I pointed out in a previous blogpost that Constitutional arguments in Tax Court get a slightly polite version of the tramp’s toss; see my blogpost “Losing My Religion”, 1/17/13, where I noted that such arguments are usually found in protester cases and usually get blown away.

And I pointed out in a more recent blogpost how partners and tax matterers are supposed to tell the IRS where they are, when they change addresses or otherwise move around and about.  See my blogpost  “Wait Just A Minute, Mr Postma”, 7/23/13.

Now if this were just an ordinary mailing address case, I wouldn’t blog it, but it’s a twofer from Judge Thornton, with a recap of partnership-level due process notice and how it’s supposed to be done.

So let’s take a brief look at Estate of Albert Simon, Deceased, Ellen S. Simon, Personal Representative And Ellen S. Simon, 2013 T. C. Memo. 174, filed 7/29/13.

The facts are the usual; the Late Al, before he was late, got himself and Ellen into a son-of-BOSS, a Section 752 mix-and-match of unrecognized gains and recognized losses in a pair of digital option trades. For some quick background, see my blogpost “Woodshedding Your Experts – Stobie Creek Part Deux”, 1/10/11.

Except for a 1% partner, who is nameless and apparently blameless, all the players are alter egos of the Late Al. But when IRS goes hunting for someone to nail with the NBAP, Al isn’t listed as tax matterer (nobody is), so there follows a series of letters, some from Al but most from IRS.

Ellen claims IRS knew about the Late Al, and should have sent the NBAP and FPAA to him. She claims she wasn’t given proper notice.

But IRS cites the then-temporary, subsequently permanent, regulations for letting IRS know partners’ whereabouts. Judge Thiornton: “The IRS’ duty to give a direct or indirect partner notice under section 6223(a) arises only to the extent that the IRS is furnished with readily available information containing the name, address, and profits interest of the partner in either or both of two ways. See Murphy v. Commissioner, 129 T.C. 82, 86 (2007). First, the IRS may be furnished the referenced information through the tax return of the partnership under audit. See id. at 86-87; see also sec. 6223(c)(1). Second, the IRS may be furnished the referenced information through a written statement that meets the requirements of section 301.6223(c)-1T, Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6784 (Mar. 5, 1987).” 2013 T. C. memo. 174, at p. 15 (Footnote omitted, but I covered this in my blogpost “Wait Just a Minute, Mr Postma”, op. cit., as the high-priced lawyers say.)

Ellen says she got a packet of stuff from IRS during the pre-trial show-and-tell that shows IRS knew right well where she and the Late Al were.

So what, says Judge Thornton. You never sent in the magic paper with the Big Five required points.

“Due process requires that notice be ‘reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950); see also Byrd Invs. v. Commissioner, 89 T.C. 1, 6-7 (1987), aff’d without published opinion, 853 F.2d 928 (11th Cir. 1988). The Secretary, in part through specific congressionally delegated authority, has provided a reasonable regulatory procedure to meet that requirement.” 2013 T. C. Memo. 174, at p. 21.

Most important, Ellen never explained why she and the Late Al never sent in the magic statement, or why the Late Al put the old, invalid address on the tax return for the year at issue, when he filed it long after he, Ellen and the partnership had moved away.

The case has an interesting discussion of how penalties are to be dealt with in TEFRA partnership-level adjustments, but those are not often met with by the in-the-trenches preparer, for whom this blog is written. If you do encounter such a situation, where the Section 6662(h) 40% hammer and the Section 6651(a) negligence hammer are about to descend upon your partner-client, read Judge Thornton’s explanation.