BLAK Investments, Kyle W. Manroe Trust, Robert and Lori Manroe, Trustees, Tax Matters Partner v. Commissioner

Kyle BLAK Investments, W. Manroe Trust, Robert Lori Manroe, Trustees, Tax Matters Partner, Peti- tioner v. Commissioner of Internal Respondent Revenue, Docket No. 1283-07. Filed December A. Lauren Vermazen, and V. Ryder, Richard S. Ernest petitioner. Rinsky, for respondent. Sloat, for H. Jonathan and Herbert F. Donna

OPINION respond- Court before is Judge: case This Haines, partial sum- petitioner’s cross-motion and motion ent’s are: issues The 121.1 pursuant to Rule judgment filed mary precludes 6707A section of date (1) effective Whether issue; at transaction application of transaction; listed ais at issue (2) transaction whether of assessment items partnership adjustment of resulting from tax respect sec- under open issue at transaction 6501(c)(10). tion

Background general (the California a partnership) Investments BLAK (the Manroe Lori by Robert created as partners of the Manroes). are The Manroes their benefit for the by Manroes created trusts two are Lori brought Robert petition been children. mat- Trust, tax Kyle Manroe W. as trustees Manroe, partnership. ters Issue Transaction

I. trustees Manroes 2001, 4, December On Edwards A.G. opened account Family Trust Manroe deposited Manroes 2001, the December Inc. On Sons, & Decem- On Family account. Trust Manroe into $825,000 rounded amended. Unless Rule otherwise nearest references indicated, dollar. are to the Tax references Court Rules are to the Practice Internal and Procedure. Revenue Code Amounts (Code), as are ber 2001, the through Manroes, Family Manroe Trust Account, borrowed Treasury maturing children each contributed $20,000 exchange in respective 2.3518-percent partnership interests.

Mr. reported Manroe a $2,866,688 capital contribution to the partnership, of which $2,491,233 proceeds was from the short sale. Ms. reported Manroe capital $3,440,025 con- tribution to the partnership, of which $2,990,480 pro- was ceeds from the short sale. Neither of their contributions was by reduced the partnership’s obligation to cover the short sale.

On December 2001, the partnership redeemed Mr. Manroe’s partnership interest for $380,988.3 Of that amount, Mr. Manroe received $330,988 and 82,645 Swiss francs hav- ing a fair market value of $50,000. On December 28, 2001, the partnership redeemed Ms. Manroe’s partnership interest for $457,185. That amount did not include foreign cur- rency.

On December 31, 2001, Mr. Manroe converted his 82,645 Swiss francs into U.S. dollars in the amount of $45,931. January

On 11, 2002, the partnership covered the short sale purchasing Treasury notes with a face value of $6,815,000 maturing on November 16, 2006, for $5,600,567. 2A short sale is the sale of securities, borrowed typically for cash. The short sale is closed when the buys short seller and returns identical person securities to the from whom he bor rowed them. 3The record is inconsistent as to redemption price of Mr. Manroe’s interest is $380,988 $330,988. The inconsistency bearing has no presented on the issues in these mo purposes tions. For motions, of these we shall assume redemption price $380,988. was Consequences the Tax on Position Manroes’ The

II. Transaction con- making initial their upon claim Manroes The their in basis total their

tributions short total equal $6,306,713, was nership interests sec. See cash. $825,000 $5,481,713 proceeds of sale obligation to position that took Manroes The purposes of section liability for anot was sale short cover 752(b). partnership redeemed that when claims Manroe Mr. loss gain or recognized no interest, he

his in basis his exceed did money distributed because his basis 731(a). claims He sec. See partnership. basis total i.e., his $2,585,700; became francs Swiss distributed. cash less partnership interest he converted when claims 732(b). further Manroe Mr. ordinary recognized an he dollars U.S. into francs his Swiss Sched- claimed was purported loss $2,539,769. loss joint Manroes’ Loss, of Supplemental Income E, ule Return. Tax Income Individual U.S. Form Trading Partners, being “Culebra from reported as loss was transaction although attributable it Ltd.”, above. described redeemed partnership when claims Manroe Ms. capital recognized a short-term interest, she partnership her of amount less equal her basis $2,982,840, loss cap- 731(a)(2), short-term The 741. secs. money See received. Capital Gains D, Schedule on claimed loss ital loss claimed 1040. Form Manroes’ Losses, of gains 2001. capital short-term $1,474,391 offset their carryover loss $458,190 claimed Manroes return.4 a disclo- attached Manroes partnership nor Neither They file did return. their or its sure statement Office respondent’s statement copy aof disclosure respond- provided adviser Analysis. material No Shelter Tax partnership’s regarding the information ent with 6112. transaction. participation Manroes’ ent eliminated ent On Oct. did not a Form capital process 1040X, Amended shortly loss amended carryover after U.S. return. Individual the issuance and increased Income the Manroes’ Tax FPAA, Return, Manroes income submitted The amended $458,190. to respond Respond return History III. Procedural

On October respondent 13, 2006, partnership issued the notice of final partnership adjustment administrative (fpaa). Respondent determined partnership was a sham, was formed and solely availed of purpose for the of overstat- ing partnership bases of interests, and lacked economic Respondent substance. contends consequence these they determinations, if are sustained, would be the dis- allowance of the losses the Manroes claimed on their 2001 joint and 2002 imposition returns and accuracy-related penalties determined at upon level ners. See sec. 6221.

The tax timely matters petitioned the Court for review of the asserting among things other FPAA, statute of limitations bars the liability determination of a items or affected items for 2001. Respondent, in his answer, 6501(c)(10) asserted that section applies to the transaction because it constituted a listed requiring transaction disclosure. Petitioner denied the applicability of section reply. in its On November 30, 2007, respondent’s the Court filed partial motion for sum- mary judgment on the statute of limitations issue. On March 10, 2008, the petitioner’s Court filed partial cross-motion for summary judgment on the same hearing issue. A on the motions Diego, was held in San California.

Discussion I. The Period Limitations Partnerships and Their Part- Generally

ners general Under the rule set 6501(a), forth in section Internal Revenue (or Service required to assess tax (IRS) send a deficiency) notice of years within 3 after Federal income tax return is filed. imposed the case of a tax on partnership items, special section 6229 sets forth rules to period extend the prescribed by limitations section 6501 partnership items or affected items. See sec. 6501(n)(2); Specialties, Rhone-Poulenc & L.P. v. Surfactants Commissioner, (2000). 114 T.C. 540-543 Section 6229 provides pertinent part:

436 ASSESSMENTS. MAKING FOR OF LIMITATIONS PERIOD 6229.

SEC. section, the in this provided Except as otherwise (a) GENERAL Rule. — any per- respect to A subtitle imposed assessing any tax for period item) (or for affected item any partnership attributable which is son years 3is date which expire before year shall taxable partnership of— the later after year was such taxable for return (1) partnership on the date which filed, or (determined with- year such filing return for day such for last extensions). regard to out separate anot It is 6501. supplements section 6229 Section partner- attributable assessments for statute States, F.3d 481 Fund, v. United LLC ship AD Global items. Special- & (Fed. 2007); Rhone-Poulenc Cir. Surfactants supra In Rhone-Poulenc at 545. Commissioner, ties, L.P. v. supra at Commissioner, Specialties, v. L.P. & Surfactants applicable 6501 as analyzed sections 539, the Court stated: The Court to an FPAA. during TEFRA which period prescribes no Revenue Code The Internal notice of the mailing begin with the which proceedings,

partnership-level How- commenced. must be adjustment, administrative of final for the time after are commenced proceedings ever, if be proceedings will expired, the has partners against assessing tax against the assessing tax period for expiration of the no avail because attributable raised, assessments bar wall properly if partners, 534-535.] [Id. at nership items. supra; Inv. States, G-5 United Fund, v. LLC AD Global See (2007). Commissioner,

Pship. T.C. v. suspends 6229(d) mailing of an FPAA section Under 6501(a) period periods 3-year running both —the 6229(a) period. Rhone-Poulenc supra Commissioner, Specialties, v. L.P. & Surfactants during an period which suspension is for The 552-553. (and, brought may judicial FPAA review action court brought, the decision until if action 6229(d). final) year Sec. thereafter. for 1 become 2003. October 2002 return filed their Manroes con- Petitioner on October issued FPAA was 6501(a) assess- pursuant to section cedes items tax attributable ment open FPAA was issued. when Manroes’ The Manroes filed their 2001 return on October 15, 2002, years more than 3 before the issuance of the FPAA. Therefore, general 6501(a) under the rule of section the Manroes con- year tend that the 2001 tax respondent closed. However, argues period for assessment of tax attributable to partnership items open under section respect with to a listed taxpayer transaction if the has not requisite made the participation disclosure of his in the listed transaction. party disputes

Neither jurisdiction our over this issue, but we shall examine it provides nonetheless.- Section 6226 in pertinent part: SEC. 6226. JUDICIAL OF REVIEW FINAL PARTNERSHIP ADMINIS-

TRATIVE ADJUSTMENTS. (c) PARTNERSTreated AS PARTIES.—If an brought action is under sub- (a) (b) or respect a partnership any partnership taxable year— person each partner who was a such any time during year such shall be party treated as a action, to such (2) the jurisdiction court having of such action shall allow each such person to participate in the action. (d) Partner Must Have Interest in Outcome.— party (1) In order (c) to action. —Subsection shall not apply partner ato day after the on which— (A) the partnership items such for the partnership tax- able became nonpartnership items reason of 1 or more of the (b) events described in subsection of section or (B) period within which tax attributable to such partnership may items against be assessed expired. Notwithstanding (B), subparagraph any person treated under subsection (c) as a party to an action permitted shall be to participate in such (or action (2) readjustment file a petition (b) under subsection paragraph subsection) of this solely purpose for the asserting that the of limitations for assessing any tax attributable to partnership items has expired to such person, and the having jurisdiction court such action jurisdiction shall have to consider such assertion. Trading PCMG XX, Partners L.P. v. Commissioner, 131 (2008), T.C. 206, 213 n.9 Court noted that we have the authority to partner years determine open are any period assessment dispute. Specifically, we stated: Generally jurisdiction the Court’s in a partnership proceeding is restricted to determining “partnership 6226(f); items”. Sec. Partners, Petaluma FX Commissioner, LLC v. (2008). 131 T.C. However, jurisdiction our individual expired as to has limitations period of the whether over of limitations period the expiration the since exception an presents ners partners. individual to the peculiar are that facts depend on can Commissioner, T.C. 114 v. L.P. Specialties, &

Rhone-Poulenc Surfactants 2001). (3d Cir. 175 F.3d 249 remanded (2000), and dismissed appeal 533 ** * v. Specialties, L.P. & Rhone-Poulenc In Surfactants 6226 that supra, Court determined Commissioner, the that assert partnership action partners in a enabled any assessing tax attributable period for juris- had expired the Court that and partnership had items As we correct. that assertion to decide diction therein: observed against individual assessing tax for periods recognized that Congress that provided specifically and partner vary may from

partners party in participate as permitted to will be an individual period asserting that purpose of “solely for proceeding partnership has items any assessing tax attributable for of limitations * * * (citing section [Id. at 546 person”. respect to such expired with 6626(d)(1)(B)).] Memo. Commissioner, T.C. Curr-Spec Partners, v. LP (5th 2009), the Commis- Cir. 391 F.3d affd. 579

2007-289, year 1999, conceded the taxable FPAA for issued sioner expired, but had period that for that assessment three FPAA affected adjustments made argued that carryforwards for 2000 operating loss partners’ net action, conceded partnership-level partners, in a partners filed years the time within was issued FPAA for moved returns but 2001 tax respective their period limita- grounds summary judgment on the had partnership items assessing attributable tax for tions argued, issues brief, partners further expired. their 2000 period of limitations related not be could partner-level determinations years were tax rejected proceeding. The Court ain made assess- that the and held partners’ contentions expired and remained partners against had ing Trad- PCMG Accordingly, 6226 and under suspended. authority Manroes’ to address ing we have Partners assessing tax period of limitations contention expired. for 2001 items attributable 6501(c)(10) II. The Dates Sections and 6707A Effective On Congress October 22, 2004, enacted the American Jobs Creation Act of 2004 814(a), L. Pub. 108-357, sec. (AJCA), Stat. 1581, which added section to the Code. Sec- 6501(c)(10) provides: tion (10) Listed transactions. —If a taxpayer any fails to include on return any statement for year any taxable respect information with to a listed (as 6707A(c)(2)) transaction defined in section which is required under sec- tion 6011 to be included with such statement, return or the time for assessment of tax imposed by title to such trans- action expire shall not before the year date which is 1 after the earlier of— (A) the date on which Secretary is furnished the so information required, or (B) the date that a material requirements advisor meets the of section respect with request to a by Secretary 6112(b) under section

relating to such respect transaction with taxpayer. such 6501(c)(10) incorporates Section by cross-reference defi- nition of “listed transaction” 6707A(c)(2), forth set in section which was added to the Code AJCA sec. 811, 118 Stat. by 6707A(c) provides: 1575. Section Reportable “reportable transaction. —The term transaction” means any transaction respect with to which required information is to be included with a return or because, statement as determined regula- under prescribed tions under 6011, section such transaction type is of a which the Secretary having determines as potential for tax avoidance or evasion. (2) Listed transaction. —The term “listed transaction” report- means a able transaction as, which is the same or substantially to, similar a trans- action specifically Secretary identified as a tax avoidance trans- purposes action for of section 6011. parties dispute incorporation the effect of of sec- 6707A(c)(2) 6501(c)(10). tion in section dispute centers provided the effective date respect AJCA with each section. begin

We principles with a review statutory of the principle” construction. The statutory “cardinal construc- requires give tion possible, us “to every effect, if clause and word of a statute”. United Menasche, States v. 348 U.S. (1955) (internal omitted). 528, quotation 538-539 marks applying the statutory traditional rules of construction, we Congress language assume that uses in a consistent manner, unless otherwise Olympic indicated. United States v. Radio & (1955). Television, Inc., 349 232, U.S. 235-236 The various one section so construed Code should sections destroy another support not defeat explain will (1947). Fur- 1, Commissioner, 331 U.S. v. Crane section. applied bar sought to be limitation thermore, “Statutes construction a strict receive Government, must rights of the Co.& de Nemours du Pont E.I. Government.” in favor 814(b), (1924). 118 Stat. AJCA sec. 456, 462 Davis, 264 U.S. v. 6501(c)(10) tax for is effective provides that section assessing defi- for respect years to which the “with On October 22, 2004. expire October ciency before” did not respect deficiency assessing period for 2004, the open under Manroes’ the effec- regard 6501(a).5 as determinative Therefore, we if 814(b), provided sec. in AJCA tive date year. 2001 tax Manroes’ for the effective penalty failure imposes 6707A, which Section any required information statement return or on a include listed trans- reportable transactions date the due and statements returns actions, is effective filed were 2004, and which October is after which 811(c), Petitioner 118 Stat. that date. before AJCA only applies to returns argues section 6707A that because 2004, section 22, October after due statements and a which 6501(c)(10) for apply transaction cannot 22, 2004. October or before due on was or statement return argues there petitioner that proposition, support of this (1) listed 6707A Section types transactions: of listed are two predate section transactions listed and transactions trans- listed 6707A argues section Petitioner 6707A. penalty under can be assessed those which are actions 6501(c)(10). subject section are and which 6707A section those type would of listed transactions second and assessed can be 6707A penalty section under no which 6501(c)(10). subject to section not are which history legislative Nothing AJCA, Code, in the types of two Congress there be intended indicates suggests. petitioner Section manner transactions listed regu- by 6707A(c) reference transaction” “listed defines Regulations under 6011. promulgated section under lations riod The Manroes’ of limitations 2001 return under sec. 6501(a), was filed which thus on Oct. 15, 2002, starting remained open on Oct. running 22, 3-year pe defining section 6011 “listed published transaction” were first Department Treasury temporary IRS proposed February form on 28, Reg. 2000. 65 Fed. (Mar. 2000). Similarly, legislative history makes clear penalty section applies 6707A reportable listed transactions as regulations. defined the section 6011 Rept. H. Conf. 108-755, (2004); at 582-584 see also Staff of Comm, Joint on Taxation, Explanation General Legis- of Tax lation (J. Congress, Enacted in the 108th at 360 Comm. Print 2005). In other words, section 6707A does not alter the defi- reportable nition of transaction or listed transaction. Accord- ingly, we find that there types are not two of listed trans- actions petitioner in the manner contends. 6707A(c)

Section applies to statements and returns due after 6501(c)(10) October 2004, while applies section years period for which assessing deficiency did expire before 814(a) October 2004. Because AJCA 6501(c)(10) makes section applicable years for tax for which open hmitations remains as of the date of enact- 6501(c)(10) ment of may apply to trans- AJCA, actions required which are to be disclosed on returns due well before that date and which therefore would not be sub- ject to a penalty section 6707A if left undisclosed. For that application reason, of the effective date of section 6707A to 6501(c)(10) express would render effective 6501(c)(10) date of section meaningless, violating car- principle statutory dinal construction. significant

We also find that section 6707A and section purposes. have different imposes Section 6707A penalty. Congress penalty intended the apply prospec- tively, taxpayer so that penalized only if the return yet not due signed when into law. AJCA AJCA 811(c). 6501(c)(10) On the other hand, keeps open period hmitations yet which expired had not as of the date of enactment of taxpayer AJCA if the to failed make required disclosure of involvement in a listed transaction on a return due before legislative history date. The details purpose leaving of period open. hmitations The Committee has noted that taxpayers some and their advisors have been employing dilatory failing tactics cooperate and to with the IRS in attempt to liability avoid expiration because of the of the statute of limita-

442 extend appropriate to it is accordingly believes The Committee tions. Rept. 108- [H. transactions. unreported listed of limitations the statute (2004).] (Part 1), at 267 548 Comm, supra Taxation, on of Joint Staff See also taxpayers encourage (extension “will period limitations of afford the will required and disclosure provide IRS taxpayer if transaction discover time additional it”). July Charles 2004, Senator 23, On disclose not does Grassley, Sen- Finance, and on the Committee Chairman on Ranking the Committee Member Baucus, Max ator extended of limitations proposed Finance, transactions, challenge tax-avoidance IRS to allow early as occurred specifically transactions6 Son-of-BOSS 2000.7 as and late 1990s in the aggressively marketed were Boss transactions Son of trans- Many of these individuals. high net-worth and companies 2000 to On million. $50 and million $10 of between generated tax losses actions year calendar for extended 2004, of limitations 15th, the statute

August of non-disclos- number significant for a close returns will tax 2000 income rightful tax escape their will These investors investors. ing of Boss Son date. liability after that Finance of the Senate Ranking Member and the Chairman It is view allowed not be should investors non-disclosing Boss Son of Committee finds the IRS before of limitations the statute the clock” “run out oppos- record Treasury have been on Department of The IRS them. and shelters these tax purchase of 1999. The since ing transactions these laws of the tax disregard defiance act of sheer was an * * * contain the bill versions and House The Senate the United States. transaction on a open the statute of hold that would a measure shelter, Son of as the such as a tax Treasury Department by the listed years that are to taxable only applies transaction, this measure but Boss * * * * * * bill enacted. open audit after to Ensure Plans Grassley, Details of Release, Charles Senator [Press 2004).] (July of Boss” Enforcement “Son

Continued nym transactions, transfer. basis. vide for v. abilities are 108th Commissioner, Son-of-BOSS Senators usually for “bond Cong., large to a partnership, The partnership objective in an amendment obligations Grassley but 1st sess. —but and option is a 128 T.C. they is that variation (2003), all out-of-pocket sales have with the buy treats the liabilities Baucus were Jumpstart to the of a partners securities strategy”. Senate version common (2007). slightly goal —losses will proposing and typically There increasing the transfer older have on their are a number as uncertain Our alleged of a bill that the inclusion basis in the individual Business basis are not of assets in that shelter known of different types ultimately passed completely Strength tax returns. of a encumbered ignores them in partnership. provision (JOBS) fixed at so Kligfeld BOSS, great as to of Son-of-BOSS similar as the Act, significant the time of computing liabilities Holdings an acro S. to sec. AJCA. pro li Congress Had 6501(c)(10) intended section apply only transactions for which a return or statement was due after October 2004, it could have expressly. done so Similarly, Congress if had apply intended to the effective date of section 6707A to 6501(c)(10), section it could have done so limit- ing application 6501(c)(10) of section to cases in which a tax- payer subject is penalty to a under section Congress 6707A. did not choose either of those avenues. argues Petitioner respondent is applying section

6501(c)(10) retroactively, Congress and if had intended retro- application, active Congress would expressly have so stated.8 Petitioner mistaken. Section reopen does not period assessment expired before its enactment. See Rept. H. Conf. supra 108-755, at 593 n.482; Staff of Joint Comm, on supra Taxation, at 369 Keeping n.663. open the period of limitations in this impermissible fashion is not retroactive action. aIn analogous manner to the enactment 6501(c)(10), section 6502(a)(1) was amended to extend the limitations period years years from 6 to 10 if the expired had not as of the date the amend- ment was enacted. Budget Omnibus Reconciliation Act of 1990, Pub. L. 101-508, 11317(a)(1), (c), 104 Stat. 1388- 458. In Rocanova v. States, United (S.D.N.Y. Supp. 955 F. 1990), (2d affd. 109 F.3d 1997), Cir. the District Court rejected arguments operated amendment impermissible retroactive effect in violation of the Due Proc- Equal ess Clause, the Protection Clause, and the Ex Post Facto Clause of the Constitution. petitioner’s Furthermore, argument argu- similar to an rejected ment by the U.S. Appeals Court of for the Ninth Cir- cuit, the court appeal to which an in this case would ordi-

narily lie. See Leslie v. Commissioner, 146 F.3d 643, 650-652 (9th 1998), Cir. affg. T.C. Memo. 1996-86. In Leslie, the sought Commissioner pursuant enhanced interest to section 6621(c) because taxpayers’ use of a straddle trans- defining action. “tax-motivated transactions” to which provision applied, enhanced-interest 6621(c)(3)(A)(iii) “any (as included straddle 1092(c) defined in section without tion nal punishment 8Petitioner (1952). against ex post facto laws refers for conduct the provision as an “ex post facto clawback”. The constitutional prohibi predating applies only to penal its enactment. legislation Harisiades v. Shaughnessy, imposes increases crimi ^[342] U.S.

444 1092)”. 6621 (e) Section (d) of section or

regard subsection 1984, even accruing December after applied to interest underpayment of the giving rise though transaction the that before into entered was accrued interest on which acquired and property applied to 1092 section date, while 23, 1981. June taxpayers after by the positions established transactions their that because taxpayers contended The apply to not did 1092 1981, section June before occurred 6621(c)(3)(A)(iii), section therefore transactions, their not 1092, did in section definition incorporated the which Commissioner, v. Leslie either. transactions apply their supra “interesting taxpayers’ rejected the Appeals of Court finding argument, unavailing” ultimately but 6621(c), applying section was Commissioner determinative not was 1092 section date of effective liability for taxpayers’ toas court before issue argu- taxpayers’ concluding In interest. increased explained: fail, the court must ment 1092 simple § reason: one 1092 6621(c)(3)(A)(iii) § references Section definition a useful to be deemed 6621 §of drafters what contains same trotting out than rather expediency, interest In the “straddle.” prior which § referenced simply cross they again, definition exact * * * [7ci.] already adopted. had Congress defini- cross-references section case by 6707A, enacted transaction” “listed tion cross- reason Nevertheless, Congress. act same Solowiejczyk also analogous in Leslie. reference published (1985), without affd. 552 Commissioner, T.C. v. 1986). “listed (2d definition Cir. opinion F.2d Con- useful, and was 6707A provided in section transaction” expediency’s definition gress to cross-reference chose 6707A in section definition effect sake 6501(c)(10), effective its but incorporated into date.9

is made 6707A(c). E.g., secs. noteWe to the definitions that sec. 4965(e), 6501(e)(10) of “listed 6111(b), is not 6112(a), transaction” only place 6404(g), 6662A(d), “reportable Code 6707(d). transaction” in which provided cross-reference in sec. III. Whether the Transaction at Issue Is a Listed Transaction

A transaction is a listed transaction if it substantially similar to one types of transactions the IRS has deter- mined to abe tax avoidance transaction and has identified regulation, notice, published other guidance form of a listed transaction. 6707A(c)(2); Sec. 1.6011-4(b)(2), Regs. Income September Tax On 5, 2000, the Commissioner issued Notice 2000-44, 2000-2 C.B. 255, which described Son-of-BOSStransactions and they determined that are listed transactions. Notice 2000-44, 2000-2 C.B. at 255, includes following type discussion of that of transaction: arrangements These purport give taxpayers artificially high basis in. partnership interests thereby and give rise to deductible losses disposi- on tion of those partnership interests. $**$*«* * * * [one example], a taxpayer purchases and options writes and purports to create positive substantial basis in a partnership by interest transferring option those positions to a partnership. For example, a tax- payer might purchase options call a $1,000X cost of and simultaneously write offsetting call options, with a slightly higher price strike but the expiration same date, premium for a of slightly $1,000X. less than Those option positions are then transferred to a partnership which, using addi- tional amounts contributed to the partnership, may engage in investment activities. position Under the by advanced promoters of this arrangement, taxpayer claims that the basis in the taxpayer’s partnership interest is

increased the cost of purchased options call but is not reduced under § as a result of the partnership’s assumption of the taxpayer’s obligation respect to the written options. call Therefore, disregarding additional amounts contributed to the partnership, costs, transaction and any income realized expenses and incurred at the partnership level, the taxpayer purports to a have basis in the partnership equal interest to the purchased cost of the call options ($1,000X in this example), even though the taxpayer’s net outlay economic acquire the partnership interest and the value of the partnership interest are nominal or zero. On the disposi- tion of the partnership interest, the taxpayer claims a ($1,000X tax loss in this example), even though taxpayer has incurred no corresponding economic loss. many

There are similarities between the transaction at issue and the one described in supra. Notice 2000-44, How- ever, the transaction at issue did not purchasing involve the writing options. and It involved the short sale of securities. Nevertheless, we conclude the transaction at issue is 2000-44, Notice in described one

substantially similar supra. “substantially similar” term regulations define or simi- same expected to obtain

“any transaction factually similar either types tax benefits lar 1.6011- strategy.” Sec. similar or same or based Reg. 41327 Regs., Fed. Tax Temporary Income 4T(b)(l)(i), Temporary 1.6011-4T(b)(l)(ii), 2002). (June Section perti- highly following supra, contains Regs., Tax Income “substantially simi- meaning of illustrating the example nent Notice described concluding transaction lar” involving short transaction similar supra, 2000-44, substantially similar. are sales * * * involv- transaction listed forth sets 2000-44 Notice Example 1. taxpayer where options transferred offsetting

ing options but purchased cost basis claims partnership’s result 752 as under adjust basis does Trans- options. obligation taxpayer’s assumption type of offset- any other futures, derivatives sales, using short actions the would interest in basis to inflate obligations ting in Notice described transaction substantially similar or same * * * added.] [Emphasis 2000-44. described components transaction of the fundamental generation of funds supra, the are 2000-44, Notice of the liability contribution the and aof through creation funds) asso- and (or purchased with such the asset funds adjusting partnership without liability ciated precisely what liability. That basis ner’s through sale short generated funds They did. Manroes and funds those contributed Treasury and In certain requires situations, the RFA agency pre- that an pare regulatory a flexibility analysis. RFA, 5 U.S.C. secs. 603- regulation However, a excepted agency if the certifies that the rule will significant not have a impact economic on a substantial number of small Department entities. of Treasury the and the IRS made part that certification in on the finding basis of a required that the prepare time to and submit pursuant a disclosure temporary regulation the expected was not lengthy. (June to be Reg. 67 Fed. 41327 18, 2002). argues Petitioner regulation the will a háve significant impact economic on a substantial number of small entities. Petitioner confuses disclosure of a tax avoidance persuaded to not areWe disallowance. its

transaction a disclosure of submission required the certification the override temporary by the manner return a form with impact aon significant economic have not regulation does entities. of small number substantial regulation is temporary argues the also Petitioner com- and comply notice the it does because invalid Act Procedure Administrative the requirements of ment (c) (1994). contends 553(b) Petitioner U.S.C. (apa), section invalid, regulation temporary if the Manroes the partnership or apply the cannot participation in duty their disclose they no had because final the however, that conclude, We at issue. transaction the validly Regs., Tax 1.6011-4, Income regulation, section 9046, 2003-1 T.D. February 2003, in 28, promulgated on regu- temporary incorporates rules the 614, which C.B. case. this the outcome lation, controls 2002, the On June useful. background will Some ways matter two regulation amended was temporary partner- trusts, individuals, (1) It extended case: to this listed disclose requirement corporations the ships, S corporate only applied previously had which transactions, becomes (2) transaction aif provided that it taxpayers; and the taxpayer filed has after reportable transaction affected transaction year in which the first return state- liability, disclosure partner’s tax taxpayer’s or a taxpayer’s next- to the attachment as an be filed must ment require- disclosure (hereinafter next-return return filed ment).10 2002). (June 18, Reg. Fed. comments published 2002, notice on Also June 1.6011-4, regulation, final sought were regulation was proposed Regs. text Tax Income reissued regulation temporary as text as same Rulemaking Cross-Ref- Proposed day. Notice same transaction (e.g., ner’s or a ^[41328] action or any partner’s (d) attachment return Time (June 18, becomes this transaction shareholder’s for the latter described providing 2002).] or shareholder’s regard, reportable first taxpayer’s subsequently taxable disclosure— Federal (b)(2) the temporary transaction income Federal Federal income becomes * * regulation which tax (whether income ^[*] liability, one * * If a transaction the transaction tax *) identified provided: liability return not the or after the disclosure next in pubbshed transaction becomes affected filed after date statement year). the taxpayer’s the taxpayer reportable affects guidance * * the date must be ^[*] [67 Fed. transaction as taxpayer’s or a listed filed a part- trans- filed Reg.

449 Temporary Regulations, erence to (June Reg. 67 Fed. 41360 2002). 18, (and effective temporary date of regulation proposed regulation of the by cross-reference) was for “Fed- eral income tax returns February filed after except 28, 2000” the two amendments among described above, others, applicable were made “to transaction entered into on or January after 1, 2001.” 1.6011-4T(g), Sec. Temporary Income Regs., (June Tax Reg. 2002). 67 Fed. 41328 18, On October 22, 2002, temporary regulation was amend- again, ed once published and notice was and comments were sought making temporary regulation final.11 Notice of Proposed Rulemaking by Temporary Cross-Reference to Regulations, (Oct. Reg. 2002). 67 Fed. 64840 22, The effective (and temporary date of regulation proposed regula- by cross-reference) tion was as follows: (h) Effective dates. This applies to Federal income tax returns February 28, 2000. However, (a) filed paragraphs after through (g) of this section [reflecting the new amendments] apply to transactions entered into on or January 1, after 2003. The rules apply with respect to trans- actions entered into on or 31, 2002, December are before contained in §1.6011-4T in prior 1, January (see effect 26 CFR part 1 revised 1, as April 2002, (see and 2002-28 I.R.B. 90 §601.601(d)(2) of chap- ter)). (Oct. [67 Reg. Fed. 22, 2002); emphasis added.] regulation,

The final published February 28, 2003, reflected various temporary amendments regulations response public supra. comments. T.D. 9046, It retained provision substantially similar to the next-return disclosure requirement temporary regulation.12 of the regula- The final tion carried this effective date: (h) Effective dates. applies This section income tax returns federal filed 28, February 2000. However, (a) paragraphs after through (g) of this sec- apply

tion to transactions entered into on or February 28, after 2003. All (a) the rules in paragraphs through (g) of this may upon be relied for transactions entered into on or January 1, after 2003, and before Feb- The final This present version of the regulation provided discussion. temporary See 67 Fed. regulation par. Reg. (e)(2): contained (Oct. new amendments 2002). are not germane (i) Special Listed rules — transactions. If a transaction becomes a listed transaction after the filing taxpayer’s reflecting final tax return consequences either strategy tax or a tax de- published guidance scribed in the listing (or the transaction a tax benefit derived from tax con- sequences strategy published guidance described in listing transaction) and be- fore the end of the statute of return, for that then a disclosure statement must be filed as an taxpayer’s attachment to the tax return next filed after the date the trans- [T.D. action is listed. 2003-1 621.] C.B.

450 to transactions apply with Otherwise, rules the 28, ruary 2003. §1.6011 in in 2003, 28, —4T are contained February effect into entered before 2002, 1, April of as 1 revised (see part 28, 26 CFR February prior to chap- (see §601.601(d)(2) of this I.R.B. 90, 2002-45 I.R.B. 2002-28 added.] 622; emphasis at ter)). \Id., C.B. 2003-1 applies, it regulation as provision final the to this Pursuant the February 2000, 28, after says, filed returns to tax January before into entered applicable transactions rules by regulation ref- final the under determined 2003, are 1, regulation. temporary of the rules erence regulation temporary suspended the regulation final The 622.13 at C.B. 9046, 2003-1 February T.D. 28, of as Consequently, regulation have temporary the rules incorpora- by only of their virtue continuing and effect force question is whether regulation. The the final into tion by incorporating the APA regulation of ran afoul final cross-referencing them. regulation temporary of the rules aof regulation’s use clearly final no. The answer regulation rules temporary incorporate the cross-reference deficiency under procedural aof APA more no creates of rules reproduced the regulation had final if the than regulation for word. temporary word published more than 255, C.B. 2000-44, 2000-2 Notice transaction, their into entered Manroes before On transaction. a listed type as transaction identified proposed Secretary published a notice 2002, the 14, June requiring disclo- regulations proposed containing rulemaking, provisions they transaction; embodied of such sure day. notice This regulation same temporary issued things: among other rulemaking of, provided notice proposed corporate applying to both (1) requirement disclosure disclo- next-return taxpayers; and noncorporate first became transaction Manroes’ requirement. The sure final February 2003, when 28, on reportable transaction had date, the Manroes As of regulation issued. was yet their filed had but already 2001 return their filed incorporat- regulation, Consequently, the final return. porary final Feb. Clearly, this shorthand par. In addition regulation regulations, (h) the final by stating final stating T.D. regulation. regulation description that the it 2003-1 applies “to transactions replaced Rather, final does C.B. regulation not alter temporary sense 622, issued also summarizes of this shorthand actual effective-date entered regulation. Feb. into on 28, 2003, superseded description or after effective provision contained Feb. date that as 28, 2003.” of the tem ing the rules temporary regulation, required them to attach a statement to their 2002 disclosing return the listed they transaction. When filed their 2002 return on October 15, 2003—more than 7 months regulation after the final they failed to include such a statement. issued — Section provides taxpayer if a fails any include “on return or any statement year” taxable any respect information with (as to a listed transaction 6707A(c)(2)) defined in section required which is under sec- tion 6011, the assessing time any respect tax “with to such transaction” open. 6501(c)(10) remains Section is effec- years tive for tax respect with period to which the for assess- ing deficiency expire did not before October 2004. As of 3-year date, period the of limitations open remained respect with to the Manroes’ 2001 they return, which filed on October 15, Consequently, 2002. because the Manroes failed provide to required the they statement when filed either their 2001 or 2002 return, the of limitations remains open respect any to tax in 2001 and respect 2002 with to the question. transaction in 6501(c)(10), Under section consequence it is of no that the question

transaction in reportable became a transaction after the already transaction had legislative occurred.14 The his- tory expressly contemplated such a result. It states: “For example, taxpayer if engaged in a transaction in 2005 that becomes a listed transaction in taxpayer and fails to disclose such transaction required by manner Treas- ury regulations, then subject transaction is extended statute of limitations.”15 Rept. H. Conf. 108-755, Notice of the final species 14Actually, In a footnote definition 2000-44, supra, 6501(c)(10) regulation. "reportable previously to this “listed transaction” when the long transaction”, the transaction became a “listed statement, discussed, the Manroes’ transaction was a listed transaction under before obligation they under sec. legislative entered into it. Because sec. report 6707A(c)(2), it history arose; i.e., also states: which makes a listed transaction no later than 6501(c)(10) transaction” for upon cross-references the issuance purposes Treasury If Department year lists a subsequent in a year transaction to in which a tax- payer entered into such taxpayer’s transaction and the tax year return for the the transaction was entered into is closed prior statute of limitations date the transaction became transaction, a listed provision re-open not does statute limitations with year. such However, transaction for purported such if the tax benefits of the transaction are rec- ognized multiple years, over provision’s tax extension of the statute of limitations shall apply to such tax subsequent benefits in tax in which the statute of limitations had prior not closed to the date transaction became a listed [H. transaction. Rept. Conf. 108- (2004).] at 593 n.482 discussed, force previously any event, as supra at 382. entirely prospective, regulation was final of the effect and in a state- transaction disclose Manroes requiring the yet filed. been not had return, which their ment their obligation to disclose recapitulate, Manroes’ To regulation. final of the upon the issuance arose transaction incorporating provisions including its regulation, final subject notice regulation, temporary rules final issuance After the is valid. comment report prospectively to required were regulation, the Manroes to their attached in a statement transaction listed period of Consequently, the They do so. failed return. open under remains argu- all holding, reaching has considered its Court, any arguments men- concludes made ments merit. irrelevant, or without moot, are above tioned foregoing, reflect To respond- granting be issued

An will order summary judgment partial ent’s motion for par- petitioner’s denying cross-motion and summary judgment. tial by Court. Reviewed Thornton, Mar- Gale, Vasquez, Wells, Cohen, Colvin, agree with JJ., and Paris, Kroupa, Wherry, Goeke,

vel, opinion. majority this participate not JJ., did and Morrison, Gustafson opinion. of this

consideration J., opin- majority I agree concurring: Thornton, jurisdictional possible address to separately and write ion concerns. proceed- suggested in a has been It partner’s asser- jurisdiction to consider ing lacks this Court assessing expired for has period of limitations tion partnership items. partner against tax attributable represent does not issue view, the this because, under This (d)(1) Subsection defense. affirmative or partnership item Court’s expressly this confirms however, period “the partner’s assertion jurisdiction to consider assessing any limitations for partner- tax attributable to ship expired items has partner. to” the In the light statutory provision, it matters little whether the might issue partnership characterized as a item or an affirmative something defense else. might Some (d)(1) construe subsection narrowly grant jurisdiction this Court partners determine which have

interest in the outcome of proceedings nothing more. That not, however, provides. what the statute event, to decide whether the assessment of tax attributable items is time purposes barred for of determin- ing partners which have an interest in the outcome of the proceeding necessarily, is, to decide that pur- issue for all poses. history context (d)(1) of subsection of section 6226 are instructive. general Under the (c) rule of subsection person section 6226, each partner who is a in a “shall be party’ treated as a brought an action to review partnership adjustments and the Court “shall allow each person such participate (d)(1) in the action.” Subsection general modified this rule providing (c) that subsection apply shall to a day “after the on which” the period expired assessing against any tax attributable partnership. Before the addition in 1997 language the flush (d)(1), of subsection potential there was circularity (c) (d)(1): interaction subsections until such time might as the Court decide limita- tions expired, partner had the partici- was allowed to pate in proceeding the pursuant general to the rule of sub- (c), if but ultimately Court decided the limitations partner’s issue in the (d)(1) favor, then subsection would seemingly have partner’s nullified ab initio participation the proceeding. in the gave This situation question rise to a partner whether a “standing” had to statutory assert that the period of expired limitations had respect with part- to that Rept. ner. H. (1997), (Vol. 105-148, at 1) 1997-4 C.B. 319, 916. To problem, resolve this (d)(1) in 1997 subsection provide amended to partner that a permitted “shall be to

participate” in the proceeding “solely” for the purpose asserting that the limitations assessing for expired tax has respect partner. to that Focusing on the permits the statute suggested that “solely”, have some word proceeding the participate in partner to a asserting issue sole only the that if bar limitations the language of Nothing flush the in partner. by the asserted operation of the affects (d)(1), however, alters subsection partner to (c), a entitles which subsection general rule the Court as the time such fully until action participate expired with period has limitations the might decide finally might be issue partner —an Being ruling. uncer- a appeal such final the until decided limita- ultimately prevailing on the prospects of tain to also advised well partner be would a period issue, tions be partner would which any assertions alternative raise action. participant in aas raise entitled “solely” in the considerations, the word light of these In the fairly (d)(1) construed be cannot language subsection flush limitations assert partner entitled a to mean assertions. relinquishes all alternative partner only the if bar ability to partner’s language statutory confirms Rather, the partner other- issue basis a stand-alone raise conjunction other raise entitled be would wise issues. to con- jurisdiction Court’s suggest seem Some depend should bar a limitations partner’s assertion sider all issue partner asserts

upon have would Court case years, in which affected ner’s all than or for fewer assertion, jurisdiction to consider would Court years, case in which partner’s affected jurisdiction would view, our this jurisdiction. Under lack asserted had Manroes unquestioned if the apparently be other- 2002 but years for both bar limitations anoma- say would that it it to Suffice exist. does not wise litigating upon depend jurisdiction Court’s lous advised) partners. (or poorly of well-advised tactics which circumstance in a event, even everyone years, affected all bar asserts Court do, the be entitled acknowledges would expired period had might that decide well years. partner’s affected of the all than respect to fewer with party to a partner remain eventuality, would In that Court’s not disturb would circumstance action, but jurisdiction exercise of deciding period that the limitations expired particular had years. for some or jurisdiction The Court’s to consider the limitations issue in partnership a proceeding is made more evident in the context readjustment petition of a by partner. filed The flush lan- guage (d)(1) provides subsection partner may that a file a readjustment petition 6226(b) (d)(2) under section solely purpose asserting period that of limitations partnership attributable to expired respect items has to partner. partner If the readjustment filed petition such a to raise this sole might assertion, that only well issue presented in the action.1 In such a meaningful case, it is not say to jurisdiction that the Court has to consider this issue only to partner determine whether party is a partner’s action, since but bringing for the the action, there would be no only action.2 The purpose conceivable of the action would be to assert that the limitations had expired partner. By for that expressly permitting partner pursuant raise this issue 6226(b), to section the statute thereby effectively treats it as a item within the meaning 6226(b)(1). of section (d)(1)

The same sentence of permits subsection ner to raise the readjustment limitations bar in petition permits, also partner without differentiation, a participate brought by in an action partner the tax matters or another eligible partner. There is no Congress reason think partner’s ability intended that a to assert the limitations bar would be more constrained the latter circumstance than it would be in the analysis, former. In the final it would appear legislature perceived partner’s that a asser- tion of a closely limitations bar is so intertwined with the partner issue whether the has an interest in the outcome the interaction of sion would paragraph this provision subsec. tations period had expired with ward in the Tax Court. Sec. partner than tion, certain other 2This Sec. one (d), 6226(b) brings may analysis such there would be no other issue presented in that action. file a flush of this partner subsec. action under the sole provides subsecs, partners readjustment language complicated give subsection) brings (c) rise to the same sort of may 6229(b)(2). if an action under of subsec. the tax matters but not file be treated as a (d)(1). petition “unless such petitions for altered to that If (d)(1), the TMP has (b) subsec. partner solely for the partner, party readjustment which cured the the fact circularity previously (b), (TMP) the first such action permitted purpose brought proceeding.” does not would pursuant problem by (after file asserting action the flush noted Except for readjustment brought goes and an items. If 6226(d)(2), application all purposes, that the limi language regard eligible provi more peti for no

456 be should proceeding the partnership

of the without during proceeding the assertion the raise allowed regard regarded as a might be otherwise it to whether general the with is consistent That result item. ner-level legislative disputes over centralizing of resolution objective adjustments. partnership issue the us before the case in note that

Moreover, we transaction” “listed a underlying transaction according 6501(c)(10) decided be must purposes of section for partnership occurred transactions nature partnership item. considered be could thus, and, level Regs. 301.6231(a)(3)-l, & Admin. Proced. 6231(a)(3); sec. sec. (If partnership transaction, a listed was transaction statement.) Whether disclosure required file a may open be considered also period remains limitations to file partnership’s failure as the insofar partnership item limitations operates to extend statement disclosure any assessing 6501(c)(10) tax with under duty state- disclosure file a The transaction. partici- every partnership that respect to arises ment Sec. reportable transaction. indirectly, directly ain pated, or Reg. Regs., Fed. 67 1.6011-4T(a)(l), Temporary Tax Income partici- 2002). case in this (June partnership 41327 shows record directly transaction. pated its 2001 statement no disclosure filed remains period of limitations Consequently, return. 2002 Manroes’ both open under section provides alternative years. This conclusion Manroes’ jurisdiction to consider Court’s this basis partnership-level in this bar limitations of the assertion proceeding.3 opin- majority approach argued might be

It future preclusive effects unexpected give rise could ion did but have involving partners could who proceedings partnership-level in the bar limitations issue of raise ignores argument well-established Any such proceeding. per- as defense holding statute that a caselaw adjustments should notice final to a tains proceeding prosecuted context op. p. It 470. But true, then Judge again, Halpem neither notes, party that the questioned this Court’s parties have not argued jurisdiction. point. Dissenting partner-level rather than in proceeding. See Crowell v. Commissioner, 102 (1994); T.C. McConnell v. (and Commissioner, T.C. Memo. 2008-167 cases cited therein).4 event, there unanticipated should pre- no be resulting clusive effects from the case before us, since the only partners directly disputed affected adjustments are the Manroes, who have in fact asserted the limitations proceeding.5 bar in this majority opinion does purport possible to preclusive decide arising effects in other circumstances in other actions. might suggested

It entertaining partner-level that assertions of a limitations specter bar raises that nership-level proceedings may complex be made more or time consuming by requiring the Court to decide collateral issues relating to such question, assertions. Without however, the requires statute us to decide these issues where a asserts the respect limitations bar with partner’s to all the years. affected It great is not leap such a that the Court should also consider such issues where a asserts the limitations bar years. than all affected fewer all, After these issues have to be decided somewhere. Ulti- mately, (and it would serve no one’s undoubtedly interests surprise parties, would questioned who have not our jurisdiction) for this Court to decline to address the Manroes’ assertion of the limitations bar require and instead to parties and this or some expend other court additional time and addressing resources issue in some future proceeding.

Colvin, Cohen, Wells, Vasquez, Gale, Marvel, Haines, agree JJ., Goeke, Wherry, with this Kroupa, Paris, concurring opinion. Boyd v. Manroes created for the benefit of their children. Because these trusts contributed lying liability, which is had no prior lished that the assertion of a limitations bar on assessment 4In Apart partnership, collection actions Commissioner, from opportunity the Manroes, they have no basis properly brought T.C. dispute pursuant only adjustments it. issue in partners (2001). Hoffman to sec. the collection to be 6330(d) v. adjudicated, Commissioner, the caselaw is constitutes a proceeding now or later. are two only challenge T.C. similarly if the trusts taxpayer has to the under only well ^[145] cash (2002); estab question dissenting: In addition J., HALPERN, regula- temporary final of certain

regarding effect question: Court Does the presents a novel case tions, this proceeding decide partnership-level authority in have of a assessment bars the statute adjustment? the aid Without computational resulting cursory question, a few parties input from the author- majority do have that we holds paragraphs, majority has op. pp. Because majority 437-438. ity. See proceed- partnership-level me to convince failed authority, respectfully dissent. I ing have we Introduction I. proceeding after began this Manroes The year. partnership’s the for

respondent fpaa issued 2001 adjust- agree sustain parties that, if we The adjustments to the computational will be ments, there parties years. also The 2002 taxable 2001 Manroes’ open. year is agree Manroes’ that the judgment summary us to ask partial for motions The any 6501(a) the assessment bars section whether decide year. In a adjustment Manroes’ computational authority to has proceeding, the Court partnership-level (and penalties, (1) additions related partnership items decide (2) defenses, like), affirmative 6221; see sec. and the to tax party (3) because is not 39; and Rule see proceeding, see sec. of the the outcome no interest he has (d). 6226(c) and question us suggest before majority does not (or penalty, addi- related item either

concerns like) Rather, defense. affirmative or an or the to tax tion (d) 6226(c) cases involv- and three majority cites majority, I first response provisions. In ing those defense question an affirmative why explain is not briefly I discuss proceeding; second, in this Fourth, before caselaw. I review third, and, statute; Judge opinion, majority I address addressing of the effect question us before arguments three Thornton’s my Finally, conclusion. I offer partnership item. involves II. Affirmative Defenses An affirmative defense is an “assertion argu- of facts and * * * ments that, if true, will [cause defeat the of action], * * * even if allegations all are true.” Black’s Law (9th Dictionary 2009). ed. provides Rule 39 a few exam-

ples of affirmative judicata, defenses: “res estoppel, collateral estoppel, waiver, duress, fraud, and the statute of limita- tions.” One affirmative defense to an FPAA is that FPAA any cannot open partner affect year. See Rhone-Poulenc Specialties, & L.P. Surfactants v. Commissioner, 114 T.C. 533, 534-535 (“However, if partnership-level proceed- ings are commenced after the assessing time for against tax partners expired, proceedings will be of no avail expiration because the assessing against partners, properly if any raised, will bar assessments attributable to partnership items.”); see also infra IV.B.l. separate of this opinion. assigned Manroes have error yet they FPAA, cannot addressing avoid its simply by merits showing that 6501(a) bars the assessment computational adjustment for the year. Manroes’ 2001 The reason is that Manroes’ open. they If do not address the merits of the FPAA, we compelled shall be to enter decision clearing way respondent computational make a adjustment increasing liability their tax for 2002. That is, 6501(a) even if section bars the any computa- assessment of adjustment tional for the year, Manroes’ we must reach the merits of regardless. FPAA argument The that 6501(a) bars the any assessment of resulting liability tax for the year Manroes’ 2001 not, does therefore, constitute an affirmative defense to the FPAA.1

The Manroes are not without recourse argu- as to that ment, they however, may because raise it as an affirmative any defense subsequent in partner-level collection action or refund suit respect year. to their partner At the argument level, would be an affirmative defense because, at that level, each separate is a cause of action 1Although majority the suggest 6501(a) does not that the sec. question before us concerns an affirmative defense, I majority believe that the has impermissibly allowed the to parties place before the Court a partner-level affirmative defense that has no in place this proceeding. showing by the prevail partner can the respect which to

with year closed. is Has No Partner a That Claim aHear To

III. Jurisdiction Proceeding the Outcome in Interest of If of an judicial review provides for FPAA. Section 6226(c) provides that brought, section is review for action any partnership at in awas person who each year addressed any partnership FPAA during time (2) partici- allowed party action aas treated 6226(d)(1) (B) Subparagraph pate in the action. no right he has if status partner of that deprives a day i.e., “after proceeding; of the outcome in interest * * * any tax attributable which period within on which may *** partner] items of [the sen- Importantly, expired.” against that assessed (the 6226(d)(1) (B) of section subparagraph following tence part: sentence) pertinent provides in flush-language subsection under (B), any person treated subparagraph Notwithstanding action such in participate permitted shall be action (c) to an party aas ** asserting *) purpose solely for petition (or readjustment a file partner- attributable assessing having court person, such expired with ship items asser- such to consider jurisdiction have shall action such jurisdiction tion. jurisdiction to our affirms flush-language sentence purpose deter- the limited party for partner as

treat determining (i.e., party not otherwise mining that he proceeding).2 outcome in an interest he lacks 1997, effec- Congress it added context. be read It must August 1997, as ending years after tive Rept. H. jurisdiction”. “Clarifying Court’s Tax means 1) (Vol. 319, (1997), C.B. 1997-4 at 594 105-148, question as follows: jurisdictional report describes House * * * redetermination petition for file a eligible to to be partner a For case, existing in an participate or to any court items in of of that items any attributable assessing period only treated would partner a such expired. Since have must not partner proceeding state grounds ^[2] A partner as many separate which may, that based.”). of course, plead claims adjustments or defenses alternatively as the party FPAA that are he has no in error. has regardless interest See Rule in the of 31(c) consistency outcome (“A party or the of may party a to the action if the statute of limitations respect with to them [sic] was still open, the law is unclear partner would have standing to assert the statute of limitations expired had respect to them [sic]. [Id.3] The report House Congress states that intended the flush- language nothing sentence as more than a clarification of (B) subparagraph 6226(d)(1). of section As a clarification, the flush-language sentence nothing added of substance to sec- 6226(d)(1)(B).4 tion Congress added the flush-language sen- simply tence to address jurisdictional the narrow uncertainty identified report.5 in the House The flush-language sentence makes clear that the Court jurisdiction

has to partner’s decide a claim that he has no interest in the outcome of a partnership-level proceeding (and perhaps partner no therein6), interest permits it nothing history more.7 The of that sentence dem- onstrates its purpose. narrow partner A who concedes that par. 50,744 that the adjustments. putational See, e.g., quent over him. the Court has purpose son, might appear he was not a cessful sec. answered a however, Thornton surmises ship-level proceeding “to assert the limitations gate a statute of supra (preceding the v. was a that it did not firmative defense. fore (1992) (holding course with case should be decided ner” a adjustment 7 partner may 5Recognizing petition 4 If Commissioner, A its addition in one is not a may collection action or refund party supra disagreement is not the flush-language indicate the establishing (S.D.N.Y. 6226(d)(1)(B) jurisdictional but also to respect to a participate party note 3. jurisdiction apply for the limitations defense party 114 T.C. And, indeed, wish to establish to lack thereto? estopped that the to all point addition 1999). in number partner may partners committee’s to the action —it is an argue that he in favor of the the Court must have claim, however, abjures sentence bar” as his sole question: partners. jurisdiction Generally, partnership year only hear a flush-language from purpose See Rhone-Poulenc Court did. on that suit, cannot between the relative flush-language Katchis v. United challenging statute is, How could proceeding or to consider the statute of limitations as an af always understanding partner’s flush-language See argue that he is not a n.4 as the a statute of ground). arguing partners participate). Columbia Commissioner could argument, allow him individually make alternative sentence limitations as an House claim that before had the affirmative defense. A that, partner (citing to all sentence. because the statute of limitations had run its his status as a Bldg., partnership adjustments limitations claim is not that a sentence, report states, us); he States, because the party simply pronoun partners). authority that no may the flush-language participate participate (in Columbia Ltd. v. flush-language partner Rather, effect) 84 AFTR 2d arguments, do so. confirms successfully lessen the risk affirmative “them” Commissioner, to determine party; Surfactants holding the Court has no (or Bldg., Concurring op. at all mere group that, (or and its antecedent flush-language open see sentence ensures that Ltd. v. 99-5503, clarification, then, commence) defend on the (even equivalent defense; i.e., limitations had leading to the sentence but com supra Court, if a of who makes a suc to a & whether a partners that, them) 98 T.C. Specialties, partner for the limited Commissioner, computational note p. for that rea 99-2 USTC in a subse jurisdiction to a claim might sentence 2, Judge may partner that the ground partner wishes noting That, “part run, L.P. liti be file

462 party proceeding is a of the the outcome in interest an has

he 6226(d)(1). to section recourse no and has it to outcome in the they interest an have concede Manroes they concede proceeding because partnership-level of this their dispute affect will adjustments in that they that concede open; i.e., they is concede year, which * * * attributable which period within “the open. still against is them may be assessed” nership items added). Manroes Indeed, the 6226(d)(1)(B) (emphasis See sec. proceeding. Section parties to this they deny are that not do inquiry us.8 before 6226(d)(1) relevant not is therefore IV. Caselaw paragraphs. short in three majority cases three cites as well as three all I discuss op. pp. majority 437-438.

See others. a few Authority, Which Determine To Our That Cases

A. Reaffirm Parties Are Partners Commissioner, 131 XX, v. Trading L.P. Partners PCMG timely a filed partners who (2008), five involved

T.C. 6226(b)(1) after group 5-percent under petition aas petition. Id. at a file partner failed had matters the tax would Court whether they uncertain were Because 208. partners group, five 5-percent petition uphold the petition asserting, lead as petitions separate all filed also party to the 6226(d)(1)(B) a none under had, interest are Millennium he to determine ther to anomaly. rate to decide nership of whether the Commissioner determining open year, open Moreover, party find is not That closed, opinion. year, (and judicial give items under conclusion the assessment a aIf then he is a party then however, Trading, we us which partner even issue for outcome authority need not he under party to the from 6226(d)(1)(B), if, by partners partner concedes restraint does L.L.C. avers sec. all arguing of tax averring not, necessarily purposes.” is 6226(d)(1)(B).The v. that, have consider he is a would not a Commissioner, not a proceeding; attributable otherwise the Court Judge is a of the counsel party to a party; decide party. interest party Concurring op. p. all party's Thornton years those moreover, he must against the status If 131 T.C. flush-language affected a later has failed partnership-level even one partner-specific defense. years proceeding. the outcome search believes finding) inquiry I assume are action. of all by partnership for an to aver facts closed, (2008), items (concurring Judge If a is sentence The moment collateral partner’s done; open status proceeding open, he is time partner infra Thornton properly raises the year. proceeding the Corut then items, confirms necessary sec. op. years estoppel would any other barred argues If p. but IV.C.l. of states: the Court discussion some, 454), suggest an affected does Court partner would our is, year. “[T]odecide jurisdiction but necessarily, purposes of not prove that finds one he need not question by part- finds not prevent of New go fur is sepa all, an no proceeding. Id. at 208-209, 211-213. PCMG concerned the Commissioner’s motion to (and dismiss petitions those five other). one at Id. 207. After establishing that the Court had jurisdiction petition over the 5-percent group, by Court was 6226(b)(2) bound section to dismiss all subsequent actions. Id. at 211. Thus, holding of PCMG does not 6226(c) (d) concern section any way relevant here. Nonetheless, the discussion in 6226(c) PCMG of section (d) supports my analysis. majority quotes PCMG note 9: Generally the jurisdiction Court’s in a partnership proceeding is restricted to determining “partnership items”. Sec. 6226(f); Partners, Petaluma FX LLC v. Commissioner, 131 84, (2008). T.C. However, jurisdiction our over period whether of expired limitations has as to individual presents ners an exception since expiration period of limitations depend can on facts that are peculiar partners. individual Rhone-Poulenc & Specialties, Surfactants L.P. v. Commissioner, 114 T.C. * * *. As we observed therein: 1997, “in Congress recognized that periods for assessing against tax partners individual may vary partner from partner to and specifically pro- vided that an partner individual will permitted to participate a party in the partnership proceeding ‘solely for the purpose asserting that period of limitations for assessing any tax attributable to partnership items expired has with respect to person’. such See the last sentence section 6226(d)(1)(B), added Code the Taxpayer Relief Act 1997, Pub. 105-34, L. 1239(b), 111 Stat. years effective ending August after [Id. 1997. 546; fn. ref. omitted.]” [Id. at 213 n.9.] To Partnership restate: items are required those items be taken into account for partnership’s taxable the extent that those items are appropriately more deter- mined at partner level than at the level. Sec. 6231(a)(3). By inquiry contrast, 6226(d)(1) under section partner determine whether party is a will in most cir- depend cumstances peculiar facts that are to the individ- partner; ual for reason, in most circumstances, inquiry would inappropriate seem at the partnership level. Nonetheless, concludes 6226(d)(1)(B) PCMG note grants the authority Court the to make such a partner-spe- inquiry cific and to decide whether the of limitations for a has run in the context determining party. is a parties they are concede Manroes Again, because 6226(d)(1) not proceeding, section partnership-level majority. support the does PCMG relevant. FPAA Concerning Timeliness

B. Cases Untimely Is FPAA in Which 1. Cases Special- & majority Rhone-Poulenc cites Surfactants proposition supra, for the Commissioner, ties, v. L.P. may partners assert proceeding the assessing attributable period of limitations p. op. That majority expired. See items of recitation its for majority Rhone-Poulenc cites is, the permits 6226(d)(1), which in section flush-language sentence partnership- party to a not argue he is partner to analysis my of supports Rhone-Poulenc proceeding. Yet level simply involved (d). 6226(c) Rhone-Poulenc argues that, under sec- every partner special in which case partnership-level party ato 6226(d)(1)(B), not he is tion limitations of statute that, if concluded We proceeding. adjustment result- computational every assessment barred reaching merits adjustment, every partnership ing from Rhone-Poulenc avail”. “no FPAA would T.C. Commissioner, 114 v. Specialties, L.P. & Surfactants (describing opinion separate of this supra II. 534-535; cf. affirmative an effect as in argument in Rhone-Poulenc argument an involved FPAA). Rhone-Poulenc defense proceed- party partner a was no that ing majority. support the not does Timely Is the FPAA in Which 2. Cases v. Commis- Partners, L.P. Curr-Spec majority cites The (5th Cir. F.3d 391 2007-289, affd. sioner, Memo. T.C. reason, proposition. explain what 2009), not does but an fact involve Curr-Spec not in does imagine, I open closed. year any partner was inquiry into whether (2007), and Commissioner, 128 T.C. Holdings Kligfeld v. (2007), control Commissioner, 128 T.C. Pship. v. Inv. G-5 Curr-Spec, pattern. fact same involve three all the statute conceded Commissioner case, the each any partner any against assessment barred corresponding partner adjustment computational partnership year for which the FPAA was issued. The taxpayers argued that, for that reason, the Commissioner any could not computational assess adjustment any sub- sequent year, though even taxpayers conceded that subsequent years open. were rejected The Court the tax- payers’ argument. Those three cases did involve partner-specific inquiry into the statute of limitations, however, because the parties agreed years which open were and which closed. The question, rather, was whether the FPAA timely. The Court held timely it was because, assuming even FPAA had been issued for a partnership year congruent years, closed if the FPAA could open part- affect year, ner then the Court could reach its supra merits. See sec. II. separate opinion. Those three cases sup- do not port majority.

C. Other Support Cases That My Analysis 1. New Trading, Millennium L.L.C. v. Commissioner specific question we today consider is whether in a partnership-level proceeding who concedes he is a party may argue that the statute of limitations bars the assessment resulting of a computational adjustment. The question broader might be whether in a partnership-level proceeding partner may a partner-specific raise a defense. In penalty recently context, we answered question the latter with a resounding “no”. See New Trading, Millennium L.L.C. v. (2008). Commissioner, 131 T.C. 275 In New Trading, Millennium taxpayer par- moved for tial summary judgment, asking Court to hold either inapplicable invalid or regulation barring partner from raising partner-level defenses in a partnership-level proceed- ing. We denied the motion in respects, both see id. at 275- thereby 276, upholding 301.6221-lT(c) (d), and Tem- porary Proced. & Regs., (Jan. Admin. Reg. 64 Fed. 26, 1999).9 sioner, 131 T.C. Fed. ginning on or after Oct. 4, 2001. Sec. 9Although Reg. 301.6221— temporary (Jan. 1(c), (2008), Proced. during 1999), & was made final and Sec. 301.6221-1T(c) Admin. 301.6221-l(f), at Regs. issue New (“Penalties and in Proced. & Admin. applicable (d), Millennium Temporary determined at partnership taxable Proced. Trading, Regs. partnership & Admin. L.L.C. v. Commis years Regs., level.”), be partner cannot unequivocally “a that stating began We proceeding”. New in defenses partner-level TEFRA raise supra 284. at Commissioner, Trading, v. L.L.C.

Millennium by Con- enacted “[t]he structure explained that We TEFRA partner-level raise partner permit a gress not does at proceeding”, id. during defenses 6230(c)(4), 6230(c)(1), and “sections that held we Congress intended that conjunction, clear make read when during a refund defenses partner-level raise partners to con-We at 288. proceeding”, id. partnership after action sec- history definitions and the legislative “the that cluded wish Congress did clear] 6231(a) [make that tion in a awith associated issues all to decide Court * * * Court] informa- [the if single proceeding even Id. do so.” available tion simple proposition: Trading stands Millennium New penalty determines ato a defense The character or the partnership level appropriate at defense proposition analogous only an argue I level. of limitations. statute on the based a defense holds States United v. 2. Slovacek 250, 253 — 254 Cl. Fed. States, 36 v. United Slovacek sought to proceeding, partner-level

(1996), taxpayers, ain part extended had who matters disqualify a tax argument on Success limitations. nership’s provides: partner- adjustment to a to an relates tax, amount additional Any penalty, addition can items to such defenses Partner-level partnership level. at the ship be determined shall item payment. Assessment following assessment through actions refund only be asserted adjustment to a relates to tax, amount or additional penalty, addition Partnership-level determinations partnership-level determinations. based be made item shall any penalty, the determination that underlie legal determinations factual all the include paragraph specified in partner-level amount, defenses other than tax, or additional addition (d) section. of this defenses.”), provides: (“Partner-level Regs. 301.6221-l(d), Admin. & Proced. Sec. to an that relates tax, amount or additional any penalty, addition defenses Partner-level proceeding, but may asserted not be partnership item adjustment to a payment. section following assessment through separate actions refund may asserted be partner or are personal to the that are limited to those 6230(c)(4). are defenses Partner-level determined be separate cannot return upon partner’s dependent underpayment of any applicable threshold are whether Examples determinations these level. criteria partner has met partner or whether respect to the with been met tax has (reasonable filed), or section only is return 6664(b) applicable where (penalties section applicability of section as to the partnership-level determinations subject exception) cause 6664(c)(2). would have meant that, under 6226(d)(1)(B), part- no ner party was a to the partnership-level proceeding.

The Court of Federal Claims first asked whether section 301.6231(a)(3)-l(b), (“Factors Proced. & Regs. Admin. affect the determination of partnership items.”), encompasses the “partnership’s statute of limitations”. Id. at 256. The Court of Federal Claims then stated: ** * Determining whether [the tax partner] matters extended the stat- ute of might limitations be said to affect the amount, timing, and characterization income, etc., items) (partnership at the partnership

level, if only in a thumbs-up or thumbs-down manner. Conversely, a stat- ute of limitations applicable issue only to an individual involves questions of pertinent fact only to that partner, e.g., whether he extended the statute of limitations for his own return, see I.R.C. § 6229(b)(1)(A), or timely entered into a agreement settlement solely respect ner’s return, see I.R.C. 6229(f), § or participated in preparing a fraudulent partnership return, see 6229(c)(1)(A). I.R.C. [Id,.] § taxpayers lost because the Court of Federal Claims they concluded that made the argument: first kind of [W]hether a statute of applicable limitations to the partnership as a whole was waived so permit as to assessment of additional against taxes partnership as a whole is an issue to be decided at the partnership level, it since share). affects all partners (to alike the extent of proportionate their * * * [Id.10] Petitioners, however, have made the second argu- kind of ment. Their statute of argument, which is not an argument under 6226(d)(1)(B) they par- are not ties, questions involves pertinent of fact only to them; i.e., any computational adjustment for 2001 would timely to them individually. argu- Thus, their ment appropriate at the level.

D. Conclusion holding of no supports case majority; my moreover, analysis 6226(d) of section every consistent with case I

have found and majority cites.11 10In the end, however, the Court of Federal Claims did rely that analysis and held signing that, by an income tax agreement, settlement the taxpayers had legal waived “their right to a refund.” Slovacek v. United (1996). States, 36 Fed. Cl. 250, 256 11Judge Thornton cites Crowell v. (1994), Commissioner, 102 T.C. 683 and McConnell v. Com missioner, T.C. Memo. 2008-167, for the proposition that “a statute of limitations defense as pertains to a final notice adjustments of should be prosecuted in context Opinion Concurring

TheV. ways in which proposes three Judge Thornton part- might present a claim limitations of statute Manroes’ claim dispose of (which tous allow nership would item sup- 6221). way first The sec. level, see partnership 6226(d)(1). second analysis of section majority’s ports the considering the ground for provide an alternative ways two claim. Manroes’ Flush-Language Sentence 6226(d)(1)

A. Section partner’s claim a apparently believes Judge Thornton no he has flush-language sentence pursuant made proceeding nec- partnership-level of a outcome in interest pp. Concurring op. 455- partnership item. essarily involves item” “partnership term previously, the As indicated 6231(a)(3) and section section art, defined a term partner’s claim Regs. A 301.6231(a)(3)-l, Admin. & Proced. might involve flush-language sentence pursuant made is that claim especially if item, partnership years so partners for all expired all has of limitations sec. to the defense affirmative an FPAA. it raises (“Factors that Regs. 301.6231(a)(3)-l(b), Admin. & Proced. items.”); also see determination affect opinion separate this supra IV.C.2. supra 3; note arguments of limitations statute (discussing kinds two supra). Manroes States, United v. in Slovacek identified not do defense affirmative an FPAA raise do not Judge Thornton proceeding. this an interest disclaim involves nonetheless claim their to show failed 6226(d)(1). section nership under item 6501(c)(10) Transactions Listed B. Section proposes Judge 6501(c)(10), Thornton Relying section on might claim limitations statute ways Manroes’ two analy- his Judge offers Thornton item. present 6501(c)(10) alternative relying section sis 6226(d)(1). Section analysis under majority’s assessing 6501(a) period for extends pp. Concurring op. 456— proceeding.” partner-level ain proceeding than rather opinion, separate II. of argued supra in sec. Yet, Ias have agree more. not could 457. I the PPAA. pertain to present does Manroes defense statute collecting taxpayer tax if a fails to include on his return required information Judge respect to listed transactions. speculates Thornton that, because partnership was involved in arguably what is a listed ques- transaction, tion of whether that transaction ais listed transaction “could be partnership considered a item.” op. Concurring p. 456. He speculates further that, “insofar as partnership’s failure to file a disclosure operates statement to extend the limita- period tions 6501(c)(10) under section assessing any tax”, question “[w]hether period limitations remains open may also be considered a partnership Concurring item”. op. p. 456. respect With Judge Thornton’s first conclusion, the fac- inquiry tual necessary to determine whether a transaction is a listed may transaction indeed involve partnership items (e.g., partnership liabilities or the partner’s amount of a con- tributions to the partnership, 301.6231(a)(3)- see sec. l(a)(l)(v), (4)(i), Proced. & Regs.), Admin. question and the may itself present well a partnership item. Nonetheless, a finding that the transaction ais listed transaction is insuffi- cient finding for a 6501(c)(10) that section has extended the 6501(a) period section of limitations for the Manroes’ 2001 year. To make finding, we (1) would also need to decide the effective dates of sections and 6707A and validity 1.6011-4T(a)(l), section Temporary Income Regs., Tax (June Reg. 67 Fed. 2002). While those questions purely legal, are the answers are this case irrelevant (it whether was) timely FPAA and to whether the parties Manroes are (they are); answers are pertinent only to whether, because of 6501(c)(10), 6501(a) period applicable to Manroes has been extended year.12 for their In nership-level proceeding, for who deny does not he party is a thereto, a statute of limitations claim is not an supra affirmative defense. See secs. II. and sepa- III. of this opinion. rate Judge Thornton has failed to convince that, me nonetheless, that claim involves a partnership item within 12Analogous questions would include they by agreement with the Commissioner ex tended the of limitations for the computational assessment of adjustments pertaining only return, to their see 6229(bXl)(A), or entered into a solely settlement return, their 6229(f). own see sec. questions Those are pertinent only would be Manroes properly so would only raised at the supra level. See sec. IV.C.2. of separate opinion. 301.6231(a)(3)-l, & Admin. Proced. meaning of section

Regs. I conclusion, am second Judge Thornton’s respect to With claim of limitations statute Manroes’ convinced to attach failed because item

ais 1.6011-4T(a)(l), Section return. to its statement disclosure imposes disclosure supra, Regs., Tax Temporary Income partner- every individual among others, on, requirement reportable trans- indirectly ain directly or ship participating participate partners itsof some partnership and aIf action. and the both transaction, then reportable ain (That situa- assume, the is, I disclose. partners must those however, does regulation, here.) temporary have we tion the partnership on by the of disclosure explain effects not clarifica- without hesitant be I would versa. vice partners, or notwithstand- that, regulation either to state tion to disclose partnership’s failure disclosure, a partner’s ing a (2) that partner’s extend could to partner’s failure cure could disclosure partnership’s described, the situation that, I believe disclose. necessary sufficient and both should disclosure ner’s partnership’s disclo- 6501(c)(10). Thus, the section overcome partner’s disclosure Because irrelevant. seems sure present a not does the issue issue, always decide should partnership item. speculation raises transactions listed Judge Thornton’s analysis majority’s alternative

interesting points. His only narrow pertinent 6226(d)(1), is however, transactions). More- involving (i.e., listed those cases class important decide satisfied majority, is he like over, do so. parties. I would any input from without issues Opinion Majority VI. Effect opinion to transform majority of the an effect I fear venue exclusive into proceeding contrary to That defense. of limitations

raising statute litigation audit logic unified purposes and ofAct Responsibility Fiscal Equity and Tax procedures of 402, 96 Stat. 97-248, L. tefra Pub. (tefra), any question that affected certain to make intended once answered generally was partners in a e.g., for all. See, RJT X Invs. v. Commissioner, 491 F.3d 732, (8th 2007), Cir. in which Appeals the Court of stated: TEFRA was intended, part, relevant prevent inconsistent inequi- table income tax treatment partners between various partner- same ship resulting from conflicting determinations of partnership level items in individual proceedings. Randell v. States, United F.3d (3rd 1995) 103-04 Cir. (describing goals of TEFRA and problems * * * TEFRA was address) intended to TEFRA was also intended to make the administration of the tax laws more efficient. See Rept. H. Conf. 97-760, at 600 (1982), 1982-2 C.B. 600, 662. The majority’s interpretation furthers neither of those goals; indeed, as may discussed below, it have unintended consequences. I believe majority has erred because it has not considered the differences between an affirmative defense to partner’s an FPAA, claim that party he is not a a partnership-level proceeding, partner’s and a claim that 6501(a) bars the particular collection of a computa- adjustment. tional hanging While language its hat on in sec- 6226(d)(1) tion dealing with claims of the sort, second the majority I believe has conflated claims of the first and third treating sort, a claim of the third proper sort as a affirmative defense at partnership the level.13 That misunderstanding of statutory the framework will certainly almost have adverse surprising and consequences. Consider a partner case in plans which no to contest the merits of an FPAA or his party, status as a but each believes partner-level he a has defense, relying some on the statute of limitations, some on another defense. I assume if a partner with a statute of limitations defense fails to raise that defense at partnership the level, he will be deemed to have general, waived it. In party a who fails to raise a defense when he opportunity has the thereby to do so waives e.g., See, defense. Chimblo v. Commissioner, 177 F.3d (2d 1999), affg. Cir. T.C. Memo. 1997-535, in which Appeals Court of stated: As a general matter, the statute of limitations is an affirmative defense that must be pleaded; it jurisdictional. is not See Columbia Bldg., Ltd. v. * * * Commissioner, (1992). T.C. It follows that such a defense may be waived a party who fails to raise it at the appropriate time.

13See supra note 1. proposition stand to opinion majority seems preserve his partner must generally a although

that, may— he proceeding, partner-level a ner-specific defenses defense his statute must —mount so fpaa nor disputes neither if he level, even partnership- outcome interest he has perilous a Congress such set proceeding. I doubt level unwary. trap for the Conclusion

VII. authority has Court proceeding, the partnership-level aIn (and penalties, addi- (1) related partnership items decide to (2) affirmative like), sec. see and the tax tions a a whether 39, and Rule defenses, see outcome interest no has he party because (d). 6226(c) aIn sec. proceeding, see question of thereto, party is a a proceeding, if subsequent bars of limitations statute given is neither tax for assessment majority defense an affirmative nor FPAA. item fail and so otherwise me convince Judge fail Thornton proceed- authority in this Court me to convince question.14 ing consider yet Respondent way: has not problem another Consider respect to the any partner with from sought collect yet do so. Indeed, he cannot adjustments FPAA. question motions these answer Thus, Generally, question. hypothetical present to answer opinion unnecessarily, its question answers a court when advisory. is best

jurisdiction if we with respect * * issue is stated, suming hypothetical Co. 14 Judge Thornton v. Citizens ^[*] do not have [a citing raised, partner’s (quoting the Supreme the case fewer as well a Better authority assertions Saso jurisdiction and suggests: than aas before v. Envt., 523 U.S. all affected Court Commissioner, statute of a limitations “It considering do so. authority: disposing years.” As we such T.C. stated in Concurring bar] of the case “We cannot statute great (1998)). issue, where leap 734-735 Blonien of limitations we op. p. a partner avoid must 457. It v. (1989)): the Court merits.” first Commissioner, asserts jurisdictional defense.’” decide “‘When Id. at should great the limitations As we leap, ^[118] jurisdictional also issue (citing Steel T.C. however, we have consider further bar as deny I would both motions as beyond at this time authority of the Court. respectfully Therefore, I dissent. Foley agree and Holmes, JJ., dissenting opin- ion. notes on November 15, maturity with a value of $6,815,000. The Treasury notes were then open sold on the market for $5,481,713; i.e., the Treasury notes were sold short.2 Of the proceeds, $2,491,233 was allocated to Mr. Manroe and $2,990,480 was allocated to Ms. Manroe. On December 12, 2001, the Manroes contributed the short proceeds, sale the $825,000 previously deposited into the Family Manroe Trust account, obligation and the to cover the short sale to the partnership exchange for a combined 95.2964-percent partnership interest. The two trusts for the

Notes

notes borrowed partnership. sale short obligation to cover which partnership interests in their bases claimed Manroes reduced were which proceeds but sale short included disposed They then sale. short cover obligation to by the mil- $5 than more claimed interests of their eco- equivalent though no was there even losses lion loss. nomic issue transaction Accordingly, hold we Notice described transaction substantially similar transaction. a listed supra, is therefore 2000-44, 447 IV. Section 1.6011^4, Regs. Income Tax argues Petitioner Temporary 1.6011-4T, Regs., Income (June Tax Reg. 67 2002) (the Fed. 18, temporary regulation), requires which participa- disclosure of tion in listed transactions, is invalid because it violates Executive (1994) (Executive Order 12866, 3 C.F.R. 638 Order 12866), Regulatory Flexibility Act (RFA), 6 U.S.C. (1994). secs. 601-612 Executive requires Order 12866 that the Manage- Office of Budget ment and proposed “significant review regulatory regulatory action”. A assessment temporary regulation of the at issue was not conducted Department because the Treasury and the IRS concluded “significant that it was anot regulatory (June Reg. action.” 67 2002). Fed. Peti- argues tioner regulation significant is a regulatory requiring action review. Petitioner’s contentions are not persuasive. Section 10 of Executive Order 12866, 3 C.F.R. at 649, states: Nothing in this Executive order shall any affect otherwise available judicial review agency action. This Executive order is only intended improve the internal management of the Federal Government and does not any create right or benefit, substantive or procedural, enforceable at law equity or by party against the States, United agencies its or instrumen- talities, its officers or employees, person. other Accordingly, petitioner right challenge no compliance with Executive Order Michigan 12866. v. Thomas, (6th F.2d 1986); Cir. Trawler Marie, Diane Inc. v. (E.D.N.C. Brown, Supp. 918 F. 1995), affd. without published opinion (4th 1996). 91 F.3d 134 Cir.

Case Details

Case Name: BLAK Investments, Kyle W. Manroe Trust, Robert and Lori Manroe, Trustees, Tax Matters Partner v. Commissioner

Court Name: United States Tax Court

Date Published: Dec 23, 2009

Citation: 133 T.C. 431

Docket Number: Docket 1283-07

Court Abbreviation: Tax Ct.