Woody v. Comm'r of Internal Revenue, Docket Nos. 15901-88
| Decision Date | 23 August 1990 |
| Docket Number | Docket Nos. 15901-88,17045-88. |
| Parties | DAVID L. WOODY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
In partnership administrative proceedings, R made adjustments to ordinary income of two partnerships in which P was one of two general partners. R also determined the amount of ‘guaranteed payments to general partner‘ and subsequently adjusted P's income to include the full amount of guaranteed payments. R sent to P notices of deficiency determining only additions to tax under I.R.C. sec. 6661. P claims an overpayment based on allocation to him of the full amount of guaranteed payments, failure to credit amounts paid over to others, and failure to credit amounts previously reported on P's returns. HELD, although guaranteed payments cannot be reallocated in this proceeding, P's claimed overpayment was attributable to affected items requiring factual determinations at the partner level. The Court has jurisdiction to determine an overpayment under sec. 6512(b). William H. Bradford, Jr., and Gregory K. Oyler, for the petitioner.
Warren P. Simonsen, for the respondent.
These cases are before us on respondent's motions to dismiss for lack of jurisdiction and to strike, directed at certain issues raised in the petitions. Respondent contends that we lack jurisdiction of those issues because of prior partnership proceedings conducted and settled administratively under sections 6221-6231, added by the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 324 (TEFRA provisions). Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended and in effect for the years in issue.
Petitioner was a resident of Maryland when he filed his petitions. From 1982 through 1984, David L. Woody (petitioner) and Hilltop Improvement Corporation (Hilltop Improvement) were the general partners in Hilltop Associates Limited Partnership (Hilltop). Petitioner and Southern Manor Improvement Corporation (Southern Manor Improvement) were the general partners in Southern Manor Associates (Southern Manor). Petitioner was also a limited partner in Hilltop and in Southern Manor. Petitioner became tax matters partner of Hilltop and of Southern Manor and elected application of the Internal Revenue Code partnership audit and litigation provisions to each partnership's 1982 returns.
On November 21, 1981, petitioner, Hilltop Improvement, and certain other limited partners of Hilltop entered into an agreement. A similar agreement was executed by petitioner, Southern Manor Improvement, and certain limited partners of Southern Manor. Under the agreements, the general partners of each partnership were to be paid fees (guaranteed payments) for performing certain partnership management tasks. The limited partners of each partnership agreed to provide assistance to the general partners in the management of the partnership, and the general partners agreed to pay a specified percentage of their guaranteed payments to the limited partners.
In accordance with the November 21, 1981 agreements, petitioner caused payments to be made to the general partners and to those limited partners who were parties to the agreements, either in cash or through credits to their respective Hilltop or Southern Manor partnership capital accounts.
In 1986, the Internal Revenue Service conducted audits of Hilltop and Southern Manor. On January 5, 1987, a Form 886-A was sent to petitioner explaining proposed adjustments to the tax liability of Southern Manor. That form provided the following explanation of the allocation of the guaranteed payments to petitioner: ‘David Woody as general partner must pick up the fee of $50,000, accrued by the partnership, at each of 1982, 1983 and 1984.‘ On January 5, 1987, petitioner also received a Form 886-A for Hilltop. There was no explanation of the allocation of the guaranteed payments to petitioner. On March 23, 1987, a Notice of Final Partnership Administrative Adjustment (FPAA) for Southern Manor was mailed to petitioner. On April 6, 1987, an FPAA for Hilltop was mailed to petitioner.
Each FPAA advised petitioner of his right to contest the proposed adjustments in the Tax Court, the Claims Court, or a District Court within 90 days. Sec. 6226. Forms 870-P, Settlement Agreement for Partnership Adjustments, were enclosed with each FPAA and specifically stated:
If this offer is accepted for 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.
On July 22, 1987, petitioner, as tax matters partner, executed a Form 870-P with respect to 1982, 1983, and 1984 for Southern Manor. Both the FPAA and the Form 870-P for Southern Manor included a Schedule of Adjustments setting out specific items of income and expense resulting in ‘Total Adjustments to Ordinary Income‘ for each year. The schedule separately set out ‘Tax Preference Items‘ and ‘Guaranteed Fee to General Partner‘ for each year. The guaranteed fee was set out as $50,000 for each year, but the Form 870-P did not identify the general partner to whom the fee was paid. On August 7, 1987, the Form 870-P was accepted for the Commissioner.
On July 22, 1987, petitioner, as tax matters partner, and respondent also executed a Form 870-P with respect to 1982, 1983, and 1984 for Hilltop. Both the FPAA and the Form 870-P for Hilltop included a Schedule of Adjustments setting out specific items of income and expense resulting in ‘Total Adjustments to Ordinary Income‘ for each year. The schedule separately set out ‘Tax Preference Items‘ and ‘Guaranteed Fee to General Partner‘ for each year. The guaranteed fee was set out as $87,500 for each year, but the Form 870-P did not identify the general partner to whom the fee was paid. On August 3, 1987, the Form 870-P was accepted for the Commissioner.
On February 16, January 27, and January 28, 1988, Forms 1902-C, Report of Individual Income Tax Examination Changes, were sent to petitioner for 1982, 1983, and 1984, respectively. These reports stated that the ‘adjustments are based on the examination of a flow- through entity‘ and reflected adjustments of partnership income from Southern Manor and Hilltop. In addition to petitioner's share of the adjustments to ordinary income, each report showed ‘wages‘ to petitioner of $50,000 from Southern Manor and $87,500 from Hilltop for each year.
Respondent allocated the full amount of the guaranteed payments for both partnerships to petitioner without any adjustment for the following amounts petitioner had reported on his returns for the years in issue:
+---------------------------------------------+
¦ ¦ ¦Southern Manor ¦
+------+---------------------+----------------¦
¦Year ¦Hilltop partnership ¦partnership ¦
+------+---------------------+----------------¦
¦1982 ¦$8,000 ¦$14,080 ¦
+------+---------------------+----------------¦
¦1983 ¦24,550 ¦18,580 ¦
+------+---------------------+----------------¦
¦1984 ¦16,441 ¦15,800 ¦
+---------------------------------------------+
Of the guaranteed payments paid under the agreements between the general and limited partners of Hilltop and Southern Manor, the following amounts were reported as income by the recipients:
+------------------------------------------------------------------+
¦ ¦1982 ¦1983 ¦1984 ¦
+------------+-----------------+-----------------+-----------------¦
¦ ¦Manor ¦Hilltop ¦Manor ¦Hilltop ¦Manor ¦Hilltop ¦
+------------+-------+---------+-------+---------+-------+---------¦
¦SMI Corp. ¦$440 ¦--- ¦$560 ¦--- ¦$36,800¦--- ¦
+------------+-------+---------+-------+---------+-------+---------¦
¦S. McCrea ¦--- ¦--- ¦--- ¦--- ¦--- ¦--- ¦
+------------+-------+---------+-------+---------+-------+---------¦
¦E. Woody ¦13,640 ¦$24,000 ¦13,020 ¦$18,500 ¦--- ¦$5,000 ¦
+------------+-------+---------+-------+---------+-------+---------¦
¦G. Goldstein¦--- ¦--- ¦13,020 ¦--- ¦--- ¦--- ¦
+------------+-------+---------+-------+---------+-------+---------¦
¦A. Meinhardt¦13,600 ¦--- ¦--- ¦--- ¦--- ¦--- ¦
+------------+-------+---------+-------+---------+-------+---------¦
¦HI Corp. ¦--- ¦2,000 ¦--- ¦16,925 ¦--- ¦49,575 ¦
+------------+-------+---------+-------+---------+-------+---------¦
¦Total ¦27,680 ¦26,000 ¦26,600 ¦35,425 ¦36,800 ¦54,575 ¦
+------------------------------------------------------------------+
Respondent sent to petitioner notices of deficiency for (1) 1982 on April 1, 1988; (2) 1983 on April 5, 1988; and (3) 1984 on April 8, 1988. The notices of deficiency collectively determined that petitioner is liable for the following amounts:
+--------------------------------------+
¦ ¦ ¦Additions to tax ¦
+------+------------+------------------¦
¦Year ¦Deficiency ¦Sec. 6661 ¦
+------+------------+------------------¦
¦1982 ¦--- ¦$18,898.25 ¦
+------+------------+------------------¦
¦1983 ¦--- ¦7,621.25 ¦
+------+------------+------------------¦
¦1984 ¦--- ¦19,483.50 ¦
+--------------------------------------+
On June 29, 1988, and July 7, 1988, after receiving the notices of deficiency for 1982 through 1984, petitioner made the following payments by check to respondent:
+--------------------------------------+
¦ ¦ ¦Additions to tax ¦
+------+------------+------------------¦
¦Year ¦Income tax ¦Sec. 6661 ¦
+------+------------+------------------¦
¦1982 ¦$16,158 ¦$4,102 ¦...To continue reading
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