140 T.C. No. 7
Tax Ct.2013Background
- Petitioner AHG Investments, LLC, and a non-Tax Matters Partner, Alan Ginsburg, faced a FPAA from respondent.
- The FPAA disallowed about $10,069,505 of losses attributable to petitioner for 2001–2002 and asserted a 40% gross valuation misstatement penalty under section 6662(h).
- Petitioner conceded FPAA adjustments on grounds other than valuation or basis to attempt to avoid the penalty.
- The TMP was Helios Trading, LLC; petition filed from Florida; principal place of business of the partnership was not clearly established.
- The FPAA enumerated 14 grounds for adjustments, including grounds unrelated to valuation or basis, with the penalty tied to a gross valuation misstatement.
- Petitioner moved for partial summary judgment seeking dismissal of the penalty as a matter of law; respondent opposed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether concessions on non-valuation grounds negate the gross valuation penalty | Ginsburg | Respondent | No; the penalty cannot be avoided by unrelated concessions (denial of the penalty). |
| Whether the concession affects whether the underpayment is attributable to a valuation misstatement | Ginsburg | Respondent | Concessions do not eliminate the possibility of a valuation misstatement penalty. |
| Whether the court should depart from McCrary/Todd minority rule on Blue Book formula | Ginsburg | Respondent | The court adopts the majority rule; the penalty may apply even where other grounds support the deficiency. |
| Proper appellate jurisdiction for review of a TPFPAA decision | Ginsburg | Respondent | Appeal would lie to the D.C. Circuit given unclear principal place of business; no Fifth/Ninth circuit seat is established. |
Key Cases Cited
- McCrary v. Commissioner, 92 T.C. 827 (1989) (adopted Blue Book formula for valuation misstatement penalty)
- Todd v. Commissioner, 89 T.C. 912 (1987) (early framing of concession on non-valuation grounds)
- Todd II, 862 F.2d 540 (5th Cir. 1988) (Blue Book formula interpretation; enacted penalty application)
- Gainer v. Commissioner, 893 F.2d 225 (9th Cir. 1990) (adherence to Todd II majority approach (minority among circuits))
- Fidelity Int’l Currency Advisor A Fund, LLC v. United States, 661 F.3d 667 (1st Cir. 2011) (rejects Todd II/Gainer reasoning; Blue Book interpretation criticized)
- Gustashaw v. Commissioner, 696 F.3d 1124 (11th Cir. 2012) (reaffirms penalties; rejects concession argument)
- Alpha I, L.P. v. United States, 682 F.3d 1009 (Fed. Cir. 2012) (rejects Todd II-based analysis; Blue Book broader interpretation)
- Bemont Invs., L.L.C. v. United States, 679 F.3d 339 (5th Cir. 2012) (courts’ concurrence questioning Todd II logic; adopts majority view)