In Uncategorized on 03/12/2015 at 01:01

A smattering of knowledge doesn’t help in Tax Court.

We all know that every partnership (and pass-through taxed as a partnership) needs a designated tax matters partner. The tax matters partner is the boss of everything tax-oid, and no lesser mortal can do anything unless the tax matterer doesn’t do its job, dies, resigns or is in the slammer.

Judge Foley has a pair of claimjumpers throwing in petitions from FPAAs, Seaview Trading, LLC, Knights, LLC, Tax Matters Partner, Docket No. 1743-11, filed 3/11/15, and Seaview Trading, LLC, Robert A. Kotick, Tax Matters Partner, Docket No. 1744-11, filed 3/11/15.

Neither one is the tax matterer, and the real tax matterer already petitioned.

“Seaview, a Delaware limited liability company (LLC), was formed in November 2001. During the year in issue, the members of Seaview were AGK and KMC, both Delaware LLCs. AGK held a 99.15% membership interest in Seaview and KMC held a 0.85% membership interest. AGK was wholly owned by Robert Kotick and KMC was wholly owned by Charles Kotick.” Order in 1744-11, at p. 1.

Looks like a family affair.

And the family are in deep; Docket 1743-11 speaks of $390K of ordinary loss disallowed. Docket 1744-11 speaks of a $35 million loss disallowance.

Everybody petitions. Hey, if it were my money, I’d petition.

Except nonmatterers can’t, at least not until 90 days have gone by from the FPAA.

Knights and Rob filed before 90 days had expired.

Rob and Chick both claim their LLCs were single-member disregardeds, so that they are in fact the tax partners of Seaview. Besides, Seaview is a small partnership not subject to TEFRA.

No, says Judge Foley, disregarded they may be vis-á-vis Rob and Chick, but as to TEFRA all LLCs, regardless of number of members, are pass-throughs and throw any partnership-taxed entity in which they are members into TEFRA.

And despite the backing-and-forthing of Seaview’s correspondence with IRS, and Seaview never having formally designated a tax matterer, TEFRA’s default rules (Section 6231(a)(7)) make the general manager with the largest profits interest the tax matterer malgré lui. That means the member-manager of the LLC (Seaview) who has the biggest share, and that’s AGK, LLC, with a 99.15% share.

AGK was first to petition, so despite AGK’s status as a single-member LLC, Rob gets tossed and so does Chick. A disregarded LLC is a regarded tax matterer. Hopefully, though, not a tax smatterer.


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