DAVID B. GREENBERG v. COMMISSIONER OF INTERNAL REVENUE
No. 20-13001
United States Court of Appeals for the Eleventh Circuit
August 20, 2021
Agency No. 001143-05; [PUBLISH]
1143-05
DAVID B. GREENBERG, Petitioner - Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee,
1335-06
DAVID B. GREENBERG, Petitioner - Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee,
20676-09
DAVID B. GREENBERG, Petitioner - Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee,
20677-09
DAVID B. GREENBERG, Petitioner - Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee,
20678-09
DAVID B. GREENBERG, Petitioner - Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee.
Petition for Review of a Decision of the U.S. Tax Court
(August 20, 2021)
Before NEWSOM, BRANCH, and LAGOA, Circuit Judges.
This appeal primarily concerns the interpretation of provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA“), Pub. L. No. 97-248, 96 Stat. 324, in effect during the tax years at issue.1 David Greenberg appeals the Tax Court‘s memorandum opinion upholding adjustments contained in five notices of deficiencies (“NODs“) issued by the Internal Revenue Service against him for the tax years 1999, 2000, and 2001, as well as the Tax Court‘s adoption of the Commissioner of Internal Revenue‘s computations under Tax Court Rule 155 and its denial of several of Greenberg‘s posttrial motions. After careful review and with the benefit of oral argument, we affirm the Tax Court‘s decision.
I. RELEVANT BACKGROUND
This case concerns the appeal of five cases filed by Greenberg that were consolidated by the Tax Court in Tax Court Docket Nos. 1143-05, 1335-06, 20676-
09, 20677-09, and 20678-09.2 At issue in this case is a type of tax shelter known as “Son-of-BOSS.”3 As this Court has noted:
There are a number of different types of Son-of-BOSS transactions, but what they all have in common is the transfer of assets encumbered by significant liabilities to a partnership, with the goal of increasing basis in that partnership. The liabilities are usually obligations to buy securities, and typically are not completely fixed at the time of transfer. This may let the partnership treat the liabilities as uncertain, which may let the partnership ignore them in computing basis. If so, the result is that the partners will have a basis in the partnership so great as to provide for large—but not out-of-pocket—losses on their individual tax returns. Enormous losses are attractive to a select group of taxpayers—those with enormous gains.
Highpoint Tower Tech. Inc. v. Comm‘r, 931 F.3d 1050, 1052–53 (11th Cir. 2019) (quoting Kligfield Holdings v. Comm‘r, 128 T.C. 192, 194 (2007)).
Specifically, the type of Son-of-BOSS transactions involved in the instant case is the Short Option Strategy (“SOS“) transaction. The Tax Court below aptly explained SOS transactions as follows:
The SOS transaction required clients to (1) buy from a bank a foreign-currency option that involved both a long and a short position; (2) transfer the long position to a partnership, which also assumed the
client‘s obligation under the short position; and then (3) withdraw from the partnership and receive a liquidating distribution of foreign currency, which the client would sell at a loss.
Greenberg v. Comm‘r, T.C. Memo. 2018-74, at *8 (footnote omitted).
Before delving into this case‘s factual and procedural background, we first explain the statutory framework governing the taxation of partnerships during the relevant time period, given the complexity of the tax transactions before us.
A. Statutory Overview
“A partnership does not pay federal income taxes; instead, its taxable income and losses pass through to the partners.” United States v. Woods, 571 U.S. 31, 38 (2013); accord
As noted above, during the taxable years at issue in this case, partnership audits and litigation were governed by provisions of TEFRA, which were formerly
found in
First, the IRS must initiate proceedings at the partnership level to adjust “partnership items,” those relevant to the partnership as a whole. §§ 6221 ,6231(a)(3) . It must issue [a Final Partnership Administrative Adjustment (“FPAA“)] notifying the partners of any adjustments to partnership items,§ 6223(a)(2) , and the partners may seek judicial review of those adjustments,§ 6226(a) –(b) . Once the adjustments to partnership items have become final, the IRS may undertake further proceedings at the partner level to make any resulting “computational adjustments” in the tax liability of the individual partners.§ 6231(a)(6) . Most computational adjustments may be directly assessed against the partners, bypassing deficiency proceedings and permitting the partners to challenge the assessments only in post-payment refund actions.§ 6230(a)(1) ,(c) . Deficiency proceedings are still required, however, for certain computational adjustments that are attributable to “affected items,” that is, items that are affected by (but are not themselves) partnership items.§§ 6230(a)(2)(A)(i) ,6231(a)(5) .
Additionally, all partnerships—i.e., any partnership required to file a return under
Furthermore, each partnership designated a “tax matters partner” (“TMP“) to act on its behalf in dealings with the IRS. See
IRS was permitted to send that partner a conversion notice informing the partner that his or her partnership items for the partnership taxable shall be treated as nonpartnership items. See
With this statutory framework in mind, we turn to the factual and procedural background of the case.
B. Factual Background5
Greenberg is a certified public accountant who earned a degree in business and finance and a master‘s in accounting and who previously worked as a tax accountant at accounting firms such as Arthur Andersen, KPMG, and Deloitte. Greenberg met Goddard, an attorney, while working at Arthur Andersen.
In January 1997, Greenberg and Goddard formed GG Capital, a California partnership that did not have a written partnership agreement. Goddard‘s law partner, Raymond Lee, later became a partner at GG Capital. A Panamanian investment company known as Solatium Investments Inc. (“Solatium“) was also briefly a partner of GG Capital, but Solatium left the partnership by 1998. Greenberg claims that GG Capital ran an active investment business in digital-option spreads for both itself and its clients, i.e., a purpose completely unrelated to generating tax
losses, although the Tax Court did not find many facts in support of his claim. Greenberg and Goddard also both assigned large amounts of their income from their “day jobs” to GG Capital, with Greenberg‘s assigned income coming from KPMG and Deloitte. GG Capital reported, as ordinary income from Greenberg, $617,000, $898,000, and $851,000 for the tax years of 1999, 2000, and 2001, respectively. The Commissioner asserted to the Tax Court that this assignment of income was designed to offset ordinary income with the artificial losses GG Capital planned to generate.
During 1997 and 1998, GG Capital was purportedly involved with several transactions that resulted in inflating bases in various entities. According to Greenberg, GG Capital, in October 1997, acquired a 20% interest in a company known as DBI Acquisitions II (“DBI“) and was credited with a $4 million capital account; Milestone Acquisitions, an entity controlled by a client of Goddard‘s law firm, controlled the other 80% of DBI. Next, Solatium borrowed 70 million Dutch guilders, and GG Capital, Solatium, and Pacific Coin—a partnership that operated pay phones, was one of Goddard‘s clients, and was related to a company called Pacific Coin Management (“PCM“)—formed a company called Connect Coin, LLC (“Connect Coin“). The three Connect Coin partners allegedly made the following capital contributions: (1) Pacific Coin agreed to pay fees and costs for Connect Coin worth $250,000; (2) GG Capital agreed to have its partners provide legal and
accounting services to Connect Coin; and (3) Solatium contributed 9,225,000 guilders—which the partners agreed was the present value of 70 million guilders in thirty years—with Connect Coin assuming Solatium‘s previously assumed obligation to make a balloon payment of 70 million guilders to Delta Lloyd Bank in thirty years. Connect Coin converted the guilders into $4.5 million and lent that amount to Pacific Coin.
As a result of Connect Coin‘s assumption of the guilder debt, Solatium recognized a gain and increased its basis in Connect Coin by about $35 million. The parties then allegedly entered into an agency agreement under which Connect Coin agreed it would act as Pacific Coin and PCM‘s agent. Solatium was treated as having made capital contributions to, and acquiring interests in, both PCM and Pacific Coin and claimed bases of $27 million in PCM and $8 million in Pacific Coin. Solatium then contributed its 1% interest in Connect Coin to GG Capital, increasing the latter‘s interest in Connect Coin from 4% to 5%. Greenberg and Goddard claimed that this contribution gave GG Capital Solatium‘s interests and carryover bases in Pacific Coin and PCM. GG Capital then contributed its interest in Pacific Coin to PCM, increasing its purported basis in PCM to $35 million, which was reduced by a tax loss of $1 million on a Schedule K-1 that Pacific Coin issued to GG Capital. In December 1998, GG Capital contributed its interest in PCM to DBI, which allegedly resulted in a $34 million basis in DBI. But, as the Tax Court found, there
are no documents in the record showing that any of these transactions actually happened.
Over the next three years, a series of transactions involving JPF III and other entities occurred. On November 17, 1999, JPF III entered into an option spread with Lehman Brothers, Inc., that had two “legs“: (1) a European digital call option sold by Lehman to JPF III (the “long leg“), which cost $10 million and required Lehman to pay JPF III $47 million if the spot rate on the yen/dollar exchange rate was greater than or equal to 112.46 yen/dollar; and (2) a European digital call option sold by JPF III to Lehman (the “short leg“), which cost $9.8 million and required JPF III to pay Lehman $46 million if the spot rate was greater than or equal to 112.47 yen/dollar. The only money that actually changed hands, however, was the $200,000 net premium JPF III paid to Lehman. And both legs of the option spread expired on November 16, 2000, as the highest yen/dollar exchange rate on that day was below the agreed to spot rates.
The same year, JPF III bought a membership interest in AD Global Fund shortly after the latter was formed in October 1999. AD Global was formed by the Diversified Group, Inc., and Alpha Consultants, which were initially the only members (with each contributing $50,000) and which acted as its managers. AD Global was designed to look like an investment company, with its purpose being to invest in foreign currencies, futures contracts, and options. However, AD Global‘s members used it as a vehicle to conduct SOS transactions by entering into foreign-currency option spreads and contributing them to AD Global in exchange for membership interest. Then, each member would claim its basis in AD Global equaled the premium on the spread‘s long option but would not reduce the basis by its obligation on the short option, and the spreads would either expire or be closed out early by Diversified. Shortly thereafter, the member would terminate or sell its interest to AD Global.
In buying the AD Global membership interest, JPF III contributed its option spread with Lehman in exchange for a 33% membership interest; at the time, AD Global had seven members. While the net premium of the Lehman spread was $200,000, the parties only valued it at $100,000. JPF III claimed its basis in AD Global equaled the value of the long-option premium it contributed but did not reduce its basis for the value of the short-option liabilities assumed by AD Global. One month after JPF III became a member, it withdrew from AD Global and
received 82,800 in Canadian dollars,6 which Greenberg converted into $57,000 within a week. Greenberg asserts that JPF III engaged in these transactions on behalf of GG Capital, but the Tax Court found the record “murky” as, while there was an agency agreement, the contribution agreement JPF III signed with AD Global stated that JPF III was acting on its own. Additionally, Greenberg claimed that GG Capital realized a loss at the end of 1999 by selling 49% of the spread‘s long leg to him and Goddard. However, as the Tax Court noted, the paper trail for this purported sale, i.e., bank records and prior written consent from Lehman to transfer the 1999
Similar transactions occurred in 2000 and 2001. On September 27, 2000, JPF III entered into a digital option spread with Deutsche Bank, the terms of which were similar to the 1999 option spread involving the yen/dollar exchange rate. The only money that changed hands was the $750,000 net premium that JPF III paid to Deutsche Bank. Greenberg similarly claims that JPF III bought this option spread on behalf of GG Capital and that GG Capital sold 13% of the long leg to Greenberg and Goddard, generating part of GG Capital‘s loss for the 2000 tax year. Except for Greenberg‘s and Goddard‘s testimony, there is no evidence in the record
demonstrating the sale occurred. On November 27, 2000, JPF III entered into another digital option spread with Deutsche Bank, which was designed in a similar way and had a netting provision totaling $30,000. While the taxpayers again testified that this sale was on behalf of GG Capital, which resulted in generating a portion of GG Capital‘s loss for 2000, there is no record evidence suggesting the sale occurred beyond their testimonies. And, on November 30, 2001, an entity known as PTC-A entered into a digital-option spread with Deutsche Bank designed in a similar way as the 1999 and 2000 option spreads. The net premium required PTC-A to pay Deutsche Bank $170,000. Greenberg asserts that PTC-A bought the option spread on behalf of GG Capital, with GG Capital purportedly selling the long leg to Greenberg and Goddard. But, as the Tax Court again noted, there is no paper trail that this occurred.
During this time period, the federal government began investigating KPMG. The investigation expanded, and Greenberg was later indicted for his role in designing and marketing the SOS transaction tax shelter at KPMG. Greenberg was eventually acquitted of criminal charges.
2. The Tax Returns
Turning to the relevant tax returns, Greenberg prepared GG Capital‘s 1997 partnership return and signed it on behalf of himself and the other partners—Goddard, Solatium, and Lee. Attached to the return was a handwritten statement
stating, “The Partners of [GG Capital] do hereby elect under IRC Section 6231(a)(1)(B)(ii) to be subject to the provisions of ‘Tefra’ as defined in the IRC.” Under this statement, Greenberg signed his initials and wrote his name. Additionally, the initials and names of Goddard and Lee were both written, followed by the words “by David Greenberg.” And “SII“—in reference to Solatium—was written followed by “Solatium Investments Foreign PTNR with Beneficial Interest by David Greenberg.” At the bottom of this page, a second handwritten statement provided: “The [GG Capital] partners have authorized Greenberg to sign on their behalf.” At trial, Goddard testified that he authorized Greenberg to sign the statement on his behalf. However, neither Lee nor a representative of Solatium testified as to whether they had authorized Greenberg to sign the statement. Rather, Greenberg testified that both Lee and Solatium had orally given him the authority to sign on their behalf. Yet, at trial, Greenberg was unable to identify Solatium‘s principals; instead, he testified that he had spoken with a “guy named Tommy Battilia” who claimed to have authority to act on behalf of Solatium.
As to the relevant 1999 tax returns, AD Global reported an ordinary loss of $1.14 million related to the options contracts on its 1999 return. The K–1 addressed to JPF III allocated it $334,000 of ordinary losses, $57,000 of distributions, and $97,000 of
and Goddard. GG Capital‘s return included the ordinary income of Greenberg, Goddard, and Lee assigned from their day jobs ($617,000 from Greenberg and $1.3 million from Goddard and Lee). The return also reported $1.2 million in consulting income, which the Commissioner asserts came from the promotion of Son-of-BOSS tax shelters. GG Capital claimed a
On its 2000 return, GG Capital again included ordinary income assigned to it by the partners from their day jobs—$898,000 from Greenberg and $743,000 from Goddard. It reported the same type of losses as 1999 at a greater scale—GG Capital reported a $15.85 million ordinary loss it referred to as a
again “reversed” out the income he received in 2000 from both Deloitte and KPMG. Greenberg brought in about $6 million of income, but after the income assignment and GG Capital‘s losses, he claimed only $86,500 was taxable on his return. Additionally, on its 2000 California partnership return, GG Capital claimed a $3.2 million loss for “DBI Acquisitions Prior Suspended Losses Allowed” (the “DBI loss“), which Greenberg claims it is entitled to because GG Capital abandoned its interest in DBI—after its basis was inflated through a series of convoluted maneuvers—in 2000. This loss was not separately stated on GG Capital‘s federal return. Although Goddard testified that GG Capital claimed that loss on its return, the Tax Court could not clearly find where on the return, and the Commissioner asserted that Greenberg and Goddard camouflaged this loss in the
On their 2001 returns, Greenberg reported similar assignments of income and convoluted losses, and GG Capital claimed ordinary income that Greenberg and Goddard claim they assigned—$854,000 from Greenberg for KPMG and $1.1 million from Goddard. And GG Capital reported $7.4 million of “royalties & other” income, which the Commissioner asserts comes from Son-of-BOSS promotion and was offset with artificial losses, as was done in prior years. GG Capital also reported an “FX digital loss” of over $38 million plus a “prior suspended loss” of $600,000, less a suspended loss of $29 million—netting out to about a $9 million loss, which the Commissioner believes is a 2001 version of the
GG Capital also reported a loss from a company, JPF V, LLC, of $95,000, but Greenberg did not introduce any evidence about that company at trial. GG Capital sent a K–1 to Greenberg that reported $103,000 in ordinary income, and Greenberg did the same reversal strategy from the previous years.
C. Procedural Background
1. The NODs
In October 2003, the Commissioner sent AD Global an FPAA for the 1999 tax year, in which he determined AD Global was a sham that was designed only to reduce its members’ tax liabilities. The Commissioner disregarded the option spread contributed by JPF III and concluded that JPF III (and the other AD Global members) should not be treated as partners for tax purposes. And the Commissioner determined that JPF III should have taken the short leg of the option spread into account when calculating its basis. The Commissioner therefore disallowed $1.14 million of losses from the options and asserted penalties.
Then, in 2004, the Commissioner sent Greenberg an NOD for the 2000 taxable year (the “2004 NOD“), asserting a $4.7 million deficiency against Greenberg plus a 40% accuracy-related penalty. The Commissioner increased Greenberg‘s share of GG Capital‘s ordinary income by about $11 million by disallowing the DBI loss and
the
In May 2008, the Commissioner sent Greenberg a letter notifying him that, because he was the subject of a criminal investigation for violation of the internal revenue laws relating to income tax, his partnership items with respect to AD Global would be treated as nonpartnership items under
Global—i.e., JPF III—should not be treated as partners. And the 2009 NODs traced the effects up to Greenberg as an indirect partner through his partnership interest in JPF III.
To summarize, the assessed deficiencies and penalties against Greenberg include: (1) for the 1999 tax year, Greenberg was assessed a deficiency of $1,256,000 with a
2. Tax Court Proceedings
Greenberg disagreed with the Commissioner and filed five petitions in the Tax
Prior to trial, Greenberg filed several motions. In two motions in limine, Greenberg requested that the Tax Court not consider any grounds not asserted in the NODs, reject any request from the Commissioner seeking leave to amend to allege additional grounds, and order that the Commissioner had the burden of proof should
the motion for leave to amend be granted. Greenberg also moved to dismiss the cases, alleging that the Commissioner failed to comply with TEFRA in adjusting GG Capital‘s items by not issuing it an FPAA, as GG Capital had elected to be subject to TEFRA‘s partnership rules. And Greenberg moved for summary judgment, asserting that the NODs were jurisdictionally invalid. The Tax Court denied each of these motions. The case then proceeded to trial in February 2011. At trial, ten witnesses testified, including Greenberg and Goddard.
Following trial, on March 31, 2015, Greenberg filed a motion to amend his petition in one of the consolidated cases (No. 1335-06). Greenberg‘s motion asserted that he and the IRS had filed a stipulation of settled issues in an unrelated Tax Court proceeding—which he attached—involving a subsequent tax year and that he thus had carryback losses from the tax years 2004 through 2008 that could be eligible for carryback to one of the tax years at issue in this case.
On May 31, 2018, the Tax Court issued its memorandum opinion upholding the adjustments underlying each of the NODs but declining to uphold the penalties assessed because the IRS had failed to timely obtain supervisory approval of those penalties.8 In recounting the case‘s factual background, the Tax Court specifically found Greenberg‘s testimony about GG Capital‘s sales of the long leg of the foreign currency option spreads involving JPF III and AD Global in 1999, 2000, and 2001 to not be credible and, instead, found it more likely than not that those sales never took place, given the complete lack of documentary evidence of those sales.
Turning to the issues presented, the Tax Court first addressed whether GG Capital was a small partnership and made a valid TEFRA election in 1997. While noting that GG Capital had fewer than ten partners in 1997, of which three were individuals, the Tax Court noted that the purported election listed Solatium as a partner—describing it as a “Foreign PTNR with Beneficial Interest by David Greenberg“—and determined that Solatium held an indirect interest through Greenberg, making Greenberg a pass-through partner under
The Tax Court then addressed whether the 2004 NOD was timely mailed. The Tax Court rejected Greenberg‘s argument that because the 2004 NOD stated the last day to file a Tax Court petition was January 14, 2005, which was ninety-one days after October 15, 2004 (the date on the 2004 NOD), the 2004 NOD was actually mailed on October 16. Noting the Commissioner‘s burden, the Tax Court explained that the Commissioner had introduced a Form 3877 showing that the IRS mailed the 2004 NOD on October 15, 2004, from St. Louis, Missouri, with a postmark stamp from the U.S. Postal Service. The court also noted that a group manager of the examination division in St. Louis during 2004 testified credibly that an IRS employee, who was since deceased, prepared the NOD and was the “type of person that would do whatever needed to be done when it came to her work performance,” e.g., by physically taking the notice to the post office. Thus, the Tax Court found it more likely than not that the 2004 NOD was timely mailed.
Turning to the DBI abandonment loss, the Tax Court found that Greenberg failed to prove that GG Capital owned a partnership interest in DBI. While noting Goddard‘s testimony that GG Capital owned an interest and had received at least one K–1, the Tax Court explained there was no documentary evidence to support that testimony. The Tax Court further found the taxpayers’ testimony was not credible on the subject and thus found no entitlement to deduct an abandonment loss as to DBI.
Next, the Tax Court addressed the Son-of-BOSS tax shelters in the case. Greenberg asserted that GG Capital conducted a real business and that the option spread transactions had “economic substance” and made money. By contrast, the Commissioner argued for the disallowance of the losses because: (1) AD Global was a sham, lacked economic substance, and did not have reasonable expectation of profit; (2) AD Global should be disregarded as a partnership, as should JPF III as a partner; (3) the AD Global transaction lacked economic substance regardless of whether some option spreads made money; (4) the Commissioner properly raised economic substance in the 2009 NODs; and (5) Greenberg‘s experts used unreliable methods to evaluate the option spreads.
Analyzing the transactions, the Tax Court first looked to whether AD Global and JPF III were partnerships under the factors set forth by Luna v. Commissioner, 42 T.C. 1067 (1964). As to AD Global, the Tax Court found that JPF III and the other members of AD Global did not intend to “join together” to undertake business under AD Global and thus were not partners in the purported partnership. As to JPF III, the Tax Court found that Greenberg and Goddard did not join together to form a partnership entity, noting that there was nothing showing that either contributed anything to JPF III and that they did not produce a formal operating agreement or any other document showing its business was conducted in a joint name. The Tax Court explained that JPF III only served as a conduit for option spreads and as a basis inflator and that nothing in the record showed there was any real profit to control or that either member had a formal right to withdraw. And there was no indication that JPF III kept books or
The Tax Court also explained that there was another hurdle to finding either entity to be a partnership, i.e., that it must conduct some kind of business activity. While Goddard testified that there was an opportunity to make money because the options seemed underpriced, the Tax Court noted a relatively minor business purpose will not validate a transaction if it is no more than a facade, which it determined was the case. The Tax Court explained that the paired options in the case were almost identical to other iterations of Son-of-BOSS deals and were unusual, as they “were only one pip apart and very far out-of-the-money” and the strike prices were so close together that they were indistinguishable from a risk management perspective. As to the Lehman option spread, the Tax Court specifically found that Lehman “would never have allowed JPF III to collect on the long leg or even dispose of it separately” nor “have chosen a spot rate that fell in the ‘sweet spot.‘” As to profit motive, the Tax Court noted that JPF III‘s entrance and exit from AD Global were necessary to generate GG Capital‘s artificial losses and that there was not a nontax need to form the partnerships, i.e., “the only purpose for AD Global and JPF III was to carry out a tax-avoidance scheme.” And the Tax Court found that the taxpayers never intended to run businesses under the umbrella of those entities. As such, the Tax Court disregarded both AD Global and JPF III.
Because it disregarded AD Global and JPF III for tax purposes, the Tax Court treated those partnerships’ activities as engaged in directly by the purported partners, i.e., treating everything as owned directly by Greenberg and Goddard, including the option pairs. Additionally, the Tax Court treated the option pairs as never being contributed to AD Global or purchased by JPF III, with any gain or loss supposedly realized being attributed to Greenberg and Goddard. And the Tax Court explained that the options should have been treated as a single-option spread, meaning that the long and short positions were part of one contract and could not be separated as a matter of fact and law. Turning to the alleged 2000 and 2001 sales of the long legs of the option spreads from GG Capital to Greenberg, the Tax Court again found that the sales never took place, as there was no documentary evidence that the sales actually occurred and it found the taxpayers’ testimonies not credible. The Tax Court therefore found Greenberg not entitled to take any losses related to the long legs of the options.
The Tax Court further noted that the Commissioner acknowledged that there was some duplication of disallowances between the 2004 and 2005 NODs and the 2009 NODs that would need to be sorted out in computations. As such, the Tax Court ordered the parties to submit calculations under Tax Court Rule 155.
Greenberg moved for reconsideration of the opinion, as well as to reopen the record. The Tax Court denied both motions, as the motion for reconsideration reiterated the same arguments Greenberg had made previously and the motion to reopen involved documents that he and Goddard could have introduced at the time of trial but failed to. The Tax Court also denied as “proceeding from a lack of due diligence” Greenberg‘s March 30, 2015, motion in case no. 1335-06 requesting to carryback an alleged net operating loss (“NOL“) from an unrelated case involving his subsequent tax years.
On July 12, 2019, the Commissioner submitted his Rule 155 computations. Following this submission, Greenberg moved to
On April 17, 2020, the Tax Court adopted the Commissioner‘s computation in each of the consolidated cases. The Tax Court rejected Greenberg‘s objections to the computations, i.e., that the alleged NOL from later tax years should be considered in the computation, that he was entitled to a suspension of interest under
II. STANDARDS OF REVIEW
We review the Tax Court‘s legal conclusions de novo. Highpoint, 931 F.3d at 1056. Questions of subject-matter jurisdiction and statutory interpretation are legal issues reviewed de novo. Id. Whether the Tax Court properly allocated the burden of proof is also a legal issue reviewed de novo. See Brinkley v. Comm‘r, 808 F.3d 657, 663 (5th Cir. 2015).
We review the Tax Court‘s factual findings for clear error. Curtis Inv. Co. v. Comm‘r, 909 F.3d 1339, 1347 (11th Cir. 2018). “A finding of fact is clearly erroneous if the record lacks substantial evidence to support it, so that our review of the entire evidence leaves us with the definite and firm conviction that a mistake has been committed.” Ocmulgee Fields, Inc. v. Comm‘r, 613 F.3d 1360, 1364 (11th Cir. 2010) (quoting Atlanta Athletic Club v. Comm‘r, 980 F.2d 1409, 1411–12 (11th Cir. 1993)). “Under the clear error standard, ‘where there are two permissible views of the evidence, the tax court‘s choice between them cannot be clearly erroneous.‘” Curtis Inv., 909 F.3d at 1347 (quoting Piggly Wiggly S., Inc. v. Comm‘r, 803 F.2d 1572, 1576 (11th Cir. 1986)). And “[f]actual findings based on credibility assessments are entitled to particular deference.” Id.
The parties dispute the standard of review regarding the Tax Court‘s rulings on Greenberg‘s post-trial motions and adoption of the Commissioner‘s Rule 155 computation over his objections. Greenberg urges us to consider them de novo, while the Commissioner contends that these rulings primarily involve the Tax Court‘s exercise of discretion such that the abuse of discretion standard applies. We agree with the Commissioner. We review for an abuse of discretion the Tax Court‘s decision to not consider a new issue after trial and during the Rule 155 computation proceedings. See Knowlton v. Comm‘r, 791 F.2d 1506, 1511 (11th Cir. 1986). The Tax Court‘s decision to not reopen the record is also reviewed for an abuse of discretion. Estate of Byrd v. Comm‘r, 388 F.2d 223, 234–35 (5th Cir. 1967).9 And the Tax Court‘s adoption of the Commissioner‘s Rule 155 computation is likewise reviewed for an abuse of discretion. JPMorgan Chase & Co. v. Comm‘r, 530 F.3d 634, 638 (7th Cir. 2008). With these standards in mind, we turn first to the jurisdictional issues raised by Greenberg and then to the merits.
III. ANALYSIS
On appeal, Greenberg raises multiple issues. First, he contends that the Tax Court failed to consider its jurisdiction. Second, Greenberg challenges the Tax Court‘s decision to uphold the adjustments
A. Jurisdictional Issues
Greenberg contends that the Tax Court lacked jurisdiction over some or all of the NODs for a number of reasons. First, Greenberg argues that the Tax Court lacked jurisdiction over the 2004 and 2005 NODs because the Commissioner failed to comply with TEFRA‘s requirement that it issue FPAAs to GG Capital in order to propose the adjustments contained in those NODs. Second, Greenberg argues that the 2004 and 2005 NODs were untimely, although for different reasons. Finally, Greenberg argues that even if the NODs were valid, the Tax Court lacked jurisdiction over specific adjustments contained in them. We address these arguments below.
1. Whether GG Capital‘s I.R.C. § 6231(a)(1)(B)(ii) election for the 1997 tax year was valid
Greenberg first contends that the Tax Court lacked jurisdiction over the 2004 and 2005 NODs—which relate to the 2000 and 2001 tax years—because the Commissioner was required to treat GG Capital as a TEFRA partnership and to issue it FPAAs in order to propose the adjustments contained in those NODs. Greenberg‘s argument rests upon the handwritten statement on GG Capital‘s 1997 partnership return, which Greenberg contends was a valid election under
As noted above, during the relevant tax years, any partnership that was required to file a return under
As an initial matter, it is clear that, for the 1997 tax year, GG Capital was not a small partnership—a fact which Greenberg concedes. Although three of GG Capital‘s partners for the 1997 year were individuals—Greenberg, Goddard, and Lee—Solatium was not, and there is no evidence in the record showing that Solatium was a C corporation. In fact, Greenberg, on the 1997 return, described Solatium as a “Foreign PTNR with Beneficial Interest.”10 Thus, for purposes of the 1997 tax year, GG Capital was already subject to the TEFRA partnership procedures, regardless of whether it made an election under
Greenberg contends that the
We need not decide the question of whether a partnership that was already subject to the TEFRA partnership procedures, i.e., a non-small partnership, could make a
Former
A partnership shall make the election described in paragraph (b)(1) of this section by attaching a statement to the partnership return for the first taxable year for which the election is to be effective. The statement shall be identified as an election under section 6231(a)(1)(B)(ii), shall be signed by all persons who were partners of that partnership at any time during the partnership taxable year to which the return relates, and shall be filed at the time (determined with regard to any extension of time for filing) and place prescribed for filing the partnership return.
(emphasis added).
In the handwritten statement attached to GG Capital‘s 1997 return, Greenberg wrote that “[t]he Partners of [GG Capital] do hereby elect under IRC Section 6231(a)(1)(B)(ii) to be subject to the provisions of ‘Tefra’ as defined in the IRC.” Greenberg signed his initials and wrote his name under the statement. However, Goddard, Lee, and an authorized representative of Solatium did not sign the statement. Instead, Greenberg wrote the initials and names of Goddard and Lee, followed by the words “by David Greenberg.” And
The temporary regulation explicitly required that the statement “be signed by all persons who were partners of [the] partnership” but did not expressly foreclose one partner authorizing another partner to sign on his or her behalf. See Temp. Treas. Reg. § 301.6231(a)(1)-1T(b)(2). But, even assuming for the sake of argument that a partner could have authorized another partner to sign the election on his or her behalf, the Tax Court found that the election itself was not valid. Specifically, the Tax Court did not find Greenberg‘s testimony credible that he had received authorization from Lee and Solatium to sign the election on their behalf. Although Greenberg claims that he had “express authorization from all partners to sign the election” and takes issue with the Tax Court‘s determination to the contrary, our review of the Tax Court‘s factual findings is for clear error. See Curtis Inv., 909 F.3d at 1347. And here, the Tax Court took a permissible view of the evidence, i.e., not finding Greenberg‘s testimony credible, such that clear error is not established. Indeed, Greenberg did not call either Lee or a Solatium representative to confirm his testimony concerning the signatory authorization nor did Greenberg introduce any written evidence that he had such authority, e.g., powers of attorney.
Greenberg also contends that the temporary regulation was contrary to the plain meaning of
Here, we find temporary regulation § 301.6231(a)(1)-1T(b) was a permissible construction of the statute. Section 6231(a)(1)(B)(ii) was silent as to the method in which a partnership must make the election. Although
Moreover, nothing in the plain language of
As the Tax Court has explained, the small partnership exception to TEFRA “sought to establish that the partnerships which would realize such exception were those whose members ‘treat themselves as co-ownerships rather than partnerships, as each co-owner resolves his own tax responsibilities separately as an individual with the IRS.‘” McKnight v. Comm‘r, 99 T.C. 180, 185 (1992) (quoting Tax Compliance Act of 1982 and Related Legislation: Hearings on H.R. 6300 Before the H. Comm. on Ways & Means, 97th Cong., 2d Sess. 259–61 (1982)), aff‘d, 7 F.3d 447 (5th Cir. 1993). Thus, the temporary regulation‘s requirement that each partner in a small partnership
Additionally, Greenberg makes the conclusory assertion that, under California law, he was authorized to sign GG Capital‘s return on behalf of all partners to make the election as an agent of the partnership. See
Greenberg further claims that the temporary regulation only applied to small partnerships, but not a partnership already subject to TEFRA, such as GG Capital, choosing to make the
and non-small partnerships regarding partners signing the election to be subject to
And Greenberg contends that, even if the temporary regulation applied and GG Capital‘s election was invalid, the election still “substantially complied” with the temporary regulation. He asserts that the “primary purpose” of the election was to provide “clear notification” that it was unequivocally made. And “substantial compliance” with a regulation may be sufficient if a taxpayer‘s election, despite its flaws, comports with the essence or purpose of the statutory and regulatory scheme. See, e.g., Knight-Ridder Newspapers, Inc. v. United States, 743 F.2d 781, 794-96 (11th Cir. 1984); Hewlett-Packard Co. v. Comm‘r, 67 T.C. 736, 750-54 (1977). However, even assuming that the temporary regulation allowed one partner to act as an agent of another partner to sign the election, the attempted election on GG Capital‘s 1997 return did not comport with the statute‘s and temporary regulation‘s purpose—i.e., that members of a small partnership that treat each other as co-owners rather than partners all agree to no longer resolve their tax responsibilities at the individual level. Indeed, the Tax Court noted that there was no testimony from either Lee or a Solatium representative (or any evidence in the record) demonstrating that
Accordingly, GG Capital‘s attempted
2. Whether the 2004 NOD was timely mailed
Greenberg next argues that the 2004 NODs, which concern the 2000 tax year, were untimely. Greenberg contends that, although the 2004 NODs bear a letter stamped date of October 15, 2004, they were in fact mailed on October 16, 2004—one day after the expiration of the ninety-day statute of limitations period for the 2000 tax year provided in
As a general rule, the IRS must assess a taxpayer‘s taxes within three years after the taxpayer files his or her tax return.
Here, Greenberg filed his return for the 2000 tax year on October 15, 2001. Therefore, the IRS had until October 15, 2004, to mail a Greenberg an NOD for the 2000 tax year. As noted above, the 2004 NOD‘s letter is stamped “OCT 15 2004” while its last date to file a petition is stamped “JAN 14 2005.” In the Commissioner‘s answer to Greenberg‘s petition regarding the 2004 NOD, he attached a Form 3877 that lacked the “Total Number of Pieces Received at Post Office,” the “Name of receiving employee” under the Postmaster, and a date stamp from the U.S. Postal Service. However, the Commissioner subsequently introduced a completed Form 3877 into the record that listed the “Total Number of Pieces Received at Post Office” as “5,” the signature of the receiving employee, and a date stamp from the postal service of October 15, 2014.
In reviewing the issue, the Tax Court reviewed the completed Form 3877 and noted that: (1) the form was stamped with OCT 15 2004; (2) the form stated that the IRS sent Greenberg NODs from St. Louis, Missouri; (3) the number “0012” was listed across from Greenberg‘s name, meaning the NOD was for the 2000 tax year; (4) the number 5 was written in boxes labeled “Total Number of Pieces Listed by Sender” and “Total Number of Pieces Received at Post Office“; (5) someone from USPS signed in the box labeled “Postmaster (Name of receiving employee)“; and (6) the form was postmarked October 15, 2004, by a U.S. Postal Service stamp. The Tax Court also considered the testimony of Jacqueline Brooks, the group manager of the examination division in St. Louis, which prepared the 2004 NOD. The Tax Court explicitly found Brooks credible, noting that she testified that “when the statute of limitations was about to expire, as it was here, IRS employees would physically take a notice of deficiency to the post office to be mailed.” As such, the Tax Court found that it was more likely than not that the 2004 NOD was mailed on time.
Reviewing the record, we conclude that the Tax Court did not err in finding the 2004 NOD was timely mailed on October 15, 2004. Although Greenberg claims that the IRS failed to follow “established procedures” for mailing, he does not point to any specific procedures that the IRS failed to follow; instead, he simply asserts that there was “chaos” surrounding the mailing
Greenberg also claims the “very existence of multiple versions [of the Form 3877] casts doubt on all versions,” although he fails to cite to any authority in support of this argument. And, in any event, Brooks testified that the incomplete Form 3877 attached to the Commissioner‘s answer was a draft placed in Greenberg‘s administrative file and was not the version sent to the Post Office, as the IRS did not place a marked certified mail list in the administrative file. She also testified that she retrieved the completed Form 3877 with the U.S. Postal Service stamp from the IRS‘s files several weeks prior to trial. Accordingly, we reject Greenberg‘s timeliness argument as to the 2004 NOD.
3. Whether the 2009 NOD as to the 1999 tax year was timely
Greenberg also claims that the 2009 NOD for the 1999 tax year was untimely because the “1999 AD Global statute of limitations” had expired before the Commissioner sent the May 30, 2008, conversion notice and the May 30, 2009, NOD. Greenberg argues that the Tax Court erred by not making a determination on the issue.
Greenberg‘s argument implicates the interaction between
[e]xcept as otherwise provided in this section, the period for assessing any tax imposed by subtitle A with respect to any person which is attributable to any partnership item (or affected item) for a partnership taxable year shall not expire before the date which is 3 years after the later of (1) the date on which the partnership return for such taxable year was filed, or (2) the last day for filing such return for such year (determined without regard to extensions).
[i]f notice of a [FPAA] with respect to any taxable year is mailed to the [TMP], the running of the period specified in subsection (a) . . . shall be suspended . . . for the period during which an action may be brought under section 6226 (and, if a petition is filed under section 6226 with respect to such administrative adjustment, until the decision of the court becomes final).
At the time,
Here, Greenberg filed his individual tax return for 1999 on October 18, 2000. The IRS sent AD Global an FPAA no later than October 14, 2003, i.e., within three years of October 18, 2000. On March 8, 2004, AD Global, through a partner other than the TMP, filed a complaint for readjustment of partnership items under
The Commissioner asserts that, because the AD Global case remains pending, the limitations period for the assessment of AD Global items against Greenberg was open on May 30, 2008, when the Commissioner sent him a letter notifying him that his AD Global partnership items would be converted to nonpartnership items, and on May 30, 2009, when the Commissioner sent him the 2009 NOD for the 1999 tax year. In response, Greenberg contends that the limitations period under
“[L]imitations statutes barring the collection of taxes otherwise due and unpaid are strictly construed in favor of the [g]overnment.” Bufferd v. Comm‘r, 506 U.S. 523, 527 n.6 (1993) (quoting Badaracco v. Comm‘r, 464 U.S. 386, 392 (1984)). Our Circuit has limited case law addressing the interaction between
Other courts, however, have addressed the interaction between the two statutes in more detail. For example, in BLAK Investments v. Commissioner, 133 T.C. 431, 435-36 (2009), the Tax Court explained that, where a tax is imposed on partnership items,
Thus, as explained by the Tax Court, under
Several other circuits have reached the same conclusion. In AD Global Fund, LLC ex rel. North Hills Holding, Inc. v. United States, 481 F.3d 1351, 1354 (Fed. Cir. 2007), the Federal Circuit, reading the two sections together, concluded that “§ 6229(a) unambiguously set[] forth a minimum period for assessments of partnership items that may extend the regular statute of limitations in § 6501.” It explained that, while
We agree with the Tax Court‘s and our sister circuits’ interpretations. Here, the Commissioner sent AD Global an FPAA within three years of Greenberg filing his 1999 tax return, thereby suspending the limitations period. An AD Global partner other than its TMP subsequently filed a readjustment petition in the Court of Federal Claims, and it is undisputed that the AD Global case was pending when the Commissioner converted the partnership items on May 30, 2008, and then sent Greenberg the 2009 NOD for the 1999 tax year on May 30, 2009. See
Thus, because the limitations period for making assessments against Greenberg related to the converted items was suspended by virtue of the pendency of the AD Global case, the 2009 NOD was timely as to the 1999 tax year.
4. Whether the Tax Court lacked jurisdiction over specific adjustments in the NODs
Additionally, Greenberg contends that, even if the NODs in this case overall were
As to DBI, GG Capital, on its 2000 partnership return, claimed a carryover loss from its earlier abandonment of its partnership interest in DBI.14 In addressing the DBI abandonment loss, the Tax Court noted that a taxpayer has the burden to prove entitlement to any claimed deduction and found that Greenberg failed to prove that GG Capital owned a partnership interest in DBI. While noting Goddard‘s testimony that GG Capital owned an interest in DBI and that it had received at least one K–1 related to DBI, the Tax Court explained that there was no documentary evidence to support the claim. The Tax Court further found that Greenberg had failed to substantiate the claim that GG Capital intended to abandon any interest it owned in DBI, i.e., a trail of documents evidencing that GG Capital took affirmative steps to abandon the interest. And the Tax Court specifically found Greenberg‘s and Goddard‘s testimonies as to the DBI loss not credible.
Following the Tax Court‘s opinion and the Commissioner‘s submission of proposed Rule 155 computations, Greenberg filed a motion to dismiss, arguing that the Tax Court lacked jurisdiction over the DBI abandonment loss because it was a partnership item for which no FPAA was issued. The Tax Court denied this motion, explaining that “there was no proof of such abandonment and that GG Capital wasn‘t a
Greenberg asserts that, because GG Capital was a partner of DBI, DBI was a
As an initial matter, we note that, under Tax Court Rule 155(c), any argument challenging proposed computations is “confined strictly to consideration of the correct computation of the amount to be included in the decision resulting from the findings and conclusions made by the Court, and no argument will be heard upon or consideration given to the issues or matters disposed of by the Court‘s findings and conclusions or to any new issues.” Indeed, “[t]he Rule 155 computation process is not intended to be one by which a party may . . . raise for the first time issues which had not previously been addressed.” Vento v. Comm‘r, 152 T.C. 1, 8 (2019) (quoting Molasky v. Comm‘r, 91 T.C. 683, 685 (1988), aff‘d, 897 F.2d 334 (8th Cir. 1990)). Here, Greenberg waited until after the Commissioner submitted his Rule 155 computations to argue that the Tax Court lacked jurisdiction over the DBI abandonment loss on the basis that it had not initiated a
“[D]eductions are a matter of legislative grace, and the taxpayer has the burden of proving his entitlement to any claimed deduction.” Tucker v. Comm‘r, 841 F.3d 1241, 1249 (11th Cir. 2016); accord Tax Ct. R. 142(a).
Greenberg has failed to show how the Tax Court clearly erred in determining, as a factual matter, that GG Capital did not even own a partnership interest in DBI. Indeed, as the Tax Court noted, there is no documentary evidence in the record showing that GG Capital owned an interest in DBI. Moreover, the Tax Court found that Greenberg‘s and Goddard‘s testimonies concerning DBI were not credible, and we give the Tax Court‘s credibility determinations as to factual findings particular deference under clear error review. See Curtis Inv., 909 F.3d at 1347.
In his reply brief, however, Greenberg raises for the first time the Tax Court‘s decision in Blonien v. Commissioner, 118 T.C. 541 (2002), to argue that even the determination of whether a taxpayer is a partner of a partnership must be determined in a partnership proceeding and that the Commissioner was thus required to send an FPAA. However, this Court does not address arguments advanced by an appellant first raised in his reply brief. See Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d 678, 683 (11th Cir. 2014) (collecting cases). Accordingly, we reject this argument.
Regarding the 2005 NOD, Greenberg contends that the Tax Court lacked jurisdiction over two items—a loss from JPF V and a “prior suspended loss.” We find these arguments without merit. As to JPF V, Greenberg contends that, like DBI, JPF V was a
As to the prior suspended loss, Greenberg claims that, based on the Commissioner‘s “characterization,” the prior suspended loss was attributable to AD Global converted items and that because the conversion of items did not occur until 2008, the Tax Court lacked jurisdiction over the prior suspended loss item in the 2005 NOD. Greenberg, however, does not cite to anything in the record to support this argument and fails to explain what this “characterization” was or provide any relevant supporting arguments and authority. “We have long held that an appellant abandons a claim when he either makes only passing references to it or raises it in a perfunctory manner without supporting arguments and authority.” Sapuppo, 739 F.3d at 681; see Singh v. U.S. Att‘y Gen., 561 F.3d 1275, 1278 (11th Cir. 2009) (concluding that “an appellant‘s brief
B. Whether the Tax Court properly upheld the Commissioner‘s adjustments to the NODs
Next, Greenberg raises several arguments challenging the Commissioner‘s adjustments in the 2004, 2005, and 2009 NODs, claiming that the adjustments were not valid and that the Tax Court erred in upholding them. First, specifically as to the 2009 NODs, Greenberg contends that the Commissioner failed to make a “thoughtful and considered determination” as to the adjustments assessed therein before issuing the NODs. Second, as to all of the NODs, Greenberg asserts that the Tax Court failed to impose the burden of proof on the Commissioner, as required by Tax Rule 142, because the Commissioner introduced “new matters” at trial. We find neither of these arguments persuasive and discuss each in turn.
1. Whether the Commissioner made actual determinations as to the adjustments assessed in the 2009 NODs
As to the 2009 NODs, Greenberg contends that the Commissioner failed to examine his tax returns to see if he actually claimed the AD Global losses that were disallowed and that, as such, the Commissioner failed to make “determinations” for the tax years at issue. In support of his argument, Greenberg relies on Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), and Kong v. Commissioner, T.C. Memo. 1990-480.
In Scar, the taxpayers filed a joint return, which claimed business deductions in connection with a “videotape tax shelter.” 814 F.2d at 1364. The IRS sent the taxpayers a letter (Form 892), which listed their names and addresses, the taxable year at issue, and specified a deficiency amount. Id. The letter stated that it was an NOD and that the taxpayers had ninety days to file a petition challenging the notice. Id. at 1364-65. Attached to the letter was a Form 5278 and Statement Schedule 2, which showed an adjustment to income related to a Nevada partnership and stated that the original return was “unavailable” and that the assessment would be corrected once the IRS received the original return. Id. at 1365. The taxpayers petitioned the Tax Court, asserting they had never been associated with that Nevada partnership. Id. Although the IRS conceded that the NOD was incorrect because it overstated the amount of disallowed deductions and wrongly connected them with that partnership, it maintained that the NOD was valid because it was meant to disallow deductions for another company and because the IRS had made similar objections to the taxpayers’ return for the previous year. See id. The taxpayers moved for summary judgment, which the Tax Court, sitting en banc, denied. Id. at 1366. The Tax Court ultimately entered a decision, pursuant to a stipulation, against the taxpayers, who then appealed to the Ninth Circuit. Id. On appeal, the taxpayers argued that the determination notice was invalid because the deficiency notice mailed to them “contained an explanation
The Ninth Circuit first noted that
has determined the amount of the deficiency.” Id. (first quoting Abrams v. Comm‘r, 787 F.2d 939, 941 (4th Cir. 1986), then quoting Benzvi v. Comm‘r, 787 F.2d 1541, 1542 (11th Cir. 1986)). The Ninth Circuit thus posed the question as “whether a form letter that asserts that a deficiency has been determined, which letter and its attachments make it patently obvious that no determination has in fact been made, satisfies the statutory mandate.” Id. (emphasis added). While agreeing that “courts should avoid oversight of the Commissioner‘s internal operations and the adequacy of procedures employed” when reviewing NODs, the Ninth Circuit determined that it need not look behind the NOD sent to the taxpayers to determine its invalidity, as the NOD acknowledged that the deficiency was “not based on a determination of deficiency of tax reported on the taxpayers’ return” and referred “to a tax shelter the Commissioner concede[d] has no connection to the taxpayers or their return.” Id. at 1368. Noting that the term “deficiency,” as defined in
Subsequently, in Kong, the Tax Court, relying on Scar, held that an NOD issued by the Commissioner was invalid. T.C. Memo. 1990-480, at *4. The Tax Court found that the NOD “reveal[ed] on its face that it was issued without the benefit of petitioner‘s income tax return” because the tax was computed at the maximum tax rate and because the NOD stated that the taxpayer‘s original return was “unavailable at this time.” Id. at *1, *3. The Tax Court reached this conclusion even though the IRS reviewed the return of a partnership in which the taxpayer was a partner and the return‘s attached K–1 for that taxpayer. Id. at *2. The Tax Court explained that the Commissioner presumed that the taxpayer had taken a deduction with regard to the partnership and assumed the maximum tax rate, “which procedure the Ninth Circuit has found to be contrary to section 6212.” Id. at *4. And, while recognizing that “where the notice of deficiency reveals on its face that the Commissioner failed to make a determination, [the Commissioner] is entitled to prove that he did in fact make a determination,” the Tax Court found that the Commissioner had failed to do so. Id. at *3–4. Although the Commissioner argued that he reviewed the taxpayer‘s transcript of account, the Tax Court noted that the IRS computed an approximate figure from the transcript for the deficiency, which was more than $100,000 less than the deficiency actually assessed. See id. at *4.
In Stoecklin v. Commissioner, 865 F.2d 1221, 1224 (11th Cir. 1989), this Court relied on Benzvi in rejecting a taxpayer‘s argument that the IRS failed to determine his deficiency before issuing the NOD. This Court found that the NOD met the requirements of Benzvi, as the NOD “computed and explained the additional taxes.” Id. This Court also rejected the taxpayer‘s reliance on Scar, noting that, in Scar, the IRS had inserted an amount unrelated to any deficiency for which the taxpayers were responsible and did not have a tax return for the year at issue. See id. And, in Bokum v. Commissioner, 992 F.2d 1136, 1139 (11th Cir. 1993), we rejected the taxpayers’ reliance on Scar where the NOD “plainly indicated that the IRS was disallowing a certain deduction on the [taxpayers‘] 1971 tax return, identified the source of the deduction, and recomputed the tax liability using the taxpayers’ tax rate,” i.e., “[t]he notice unquestionably met the minimum requirements.”
Greenberg contends that, under Scar, the Commissioner must make a “thoughtful and considered determination” by examining the taxpayer‘s tax return to see if disallowed deductions were actually claimed in order for an NOD to be valid, which he asserts the Commissioner failed to do for several reasons. He first claims that it is clear from the face of the 2009 NODs that they disallow losses that were never claimed because Greenberg never claimed any AD Global losses through JPF III or another entity (or any loss in general). He further contends that the 2009 NODs do not disallow AD Global losses because they do not match the AD Global losses in a workpaper prepared by an IRS technical advisor. Additionally, he argues that because the 2009 NODs do not reference GG Capital (or purport to disallow GG Capital losses), the losses claimed by GG Capital are not relevant to the validity of the 2009 NODs. And, even if the 2009 NODs could be interpreted as referring to GG Capital, Greenberg asserts that GG Capital did not report any losses from AD Global, as GG Capital‘s losses came from the alleged sales of the long options to him and Goddard.
Each of the 2009 NODs states that the Commissioner has “determined that you owe additional tax or other amounts, or both, for the tax year(s) identified above“; the years identified on the three 2009 NODs were 1999, 2000 and 2001. Additionally, each of the 2009 NODs provides an “Explanation of Items.” For example, the 2009 NOD for the 1999 tax year stated the deficiency increase in tax to be $1,255,544 and explained that Greenberg‘s partnership items would be treated as nonpartnership items pursuant to
The 2009 NOD for the 1999 tax year then explains that, consequently, “all transactions engaged in by AD Global . . . are treated as engaged in directly by its purported partners,” including the foreign currency options. It further explained that the foreign currency options contributed to AD Global were treated as never having been contributed, with any gains or losses realized being treated as realized by the partners. Because AD Global was disregarded for income tax purposes, the NOD states that “all contributions, distributions, and any other transactions you purportedly engaged in with AD Global . . . are disregarded for Federal income tax purposes,” e.g., reducing the basis of Greenberg‘s interest in AD Global. Additionally, the NOD provides that “the $3,005,272 reported as a loss from AD Global . . . is reduced to $0” due to all the transactions that Greenberg engaged in with AD Global being disregarded.
The 2009 NODs for the 2000 and 2001 tax years provide the same information, albeit with different numbers—an increase of $3,681,581 for 2000 and an increase of $241,511 for 2001.
Reviewing the 2009 NODs and Greenberg‘s and GG Capital‘s tax returns for the relevant tax years, we conclude that none of the 2009 NODs are invalid under Benzvi or Scar. Unlike Scar and Benzvi, the Commissioner was in possession of Greenberg‘s tax returns before he issued Greenberg the 2009 NODs. And, like Stoecklin and Bokum, the Commissioner here plainly computed and explained the disallowances and adjustments in the 2009 NODs, and the adjustments were not unrelated to any deficiency for which Greenberg was responsible. See Stoecklin, 865 F.2d at 1224; Bokum, 992 F.2d at 1139. Indeed, an NOD “is sufficient if it demonstrates that ‘the IRS has determined that a deficiency exists for a particular year and specif[ies] the amount of the deficiency.” Bokum, 992 F.2d at 1139 (alteration in original) (quoting Stoecklin, 865 F.2d at 1224). We decline to look behind the 2009 NODs in assessing their validity. Accordingly, we reject this argument.
2. Whether the Tax Court failed to impose the proper burden of proof
Greenberg also contends that the Tax Court erred in failing to impose the burden of proof on the Commissioner. We disagree.
We note that there is a difference between “new matters” under Rule 142 and “new theories.” “[A] ‘new matter’ is one that reasonably would alter the evidence presented,” while “[a] ‘new theory’ is just a new argument about the existing evidence and is thus allowed.” Hurst v. Comm‘r, 124 T.C. 16, 30 (2005); accord Shea v. Comm‘r, 112 T.C. 183, 191 (1999) (“A new theory that is presented to sustain a deficiency is treated as a new matter when it either alters the original deficiency or requires the presentation of different evidence. . . . A new theory which merely clarifies or develops the original determination is not a new matter in respect of which [the Commissioner] bears the burden of proof.” (alteration in original) (quoting Wayne Bolt & Nut Co. v. Comm‘r, 93 T.C. 500, 507 (1989))); Stewart v. Comm‘r, 714 F.2d 977, 990 (9th Cir. 1983) (“It is well settled that the assertion of a new theory that merely clarifies the original determination, without requiring the presentation of different evidence, does not shift the burden of proof.“).
Greenberg claims that there are several “new matters” that should have resulted in the burden of proof shifting to the Commissioner under Rule 142. First, Greenberg contends that, in all of the NODs, the Commissioner did not identify losses actually claimed and make adjustments to those items and, instead, “simply recomputed what [he] wanted [Greenberg‘s] income to be and provided boilerplate explanations that had little or nothing to do with amounts actually reported on GG Capital‘s returns.” But Greenberg has failed to adequately brief this argument, as he fails to provide any supporting arguments, authority, or citations to record. See Sapuppo, 739 F.3d at 681–82. Additionally, to the extent that Greenberg argues that the burden of proof shifted to the Commissioner because the Commissioner did not give deference to how Greenberg, GG Capital, and JPF III reported tax items in furtherance of the tax evasion scheme at issue in this case and instead disallowed losses and disregarded entities for tax purposes, we reject this argument as wholly without merit. Indeed, from the beginning, the Commissioner has sought to disallow the SOS type of Son-of-BOSS transactions at issue in this case involving the artificial losses manufactured by the foreign currency options and their alleged sales.
Greenberg next claims that none of the NODs suggested that the Commissioner‘s position was that the long leg and short leg of the currency options were in fact a single option and that this was a “surprise issue.” Relatedly, he challenges the Tax Court‘s exclusion of testimony from
Here, the Tax Court, after disregarding AD Global and JPF III as partnerships for tax purposes, treated everything as being owned directly by Greenberg and Goddard, including the currency option pairs in the case, and treated the option pairs as never having been contributed to AD Global or purchased by JPF III. Then, in reviewing the currency options, the court explained that the options’ long and short legs should have been treated as a single option spread, meaning that they could not be separated as a matter of fact and law. As such, the Tax Court disallowed the losses related to those option spreads.
We find that, at most, the Commissioner‘s position was a “new theory,” i.e., a new argument based on existing evidence that helped clarify the original deficiency determination as to why the artificial losses created should be disallowed. All of the determinations made in the NODs in this case were in reference to the currency options and disallowed losses related to those options. And Greenberg fails to identify any new evidence that was introduced following the issuance of the NODs as to this issue. Thus, this is not a “new matter” under Rule 142, and the Tax Court did not apply the incorrect burden of proof on this issue. Rather, as the Commissioner explains, Greenberg was required to prove his entitlement to this loss deduction by showing that the currency options could be profitable and were not merely for tax avoidance.
Greenberg further contends that he was not placed on notice that JPF III‘s validity as a partnership was at issue in the case, making it a “new issue.” We disagree. As the Tax Court explained, for this type of Son-of-BOSS transaction to work, AD Global and JPF III were required to be valid partnerships, as the partnership-basis rules were the only way to achieve the goal of inflating the bases in the option spreads. Thus, because Greenberg had the burden of proving his claimed loss deductions, he was required to prove that JPF III was a valid partnership.
Finally, Greenberg challenges the Tax Court‘s denial of his motion to reopen the record, asserting that he should have been allowed to introduce documents in support of the transactions that the Tax Court found did not happen. We review the Tax Court‘s decision on a motion to reopen the record for an abuse of discretion. See Estate of Byrd, 388 F.2d at 234–35. The Tax Court denied the motion to reopen the record because the documents that Greenberg sought to introduce were all available at the time of trial. And Greenberg offers no explanation on appeal as to why he did not introduce these documents before or during trial other than his mistaken assumption that his and Goddard‘s testimonies would be sufficient to meet his burden in proving entitlement to the loss deductions that were disallowed. Greenberg failed to introduce those documents into evidence at trial, and we conclude that the Tax Court did not abuse its discretion in denying the motion to reopen the record to allow him to introduce new evidence so late into the action.
C. Whether the Tax Court erred in its post-trial rulings
Greenberg further contends that the Tax Court erred in rejecting the multiple issues he raised following trial: (1) by accepting the Commissioner‘s Rule 155 computations; (2) by refusing to consider the California Uniform Partnership Act‘s (“CUPA“) and
1. Duplicative Adjustments and Anti-whipsaw
As to the adoption of the Commissioner‘s Rule 155 computations,
Greenberg first argues that the Tax Court should not have adopted the Commissioner‘s computations, claiming that there were “duplicative adjustments” between the 2004 and 2005 NODs and the 2009 NODs for the 2000 and 2001 tax years. He asserts that the Commissioner waited until the Rule 155 proceedings to make an “actual” determination of the adjustments in this case. In essence, this argument is similar to Greenberg‘s other jurisdiction-related arguments we rejected above, and we likewise reject it here.
It is well established that the IRS “is permitted to assert inconsistent positions against taxpayers on different sides of a transaction to protect the treasury against ‘whipsaw’ by taxpayers who themselves assert inconsistent positions.” Preston v. Comm‘r, 209 F.3d 1281, 1286 (11th Cir. 2000); accord Clapp v. Comm‘r, 875 F.2d 1396, 1401 (9th Cir. 1989); Gerardo v. Comm‘r, 552 F.2d 549, 555 (3d Cir. 1977). Indeed, “[a]ny other approach would reward the tax evader who could come up with a novel scheme and force the Commissioner to take a single, consistent legal interpretation,” and “[i]f the courts later ruled the scheme illegal, but took a different interpretation than the Commissioner, the taxpayer would successfully evade taxes.” Clapp, 875 F.2d at 1401; accord Gerardo, 552 F.2d at 555 (“The [anti-whipsaw] practice is grounded in the Commissioner‘s need to protect the revenue and avoid a windfall for a delinquent taxpayer.“).
Thus, the Commissioner was permitted to make duplicative adjustments between the 2004 and 2005 NODs and the 2009 NODs for the 2000 and 2001 tax years in order to prevent being whipsawed. The fact that, during the Rule 155 computations, the Commissioner—as ordered by the Tax Court—eliminated duplicative adjustments and that the 2009 NOD for the 2001 tax year resulted in no proposed adjustment following the computations does not establish that the Tax Court lacked jurisdiction over all the NODs or abused its discretion in adopting the Commissioner‘s computations.
2. The California Uniform Partnership Act and I.R.C. § 704
Next, Greenberg contends that the Commissioner, under
Generally, a partner‘s distributive share of a partnership‘s tax items is determined by the partnership agreement.
Greenberg asserts that the Commissioner acknowledged he would apply
Greenberg waited until his objections to the Commissioner‘s Rule 155 computations to raise this allocation issue. In adopting the Commissioner‘s computations, the Tax Court declined to consider the issue as Greenberg failed to raise this “factbound question during litigation.” As we have previously noted, “[t]he Rule 155 computation process is not intended to be one by which a party may . . . raise for the first time issues which had not previously been addressed.” Vento, 152 T.C. at 8 (second alteration in original) (quoting Molasky v. Comm‘r, 91 T.C. 683, 685 (1988)). “A new issue generally will be an issue other than a ‘purely mathematically generated computational item[]’ of this sort.” Id. (alteration in original) (quoting Home Grp., Inc. v. Comm‘r, 91 T.C. 265, 269 (1988)). And “[a] matter may be deemed a ‘new issue’ in the Rule 155 context even if it has computational aspects.” Id. at 9. We review the Tax Court‘s decision to not consider a new issue at the Rule 155 stage for abuse of discretion. Knowlton, 791 F.2d at 1511.
Greenberg does not dispute that he waited until the Rule 155 computations to raise this issue. Instead, he claims that the Tax Court “faulted” him for “failing to anticipate” the Commissioner‘s “change of position and create a trial record on an issue [he] did not even know was at issue.” However, the Commissioner, in his pretrial memorandum, did not state that he would apply the CUPA in making his allocations. Rather, he stated that, when a partnership‘s allocation of an item lacks substantial economic effect, the item should be reallocated to those partners who actually bore the economic effects of the item and that the determination of a partner‘s interest is a facts and circumstances test. Greenberg could have argued that
3. Interest Suspension Under I.R.C. § 6404(g)
Greenberg additionally contends that the Tax Court erred in refusing to consider interest suspension under
In the case of an individual who files a return of tax imposed by subtitle A for a taxable year on or before the due date for the return (including extensions), if the Secretary does not provide a notice to the taxpayer specifically stating the taxpayer‘s liability and the basis for the liability before the close of the 36-month period beginning on the later of—
(i) the date on which the return is filed; or
(ii) the due date of the return without regard to extensions,
the Secretary shall suspend the imposition of any interest, penalty, addition to tax, or additional amount with respect to any failure relating to the return which is computed by reference to the period of time the failure continues to exist and which is properly allocable to the suspension period.
Greenberg points to the statement in the 2004 and 2005 NODs that
In Commissioner v. McCoy, 484 U.S. 3, 7 (1987), the Supreme Court explained that “[i]nterest on a tax deficiency is separately mandated by
And, in Bourekis v. Commissioner, 110 T.C. 20 (1998), the IRS moved to dismiss the petitioners’ allegations contesting statutory interest after they filed a petition challenging an NOD as to their income tax. The Tax Court first explained that its “jurisdiction to redetermine a tax deficiency generally does not extend to statutory interest under section 6601.” Id. at 24–25. The Tax Court then specifically reviewed
McCoy, Beane, and Bourekis are instructive. The Tax Court lacked jurisdiction to determine Greenberg‘s suspension of interest claim under
4. The NOL in Case No. 1335-06
Finally, Greenberg contends that the Tax Court erred by refusing to allow him to amend his petition in Case No. 1335-06 to assert a carryback NOL stipulated to in an unrelated case for subsequent tax years. We disagree.
In his March 30, 2015, motion—several years after trial—Greenberg claimed that he and the Commissioner had filed a stipulation of settled issues in an unrelated proceeding involving subsequent tax years. He asserted that, based on the stipulation, he had “carryback losses from tax years 2004 through 2008, some of which may be eligible for carryback to one or more of the tax years at issue in this case.” The attached stipulation showed that the Commissioner agreed that Greenberg had substantiated deductions for legal fee expenses for the years 2004 through 2008 that would create carryback losses sufficient to eliminate his regular taxes for 2003 and 2004. The Tax Court denied the motion, explaining that “[t]o the extent it seeks to raise a new issue arising from an alleged [NOL], [it denied] it as proceeding from a lack of due diligence,” citing Rule 41. Greenberg again attempted to raise the NOL during the Rule 155 calculations, but the Tax Court declined to consider the issue, explaining that it would “require
Greenberg makes limited argument on this issue. He claims that “Tax Court precedent” allows him to raise the NOL for the first time in the Rule 155 computations and speculates that it is “unclear” if he has another forum to raise the NOL. As such, he argues that the Tax Court violated established law and Rule 155. We first note that Greenberg‘s initial brief does not challenge the Tax Court‘s finding of a lack of due diligence regarding the March 30, 2015, motion, and we thus find that issue abandoned. See Sapuppo, 739 F.3d at 680–81 (explaining that a party must plainly and prominently raise an issue in its briefs and that the failure to do so will result in abandonment of the issue).
Turning to whether the Tax Court abused its discretion in not considering the NOL during the Rule 155 computations, Knowlton, 791 F.2d at 1511, we again note that a party is not permitted to raise new issues during the Rule 155 computation process,” Vento, 152 T.C. at 8. And, even if a matter has computational aspects, it may still be deemed a “new issue,” e.g., whether a taxpayer is “entitle[d] to a net operating loss carryback.” Id. at 9.
We find that the Tax Court did not abuse its discretion in declining to allow Greenberg to raise the NOL during the Rule 155 computations. While the NOL does have computational aspects, the Tax Court would have to reopen the record and conduct further factfinding to determine whether Greenberg was permitted to carryback an NOL.18 Greenberg raises Harris v. Commissioner, 99 T.C. 121 (1992), to claim that he can raise the NOL during the Rule 155 computations. We find Greenberg‘s reliance on Harris misplaced. In Harris, the Tax Court relied on TEFRA partnership provisions to conclude that a taxpayer-partner‘s NOL carrybacks arising from a settlement of a TEFRA partnership proceeding could be considered in the Rule 155 computation. See id. at 126–28. The Tax Court explained that after a settlement has been reached at the TEFRA partnership level, “the substantive partnership level issues have been resolved, and all that remains is the mechanical procedure of applying such settlement to the partner.” Id. at 126. Unlike Harris, however, the NOL stipulated to in the unrelated case would involve the Tax Court allowing Greenberg to amend his petition and would require the Tax Court to decide substantive issues, issues which go well beyond just mechanical application of the settlement. The Tax Court therefore was well within its discretion to decline to entertain the NOL at such a late junction.
IV. CONCLUSION
For the reasons explained above, we affirm the Tax Court‘s decision.
AFFIRMED.