Attorney-at-Law

INSIDE, OUTSIDE – PART DEUX

In Uncategorized on 06/21/2016 at 15:37

Even though TEFRA sunsets next year, and tax matterers become tax representaters, there’s still the old silt stirring as the old TEFRA FPAAs wind their way to oblivion.

And Ch J L. Paige (“Iron Fist”) Marvel has one of these clenched in her iron fist in Hubert Oxford, III & Cynthia Oxford, Docket No. 16916-15, filed 6/21/16.

Hube & Cyn want to enjoin collection of a deficiency and a bunch of Section 6662 chops (or get a refund of whatever thereof has been grabbed by IRS), resulting from the partnership-level blowup of AD Investments, another phony partnership tax dodge starring that famous immunologist Jim (“Little Jim”) Haber, claiming they need a partner-level go-round.

I’ve blogged extensively that one cannot have outside basis greater than zero in a sham partnership. But the Supremes in Woods, 134 S. Ct. 557 (2013) said that, while Tax Court could blow up the phony partnership in a partnership-level proceeding, the partners’ own liability had to be considered in a partner level proceeding. Of course, if outside basis is zero, the partner-level bit should be computational and nonassessable, that is, no SNOD needed, straight to CDP. Right?

No.

“As to whether partner-level adjustment of outside basis incident to a deficiency determination should also be merely computational, Woods provides no direct answer. In dicta, however, the Court addresses the amici’s suggestion that its decision will permit the Internal Revenue Service to directly assess a penalty on a tax underpayment that cannot itself be assessed without deficiency procedures.  Noting that ‘an underpayment attributable to an affected item [such as outside basis] is exempt’ from deficiency procedures where partner-level determinations are unnecessary, the Court observes that ‘it is not readily apparent why additional partner-level determinations would be required before adjusting outside basis in a sham partnership.’

“In the sham partnership at issue here, the Court of Appeals [8th Cir., in the Thompson case, which I’ve extensively blogged] concluded that such additional determinations were required, and we proceed in accordance with that mandate.” Order, at p. 4. (Citations and footnote omitted).

So, Hube & Cyn, and IRS, pray tell “…their/his position as to: (1) whether additional partner-level determinations of outside basis are required in this case; (2) if so, what specifically are those additional partner-level determinations of outside basis; and (3) to what extent, if any, this Court has jurisdiction in this partner-level proceeding over petitioners’ income tax deficiency and related accuracy penalty….” Order, at p. 4.

I have a feeling that these face-offs will be going on long after TEFRA is an unpleasant memory, when we’ll be grousing about PATH partnership audits.

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