Heide v. Commissioner
| Decision Date | 22 February 1996 |
| Docket Number | Docket No. 13745-95. |
| Citation | 71 T.C.M. 2151 |
| Parties | Douglas A. Vander Heide and Janet Vander Heide v. Commissioner. |
| Court | U.S. Tax Court |
NAMEROFF, Special Trial Judge:
This case was heard pursuant to the provisions of section 7443A(b)(4)1 and Rules 180, 181, and 183. This case is before the Court on respondent's motion to dismiss this case for lack of jurisdiction insofar as it relates to adjustments arising from petitioners' interest in J & S World Nurseries Limited Partnership (Nurseries). At the time of the filing of the petition herein, petitioners resided in Simi Valley, California. Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.
During the years 1985 and 1986, petitioners were limited partners in Nurseries. Their interest was .45 percent and there were over 100 partners in Nurseries. On March 12, 1993, Form 870-P(AD), Settlement Agreement for Partnership Adjustments, was executed by Harvey Minars, tax matters partner (TMP) for Nurseries and by Robert Rosenblatt, Associate Chief, New York City Appeals on behalf of respondent. The Form 870-P(AD) represented an offer made by the TMP of Nurseries and provided that, if accepted by the Commissioner,
the treatment of partnership items under this agreement will not be reopened in the absence of fraud, malfeasance, or misrepresentation of fact; and no claim for refund or credit based on any change in the treatment of partnership items may be filed or prosecuted.
This offer is made by the [TMP] and binds all non notice and other partners to the terms of the agreement for whom the [TMP] may act under section 6224(c)(3) * * *
In addition, the Form 870-P(AD) provided for the waiver of the restrictions on assessment and collection of any deficiency attributable to partnership items. See sec. 6225(a). Petitioners did not file a statement denying the settlement authority of Nurseries' TMP under section 6224(c)(3)(B) at least 30 days prior to the date on which the settlement agreement was entered into by the Commissioner and Nurseries' TMP. See section 301.6224(c)-1T(a)(2), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6786 (Mar. 5, 1987). Indeed, at that time, petitioners were unaware of the partnership proceeding.
By letters dated June 14, 1993, and August 9, 1993, petitioners were advised by respondent of changes made to their 1985 and 1986 joint Federal income tax returns as a result of the settlement of the partnership items of Nurseries as they flowed through to petitioners' 1985 and 1986 returns. The computation form attached to the letter for 1985 reflected that petitioners' claimed ordinary loss of $74,978 with respect to Nurseries was disallowed except for a $25,000 settlement allowance, that a deficiency was computed in the amount of $18,429, that no additions or penalties were being asserted, but that interest was to be computed at 120 percent of the normal rates pursuant to section 6621(c). Similarly for 1986, the petitioners' claimed loss for Nurseries of $11,309 was disallowed resulting in a deficiency of $9,995. These deficiencies and appropriate interest were subsequently assessed, and petitioners began making arrangements to pay them.
During 1985 and 1986, petitioners were also partners in a partnership entitled Hambrose Leasing 1985-4 (Hambrose). The details of the structure of Hambrose and of petitioners' percentage investment in Hambrose are not a part of the record, but it appears that Hambrose was not a TEFRA partnership. On May 26, 1995, respondent issued notices of deficiency with respect to petitioners' 1985 and 1986 Federal income tax returns determining deficiencies in income taxes of $11,055 for 1985 and $25,573 for 1986, plus additions to tax under section 6653(a)(1)(A) and (B), and section 6661(a) in connection with the adjustment of petitioners' claimed losses attributable to Hambrose. In addition, in the notices of deficiency respondent determined that interest was to be computed under section 6621(c) at 120 percent of normal rates.
A timely petition was filed with respect to the notices of deficiency. However, petitioners attempted to place into issue the deficiencies arising out of the adjustments made to their 1985 and 1986 returns in connection with their investment in Nurseries. Respondent moved to dismiss that aspect of the case for lack of jurisdiction and to strike all references in the petition to Nurseries. Petitioners contend that they were never notified about the examination and settlement of Nurseries and they therefore deserve an opportunity to litigate the deficiencies related to Nurseries. The resolution of this issue requires a consideration of the unified audit and litigation procedures enacted as part of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, Pub. L. 97-248, 96 Stat. 324.
The TEFRA partnership provisions were enacted in response to the administrative problems experienced by the Internal Revenue Service in auditing returns of partnerships, particularly tax shelter partnerships with numerous partners. Staff of Joint Comm. on Taxation, General Explanation of the Revenue Provisions of the Tax Equity and Fiscal Responsibility Act of 1982, at 268 (J. Comm. Print 1982). As we stated in an earlier case interpreting the TEFRA partnership provisions:
By enacting the partnership and audit litigation procedures, Congress provided a method for uniformly adjusting items of partnership income, loss, deduction, or credit that affect each partner. Congress decided that no longer would a partner's tax liability be determined uniquely but "the tax treatment of any partnership item [would] be determined at the partnership level." Sec. 6221. [Maxwell v. Commissioner [Dec. 43,431], 87 T.C. 783, 787 (1986).]
A "partnership item is defined as an item that is more appropriately determined at the partnership level than at the partner level. Sec. 6231(a)(3). Partnership items include each partner's proportionate share of a partnership's aggregate items of income, gain, loss, deduction, or credit. Sec. 6231(a)(3); sec. 301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs. The treatment of partnership items is decided...
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