In Uncategorized on 04/27/2020 at 18:47

If I had a nickel for every time I saw such a move being pulled in the last 53 (count ‘em, 53) years, I’d be on lockdown in my 175 foot custom motorsailer off the Florida Keys, trailing long lines for Blue Marlin or tuna or something. Judge Ruwe may or not be a fisherman, but he has, I suspect, a like sentiment.

Here’s Dewayne Bridges, 2020 T. C. Memo. 51, filed 4/27/20. Dewayne and his LLC-co-owner-partner Steve got SNODs, but Dewayne claims TEFRA should apply, because really it was his self-settled trust and Steve’s that truly owned the beneficial interests in their MO LLC while he and Steve lived in the USVI.

The LLC’s 1065s for the years at issue were, Dewayne admits, “inconsistent and irreconcilable”. 2020 T. C. Memo. 51, at p. 3. IRS treated the LLC as a small partnership, because the boxes on Sched B for pass-through ownership were checked “no”. Wherefore no TEFRA, no FPAA. But Dwayne claims Box 20Y on the K-1s incorrectly stated that a couple other pass-throughs were involved (hi, Judge Holmes), so IRS couldn’t reasonably believe that Dewayne and Steve were truly the owners.

So why do we care what IRS believed, reasonably or not, when it hit Dewayne with this SNOD? Because Section 6231(g)(2), that’s why.

Section 6231(g)(2) says if IRS reasonably believes that TEFRA doesn’t apply when it unloads the SNODs on the individual, then it doesn’t matter what happens later. Dwayne argues that the give-and-take at examination put IRS wise. And the RA at exam had a chart she annotated which looks like she got the word about the trusts, 2020 T.C. Memo. 51, at p. 14, but she says no.

Anyway, Judge Ruwe isn’t buying.

“This Court has noted in the past that TEFRA procedures are ‘distressingly complex and confusing’ and that it ‘can even be complex and confusing to determine whether a partnership is subject to TEFRA.’ We have also noted that the difficulties in determining whether TEFRA partnership procedures apply are generally caused by the difficulties in determining whether the partnership in question was an exempt ‘small partnership’, which is precisely the issue before us.” 2020 T. C. Memo. 51, at pp. 18-19. (Citations omitted).

Because TEFRA is chaos codified, Congress took pity on IRS.

“The Commissioner may rely on section 6231(g)(2) if three elements are met: (1) the Commissioner determined on the basis of the partnership return that the TEFRA procedures did not apply to the partnership for that year, (2) the determination was reasonable, and (3) the determination turned out to be erroneous. Bedrosian v. Commissioner, 143 T.C. at 106. Both parties agree for purposes of this motion that respondent’s determination that TEFRA did not apply was erroneous. Accordingly, we analyze the first two elements below.” 2020 T. C. Memo. 51, at p. 20.

The argy-bargy from the exam doesn’t defeat IRS’ reliance on the return. “Based on the record we agree with respondent that he made his determination on the basis of the partnership returns. Further, we agree with respondent that conflicting information provided during the give-and-take of the examination that remained in dispute did not prevent him from relying on the returns to make a TEFRA determination.” 2020 T. C. Memo. 51, at p. 22.

If we let wild-carding at exams defeat returns, we’d gut Section 6231(g)(2).

OK, IRS relied on the return. Was that reasonable? Of course, Congress never defined “reasonable” in this context. So Judge Ruwe eschews an extensive dictionary chaw, and uses the standard from Reg. 1.6662- 4(d)(3)(iii) (taking into account the relevance and persuasiveness of the authorities, and subsequent developments),

IRS followed Sched B. Dewayne says, but what about Lines 20C and 20Y on the K-1s? Judge Ruwe says even that’s wrong, and minor anyway.

“Respondent’s determination did not need to be right, it just needed to be reasonable. His determination that TEFRA did not apply, based on the conclusion that the partners in… LLC, were petitioner and [Steve], was eminently reasonable and well grounded in the information shown on the face of the returns.” 2020 T. C. Memo. 51, at p. 26.

A minor inconsistency does not defeat the substance of the return.

“We think respondent can disregard minor, inaccurate inconsistencies contradicted by the totality of the returns here as well. Petitioner cannot litter his returns with misleading and inaccurate information, selectively rely upon the information, and then expect to bamboozle his way to a procedural victory.” 2020 T. C. Memo. 51, at p. 28.

Motion to dismiss denied. Go try the case.

Taishoff says this is son-of-Cohan. This was Dewayne’s and Steve’s LLC’s return. If there was any inconsistency, they created it. Someone signed it under penalty of perjury. If an error is made, it bears ”heavily upon the taxpayer whose inexactitude is of his own making.” Cohan v. Com’r, 39 F. 2d 540, at p. 544 (2 Cir, 1930).







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