Kohn v. Commissioner

T.C. Memo. 1999-150

UNITED STATES TAX COURT

DAVID E. AND JEAN H. KOHN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5390-95. Filed May 4, 1999.

David B. Morse, for petitioners.

Howard A. Wiener, for respondent.

MEMORANDUM OPINION

WOLFE, Special Trial Judge: This matter is before the

Court on respondent's Motion to Dismiss for Lack of Jurisdiction

and to Strike the Claims Relating to the Deficiency Attributable

to Partnership Items and petitioners' Motion to Restrain
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Assessment and Collection.1 Respondent issued notices of

deficiency for petitioners' 1979 through 1982 tax years in which

respondent determined additions to tax attributable to petitioner

David E. Kohn's partnership interest in Hamilton Recycling

Associates (Hamilton). The notices of deficiency were issued

following the conclusion of a partnership proceeding involving

Hamilton's 1982 through 1985 taxable years. In response to the

notices of deficiency, petitioners have filed with this Court a

petition in which petitioners not only contest the additions to

tax, but also attempt to place in issue deficiencies that were

assessed by computational adjustment, additional interest that

was computed pursuant to section 6621(c), and the validity of the

underlying partnership proceedings. All references to petitioner

are to David E. Kohn. At the time of the petition petitioners

resided in Vadnais Heights, Minnesota.

Background

During 1982, petitioner became a limited partner in

Hamilton. Until February 18, 1986, Sam Winer (Winer) was

Hamilton's tax matters partner (TMP). On February 18, 1986,

Winer resigned as TMP pursuant to a United States District Court

order restricting him from representing Hamilton or its partners

1
All section references are to the Internal Revenue Code in
effect for the tax years in issue, unless otherwise indicated.
All Rule references are to the Tax Court Rules of Practice and
Procedure.
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in court proceedings. Subsequently, Department of Justice

attorneys moved the court to reinstate Winer as Hamilton's TMP

for the purpose of providing "administrative services".

Following Winer's reinstatement, Winer and respondent

entered into a series of agreements extending the period of

limitations for assessing tax relative to Hamilton for the years

1982 through 1985. On March 13, 1989, respondent issued a notice

of Final Partnership Administrative Adjustment (FPAA) to Hamilton

for its 1982 through 1985 years. On May 15, 1989, Winer filed a

petition with this Court on behalf of Hamilton that commenced a

partnership action docketed as Hamilton Recycling Associates, Sam

Winer, Tax Matters Partner, Petitioner v. Commissioner of

Internal Revenue, docket No. 9990-89.

In 1993, Winer, as TMP, entered into a settlement agreement

with respondent to the effect that Hamilton conceded all

adjustments in the FPAA. Accordingly, on November 9, 1993,

pursuant to Rule 248(b), respondent filed a motion for entry of

decision and lodged with the Court a proposed decision that

reflected a full concession by the partnership of all partnership

items for 1982 through 1985. No party objected to the proposed

decision. Therefore, on February 17, 1994, respondent's motion

for entry of decision was granted, and on February 23, 1994, the

proposed decision was entered as the decision of the Court.

Since no party appealed the Court's decision, the decision became
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final on May 24, 1994. See sec. 7481. On June 18, 1997,

petitioner filed a notice of election to participate in the

Hamilton partnership proceedings. On the same day, he filed a

motion for special leave to file a motion to reconsider or vacate

the Hamilton decision.

Upon completion of the partnership proceedings, respondent

made computational adjustments to petitioners' 1979 through 1985

tax liability. See secs. 6225, 6230(a)(1), 6231(a)(6). On

January 10, 1995, respondent issued separate statutory notices of

deficiency to petitioners that determined additions to tax for

the years 1979 through 1982 attributable to petitioner's

partnership interest in Hamilton. The additions to tax are for

overvaluation under section 6659 and negligence under section

6653(a)(1) and (2).

In their petition and motion to restrain assessment and

collection, petitioners not only contest the additions to tax,

but also contest the deficiencies that were assessed by

computational adjustment and the section 6621(c) interest.

Petitioners' claims are based upon the following assertions:

(1) Winer did not have authority to represent Hamilton; (2) the

extensions signed by Winer are invalid; (3) the petition filed by

Winer is invalid; (4) the period of limitations expired prior to

the mailing of the FPAA; (5) petitioners were denied due process

because of respondent's and Winer's actions during the TEFRA
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proceedings; and (6) respondent's actions during the TEFRA

proceedings constituted a fraud upon the Court.

Discussion

The tax treatment of Hamilton was determined at the

partnership level pursuant to the TEFRA partnership provisions in

sections 6221 through 6233. The partnership audit provisions

provide a unified partnership proceeding for determination of the

tax treatment of partnership items separate from and independent

of a partner's deficiency proceeding involving nonpartnership

items. See Tax Equity and Fiscal Responsibility Act of 1982

(TEFRA), Pub. L. 97-248, sec. 402(a), 96 Stat. 648; Brookes v.

Commissioner, 108 T.C. 1, 5 (1997); Maxwell v. Commissioner, 87

T.C. 783, 787-788 (1986). Accordingly, this Court does not have

jurisdiction in a partner's personal tax case to redetermine any

portion of a deficiency attributable to partnership items. See

sec. 6221; Brookes v. Commissioner, supra at 5; Maxwell v.

Commissioner, supra at 788.

A partnership item is defined as any item required to be

taken into account for the partnership's taxable year to the

extent that the Secretary provides by regulations that the item

is more appropriately determined at the partnership level than at

the partner level. See sec. 6231(a)(3); Brookes v. Commissioner,

supra at 5; N.C.F. Energy Partners v. Commissioner, 89 T.C. 741,

743 (1987). Partnership items include each partner's
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proportionate share of the partnership's aggregate income, gain,

loss, deduction, or credit. See sec. 301.6231(a)(3)-1(a)(1)(i),

Proced. & Admin. Regs.

An affected item is defined in section 6231(a)(5) as any

item to the extent such item is affected by a partnership item.

See Brookes v. Commissioner, supra at 5; Crowell v. Commissioner,

102 T.C. 683, 689 (1994). The first type of affected item is a

computational adjustment that is made to record the change in a

partner's tax liability resulting from the proper treatment of

partnership items. See id. Once the partnership level

proceedings are completed, respondent is permitted to assess a

computational adjustment against a partner without issuing a

deficiency notice. See sec. 6230(a)(1); Brookes v. Commissioner,

supra at 5.

The second type of affected item is one that is dependent

upon factual determinations that are made at the individual

partner level. See Brookes v. Commissioner, supra at 5.

Additions to tax for negligence and valuation overstatement are

affected items requiring factual determinations at the individual

partner level. See N.C.F. Energy Partners v. Commissioner, supra

at 745. Section 6230(a)(2)(A)(i) provides that the normal

deficiency procedures apply to those affected items which require

partner level determinations.
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This Court does not have jurisdiction to redetermine

petitioner's liability for deficiencies that were assessed by

computational adjustment and for section 6621(c) interest in the

context of this affected items proceeding. Petitioner's

liability for increased interest under section 6621(c) could be

adjudicated only under overpayment jurisdiction, see Barton v.

Commissioner, 97 T.C. 548 (1991), and petitioner does not allege

an overpayment of such interest. This Court's jurisdiction is

provided by statute, and we cannot expand that jurisdiction. See

Genesis Oil & Gas, Ltd. v. Commissioner, 93 T.C. 562, 565 (1989).

Congress has provided a method by which taxpayers may petition

the courts to raise any and all questions pertaining to a

partnership action. See id. Within 90 days after the day on

which an FPAA is mailed to the TMP, the TMP may file a petition

for a readjustment of the partnership items. See sec. 6226(a).

If the TMP does not file a readjustment petition with respect to

the FPAA, any notice partner may, within 60 days after the close

of the 90-day period in which the TMP may file a petition, file a

petition for a readjustment of the partnership items.2 See sec.

2
For partnership tax years ending after Aug. 5, 1997, a
person who was a partner in such partnership at any time during
such year may participate in such action or file a readjustment
petition (within the 60-day period that notice partners may file
a petition) solely for the purpose of asserting that the period
of limitations for assessing any tax attributable to partnership
items has expired with respect to such person, and the court
having jurisdiction of such action shall have jurisdiction to
(continued...)
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6226(b)(2). Congress has determined that this 150-day period is

sufficient to protect the redetermination rights of the TMP and

any notice partners. See Genesis Oil & Gas, Ltd. v.

Commissioner, supra. Such rights include the ability to question

the timeliness of the FPAA. See id. Accordingly, this Court has

held that a statute of limitation defense that pertains to the

underlying partnership proceeding must be prosecuted at the

partnership level, rather than the partner level. See Crowell v.

Commissioner, supra at 693; Genesis Oil & Gas, Ltd. v.

Commissioner, supra at 565. Similarly, we have held that claims

amounting to efforts to vacate the decision in the underlying

partnership proceeding on the ground of fraud upon the Court

cannot be made in a partner level proceeding. See Brookes v.

Commissioner, supra at 8. Instead, claims of the latter type

must be made by motion to vacate at the partnership level or,

after the decision has become final, by motion for leave to file

such motion. See id.

Furthermore, although this Court has jurisdiction to

redetermine deficiencies and additions to tax, we generally do

not have jurisdiction over interest. See White v. Commissioner,

2
(...continued)
consider such assertion. See sec. 6226(d)(1). Sec. 6226(d)(1)
was amended by the Taxpayer Relief Act of 1997, Pub. L. 105-34,
sec. 1239(b), 111 Stat. 1027, for partnership tax years beginning
after Aug. 5, 1997.
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95 T.C. 209, 213 (1990) (citing Transport Manufacturing & Equip.

Co. v. Commissioner, 434 F.2d 373, 381 (8th Cir. 1970), affg. in

part, vacating in part and remanding Riss v. Commissioner, T.C.

Memo. 1964-190); see also Barton v. Commissioner, supra.

Additional interest under section 6621(c) is an affected item

within the meaning of section 6231(a)(5) because it requires a

determination at the individual partner level. See id. However,

this Court does not have jurisdiction over additional interest in

an affected items proceeding because additional interest is not a

"deficiency" attributable to an affected item. See id.

Moreover, our jurisdictional incapacity to address

petitioners' grievance in the context of this partner level

affected items deficiency proceeding does not violate

petitioners' rights to due process. See Brookes v. Commissioner,

108 T.C. 1, 7 (1997). Due process requires that taxpayers who

may be deprived of property through the assessment and collection

of taxes be given an opportunity to be heard. See id. Upon

entry of the decision petitioners had 30 days in which to file a

motion to vacate the decision. See Rule 162. After 30 days,

special leave of the Court is required to file such a motion.

See id. Once a decision of this Court becomes final, we may

still vacate the decision but only in narrowly circumscribed

situations. See Brookes v. Commissioner, supra at 8. Such a

situation is presented when fraud is committed upon the Court.
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See id. No party, including petitioners, contested entry of the

decision in the underlying partnership proceeding, nor did any

party appeal the decision. The Hamilton decision cannot be

vacated in the context of this action.

Lastly, this Court has recently considered facts and issues

substantially identical to those that petitioner has raised. See

Davenport Recycling Associates v. Commissioner, T.C. Memo. 1998-

347, pending on appeal before the Court of Appeals for the

Seventh Circuit. In Davenport Recycling, we denied a motion to

vacate the final decision in a partnership proceeding in which

Sam Winer was petitioner.

Consistent with the preceding discussion, we hold that our

jurisdiction in this case is limited to redetermining

petitioners' liability for the additions to tax set forth in the

affected items notice of deficiency and that we lack jurisdiction

to consider petitioners' liability for the deficiencies that were

assessed by computational adjustment, petitioners' liability for

interest computed at the increased rate prescribed by section

6621(c), and petitioners' claims that the underlying partnership

proceeding is invalid. For the foregoing reasons, respondent's

motion to dismiss for lack of jurisdiction and to strike the

claims relating to the deficiency attributable to partnership

items is granted.
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Section 6213(a) provides that this Court may enjoin

respondent's collection efforts if respondent is attempting to

collect amounts that have been placed in dispute in a timely

filed petition for redetermination. See Powell v. Commissioner,

96 T.C. 707, 711 (1991). However, this Court does not have

jurisdiction in an affected items deficiency proceeding to

restrain assessment and collection of computational adjustments

attributable to partnership items. See id. The amounts listed

as due in the notice of intent to levy represent the balance due

from petitioners for the deficiencies that were assessed by

computational adjustment and section 6621(c) additional interest.

Having decided that we lack jurisdiction to redetermine these

items, we must deny petitioners' motion to restrain assessment

and collection.

An appropriate order

will be issued.