In Uncategorized on 04/12/2019 at 15:43

Tohubohu Isn’t Even Close

The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, has a doozy to end the week in EZ Lube, LLC, EZL-1 Investments, Inc., A Partner Other Than The Tax Matters Partner, Docket No. 18021-13, filed 4/12/19.

EZ crashed years ago, but Goldman Sachs bailed them out. How they got bailed is the fight: was it termination of one partnership with deemed sale of its assets, per Section 708(b)(1)(B), and deemed capital gain; or did the partnership go on, with COD and concomitant ordinary income as to the outgoing partners? The outgoers want the first, the incomers the second.

IRS went with the incomers, and issued a FPAA, which the outgoers petitioned.

But then came Tax Court’s latest bargain baby, the remand.

“The Appeals officer who handled the case spoke on the phone with petitioner’s counsel and said she thought that the FPAA should be conceded — namely, that the original [outgoers’] returns were correct. She said that her manager concurred with her view, but that it was also necessary for her to consult with the Appeals National Office before any such concession could be embodied in a TEFRA settlement. The National Office disagreed with the Appeals officer, however, which meant the case did not settle in the usual way.” Order, at p. 2.

And the famous Susan L. Latham, then of the Department of the Treasury, Memorandum for Appeals Employees (Control No. AP-08-0713-03) (July 18, 2013), was going to set up a quasi-judicial approach at Appeals, the so-called AJAC, the Appeals Judicial Approach and Culture.

“Haha and hoho,” yell outgoers, “no settlement, the phonecall was a determination. Back to Tax Court for a ‘dission’.”

The outgoers claim Tax Court, that creature of statute, has jurisdiction.

Judge Holmes: “But where? Sections 6320(c)2 and 6330(d) give us jurisdiction to review Appeals Office’s determinations to proceed with enforced collection. Section 7429(b)(2)(B) gives us jurisdiction to review the Commissioner’s jeopardy levy or assessment in cases where he makes such an assessment after a taxpayer has petitioned for redetermination of a deficiency. Section 6404(h) gives us jurisdiction to review determinations not to abate interest. Section 7476(a) gives us jurisdiction to review determinations about the qualifications of ESOPs. Section 7428(a) gives us jurisdiction to review determinations to deny tax-exempt status. And section 7436(a) gives us jurisdiction to review determinations about an individual’s employment status.” Order, at p. 4.

Note to prospective candidates for Tax Court admission via the test: memorize this list. And practitioners, both attorneys and USTCPs, would do well to do likewise.

OK, say the outgoers, so use the Administrative Procedures Act default rules, and decide that way.

“What petitioner seeks is review under the default rules of the APA. Those default rules would mean that our scope of review would be limited to the administrative record compiled by the IRS, and our standard of review would be to look for an abuse of discretion. Both this scope and standard of review are different from what we use in TEFRA and deficiency cases. And that’s not all — the proper default venue for review of administrative-agency determinations that lack a special statutory review procedure are the federal district courts, under their general federal question jurisdiction.” Order, at p. 5 (Citations omitted).

Maybe the outgoers are arguing that there is a new subset of TEFRA, a sort of ancillary or TEFRA-lite. Just what we need, another permutation of the dying dinosaur TEFRA (sarcasm alert).

But Judge Holmes doesn’t see that.

“The contents of a phone call might be a fact relevant to our decision, but it is irrelevant to our jurisdiction to decide. Here petitioner argues that the phone call itself is of jurisdictional importance. If it is correct — that some court somewhere has to have jurisdiction to review this phone-call ‘determination’ — that court is not Tax Court. If petitioner is wrong, then the phone-call determination isn’t reviewable and is just part of settlement negotiations that didn’t work out. Under either analysis, and in a case where our Court has jurisdiction under TEFRA, it must be ORDERED that petitioner’s motion for summary judgment is denied.” Order, at p. 6.

And by the end of next month, guys, tell poor Judge Holmes what you want to do with this mess.

Thanks, Judge Holmes, for a designated hitter that really hits the spot on a Friday. And a Taishoff “Good Try, First Class” to Steven Ray Mather, Esq., another L. A. lawyer.


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