Quick v. Comm'r of Internal Revenue (In re Estate of Quick)
| Decision Date | 16 March 1998 |
| Docket Number | No. 8588–97.,8588–97. |
| Citation | 110 T.C. No. 17,110 T.C. 172 |
| Parties | Estate of Robert W. QUICK, Deceased, Esther P. Quick, Personal Representative, and Esther P. Quick, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Kevin M. Bagley and Mitchell B. Dubick, for petitioners.
Gretchen A. Kindel, for respondent.
This matter is before the Court on the following three motions: (1) Petitioners' Motion for Leave to File Amendment to Petition pursuant to Rule 41(a); (2) respondent's Motion for Leave to File Amendment to Answer pursuant to Rule 41(a); and (3) petitioners' Motion for Summary Judgment filed pursuant to Rule 121.
Unless otherwise indicated, all section references are to sections of the Internal Revenue Code in effect for the years at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.
Respondent determined additions to, and penalties on, the Federal income tax of petitioners for the taxable years 1987 through 1990 as follows:
The issues for decision are:
1. Whether to grant the parties' respective motions to amend their pleadings; and
2. Whether the statutory period of limitations bars respondent from recharacterizing petitioners' distributive share of partnership losses as passive losses subject to the limitations set forth in section 469.
Petitioners resided in West Palm Beach, Florida, at the time they filed their petition.
The background facts related below are derived from the pleadings, the exhibits attached thereto, and other materials in the Court's records, including the uncontroverted written representations of the parties. To the extent we draw inferences and conclusions of a factual nature, they are based upon materials forming a part of the record.
During the years at issue, Robert W. Quick (Robert) was a limited partner in Water Oaks, Ltd. (Partnership), a Florida limited partnership. At all relevant times, the Partnership was a so-called TEFRA partnership whose tax treatment is determined under the unified partnership audit and litigation provisions (subchapter C of chapter 63) added by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub.L. 97–248, sec. 402(a), 96 Star. 648.
The Partnership owned and operated the Water Oak Estate Mobile Home Park (Park) in Lady Lake, Florida. During the years at issue, a portion of the lots located in the Park was leased to mobile home owners, while the remaining lots were in the process of development.
Petitioners reported their distributive share of losses from the Partnership as passive losses on their joint Forms 1040, U.S. Individual Income Tax Return, for 1987 and 1988. (The record does not reflect the extent of such losses for those years.) Petitioners reported losses from the Partnership of $331,425 (32 percent of $1,035,702 total partnership loss) and $400,125 (32 percent of $1,250,391 total partnership loss) on their joint 1989 and 1990 returns, respectively, as nonpassive losses.
On September 8, 1994, respondent wrote a letter to petitioners' representative admonishing petitioners to file amended returns for 1989 and 1990 “to reflect the proper treatment of the losses from * * * [the Partnership]” as passive, or face the issuance of a notice of deficiency for those years. The general 3–year period of limitations for making assessments for 1989 and 1990, as extended by Form 872, Consent to Extend the Time to Assess Tax, expired on June 30, 1995. No amended returns were filed by, and respondent did not issue a deficiency notice to, petitioners prior to that date.
On November 14, 1994, respondent issued a Notice of Final Partnership Administrative Adjustment (FPAA) disallowing certain deductions claimed by the Partnership for its taxable years 1987 through 1990. Blame B. Quick, a partner other than the TMP, petitioned this Court at docket No. 4745–95 on March 27, 1995.
On March 13, 1996, the Court entered a decision (Decision) in docket No. 4745–95. The Decision sets forth adjustments to certain partnership items which are favorable to respondent for the years 1987 and 1988, and favorable to the Partnership for the years 1989 and 1990. Specifically, the Decision adjusts losses reported on line 21, Ordinary income (loss) from trade or business activities, of the Partnership's Forms 1065, U.S. Partnership Return of Income, for 1987 through 1990 as follows:
+-----------------+
¦¦Year¦Adjustment ¦
++----+-----------¦
¦¦ ¦ ¦
++----+-----------¦
¦¦1987¦$1,070,445 ¦
++----+-----------¦
¦¦1988¦677,229 ¦
++----+-----------¦
¦¦ ¦ ¦
++----+-----------¦
¦¦1989¦(311,234) ¦
++----+-----------¦
¦¦1990¦(290,088) ¦
+-----------------+
Under the Decision, petitioners' share of Partnership losses was increased to 48 percent of the adjusted Partnership losses for 1989 and 1990, or $646,529 and $739,430, respectively. Petitioners subsequently filed Forms 1040X, Amended U.S. Individual Income Tax Return, for taxable years 1989 and 1990. Applying the adjustments contained in the Decision to their original returns, petitioners claimed overpayments in the amounts of $71,602 and $12,889, and net operating losses of $68,270 and $278,658, for 1989 and 1990, respectively. Petitioners also filed amended returns for 1987 and 1988, claiming overpayments in the amounts of $93,467 and $19,689, respectively, as a result of net operating loss carrybacks from 1989 and 1990.
On February 19, 1997, respondent made computational adjustments on Forms 4549–A, Income Tax Examination Changes, to petitioners' taxable years 1987 through 1990. For 1987 and 1988, the computational adjustments reflect the adjustments to partnership items set forth in the Decision for those years, and determine deficiencies in the amounts of $65,053 and $14,538, respectively. For 1989 and 1990, respondent determined deficiencies in the amounts of $48,366 and $101,879, respectively, which reflect respondent's position that all of the Partnership's losses for those years (including the losses reported prior to the entry of the Decision) should be recharacterized as passive losses in petitioners' hands, subject to the limitations of section 469. On March 17, 1997, respondent assessed the deficiencies for 1987 through 1990 arising from the foregoing computational adjustments.
On March 7, 1997, respondent issued to petitioners affected items notices of deficiency for 1987 and 1988 determining additions to tax only, based on the computational adjustments for those years. On March 14, 1997, respondent issued to petitioners penalties-only affected items deficiency notices for 1989 and 1990, based on the computational adjustments for those years.
Based on information subsequently received from petitioners' counsel, respondent abated the assessments for 1989 and 1990 and, with petitioners' consent, attempted to rescind the related penalties-only March 14, 1997, notices pursuant to section 6212(d). However, upon learning of respondent's intention to issue new affected items notices of deficiency for 1989 and 1990 determining both deficiencies and penalties, petitioners revoked their consent to rescind the March 14, 1997, notices in a letter to respondent dated April 24, 1997. On May 1, 1997, petitioners filed the petition herein.
On May 2, 1997, respondent issued additional affected items deficiency notices to petitioners for 1989 and 1990, in which deficiencies and accuracy-related penalties pursuant to section 6662(a) were determined. On August 4, 1997, petitioners filed a petition in docket No. 16483–97 regarding the May 2, 1997, notices, alleging that they are void as second notices pursuant to section 6212(c). Petitioners subsequently filed a motion to dismiss for lack of jurisdiction, and respondent filed a notice of no objection. On November 28, 1997, the Court granted petitioners' motion to dismiss.
On July 2, 1997, respondent filed the answer herein, alleging that the penalties determined in the March 14, 1997, notices are affected items, and that such notices are therefore timely pursuant to section 6229(a) and (d).
Petitioners filed a motion for summary judgment herein on August 18, 1997. On September 3, 1997, petitioners filed a motion for leave to file an amendment to the petition. Respondent filed a notice of objection (notice) to petitioners' motion for summary judgment on September 8, 1997. On September 15, 1997, respondent filed a motion for leave to file an amendment to answer. The foregoing motions and notice were each accompanied by a supporting memorandum of points and authorities.
We must first decide whether to grant petitioners' and respondent's respective motions to amend their pleadings. We must then decide whether to grant petitioners' motion for summary judgment.
Rule 41(a) provides in pertinent part that
A party may amend a pleading once as a matter of course at any time before a responsive pleading is served. * * * Otherwise a party may amend a pleading only by leave of Court or by written consent of the adverse party, and leave shall be...
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