1983 Western Reserve Oil & Gas Co. v. Comm'r of Internal Revenue

• Decision Date: 12 July 1990
• Docket Number: Docket Nos. 17301-87,17441-87,18853-87,17703-87,18039-87,18596-87,27014-87.
• Citation: 95 T.C. 51,95 T.C. No. 4
• Parties: 1983 WESTERN RESERVE OIL AND GAS COMPANY, LTD., RICHARD G. SHAFFER, RECEIVER PENDENTE LITE, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

95 T.C. 51

95 T.C. No. 4

1983 WESTERN RESERVE OIL AND GAS COMPANY, LTD., RICHARD G. SHAFFER, RECEIVER PENDENTE LITE, ET AL.,1 Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 17301-87

17441-87

17703-87,18039-87

18596-87

18853-87

27014-87.

United States Tax Court

Filed July 12, 1990.

WROG and 1983 WROG are limited partnerships. The tax matters partner, P, disappeared in 1985 when a warrant was issued for his arrest. In Feb. 1986, the two limited partnerships were placed in receivership and S was appointed receiver pendente lite by the U.S. District Court. S was not a partner in WROG or 1983 WROG. Creditors of WROG and 1983 WROG instituted involuntary bankruptcy proceedings against the two partnerships in May 1986. In Sept. 1987, the receivership was terminated and the proceedings were referred to the bankruptcy court by the U.S. District Court.

Notices of final partnership administrative adjustment were issued to 1983 WROG on Mar. 10, 1987, and to WROG on Mar. 13, 1987. Notices for each partnership were sent to P as tax matters partner and to S as tax matters partner. Also, a notice addressed to ‘Tax Matters Partner‘ was sent to each partnership at its business address. Timely petitions were filed with respect to both partnerships by S. Multiple petitions were subsequently filed on behalf of a 5-percent notice group of each partnership.

Held: The petitions filed in the Tax Court in response to the FPAAs were not filed in violation of the automatic stay of sec. 362(a) of the Bankruptcy Code since the bankruptcy cases involve the partnership, and the TEFRA partnership proceedings relate to the tax liability of the individual partners. It is further

HELD: That, since the order of the District Court appointing S as receiver did not empower S to file a petition in the Tax Court, and since S did not otherwise qualify as tax matters partner, he was not a proper person to file a petition. Sec. 6231(a)(7), I.R.C. 1954. Accordingly, petitions filed by S are dismissed for lack of jurisdiction. It is further

HELD: That a 5-percent group prematurely filed a petition on the 90th day after mailing of the notices of final partnership administrative adjustment, and accordingly, said petition is dismissed. Sec. 6226(b)(1), I.R.C. 1954. It is further

HELD: That, since one of the petitions filed thereafter by a 5-percent group with respect to each partnership is timely and valid, additional petitions filed after the timely petition for each partnership was filed are dismissed. Sec. 6226(b)(2), (4), I.R.C. 1954. It is further

HELD: That the notices of final partnership administrative adjustment were properly issued and, accordingly, the 5-percent groups' motions to dismiss for lack of jurisdiction are denied. Michael Christianson, for the petitioners in docket Nos. 17441-87, 17703-87, 18596-87, 18853-87, and 27014-87.

Charles Slyngstad, for the petitioner in docket Nos. 17301-87 and 18039-87.

Marcia Keyes, William Quealy, and Henry Schneiderman, for the respondent.

OPINION

NIMS, CHIEF JUDGE:

These cases were assigned to and heard by Special Trial Judge Peter J. Panuthos pursuant to the provisions of section 7443A and Rule 180. All section references are to the Internal Revenue Code, unless otherwise stated, and all Rule references are to the Tax Court Rules of Practice and Procedure. The Court agrees with and adopts the Special Trial Judge's opinion, which is set forth below.

PANUTHOS, SPECIAL TRIAL JUDGE:

These cases are before the Court on cross-motions to dismiss for lack of jurisdiction and are consolidated solely for purposes of this opinion. Respondent determined adjustments to the partnership return of Western Reserve Oil and Gas Company, Ltd. (WROG) for its 1983 taxable year and to the partnership return of 1983 Western Reserve Oil and Gas Company, Ltd. (1983 WROG) for its 1983 taxable year.

BACKGROUND

WROG and 1983 WROG are limited partnerships organized under California law with their principal place of business at Los Angeles, California. Trevor M. Phillips (Phillips) was the tax matters partner of WROG and 1983 WROG. The only other general partner of the two partnerships was a California corporation, Phillips International Marketing Company, of which Phillips was sole shareholder. Phillips disappeared sometime in late 1985, at about which time a warrant was issued for his arrest in connection with his alleged failure to honor an order of the U.S. District Court for the Central District of California enforcing an Internal Revenue Service summons.

THE BANKRUPTCY

On February 28, 1986, Richard G. Shaffer (Shaffer) was appointed receiver pendente lite of WROG and 1983 WROG by order of the U.S. District Court for the Central District of California in a proceeding brought by a limited partner of the two partnerships. The order provided in part that Shaffer as receiver could --

act personally or through agents and counsel as tax matters partner under the Tax Equity and Fiscal Responsibility Act on behalf of the Western Reserve partnerships in all proceedings before the Internal Revenue Service or any other tax or administrative agency and to take such actions as the receiver may deem advisable.

Shaffer was not, however, a general or limited partner of WROG or 1983 WROG.

On May 29, 1986, creditors and limited partners of the partnerships instituted involuntary bankruptcy proceedings against the partnerships. The preliminary injunction ordering WROG and 1983 WROG into receivership and appointing Shaffer receiver pendente lite was dissolved by order of the District Court on September 17, 1987. The order dissolving the preliminary injunction also referred the involuntary bankruptcy cases of WROG and 1983 WROG under Chapter 11 of the Bankruptcy Code to the U.S. Bankruptcy Court for the Central District of California.

NOTICES OF FINAL PARTNERSHIP ADMINISTRATIVE ADJUSTMENT

(1) WROG

Triplicate original notices of final partnership administrative adjustment (FPAAs) were issued to WROG on March 13, 1987. FPAAs were addressed to ‘Trevor Phillips, Tax Matters Partner‘ and to ‘Tax Matters Partner, Western Reserve Oil and Gas,‘ at the partnership's business address, 811 West Seventh Street, Suite 1220, Los Angeles, California 90017-3423. A third FPAA was issued to ‘Richard Shaffer, Tax Matters Partner,‘ at the business address of the partnership.

Four petitions were filed on behalf of WROG for the 1983 taxable year. The first petition, docket No. 18039-87, was filed by Shaffer, purportedly as tax matters partner, within the 90-day period provided for in section 6226(a). Identical petitions were filed on behalf of a single 5-percent group (the WROG 5-Percent Group) at docket Nos. 17703-87 (June 11, 1987), 17441-87 (June 12, 1987), and 18596-87 (June 18, 1987).

(2) 1983 WRCG

Triplicate original FPAAs determining adjustments to the 1983 partnership return of 1983 WROG were mailed to ‘Trevor Phillips, Tax Matters Partner,‘ ‘Richard Shaffer, Tax Matters Partner,‘ and ‘Tax Matters Partner, 1983 Western Reserve Oil and Gas‘ at the partnership's business address on March 10, 1987. Shaffer filed a petition, purportedly as tax matters partner, at docket No. 17301-87 within 90 days of the mailing of the FPAAs.

A petition for redetermination of the adjustments set forth in the FPAA was filed on June 19, 1987, at docket No. 18853-87 on behalf of a 5-percent group of 1983 WROG partners (the 1983 WROG 5-Percent Group). A second petition, based on the same FPAA as the petition at docket No. 18853-87, was filed at docket No. 27014-87 on August 11, 1987, on behalf of the 1983 WROG 5-Percent Group.

RESPONDENT'S MOTIONS TO DISMISS

Respondent moved to dismiss the cases at docket Nos. 18039-87 and 17301-87 on the ground that Shaffer as receiver pendente lite of WROG and 1983 WROG was not eligible to file a petition because he is not the tax matters partner of the partnerships. Respondent filed what he styles as ‘alternative‘ motions to dismiss the cases at docket Nos. 17441-87, 17703-87, 18596-87, 18853-87, and 27014-87, filed on behalf of members of the 5-percent groups, on the ground that petitions with respect to the same FPAAs had already been filed by Shaffer as tax matters partner of WROG and 1983 WROG at docket Nos. 18039-87 and 17301-87, respectively. Respondent has also moved to dismiss all but one of the duplicate petitions filed as to each limited partnership by the respective 5-percent groups in the event we dismiss the petitions filed by the receiver, on the ground that only one such action may go forward under section 6226(b)(2) and (4) with respect to each limited partnership.

Motions to Dismiss by 5-Percent Groups

Petitioners in docket Nos. 17441-87, 17703-87, 18596-87, 18853- 87, and 27014-87 have filed motions to dismiss for lack of jurisdiction on the ground that the FPAAs are invalid because, at the time they were issued, there was no acting tax matters partner for either partnership. These petitioners accordingly maintain that the limited partners failed to receive proper notice of the adjustments proposed by respondent, in violation of their due process rights under the Constitution. Alternatively, they contend that the unified partnership audit and litigation procedures of section 6221 et seq. cannot be applied to a partnership that is a debtor in a bankruptcy proceeding, and, in any event, that the partnership proceeding in this Court may not go forward because of the automatic stay imposed by Title 11 U.S.C. sec. 362(a)(8) (1988).

DISCUSSION

EFFECT OF PARTNERSHIPS' BANKRUPTCIES ON PARTNERSHIP ACTION IN TAX COURT

(1) EFFECT OF AUTOMATIC STAY ON PARTNERSHIP PROCEEDING

We first consider the question of whether the partnership action in this Court must be dismissed for lack of jurisdiction because the petitions were filed in violation of 11 U.S.C. section 362(a), the automatic stay provisions of the Bankruptcy Code. Section 362(a) of the Bankruptcy Code provides in part:

(a) * * * a petition filed under section...