John C. Bedrosian & Judith D. Bedrosian v. Commissioner
143 T.C. 83
| Tax Ct. | 2014Background
- This TEFRA case involves a Son-of-BOSS transaction using foreign currency options, with Bedrosians (individuals) and Stone Canyon Partners (Stone Canyon) as pass-through entities.
- Stone Canyon had two flow-through partners (the Bedrosians via the LLC and the S corporation), so TEFRA procedures applied to partnership items, not the ordinary deficiency procedures.
- Stone Canyon timely filed a 1999 Partnership Return (Form 1065); the Bedrosians filed their 1999 Form 1040 and 2000 Form 1040 with accompanying fees and information requests.
- IRS agents conducted an audit starting in 2003; the Bedrosians’ 1999 extension (Form 872) covered individual items but not partnership items; a separate extension for partnership items was not properly obtained.
- In 2005 the IRS issued a partnership-level FPAA (for 1999) and later a separate 1999–2000 notice of deficiency for the Bedrosians; disputes about timeliness and proper notice led to litigation in this Court and on appeal.
- The Court ultimately held it lacked jurisdiction over partnership items in the 2005 notice, and the Ninth Circuit affirmed that the deficiency notice was invalid for partnership items, remanding for proceedings on 2000 items and transaction fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bedrosians’ TEFRA election was effective under 6223(e). | Bedrosians argue election by petition or substantial compliance. | IRS contends no valid election; petition did not meet 6223(e) requirements. | No valid election; substantial compliance fails. |
| Whether 6231(g)(2) applies to deny TEFRA and grant deficiency procedures. | IRS reasonably determined TEFRA did not apply based on Stone Canyon return. | TEFRA applied; determination reasonable. | 6231(g)(2) does not apply; TEFRA applies. |
| Whether the IRS made a single partnership-wide determination under TEFRA. | IRS treated some items under TEFRA and others under deficiency; not single determination. | TEFRA and deficiency procedures are mutually exclusive; the FPAA controls. | Single, partnership-wide determination required; in this record TEFRA applied. |
| Law-of-the-case and collateral considerations preclude reconsideration of prior rulings. | Law-of-the-case should not foreclose reconsideration. | Precedent supports finality and preclusion. | Law-of-the-case does not bar reconsideration; but final rulings limit relief. |
Key Cases Cited
- Clovis I v. Commissioner, 884 F.2d 1100 (D.C. Cir. 1989) (FPAA/TEFRA determination milestone test)
- Harrell v. Commissioner, 91 T.C. 242 (1988) (same-share and Harrell approach to 6231(g))
- Rhone-Poulenc Surfactants & Specialties L.P. v. Commissioner, 114 T.C. 533 (2000) (Teffects of TEFRA and partnership returns on procedures)
- Samueli v. Commissioner, 132 T.C. 336 (2009) (substantial compliance and intent to elect)
- Fischer Indus., Inc. v. Commissioner, 87 T.C. 116 (1986) (intent required for election; amendments allowed for election)
- Taylor v. Commissioner, 67 T.C. 1071 (1977) (intent element and time of election influence)