I was no fan of TEFRA, but I wonder how well the post-BBA régime will deal with the (admittedly rare) issue Judge Christian N. (“Speedy”) Weiler dispatches in Harman Road Property, LLC, Capital Conservation Partners II, LLC, Tax Matters Partner, Petitioner, T. C. Memo. 2023-143, filed 11/29/23.

It’s Dixieland Boondockery, of course. In unloading the membership interests whereby the syndicated highrollers were to extract the tax breaks, the promoters unwittingly dissolved the partnership for tax purposes (checking the box turns the LLC into a partnership for tax purposes), per pre-TCJA Section 708(b)(1)(B), by unloading 97% of its membership interests. So when the partnership filed its short-year split-year 1065s, they got the end date and the start date wrong.

Attempting a course-correction, the TMP filed “…Form 1065X, Amended Return or Administrative Adjustment Request (AAR), to amend the ending date of the first short-period Form 1065….petitioner also filed a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), to adjust the beginning date on the Original Return…pursuant to section 6227(c), which forms the foundation of the Petition in this case.” T. C. Memo. 2023-143, at p. 3.

IRS, quicker off the mark, got off a NBAP ahead of the TMP’s Form 8082, and gave the partnership a FPAA, which TMP timely petitioned. TMP,  not going quietly, petitions for adjustment of the AAR (Form 8082) items, per Section 6228.

IRS wants to toss that petition, claiming everything can be, and should be, decided in the FPAA case. Tax Court can’t decide a Section 6228 if a NBAP precedes the filing of the Section 6228 petition.

“The TMP may not file a section 6228(a) action after the IRS has mailed an NBAP to the partnership for the taxable year to which the AAR relates. I.R.C. § 6228(a)(2)(B). If the IRS ultimately does not mail an FPAA to the partnership before the expiration of the partnership item period of limitations, however, the partnership is still allowed to file a section 6228(a) action within six months after the expiration of the partnership item period of limitations.

“If the IRS issues an FPAA after an AAR proceeding is commenced for the same taxable year, but before the hearing of such a petition, the petition shall be treated as an action brought under section 6226 (i.e., an FPAA proceeding) with respect to that administrative adjustment. I.R.C. 6228(a)(3)(B). If such is the case, the TMP must amend the petition within 90 days and include any errors committed by the Commissioner related to the FPAA. See Rule 249. There is a clear preference under the Code for an FPAA proceeding to take precedence, since a section 6226 action includes all partnership items for the taxable year, while a section 6228 action is limited to ‘only those partnership items to which the . . . [AAR was] not allowed by the Secretary . . . and those items with respect to which the Secretary asserts adjustments as offsets to the adjustments requested by the [TMP].’ Compare I.R.C. § 6226(f), with § 6228(a)(5).” T. C. Memo. 2023-143, at pp. 4-5.

The TMP claims the FPAA doesn’t state the correct start year for the short year, therefore some adjustments are not included. But there’s only one tax year for a partnership, viz., namely, and to wit, a calendar year. However sliced, the NBAP and FPAA covered everything from January 1 to December 31, and TMP petitioned the entire year in the FPAA case.

Ultimately, IRS agrees that TMP has a chance to contest everything in the FPAA, short, long, or in-between.

Taishoff says, while I am not now, and never have been, a fan of TEFRA, I do not see how the post-BBA and TCJA environment can handle such matters any more economically.