10 F.4th 1136
11th Cir.2021Background
- David Greenberg, a CPA, and others formed GG Capital and used Son-of-BOSS short-option-strategy (SOS) transactions (via JPF III and AD Global) to claim large foreign-currency losses on 1999–2001 returns; IRS issued multiple notices of deficiency (NODs) for 1999, 2000, 2001 (2004, 2005, 2009 NODs).
- Key transactions: JPF III bought digital-option spreads, contributed them to AD Global, then withdrew; alleged sales of long-option legs to generate losses lacked documentary support and were found not credible.
- IRS issued an FPAA to AD Global (2003); later converted partnership items to nonpartnership items for partners under criminal-investigation rules and issued converted-item NODs to Greenberg (2009).
- Tax Court held AD Global and JPF III were sham/not partnerships, treated option legs as a single contract, disallowed the claimed losses, found GG Capital’s 1997 handwritten TEFRA election invalid, and denied penalties only for procedural defects.
- Tax Court adopted the Commissioner’s Rule 155 computations and denied Greenberg’s post-trial motions (to reopen record, to amend for an NOL carryback, to require specific allocations under §704/CUPA, and to obtain §6404(g) interest suspension relief).
Issues
| Issue | Greenberg’s Argument | Commissioner’s Argument | Held |
|---|---|---|---|
| Validity of GG Capital’s 1997 §6231(a)(1)(B)(ii) TEFRA election | Greenberg: handwritten election (signed/initialed by him, noting he signed for partners) created TEFRA coverage for subsequent years or substantially complied | Commissioner: regs required a statement signed by all partners; election invalid because signatures/authorization lacking | Election invalid; Tax Court’s credibility findings upheld; GG Capital not a TEFRA partnership for 2000–01 |
| Timeliness of 2004 NOD (2000 tax year) | Greenberg: mailing was Oct 16 (after 3-year limitations), so NOD untimely | Commissioner: produced PS Form 3877 and witness testimony showing Oct 15 mailing | NOD was mailed Oct 15; timely |
| Timeliness of 2009 NOD (1999 tax year) — interplay of §6501 and former §6229 | Greenberg: limitations expired before conversion/notice; NOD untimely | Commissioner: FPAA suspended limitations and §6229(d)/(f) extended assessment period while AD Global proceedings were pending | 2009 NOD timely because FPAA suspension and pending partnership-level proceedings extended the assessment period |
| Partnership status / economic substance of AD Global and JPF III and treatment of option legs | Greenberg: entities/transactions had economic substance; losses valid; alleged sales occurred | Commissioner: AD Global/JPF III were shams, options treated as single economic unit, sales lacked documentary support | Tax Court correctly found shams, disregarded partnerships, treated legs as inseparable, disallowed losses; credibility findings not clearly erroneous |
| Validity of 2009 NODs as actual determinations (Scar/Benzvi challenge) | Greenberg: IRS did not make a "thoughtful and considered" determination; NODs disallowed items not shown on petitioner’s returns | Commissioner: NODs explained the basis, were tied to Greenberg’s returns, and met minimum Benzvi requirements | NODs satisfied Benzvi/Scar standards; court declined to look behind notices |
| Burden of proof, new matters, and post-trial issues (Rule 155 computations, §704/CUPA allocations, §6404(g) interest suspension, NOL carryback) | Greenberg: Commissioner introduced new matters; burden should shift; Tax Court should reopen/consider CUPA/§704 allocations, §6404(g) suspension, and later NOL carryback | Commissioner/Tax Court: many items were new matters or outside Tax Court jurisdiction (interest); Rule 155 not a vehicle to raise new factual issues; denial of reopening appropriate | Tax Court did not err or abuse discretion: burden did not shift, Rule 155 adoption of Commissioner’s computations affirmed, §6404(g) interest issues were outside Tax Court jurisdiction, NOL/other new matters properly denied |
Key Cases Cited
- United States v. Woods, 571 U.S. 31 (2013) (explaining TEFRA partnership-level procedures and subsequent partner-level adjustments)
- Highpoint Tower Tech., Inc. v. Commissioner, 931 F.3d 1050 (11th Cir. 2019) (describing Son-of-BOSS transactions and partnership-audit context)
- Kligfield Holdings v. Commissioner, 128 T.C. 192 (Tax Ct. 2007) (Son-of-BOSS transaction description and basis inflation mechanics)
- Benzvi v. Commissioner, 787 F.2d 1541 (11th Cir. 1986) (minimum requirements for a valid notice of deficiency)
- Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987) (NOD invalid where it on its face showed no determination had been made)
- Stoecklin v. Commissioner, 865 F.2d 1221 (11th Cir. 1989) (NOD met Benzvi when it computed and explained additional taxes)
- AD Global Fund, LLC ex rel. North Hills Holding, Inc. v. United States, 481 F.3d 1351 (Fed. Cir. 2007) (§6229 suspensions extend assessment period for partnership items)
- BLAK Investments v. Commissioner, 133 T.C. 431 (2009) (§6229 suspends and supplements §6501 regarding partnership items)
- JPMorgan Chase & Co. v. Commissioner, 530 F.3d 634 (7th Cir. 2008) (abuse-of-discretion review of Tax Court adoption of Rule 155 computations)
- Preston v. Commissioner, 209 F.3d 1281 (11th Cir. 2000) (Commissioner may assert inconsistent positions to avoid being whipsawed)