PROCEDURALLY TAXING tax notes federal
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. She is also a contributing author for Procedurally Taxing. In this post, Black considers the implications of a court finding that the Bipartisan Budget Act of 2015 violates partners’ due process rights. This post reflects the author’s personal views and not necessarily those of Citrin Cooperman. In part 1 of this post, we examined the Tax Court’s opinion in Jones Bluff in which the court held that a partnership does not have standing to raise the argument that BBA violates partners’ due process rights because they do not have notice and an opportunity to challenge the adjustments before paying any tax on those adjustments. In part 2 of this post, I’ll look what could happen if a court were to find that partners’ due process rights were violated. Would the outcome be what people expect? Picture It. Sicily . . .1 Partner-Level Due Process Claims As an initial matter, should partner due process even be a thing here? Recall our flashback — the only way the partners can be liable for anything under the Bipartisan Budget Act of 2015 is if the partnership makes them liable (or the partner voluntarily files an amended return). The
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Sophia Petrillo, Golden Girls.
imputed underpayment (IU) is the partnership’s liability. Sure, there may be ways to collect the IU from the partners if the partnership doesn’t pay, but why does that mean the partners have to be able to challenge that liability? Think about it another way — another partnership liability under the Internal Revenue Code is payroll taxes. Partners have no due process rights in payroll tax proceedings — they do not get notice of it, they can’t participate in the proceeding, and they can’t petition to challenge the IRS’s determination that the partnership is liable for additional employment taxes. And, just like any other partnership liability, the IRS may be able to collect that partnership liability from the partners (for example, under state law). At the end of the day, the thing that pops in my head every time I think about this is — the partners control the partnership. If they control the partnership, why wouldn’t the partnership’s due process be imputed to them? Sure, not all partners are equal. The majority partner who either is, or directs, the partnership representative is challenging the adjustments. Why should that partner also get to challenge the adjustments in a partner-level proceeding? I pity the fool that tries to do that. No soup for you! What about if the partners get to vote on whether the partnership should settle the case and that partner loses? Should they get to challenge the adjustments at their level? There are gradients here — from the majority partner actively managing the partnership audit to a minority indirect partner three tiers up who hasn’t even heard of the partnership under audit. Does one have due process while the other doesn’t? Where’s the line? Nothing in BBA prevents partners from having an agreement in place to notify the partners of the partnership audit and allow them to participate internally and have input into the decisionmaking process. As the concurrence noted in Jones
TAX NOTES FEDERAL, VOLUME 191, JUNE 22, 2026 For more Tax Notes® Federal content, please visit www.taxnotes.com.
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Did I Do That? Jones Bluff and Due Process Under BBA, Part 2