The fallout from TEFRA goes on apace, as American Milling, LP, UN Limited, Tax Matters Partner, T.C. Memo. 2023-83, filed 6/29/23, makes a return engagement with Judge Pugh. I won’t fault you if you don’t remember this Son-of-BOSS with tugboats; its’s been a wee while, like about eight (count ’em, eight) years. See my blogpost “Jumping Through the Mill,” 9/28/15.

All that’s left now is whether SOL has run on David Jump, an indirect partner in Milling. You’ll recall that Milling got nailed in USDCSDIL for the shenanigans, but not for the chops. Then Milling got into the Tax Court scrimmage described in my blogpost above cited. But IRS never hit Dave with the deficiencies from the blow-up of the tugboat dodge in the Section 6229(a) three year plus court time plus one year SOL extension. So Dave claims SOL.

IRS claims they’re OK because Section 6229(e) gives extra time from when the indirect partner’s identity is given to IRS. And IRS concedes Section 6501(c)(10) doesn’t apply. IRS further claims that, as there were separate FPAAs for both Milling and Boat (the counterparty in the phony partnership), the Section 6229(e) one-year add-on to SOL runs from Boat FPAA, which was later than Milling.

Except.

“Respondent’s argument works only if we can ignore the Milling FPAA and treat the partnership items in it as affected items of American Milling. The parties do not dispute that the American Boat FPAA was issued within the prescribed limitations period, and they do not dispute that the Milling FPAA was not. Their argument focuses specifically on which FPAA counts for purposes of section 6229(e)(2).” T. C. Memo. 2023-83, at p. 9.

Problem is, the same item cannot be both a partnership item and an affected item (partner level) in the same entity. Remember, IRS won back in 2015 by showing that there were separate  FPAAs for Milling and Boat, not duplicates of the same FPAA, which Section 6223(f) prohibits absent fraud, and no one claimed fraud.  Wherefore, the item in question wasn’t an affected item for Milling that flowed through to Milling as a partner of Boat, but a Milling partnership item. So now IRS can’t claim that item is an affected item in order to nail Dave at this late date.

“Respondent in American Milling I convinced us that the adjustments in the Milling FPAA were partnership items of American Milling, not merely affected items flowing from American Boat through American Milling ultimately to Mr. Jump. Now, to satisfy section 6229(e)(2)(A), respondent asks us to conclude that the same items are also affected items of American Milling. But if that were the case, then they would be determined at the partner level (that is, Mr. Jump’s level) and this TEFRA partnership-level proceeding would not be necessary or appropriate. Respondent cannot have it both ways.” T. C. Memo. 2023-83, at p. 10.

IRS claims Dave and Boat reported inconsistently and never filed Form 8082, so Section 6229(e)(2)(B) kept the SOL open. Judge Pugh says Boat is irrelevant.

“Under the plain wording of the statute, we must consider the partnership items that flow to Mr. Jump. Those were American Milling’s partnership items determined in the Milling FPAA. Because Mr. Jump did not file inconsistently from American Milling, section 6229(e)(2)(B) did not keep the period of limitations open with respect to Mr. Jump when the Milling FPAA was issued.” T. C. Memo. 2023-83, at p. 12.

IRS is SOL on SOL. A Taishoff “Good Job” to Dave’s trusty attorneys, whom I’ll call Tough Tony and JPT.

And now you see why I don’t mourn TEFRA.