Alta V Limited Partnership v. Commissioner of Internal Revenue, 011320 FEDTAX, 26828-08

Docket Nº:26828-08, 26829-08, 26865-08, 26867-08
Opinion Judge:COHEN, JUDGE.
Party Name:ALTA V LIMITED PARTNERSHIP, TRANSFEREE, ET AL., [1] Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Vincent J. Beres, Amy L. Barnes, Michael G. Goller, and Sara Stellpflug Rapkin, for petitioners. Steven N. Balahtsis, Gail Campbell, Lyle B. Press, and Robert E. Dallman, for respondent.
Case Date:January 13, 2020
Court:United States Tax Court
 
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T.C. Memo. 2020-8

ALTA V LIMITED PARTNERSHIP, TRANSFEREE, ET AL., 1 Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 26828-08, 26829-08, 26865-08, 26867-08

United States Tax Court

January 13, 2020

Vincent J. Beres, Amy L. Barnes, Michael G. Goller, and Sara Stellpflug Rapkin, for petitioners.

Steven N. Balahtsis, Gail Campbell, Lyle B. Press, and Robert E. Dallman, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, JUDGE.

Pursuant to three separate notices dated August 21, 2008, sent to Alta V, LP (Alta V), Allsop Venture Partners III, LP (Allsop), and Alta Subordinated Debt Partners III, LP (Alta Sub), and one notice dated September 5, 2008, sent to the State of Wisconsin Investment Board (SWIB, and collectively with Alta V, Allsop, and Alta Sub, petitioners), respondent determined that petitioners are liable as transferees for the Federal income tax liability, additions to tax, penalty, and interest of Shockley Communications Corp. (SCC) for its short tax year ending May 31, 2001. On the basis of respondent's determination as to the value of the assets transferred to petitioners, respondent determined that the amount of transferee liability of each petitioner relating to SCC's outstanding liability plus a penalty, additions to tax, and interest as provided by law are as follows: (1) $7, 165, 820.78 for Alta V; (2) $25, 160, 577.15 for Allsop; (3) $4, 261, 532.97 for Alta Sub; and (4) $28, 267, 882.78 for SWIB. These cases were consolidated for briefing and opinion.

These cases relate to three separate notices of deficiency concerning SCC's short tax year which ended on May 31, 2001. One notice was sent to the corporation's last known address in Washington, D.C. (Washington notice), and a second joint notice was sent to Terry K. Shockley (T. Shockley) and Sandra K. Shockley (S. Shockley), the former corporate executives, at their home address in Madison, Wisconsin (Madison notice). The third notice was sent to Northern Communications Acquisition Corp. (NCAC), which had purchased SCC, at the NCAC's last know address in Arlington, Virginia (NCAC notice). A petition was filed in this Court only in response to the Madison notice, which was ultimately dismissed for lack of jurisdiction on April 26, 2007. SCC took no action in response to the Washington notice, and NCAC also took no action in response to the NCAC notice. The Internal Revenue Service (IRS) assessed against SCC its unpaid Federal income tax, penalty, and additions to tax. After the IRS made its assessment against SCC, it sent Transferee Notice of Liability Statements (notices of transferee liability) to the Shockleys on August 21, 2008, prompting them to file a second petition with this Court.

We found in Shockley v. Commissioner (Shockley I), T.C. Memo. 2011-96, that the Madison notice was invalid. We decided that the petition filed in response to the Madison notice neither prohibited assessment for the purposes of section 6503(a)(1) nor extended the period of limitations under section 6501(a) and (c), rendering the notices of transferee liability untimely. Respondent appealed and the Court of Appeals for the Eleventh Circuit reversed, holding that the Madison notice was valid and that the petition filed in response to that notice suspended the period of limitations under 6501(a). Shockley v. Commissioner (Shockley II), 686 F.3d 1228 (11th Cir. 2012).

On remand we found that if the Madison notice was valid, the notices of transferee liability were timely and the Shockleys were liable as transferees for SCC's unpaid Federal tax. Shockley v. Commissioner (Shockley III), T.C. Memo. 2015-113. On motion for reconsideration we supplemented our opinion in Shockley III and found that the Shockleys were liable for prenotice interest as well as postnotice interest calculated from the notice date and the dates they actually received distributions from SCC. Shockley v. Commissioner (Shockley IV), T.C. Memo. 2016-8. The Shockleys appealed, and the Court of Appeals for the Eleventh Circuit affirmed our decision in Shockley III as supplemented by Shockley IV. Shockley v. Commissioner (Shockley V), 872 F.3d 1235 (11th Cir. 2017).

The issues for decision are: (1) whether expiration of the period of limitations under section 6901(c) precludes respondent from assessing transferee liability against petitioners for SCC's tax year ending May 31, 2001; (2) if it is determined that the notices were timely, whether petitioners are liable as transferees for their respective portions of the unpaid determined and assessed deficiency, additions to tax, penalty, and interest with respect to SCC's corporate income tax for 2001; (3) whether petitioners' liabilities are limited to the extent petitioners are good faith transferees who provided value to SCC; and (4) whether respondent met the burden of proving that petitioners are liable as transferees for the penalty assessed against SCC. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT

The parties have agreed that these cases may be decided on the stipulations and evidentiary record submitted in Sandra K. Shockley, Transferee, et al. v. Commissioner, docket Nos. 28207-08, 28208-08, and 28210-08, and their joint stipulation of facts. The facts with respect to these cases that were found in Shockley I, Shockley III, and Shockley IV, together with the stipulated facts, are incorporated in our findings by this reference. We summarize for convenience relevant facts from Shockley I, Shockley III, and Shockley IV and set forth additional findings for purposes of deciding the issues raised in these cases. When the petitions were filed, Alta V and Alta Sub had principal places of business in Boston, Massachusetts; Allsop had its principal place of business in Cedar Rapids, Iowa; and SWIB had its principal place of business in Madison.

SCC

After purchasing a radio station in Madison in early 1985, the Shockleys incorporated SCC, a closely held corporation, under the laws of Wisconsin. Between 1985 and 2000 SCC grew to own five television stations, a radio station, and a video production company in Wisconsin, as well as a television station and several radio stations in Minnesota. In 1995 SCC brought in additional investors to fund its significant business expansion. SCC ownership grew to include 29 separate shareholders, including: the Shockleys, Shockley Holdings, L.P. (Shockley Holdings), which was an entity owned by the Shockleys and their adult children, several other individuals, and a number of investment funds including petitioners (collectively, SCC shareholders). As of May 31, 2001, petitioners and the Shockleys owned the following percentages of outstanding SCC common stock:

SWIB 24.57%
Allsop 21.87
T. Shockley 10.18879
S. Shockley 10.18879
Alta V 6.23
Alta Sub 3.7
Shockley Holdings
...

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