exempt), etc.) and any required attachments should be submitted with the Form 8980. The instructions clearly state that “the related forms and required supporting attachments will depend on the type(s) of modifications being requested.” Therefore, what information is required depends on the facts and circumstances of the particular modification request. Is “everything required to be submitted” everything the IRS says it needs to make a decision on the partnership’s modification request? Is it everything the partnership says the IRS needs to make the decision? Who gets to decide that? If the IRS requests additional information, can the partnership raise whether the IRS really needed to ask for that information as part of an argument that the period of limitations expired prior to the issuance of the
final partnership adjustment? How “necessary” does the information need to be?
If the modification request submitted by the partnership is incomplete and the modification period is still open, is the IRS required to ask for that information so that “everything required to be submitted” is “so submitted”? This would be a bit of a stretch. There is certainly nothing in the statute that requires the IRS to follow up with the partnership to request additional information not provided in the request submitted by the partnership. But on th e flip side — if the partnership submits additional information after its original modification request but none of that information is actually needed by the IRS, can the partnership successfully argue that providing that information should be ignored for purposes of determining the period of limitations? If the IRS asks for the additional information in one case but not another, the period of limitations would arguably be different in those cases, even if the requests submitted by the partnerships were identical and the IRS ultimately approves both requests. But similarly situated taxpayers should be treated similarly, right?
What if the IRS asks for information that doesn’t exist or which the partnership doesn’t have access to? How does that impact whether all information required to be submitted is submitted? What about if the IRS requests additional information from the partnership but the partnership does not provide it? As with exams, the IRS will make a decision based on the information it has, even if it needed additional information. Does that mean an arguably incomplete submission becomes a complete submission?
Here’s another one for you — does whether the IRS’s decision on whether to approve or deny the modification request impact the period of limitations? Let’s take another example using the same example above, where the notice of proposed partnership adjustment was issued on January 1, 2023, the modification period ends on September 28, 2023, and the partnership submits its modification request on April 1, 2023. Now let’s add that on November 1, 2023, the IRS denies the modification requested by the partnership because the IRS says the partnership did not include all of the required information for that particular
modification. The IRS issues the final partnership adjustment on June 24, 2024, based on the end of the modification period (recall that 270 days from when the modification request was submitted is December 27, 2023, but 270 days from the end of the modification period is June 24, 2024). If the partnership petitions the final partnership adjustment and challenges the IRS’s denial of its modification request and is successful, does that mean the period of limitations is now closed?
If the partnership submits a modification request early in the modification period, the IRS processes it, and approves it, can the partnership still amend its modification request to add additional modifications prior to the end of the modification period? After all, if the IRS was able to approve the request (as in JM Assets), everything required to be submitted for that modification request was “so submitted” as of the date the request was submitted to the IRS. That was the court’s holding in JM Assets. If everything required to be submitted was submitted, can that change after the fact? Could the IRS argue that it approved the modification based on the information provided even if it wasn’t “everything required to be submitted?” Looking back on my example where JM Assets’ modification request inadvertently omits the amount of the adjustments allocable to one of the partners for which rate modification was requested — if the IRS figures out the allocation itself and approves the modification, was everything required to be submitted so submitted? Does the answer change if the IRS denies the requested modifications because the partnership did not properly substantiate the modifications it requested or submit all the required information?
Let’s go a step further — above I mentioned the partnership is required to attach Form 8982 to its request if it requests amended return modification. If the IRS requests the Form 8982 prior to the modification period ending but the partnership does not submit it, when does the section 6235(a)(2) period start? Does the answer change if the IRS goes into its records, locates the amended return filed by the partner at issue in the modification request, verifies the amended return was properly filed, and approves the modification request? The instructions clearly provide that a Form 8982 is required. If the IRS (arguably) waives the requirement by approving the
modification request without it, was everything required to be submitted so submitted? If so, when does that occur? When the partnership submits the modification request, when the modification period expires, or when the IRS decides to waive the requirement and approve the modification request? Tax uncertainty.
Normally, I do not like writing articles with a bunch of questions and no answers. But, unfortunately, I don’t have the answers here. Without the bright line provided by reg. section 301.6235-1(b)(2), there will be a lot of uncertainty regarding when the period of limitations expires if the partnership requests modification. It would seem to turn on whether all information “required to be submitted” is submitted — either with the initial request or after (and it’s not even clear if the 270-day period can start after the modification period ends). Arguably, when the period of limitations ends could depend on unilateral action by the IRS — requesting additional information. This lack of clarity will result in a lot of litigation as taxpayers and the IRS try to answer all these questions (and all the questions I didn’t think about). Given its importance, when the period of limitations expires should be easy to discern. But, after the court’s opinion in JM Assets, it is anything but easy. Good luck my friends.
To me, this case illustrates the problem with Loper Bright and why it can be a bit shortsighted. By definition, courts only consider the facts and cases in front of them. As a single case, it will not have all the complications that could arise if the fact pattern was different, and regulations and statutes apply to everyone. When promulgating regulations, the government considers the application of the rule to all taxpayers and situations. Statutes aren’t perfect. But the court is deciding what the best reading of the statute is based solely on the facts of the case in front of it. In a way, this makes the “best” interpretation of the law dependent on which facts happen to reach the court first. That doesn’t seem right. Is reg. section 301.6235-1(b)(2) alive or dead after JM Assets? How does one determine when the period of limitations ends if the partnership requests modification? Just like how many licks it takes to get to the center of a Tootsie Pop, the world may never know.