CCA 200851080: The Ninth Circuit's S corporation limitations position did not survive Bufferd

Plain-English summary

One sentence of advice, answering a question about whether the Ninth Circuit takes a special position on the assessment period for S corporation shareholders. The answer is that it no longer does, because the Supreme Court effectively overruled the case that created the position, so there are no special concerns.

The question matters because an S corporation does not pay tax on its income. The items pass through to the shareholders, who report them on their own returns. Two returns are therefore in play, filed at different times, and the assessment period has to run from one or the other. Running it from the corporation's return would mean a shareholder's exposure could close before the shareholder's own return had been on file for the full period. Running it from the shareholder's return ties the deadline to the return that actually reports the tax being assessed.

The Ninth Circuit had held that the period ran from the corporation's return. The Supreme Court later held the opposite, that the period runs from the shareholder's own return, which is the return the assessment relates to. That resolved a split among the circuits and left the earlier Ninth Circuit rule with nothing to stand on. Hence the practical point of the release: an examiner working a case in that circuit does not need to apply a shorter or different period, and can compute the assessment period from the shareholder's return as elsewhere.

The release names both cases by name only, with no citation, no court and no year, which is normal for an internal note between people who both know the cases. For a reader who does not, the Ninth Circuit case is Kelley v. Commissioner, 877 F.2d 756 (9th Cir. 1989), and the Supreme Court case is Bufferd v. Commissioner, 506 U.S. 523 (1993). Those citations were confirmed against public court records; they are not in the document, and are supplied here only so the reference can be followed.

Note also the hedge in the writer's own words. The release says the Supreme Court "effectively" overruled the earlier case and that the writer does not "think" there are special concerns. The Supreme Court decided a case from a different circuit, so it did not formally reverse the Ninth Circuit decision; it settled the question the Ninth Circuit had answered the other way. This is a quick working answer, not a considered opinion, and the release contains no analysis beyond the single sentence.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: the contraction "I don't"; and the quotation marks around "S" in the subject line.

Ruling snapshot

• Question: Does the Ninth Circuit's position on the limitations period for assessing S corporation shareholders raise special concerns?
• Outcome: Advice given. No. The Supreme Court effectively overruled the earlier Ninth Circuit decision, so the writer does not think there are any special concerns.
• Key authorities: IRC section 6501; Kelley and Bufferd, named in the release without citation.

Full text (IRS public release)

ID: CCA_2008090808104564 Number: 200851080
Office: ------------ Release Date: 12/19/2008

UILC: 6501.00-00

From: ------------------
Sent: Monday, September 08, 2008 8:10:47 AM
To: -----------------------------
Cc: ----------------
Subject: RE: Ninth Circuit Position Subchapter "S" Statute of Limitations

The Supreme Court effectively overruled Kelley in Bufferd, so I don't think there are any special concerns.