Goldman v. Commissioner

T.C. Memo. 1996-274

UNITED STATES TAX COURT

LEO AND PAULINE GOLDMAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 4838-94, 4839-94. Filed June 12, 1996.

Norman Nadel, for petitioners.

Pamela L. Cohen, for respondent.

MEMORANDUM OPINION

PAJAK, Special Trial Judge: These cases were heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182. All section

references are to the Internal Revenue Code for the taxable years

in issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.
 - 2 -

Respondent determined additions to petitioners' Federal

income taxes as follows:

Additions To Tax
Sec. Sec. Sec.
Year 6653(a)(1) 6653(a)(2) 6661
1
1983 $1,506 $7,532
1
1984 81 --
1
Amount equal to 50 percent of the interest due on $30,127
and $1,623, which are the portions of the underpayments attributable
to negligence for taxable years 1983 and 1984, respectively.

Respondent also determined that petitioners are liable for

increased interest under section 6621(c) on $30,127 for 1983 and

on $1,623 for 1984. (Petitioners did not raise any issue as to

section 6621(c), and this Court has no jurisdiction over that

section under the circumstances here presented. White v.

Commissioner, 95 T.C. 209, 216-217 (1990).)

The issues for decision are (1) whether the Court has

jurisdiction over this proceeding, and (2) whether the notices of

deficiency were issued before the applicable period of

limitations expired. If we decide these issues unfavorably to

petitioners, the parties have agreed to be bound by the

controlling case of Goldman v. Commissioner, T.C. Memo. 1993-480,

affd. 39 F.3d 402 (2d Cir. 1994), with regard to the additions to

tax. The controlling case, which is final, sustained

respondent's determinations regarding the additions to tax.
 - 3 -

These cases were consolidated for briefing and opinion, and

were submitted fully stipulated pursuant to Rule 122. The

stipulated facts are so found.

Petitioners resided in New Hyde Park, New York, when they

filed their petitions in these cases.

For the years in issue, Leo Goldman (petitioner) was a

limited partner in Mid Continent Drilling Associates II (MCDA

II). The additions to tax in issue relate to petitioner's

investment in MCDA II. MCDA II is one of several limited

partnerships which comprise respondent's Petro-Tech National

Litigation Project. Cf. Webb v. Commissioner, T.C. Memo. 1990-

556.

The Form 1065 partnership returns filed by MCDA II for

taxable years 1983 and 1984 indicate that MCDA II had more than

100 partners during each of those years. The returns show that

petitioner held a 0.00765306 profit-sharing percentage interest

in MCDA II for both 1983 and 1984. The returns also indicate

that MCDA II's employer identification number (EIN) was 13-

3093089.

On October 21, 1991, respondent timely mailed separate

Notices of Final Partnership Administrative Adjustment (FPAA),

one for taxable year 1983 and one for taxable year 1984, to the

tax matters partner (TMP) of MCDA II, and to Robert and Wendy

Lax. As reflected in MCDA II's partnership returns, Robert Lax

owned a 0.01020408 profit-sharing percentage interest in MCDA II
 - 4 -

in 1983 and 1984, and therefore was a notice partner. Sec.

6223(a) and (b).

The FPAA's determined adjustments to the partnership items

of MCDA II. A petition for readjustment of final partnership

administrative adjustments was not filed by the TMP of MCDA II

within 90 days. However, a petition for readjustment of final

partnership administrative adjustments was timely filed by Robert

and Wendy Lax on March 16, 1992, and was assigned docket No.

5757-92 (the Lax case). The caption of the Lax case read, in

pertinent part:

MidContinental Drilling Co.
Partnership,
Robert and Wendy Lax, Partners
Other Than The Tax Matters Partner

Petitioners,

Paragraph 2 of the petition stated "The Partnership's taxpayer

identification number is XX-XXXXXXX." Attached to the petition

were the two FPAA's issued to Robert and Wendy Lax concerning

MCDA II. In the FPAA for 1983, respondent refers to MCDA II as

"Mid-Continent Drilling Associates" and "Mid Continent Drilling

Associates II". In the FPAA for 1984, respondent refers to MCDA

II as "Mid-Continental Drilling Co." and "Mid Continent Drilling

Associates II". However, each of the above references is

followed by the EIN of XX-XXXXXXX, which is the EIN of MCDA II.
 - 5 -

The FPAA's previously issued to the TMP of MCDA II referred

to the partnership solely as "Mid Continent Drilling Associates

II", and also listed XX-XXXXXXX as the EIN.

No partners of MCDA II elected to participate in the Lax

case within the time specified under Rule 245(a) and (b). See

Rule 247(b).

On February 11, 1993, this Court entered a decision in the

Lax case under Rule 248(b) which sustained the adjustments to the

partnership items of MCDA II for taxable years 1983 and 1984.

This decision became final on May 12, 1993. Secs. 7481(a)(1) and

7483.

On January 10, 1994, respondent mailed notices of deficiency

for affected items to petitioners which related to the

partnership items determined in the Lax case. The only

adjustments in the notices of deficiency were for additions to

tax and increased interest for 1983 and 1984.

Petitioners claim that the applicable period of limitations

has expired because "the multiple defects in the Lax Petition

reduced that case to a nullity insofar as it relates to the

Goldman Petitioners." Their argument that the partnership level

proceeding is a "nullity" is based on the caption in that case,

which reads, in pertinent part, "Midcontinental Drilling Co.

Partnership". Because the caption in the Lax case does not read

"Mid Continent Drilling Associates II", petitioners characterize

the caption as "defective", and argue as follows:
 - 6 -

The use of a name other than MCDA II in the
caption disregarded the rules of practice of this Court
and effectively deprived the other partners in that
venture of notice that a TEFRA petition had been filed
which would have enabled them to exercise their
statutory rights. The name in the caption described a
non-existent partnership or a partnership in which the
Goldman Petitioners had no interest. The Lax
Petitioners never established their eligibility as
Notice Partners to file a TEFRA petition in the Tax
Court.

We believe petitioners advance essentially two theories.

Petitioners argue that the additions to tax should not be imposed

because the affected items notices of deficiency were mailed to

them beyond the applicable period of limitations. Petitioners

contend that under section 6229(d), the time for respondent to

issue notices for affected items expired on March 20, 1993, which

is 1 year after the 150th day following the date of the issuance

of the FPAA's to MCDA II's TMP and the Laxes on October 21, 1991.

Petitioners also claim they did not receive notice of the

partnership level proceeding in the Lax case, and thus the

affected items notices of deficiency are invalid and we lack

jurisdiction over this proceeding.

When a jurisdictional issue is raised, as well as a statute

of limitations issue, we must first decide whether we have

jurisdiction in the case before considering the statute of

limitations defense. King v. Commissioner, 88 T.C. 1042, 1050

(1987), affd. on other grounds 857 F.2d 676 (9th Cir. 1988).

The question of jurisdiction is a fundamental question that

can be raised at any time by either party or by the Court.
 - 7 -

Naftel v. Commissioner, 85 T.C. 527, 530 (1985); Estate of Young

v. Commissioner, 81 T.C. 879, 880-881 (1983). Moreover, we have

jurisdiction to decide whether we have jurisdiction. Pyo v.

Commissioner, 83 T.C. 626, 632 (1984); Kluger v. Commissioner, 83

T.C. 309, 314 (1984).

The tax treatment of partnership items generally is

determined at the partnership level pursuant to the unified audit

and litigation procedures set forth in sections 6221-6233. Tax

Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-

248, sec. 402(a), 96 Stat. 648. The TEFRA procedures apply with

respect to a partnership's taxable years beginning after

September 3, 1982. Sparks v. Commissioner, 87 T.C. 1279, 1284

(1986); Maxwell v. Commissioner, 87 T.C. 783, 789 (1986); Alpha

Chemical Partners v. Commissioner, T.C. Memo. 1995-141.

Partnership items include each partner's proportionate share of

the 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.

Partnership items do not include any "affected item", which

is defined as any item that is affected by a partnership item.

Sec. 6231(a)(5); White v. Commissioner, 95 T.C. 209, 211 (1990).

There are two types of affected items. The first type is a

computational adjustment made to record the change in a partner's

tax liability resulting from the proper treatment of a

partnership item. Sec. 6231(a)(6). After partnership level
 - 8 -

proceedings are completed, respondent is permitted to assess a

computational adjustment against a partner without issuing a

deficiency notice. Sec. 6230(a)(1); N.C.F. Energy Partners v.

Commissioner, 89 T.C. 741, 744 (1987).

The second type of affected item is one that is dependent

upon factual determinations to be made at the individual partner

level. N.C.F. Energy Partners v. Commissioner, supra at 744.

Section 6230(a)(2)(A)(i) provides that the normal deficiency

procedures apply to those affected items which require individual

partner level determinations. Additions to tax under sections

6653(a)(1), 6653(a)(2), and 6661 are affected items requiring

factual determinations at the individual partner level and are

subject to the normal deficiency procedures. N.C.F. Energy

Partners v. Commissioner, supra at 745.

The Court may not adjudicate partnership items or related

computational adjustments in an affected items proceeding such as

this one. Saso v. Commissioner, 93 T.C. 730, 734 (1989). But in

Crowell v. Commissioner, 102 T.C. 683, 691 (1994), we held that

the taxpayers could challenge the validity of the affected items

notice of deficiency on the ground that respondent failed to

properly notify the taxpayer partner of the underlying

partnership level proceeding. As in Crowell, we believe

petitioners' notice argument is tantamount to a motion to dismiss

this case for lack of jurisdiction on the ground that the

affected items notices are invalid.
 - 9 -

Section 6223(a) generally requires the Commissioner to mail

each partner notice of: (1) The beginning of an administrative

partnership proceeding, and (2) the final partnership

administrative adjustment resulting from that proceeding.

Crowell v. Commissioner, supra at 690. To comply with section

6223(a), the Commissioner is required to use the names,

addresses, and profits interests of the partners shown on the

partnership return for the year in issue, as modified by any

additional information supplied in accordance with the

regulations. Triangle Investors Ltd. Partnership v.

Commissioner, 95 T.C. 610, 613 (1990); sec. 301.6223(c)-1T(f),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6784 (Mar. 5,

1987).

Aside from the general provisions in section 6223(a),

section 6223(b) sets forth special rules for partnerships with

more than 100 partners. Section 6223(b) provides that the notice

requirements of section 6223(a) shall not apply to a partner if

the partnership has more than 100 partners and the partner has a

less than 1-percent profits interest in the partnership.

During 1983 and 1984, MCDA II had more than 100 partners,

and petitioner had less than a 1-percent profits interest in the

partnership. Petitioner has not shown that he was part of a

"notice group" as defined in section 6223(b)(2). Accordingly,

the Commissioner was not obliged to provide petitioners with

notice of the final partnership administrative adjustment
 - 10 -

resulting from the administrative proceeding at the partnership

level. Energy Resources, Ltd. v. Commissioner, 91 T.C. 913, 916

(1988).

Petitioners argue that the "defective" caption of the Lax

case deprived them of notice that a partnership action had been

commenced. There is no question that the Commissioner mailed the

FPAA's to the TMP of MCDA II. It was the TMP who was statutorily

required to provide notice to petitioners that a partnership

action had been commenced. Sec. 6223(g). As explained by this

Court, "The tax matters partner must also perform important

functions within the partnership. He is required to keep all

partners informed of the status of administrative and judicial

proceedings involving the partnership." Computer Programs

Lambda, Ltd. v. Commissioner, 89 T.C. 198, 205 (1987).

Jurisdictionally, we do not find that the "defects" in the

Lax petition played any role in the notice required in this

affected items proceeding. Petitioners were to be notified of

the partnership action by the TMP of MCDA II, not by the caption

of the Lax petition. In any event, failure by the TMP to provide

notice would not affect the applicability of the partnership

proceedings. Sec. 6230(f). This Court has upheld the

constitutionality of the TEFRA partnership procedures. Boyd v.

Commissioner, 101 T.C. 365, 374 (1993). Respondent's mailing of

the FPAA to the TMP of MCDA II satisfied all requirements and

therefore did not deny petitioners due process.
 - 11 -

Petitioners also argue that respondent did not timely issue

the notices of deficiency in these cases. This argument is

predicated upon petitioner's belief that if the petition in the

Lax case was not filed in accord with section 6226, then the Lax

case should have been dismissed for lack of jurisdiction and the

period for assessment expired 1 year and 150 days after the

mailing of the FPAA's because "no action was brought" sufficient

to suspend the assessment period within the meaning of section

6229(d). As with their jurisdictional argument, petitioners seek

refuge behind the caption in the Lax case.

We find petitioners' claim that the proceeding in the Lax

case should have been dismissed for lack of jurisdiction based on

the caption to be without merit. In a partnership action for

readjustment of partnership items, this Court has jurisdiction

when the Commissioner has mailed a valid FPAA and the TMP or

other eligible partner has timely filed a petition with the Court

seeking readjustment of partnership items. Sec. 6226; Rule

240(c); Meserve Drilling Partners v. Commissioner, T.C. Memo.

1996-72.

In the instant cases, respondent properly issued FPAA's to

the TMP of MCDA II and to Robert Lax, as a notice partner, and to

his wife, Wendy Lax. A petition was timely filed by the Laxes,

and a decision was entered by this Court. Both the petition and

the decision in the Lax case clearly identified the MCDA II

partnership. The statutory requirements have been met to
 - 12 -

determine an adjustment to the partnership returns of MCDA II, to

assess the computational adjustments attributable thereto, and to

issue the affected items notices to petitioners.

For all of the foregoing reasons,

Decisions will be entered

for respondent.