Attorney-at-Law

MORE TEFRA TOHUBOHU – PART DEUX

In Uncategorized on 01/22/2020 at 16:04

For definition of the term “tohubohu,” see my blogpost “More TEFRA Tohubohu,” 9/12/17. For the background to Lori J. Manroe, 2020 T. C. Memo. 16, filed 1/22/20, see my blogpost “It’s A Sham,” 9/28/12. And for the history of the Gunther case, much-cited in the T. C. Memo. aforesaid, see my blogpost “Hearing the Bad News,” 2/5/19.

OK, so what’s new? Well, IRS has hit Lori with two (count ‘em, two) SNODs for affected items arising out of her blown-up Son-of-BOSS partnership currency swaps. And, at no extra charge, they throw in 40% overvaluation chops per Section 6662(h).

All sides agree Tax Court has jurisdiction over the SNODs. Per Gunther, there’s the question of Lori’s basis in the Swiss francs she allegedly swapped, whether what she swapped was the same as what she bought, and whether she had any other basis. But IRS assessed tax before issuing the SNODs, so they were offside. Wherefore Section 6213(a) gives Tax Court jurisdiction to enjoin collection, and cause IRS to refund what was grabbed. IRS agrees with all the foregoing.

But Lori wants IRS enjoined as to the chops; Judge Patrick J. (“Scholar Pat”) Urda says no. No jurisdiction for that.

“Our analysis begins with section 6230(a)(1):  ‘Except as provided in paragraph (2) or (3), subchapter B of this chapter shall not apply to the assessment or collection of any computational adjustment.’ Section 6230(a)(1) establishes a default rule that ‘normal deficiency procedures generally do not apply to the assessment or collection of computational adjustments.’ Our jurisdiction over the penalties at issue, therefore, relies on whether the penalties are computational adjustments and whether they fall within the exceptions to the default rule set forth in section 6230(a)(2) or (3).  … we conclude that the penalties at issue constitute computational adjustments and that neither exception applies.” 2020 T. C. Memo. 16, at pp. 11-12 (Citations omitted).

The gross overvaluation is a partnership item, not a partner-level item, and is therefore computational. Lori also claims the chops relate to her outside basis, therefore is an affected item and not computational. Except the Supremes in Woods put paid to that. “…the Supreme Court’s decision in Woods refutes the notion that penalties that relate to adjustments to partnership items and penalties relating to affected items that require partner-level determinations are mutually exclusive. To the contrary, ‘[t]he valuation-misstatement penalty at issue can be an affected item requiring partner-level determinations while also relating to adjustments to partnership items.’ As the valuation-misstatement penalty is related to an adjustment to a partnership item, it ‘fall[s] within § 6230(a)(2)(A)(i)’s exclusion of such items from deficiency jurisdiction.’” 2020 T. C. Memo. 16, at p. 15 (Citations and footnote omitted).

I was going to give Lori’s counsel a Taishoff “Good Job,” but as her counsel is the celebrated Ernest S. Ryder, whose exploits I’ve blogged ofttimes elsewhere (see, e.g., my blogpost “Privileged Characters,” 5/21/15), I have to set forth the omitted footnote.

“We pause to address two additional points.  First, the Manroes argue that the stipulation in the partnership-level proceeding that BLAK was a sham resulted in the ‘agreed creation of a new TEFRA partnership’.  The Manroes claim that this new TEFRA partnership entitled them to a substantially similar tax result to the one they hoped to achieve through their Son-of-BOSS transaction.  This argument is patently ridiculous.  Second, Ms. Manroe asserts that she is entitled to innocent spouse relief.  Her vague statement in her petition that ‘it would appear that * * * [Ms. Manroe] would be eligible for innocent spouse relief, to the extent the Court finds any additional tax liability’ does not satisfy our pleading requirements under Rule 321(b).  Therefore, we do not consider the merits of any potential innocent spouse claim Ms. Manroe may have.” 2020 T. C. Memo. 16, at pp. 15-16, footnote 4.

 

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