Tigers Eye Trading, LLC v. Commissioner of Internal Revenue, T.C. Memo. 2009-121 (U.S.T.C. 5/27/2009), 14510-05.
| Decision Date | 27 May 2009 |
| Docket Number | No. 14510-05.,14510-05. |
| Parties | TIGERS EYE TRADING, LLC, SENTINEL ADVISORS, LLC, TAX MATTERS PARTNER, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
R has filed a motion in limine to exclude from evidence PP's expert report prepared by SS that the legal opinion of CM on the tax consequences of the transaction was of such quality and character that PP and L could reasonably rely on the opinion in preparing their income tax returns. R argues that the report should be excluded on the alternative grounds that it relates solely to PP's partner-level defenses and that it expresses legal conclusions. Alternatively, R asserts that portions of the report should be excluded because they constitute advocacy. R is also asserting that CM was a promoter of TET and the transaction, that L and his grantor trusts could not reasonably rely on the opinion of a promoter, and that the status of CM as a promoter should be determined in this partnershiplevel proceeding.
Held: Following New Millennium Trading, LLC v. Commissioner, 131 T.C. ___ (2008), the temporary regulation is valid and potentially applicable in the case at hand, so that, should the Court sustain R's determinations in the FPAA that TET or PP's transactions with TET should be disregarded and that all other requirements for application of the accuracy-related penalties have been satisfied, PP may not assert in this partnership-level proceeding any partner-level defenses to application of the penalties; PP's motion for partial summary judgment will be denied.
Held, further: We have jurisdiction in this partnership-level proceeding to decide whether CM was a promoter.
Held, further: If the Court should decide that CM is not a promoter of the transactions at issue, the reasonableness of L's reliance on the CM opinion, as well as his reliance on the advice of his personal attorneys and C.P.A., would be a partner-level defense as defined in the temporary regulation that would not be assertable in this partnership-level proceeding because it would require the Court to consider factors that are personal to L, such as his education and business experience and the nature and length of his relationship with the adviser, and would require the production of evidence unrelated to the underlying adjustments in the FPAA.
Held, further: PP's expert report consists of legal discussion and argument; R's motion in limine will be granted and the expert's report excluded from evidence, irrespective of whether CM is determined to be a promoter.
Felix B. Laughlin and Mark D. Allison, for petitioner, Sentinel Advisors, LLC, tax matters partner.
David De Coursey Aughtry, Hale E. Sheppard, and William E. Buchanan, for A. Scott Logan, Trustee, A. Scott Logan Grantor Retained Interest Annuity Trust I, a partner other than the tax matters partner.
James E. Gray, William Bogardus, Timothy B. Heavner, and David B. Flassing, for respondent.
This proceeding to determine the validity of respondent's notice of final partnership administrative adjustment (FPAA) is before the Court on two interrelated
motions: Motion for partial summary judgment filed under Rule 1211 on behalf of participating partner; and motion in limine filed under Rules 50 and 143(f) by respondent.
By the partial summary judgment motion, A. Scott Logan (Mr. Logan) as Trustee for A. Scott Logan Grantor Trust I (Logan Trust I or participating partner), a partner other than the tax matters partner, asks us to declare invalid section 301.6221-1T(c) and (d), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 3838 (Jan. 26, 1999) (), implementing section 6221 as amended by the Taxpayer Relief Act of 1997 (TRA 1997), Pub. L. 105-34, sec. 1238(a), 111 Stat. 1026, because it would prevent participating partner and Mr. Logan from interposing partner-level defenses to accuracy-related penalties in this partnership-level proceeding.2 For convenience and simplicity, we sometimes refer to participating partner as Mr. Logan.
By the motion in limine respondent asks us to exclude from evidence an expert report and testimony that a legal opinion on the tax consequences of the transactions at issue was of such quality and character that Mr. Logan could reasonably rely on it in preparing his income tax returns. By respondent's response to Mr. Logan's motion, Mr. Logan's reply to that response, Mr. Logan's opposition to respondent's motion, respondent's reply to that opposition, and respondent's supplement to respondent's motion, the parties have joined issue on the subjects of the motions.
Petitioner, Sentinel Advisors, LLC (Sentinel), the tax matters partner of Tigers Eye Trading, LLC (Tigers Eye), has no direct financial interest in the outcome of this case. Thus, Mr. Logan, as trustee of Logan Trust I, is wielding the laboring oar in this proceeding.
In his motion for partial summary judgment Mr. Logan asserts that in preparing his income tax returns he reasonably relied on the opinions of personal advisers—attorneys and his accountant— as well as an opinion letter and memorandum of the law firm of Curtis, Mallet-Prevost, Colt & Mosle LLP (Curtis Mallet) on the income tax consequences of the transactions at issue. Mr. Logan submitted to the Court a notice of expert witness in which he identified Attorney Stuart A. Smith (Mr. Smith) as a witness who may aid the Court in evaluating whether the Curtis Mallet opinion
was of such quality and character that Mr. Logan and Logan Trust I could reasonably rely on it in preparing their income tax returns.
By the motion in limine respondent asks us to exclude from evidence Mr. Smith's expert report and testimony on the alternative grounds that the report: (1) Pertains exclusively to Mr. Logan's partner-level defenses, an issue not properly before the Court, pursuant to the temporary regulation; (2) consists of legal conclusions; and (3) contains advocacy.
Respondent indicated, in respondent's response to Mr. Logan's motion for partial summary judgment, that respondent is asserting in this proceeding that Curtis Mallet was a promoter of the transactions in issue. Respondent asserts that no participating partner of Tigers Eye could reasonably rely on an opinion issued by a promoter and that the status of Curtis Mallet as a promoter of Tigers Eye should be determined in this partnership-level proceeding.
Following New Millennium Trading, LLC v. Commissioner, 131 T.C. ___ (2008) (), we will deny Mr. Logan's motion for partial summary judgment. Thus, should we sustain respondent's determinations in the FPAA that Tigers Eye or the Logan Trusts' transactions with Tigers Eye should be disregarded and that the accuracy-related penalties otherwise apply, Mr. Logan's partner-level
defenses to those penalties will not be assertable in this partnership-level proceeding.
We conclude that whether Curtis Mallet was a promoter of the transactions in issue is to be decided in this partnership-level proceeding. We also conclude that, if we should determine that Curtis Mallet was a promoter of the transactions at issue, reliance on the Curtis Mallet opinion would not be a defense to the penalties. Moreover, Mr. Logan's reliance on the advice of his personal advisers is a partner-level defense that is not assertable in this partnership-level proceeding. See New Millennium Trading, LLC v. Commissioner, supra. Similarly, if we should decide that Curtis Mallet was not a promoter, Mr. Logan's reliance on the Curtis Mallet opinion would be a partner-level defense not assertable in this proceeding.
Since there are unresolved issues whether reliance on and the reliability of the Curtis Mallet opinion are partner-level defenses, respondent's motion in limine cannot be granted on that ground. However, we will grant respondent's motion to exclude Mr. Smith's expert report and testimony because the report consists of legal discussion and argument.
An Afterword notes that TRA 1997, as implemented by the temporary...
To continue reading
Request your trial