140 T.C. No. 7
T.C.2013Background
- Petitioner was a partner in AHG Investments, not the tax matters partner (TMP); he resided in Florida during years at issue.
- AHG Investments’ TMP was Helios Trading, LLC, whose address was in Illinois; AHG’s principal place of business and dissolution status were unclear at petition filing.
- Respondent issued FPAA with 14 grounds and sought 40% penalties under section 6662 for gross valuation misstatement related to partnership items.
- Petitioner conceded FPAA adjustments were correct on grounds unrelated to valuation or basis (e.g., lack of at-risk status under §465, no substantial economic effect under §1.704-1(b)).
- Petitioner filed a motion for partial summary judgment arguing the 40% penalty does not apply as a matter of law due to concessions on non-valuation grounds; respondent opposed.
- Major adjustment in FPAA was disallowing $10,069,505 in losses allocated to petitioner for 2001 and 2002.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether concessions on non-valuation grounds preclude the gross valuation misstatement penalty | Petitioner argues concessions on non-valuation grounds negate the penalty | Respondent argues penalty can still apply regardless of concessions on non-valuation grounds | No; concessions do not bar the penalty under the governing rule |
| How the Blue Book formula determines the portion of underpayment due to valuation overstatement | Petitioner contends McCrary/Todd I logic governs and defeats penalty | Respondent argues Blue Book formula applies and supports penalty notwithstanding non-valuation grounds | Penalty applies under the Blue Book formula, overruling Todd I/McCrary approach (majority rule) |
| Whether the penalty issue and related rulings are subject to review in a particular appellate court | Not explicitly stated; venue considerations discussed | Unknown; court discusses potential appellate venues | Appeal would lie in the D.C. Circuit based on principal place of business and venue determinations; not conclusively established here |
Key Cases Cited
- Todd v. Commissioner, 89 T.C. 912 (1987) ( Todd I; discussed precedent on concessions and valuation misstatements)
- Todd II, 862 F.2d 540 (5th Cir. 1988) (Blue Book formula for allocating underpayment to valuation overstatement)
- McCrary v. Commissioner, 92 T.C. 827 (1989) (Concession on non-valuation grounds not deemed to affect valuation misstatement penalty (original rule))
- Gainer v. Commissioner, 893 F.2d 225 (9th Cir. 1990) (Adopted Todd II approach by some circuits; minority rule in some circuits)
- Fidelity Int’l Currency Advisor A Fund, LLC v. United States, 661 F.3d 667 (1st Cir. 2011) (Rejects Todd II/Gainer view; blue-book-based approach favored by majority)
- Alpha I, L.P. v. United States, 682 F.3d 1009 (Fed. Cir. 2012) (Rejects Todd II; Blue Book formula misapplied in Todd II)
- Gustashaw v. Commissioner, 696 F.3d 1124 (11th Cir. 2012) (Affirms valuation penalty; rejects Todd II rationale)
- Bemont Invs., L.L.C. v. United States, 679 F.3d 339 (5th Cir. 2012) (Notes concerns with Todd II; concurs with majority view on Blue Book)
- Vasquez v. Hillery, 474 U.S. 254 (1986) (Stare decisis framework and respect for precedent)