Category: Tax Returns, Examinations &
IRS Procedures; Partnerships & LLCs Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Taxpayer (TP) invested $60,000 in a research and development limited partnership in 1983. On 12/6/83, TP was notified that the partnership had filed under Chapter 11 of the Bankruptcy Code. TP wrote off his entire investment in the partnership in 1983. In connection with an examination for the partnership's 1985 tax year, the IRS limited TP's 1983 loss to $14,500 which was the amount shown on TP's K-1 for 1983. The agent did not indicate when the disallowed portion of the loss should be claimed. The partnership declared Chapter 7 bankruptcy in 1988. The statute of limitations is closed for TP's tax years prior to 1988. The issue is whether there is any support to claim that the statute of limitations should be mitigated to allow TP's loss to be claimed in a tax year prior to 1988. Research indicated no support for mitigation of the statute of limitations. Internal Revenue Code Sections 1311 through 1314 deal with the issue of mitigation of the statue of limitations. In order to mitigate the statute, a "determination" is required in a subsequent tax year which establishes that the prior treatment (in the closed tax year) was erroneous. A determination is defined as one of the following events, none of which is present in the extent circumstances: 1. a Tax Court decision, 2. a closing agreement under Section 7121, 3. a final disposition by the Secretary of a claim for refund, or 4. an agreement with the Secretary relating to the liability in question. Since a fundamental requirement of mitigation is clearly missing, it appears impossible to apply the mitigation provisions to TP's case. I am unaware of any other means of claiming the loss in a year prior to 1988. |
