UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT JULIE A. KEENE-STEVENS; No. 21-71082 RITCHIE N. STEVENS, Tax Ct. No. Petitioners-Appellees, 9539-15

v. OPINION COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellant.

Appeal from a Decision of the United States Tax Court

Argued and Submitted April 10, 2023 San Francisco, California

Filed July 3, 2023 Before: Richard A. Paez, Richard R. Clifton, and Holly A. Thomas, Circuit Judges.

Opinion by Judge Clifton 2 KEENE-STEVENS V. CIR

SUMMARY *

Tax

The panel reversed the Tax Court’s determination that taxpayers Ritchie Stevens and Julie Keene-Stevens owed neither deficiencies nor penalties for 2007 and 2009 through 2012, and remanded for recalculation of the deficiencies and penalties for those years. Taxpayers did not file returns for 2007 and 2012. The Tax Court concluded that taxpayers owed no deficiencies or penalties for those years, because the partnership losses claimed for those years exceeded the IRS’s adjusted non- partnership deficiencies. The panel held that the unsigned, unfiled tax returns, on which the partnership losses were reported, were legally invalid because they had not been filed and executed under penalty of perjury, and therefore could not be used to offset non-partnership income in an individual deficiency proceeding. Accordingly, the panel reversed the Tax Court’s deficiency determinations for these years, and remanded with instructions to determine taxpayers’ deficiencies without regard to any partnership losses claimed on the legally invalid tax returns. For 2009 through 2011, taxpayers reported no tax liability because of large net operating losses (NOLs) from partnerships subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). The Tax Court determined that taxpayers owed no deficiencies or penalties for 2009 through 2011 because the adjustments to non- * This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. KEENE-STEVENS V. CIR 3

partnership items would not have resulted in a deficiency even if there were no net loss from partnership items. The panel concluded that the Tax Court erred when it excluded from its calculations of “net loss from partnership items” the portions of the net-operating-loss carryover deductions that were composed of eligible partnership losses in prior years. The panel explained that, when carried forward as deductions, net operating losses composed of partnership losses can offset a taxpayer’s non-partnership income or instead are part of the “net loss from partnership items” under Internal Revenue Code § 6234(a)(3), as it was then in effect. The panel remanded for the Tax Court to assess the non-partnership items in the recomputed deficiencies for those years, accounting for the TEFRA-eligible partnership components of the net-operating-loss deductions only in the § 6234(a)(3) calculations of “net loss from partnership items.”

COUNSEL Jacob E. Christensen (argued) and Francesco Ugolini, Attorneys, Tax Division; David A. Hubbert, Deputy Assistant Attorney General; United States Department of Justice; Washington, D.C.; William J. Wilkins, Chief Counsel; Internal Revenue Service; Washington, D.C.; for Respondent-Appellant. A. Lavar Taylor (argued), Taylor Nelson Amitrano LLP, Santa Ana, California; Fritz Firman, Weber Firman, Costa Mesa, California; for Petitioners-Appellees. 4 KEENE-STEVENS V. CIR

OPINION CLIFTON, Circuit Judge:

This dispute arises from the Tax Court’s deter