119 T.C. 140 (T.C. 2002), 16028-99L, Hoffman v. Commissioner of Internal Revenue

Docket Nº:16028-99L
Citation:119 T.C. 140, 119 T.C. No. 7
Opinion Judge:LARO, Judge:
Attorney:Steven Toscher, Stuart A. Simon, and Bruce I. Hochman, for petitioners. Daniel M. Whitley and Irene S. Carroll, for respondent.
Judge Panel:Laro, David
Case Date:September 24, 2002
Court:United States Tax Court

Page 140

119 T.C. 140 (T.C. 2002)

119 T.C. No. 7




No. 16028-99L

United States Tax Court

September 24, 2002

As Corrected October 24, 2002.

Judgment entered for petitioners.


On Sept. 10, 1991, Ps timely filed a joint 1990 Federal income tax return on which they reported that they: (1) Held a general partner interest in one partnership and limited partner interests in five partnerships and (2) did not under sec. 469, I.R.C., materially participate in any of the partnerships. On Sept. 8, 1997, Ps filed an amended return for 1990 reporting additional income and remitting the tax due on that additional income. On Nov. 6, 1997, R assessed the additional tax liability reported on the amended return and assessed other amounts for a penalty and interest on that additional tax liability.

Subsequently, R issued to Ps a notice of intent to levy, and Ps requested and received a hearing under sec. 6330, I.R.C. At the hearing, Ps contended that the additional tax liability reported in 1997, the penalty, and the interest were all assessed after the expiration of the period of limitations and that they were entitled to a refund of the amount paid with the amended return.

R rejected those arguments in a notice of determination issued to Ps sustaining the proposed levy. R determined that the applicable period of limitations is the 6-year period under sec. 6501(e)(1)(A), I.R.C., and that the assessment was timely because the amended return was filed 2 days before the expiration of the 6-year period. R argues that the 6-year period applies because, R asserts, the reference to " gross income stated in the return" in sec. 6501(e)(1)(A), I.R.C., does not include any of the income of the partnerships given that Ps neither actively nor materially participated in the trade or business of any of those partnerships.

Held: The 6-year period of limitations in sec. 6501(e)(1)(A), I.R.C., is inapplicable, and the assessment made on Nov. 6, 1997, was untimely. Ps' " gross income stated in the return" was determined by reference to the information returns of the partnerships.

Steven Toscher, Stuart A. Simon, and Bruce I. Hochman, for petitioners.

Daniel M. Whitley and Irene S. Carroll, for respondent.

Laro, David


Page 141

LARO, Judge:

Petitioners petitioned the Court under section 6330(d), and the parties submitted the case to the Court fully stipulated. See Rule 122. We decide herein whether respondent assessed certain amounts against petitioners within the period allowed by section 6501. We hold respondent did not. Unless otherwise indicated, section references are to applicable versions of the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure. Petitioners resided in Los Angeles, California, when the petition was filed.

Peter M. Hoffman and Susan L. Hoffman (Mr. Hoffman and Ms. Hoffman, respectively) filed a joint Federal income tax return for 1990. Before filing that return, they requested from respondent two extensions of time to file, both of which were granted. Their 1990 Federal income tax return (the original return) was received by respondent on September 10, 1991.

The original return reported that either Mr. or Ms. Hoffman was a partner in the following partnerships: (1) Twelve Star Partners, Ltd., (2) Thirteen Star Partners Limited, (3) Cabrillo Palms Associates, (4) Desert Investments, (5) Joliet Television Stations, L. P., and (6) Orbis Television Stations, L. P. The original return reported that either Mr. or Ms. Hoffman held a limited partner interest in the partnerships, except for Desert Investments, in which the original return reported that one of petitioners was a general partner. The original return reported that neither petitioner " materially participated" in the activities of any of these partnerships within the meaning of section 469. The original return reported that petitioners also were shareholders in an S corporation, Cinema Products Corp. (Cinema), and that they did not " materially participate" in the activity of Cinema.

Page 142

Respondent no longer has copies of any of the six partnerships' Federal tax returns for 1990, and the Schedules K-1, Partner's Share of Income, Credits, Deductions, etc., are not in the record. Respondent has a copy of Cinema's 1990 Form 1120S, U.S. Income Tax Return for an S Corporation.

The original return reported gross income from wages, interest, a State tax refund, miscellaneous income, and rental income totaling $ 3,019,317. The original return also reported long-term capital gain of $ 5,304 from the partnerships and section 1231 gain of $ 76,070 from the S corporation. The record does not indicate the gross income of the six partnerships.

On September 8, 1997, petitioners filed an amended 1990 Federal income tax return (the amended return) that was prepared by their accountant. [1] The amended return shows an additional tax liability of $ 218,152, without statutory additions, which was based upon $ 779,114 of gross income that was omitted from the original return. [2] The amount omitted from the original return relates to cancellation of indebtedness income that petitioners did not report.

At or about the time that petitioners filed the amended return, they remitted payment for the $ 218,152. Respondent assessed the additional tax shown on petitioners' amended return on November 6, 1997, which is 59 days after the amended return was filed.

On May 6, 1999, respondent issued to petitioners a Notice of Intent to Levy and Notice of Your Right to a Hearing (notice of intent to levy). The notice of intent to levy is not contained in the record. The Court understands that respondent proposes to effect the levy to collect interest and penalties related to the amount of additional tax liability reported in the amended return. The record does not disclose the type of penalties respondent assessed.

On May 10, 1999, petitioners timely requested a hearing under section 6330. In their request, petitioners stated that

we are disputing any balance due and are requesting a refund of $ 218,152 paid in error.

Page 143

Mr. and Mrs. Hoffman filed a form 1040X in 1997 for the year 1990. They paid $ 218,152 of additional tax with this form. The IRS is attempting to collect accumulated interest and penalty on said amended return. [sic] The 1990 amended return was filed subsequent to the expiration of the statute of...

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