In Uncategorized on 11/07/2019 at 14:06

When it comes to being obliging, he’s hors classe. He’ll bring coffee and doughnuts to calendar call, and feed the parking meter while you wait; he‘ll try your case in the slammer wherein you languish; he’ll draft your papers, make your motions, suggest your legal strategies, all at no extra charge. I’ve blogged all these in the past. Of course, that be none other than that Obliging Jurist, Judge David Gustafson.

And he’s on his game today with Gramercy Financial Group LLC, Cerro Negro Capital Management, LLC, Tax Matters Partner, Docket No. 25760-17, filed 11/7/19. As you can tell, it’s another TEFRA holdover, and the TMP and a couple other partners (hi, Judge Holmes) are joining with IRS in a motion to enter decision, based upon a stip they laboriously hammered out with IRS.

One partner, Fereneze, sat on the bench during the game. But when confronted with the stip, Frerenze moves to participate out of time…well out of time.

The TMP and others object; they claim their hard-fought settlement would be endangered if Fereneze came in now.

I believe the TMP: the settlement hits Fereneze with $2.7 million of ordinary income. The settlement stip recharacterizes a $9.2 million guaranteed payment as a $10.9 million distribution of property to Fereneze.

Hinc illae lacrimae (I need not, of course, translate).

Fereneze claims the TMP and the participating partners froze Fereneze out of the settlement negotiations and sold Fereneze down the cliché. So for sure if Fereneze jumps into the pond and muddies the waters, the settlement may go down.

Shades of poor old Beverly Bernice Bang; see my blogpost “Bang – A Warning to Tax Matters Partners (and their advisors)”, 1/5/11.

Judge David Gustafson to the rescue: “This Court has held that a partner who did not have sufficient opportunity to participate in procedures leading to a proposed settlement and motion for decision under Rule 248(b) was allowed to participate pursuant to Rule 248(c) after the filing of the Commissioner’s motion for entry of decision. We think that such participation is further warranted when the proposed settlement–negotiated and agreed upon by the other partners–includes recharacterizing a $9.2 million partnership expense as a $10.9 million distribution to be allocated to the previously nonparticipating partner. We think sufficient cause has thus been established.” Order, at p. 3 (Citation omitted).

But all is not lost for IRS, the hard-negotiating TMP and the other participating partners.

“With regard to such participation resulting in prejudice to the other parties, Fereneze …points out that it does not intend to challenge the remaining six items the parties have agreed on in the proposed settlement, so the efforts exerted towards settling those items would not be wasted by allowing Fereneze…to participate. This may be true, though the Court notes the possibility that one or more of the parties’ willingness to settle those six items may have depended on the resolution of this $9.2 (or $10.9) million issue. However, the other parties do retain their option to settle the case under Rule 248(c) even if Fereneze…does not wish to enter into the settlement.” Order, at pp. 2-3.

Roger that, Judge. The other partners might not be so gung-ho to settle if they have to eat all or part of the $2.7 million.

Two takeaways- Tax matters partners (and maybe representatives under the new post-PATH partnership regime) are hereby again reminded they’re partners first, and tax matterers second. As Justice Benjamin Nathan Cardozo remarked, a fiduciary “is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.”

Second, the old wheeze is still true: the only thing two partners can agree upon is how much a third partner should pay.


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