BASR P'ship v. United States
Decision Date | 29 October 2013 |
Docket Number | No. 10-244,10-244 |
Parties | BASR PARTNERSHIP, by and through, WILLIAM F. PETTINATI, SR., Tax Matters Partner, Plaintiff, v. THE UNITED STATES, Defendant. |
Court | U.S. Claims Court |
U.S.C. § 6226 petition);
Tax Equity and Fiscal Responsibility Act of
1982, Pub. L. No. 97-248, 96 Stat. 324
(1982) (codified as amended in scattered
sections of 26 U.S.C.);
26 U.S.C. § 743 (adjustment to basis of
partnership property);
26 U.S.C. § 754 (election to adjust partnership
basis);
26 U.S.C. § 6223(a)(2) (notice to partners of
administrative adjustment);
26 U.S.C. § 6225(a)(1) (re: partnership item
assessment period);
26 U.S.C. § 6226(a) (time period to readjust
partnership items);
26 U.S.C. § 6229(c)(1) (time period for
administrative adjustment of a final
partnership item);
26 U.S.C. § 6501(c)(1) (exceptions to time
period for false or fraudulent returns, with
the intent to evade tax).
Thomas A. Cullinan, Sutherland Asbill & Brennan LLP, Atlanta, Georgia, Counsel for Plaintiff.
Jacob E. Christensen, United States Department of Justice, Tax Division, Court of Federal Claims Section, Washington, D.C., Counsel for the Government.
This case concerns a petition filed in the United States Court of Federal Claims, pursuant to 28 U.S.C. § 1508, for a readjustment and refund of federal taxes paid, plus interest. The pending motion for summary judgment requests that the court determine that the refund, plus interest, is due, because a January 20, 2010 Internal Revenue Service ("IRS") Notice of Final Partnership Administrative Adjustment ("FPAA") was timebarred by 26 U.S.C. § 6229(c)(1). Inthe alternative, the pending motion argues that the FPAA is timebarred, because none of the taxpayers had the requisite intent to trigger the extended statute of limitations period in 26 U.S.C. § 6501(c)(1).
In 1999, Erwin Mayer, a partner in the law firm of Jenkens & Gilchrist, advised William F. Pettinati, Sr. and Mr. Pettinati's accountant, John C. Malone, about the tax consequences of the sale of Page Printing Co. ("Page"). Page was a business owned by 1) Mr. Pettinati, 2) his wife and 3) gift trusts for the benefit of their sons, William F. Pettinati, Jr. and Andrew Pettinati ("the Gift Trusts"). Gov't Ex. 5; Pl. PFOF ¶ 14; Gov't Resp. App. C at 46 (9/26/12 William F. Pettinati, Sr. Dep.).
Mr. Malone summarized his understanding of the tax plan, indicating that it included the following steps:
Gov't Ex. 5 at G12.
On May 24, 1999, the BASR Partnership ("BASR") was formed as a general partnership under the laws of Texas.3 Pl. PFOF ¶ 1. The partners in BASR were:
On June 10, 1999, each of BASR's partners contributed cash and short positions in United States Treasury Notes to BASR. Pl. PFOF ¶ 13. "BASR's partners took the position that the contribution of the short positions in U.S. Treasury Notes increased the partners' outside bases4 in BASR by approximately $6,638,100." Pl. PFOF ¶ 13. On June 12, 1999, each of theaforementioned partners contributed ninety-nine percent of their respective interests in BASR, as a capital contribution to Cypress Investments Inc., a Delaware corporation, resulting in the termination of the May 24, 1999 BASR and the creation of a new BASR.5 Pl. PFOF ¶¶ 3, 4. On the same date, Mr. Pettinati, Sr., his wife, and the Gift Trusts contributed their Page Printing Company stock ("Page stock") to the new BASR.6 Pl. PFOF ¶ 12. On or around August 17, 1999, BASR sold its Page stock to Nationwide Graphics, Inc. ("Nationwide") for $4,828,771 and received a promissory note from Nationwide, then valued at $2,069,474. Pl. PFOF ¶ 12.
Subsequently, Mr. Pettinati, in his capacity as the Tax Matters Partner, filed the BASR partnership return for the year ended June 12, 1999, and the IRS stamped the return as received on October 12, 2000. Pl. PFOF ¶ 19(a). He also filed the BASR partnership return for the year ended December 12, 1999, and the IRS stamped the return as received on October 12, 2000. Pl. PFOF ¶ 19(b). In addition, Mr. and Mrs. Pettinati filed a joint individual income tax return for 1999, which was stamped as received on October 12, 2000. Pl. PFOF ¶ 19(c). William F. Pettinati, Jr., as trustee of the Pettinati 1998 Gift Trust F/B/O William F. Pettinati, Jr., also filed the trust's income tax return for 1999, which was stamped as received on October 18, 2000. Pl. PFOF ¶ 19(d). And Andrew Pettinati, as trustee of the Pettinati 1998 Gift Trust F/B/O Andrew Pettinati, filed the trust's income tax return for 1999, which was stamped as received on October 12, 2000. Pl. PFOF ¶ 19(e). Likewise, William F. Pettinati, Sr. filed Cypress Investments, Inc.'s income tax return for 1999, which was stamped as received on October 12, 2000. Pl. PFOF ¶ 19(f). All of the aforementioned federal tax returns were prepared by Mr. Malone, a certified public accountant and partner in the firm Malone & Bailey PLLC. Pl. PFOF ¶ 15. In addition, Mr. Malone signed the tax returns of BASR and its partners; not Jenkens & Gilchrist. Pl. PFOF ¶ 18.7
On August 8, 2006, the IRS initiated an audit of BASR's returns for the tax years ended June 12, 1999 and December 22, 1999. Pl. PFOF ¶ 20.
On January 20, 2010, the IRS issued a Final Partnership Administrative Adjustment ("FPAA") for the tax years ended June 12, 1999 and December 22, 1999. Pl. PFOF ¶ 22.
On April 16, 2010, BASR, by and through its Tax Matters Partner, filed a Complaint in the United States Court of Federal Claims seeking a refund of $735,533 on federal taxes paid, plus interest. Compl. ¶ 7(a). The Complaint alleges that the January 20, 2010 FPAA was untimely, pursuant to I.R.C. §§ 6229, 6501, and that no penalties may be assessed, pursuant to I.R.C. § 6662, because the IRS's disallowance of tax benefits was not attributable to a valuation misstatement. Compl. ¶¶ 7(c), (d). In addition, the Complaint alleges that the IRS erred in determining that:
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