2025 TC Memo 18
Tax Ct.2025Background
- In 1999 Scott Blum invested in the BLIPS tax shelter through Democrat Strategic Investment Fund, LLC (DSIF); his interest was held indirectly via Bogan Ventures, LLC (a single‑member, disregarded entity). DSIF’s Schedule K‑1 listed Bogan (with a Brookline/Aliso Viejo address), not Blum’s name.
- The IRS audited petitioners’ returns, prepared a Final Partnership Administrative Adjustment (FPAA) for DSIF (mailed Dec. 17, 2004) and later issued affected‑items Notices of Deficiency to petitioners (Dec. 8, 2015) disallowing a $78.5 million BLIPS loss and adjusting Blum’s bases in distributed DSIF assets to zero.
- Petitioners contended they never received the notice‑partner FPAA, asserting the IRS should have mailed it to Blum at a post‑office‑box address; they also argued limits and alleged prior settlement reducing liability to $373,641 from an earlier Tax Court case (Blum I).
- The Northern District of California (the 63 SIFs case) granted summary judgment for the Government in July 2014, holding the BLIPS transactions lacked economic substance; that partnership‑level ruling supported partner‑level adjustments.
- The Tax Court found the IRS followed TEFRA regulations: the FPAA was properly mailed to Bogan at the Schedule K‑1 address (and also to the East Hansen street address), the CML and witness testimony established mailing and receipt, petitioners failed to comply with the written‑statement requirements to update partner identity/address, and petitioners received notice.
- The Court sustained respondent’s deficiencies for 1999, 2007, and 2010, dismissed the section 6662(h) penalties for lack of jurisdiction, and upheld a section 6651(a)(1) addition to tax for late 2007 filing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of FPAA mailing / proper notice partner and address | Blum: IRS failed to mail the notice‑partner FPAA to Blum at his PO box; nonreceipt invalidates affected‑items notices | IRS: FPAA was properly mailed to Bogan at the Schedule K‑1 address (and to East Hansen); Blum wasn’t identified on partnership return or by valid written statement | Court: Bogan was the notice partner; mailing to Schedule K‑1 (and East Hansen) complied with TEFRA regs; petitioners received the FPAA; challenge fails |
| Rebutting the CML presumption of mailing | Blum: IRS procedures weren’t followed; TC 914 freeze/code precluded mailing; Form 886‑Z(C) shows PO box was on file | IRS: CML, USPS postmark, tracking numbers, and credible TSU witness testimony establish proper mailing; TC 914 doesn’t bar issuing an FPAA and CI approval was obtained | Court: CML prima facie establishes mailing; petitioners did not present clear evidence to rebut; TC 914 did not prevent issuance; mailing stands |
| Timeliness / statute of limitations for affected‑items notices | Blum: limitations expired; prior Tax Court decision (Blum I) and consents render later notices untimely; alleged earlier settlement resolved BLIPS liability | IRS: Partnership‑level limitations (section 6229) control; district court decision became final Jan 20, 2015 and respondent had one year to issue affected‑items notices; individual consents valid; Blum I did not resolve BLIPS partnership issues | Court: Notices dated Dec 8, 2015 were timely under section 6229; TMP consents are partnership items; Blum I did not include BLIPS adjustments; no settlement of BLIPS was shown |
| Basis adjustments and penalties | Blum: IRS cannot adjust Blum’s bases absent a district court finding that DSIF was a sham; section 6662(h) penalties should be adjudicable here | IRS: District court’s economic‑substance ruling suffices to disallow basis increases from sham transactions; section 6662(h) partnership penalties were determined at partnership level | Court: District court’s lack of economic substance ruling permits zeroing of bases; section 6662(h) penalties are partnership/penalty items outside Tax Court jurisdiction in this partner‑level case (they were dismissed for lack of jurisdiction); section 6651(a)(1) addition for 2007 upheld |
Key Cases Cited
- Woods v. Commissioner, 571 U.S. 31 (2013) (partner's outside basis is an affected item requiring partner‑level determination)
- Shasta Strategic Inv. Fund, LLC v. United States, 76 F. Supp. 3d 895 (N.D. Cal. 2014) (BLIPS transactions lacked economic substance; Government sustained FPAA adjustments)
- Cropper v. Commissioner, 826 F.3d 1280 (10th Cir. 2016) (proper mailing of an FPAA and presumption of delivery from mailing records)
- Clough v. Commissioner, 119 T.C. 183 (2002) (completed certified mailing list is prima facie proof of mailing)
- Coleman v. Commissioner, 94 T.C. 82 (1990) (mailing presumption shifts burden to taxpayer to prove nonreceipt)
- Munro v. Commissioner, 92 T.C. 71 (1989) (Munro computations separate nonpartnership tax from partnership/affected items)
- Zenco Eng'g. Corp. v. Commissioner, 75 T.C. 318 (1980) (strong presumption that properly addressed mail is delivered)
- Bedrosian v. Commissioner, 143 T.C. 83 (2014) (partners cannot challenge TMP consents in partner‑level proceedings)