Judge Ronald L. (“Ingenuity”) Buch answers the question I asked two-and-a-half years ago, with a big assist from SN Worthington Holdings LLC f.k.a. Jacobs West St. Clair Acquisition LLC, MM Worthington Inc., Tax Matters Partner, 162 T. C. 10, filed 5/22/24. The answer seems to be “muy affirmativo, good buddy,” as the Worthingtons opt out of TEFRTA to join the Bipartisan Budget Act crew in the single-shot régime. But IRS has to sink the opt-out, because IRS issued a FPAA, which is history if one elects to go BBA.

IRS claims the Worthingtons’ TMP didn’t sign the election, but folds that in its reply to the Worthingtons’ summary J motion.

IRS claims the Worthingtons don’t have enough assets to satisfy Reg Section 301.9100-22(b)(2)(ii)(E)(4). The Worthingtons say that all they need do is say so, that the Reg Section doesn’t require more.

Judge Buch: “… SN Worthington’s election satisfied the requirement that it represent that it had sufficient assets to satisfy an imputed underpayment. SN Worthington timely submitted a signed Form 7036, which included the following text: ‘This partnership . . . [h]as sufficient assets, and reasonably anticipates having sufficient assets, to pay the potential imputed underpayment that may be determined during the partnership examination.’ The form and the wording were designed by the Commissioner. By submitting a document with this specific text, SN Worthington complied with the plain text of Treasury Regulation § 301.9100-22(b)(2)(ii)(E)(4).” 162 T. C. 10, at pp. 10-11.

IRS argues that merely representing without proving adequacy frustrates the purpose of the statute. But the statute doesn’t state its purpose, and the partners are individually liable for any shortfall. Anyway, making a false statement on a tax return or document invokes Section 7206(1), which means three (count ’em, three) years hard and a $100K fine.

IRS says that the Worthingtons jerked them around with TEFRA type arguments while the SOL ran on year at issue, hence equitable estoppel. Yes, says Judge Buch, there was guilty silence, but no concealment of fact. IRS had the election form, and whether the Worthingtons had the assets is  irrelevant. IRS knew that the Worthingtons claimed the BBA, not TEFRA, but went ahead with a FPAA. Hence, FPAA invalid, no jurisdiction.

Wanna bet IRS amends the reg?