1996 Tax Ct. Memo LEXIS 305 | Tax Ct. | 1996
MEMORANDUM OPINION
ARMEN,
Respondent concedes petitioner's second motion for partial summary judgment. Accordingly, we need only address petitioner's first motion for partial summary judgment. As explained in greater detail below, we shall deny such motion.
During the taxable years 1983, 1984, and 1985, Homer N. Cummings (petitioner) was a partner in December1996 Tax Ct. Memo LEXIS 305">*306 Associates, a partnership subject to the unified partnership audit and litigation procedures set forth in sections 6221 through 6231. Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a), 96 Stat. 324, 648.
Petitioner reported losses of $ 66,079, $ 123,071, and $ 14,647 on his 1983, 1984, and 1985 Federal income tax returns, respectively, reflecting his distributive share of the losses claimed by December Associates for those years. After reporting an aggregate loss of $ 167,293 on his 1983 tax return, petitioner carried his December Associates' loss for 1983 forward to his 1984 tax return. Petitioner likewise carried a portion of his December Associates loss for 1984 forward to his 1985 tax return.
Respondent subsequently issued separate notices of final partnership administrative adjustment to December Associates for the taxable years 1983, 1984, and 1985. Ira N. Smith, the tax matters partner for December Associates, invoked this Court's jurisdiction by filing separate petitions for readjustment. See
On March 16, 1994, this Court1996 Tax Ct. Memo LEXIS 305">*307 entered decisions in each of the foregoing 3 dockets involving December Associates. The decisions eliminated all income, deductions, and credits claimed on December Associates' partnership returns for 1983, 1984, and 1985. No appeals were taken, and the decisions became final on June 14, 1994. Secs. 7481(a), 7483.
Shortly thereafter, respondent made computational adjustments to petitioner's tax liability for 1983, 1984, and 1985 in order to reflect the disallowance of the losses that petitioner had claimed from his investment in December Associates. Sec. 6231(a)(6). Specifically, respondent computed petitioner's tax liability based upon the elimination of petitioner's distributive share of the December Associates' losses that petitioner reported in 1983, 1984, and 1985, as well as the elimination of the related net operating losses (NOL's) that petitioner carried forward from 1983 to 1984 and from 1984 to 1985. Consistent with these computations, and within 1 year of June 14, 1994, respondent assessed petitioner $ 9,284 in additional tax for 1984 and $ 1,399 in additional tax for 1985.
On April 4, 1995, respondent issued a so-called affected items notice of deficiency to petitioner1996 Tax Ct. Memo LEXIS 305">*308 for each of the taxable years 1984 and 1985. The affected items notices of deficiency set forth respondent's determination that petitioner is liable for additions to tax under sections 6651(a)(1) and 6659 for 1984 and 1985. Respondent determined that petitioner is liable for those additions to tax as a consequence of the adjustments to petitioner's tax liability arising from the disallowance of partnership items of December Associates for 1983, 1984, and 1985.
Petitioner invoked this Court's jurisdiction by filing a timely petition for redetermination. The petition includes an allegation that petitioner is entitled to a refund under section 6512 in respect of any taxes assessed or paid after the expiration of the applicable period of limitations. See
In his Motion for Partial Summary Judgment Regarding The Overvaluation Penalty, petitioner seeks a ruling that he is not liable for the additions to tax under For purposes of this case only, for the petitioner's taxable years 1984 and 1985, respondent concedes that petitioner is not liable for the addition to tax under
In his Motion for Partial Summary Judgment Regarding Penalties Asserted Based On The Net Operating Loss Carryforwards, petitioner seeks a ruling that respondent erred in treating petitioner's 1984 and 1985 NOL carryforwards as affected items subject to computational adjustment. In petitioner's view, adjustments to NOL's (whether carryforwards or carrybacks) often require such a detailed review of the taxpayer's tax returns that such adjustments should invariably be 1996 Tax Ct. Memo LEXIS 305">*310 treated as affected items that require a factual determination in a partner-level proceeding. In other words, petitioner requests a "bright-line" rule that would preclude respondent, following a partnership level proceeding, from adjusting an NOL item at the partner level until the NOL adjustment is included in an affected items deficiency notice and the taxpayer/partner is provided with an opportunity to invoke this Court's deficiency jurisdiction with respect to such adjustment. In conjunction with the foregoing, we understand petitioner to argue that because respondent failed to issue a notice of deficiency for the computational adjustment, the assessment was barred and the additions to tax, inasmuch as they are determined by reference to the NOL carryforward adjustments, must likewise fall.
Respondent filed an objection to petitioner's Motion for Partial Summary Judgment Regarding Penalties Asserted Based On The Net Operating Loss Carryforwards. In her objection, respondent asserted that she correctly determined that the NOL adjustments in issue are affected items subject to computational adjustment. Respondent contends that such adjustments are not affected items requiring determinations1996 Tax Ct. Memo LEXIS 305">*311 at the partner level because respondent proceeded with her computations without otherwise adjusting petitioner's tax liability as reported. From respondent's perspective, there simply is no need for a determination at the partner level regarding the NOL adjustments that were made in this case.
In general, the tax treatment of any partnership item is determined at the partnership level pursuant to the unified audit and litigation procedures set forth in sections 6221 through 6231. TEFRA, sec. 402(a), 96 Stat. 648. The TEFRA procedures apply with respect to all taxable years of a partnership beginning after September 3, 1982.
An affected item is defined in section 6231(a)(5) as any item to the extent that such item is affected by a partnership item.
The first type of affected item is a computational adjustment made to record the change in a partner's tax liability resulting from the proper treatment of partnership items. Sec. 6231(a)(6);
The second type of affected item is one that is dependent on factual determinations to be made at the partner level.
Petitioner relies on 3 cases to support his position that an NOL adjustment is an affected item that requires a determination at the partner level:
In
Likewise,
Petitioner's reliance on
As indicated, respondent relies on
In
Following an examination of the TEFRA partnership by the IRS1996 Tax Ct. Memo LEXIS 305">*318 for 1982 and 1983, the taxpayer entered into a settlement agreement reducing its distributive share of partnership loss for 1982. In this regard, the settlement agreement provided that the taxpayer's distributive share of partnership loss for 1982 would be reduced from $ 199,813.35 to $ 69,934.67. The settlement agreement also provided that the taxpayer's distributive share of partnership income for 1983 would remain unchanged.
Following the settlement, the Commissioner computed the taxpayer's income tax liability for 1982, taking into account partnership items, to be equal to the tax due on an increase in income of $ 30,065. This figure represented the difference between $ 100,000 (the loss that the taxpayer claimed on its 1982 return) less $ 69,935 (the taxpayer's distributive share of partnership loss under the settlement). In addition, after eliminating the partnership loss that the taxpayer carried forward from 1982 to 1983, the Commissioner determined that the taxpayer owed additional income tax for 1983.
The Commissioner later assessed the taxes described above as computational adjustments. In a subsequent refund action, the taxpayer claimed that the Commissioner erred in treating1996 Tax Ct. Memo LEXIS 305">*319 the above-described adjustments as computational adjustments, rather than as adjustments requiring factual determinations at the partner level. The United States District Court for the Western District of Texas, citing
We are not persuaded that the cases relied on by petitioner support the conclusion that the NOL carryforward adjustments in question are properly characterized as affected items that must be resolved in a partner-level proceeding. Rather, we are satisfied, based on the record1996 Tax Ct. Memo LEXIS 305">*320 presented, that those adjustments satisfy the definition of an affected item subject to computational adjustment. Sec. 6231(a)(6);
In view of the foregoing, and under the facts presented, we see no merit in petitioner's contention that the NOL carryforward adjustments in this case must be the subject of an affected items notice of deficiency.
In order to reflect the foregoing,
Footnotes
1. Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure and all section references are to the Internal Revenue Code in effect for the taxable years in issue.↩
2. Although we permitted the taxpayer in
, 127-128 (1992), to include in his Rule 155 computation the NOL carryback arising from the settlement of TEFRA partnership proceedings, we declined to extend this ruling toHarris v. Commissioner , 99 T.C. 121">99 T.C. 121potential↩ carrybacks relating to separate TEFRA partnership proceedings that had not at the time been finally settled or otherwise decided at the partnership level.