United States v. Galletti
Headline: Court allows IRS to use a timely assessment against a partnership to extend the collection deadline and sue its general partners, making it easier to collect unpaid employment taxes.
Holding: The Court held that a timely assessment of taxes against a partnership extends the 10-year collection period so the Government may sue general partners who are secondarily liable without separately assessing them.
- Allows IRS to sue partners in court without separately assessing each partner
- Makes bankruptcy objections to IRS claims harder when partnership taxes are assessed
- Does not resolve administrative liens, levies, or partner penalty notice issues
Summary
Background
Four people who were general partners of a small business failed to pay employment taxes the business owed from 1992 to 1995. The IRS properly recorded assessments of those taxes against the partnership in the mid-1990s, but the partnership never paid. The partners later filed Chapter 13 bankruptcy and objected when the IRS filed claims to collect the unpaid taxes, arguing the IRS had not separately assessed each partner within the three-year deadline and so could not sue them for the debt.
Reasoning
The central question was whether the IRS had to assess the same tax separately against each partner for the extended 10-year collection period to apply. The Court explained that an assessment is the calculation and recording of the tax debt and that the employer liability here was the partnership’s. Because the tax was properly assessed against the partnership, the extension of the statute of limitations attached to the tax debt itself. The Court therefore concluded the Government could bring judicial proceedings to collect the partnership’s tax debt from partners who are secondarily liable without separately assessing each partner.
Real world impact
The decision lets the Government pursue partners in court for partnership employment-tax debts when the partnership was timely assessed, even if the IRS did not separately assess each partner. The ruling reversed the Ninth Circuit and sent the case back for further proceedings. The Court did not decide whether an assessment against the partnership alone is enough for administrative actions like liens, levies, or for penalties and interest against partners.
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