95 T.C. 388 (1990), 5749-88, Chef's Choice Produce, Ltd. v. C.I.R.

Docket Nº:5749-88.
Citation:95 T.C. 388
Opinion Judge:SCOTT, JUDGE:
Party Name:CHEF'S CHOICE PRODUCE, LTD., THOMAS W. BURKE, JR., A PARTNER OTHER THAN THE TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Charles W. Hall, Steven C. Salch, and Stephen P. Howard, for the petitioner. Marilyn S. Ames, for the respondent.
Case Date:October 03, 1990
Court:United States Tax Court
 
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Page 388

95 T.C. 388 (1990)

CHEF'S CHOICE PRODUCE, LTD., THOMAS W. BURKE, JR., A PARTNER OTHER THAN THE TAX MATTERS PARTNER, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 5749-88.

United States Tax Court

October 3, 1990

HELD: Respondent notified the partnership's tax matters partner and notice partners of the beginning of an administrative proceeding for the years 1982 and 1983 on November 29, 1984. Thereafter, the partnership filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Act. The tax matters partner became ineligible to serve as tax matters partner under the provisions of sec. 301.6231(c)-5T, Temporary Proced. & Admin. Regs. The bankruptcy court removed the automatic stay to foreclose on the partnership's real property. The mortgage on this property was foreclosed and the partnership's bankruptcy proceeding was converted to Chapter 7. After February 24, 1986, the partnership ceased all activities and maintained no office. By letter dated December 23, 1987, respondent selected a new tax matters partner and on that same date mailed a FPAA notice to the tax matters partner and shortly thereafter mailed a copy of the FPAA to the notice partners. HELD: This Court has jurisdiction over the case based on a timely appeal filed by a notice partner. HELD FURTHER: The FPAA was valid.

Page 389

Charles W. Hall, Steven C. Salch, and Stephen P. Howard, for the petitioner.

Marilyn S. Ames, for the respondent.

OPINION

SCOTT, JUDGE:

This case is before the Court on petitioner's motions to dismiss for lack of jurisdiction and, in the alternative, for summary judgment. Both motions are based on petitioner's position that sale of the major asset of the partnership, Chef's Choice Produce, Ltd. (Chef's Choice), in a bankruptcy proceeding terminated the existence of the partnership for all purposes, including respondent's authority to select a tax matters partner and issue a notice of final administrative adjustment of partnership items and the authority in any person to institute a suit with respect to those adjustments.

Respondent determined adjustments to the 1982 and 1983 partnership returns of Chef's Choice as set forth in his notice of final partnership administrative adjustment. The facts relevant to petitioner's motions have been stipulated and are found accordingly.

Chef's Choice was a limited partnership organized in 1982 under the laws of the State of California for the purpose of conducting a tomato growing operation in solar heated greenhouses. Petitioner, Thomas W. Burke, Jr. (Mr. Burke), was a limited partner in Chef's Choice and was admitted to the partnership on November 15, 1982. Chef's Choice's principal place of business was in Houston, Texas.

On December 30, 1982, Chef's Choice contracted to acquire an improved tract of real property located in San Luis Obispo, California, from Bent Tree Ranch, Inc. (Bent Tree), a general partner of Chef's Choice. At the time Chef's Choice entered into this contract, the property was encumbered by various mortgages including a purchase money mortgage held by the party from whom Bent Tree had previously acquired the property (hereinafter referred to as

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‘ the mortgage holder‘ ). Chef's Choice conducted its activities on this tract of real property. The real property and improvements thereon constituted substantially all of Chef's Choice's assets.

Chef's Choice filed Forms 1065, U.S. Partnership Returns of Income, for the taxable years 1982 and 1983 on April 18, 1983, and April 15, 1984, respectively. The address shown on these returns was 4550 Post Oak Place, No. 111, Houston, Texas 77027. Respondent mailed a ‘ Notice of Beginning of an Administrative Proceeding‘ for the partnership's 1982 and 1983 taxable years to the partnership's tax matters partner (the prior tax matters partner) and notice partners on November 29, 1984.

In 1985, Bent Tree defaulted on the purchase money mortgage on the San Luis Obispo real property and the mortgage holder posted notices of foreclosure on the property. To protect its rights in the real property, Chef's Choice filed a petition for bankruptcy under the provisions of Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court (the Bankruptcy Court) for the Central District of California on August 19, 1985. In November 1985, the mortgage holder sought relief from the automatic stay of the Bankruptcy Code to foreclose on the real property. Such relief was granted on February 19, 1986, and the real property was sold at a trustee's sale in 1986.

Respondent received notice of the...

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