While I have often railed against TEFRA’s complexities and boobytraps, here’s a couple cases (hi, Judge Holmes) where perhaps the single-track approach of the Bipartisan Budget Act of 2015 (was it that recently we had bipartisanship? Seems like a lot longer…but this is a nonpolitical blog) doesn’t suit as well.

First, Silver Moss Properties, LLC, Silas Mine Investments, LLC, Tax Matters Partner, Docket No. 10646-21, filed 9/20/23. The Mosstroopers gave IRS a document dump, whereupon IRS moves to amend to add Section 6663 fraud chops to the FPAA.

The Mosstroopers claim bad faith, prejudice, and futility, so Rule 41 and its cognate, FRCP 15(a) don’t serve to permit this late amendment.

Judge Pugh: “Petitioner takes issue with respondent not explaining which specific documents provide the factual basis for his Motion. Petitioner believes that respondent needs to supplement his Motion with citations to documents so that it can determine whether respondent based his Motion on documents discovered years ago (which might support an argument of undue delay) or produced in [the recent dump].

“We do not think respondent has to supplement his Motion with citations to specific documents as that would go against Rule 41(a)’s liberal standard …  that leave be given freely.” Order, at p. 3.

As for prejudice, “(T)he standard is not whether the addition of the civil fraud penalty would make the case harder or more expensive for petitioner, but whether petitioner would suffer an unfair disadvantage because of the addition of the civil fraud penalty. See Ax v. Commissioner, 146 T.C. 153, 168–69 (2016). Here, respondent bears the burden of proving the alleged fraud by clear and convincing evidence.  And this case has been continued only once before, is not calendared for trial, and discovery is ongoing. Petitioner will have ample time to respond to the amended Answer, conduct further discovery, and prepare a defense.” Order, at p. 3.

For the Ax case, see my blogpost “A Retrieved Reformation,” 4/11/16.

Finally, futility is a nonstarter, because IRS’ amended answer pleads enough facts to sink the Mosstroopers, if IRS can prove them all by clear and convincing evidence. An amendment is futile only if, were the proponent to establish everything pled therein, the proponent still loses.

But here’s the parties of the second part, Robert T. Ervin, IV & Sandra Landry Ervin, Docket No. 14500-19, filed 9/20/23. Rob & Sandra are partners of the Mosstroopers, fighting a SNOD that includes some spillover from the Mosstrooper fight above set forth, but also includes some non-Mosstrooper stuff, that Rob & Sandra settled out last year.

IRS moves to strike the partnership stuff, and Rob & Sandra are down with that. Judge Goeke agrees, and suggests a stipulated decision dealing with the non-TEFRA stuff. He even will help the parties draft their stiped decision. “The Court suggests that the parties add the following sentence to the decision: The parties stipulate that the issues arising from Silver Moss Properties, LLC v. Commissioner including additions to tax are not at issue in this docket.” Order, at p. 1. I’d suggest “not at issue in this case,” rather than “docket”.

But the point (and I can hear my readers, those that are still here, saying “There’s a point? How quaint!”) is that in a post-BBA 2015 one-size-fits-all environment, with multiple partners fighting multiple SNODs, each perhaps involving different years for different non-partnership items, with multiple stipulations and multiplicitous decisions as to each partner but with the partnership-level issues pertaining to all, it will become almost impossible to sort out what pertains to whom. While separating partnership items from partner items in different cases often ambushed the unwary partner, who discovered too late in their individual case that they should have been watching the FPAA case, it let the diligent and savvy partner work out their individual deal without the clutter of the FPAA.

Once again, the Law of Unintended Consequences stirs the silt.