In Uncategorized on 03/26/2012 at 16:47

One sure way to drive a coach bananas is to fail to finish a play. Here Judge Vasquez admonishes IRS (gently) for not finishing. There might be some excuse, as this is one of the phony tiered partnership plus disregardeds, a son-of-Boss basis-builder, and it gets complicated. But Judge Vasquez unpacks it all in Rawls Trading, L.P., Rawls Management Corporation, Tax Matters Partner, Et Al., 138 T.C. 12, filed 3/26/12.

Facts are the usual. Jerry Rawls starts a business in his garage; in ten years it’s worth billions. Approached by a flim-flammer with lawyer and accountant in tow, Jerry and flim-flammer concoct a multi-layered series of partnerships with a trust thrown in, and a sale to an entity controlled by the flim-flammer. They build basis by using a short sale, where proceeds are reckoned into outside basis, but concurrent obligation to close short sale is not.

IRS issues three FPAAs to all hands, which are consolidated, but as consolidated two of the FPAAs only require computational changes to the interim partnerships, and the source partnership proceedings weren’t yet concluded.

IRS, realizing they were premature in issuing the deficiencies, asked for a stay, not a dismissal, claiming to dismiss will frustrate any chance to collect under the “no-second-deficiency” rule of Section 6223(f).

After the standard invocation, “our jurisdiction is strictly limited and only Congress can give us more”, Judge Vasquez answers the “no-second-deficiency” argument.

“We are cognizant of respondent’s concern that the ‘no-second-FPAA’ rule of section 6223(f) may be deployed as a shield to seek immunity for … from another round of partnership-level proceedings. In particular, respondent worries that if we hold invalid the … FPAA, then ‘the ability to issue a second notice under 6230(a)(2)(C) is not available.’ Motion to stay 10. Section 6230(a)(2)(C) carves out exceptions from the “no-second-deficiency notice” rule of section 6212(c), but only for affected items notices of deficiency issued under 6230(a)(2)(B). Section 6230(a)(2)(C) says nothing about the Commissioner’s ability to issue another FPAA to a partnership if the first FPAA has been held invalid.” 138 T. C. 12, at pp. 28-29. [Names omitted.]

So IRS can issue a new deficiency after it has finished with source partners, indirect partners, and Mr. Rawls his own self as a person whose tax liability is affected by taking into account, directly or indirectly, partnership items. See Section 6231(a)(2).

In the meantime, no stay, case dismissed, without a single dissenting word.

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