Respondent-appellant United States of America appeals from an order of the United States District Court for the Southern District of New York (Knapp, J.). The order quashed administrative summonses, issued by the Internal Revenue Service ("IRS") pursuant to section 7602 of the Internal Revenue Code of 1986, 26 U.S.C. §§ 1 et seq. ("I.R.C." or "Code"), to petitioner-appellee PAA Management, Ltd. ("PAAM"), and to Arthur Andersen & Co., Spear, Leeds & Kellogg, Wagner Stott Clearing Corp., and Merrill Lynch, Pierce, Fenner & Smith. PAAM is the general partner, and "tax matters partner" under the Code, see I.R.C. § 6231(a)(7), of Professional Arbitrage Associates ("PAA"), a partnership organized under the laws of Bermuda. The other entities to which summonses were issued are "third-party recordkeepers" under the Code with respect to PAA, see I.R.C. § 7609(a)(3). The summonses required production of certain documents, in the possession of the summonsed parties and relating to transactions undertaken by PAA, in connection with an IRS administrative investigation of PAA and its partners for the 1983-85 tax years. The return dates of the summonses fell on or after the date on which a final partnership administrative adjustment ("FPAA") 214*214 was sent by the IRS to each of PAA's partners for each of the 1983-85 tax years. An FPAA is somewhat analogous to a tax deficiency notice for an individual. See I.R.C. § 6223(a).
In quashing the summonses, the district court emphasized the timing of the return dates, and relied primarily on section 6223(f) of the Code, which provides that only one FPAA may be sent to each partner for each tax year in question. Judge Knapp apparently construed section 6223(f) to mean that the IRS's determination of partner tax liability set forth in the FPAA is not subject to subsequent revision, and that the issuance of an FPAA necessarily brings to an end the investigative role of the IRS. It further appears that the district court concluded, for these reasons, that the summonses issued in this case could serve no legitimate purpose and/or sought irrelevant information, and that section 6223(f) constitutes an express limitation on the summons authority of the IRS under circumstances such as those revealed here. Judge Knapp also attached importance to a collateral Tax Court proceeding commenced by PAAM challenging the FPAAs, and the ability of the IRS in that proceeding to discover the information sought by the summonses.
For the reasons that follow, we disagree with the district court's view of the effects on this case of section 6223(f) and the collateral Tax Court proceeding. Accordingly, the order of the district court quashing the summonses is reversed, and the case is remanded for further proceedings consistent with this opinion.
Miner '56, Roger J., "PAA Management, Ltd. v. US, 962 F. 2d 212 - Court of Appeals, 2nd Circuit 1992" (1992). Circuit Court Opinions. 352.