143 T.C. No. 4
Tax Ct.2014Background
- Bedrosians invested in Stone Canyon Partners via an LLC and an S corporation, forming a TEFRA partnership for 1999; the partnership items were subject to TEFRA audit and litigation procedures.
- IRS issued NBAP and then an FPAA for 1999; the FPAA was mailed 62 days after the NBAP and warned of opt-out rights under section 6223(e).
- Bedrosians filed an untimely petition challenging the 2005 FPAA; the Tax Court dismissed that petition, and the Ninth Circuit affirmed dismissal in part, holding the partnership items were outside the court’s jurisdiction at that stage.
- Separately, the IRS issued a notice of deficiency (NOD) duplicating the partnership adjustments and adding new adjustments; Bedrosians filed a timely petition against the NOD for 1999 and 2000.
- Bedrosians moved for summary judgment asserting jurisdiction over all items in the NOD, arguing the partnership items had converted to nonpartnership items under TEFRA 6223(e)(2) or 6223(e)(3).
- The Court ultimately held the partnership items did not convert under TEFRA because the TEFRA proceeding was ongoing when the FPAA was mailed, and the Bedrosians did not validly elect or substantially comply to convert under 6223(e)(3); the Court was bound by Ninth Circuit precedent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do TEFRA partnership items convert to nonpartnership items under 6223(e)(2)? | Bedrosians contend proceeding concluded; items convert when FPAA mailed. | Proceeding ongoing; conversion not triggered. | No conversion; TEFRA ongoing so 6223(e)(2) not satisfied. |
| Do TEFRA partnership items convert under 6223(e)(3) via a timely election? | Petition served as deemed election converting items. | Election not timely or properly filed; no substantial compliance. | No valid election; petition did not meet regulatory requirements or substantial compliance. |
| Does 6231(g)(2) allow TEFRA to be avoided where the partnership return reasonably shows TEFRA does not apply? | IRS reasonably determined TEFRA did not apply based on Stone Canyon return. | TEFRA applied; determination unreasonable if made. | 6231(g)(2) does not apply; TEFRA applied and not reasonably determined to not apply. |
| Is the court bound by law-of-the-case or Ninth Circuit precedent precluding reconsideration? | Court should reconsider as warranted by TEFRA issues. | Law-of-the-case precludes reconsideration of prior rulings. | Court is bound by Ninth Circuit precedent; law-of-the-case analysis applies to bar reconsideration of jurisdiction over partnership items. |
Key Cases Cited
- Bedrosian v. Commissioner, 358 F. App’x 868 (9th Cir. 2009) (affirmed Tax Court’s lack of jurisdiction over partnership items)
- Stone Canyon Partners v. Commissioner, 2007 WL 4526512 (9th Cir. 2009) (addressed notice mailing and jurisdictional issues under TEFRA)
- Clovis I v. Commissioner, 88 T.C. 980 (1987) (established FPAA as the TEFRA determination)
- Harrell v. Commissioner, 91 T.C. 242 (1988) (same-share rule and use of partnership information return to determine TEFRA applicability)
- Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533 (2000) (TEFRA procedural considerations and small partnership concepts)
- Tigers Eye Trading, LLC v. Commissioner, 138 T.C. 67 (2012) (TEFRA complexities and mutual exclusivity of procedures)
- Cole v. Commissioner, 637 F.3d 767 (7th Cir. 2011) (affirmed treatment of TEFRA election issues in a related context)