Samueli v. Comm'r of Internal Revenue, 13953–06.

• Decision Date: 18 May 2009
• Docket Number: No. 13953–06.,13953–06.
• Citation: 132 T.C. 336,132 T.C. No. 16
• Parties: Henry and Susan F. SAMUELI, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

132 T.C. 336

132 T.C. No. 16

Henry and Susan F. SAMUELI, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 13953–06.

United States Tax Court.

May 18, 2009.

Ps allege they overpaid their Federal income tax for 2003 on account of adjustments from a TEFRA partnership. Ps argue that the adjustments are no longer partnership items, in part because Ps filed an amended individual income tax return for 2003 (amended return) that qualifies under sec. 6227, I.R.C., as an administrative adjustment request filed on behalf of a partner (partner AAR). Sec. 301.6227(d)–1(a), Proced. & Admin. Regs., requires that a taxpayer file a partner AAR on a form prescribed by R and in accordance with the form's instructions. R prescribed the form as Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), and stated in the form's instructions that a taxpayer must explain in detail on the form the reasons for the administrative adjustment reported on the form. R stated in the instructions and in the referenced regulations that the taxpayer must file the original form with the taxpayer's amended income tax return and a copy of the form with (as applicable here) the service center where the partnership files its tax return. Ps assert that the amended return qualified as a partner AAR because they substantially complied with the requirements for a partner AAR.

Held: The amended return did not qualify as a partner AAR because the return neither met the requirements for a partner AAR nor substantially complied with those requirements. Accordingly, the adjustments remain partnership items.

Nancy L. Iredale, for petitioners.

Miles B. Fuller and Louis B. Jack, for respondent.

OPINION

KROUPA, Judge:

Respondent moves the Court to dismiss part of this case for lack of jurisdiction. That part relates to petitioners' allegation of a reduction in their taxable income for 2003 on account of adjustments from H & S Ventures, LLC (H & S Ventures), a limited liability company treated as a partnership for Federal tax purposes. We lack jurisdiction if petitioners' amended individual income tax return for 2003 (amended return) did not qualify under section 6227 ¹ as an administrative adjustment request (AAR) filed on behalf of a partner (partner AAR). We hold that the amended return did not qualify as a partner AAR, and we shall dismiss the referenced part of this case. We need not and do not decide whether we would have jurisdiction if the amended return qualified as a partner AAR.

Background

I. Petitioners

Petitioners are husband and wife. They filed a joint Federal income tax return for 2003. They resided in California when they filed the petition.

II. H & S Ventures

H & S Ventures was a limited liability company treated as a partnership for Federal tax purposes. Each petitioner owned 10 percent of H & S Ventures, and petitioners' grantor trust owned the remaining 80 percent. H & S Ventures filed a Form 1065, U.S. Return of Partnership Income, for 2003.

III. Respondent's Notice of Deficiency

Respondent issued a notice of deficiency to petitioners that reflected respondent's determination of a $171,026 deficiency for 2001 and a $2,177,532 deficiency for 2003 in petitioners' Federal income taxes. Neither the determination nor the deficiencies reflected any adjustment to H & S Ventures' Form 1065. Petitioners challenged respondent's determination by timely filing a petition with the Court. The Court redetermined that determination in Samueli v. Commissioner, 132 T.C. ––––, (2009).

IV. Amended Schedules K–1

Petitioners received from H & S Ventures amended Schedules K–1, Partner's Share of Income, Credits, Deductions, etc., for 2003 after petitioners filed their petition. The amended Schedules K–1 reflected a $318,671 reduction in petitioners' gross income and a $86,042 reduction in their itemized deductions. The reductions were purportedly attributable to a calculation error discovered during an examination of H & S Ventures by the State of California.

V. Amended Tax Returns

Petitioners mailed the amended return to respondent's service center in Fresno, California (the service center where petitioners were required to file their individual income tax return). The amended return was prepared by a certified public accounting firm and stated that petitioners' “U.S. INDIVIDUAL INCOME TAX RETURN FOR THE YEAR ENDED 12/31/2003 IS BEING AMENDED TO PROPERLY REFLECT AMENDED SCHEDULES K–1 RECEIVED FROM H & S VENTURES.” The amended return specified that petitioners were reducing their originally reported gross income to reflect the net long-term capital gain income reported on the amended Schedules K–1. The amended return specified that petitioners were reducing their originally reported itemized deductions to reflect a change in the non-cash contribution limitation applicable to their now reduced income. The amended return claimed a refund of $33,461. The amended return included a copy of petitioners' Form 1040, U.S. Individual Income Tax Return, for 2003 as amended and a copy of petitioners' Form 1040 for 2003 as originally filed. The amended return was three pages in length (exclusive of the Forms 1040), and each page of the amended return was stamped “AMENDED.” The amended return did not include copies of the amended Schedules K–1.

H & S Ventures filed an amended Form 1065 for 2003 shortly after petitioners mailed the amended return to respondent.

VI. Second Amendment to Petition

Petitioners filed with the Court a second amendment to petition after they filed the amended return. Petitioners allege in the second amendment to petition that they overpaid their tax for 2003 by the $33,461 and are entitled to a refund of that amount plus statutory interest.

Discussion

I. Jurisdiction

Respondent moves to dismiss part of this case for lack of jurisdiction. We begin our analysis with some general tenets of our jurisdiction. This Court like other Federal courts is a Court of limited jurisdiction. See Ginsberg v. Commissioner, 130 T.C. 88, 91, 2008 WL 1864956 (2008). Whether we have jurisdiction over the subject matter of a dispute is an issue that either party may raise at any time. See Charlotte's Office Boutique, Inc. v. Commissioner, 121 T.C. 89, 102, 2003 WL 21783383 (2003), affd. 425 F.3d 1203 (9th Cir.2005). Petitioners bear the burden of proving that we have jurisdiction to decide the propriety of the adjustments from H & S Ventures (subject adjustments) because petitioners invoke our jurisdiction over that matter. See David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 270, 2000 WL 387659 (2000), affd. 22 Fed. Appx. 837 (9th Cir.2001). Petitioners must therefore establish affirmatively all facts giving rise to our jurisdiction to satisfy that burden. See id.

II. TEFRA in General

We turn to some general tenets involving partnerships. Partnerships are not subject to Federal income tax. See sec. 701. Partnerships are nevertheless required to file annual information returns reporting their partners' distributive shares of income, gain, loss, deductions, or credits. See sec. 6031; see also Randell v. United States, 64 F.3d 101, 103 (2d Cir.1995). Partners are required to report their distributive shares of those items on their individual Federal income tax returns. See secs. 701, 702, 703, and 704.

The Commissioner and the courts had to adjust partnership items at the partner level before 1982. See Adams v. Johnson, 355 F.3d 1179, 1186–1187 (9th Cir.2004); Randell v. United States, supra at 103. Congress enacted the unified audit and litigation procedures of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub.L. 97–248, sec. 402, 96 Stat. 648, to remove the substantial administrative burden occasioned by duplicative audits and litigation and to provide consistent treatment of partnership income, gain, loss, deductions, and credits among all partners in the same partnership. See Adams v. Johnson, supra at 1186–1187; Randell v. United States, supra at 103; H. Conf. Rept. 97–760, at 599–600 (1982), 1982–2 C.B. 600, 662–663. Those procedures require that a partnership and its partners treat all partnership items consistently on their returns (including related Schedules K–1) unless a partner informs the Commissioner of an inconsistent treatment. See sec. 6222(a) and (b). The proper treatment of partnership items at the partnership level is determined under the TEFRA procedures in a single, unified audit and judicial proceeding. See Adams v. Johnson, supra at 1186–1187; Randell v. United States, supra at 103; H. Conf. Rept. 97–760, supra at 599–600, 1982–2 C.B. at 662–663.

III. Applicability of TEFRA to H & S Ventures

The parties agree that H & S Ventures is subject to TEFRA for 2003 and that the subject adjustments were partnership items at least until petitioners filed the amended return. We also agree. See generally secs. 6221 through 6234. We therefore lack jurisdiction in this deficiency proceeding to decide the propriety of the subject adjustments unless TEFRA provides otherwise. See Munro v. Commissioner, 92 T.C. 71, 74, 1989 WL 3461 (1989); Maxwell v. Commissioner, 87 T.C. 783, 789, 1986 WL 22033 (1986).

IV. AARs

Each partner was generally required to file a separate amended return to correct a partnership item before TEFRA. TEFRA allows a “tax matter partner” (as defined in section 6231(a)(7)) to file an AAR on behalf of the entire partnership (partnership AAR). See sec. 6227. TEFRA also allows each partner to file a partner AAR solely on behalf of that partner. See id. An AAR must be filed in accordance with section 6227 for a partner to change the treatment of a partnership item on the partner's return. See Phillips v. Commissioner, 106 T.C. 176, 180–181, 1995 WL 814744 (1996).

Petitioners claim they filed a partner AAR in the form of the amended return. The Commissioner upon receipt of a partner AAR may take one of four actions. See sec. 6227(d). First, the Commissioner may process the...