1998 Tax Ct. Memo LEXIS 147 | Tax Ct. | 1998
1998 Tax Ct. Memo LEXIS 147">*147 An appropriate order will be issued denying the motion to dismiss for lack of jurisdiction as to Karin M. Locke and granting the motion to dismiss for lack of jurisdiction as to Edwin A. Locke, Jr.
CINEMA '84, RICHARD M. GREENBERG, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 621-92
MEMORANDUM OPINION
POWELL, SPECIAL TRIAL JUDGE: These consolidated cases are before the Court on participants Edwin A. Locke, Jr. and Karin M. Locke's (collectively the Lockes) motion to dismiss for lack of jurisdiction. Respondent concedes that the filing of a petition in bankruptcy by Mr. Locke divested this Court of jurisdiction over Mr. Locke and his partnership items pursuant to
BACKGROUND
Greenberg Brothers Partnership #12, a.k.a. Lone Wolf McQuade Associates and Cinema '84 (the partnerships) are two of a number of partnerships formed to purchase and exploit the rights to certain films. The general partners of those partnerships were Richard M. Greenberg and/or A. Frederick Greenberg. 2 Respondent began an examination of these partnerships at some point in the mid- 1980's as part of a national project focusing on the various partnerships of the Greenberg brothers.
1998 Tax Ct. Memo LEXIS 147">*149 Respondent issued notices of final partnership administrative adjustments (FPAA's) to the tax matters partner (TMP) for each of the partnerships determining adjustments to partnership items for the following partnership taxable years:
Partnership | |||
Docket No. | FPAA Date | Taxable Years | Petition Date |
22780-91 | July 8, 1991 | 1983-86 | Oct. 7, 1991 |
621-92 | Oct. 15, 1991 | 1984-89 | Jan. 8, 1992 |
At the time the petitions in these cases were filed the principal place of business for each partnership was located at Greenwich, Connecticut.
The Lockes were married and filed joint Federal income tax returns for the years at issue. Mr. Locke's investment in these partnerships was purchased only in his name. The Schedules K-1 issued by the partnerships were issued solely in the name of Mr. Locke.
On April 7, 1992, Mr. Locke filed a petition in bankruptcy with the U.S. Bankruptcy Court for the Southern District of New York. Mr. Locke subsequently was granted a discharge by order of the Bankruptcy Court dated August 31, 1992. Mrs. Locke did not file a petition in bankruptcy.
DISCUSSION
THE TEFRA PROVISIONS
Pursuant to the TEFRA provisions the tax treatment of "partnership items" 1998 Tax Ct. Memo LEXIS 147">*150 generally is to be determined at the partnership level. See
This Court's jurisdiction of a partnership action is predicated upon the mailing of a valid FPAA by the Commissioner to the TMP and the timely filing by the TMP or other eligible partner of a petition seeking a readjustment of partnership items.
For purposes of the TEFRA provisions
(A) a partner in the partnership, and
(B) any other person whose income tax liability under subtitle A is determined in whole1998 Tax Ct. Memo LEXIS 147">*151 or in part by taking into account directly or indirectly partnership items of the partnership.
(a) Bankruptcy. The treatment of items as partnership items with respect to a partner named as a debtor in a bankruptcy proceeding will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the last day of the latest taxable year of the partner with respect to which the United States could file a claim for income tax due in the bankruptcy proceeding shall be treated as nonpartnership items as of the date the petition naming the partner as debtor is filed in bankruptcy.
The effect of the conversion is to remove the debtor-partner from the partnership proceeding and subject the converted items to the deficiency procedures applicable to the partner's individual tax case.
NATURE OF MRS. LOCKE'S INTEREST IN THE PARTNERSHIPS
In order to assess the impact of the bankruptcy rule upon Mrs. Locke, we must first ascertain the nature of her interest, if any, in the partnerships. State law determines ownership of property, and Federal income tax liability follows ownership.
New York law, unlike that of community property states, does not entitle each spouse to a present vested interest in so- called marital property during marriage. 31998 Tax Ct. Memo LEXIS 147">*155
In the instant cases, the parties have stipulated that Mr. Locke purchased the partnership interests in his name, and that the1998 Tax Ct. Memo LEXIS 147">*156 partnerships issued all Schedules K-1 solely in Mr. Locke's name. We conclude that Mrs. Locke had neither a joint interest in Mr. Locke's partnership investments, nor a separate interest in the partnerships.
ANALYSIS UNDER TEFRA
The parties agree that as of the date Mr. Locke filed a voluntary petition in bankruptcy, all partnership items attributable to him were converted to nonpartnership items by conjunctive operation of the bankruptcy rule and
The parties further agree that Mrs. Locke's status as a partner for TEFRA purposes derives solely from the joint income tax returns she filed with Mr. Locke.
Mrs. Locke posits that Mr. Locke's status as a debtor in a bankruptcy proceeding has a twofold effect upon her. First, she contends that any partnership items that could be adjusted in the TEFRA proceeding that would affect her tax liability are converted to nonpartnership items, thereby removing the basis for this Court's subject matter jurisdiction under
Significantly, Mrs. Locke is unable to point to any statute or regulation explicitly divesting this Court of jurisdiction over her as a necessary concomitant to the conversion of Mr. Locke's partnership items under the bankruptcy rule. The bankruptcy rule provides that the "partnership items OF SUCH A PARTNER * * * shall be treated as nonpartnership items1998 Tax Ct. Memo LEXIS 147">*158 as of the date the petition naming the partner as debtor is filed in bankruptcy".
Instead, Mrs. Locke makes an interpretative argument based upon
We disagree with Mrs. Locke's construction of the statute. The language in
Respondent argues that the resolution of this issue is controlled by this Court's decision in
Because the focus in the bankruptcy rule is limited to the PARTNER'S status as a debtor in bankruptcy, we are compelled here to look only to petitioner's status, since she is the only partner before us, and, although she IS a partner, she is NOT in bankruptcy. Accordingly, we find the bankruptcy rule to be inapplicable.
Because the taxpayer was unaffected by the conversion of the her sic1998 Tax Ct. Memo LEXIS 147">*161 husband's partnership items we held the notice of deficiency issued to the taxpayer to be invalid.
We recognize that
1998 Tax Ct. Memo LEXIS 147">*162 In addition, we note that the policy behind the bankruptcy rule is inapplicable to Mrs. Locke's situation. The purpose for the bankruptcy rule is to prevent the automatic stay of
In sum, Mrs. Locke may not harness the bankruptcy1998 Tax Ct. Memo LEXIS 147">*163 rule as an expedient to ride Mr. Locke's coattails out of these TEFRA proceedings. We hold that Mrs. Locke's partnership items did not convert to nonpartnership items at the time that Mr. Locke's partnership items converted to nonpartnership items pursuant to the bankruptcy rule, and, therefore, she remains a party subject to this Court's jurisdiction.
ALLOCATION OF PARTNERSHIP ITEMS
By amended petitions the Lockes request that this Court determine the proper allocation of partnership items between them. 7 Mrs. Locke maintains that, even if she remains a party to these proceedings, her joint and several liability neither endows her with a separate ownership interest in Mr. Locke's partnership investments nor creates partnership items allocable to her. Thus, she requests that we allocate 100 percent of the partnership investments to Mr. Locke and zero percent to her.
Nothing in either the bankruptcy rule or the statute allows such an allocation1998 Tax Ct. Memo LEXIS 147">*164 of partnership items between spouses.
We have considered all the other arguments made by the parties and, to the extent not discussed above, find them to be irrelevant or without merit. 8
To reflect the foregoing,
An appropriate order will be issued denying the motion to dismiss for lack of jurisdiction as to Karin M. Locke and granting the motion to dismiss for lack of jurisdiction as to Edwin A. Locke, Jr.
Footnotes
1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. On its partnership returns for the years in issue Greenberg Brothers Partnership #12, a.k.a. Lone Wolf McQuade Associates claimed loss deductions based on the alleged purchase of the films "Lone Wolf McQuade" and "Strange Invaders". On its partnership returns for the years in issue Cinema '84 claimed loss deductions based upon the alleged purchase of the motion picture "The Terminator" starring Arnold Schwarzenegger, as well as such films as "The Howling II", "Return of the Living Dead", "Perfect Strangers", "A Breed Apart", and "Special Effects".↩
3. The concept of marital property is reflected in New York's Domestic Relations Law. Under the equitable distribution provisions marital property is broadly defined as "all property acquired by either or both spouses during the marriage * * * regardless of the form in which title is held".
N.Y. Dom. Rel. Law sec. 236(B)(1)(c) (McKinney 1986); seeO'Brien v. O'Brien, 489 N.E.2d 712">489 N.E.2d 712 , 489 N.E.2d 712">715 (N.Y. 1985). In contrast,N.Y. Dom. Rel. Law sec. 236(B)(1)(d) (McKinney 1986), provides a narrow enumeration of what constitutes separate property. Because equitable distribution applies only to the distribution of property in divorce and similar matrimonial actions,N.Y. Dom. Rel. Law sec. 236 (B)(5) , supra, it does not purport to alter New York's common-law rules of property.Schurm v. Union Natl. Bank, 455 N.Y.S.2d 532">455 N.Y.S.2d 532 , 455 N.Y.S.2d 532">534↩ (N.Y. Sup. Ct. 1982).4.
N.Y. Dom. Rel. Law sec. 50 (McKinney 1988), provides that: "Property, real or personal, * * * owned by a married woman * * * shall continue to be her sole and separate property as if she were unmarried".N.Y. Gen. Oblig. Law sec. 3-301(1) (McKinney 1989), provides that: "A married woman has all the rights in respect to property, real or personal, and the acquisition, use, enjoyment and disposition thereof * * * as if she were unmarried." These provisions were enacted to abrogate the common-law rule entitling the husband to all rents and profits from his wife's real property and absolute rights in his wife's personal property. See Practice Commentaries toN.Y. Dom. Rel. Law sec. 50 (McKinney 1988). When construed in conjunction with the equitable distribution statute, these provisions confirm that property acquired by either spouse during marriage is separate property unless otherwise determined in a proceeding for equitable distribution underN.Y. Dom. Rel. Law sec. 236(B)(5) (McKinney 1986). Practice Commentaries toN.Y. Dom. Rel. Law sec. 50↩ , supra.5. Our decision in
Dubin v. Commissioner, 99 T.C. 325">99 T.C. 325 , 99 T.C. 325">333- 334 (1992), reflected our interpretation that, for purposes of the bankruptcy rule, the term "person" as used insec. 6231(a)(12) is synonymous with the term "partner" insec. 301.6231(a)(12)-1T(a) , Temporary Proced. & Admin. Regs.,52 Fed. Reg. 6793↩ (Mar. 5, 1987).6. Indeed, the relevant regulatory provisions utilize similar language in their treatment of a partner with a direct interest (e.g., through community property) and an indirect interest (through filing of a joint return). Compare
sec. 301.6231(a)(12)-1T(a) ,Temporary Proced. & Admin. Regs., supra ("Thus, both spouses are permitted to participate in administrative and judicial proceedings."), withsec. 301.6231(a)(2)-1T(a)(1) , Temporary Proced. & Admin. Regs.,52 Fed. Reg. 6790↩ (Mar. 5, 1987) ("Thus, the spouse who files a joint return with a partner will be permitted to participate in administrative and judicial proceedings.").7.
Sec. 6226(f)↩ vests this Court with subject matter jurisdiction to determine all partnership items of the partnership for the partnership taxable year to which the FPAA relates and the proper allocation of such items among the partners.8. Also without merit is Mrs. Locke's argument that a failure to allocate 100 percent of the partnership interests to Mr. Locke could potentially result in double taxation. Respondent is entitled to have any tax liability arising from Mr. Locke's investments in the partnerships satisfied only once. See
Dolan v. Commissioner, 44 T.C. 420">44 T.C. 420 , 44 T.C. 420">430 (1965). Full payment of a joint and several obligation by one obligor extinguishes the liability of all obligors.Kroh v. Commissioner, 98 T.C. 383">98 T.C. 383 , 98 T.C. 383">397 (1992);Dolan v. Commissioner, supra at 430↩ .