In Uncategorized on 09/11/2019 at 15:30

Aristotle Meets Section 7430

Among the other disjecta membra of the late and wholly unlamented Tax Equity and Fiscal Responsibility Act (known to those unlucky enough to have to deal with same as “TEFRA”) is Section 7430 admins-and-legals, which Tax Court has always stoutly maintained can never be awarded because TEFRA proceedings don’t determine anyone’s tax liability.

Ya see, when a FPAA is decided, there remains one of two things: either the arithmetic of each partner’s individual liability for the year(s) at issue (no SNOD necessary, as it’s only arithmetic, but must be done) or a SNOD (because arithmetic won’t entirely determine said liability). But the FPAA decision can’t determine either, so no Section 7430(g) qualified offer. The offer can’t dispose of any individual’s liability entirely.

That’s how Judge Mark V Holmes knocks out Hurford Investments No. 2, Ltd., Hurford Management No. 2, LLC, Tax Matters Partner, Index No. 23017-11, filed 9/11/19.

All y’all (I’m in Texas again) will doubtless remember Hurford No. 2. No? Then dig my blogpost “Ah, That Silt,” 2/4/19, and the blogposts therein cited.

Well, Fed. Cir. did deal with the Section 7430(g) qualifieds, and echoing a former Chief Magistrate of The Land of the Free, said “yes we can” in BASR Partnership v. United States, 915 F.3d. 771 (Fed. Cir. 2019). So Hurford No. 2 wants a Rule 162 reconsideration, and argues BASR was a change in controlling law.

But Judge Holmes is ever The Great Dissenter.

First, “Appellate venue in this case would seem to lie in the Fifth Circuit, see IRC§7482(b)(1)(E), so we’ll follow that circuit’s precedent, see Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). No Tax Court decision can ever be appealed to the Federal Circuit, so the proper pigeonhole for us to look into is whether we committed a ‘manifest error of law,’ not whether there has been a change in ‘controlling law.’” Order, at p. 2, footnote 4.

You sure, Judge? What about Section 7482(b)(2)? Isn’t Fed Cir one of “any United States Court of Appeals which may be designated by the Secretary and the taxpayer by stipulation in writing?” Never say never. Unlikely, but could happen.

Back to the specifics, “The offer that petitioner later made not only fails to settle the ‘liability’ of HI-2 — which, as a partnership, doesn’t have a tax liability at all — but also is not limited only to the adjustment in the FPAA and tries to settle the effect of this partnership-level proceeding on the liability of petitioner’s individual partners.

“Even if some party could make a qualified offer in some TEFRA case, HI-2’s offer to settle here was not a ‘qualified offer’ as the Code and regulation define that term.” Order, at p. 4.

Besides, Fed Cir got it wrong. Or so says Judge Holmes.

The magic words are “at issue.” IRC doesn’t define the term. Fed Cir says that means “in dispute.” OK, says Judge Holmes, but that’s only half the story. Whatever Court is deciding the issue, the Court has to be able to do so for all hands, in that case, at that time.

Sort of like Aristotle at the theatre: unity of itime, place and action. And, like Aristotle said, pity and fear, the usual outcomes of litigation, for at least one party thereto.

“In common legal English, for a question to be “at issue” means both that it is in dispute and that the Court may determine it in making its decision. Look, for example, at our own Rule 34(a)(1), which says ‘[t]he petition shall be complete, so as to enable ascertainment of the issues intended to be presented.” When pleadings are complete, we say that a case is”at issue.” Rule 38. In our recent case of Vento v. Commissioner, 152 T.C. No. 1 (2019), we held that we would not include in the computations leading to entry of a decision a matter that ‘was neither placed in issue by the pleadings, addressed as an issue at trial, nor discussed by this Court in its prior opinion.’ Id., slip op. at 13 (emphasis added).” Order, at p. 5.

For more about la famille Vento, see my blogpost “Non-Virgin and Non-Deductble,” 2/4/19.

And ultimately, the qualified offer can’t work with partnerships, even when the fallout from the FPAA decision is only arithmetic for each partner.

“The qualified-offer rules are also, in the run-of-the-mill deficiency cases, easy to administer even by almost innumerate judges — he has only to compare two numbers and ask which is the larger. But it would not be administrable in the typical partnership-level case where there might be a sea of partner-specific numbers for him to wade through them all before he reached the shore of simple comparison.” Order, at p. 6 (thoroughly misnumbered in the original, thereby proving Judge Holmes’ point about “almost innumerate judges.”). (Footnote omitted.)


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