Weiner v. U.S.
| Decision Date | 20 November 2002 |
| Docket Number | No. CIV.A.00-1297.,CIV.A.00-1297. |
| Citation | 255 F.Supp.2d 624 |
| Parties | Morris A. WEINER, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Thomas E Redding, Redding & Associates, Houston, TX, for Morris A Weiner, plaintiff.
Michael D Powell, Dept of Justice, Tax Division, David B Coffin, Dept of Justice, Tax Division, Dallas, TX, for United States of America, defendant.
AMENDED MEMORANDUM OPINION
Plaintiff Morris Weiner seeks a refund of federal income taxes and interest for the tax years 1984, 1985, and 1986. This case is before the Court on the parties' motions for summary judgment as to Weiner's 1984 tax liability arising from his investment in the Travertine Flame Associates partnership,1 as well as the parties' summary judgment motions as to Weiner's 1985 tax liability arising from his investments in two partnerships, Emperor Seedless-85 ("Emperor Seedless) and Indio Date Associates ("Indio Date").2 Also before the Court are Weiner's and the IRS's summary judgment motions in regard to penalty interest assessed by the IRS under 26 U.S.C. § 6621(c).3 Finally, the IRS has moved for summary judgment on Weiner's claim for abatement of interest pursuant to 26 U.S.C. § 6404.4 These motions have been fully briefed and are ripe for determination. Having carefully considered the parties' briefs, oral argument, all matters of record, and applicable legal authorities, the Court concludes that Weiner's 1984 Motion and Weiner's 1985 Motion should be denied, the IRS's 1984 Cross-Motion should be granted, and the IRS's 1985 Cross-Motion should be denied. The Court further concludes that Weiner's § 6621 Motion should be denied, the IRS's § 6621 Motion should be denied, and the IRS's § 6404 Motion should be granted.
During tax year 1984, Weiner was a limited partner in a California limited partnership called Travertine Flame Associates ("TFA"). TFA was formed to acquire and develop land in southern California to grow grapes and for other farming activities. American Agri-Corp. (AMCOR) was Managing Agent of TFA. In 1984, the general partners of TFA were Fred H. Behrens, C.P.A., Chairman, President and director of AMCOR, George L. Schreiber, Vice Chairman, Senior Vice President, and director of AMCOR, and Robert A. Wright, Senior Vice President and director of AMCOR. Joseph 0. Voyer, a CPA, was Treasurer and Controller of AMCOR. Neither AMCOR nor Voyer was identified as a general partner in the TFA Limited Partnership Agreement or the Private Placement Memorandum used to solicit limited partners for TFA.5
TFA timely filed a Partnership Return of Income for the 1984 tax year ("1984 return"). The 1984 return was signed on January 30, 1985 by "Joseph Voyer, Treasurer." Weiner timely filed his individual return for 1984 and paid his tax liability related to his partnership interest in TFA based on the 1984 return.
In December 1985, AMCOR became a partner of TFA by purchasing a .5% general partnership interest. At about that time, TFA filed an Amendment to Certificate of Limited Partnership with the California Secretary of State listing AMCOR as one of its general partners.
The IRS began a criminal investigation of AMCOR and the general partners in 1988 or 1989. The IRS raided AMCOR's offices and confiscated partnership records in March 1989. The criminal investigation concluded without indictment in 1993.
On April 10, 1991, the IRS issued a Notice of Final Partnership Administrative Adjustment ("FPAA") for TFA for the tax year 1984. The FPAA set out the IRS's proposed adjustments to the expenses and deductions reported on the partnership returns.
During tax year 1985, Weiner invested as a partner in California limited partnerships known as Emperor Seedless and Indio Date, which purported to engage in a similar business as TFA. Behrens, Schreiber, and Wright were the general partners of Emperor Seedless and Indio Date. Emperor Seedless and Indio Date filed timely partnership returns for the 1985 tax year ("1985 returns"). Neither the Emperor Seedless nor the Indio Date 1985 return designated a Tax Matters Partner ("TMP"). The IRS contends, and Weiner denies, that in September, 1988, Emperor Seedless and Indio Date properly designated Schreiber as their TMP, and Schreiber then executed a valid extension of time for the IRS to issue an FPAA relating to the 1985 returns.
Weiner timely filed his personal income tax returns for 1985 and paid his share of taxes related to Emperor Seedless and Indio Date in accordance with the partnerships' 1985 returns.
On April 10, 1991, the IRS issued FPAAs setting out the IRS's proposed adjustments to the expenses and deductions reported on the partnership returns for Emperor Seedless and Indio Date for the tax year 1985.
In July 1991, partners from TFA, Emperor Seedless, and Indio Date filed Petitions in Tax Court challenging the adjustments in the FPAAs ("Tax Court Cases"). Each Tax Court Case asserted that the statute of limitations barred the FPAA adjustments. In July 1999, the then TMP, Behrens, intervened in the Tax Court Cases. In December 1999, Behrens signed a Stipulation To Be Bound ("Stipulation") in each Tax Court Case agreeing that "the outcome of the statute of limitations issue present in this Partnership Case will be determined in a manner consistent with the Court's findings of fact and law on the statute of limitations issue present" in Agri-Cal Venture Assoc. v. Comm'r of Internal Revenue, 80 T.C.M. (CCH) 295 (2000) (the "Agri-Cal case"), which concerned several other similarly situated partnerships, including partnerships known as Agri-Venture Associates ("AVA"), and Agri-Venture Fund ("AVF"). See, e.g., Exhibit 8 to United States' 1985 Cross-Motion, ¶ 6. On August 28, 2000, the Tax Court issued a detailed and comprehensive opinion in the Agri-Cal case, holding the IRS's FPAA for tax year 1984 was not time-barred because the partnership return filed by AVA was not a valid return and, accordingly, did not trigger the statute of limitations under § 6229(a) of the Internal Revenue Code ("IRC"), 26 U.S.C. § 6229(a). Agri-Cal, 80 T.C.M. (CCH) at 303. The Tax Court also held that the FPAAs for tax year 1985 were not timebarred because the partnerships had extended the time for the IRS to issue FPAAs. Id.
Meanwhile, in late 1996, the IRS suggested a proposed settlement to resolve Weiner's portion of his tax liabilities by sending him a Form 870-P(AD) for each of the three partnerships in which Weiner had invested. In March 1997, while the Tax Court Cases were pending, Weiner executed and returned the Forms, thereby formally proposing the settlements to the IRS. The IRS signed each Form 870-P(AD), and accepted Weiner's settlement proposal for his tax liability related to TFA for the 1984 tax year and related to Emperor Seedless and Indio Date for the 1985 tax year.
The IRS contends that a Summary of the AMCOR Appeals Settlement Offer ("SAASO") was attached to each Form 870-P(AD) it sent to Weiner and that the SAASO makes it clear that the settlements included Weiner's agreement to the assessment of interest pursuant to IRC § 6621. Weiner denies receiving the SAASO.
Weiner paid the tax and interest assessments in October 1997. In January 1998, Weiner filed a claim with the IRS seeking a refund of taxes. The IRS denied Weiner's claim based on the Form 870-P(AD) settlements.
Weiner filed the current action in this Court in April 2000, asserting in part that any assessment against him for 1984 and 1985 are barred by the statute of limitations. Weiner also seeks a refund of interest assessed pursuant to IRC § 6621 on the grounds that his settlements with the IRS contain no statement that his underpayment of taxes was attributable to a tax motivated transaction. Weiner also seeks an abatement of interest pursuant to IRC § 6404 on the grounds that any delay in his payment of a deficiency for the 1984 and 1985 tax years was attributable to an unreasonable delay by the IRS in making the assessments.
As noted above, the Tax Court decided the Agri-Cal case in August, 2000 in favor of the IRS. On July 19, 2001, in accordance with the Stipulation to be Bound, the Tax Court issued decisions rejecting the statute of limitations defenses of TFA, Emperor Seedless, and Indio Date.
Before addressing the specific issues raised by the parties' various motions, a brief explanation of the statutory framework governing the assessment of partnership taxes is in order.
Partnerships are not directly subject to income tax. Partners are liable to the tax in their individual capacities, on a pro rata basis corresponding to their ownership interest in the partnership. 26 U.S.C. § 701; Chimblo v. Comm'r of Internal Revenue, 111 F.3d 119, 121 (2d Cir.1999), cert. denied, 528 U.S. 1154, 120 S.Ct. 1159, 145 L.Ed.2d 1071 (2000); Kaplan v. United States, 133 F.3d 469, 471 (7th Cir.1998). Congress enacted the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), 26 U.S.C. §§ 6221-6233 (enacted by Pub.L. No. 97-248, § 402, 96 Stat. 324 (1982)), to achieve consistent treatment of all partners in a partnership and to alleviate the administrative burden of determining partnership-related tax issues at the individual partner level. 26 U.S.C. § 6221; Alexander v. United States, 44 F.3d 328, 330 (5th Cir.1995); Chimblo, 111 F.3d at 121; Kaplan, 133 F.3d at 471.
Partnerships are required to file informational returns reflecting the partners' distributive shares of income, gains, deductions, and credits. Kaplan, 133 F.3d at 471. The IRS must provide notification to individual partners of any adjustments it believes are necessary...
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