Attorney-at-Law

TEFRA, MEET TOM HOBBES

In Uncategorized on 12/12/2018 at 16:55

As Judge Goeke points out in Raghunathan Sarma and Gaile Sarma, 2018 T. C. Memo. 201, filed 12/12/18, at p. 44, footnote 11: “Congress repealed the TEFRA procedures in the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, sec. 1101(a), 129 Stat. at 625.”

And I, for one, am glad.

If you are still interested in this labyrinthian concoction, you can read all 48 pages of Judge Goeke’s dissection of Rag’s max-and-match, three-ring LLC circus, which marries the usual recognized loss with unrecognized gain to bury recognized gain.

IRS goofed when they handed out NBAPs to small-partnership LLCs, but Section 6231(g)(1) bails out IRS, as they had a reasonable basis for issuing same, and bailed when they found their mistake.

And even if a couple of the three-ring LLPs weren’t TEFRA-bait, it turns out that one of them was big enough to warrant TEFRA, and that brings in Section 6229 to save the SOL.

Taishoff comment: I see an appeal on this one.

Finally, the famous Woods dictum: “In dicta, responding to a point raised in an amicus brief, the Supreme Court in Woods observed that where a partnership is a sham and disregarded for tax purposes, the determination of the partner’s outside basis may not require a partner-level determination to adjust outside basis and thus the adjustment may be computational.  Woods, 571 U.S. at 42 n.2.  The Court stated that the amici’s argument ‘assumes that the underpayment would not be exempt from deficiency proceedings because it would rest on outside basis.’  Id.  The Court further observed: ‘Even an underpayment attributable to an affected item is exempt so long as the affected item does not ‘require partner-level determinations,’ * * * and it is not readily apparent why additional partner level determinations would be required before adjusting outside basis in a sham partnership.’  Id. (citations omitted).

Woods did not, however, answer the question of whether the partner-level adjustment of outside basis incident to a deficiency determination is computational and the Commissioner may directly assess the resulting tax against the purported partners or whether the adjustment requires a partner-level determination and the issuance of a notice of deficiency.” 2018 T. C. Memo. 201, at pp. 41-42.

If you are not stunned by the foregoing, try this: “While the Supreme Court’s dicta in Woods gives us pause, we conclude that the adjustment of outside basis in a sham partnership requires a partner-level determination.  No Court of Appeals has discussed the question of whether the adjustment of outside basis could be computational.  At this late date in the life of the TEFRA partnership provisions, it would be unwise for us to introduce uncertainty in the application of this well-worn law.  It is logical, as the Supreme Court suggests, to conclude Lincoln’s outside basis in its Kearney partnership interest was zero.” 2018 T. C. Memo. 201, at p. 44. (Footnote omitted, but I set it forth at the head hereof).

So I again quote Tommy Hobbes: ““When men write whole volumes of such stuffe, are they not Mad, or intend to make others so?” Leviathan, Book VIII (1651).

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