Washington (March 25, 2004) -- In a unanimous opinion (Galletti 4-23/04), the U.S. Supreme Court held that the Internal Revenue Service can collect unpaid employment taxes from general partners when there was a timely assessment against the partnership, even though no assessments were made against the general partners individually.


Section 6501(a) provides that, except as otherwise provided, “the amount of any tax imposed by this title shall be assessed within three years after the return was filed ... and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.” If a tax is properly assessed within three years, the statute of limitations for the collection of the tax is extended under Section 6502(a) by 10 years from the date of assessment.


From 1992 to 1995, the partnership failed to pay federal employment tax liabilities that it had incurred. An assessment was timely filed against the partnership. The general partners filed for bankruptcy in 1999 and 2000 and the IRS filed proof of claims against them individually for $395,000 and $427,000 for the unpaid employment taxes. Under California law, a partnership maintains a separate identity from its general partners, and the partners are only secondarily liable for the tax debts of the partnership.


The Supreme Court held that the only relevant “taxpayer” for assessment is the partnership, the employer, and that the proper assessment against it extends the statute of limitations for collection of the tax from the general partners. According to the court, once a tax has been properly assessed, nothing requires the IRS to duplicate its efforts by separately assessing the same tax against individuals or entities who are not the actual taxpayers but are, by reason of state law, liable for payment of the taxpayer's debt.


-- WebCPA staff

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