In Uncategorized on 02/05/2019 at 16:10

Robert C. Gunther and Jayne C. Gunther, 2019 T. C. Memo. 6, filed 2/5/19, have plenty of bad news to hear. Though collection of their partner-level deficiencies are enjoined pending the decision in their case, Tax Court cannot hear their claims concerning the 40% overvaluation and 20% accuracy chops. Those must wait for post-payment review.

As these chops aggregate around $850K, that will be an expensive hearing.

I again refer to Judge Holmes’ famous remark so long ago. Where does the taxpayer go to hear the bad news? See my blogpost “The Great Dissenter,” 12/28/11.

Bob and Jayne were in a phony currency swap partnership, which got blown away in USCFC. There follows the usual debate: must there be further partner-level determinations (opening the door to SNODs and deficiency proceedings), or does the partnership-level determination of the FPAA just generate arithmetic (computational).

As to the tax itself, even though the partnership was a sham, Bob and Jayne had some basis in the stock they sold, so that the exact amount thereof, and the exact tax due, needs to be figured. Of course, they had no Section 732(b) carryover basis from the sham partnership.

The chops are another story.

Judge Goeke explains.

“Section 6230(a)(1) provides that normal deficiency procedures generally do not apply to the assessment or collection of computational adjustments.  However, there is an exception where a computational adjustment is attributable to an affected item that requires partner-level determinations.  Sec. 6230(a)(2)(A)(i).  That exception applies to the tax liabilities in this case, which we have said require partner-level determinations.  However, the plain language of that exception renders it inapplicable to ‘penalties, additions to tax, and additional amounts that relate to adjustments to partnership items.’  Id.; see also sec. 301.6231(a)(6)-1(a)(3), Proced. & Admin. Regs.  Respondent urges that because there is no exception for penalties, the general rule applies and deficiency procedures are inapplicable.” 2019 T. C. Memo. 6, at pp. 11-12. (Citation omitted).

Bob and Jayne run for the Woods, claiming the Supremes said that penalties are provisional. They may be, says Judge Goeke, but that doesn’t confer jurisdiction on Tax Court to decide the impact on the several partners.

“…the Supreme Court does not make the same leap that petitioners do in this case–i.e., that the later imposition of the provisional penalties must be done under normal deficiency proceedings.  The Supreme Court only notes that ‘[e]ach partner remains free to raise, in subsequent, partner-level proceedings, any reasons why the penalty may not be imposed on him specifically.’  Under section 6230 the appropriate venue for partners to raise subsequent challenges to the imposition of penalties is in a postpayment refund action.  Sec. 6230(c)(4), (c)(1)(C); sec. 301.6221-1(c), Proced. & Admin. Regs.; see also Woods, 571 U.S. at 39 (‘[M]ost computational adjustments may be directly assessed against the partners, bypassing deficiency proceedings and permitting the partners to challenge the assessments only in post-payment refund actions.”). Thus, we find that we have no jurisdiction in this pre-payment forum to consider the penalties determined at the partnership level.” 2019 T. C. Memo. 6, at pp. 13-14.

Bob and Jayne claim no due process, but they have got a post-payment forum, so that’s not an issue.

That Jayne may claim innocent spousery is nothing to the point, as she didn’t raise that in her pleadings except as a conclusory statement.

So pay first and sue later, when it comes to TEFRA chops.

I’m looking forward to the one-size-fits-all PATH approach, where partnership and partners get sorted out all at once.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: