Alpha I, L.P. Ex Rel. Sands v. United States
2012 U.S. App. LEXIS 12216
| Fed. Cir. | 2012Background
- Two Son-of-BOSS transactions and CRUT transfers by heirs of Marvin Sands triggered IRS FPAAs against RRMC Group and related partnerships for basis, gain, and loss adjustments, plus multiple penalties.
- Court of Federal Claims dismissed TT claims, holding partner identity is not a partnership item and lacking TEFRA partnership-level jurisdiction.
- Partnerships conceded capital gain and loss adjustments under I.R.C. § 465, leading to a summary-judgment ruling that the 40% gross valuation misstatement penalty was inapplicable.
- Cross-appeals challenged penalties for negligence, substantial understatement, and good-faith failure; government argued some penalties were appropriate, and remand could affect mootness.
- This court held that partner identity can be a partnership item under TEFRA when it could affect distributive shares, and remanded for further proceedings on penalties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RRMC Group partner identity is a partnership item | IRS argues identity affects allocations; jurisdiction at partnership level. | Court held partner identity not a partnership item and outside TEFRA. | Yes; partner identity can be a partnership item and resolved at partnership level. |
| Whether the 40% gross valuation misstatement penalty applies when gains were conceded | IRS contends underpayments may be attributable to valuation misstatement despite concessions. | Taxpayers’ concession on §465 grounds eliminates need for valuation analysis. | Remand to determine whether underpayments are attributable to valuation misstatement; vacate summary judgment. |
| Whether the 20% penalties for negligence and substantial understatements are ripe for review | Penalties may apply if independent grounds exist for adjustments. | Penalties are premature while value- misstatement issue is unresolved. | Premature to decide; remand, May be moot if 40% penalty applies. |
Key Cases Cited
- Katz v. Commissioner, 335 F.3d 1121 (10th Cir. 2003) (partnership item depends on allocation effects)
- Keener v. United States, 551 F.3d 1358 (Fed. Cir. 2009) ( Chevron deference and partnership-item regulation interpretation)
- Merino v. Comm'r, 196 F.3d 147 (3d Cir. 1999) (valuation misstatement analysis context)
- Gainer v. Commissioner, 893 F.2d 225 (9th Cir. 1990) (valuation penalties where independent grounds exist)
- Todd v. Commissioner, 862 F.2d 540 (5th Cir. 1988) (Blue Book rule for attribution of underpayments to valuation misstatements)
- Fid. Intl. Currency Advisor A Fund, LLC v. United States, 661 F.3d 667 (1st Cir. 2011) (dual-cause valuation penalties and policy considerations)