In Uncategorized on 04/03/2019 at 21:30

While the fallout from TEFRA may yet drag on into the next decade, if not beyond, TEFRA was scrapped in 2015. So I was going to skip Allen R. Davison III, 2019 T. C. Memo. 29, filed 4/3/19, as of purely historical interest.

ARDIII was involved as an indirect partner in one of a couple partnerships (hi, Judge Holmes) that supposedly sold its interests to a trust, except it was a sham, and FPAAs rained down. So ARDIII got slugged with a trio of computationals and a NITL, at no extra charge.

ARDIII wants to fight the liabilities at his CDP, but he never got in on the FPAA via a petition for readjustment of the computationals aforesaid. Computationals are what flows through to partners after a losing FPAA petition for readjustment.

Judge Ashford, echoing IRS, says ARDIII can’t fight the computationals. He should have petitioned for readjustment. ARDIII wants equitable relief, but Tax Court can’t give that.

Now old Section 6223(a) says besides notifying the tax matterer, IRS has to tip off the partners so they can jump in if the tax matterer decides to sit out.

But ARDIII was an indirect partner, and nobody told IRS he was an indirect partner per Section 6223(c)(3). The tax matterer of ARDIII’s partnership should have told ARDIII about the FPAA, but failure to do so does not take ARDIII out of the result. See Section 6230(f). “…‘[t]he failure of a tax matters partner, a pass-thru partner, the representative of a notice group, or any other representative of a partner to provide any notice or perform any act * * * [such as an appeal to an FPAA] does not affect the applicability of any proceeding or adjustment * * * to such partner.’ Sec. 6230(f).” 2019 T. C. Memo. 29, at p. 15.

Of course, ARDIII never raised the Section 6662(a) accuracy chops at his CDP, so no review in Tax Court.

Now all this seems obsolete, but what is the liability of a partnership representative under the post-PATH Section 6223(a), who is the sole representative for all tax matters, and who apparently need tell nobody nuthin’?

Remember poor Beverly Bernice Bang? No? I don’t blame you, I blogged her misfortunes back in 2011. See my blogpost “Bang – A Warning to Tax Matters Partners (and their advisors),” 1/5/11.

Now we have a representative who need not be a partner; who may be appointed by a promoter, a majority partner, or anybody whose interests may not be the same as ARDIII, Beverly Bernice Bang, or any other partner. And may not even be a fiduciary.

Takeaway for counsel: Make sure your S Corp stockholders’ agreements, your LLC operating agreements, and your partnership agreements (if you still use them) have appropriate protections for the representative (if you’re drafting them), or appropriate protection for your partner clients (if you’re reviewing them).

Maybe even copy and tailor your old Section 6223 language. Might could be TEFRA isn’t so dead, after all.


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