In Uncategorized on 02/15/2012 at 08:31

Or, Settled vs. Settled Right

Once again, Judge Mark Holmes takes on his colleagues in a “Son of BOSS meets Petalumas” case, Tigers Eye Trading, LLC, Sentinel Advisors, LLC, Tax Matters Partner, 138 T. C. 6, filed 2/13/12, a real eye-glazer.

Echoing his dissent in Randall J. and Karen G. Thompson, 137 T. C. 17, filed 12/27/11 (see my blogpost “The Great Dissenter”, 12/28/11), Judge Holmes takes on Judge Beghe, who writes the Tigers Eye decision, and Judges Colvin, Cohen, Halpern, and Goeke. Judge Halpern concurs “only to add some small weight to what, in the main, I consider to be a forceful and persuasive analysis by Judge Beghe.” 138 T.C.  6, at p. 128.

In brief, Tigers Eye and IRS stipulated a decision blowing up Tigers Eye, a phony tax shelter, and raining penalties on the partners. It’s another no-outside-basis case, with the partnership-level versus partner-level TEFRA gloss.

But then came Petalumas I,  II and III, with D.C. Circuit deciding that Tax Court has no jurisdiction even though IRS had conceded and stipulated jurisdiction. So the taxpayer moves to revise the stipulated decision.

No way, say the majority. They decide not to follow the Petalumas, because of factual differences and the decision of the US Supreme Court in Mayo Clinic (131 S. Ct. 704 (2011)), which requires the courts to follow regulations unless they fail the Chevron tests (Chevron USA Inc. v. Natural Res. Def. Council, 467 U.S.837 (1984). See my blogpost “Carpenter, Colony, Chevron and Mayo”, 4/26/11). For the next 125 pages, the majority upholds its jurisdiction and enforces the stipulated decision–no revision.

Judges Gale and Paris concur without opinion, and Judge Foley dissents, likewise without opinion, but Judge Marvel has her own dissent (in part II of which Judge Kroupa agrees, and Judges Gale and Paris agree in part), which goes off on the Section 6662(a) understatement or overvaluation penalties applying irrespective of inside or outside basis in a disregarded sham partnership.

Judge Wherry has a separate concurrence, based on what Tax Court should do when it disagrees with the relevant Circuit, and rebuking Judge Holmes as a grammarian.

Judges Gustafson, Vasquez and Morrison pass on this one.

But Judge Holmes, bless his contrarian heart, comes out swinging, despite Judge Wherry’s disdain for his grammatical take on Section 6231(a)(3), 138 T.C. 6, at p. 143.

To begin with, whether Tax Court likes it or not, the Petalumas control here: “In our landmark decision in Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971), we held “that better judicial administration requires us to follow a Court of Appeals decision which is squarely in point where appeal from our decision lies * * * to that court alone.” (Fn. ref. omitted.) Golsen tells us not to bang our head against contrary appellate precedent, and we’ve consistently held that we must follow the precedent of the court that has appellate jurisdiction over a case.” 138 T.C. 6, at pp. 180-181 (Footnote omitted.)

Ignoring Golsen and its progeny will wreak havoc and engender endless appeals. “The tsuris this will cause us–where two circuit courts,  a few trial courts, the Department of Justice, and even the IRS (at times) all disagree with the position we’re taking–cannot possibly be worth it. Especially when it’s nothing more than a dispute about a complicated little bit of partnership-tax law–and not even substantive partnership-tax law, but partnership-tax-law procedure. And a point of partnership-tax-law procedure in a motion to revise a stipulated decision we entered in 2009. This was not the case to use to revisit Petaluma I: ‘[I]n most matters it is more important that the applicable rule of law be settled than that it be settled right.’ Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 406 (1932) (Brandeis, J., dissenting).” 138 T.C. 6, at p. 182. (Footnotes omitted.)

Judge Holmes sums it up: “In conclusion, I believe that we shouldn’t challenge the D.C. Circuit on the issue of our partnership-level jurisdiction over penalties any more than we should challenge it on the issue of outside basis as a partnership item.  Of all the routines in judicial gymnastics, few have a higher degree of difficulty than the reverse benchslap, and we’re trying for a combination double with our Opinion today.

“I’ll stand a safe distance off to one side, and respectfully dissent.” 138 T.C. 6, at p. 211. (Footnote omitted).

And because Judge Holmes writes cool footnotes, here’s the omitted footnote, footnote 17 at p. 211: “I’ll reiterate what I noted in Thompson: The Secretary should not view our Opinion as foreclosing the possibility that he could clear this area up much more efficiently through regulation than the Commissioner has been able to do through litigation. Thompson v. Commissioner, 137 T.C. at 244 (Holmes, J., dissenting).”

Oh yes, and Judges Kroupa and Thornton agree in part.

  1. […] LLC, Sentinel Advisors, LLC, Tax Matters Partner, 138 T. C. 6, filed 2/13/12 (see my blogpost “The Great Dissenter – Part Deux,” 2/15/12). DC Circuit remands Petaluma III to Tax Court, asking whether Tax Court […]


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