139 T.C. No. 7
Tax Ct.2012Background
- FPAA issued March 30, 2007 to Gaughf Properties’ TMP for 1999, seeking $4,455,000 of omitted income from currency option expiration.
- Gaughf Properties formed in 1999 by four entities (Gaughf Enterprises, Balazs Ventures, Bodacious, and Gaughf Properties) to implement a plan; Bodacious owned 100% of Bodacious and elected S-corp status.
- Complex intercompany transfers included currency options and a 7,500-share Quanta stock transfer to Bodacious upon liquidation, inflating outside basis.
- Gaughfs’ 1999 returns reportedly understated partnership items and included a misleading Section 351 statement regarding Gaughf Properties basis; KPMG and J&G were involved; J&G provided a legal opinion.
- IRS obtained J&G and KPMG documents, issued summonses; NBAP and the FPAA followed an extended audit and disclosure sequence; the case focuses on whether the partnership-item tax period remained open and whether estoppel applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 6229(e) period remained open for partnership items. | Gaughfs argue period closed; lack of proper furnishing. | IRS contends 6229(e) extended period. | Yes, period was open on FPAA date. |
| Whether Gaughfs complied with 6222(b) inconsistent-treatment notice. | Gaughfs contended no inconsistent treatment or filing. | Respondent asserts failure to notify; regulation valid. | Gaughfs failed to comply; 6229(e) applies. |
| Whether information identifying Gaughfs as indirect partners was furnished. | KPMG/J&G information not properly filed; possible indirect-identity provided. | No proper 6223(c)-1T filing; KPMG did not furnish valid statement. | Information not furnished properly; third-party sources insufficient. |
| Whether estoppel prevents respondent from asserting-opener. | Estoppel due to delayed notices and other conduct. | Estoppel rigid against government; no misrepresentation of facts. | Estoppel does not preclude the extension; no grounds shown. |
Key Cases Cited
- Costello v. United States Gov’t, 765 F. Supp. 1003 (C.D. Cal. 1991) (indirect partner 6229(e) applies; unidentified partner)
- Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984) (court defers to reasonable agency interpretation)
- Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704 (2011) (regulatory authority to prescribe regulations; Chevron analysis applied)
- United States v. Home Concrete & Supply, LLC, 132 S. Ct. 1836 (2012) (Supreme Court decision affecting Home Concrete timing of assessments)
- Murphy v. Commissioner, 129 T.C. 82 (2007) (regulatory interpretation and burden of proof considerations)