In Uncategorized on 05/07/2018 at 16:18

A Graev Production

No, Larry and Lorna haven’t gone into the movie business, but their collapsed façade has been a gift to the hard-laboring blogger.

And now Judge Buch has the answer to a question that has evoked Graev doubts. Has IRS the burden of production of the Section 6751 Boss Hoss sign-off at a FPAA partnership-level throwdown?

After all, the magic language in Section 7491(c), whereby hangs the cliché in all burden-of-prod chop cases is “…with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title.” (Emphasis added).

So our old friends Beekman (a C Corp) and Dynamo (a partnership) should’a raised the issue in their petitions as an affirmative defense. They didn’t. Of course, their trial was early last year, before the Great Boss Hoss kerfuffle, which I’ve blogged hither and yon.

Beekman and Dynamo were fuel for the discovery wonks’ campfire in my earlier blogposts, but here it’s the penalties. Judge Buch leaves the undervaluation of the properties exchanged between them for another opinion.

This is a full-dress T. C., Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner, 150 T. C. 10, filed 5/7/18.

IRS wants a reopener; this is SOP post-Graev for pre-Graev trials. IRS flourishes various documents allegedly signed by one or another Boss Hoss who oversaw the labors of the RAs who chopped Dynamo and Beekman. Dynamo and Beekman say these guys weren’t the true Boss Hosses.

First as to the reopener IRS wants.

Judge Buch: “If we conclude that granting a motion to reopen the record would not affect the outcome of the cases, the motion should be denied.  Granting such a motion would be a meaningless gesture if it would not affect the outcome, and it would be a waste of judicial resources.” 150 T. C. 10, at p. 11.

So do the penalties or additions at issue meet the Boss Hoss test?

Judge Buch: “The notice of deficiency issued to Beekman Vista determined for each year an addition to tax under section 6651(a) for failure to file and a penalty under section 6656 for failure to make deposits.  The FPAA issued with respect to Dynamo determined the applicability of an accuracy-related penalty under section 6662(a).  Additions to tax under section 6651 are not subject to the supervisory approval requirement of section 6751.  See sec. 6751(b)(2)(A).  Accordingly, whether there was supervisory approval for the section 6651(a) addition to tax is not an issue we need to consider.” 150 T. C. 10, at pp. 11-12.

Late filing and late paying aren’t judgment calls. Either you did file and pay, or you didn’t. And in any case, the good faith defense is yours.

OK, so now the big question, where we have six (count ‘em, six) lawyers for Dynamo and Beekman, and five (count ‘em, five) lawyers for IRS: does a partnership get the Section 7491(c) ticket to the Section 6751(b) Boss Hoss production?

Beekman is the low-hanging cliché. Tax Court ruled twelve years ago that a corporation isn’t an individual, whatever the Supremes may say about a corporation’s religious views or right to free speech.

So what about Dynamo?

Well, in some cases Tax Court just assumed IRS had met the burden. Sometimes Tax Court didn’t have to decide, because IRS had met the burden and nobody claimed otherwise. But for Dynamo the evidence is apparently inconclusive that IRS met the burden (if it has the burden to begin with).

Judge Buch trudges through the TEFRA mire, and indulges in the obligatory dictionary-chaw.

“Not only do partnership-level proceedings not determine liabilities, but they also are not proceedings with respect to individuals.  See sec. 7491(c).  Partnerships themselves are not individuals.  Sec. 761(a).  The term ‘individual’ is not explicitly defined in the Code.  When a term is not defined, we give it its ordinary meaning.  Black’s Law Dictionary 892 (10th ed. 2014) defines the word ‘individual’ as ‘1. Existing as an indivisible entity. 2. Of, relating to, or involving a single person or thing, as opposed to a group.’ Merriam-Webster’s Collegiate Dictionary 593 (10th ed. 1996) defines ‘individual’ as ‘a particular being or thing as distinguished from a class, species, or collection: [such] as * * * a single human being’.  The ‘single human being’ definition is consistent with the Code.  Section 7701(a)(1) defines a person as ‘an individual, a trust, estate, partnership, association, company or corporation’, making clear that an individual is distinct from any of the other entities on the list.” 150 T. C. 10, at p. 17. (Citations omitted).

And Section 7491(a)(2)(c) deals with the burden in the partnership setting, while Section 7491(c) deals with individuals. But in both cases, the focus is on the proceeding.

Finally, Judge Buch puts down the dictionary and turns to the world as it is.

“The practical effect of applying section 7491(c) in a partnership-level proceeding would be to require the Commissioner and the Court to identify the ultimate taxpaying partners of a partnership to determine who bears the burden of production as to penalties.  In cases with tiered partnership structures the Commissioner and the Court would spend time and resources to identify the ultimate taxpaying partners, something the TEFRA notice provisions are designed to avoid.  See sec. 6223(c).  And in a partnership in which one of the ultimate taxpaying partners is a corporation and another is an individual, the Commissioner would bear the burden of production as to one partner but not the other.  As applied in cases like these, the Court might need to render separate holdings if the Commissioner did not have the burden of production as to one partner but had the burden of production (and failed to meet it) as to another partner.” 150 T. C. 10, at pp. 20-21.

Reopener would change nothing. Beekman never had the right to a Boss Hoss, and Dynamo isn’t an individual.

Now with TEFRA gone, where are we?


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