143 T.C. No. 4
T.C.2014Background
- Stone Canyon Partners is a TEFRA partnership formed by Bedrosian-related entities; the Bedrosians claimed large 1999 losses from a Son-of-BOSS variant using foreign currency options.
- Stone Canyon had passthrough partners, so the small partnership exception under TEFRA did not apply and TEFRA procedures governed partnership items.
- Stone Canyon and the Bedrosians engaged in an audit leading to separate notices: a February 2005 NBAP, an April 2005 FPAA for Stone Canyon, and a March/April 2005 notice of deficiency for the Bedrosians.
- The Bedrosians filed a petition in 2005 challenging the 2005 notice; prior proceedings and appellate history held lack of jurisdiction over partnership items listed in the 2005 notice, though transaction fees remained potentially competent for partner-level review.
- The parties disputed whether the Bedrosians validly elected under TEFRA sections 6223(e) or 6231(g)(2) to convert partnership items to nonpartnership items, and whether the IRS reasonably determined TEFRA applicability; the court conducted analysis under these provisions and the law-of-the-case doctrine.
- The court concluded no proper election was made, TEFRA was correctly applied, and the law-of-the-case limited reconsideration; an order dismissing or denying jurisdiction would issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bedrosians validly elected to convert partnership items under 6223(e)(3). | Bedrosians contended the petition served as a valid election. | IRS did not receive a proper election; petition failed to meet regulatory requirements. | No valid election; not substantial compliance. |
| Whether 6223(e)(2) conversion applies if TEFRA proceedings were ongoing. | Conversion should occur if TEFRA Proceedings ended or limitations period expired. | Proceedings were ongoing; 6223(e)(2) does not apply. | 6223(e)(2) does not apply. |
| Whether section 6231(g)(2) applies to remove TEFRA and permit deficiency procedures. | IRS reasonably determined TEFRA did not apply; or that such determination was erroneous. | TEFRA applied; 6231(g)(2) does not justify exclusion. | Sec. 6231(g)(2) does not apply; TEFRA remains applicable. |
| Whether law-of-the-case prevents reconsideration of prior TEFRA rulings. | Law-of-the-case requires reconsideration. | Law-of-the-case binds the court. | Law-of-the-case bars reconsideration of partnership-item rulings. |
| Whether the IRS reasonably determined TEFRA applicability based on Stone Canyon’s return. | Return showed passthrough partners; determination could be reasonable. | Determinative basis on return supported TEFRA; reasonable. | IRS determination not applicable to apply TEFRA; not the controlling result. |
Key Cases Cited
- Clovis I v. Commissioner, 88 T.C. 980 (1987) (FPAA is the TEFRA determination in partnership items)
- Harrell v. Commissioner, 91 T.C. 242 (1988) (use of same-share rule; purpose of TEFRA proceedings)
- Fischer Indus., Inc. v. Commissioner, 87 T.C. 116 (1986) (affirmative intent required for elections; amended filings permissible)
- Samueli v. Commissioner, 132 T.C. 336 (2009) (substantial compliance requires evidencing affirmative intent)
- Tigers Eye Trading, LLC v. Commissioner, 138 T.C. 67 (2012) (TEFRA complexity; unified partnership proceedings)
- Bedrosian v. Commissioner, 358 Fed. Appx. 868 (2009) ( Ninth Cir. affirmance; validity of notices; finality of FPAA/deficiency)