Blonien v. Comm'r of Internal Revenue
| Decision Date | 12 June 2002 |
| Docket Number | No. 2660–00.,2660–00. |
| Citation | 118 T.C. 541,118 T.C. No. 34 |
| Parties | Rodney J. BLONIEN and Noreen E. Blonien, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Taxpayers petitioned for redetermination of deficiencies arising from cancellation of debt (COD) income from insolvent law partnership. The Tax Court, Beghe, J., held that: (1) Court lacked jurisdiction to consider whether taxpayer was not a partner to law firm; (2) taxpayer had no standing to challenge on due process grounds the partnership determination that he was a partner; and (3) Court had jurisdiction to consider partner-level adjustments.
Decision for IRS.
R issued an “affected items” notice of deficiency to P for 1992, attributable to P's distributive share of cancellation of debt income of an insolvent law partnership. R claims that the period for assessment of partnership items under sec. 6229, I.R.C., has not expired by reason of the extension of the period of limitations by the partnership's tax matters partner. P claims the separate period of limitations relating to partnership items in sec. 6229, I.R.C., does not apply to him because he never became a partner in the partnership, and that the period of limitations for assessing nonpartnership items under sec. 6501, I.R.C., has expired. R claims we lack jurisdiction to consider P's argument that he was not a partner, and that assessment of the deficiency is therefore timely under sec. 6229, I.R.C.
Held: We have no jurisdiction to consider P's onsider P's argument that he was not a partner. Whether P was a partner is a partnership item that can be challenged only at the partnership level. P has no standing to challenge on due process grounds the partnership-level determination that he was a partner because (1) P claimed on prior returns that he was a partner, and (2) P received a Schedule K–1 from the partnership for the year in issue and failed to file with his return a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, notifying respondent of his position that he was not a partner. Therefore, the applicable period of limitations under sec. 6229, I.R.C., for R to assess the deficiency has not expired. Held, further, we have jurisdiction to consider partner-level adjustments in a Rule 155 computation.
R. Todd Luoma, for petitioners.
Kathryn K. Vetter, for respondent.
On December 17, 1999, respondent issued petitioners an “affected items” notice of deficiency of $11,826 in their 1992 Federal income tax. The deficiency is attributable to inclusion in the income of petitioner Rodney J. Blonien (Mr. Blonien) of his distributive share of cancellation of debt (COD) income of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey (Finley Kumble), a law partnership that had become insolvent.
Petitioners allege assessment is barred by the 3–year period of limitations provided in section 6501(a) 1 because Mr. Blonien was not a partner of Finley Kumble subject to the alternative period of limitations provided by section 6229 for the assessment of partnership and affected items. Respondent argues that we lack jurisdiction to question Finley Kumble's decision to treat Mr. Blonien as a partner, and that Mr. Blonien was a partner.
We hold that we have no jurisdiction in this proceeding to consider Mr. Blonien's argument that he was not a partner in Finley Kumble. To the extent the determination would affect the allocation of partnership items among the other partners, the determination of who is a partner is a partnership item that must be challenged at the partnership level. Therefore, assessment of the deficiency against petitioners for 1992 arising out of Mr. Blonien's share of Finley Kumble's items is not barred by the applicable statute of limitations.
We have jurisdiction in this deficiency proceeding to adjudicate the effect of Mr. Blonien's share of partnership items (determined at the partnership level) on petitioners' tax liability. The deficiency will be determined in accordance with Rule 155.
The parties have stipulated some of the facts. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners lived in Elk Grove, California, when they filed their petition in this case.
Mr. Blonien is an attorney who has been admitted to practice law in California since 1972.
Before the years in issue, Mr. Blonien worked as an attorney for the State of California. He began his legal career in 1972 as an attorney for the California attorney general's office and continued in that position until he was appointed legal affairs secretary to then Governor Ronald Reagan. After working for the Governor, Mr. Blonien became executive director of the California Peace Officer's Association. He then returned to the California attorney general's office as a senior assistant attorney general and thereafter was appointed special assistant attorney general. In 1982, he was appointed legislative secretary and policy director to Governor George Deukmejian. In December 1984, he moved from the Governor's office to be undersecretary of the Youth and Adult Corrections Agency of California.
In November 1986, then California Treasurer Jess Unruh arranged for Mr. Blonien to meet former New York Governor Hugh L. Carey, then a senior partner in Finley Kumble. Governor Carey introduced Mr. Blonien to other senior partners of Finley Kumble, including Steven Kumble and Harvey Myerson. After the meeting, Governor Carey informed Mr. Blonien that Messrs. Kumble and Myerson intended to recommend to Finley Kumble that Mr. Blonien be offered the opportunity to join Finley Kumble as a partner.
In December 1986, Mr. Blonien asked Governor Carey about the status of a Finley Kumble offer. Governor Carey informed Mr. Blonien that the offer was “on”, and that Mr. Blonien should start a modest branch office of Finley Kumble in Sacramento, California. Mr. Blonien continued to have conversations with Governor Carey about opening a Finley Kumble branch office in Sacramento.
In March 1987, Mr. Blonien reached an oral agreement to join Finley Kumble as a partner. Under the terms of the agreement, Mr. Blonien was to receive a draw of $8,750 per month and was to make a capital contribution to Finley Kumble of $80,000. Finley Kumble agreed to arrange for Mr. Blonien to borrow the funds to make the capital contribution from its lender, Manufacturers Hanover Bank. 2
On April 1, 1987, Mr. Blonien left the California State government to begin practicing law with Finley Kumble in Sacramento. Acting on behalf of Finley Kumble, Mr. Blonien sublet office space from another law firm, obtained office furniture and equipment from a friend who had closed a real estate office, hired office employees, obtained a telephone number, and opened the Sacramento office for Finley Kumble. On the day he opened the Finley Kumble Sacramento office, California treasurer Jess Unruh called Mr. Blonien to inform him that Finley Kumble would be appointed counsel for the issuer or underwriter in several new California agency bond transactions. Finley Kumble began to pay the payroll for its Sacramento office by the third week of April, reimbursed Mr. Blonien for office expenses advanced by him, and paid him a draw of approximately $4,000 every 2 weeks. See infra note 3. A month or so after the opening of the Sacramento office, Finley Kumble sent out a notice that Mr. Blonien had joined the firm as a partner and that the Sacramento office was open. Mr. Blonien's title was partner, and he expected that he would be a partner of Finley Kumble in all respects once the paperwork was finalized.
During summer 1987, Mr. Blonien read an article in “The American Lawyer” concerning Finley Kumble's financial problems. These problems arose from Finley Kumble's practice of factoring its accounts receivable and its failures, upon collecting the accounts, to repay the factor's advances. A number of partners of Finley Kumble left the firm around this time, and Mr. Blonien questioned whether he should remain with the firm.
On September 2, 1987, Finley Kumble sent Mr. Blonien a copy of the partnership agreement to sign along with loan documents to execute to borrow the funds necessary to make his capital contribution. Because of his concerns about Finley Kumble's financial viability, Mr. Blonien did not sign the partnership agreement. During October 1987, Finley Kumble pressured Mr. Blonien to sign the partnership agreement and make his capital contribution. In November 1987, Mr. Blonien met with Governor Carey, Steven Kumble, and Jim Normile to discuss his concerns about Finley Kumble's viability. Mr. Blonien still did not feel reassured about Finley Kumble's viability, and he did not sign the partnership agreement or the loan documents.
In late November and early December, several of Mr. Blonien's bond clients informed him that they would be seeking other counsel because Finley Kumble's well-publicized financial problems called into question the value of the legal opinions Finley Kumble would be required to issue in connection with the bond transactions that Mr. Blonien had originated. Despite these problems, which led to the loss of some clients and writedowns of billable time, Finley Kumble did collect fees for its legal services in bond transactions that Mr. Blonien had originated.
On December 8, 1987, after Finley Kumble announced its dissolution, Mr. Blonien sent a letter to Finley Kumble in which he stated that he was withdrawing as a partner of the partnership: “It is with a great deal of reluctance that I, this date, tender my resignation as a partner in the firm of Finley Kumble”. Mr. Blonien subsequently joined the law firm of Whitman & Ransom, along with former Finley Kumble partners Governor Carey and Jim Normile and other members of the public finance department of Finley Kumble.
Mr. Blonien received more than $64,000 in draws from ...
To continue reading
Request your trial
-
Greenberg v. Comm'r of Internal Revenue
...Inv. , 909 F.3d at 1347. In his reply brief, however, Greenberg raises for the first time the Tax Court's decision in Blonien v. Commissioner , 118 T.C. 541 (2002), to argue that even the determination of whether a taxpayer is a partner of a partnership must be determined in a partnership p......
-
Kanter v. C.I.R., 08-1036.
...of TEFRA. The Tax Court thus lacked jurisdiction over the CI partnership item of partner compensation. See Blonien v. Comm'r, 118 T.C. 541, *19-*20, 2002 WL 1298749 (2002). The remaining issue is whether half of CI's income is attributable to Kanter for the pre-TEFRA years of 1981 and 1982.......
-
Whistleblower 21276-13W v. Comm'r
...cannot avoid the jurisdictional issue by assuming hypothetical jurisdiction and disposing of the case on the merits. Id.Blonien v. Commissioner, 118 T.C. 541, 551 (2002). "The truistic constraint on the federal judicial power * * * is this: A federal court may not decide cases when it canno......
-
Alpha I, L.P. v. United States
...distributive shares of the partnership, the item must be determined at the partnership level. See, e.g., Blonien v. Comm'r, 118 T.C. 541 (2002), 2002 WL 1298749, at *7 n. 6, 2002 U.S. Tax Ct. LEXIS 33, at *20 n. 6. The statutory requirement that a partnership file an information return esta......
-
Tax Court In Brief | Pettennude v. Commissioner | A Warning To All Tax Matters Partners Under TEFRA
...and has the right to petition the Tax Court to reconsider the FPAA, acts as the agent for the other partners. See Blonien v. Comm'r, 118 T.C. 541, 553 (2002), supplemented C. Memo. 2003-308. The TMP's failure to notify a partner of partnership proceedings or send a partner copies of an FPAA......
-
Examination
...by partnerships excluded from Subchapter K. 4. See former I.R.C. § 6241. 5. I.R.C. § 6221. 6. I.R.C. § 6222(a). 7. Blonien v. Comm’r, 118 T.C. 541 (2002) (re “duty of consistency”). 8. See Form 8082; I.R.C. § 6222(b)(1)(B). 9. I.R.C. § 6222(c). 10. Form 8082 instructions. 11. I.R.C. § 6222(......