John C. Bedrosian & Judith D. Bedrosian v. Commissioner, 144 T.C. No. 10

Petitioners John C. and Judith D. Bedrosian invested in a Son‑of‑BOSS transaction through a partnership (Stone Canyon Partners) that was audited under the TEFRA partnership procedures (secs. 6221–6234).
The IRS issued an FPAA for the partnership year, determining the partnership was a sham; the Bedrosians did not file a timely petition, so partnership‑level determinations became final.
The IRS issued notices of deficiency to the Bedrosians for taxable years including 2000; most adjustments in the deficiency flowed from the partnership sham determination and were dismissed for lack of jurisdiction in a prior Tax Court memorandum opinion.
Remaining at issue was the Bedrosians’ $525,000 Schedule A deduction for “TAX ATTORNEY FEES,” disallowed by the IRS; the Tax Court retained jurisdiction over the deductibility of those fees in a prior interlocutory ruling.
The Bedrosians sought leave to file an untimely motion for reconsideration of that ruling, arguing intervening case law affects whether the fees are a partnership item, a computational affected item, or a factual affected item.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the deductibility of the $525,000 professional fees is a partnership item, a computational affected item, or a factual affected item	Bedrosians: Intervening jurisprudence (post‑opinion cases) shows legal fees tied to a sham partnership are "affected items" and should not be excluded from partner‑level deficiency jurisdiction	Commissioner: The fees are affected by the partnership‑level sham determination and, if computational, would be assessable without partner‑level deficiency procedures (thus outside Tax Court jurisdiction)	The fees are affected items but specifically a factual affected item requiring partner‑level factual inquiry; therefore the Tax Court has jurisdiction to decide deductibility (motion for leave to file reconsideration denied because reconsideration would not change result)

New Millennium Trading, LLC v. Commissioner, 131 T.C. 275 (Tax Ct. 2008) (partnership‑level determinations are binding on partners and not subject to collateral attack)
Petaluma FX Partners, LLC v. Commissioner, 131 T.C. 84 (Tax Ct. 2008) (sham‑partnership determinations fall within the definition of partnership items)
Napoliello v. Commissioner, 655 F.3d 1060 (9th Cir. 2011) (9th Circuit holds partnership validity/sham determinations are partnership items)
Roberts v. Commissioner, 94 T.C. 853 (Tax Ct. 1990) (tax treatment of partnership items is final absent partnership proceedings)
N.C.F. Energy Partners v. Commissioner, 89 T.C. 741 (Tax Ct. 1987) (distinguishing computational affected items from factual affected items)
Hambrose Leasing 1984–5 Ltd. P’ship v. Commissioner, 99 T.C. 298 (Tax Ct. 1992) (partner‑level factual determinations, e.g., at‑risk status, are factual affected items)