Saso v. Comm'r of Internal Revenue, Docket No. 29492-88.

• Citation: 93 T.C. 730,93 T.C. No. 58
• Decision Date: 18 December 1989
• Docket Number: Docket No. 29492-88.
• Parties: MARTIN SASO II, AND KIM J. SEALY, F.K.A. KIM J. SASO, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: United States Tax Court

93 T.C. 730

93 T.C. No. 58

MARTIN SASO II, AND KIM J. SEALY, F.K.A. KIM J. SASO, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 29492-88.

United States Tax Court

Filed December 18, 1989.

R issued notices of final partnership administrative adjustment (FPAAs) on Apr. 13, 1987, determining adjustments to the 1982 and 1983 partnership returns of Pepiot. No petition for readjustment of partnership items was filed in response to the FPAAs. After the period for filing a readjustment petition expired, R computed and assessed the tax owed by Ps, limited partners in Pepiot, for 1982 and 1983 pursuant to sec. 6225(c), I.R.C.

On Aug. 12, 1988, R issued a notice of deficiency to Ps determining additions to tax under secs. 6653(a)(1) and (2) and 6661(a), I.R.C., and additional interest under sec. 6621(c), I.R.C., for the taxable year 1982. In their petition, Ps seek a redetermination of the deficiencies resulting from the adjustments to the partnership returns of Pepiot for 1982 and 1983 as well as the additions to tax and additional interest for 1982.

HELD: The deficiencies attributable to partnership items for 1982 and 1983 were properly determined at the partnership level under sec. 6221, I.R.C., and assessed under sec. 6625(c), I.R.C.. Thus we have no jurisdiction to consider the deficiencies attributable to partnership items in a subsequent deficiency proceeding to redetermine additions to tax and additional interest against Ps for 1982. Our jurisdiction for 1982 is limited to a redetermination of the additions to tax and additional interest determined in the notice of deficiency.

HELD FURTHER: Since no deficiency notice was issued for 1983, we have no jurisdiction with respect to that year.

HELD FURTHER: Since we have no jurisdiction with respect to the deficiency for 1982 attributable to partnership items, we will strike Ps' claim that the period of limitations on assessment of the deficiency attributable to partnership items has run for that year. Gail Lapierre, for the petitioners.

Irvin W. Fegley and Henry Schneiderman, for the respondent.

WILLIAMS, JUDGE:

This case was heard by Special Trial Judge Peter J. Panuthos pursuant to the provisions of section 7443A of the Code. ¹ The Court agrees with and adopts the Special Trial Judge's opinion, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, SPECIAL TRIAL JUDGE:

This case is before the Court on respondent's motion to dismiss for lack of jurisdiction and to strike. ² The issue for decision is whether petitioners may seek a redetermination of deficiencies attributable to partnership items in response to a notice of deficiency determining additions to tax subsequent to assessment of the deficiencies attributable to partnership items under section 6225(c).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. At the time their petition was filed, petitioners resided at San Jose, California.

On April 13, 1987, respondent issued notices of final partnership administrative adjustment (FPAAs) determining adjustments to the 1982 and 1983 partnership returns of Pepiot Mine, Ltd. (hereinafter Pepiot). Each FPAA was mailed to the tax matters partner of Pepiot on April 13, 1987. Copies of each FPAA were mailed to Martin Saso II, and Kim J. Sealy, f.k.a. Kim J. Saso (hereinafter petitioners), as notice partners on April 13, 1987. Petitioners were limited partners in Pepiot.

As its name suggests, Pepiot was a mining venture. Pepiot was formed after September 3, 1982, and filed its initial partnership return for the short taxable period beginning October 1, 1982, and ending December 31, 1982.

No petition for readjustment of partnership items was filed with respect to the FPAAs issued for 1982 and 1983. After the period for filing a readjustment petition expired, respondent computed the tax owed by petitioners for 1982 and 1983 and assessed the tax as provided for in section 6225.

In his notice of deficiency issued August 12, 1988, respondent determined additions to tax for the taxable year 1982 under sections 6653(a)(1) and (2) and 6661(a). Respondent also determined that petitioners were liable for additional interest under section 6621(c). The additions to tax were determined by respondent with reference to a deficiency attributable to partnership items which resulted from respondent's disallowance of losses reflected on the 1982 partnership return of Pepiot. A timely petition was filed in response to the notice of deficiency.

In the petition, petitioners seek a redetermination of: (1) the deficiencies attributable to partnership items for 1982 and 1983 resulting from the adjustments to the partnership returns of Pepiot for those years; and (2) the additions to tax and additional interest for 1982 determined in the notice of deficiency. Respondent has moved to dismiss for lack of jurisdiction and to strike the claims relating to the deficiencies attributable to partnership items for 1982 and 1983.

Respondent contends that since the deficiencies for 1982 and 1983 are attributable to partnership items, they may only be redetermined in a proceeding at the partnership level under section 6221. Respondent also contends that petitioners filed their petition with respect to 1983 in response to a ‘flow-through report‘ issued to them explaining the changes in their individual income tax resulting from the adjustments to the 1983 partnership return of Pepiot. Since no notice of deficiency has been issued to petitioners for their 1983 taxable year, respondent argues, this Court is without jurisdiction to redetermine the deficiency attributable to partnership items for that year. In response, petitioners contend that the statute of limitations bars assessment and collection of tax for their 1982 taxable year.

OPINION

The tax treatment of any partnership item is generally determined at the partnership level. Sec. 6221. Section 6221 et seq. apply to any partnership's taxable year beginning after September 3, 1982. Section 402(a), Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 648.

A ‘partnership item‘ is any item required to be taken into account for the partnership's taxable year to the extent that the Secretary provides by regulations that ‘such item is more appropriately determined at the partnership level than at the partner level.‘ Section 6231(a)(3). * * *

N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 743 (1987). The regulations provide that the partnership aggregate and each partner's share of ‘Items of income, gain, loss, deduction or credit of the partnership‘ are ‘partnership items.‘ Section 301.6231(a)(3)- 1(a)(1)(i), Proced. & Admin. Regs. Since Pepiot's 1982 taxable year began after September 3, 1982, the provisions of section 6221 et seq. apply to the partnership's 1982 taxable year.

The deficiencies in petitioners' Federal income tax determined by respondent for 1982 and 1983 resulted from the disallowance of mining expense and investment interest expense claimed by Pepiot on its partnership return for those years. Disallowance of these deductions eliminated the losses claimed by the partnership for 1982 and 1983, petitioners' distributive share of which was claimed as a deduction by petitioners on their Federal income tax returns for each of those years.

The distributive share of Pepiot's losses for 1982 and 1983 claimed by petitioners on their Federal income tax return for those years clearly falls under the definition of ‘partnership item‘ provided in section 301.2231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs. As ‘partnership items,‘ the losses claimed by petitioners ‘must be separated from the partner's personal case and considered solely in the partnership proceeding. See sec. 6226(a); sec. 6226(f).‘ Maxwell v. Commissioner, 87 T.C. 783, 788 (1986). See also Farris v. Commissioner, T.C. Memo. 1986-567. The deficiencies for 1982 and 1983 are thus deficiencies attributable to partnership items.

Respondent properly issued FPAAs to the tax matters partner of Pepiot as well as to petitioners as notice partners. No petition having been filed with respect to the FPAAs, respondent assessed the tax against petitioners pursuant to section 6225(c) and then issued a notice of deficiency to petitioners pursuant to section 6230(a)(2) for the additions to tax (and additional interest) for 1982. The additions to tax and additional interest for 1982 determined in the notice of deficiency are ‘affected items‘ as defined in section 6231(a)(5) that...