RODNEY J. BLONIEN AND NOREEN E. BLONIEN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2660-00.
UNITED STATES TAX COURT
Filed June 12, 2002.
118 T.C. No. 34
BEGHE, Judge
Held: We have no jurisdiction to consider P’s argument that he was not a partner. Whether P was a partner is a partnership item that can be challenged only at the partnership level. P has no standing to challenge on due process grounds the partnership-level
Held, further, we have jurisdiction to consider partner-level adjustments in a Rule 155 computation.
R. Todd Luoma, for petitioners.
Kathryn K. Vetter, for respondent.
BEGHE, Judge: On December 17, 1999, respondent issued petitioners an “affected items” notice of deficiency of $11,826 in their 1992 Federal income tax. The deficiency is attributable to inclusion in the income of petitioner Rodney J. Blonien (Mr. Blonien) of his distributive share of cancellation of debt (COD) income of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey (Finley Kumble), a law partnership that had become insolvent.
Petitioners allege assessment is barred by the 3-year period of limitations provided in
We hold that we have no jurisdiction in this proceeding to consider Mr. Blonien’s argument that he was not a partner in Finley Kumble. To the extent the determination would affect the allocation of partnership items among the other partners, the determination of who is a partner is a partnership item that must be challenged at the partnership level. Therefore, assessment of the deficiency against petitioners for 1992 arising out of Mr. Blonien’s share of Finley Kumble’s items is not barred by the applicable statute of limitations.
We have jurisdiction in this deficiency proceeding to adjudicate the effect of Mr. Blonien’s share of partnership items (determined at the partnership level) on petitioners’ tax liability. The deficiency will be determined in accordance with Rule 155.
FINDINGS OF FACT
The parties have stipulated some of the facts. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners lived in Elk Grove, California, when they filed their petition in this case.
Mr. Blonien is an attorney who has been admitted to practice law in California since 1972.
In 1982, he was appointed legislative secretary and policy director to Governor George Deukmejian. In December 1984, he moved from the Governor’s office to be undersecretary of the Youth and Adult Corrections Agency of California.
In November 1986, then California Treasurer Jess Unruh arranged for Mr. Blonien to meet former New York Governor Hugh L. Carey, then a senior partner in Finley Kumble. Governor Carey introduced Mr. Blonien to other senior partners of Finley Kumble, including Steven Kumble and Harvey Myerson. After the meeting, Governor Carey informed Mr. Blonien that Messrs. Kumble and Myerson intended to recommend to Finley Kumble that Mr. Blonien be offered the opportunity to join Finley Kumble as a partner.
In December 1986, Mr. Blonien asked Governor Carey about the status of a Finley Kumble offer. Governor Carey informed Mr. Blonien that the offer was “on”, and that Mr. Blonien should
In March 1987, Mr. Blonien reached an oral agreement to join Finley Kumble as a partner. Under the terms of the agreement, Mr. Blonien was to receive a draw of $8,750 per month and was to make a capital contribution to Finley Kumble of $80,000. Finley Kumble agreed to arrange for Mr. Blonien to borrow the funds to make the capital contribution from its lender, Manufacturers Hanover Bank.2
On April 1, 1987, Mr. Blonien left the California State government to begin practicing law with Finley Kumble in Sacramento. Acting on behalf of Finley Kumble, Mr. Blonien sublet office space from another law firm, obtained office
During summer 1987, Mr. Blonien read an article in “The American Lawyer” concerning Finley Kumble’s financial problems. These problems arose from Finley Kumble’s practice of factoring its accounts receivable and its failures, upon collecting the accounts, to repay the factor’s advances. A number of partners of Finley Kumble left the firm around this time, and Mr. Blonien questioned whether he should remain with the firm.
In late November and early December, several of Mr. Blonien’s bond clients informed him that they would be seeking other counsel because Finley Kumble’s well-publicized financial problems called into question the value of the legal opinions Finley Kumble would be required to issue in connection with the bond transactions that Mr. Blonien had originated. Despite these problems, which led to the loss of some clients and writedowns of billable time, Finley Kumble did collect fees for its legal services in bond transactions that Mr. Blonien had originated.
On December 8, 1987, after Finley Kumble announced its dissolution, Mr. Blonien sent a letter to Finley Kumble in which he stated that he was withdrawing as a partner of the
Mr. Blonien received more than $64,000 in draws from Finley Kumble in 1987.3 Petitioners did not report receiving wages from Finley Kumble on their Form 1040, U.S. Individual Income Tax Return, for 1987. Instead, petitioners reported Mr. Blonien’s distributive share of partnership income from Finley Kumble on Schedule E, Supplemental Income and Loss, in the amount of only $15,310. Petitioners did not file with their 1987 return Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, with respect to Finley Kumble, or otherwise
On February 24, 1988, several of Finley Kumble’s creditor banks filed an involuntary petition under chapter 7 of the Bankruptcy Code against Finley Kumble. On March 4, 1988, the bankruptcy court granted relief to Finley Kumble under chapter 11 of the Bankruptcy Code. In 1992, a substantial amount of Finley Kumble’s debts was discharged in the bankruptcy proceeding.
On Schedule E attached to their 1988 Federal income tax return, petitioners reported a nonpassive partnership loss of $106 from Finley Kumble and substantial partnership income from the Whitman & Ransom law firm. Mr. Blonien believes that petitioners reported this loss on the basis of a Schedule K-1, Partner’s Share of Income, Credits, Deductions, Etc., he received from Finley Kumble. Petitioners did not file Form 8082 with respect to Finley Kumble with their 1988 return or otherwise notify the Internal Revenue Service that they were claiming that Mr. Blonien was not a partner in Finley Kumble.
On May 23, 1991, Mr. Blonien entered into a settlement agreement with Francis Musselman, the chapter 11 trustee for Finley Kumble. Under the settlement agreement, Mr. Blonien agreed to pay $15,000 over a period of 10 years, together with interest at the rate of 10 percent per year, to the Finley Kumble bankruptcy estate. The settlement agreement referred to and
On September 21, 1993, Finley Kumble filed its 1992 Form 1065, U.S. Partnership Return of Income. On this return, which was signed on behalf of Finley Kumble by Mr. Musselman as trustee, the firm reported that it had 280 partners, including Mr. Blonien. On the face of the return at line 7, Other income (loss), Finley Kumble referenced “SEE STATEMENT 1“, which was a Form 8275, Disclosure Statement, containing an Item 2 “CANCELLATION OF INDEBTEDNESS $55,777,452“; Statement 2 to the return indicated that this amount had been included in “OTHER INCOME INCLUDED IN SCHEDULE M-1, LINE 9: INCOME FROM CANCELLATION OF DEBT.” The last paragraph of the attachment to the Disclosure Statement states as follows:
On December 9, 1991, the Bankruptcy Court entered an order confirming the Chapter 11 plan proposed by the Trustee, with certain amendments (“Plan”). This order became final and non-appealable in February, 1992 and the Plan became effective on March 19, 1992 (“Effective Date”). In the Closing Agreement being negotiated with the Internal Revenue Service (“IRS”), it is expected that the Trustee will stipulate the amount of cancellation of indebtedness income (“COD”) to be $55,777,452. This COD has been calculated using various estimates and methods as requested by the IRS. The COD has been determined using the assets of the Partnership at the beginning of 1992, the expected contributions of all the Finley partners, and the estimate of the allowed claims in their appropriate
classification at the Effective Date. The COD has been allocated to the partners based upon a formula developed with the IRS. If no Closing Agreement is entered into, the Trustee may amend the return to reflect an alternative position with respect to the timing of recognition of COD income.
Mr. Blonien received a Schedule K-1 from Finley Kumble for 1992, indicating that his distributive shares of Finley Kumble items were as follows:
| Partnership Item | Distributive Share |
| Ordinary income (loss) | ($1,252) |
| Interest | 127 |
| Net long-term capital gain (loss) | (8) |
| Sec. 1231 gain (loss) | (10) |
| Income from cancellation of debt | 37,212 |
The Schedule K-1 indicated that Mr. Blonien had a 0.0170-percent interest in Finley Kumble’s profits and losses, and a 0.0345-percent interest in Finley Kumble’s capital. The Schedule K-1 also indicated that Mr. Blonien had a yearend negative capital account of $13,717.
On October 15, 1993, pursuant to extensions, petitioners filed their 1992 Federal income tax return, which respondent received on October 20, 1993.
Petitioners reported $2,000 of COD income from Finley Kumble on line 22, page 1 of their 1992 return as follows: “Other Income. COD INCOME FINLEY, KUMBLE ET AL 2,000”. Other than this $2,000 reported on the face of the return, petitioners did not account therein for Mr. Blonien’s distributive share of items from Finley Kumble or his negative capital account or include any
Petitioners’ 1992 return was prepared by their accountant, Andrew Lundholm. Mr. Blonien did not know why he reported $2,000 of COD income of Finley Kumble, rather than the amount shown on the Schedule K-1 from Finley Kumble.
Petitioners did report on Schedule E of their 1992 return Mr. Blonien’s share of partnership income from Whitman & Ransom. Petitioners did include with their 1992 return Form 8082 with respect to Whitman & Ransom. Petitioners indicated thereon that the amount shown on “Line 5 Guaranteed Payments to Partner” and “Line 15a Net Earnings (loss) from self-employment” of the Schedule K-1 received from Whitman & Ransom exceeded the amount being reported by them on Schedule E, with the following explanation: “Line 10 & 11 - Partnership reported items on an accrual basis although it is a cash tax reporter Amount reported on this return are [sic] amounts actually received.”
Petitioners’ accountant, Mr. Lundholm, sent a letter to respondent dated July 21, 1995, requesting respondent to abate late-filing penalties assessed for 1990, 1991, and 1992. In the letter, Mr. Lundholm stated:
The extensions were necessary as all the data needed to file a complete and accurate return was not available at the time of the original due dates. In particular a New York based law partnership, (Finley, Kumble and Wagner--13-1694664) in which Mr. Blonien was a partner. This particular partnership filed for bankruptcy in 1988 and has been in audit by the Internal Revenue Service for years. Mr. Blonien has been involved with the various lawsuits and audits from 1988 to the present, (last correspondence from the service regarding this partnership is dated December 22, 1994). This partnership alone made it impossible to file his returns without additional time allowed by the extensions. [Emphasis added.]
On May 10, 1996, respondent appointed Marshall Manley to be the tax matters partner (TMP) for Finley Kumble because he was the Finley Kumble partner with the largest partnership share. On June 20, 1996, Marshall Manley, as TMP of Finley Kumble, signed a Form 872-P, Consent to Extend the Time to Assess Tax Attributable to Items of a Partnership, by which the period to assess the Finley Kumble partners for partnership items for the calendar year 1992 was extended to December 31, 1997. On May 29, 1997, Mr. Manley, as TMP of Finley Kumble, signed a second Form 872-P, extending the assessment period to December 31, 1998.
Petitioners were aware that respondent was examining Finley Kumble’s partnership returns.
On August 10, 1998, respondent issued a notice of final partnership administrative adjustment (FPAA) for Finley Kumble to Marshall Manley, TMP, for the calendar year 1992. No petition was timely filed with respect to the FPAA.
We Lack Jurisdiction To Consider Petitioners’ Argument That Mr. Blonien Was Not a Partner
Petitioners argue that Mr. Blonien never became a partner in Finley Kumble. They therefore contend that the period of limitations under
Respondent argues that we lack jurisdiction in this proceeding to consider petitioners’ argument that Mr. Blonien was not a partner in Finley Kumble. We agree with respondent.
“When a jurisdictional issue is raised, as well as a statute of limitations issue, we must first decide whether we have jurisdiction in the case before considering the statute of limitations defense.” Saso v. Commissioner, 93 T.C. 730, 734-735 (1989) (citing King v. Commissioner, 88 T.C. 1042, 1050 (1987), affd. on other grounds 857 F.2d 676 (9th Cir. 1988)).
Our jurisdiction cannot depend on the merits of petitioners’ allegations. Jurisdiction represents the power to hear a claim and decide its merits. As the Supreme Court recently stated: “Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that
In support of his jurisdictional argument, respondent points out that
In order to determine each partner’s distributive share of partnership items, it is necessary to know who are the partners and what share of partnership items each partner is entitled to and required to take into account. Therefore, to the extent that the taxpayer’s claim that he was not a partner would affect the distributive shares of the other partners, the taxpayer’s claim
Petitioners Have Not Been Deprived of Due Process
Petitioners argue that treating their allegation that Mr. Blonien was not a partner as a “partnership item”, over which we have no jurisdiction in this partner-level deficiency proceeding,
Under the partnership unified audit and litigation procedures enacted by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
Whatever the merits of petitioners’ due process challenge, there are two reasons they have no standing to raise it in this
After receiving tax benefits by taking the position on their Federal income tax returns that Mr. Blonien was a partner in Finley Kumble in prior years, petitioners attempt to avoid recognizing Mr. Blonien’s share of Finley Kumble’s COD income by contending for 1992 that Mr. Blonien was merely an employee of Finley Kumble. Petitioners want the benefits of Mr. Blonien’s being a partner in earlier years without subjecting themselves to the burdens of his being a partner in the later year at issue. As Justice Brandeis stated in his seminal concurring opinion in Ashwander v. TVA, 297 U.S. 288, 348 (1936): “The Court will not pass upon the constitutionality of a statute at the instance of
The duty of consistency prevents petitioners from claiming on their income tax returns that Mr. Blonien was a partner and then asserting, following the TEFRA partnership proceeding, that the statute of limitations bars assessment of the deficiency because Mr. Blonien never became a partner after all. As we explained in Hollen v. Commissioner, T.C. Memo. 2000-99, affd. 25 Fed. Appx. 484 (8th Cir. 2002):
The “duty of consistency”, sometimes referred to as quasi-estoppel, is an equitable doctrine that Federal courts historically have applied in appropriate cases to prevent unfair tax gamesmanship. The duty of consistency doctrine “is based on the theory that the taxpayer owes the Commissioner the duty to be consistent in the tax treatment of items and will not be permitted to benefit from the taxpayer’s own prior error or omission.” It prevents a taxpayer from taking one position on one tax return and a contrary position on a subsequent return after the limitations period has run for the earlier year. If the duty of consistency applies, a taxpayer who is gaining Federal tax benefits on the basis of a representation is estopped from taking a contrary return position in order to avoid taxes. [Citations omitted.]
If Mr. Blonien was not a partner in Finley Kumble, then petitioners misrepresented the facts to respondent in their earlier Federal income tax returns. Respondent relied on the
Second, petitioners have no standing to raise a due process challenge because they received a partnership Schedule K-1 from Finley Kumble for 1992 and failed to file a Form 8082 or otherwise notify respondent that they were taking a position
The TEFRA provisions incorporate the duty of consistency, requiring partners on their individual returns to follow the return filed by the partnership.
Petitioners were aware of the requirement to file Form 8082 in 1992; they filed Form 8082 with their 1992 return to take a
If a partner takes a position on his return inconsistent with the partnership’s position on its return and properly files a Form 8082 calling attention to the inconsistency, the Commissioner has the option of (1) converting all partnership items arising from that partnership into nonpartnership items and resolving them at the partner level by so notifying the partner under
A partner who receives a Schedule K-1 and fails to notify the Commissioner of inconsistent treatment by filing a Form 8082 is bound by the partnership’s position on its return. The Commissioner may make a computational adjustment (without following the deficiency procedures) to make the partner’s return consistent with the partnership’s return.
On no return that is part of the record in this case did petitioners notify respondent that Mr. Blonien was not a partner. Petitioners led respondent to believe that Mr. Blonien was a
It was petitioners’ conduct in claiming on prior returns that Mr. Blonien was a partner, and in failing to notify respondent timely of their position that Mr. Blonien was not a partner, that deprived Mr. Blonien of the opportunity to have the
We Also Lack Jurisdiction To Consider Petitioners’ Argument That the Issuance of the FPAA Was Not Timely
In their petition to this Court, petitioners also challenged the timeliness of the FPAA, arguing that the TMP’s extensions of the period of limitations were invalid. After petitioners filed their petition, we issued our decision in Overstreet v. Commissioner, T.C. Memo. 2001-13, affd. in part and dismissed in part 33 Fed. Appx. 349 (9th Cir. 2002), in which we held that a Finley Kumble partner did not have standing in a partner-level proceeding to challenge the timeliness of the FPAA. We held that expiration of the period of limitations for issuance of the FPAA is an affirmative defense that must be raised in a partnership-level proceeding.
At trial, petitioners and respondent stipulated to be bound by the final decision in the Overstreet case. Our decision in Overstreet is now final, as a result of dismissal of the taxpayer’s untimely appeal by the Court of Appeals for the Ninth Circuit. See 33 Fed. Appx. 349 (9th Cir. 2002). On the basis of the parties’ stipulation in the case at hand, petitioners cannot challenge in this proceeding the validity and timeliness of the
We Have Jurisdiction To Determine How Mr. Blonien’s Share of Finley Kumble’s Partnership Items Will Affect Petitioners’ Income Tax Liability
While we lack jurisdiction in this proceeding to consider petitioners’ argument that Mr. Blonien was not a partner or to review the allocation to Mr. Blonien of shares of partnership items, we have jurisdiction to consider whether assessment of a deficiency against petitioners is barred by the statute of limitations, and whether respondent correctly determined petitioners’ tax liability on the basis of the allocation made to Mr. Blonien at the partnership level.
Under TEFRA, after the allocation to the partners of partnership items is determined at the partnership level, the partners’ individual tax liabilities must be determined. This is done by way of “computational adjustments” and “affected items”, two terms of art under TEFRA. According to
The term “affected item” means any item to the extent such item is affected by a partnership item.
The term “computational adjustment” means the change in the tax liability of a partner which properly reflects the treatment under this subchapter of a partnership item. * * *
In GAF Corp. v. Commissioner, 114 T.C. 519, 523 (2000), we stated:
Therefore, we have jurisdiction in this proceeding to determine the effect of the Finley Kumble partnership-level allocations on petitioners’ tax liability to the extent the change in petitioners’ tax liability resulting from the partnership-level allocations requires partner-level determinations.
Determining whether the assessment of the deficiency is timely under the applicable statute of limitations requires a partner-level determination of the timeliness of respondent’s assessment with respect to each partner in the partnership. Similarly, determining whether respondent gave petitioners credit for the income recognized on their return in computing their deficiency and determining the effect of the additional Finley Kumble income on the phaseout of itemized deductions under
Petitioners’ Evidentiary Objections
Petitioners object to the admissibility of Exhibit 3-J (Finley Kumble’s partnership return for 1992) and Exhibit 4-J (Finley Kumble Schedule K-1 for Mr. Blonien for 1992) on the ground that respondent failed to authenticate the documents under rule 901 of the Federal Rules of Evidence and on the ground that the documents are inadmissible hearsay under rule 802 of the Federal Rules of Evidence.
Respondent submitted a certification that the partnership return is an authentic copy of the document filed with respondent by Finley Kumble. The copy of the document is incomplete because it does not include the Schedules K-1 for all 280 partners. Petitioners argue that the entire document is inadmissible because the copy is incomplete.
Petitioners argue that the Schedule K-1 for Mr. Blonien should not be admitted because respondent did not include “the partner letter originally attached to the Schedule K-1”. Respondent has confirmed that the Schedule K-1 filed with the return did not include a partner letter. Petitioners have failed to establish that the partner letter ought in fairness to be considered with the Schedule K-1; petitioners’ authentication objections are denied.
Petitioners also argue that these exhibits should not be admitted because they are hearsay--offered to prove that Mr. Blonien was a partner in Finley Kumble. Respondent responds that these documents are not offered to show that Mr. Blonien was a partner in Finley Kumble. The documents are offered to show that Finley Kumble purported to be a partnership that would be subject to the TEFRA proceedings and to show Finley Kumble’s state of mind--that Finley Kumble treated Mr. Blonien as a partner. The
Exhibits 5-J through 9-J consist of documents relevant to establishing the issuance and timeliness of the FPAA issued to Finley Kumble. At trial, the parties stipulated to be bound by the final decision in Overstreet v. Commissioner, T.C. Memo. 2001-13, in which this Court determined that the expiration of the period of limitations for issuance of the FPAA issued to Finley Kumble is an affirmative defense that must be raised in a partnership-level proceeding. Because the taxpayers in Overstreet did not timely file an appeal from the Tax Court’s decision, the Tax Court’s decision is now final and binding on the parties in the case at hand under the terms of their stipulation. The parties agree that Exhibits 5-J through 9-J are relevant only if petitioners can challenge the timeliness of the FPAA in this proceeding. On the basis of the parties’ stipulation to be bound by the final decision in Overstreet, we hold that petitioners cannot challenge the timeliness of the FPAA in this proceeding. Therefore, Exhibits 5-J through 9-J are not relevant.
Petitioners argued in their opening brief that Exhibit 10-J, a computational adjustment report, is irrelevant. Respondent pointed out that the exhibit may be necessary to compute the Rule
Exhibits 16-J and 19-J are documents reflecting the settlement agreement between Mr. Blonien and the trustee of Finley Kumble’s bankruptcy estate regarding Mr. Blonien’s agreement to make payments as part of Finley Kumble’s reorganization plan. The settlement document refers to Mr. Blonien as a “partner”.
Petitioners argue that the documents are not admissible under rule 408 of the Federal Rules of Evidence because the statements were made in settlement of a dispute. We do not agree with petitioners. Rule 408 only bars the admissibility of evidence to “prove liability for * * * the claim or its amount.” Mr. Blonien’s settlement is not offered in this proceeding to prove liability for or the amount of the bankruptcy trustee’s claim against Mr. Blonien. See Bituminous Constr., Inc. v. Rucker Enters., Inc., 816 F.2d 965 (4th Cir. 1987) (letters containing settlement offers were properly admitted to show the defendant’s understanding of its obligations under a joint-check agreement). The settlement agreement is being offered for the purpose of impeaching Mr. Blonien’s credibility and establishing
However, because we lack jurisdiction to consider petitioners’ contention that Mr. Blonien was not a partner in Finley Kumble, the document is not relevant to the resolution of any issue in dispute in this case.
Finally, petitioners argue that Exhibit 17-J, a letter from petitioners’ accountant to respondent, should not be admitted. In the letter, petitioners’ accountant requested an abatement of late-filing penalties. In support of the request, petitioners’ accountant stated that abatement is appropriate because Mr. Blonien was a partner in Finley Kumble, and Finley Kumble had not provided information to petitioners in time to enable them to timely file their Federal income tax returns. Petitioners argue that these statements were not excepted from hearsay by rule 801(d)(2)(C) of the Federal Rules of Evidence (statements by authorized agents of a party) because respondent failed to show that the accountant was authorized by petitioners to make the statements.
We need not consider these issues because the letter is irrelevant to any issue in dispute in this case. We have no jurisdiction to consider petitioners’ argument that Mr. Blonien was not a partner in Finley Kumble. Therefore the letter will not be admitted in evidence.
Period of Limitations on Assessment of Deficiency
Petitioners contend that the 3-year period of limitations set forth in
The running of the period of limitations provided in
section 6501 * * * on the making of assessments * * * in respect of any deficiency * * * shall * * * be suspended for the period during which the Secretary is prohibited from making the assessment * * * (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for 60 days thereafter.
The Secretary is prohibited from assessing the deficiency during the 90-day period following mailing of a notice of deficiency prepared under
In the case at hand, respondent did not mail the notice of deficiency within 3 years following the filing of petitioners’ 1992 Federal income tax return. Petitioners filed their 1992 Federal income tax return on October 15, 1993, and the notice of deficiency was not mailed until December 17, 1999, more than 6 years later. Therefore, unless the period for assessment is otherwise extended or subject to a different period of limitations, respondent would be barred by
Respondent argues that the period for assessment of the deficiency is subject to the alternative period of limitations contained in
In Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533, 539-540 (2000), we explained the history and purpose of the uniform partnership procedures enacted by TEFRA:
For income tax purposes, partnerships are not taxable entities. * * * Any income tax attributable to partnership items is assessed at the partner level. Thus, any statute of limitations provisions that limit the time period within which assessment can be made are restrictions on the assessment of a partner’s tax.
Before TEFRA, adjustments with respect to partnership items were made to each partner’s income tax return at the time (and if) that return was
examined. * * * The tax-writing committees explained the TEFRA partnership provisions as follows: “[T]he tax treatment of items of partnership income, loss, deductions, and credits will be determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with the partners.”
In Greenberg Bros. Pship. #4 v. Commissioner, 111 T.C. 198, 201 (1998), we explained that “The principal purpose behind TEFRA is to provide consistency and reduce duplication in the treatment of ‘partnership items’ by requiring that they be determined in a unified proceeding at the partnership level.”
In order to achieve the goal of having partnership items (which ultimately affect each partner’s tax liability) determined in a single proceeding at the partnership level, Congress enacted
SEC. 6229(a). General Rule.--Except as otherwise provided in this section, the period for assessing any tax * * * 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.
The limitations period can be extended for a particular partner by agreement with that partner, or for all partners by the tax matters partner.
The “affected items” notice of deficiency was mailed to petitioners on December 17, 1999--within 1 year and 150 days after the issuance of the FPAA on August 10, 1998. Therefore, if
Section 6229(d) applies to the case at hand because Mr. Blonien was determined to be a partner in Finley Kumble at the partnership level. We have no jurisdiction in this partner-level proceeding to consider petitioners’ argument that the partnership-level determination was wrong. We are bound by the determination made at the partnership level that Mr. Blonien was a partner in Finley Kumble for Federal income tax purposes. Therefore, respondent is not barred from assessing petitioners a deficiency arising from Mr. Blonien’s share of Finley Kumble’s items.
Rule 155 Computation
Respondent stated on brief: “If respondent prevails, this case may require a Rule 155 computation.” We agree that a Rule 155 computation is appropriate. Respondent did not allow petitioners credit for the $2,000 of Finley Kumble COD income that they reported on their 1992 return. Respondent also indicated on brief that Exhibit 10-J may have a bearing on the appropriate adjustments if a Rule 155 computation is required; other items and amounts determined at the partnership level to be allocated to Mr. Blonien are not clearly set forth in the FPAA and the deficiency notice. The parties should address and resolve these issues in the Rule 155 computation.
To reflect our holdings herein,
Decision will be entered
under Rule 155.