In Uncategorized on 11/17/2022 at 16:21

This “representative” retooling that the Bipartisan Budget Act wrought with respect to partnership reporting and taxation has yet to be tested. But as the old TEFRA cases wind their way through the halls at 400 Second Street, NW, I wonder how they would fare under the new régime.

Will that old French cliché first written hereinabove at the head hereof (as my high-priced colleagues would say) hold true yet again? The more change, the more it stays the same.

Here’s the Buckalews yet again, on trial before Judge Christian N. (“Speedy”) Weiler. In today’s episode, we have some evidentiary rulings, Buckelew Farm, LLC f.k.a. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 11/17/22.

The Buckalews object to the 1040 and the Form 8886 Reportable Transaction Disclosure Form, popularly known as the please-audit-me, filed by one of the alleged partners in the Buckalew wagon-circle.

Judge Speedy Weiler lets it in.

“Section 6103(h)(4) permits disclosure of tax returns or return information during a Federal or State judicial or administrative proceeding pertaining to tax administration only if the taxpayer is a party to such proceeding. IRC § 6103(h)(4)(A). In the context of a partnership, Rule 247 provides that a tax matters partner and any partner who satisfies the requirements of Code sections 6226(c) and (d) or 6228(a)(4)  shall be treated as parties in a case before the Tax Court.

“Section 6226(c)(1) provides that when a tax matters partner or partner files a readjustment to the Tax Court, each person who was a partner in such partnership at any time during such year shall be treated as a party to such action. This subsection shall not apply if such a partner does not have an interest in the outcome of the litigation. I.R.C. § 6226(d); see I.R.C. § 6228(a)(4).” Order, at p. 3.

Well, this alleged partner took a $740K charitable deduction on his 1040, which came off the K-1 he got from the Buckalews, and if that goes south, so does alleged partner’s wallet. That’s enough for Judge Speedy Weiler.

But the other three (count ’em, three) alleged partners are partnerships themselves. Though they each filed Forms 8886 for the same year that the one partner did, their filings also covered other years

“What remains unclear is how The Partnerships would be considered parties under 6103(h). The information sought to be disclosed are Forms 8886 from The Partnerships. Presumably, respondent seeks to introduce these Forms 8886 under the theory that section 6103(h)(4) permits the disclosure of any tax returns or return information that pertains to Mr. [alleged partner] as a partner to these partnerships and a party to the matter. However, it is unclear whether these Forms 8886 were included with (or part of) Mr. Adam’s Form 1040, or whether respondent received these forms from The Partnerships. The Court also notes how these Forms 8886 relate to tax years [year at issue and [out years].” Order, at pp. 5-6. (Footnote omitted).

Remember, any person in a reportable transaction has to file their own Form 8886.

In addition, it isn’t clear that The Partnerships are partners in the Buckalews. It might be that the filings by The Partnerships were made “in connection with” determining the tax fallout of the Buckalews’ litigation, thus satisfying the Section 6103(h)(4)(A) test. “In connection with” gets read very broadly.

But the record is too scanty to say, so Judge Speedy Weiler will await the further course of the trial.

As for IRS’ reiteration of the Buckalews’ failing to turn over papers to IRS, that might go to badges of fraud, so that can stay in.

I don’t think the new régime would bring a different result here. But I’m always willing to listen to an argument.


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