T.C. Memo. 1999-214
UNITED STATES TAX COURT
BHUPINDAR S. AND RAJINDER K. DHILLON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16971-98. Filed July 1, 1999.
R filed a motion to dismiss for lack of jurisdiction on
the ground that Ps did not file their petition for
redetermination within the time prescribed by sec. 6213(a),
I.R.C. Ps, 50-percent partners in E, contend that their
petition was timely filed. Ps argue that the extended time
for filing a petition under sec. 6226(b)(1), I.R.C., of the
partnership audit and litigation procedures, secs. 6221-
6232, I.R.C., enacted as part of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, sec. 402(a), 96
Stat. 648 (TEFRA partnership procedures), governs the period
for filing the petition because R's adjustments in the
notice of deficiency relate to adjustments of flow-through
partnership items of E.
Held: E is a "small partnership" under sec.
6231(a)(1)(B)(i), I.R.C., and is therefore not a partnership
covered by the TEFRA partnership procedures. Thus, the
extended period for filing a petition for redetermination
under sec. 6226(b)(1), I.R.C., does not apply in this case.
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Held, further, since Ps did not file their petition
within the time prescribed by sec. 6213(a), I.R.C., R's
motion to dismiss for lack of jurisdiction is granted.
Craig M. Hunt, for petitioners.
LaVonne D. Lawson, for respondent.
MEMORANDUM OPINION
NIMS, Judge: This matter is before the Court on respondent's
motion to dismiss for lack of jurisdiction on the ground that
petitioners did not file their petition within the time
prescribed by section 6213(a). In reply to respondent's motion
to dismiss, petitioners assert that the period for filing the
petition under section 6213(a) is inapplicable. Instead,
petitioners argue that their petition was timely filed pursuant
to section 6226(b)(1). (Section references are to sections of
the Internal Revenue Code in effect for the years in issue.)
Background
The relevant facts are not in dispute and may be summarized
as follows. Petitioners resided in San Jose, California, when
they filed their petition.
Petitioners were general partners in a partnership named B&R
Dhillon Et Al Ptrs, d.b.a. Executive Inn (Executive Inn).
Petitioners' Schedules K-1, Partner's Share of Income, Credits,
Deductions, Etc., attached to their 1994 and 1995 Federal income
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tax returns, indicate that they held an aggregate 50-percent
interest in profits, losses, and capital of Executive Inn during
the 1994 and 1995 taxable years. Kenneth and Rosemary Manrao
were the other general partners and held the remaining 50-percent
interest in profits, losses, and capital during the 1994 and 1995
taxable years. Executive Inn operated a motel in Campbell,
California.
Petitioners filed their 1994 and 1995 Federal income tax
returns on September 6 and October 30, 1996, respectively. On
June 2, 1998, respondent mailed to petitioners a Form 4605,
Examination Changes - Partnerships, Fiduciaries, Small Business
Corporations, and Interest Charge Domestic International Sales
Corporations, which proposed adjustments to Executive Inn's 1994,
1995, and 1996 taxable years. Respondent timely mailed the
notice of deficiency for petitioners' 1994 and 1995 taxable years
on July 17, 1998. Petitioners mailed their petition on October
16, 1998; the petition was filed on October 20, 1998.
Discussion
Section 6213(a) provides that a petition must be filed
within 90 days (or 150 days if the notice is addressed to a
person outside the United States) after the notice of deficiency
is mailed. In this case, respondent mailed the notice of
deficiency on July 17, 1998. Ninety days after the mailing of
the notice of deficiency was October 15, 1998. Petitioners
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mailed their petition on October 16, 1998, and it was filed on
October 20, 1998. The petition was, therefore, not timely filed
if section 6213(a) applies.
Petitioners argue, however, that section 6213(a) is
inapplicable in this case. According to petitioners, since
respondent's determinations in the notice of deficiency arose
from adjustments relating to their partnership interest in
Executive Inn, the extended time for filing a petition under
section 6226(b)(1) of the partnership audit and litigation
procedures, secs. 6221-6233, enacted in 1982 as part of the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-
248, sec. 402(a), 96 Stat. 648 (TEFRA partnership procedures),
governs the time period for filing the petition.
Under the TEFRA partnership procedures, "the tax treatment
of any partnership item shall be determined at the partnership
level." Sec. 6221. "A partner's treatment of partnership items
on the partner's return may not be changed except as provided in
sections 6222 through 6231 of the Code and the regulations
thereunder." Sec. 301.6221-1T(a), Temporary Proced. & Admin.
Regs., 52 Fed. Reg. 6779, 6781 (Mar. 5, 1987). The TEFRA
partnership procedures were designed to "provide a method for
uniformly adjusting items of partnership income, loss, deduction,
or credit that affect each partner." Harrell v. Commissioner, 91
T.C. 242, 243 (1988). "Congress decided that no longer would a
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partner's tax liability be determined uniquely but 'the tax
treatment of any partnership item [would] be determined at the
partnership level.'" Maxwell v. Commissioner, 87 T.C. 783, 787
(1986) (citing section 6621).
Pursuant to section 6226(b)(1), any notice partner may file
a petition "within 60 days after the close of the 90-day period
set forth in subsection (a)". Subsection (a) of section 6226
states in pertinent part:
(a) Petition by Tax Matters Partner.--Within 90 days
after the day on which a notice of a final partnership
administrative adjustment is mailed to the tax matters
partner, the tax matters partner may file a petition for a
readjustment of the partnership items for such taxable year
with--
(1) the Tax Court,
Section 6231(a)(8) defines a "notice partner" as a "partner who,
at the time in question, would be entitled to notice under
subsection (a) of section 6223 (determined without regard to
subsections (b)(2) and (e)(1)(B) thereof)." Section 6223(a)
provides:
(a) Secretary Must Give Partners Notice of Beginning
and Completion of Administrative Proceedings.--The Secretary
shall mail to each partner whose name and address is
furnished to the Secretary notice of--
(1) the beginning of an administrative proceeding
at the partnership level with respect to a partnership
item, and
(2) the final partnership administrative
adjustment resulting from such proceeding.
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A partner shall not be entitled to any notice under this
subsection unless the Secretary has received (at least 30
days before it is mailed to the tax matters partner)
sufficient information to enable the Secretary to determine
that such partner is entitled to such notice and to provide
such notice to such partner.
Subsections (b)(2) and (e)(1)(B) of section 6223 involve special
rules relating to partnerships with more than 100 partners and
are not pertinent here. Since petitioners have furnished their
names and address to the Secretary, petitioners fit within the
definition of a "notice partner" if the TEFRA partnership
procedures apply. See sec. 6231(a)(8).
Therefore, if the TEFRA partnership procedures apply, then
petitioners would have no less than 90 days after respondent
mails the notice of final partnership administrative adjustment
(FPAA) to file their petition.
Respondent argues that the TEFRA partnership procedures do
not cover Executive Inn because Executive Inn falls within the
"small partnership" exception. See sec. 6231(a)(1)(B). A small
partnership is excepted from these procedures, provided that--
(I) such partnership has 10 or fewer partners each of
whom is a natural person (other than a nonresident alien) or
an estate, and
(II) each partner's share of each partnership item is
the same as his share of every other item.
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For purposes of the preceding sentence, a husband and wife
(and their estates) shall be treated as 1 partner.
[Sec. 6231(a)(1)(B)(i).1]
Congress enacted the small partnership exception in TEFRA to
ensure that only "simple" partnerships would be excepted. See
McKnight v. Commissioner, 99 T.C. 180, 185 (1992), affd. 7 F.3d
447 (5th Cir. 1993); Tax Compliance Act of 1982 and Related
Legislation: Hearings on H.R. 6300 Before the House Committee on
Ways and Means, 97th Cong., 2d Sess. 259-261 (1982). These
simple partnerships were described in the aforesaid legislative
history as partnerships whose members "treat themselves as co-
ownerships rather than partnerships, and each co-owner resolves
his own tax responsibilities separately as an individual with the
IRS."
A small partnership may elect to have the TEFRA partnership
procedures apply. See sec. 6231(a)(1)(B)(ii). If made, the
election will apply for the taxable year of election and all
subsequent taxable years unless revoked with the consent of the
Secretary. See McKnight v. Commissioner, supra at 185.
In this case, under section 6231(a)(1)(B)(i), Executive Inn
is deemed to have had only two partners--petitioners as husband
1
The above version of the statute applies to the tax years
1994 and 1995 involved here. The Taxpayer Relief Act of 1997,
Pub. L. 105-34, sec. 1234(a), 111 Stat. 788, 1024, amended sec.
6231(a)(1)(B)(i), effective for partnership tax years ending
after Aug. 5, 1997.
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and wife, and Kenneth and Rosemary Manrao as husband and wife--
thereby meeting the first requirement of the small partnership
exception. See sec. 6231(a)(1)(B)(i)(I). Furthermore, there is
no indication that Executive Inn filed an election under section
6231(a)(1)(B)(ii) to be treated as a partnership for purposes of
the TEFRA partnership procedures. In fact, Executive Inn
indicated on Schedule B of its Form 1065, U.S. Partnership Return
of Income, line 4, for the 1994 and 1995 taxable years that it
was not subject to the consolidated audit procedures of sections
6221 through 6233.
The remaining question, therefore, is whether the second
requirement that each partner's share of each partnership item
was the same as his share of every other item has been satisfied.
See sec. 6231(a)(1)(B)(i)(II). Section 301.6231(a)(1)-1T(a)(3),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6789 (Mar. 5,
1987), provides in pertinent part:
(3) "Same share." The requirement of section
6231(a)(1)(B)(i)(II) is satisfied for a taxable year if
during all periods within that taxable year each partner's
share of each of the partnership items specified in §
301.6231(a)(3)-1(a)(1)(i) through (iv) is the same as that
partner's share of each of the other partnership items
specified in that section during that period (even though
the partner's share of all such specified partnership items
changes from period to period within that taxable year)
* * *
The partnership items referred to in these regulations are:
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(i) Items of income, gain, loss, deduction, or credit
of the partnership;
(ii) Expenditures by the partnership not deductible in
computing its taxable income (for example, charitable
contributions);
(iii) Items of the partnership which may be tax
preference items under section 57(a) for any partner;
(iv) Income of the partnership exempt from tax.
[Sec. 301.6231(a)(3)-1(a)(1), Proced. & Admin. Regs.]
The "same share" requirement is determined annually, see sec.
301.6231(a)(1)-1T(a)(4), Temporary Proced. & Admin. Regs., 52
Fed. Reg. at 6789, "by examining the partnership return and the
corresponding Schedules K-1, and any amendments thereto received
prior to" the commencement date of respondent's audit of the
partnership. Harrell v. Commissioner, 91 T.C. at 246; see also
Z-Tron Computer Research & Dev. Program v. Commissioner, 91 T.C.
258, 262 (1988). As previously noted, petitioners' Schedules
K-1 reflect that they had a 50-percent interest in partnership
profits, losses, and capital for the 1994 and 1995 taxable years.
Executive Inn's Forms 1065, for the 1994 and 1995 taxable years
reflect partnership ordinary income of $48,773 and $124,282,
respectively. The only partnership item listed on petitioners'
Schedules K-1 for the 1994 and 1995 taxable years is ordinary
income from trade or business activities. There is no indication
that petitioners had filed amendments to these forms prior to
commencement of the partnership audit. In accordance with their
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50-percent interest in partnership profits, losses, and capital,
petitioners' distributive share of Executive Inn's ordinary
income was 50 percent for both 1994 and 1995, $24,387 ($24,386.50
rounded to the nearest dollar) and $62,141, respectively.
Executive Inn has therefore satisfied the "same share"
requirement of section 6231(a)(1)(B)(i)(II).
Based on the foregoing, we hold that Executive Inn falls
within the small partnership exception under section
6231(a)(1)(B)(i), and is therefore not covered by the TEFRA
partnership procedures. Accordingly, the extended time period
for filing a petition for redetermination under section
6226(b)(1) of the TEFRA partnership procedures does not apply in
this case.
Petitioners argue that Congress could not have intended that
the small partnership exception would apply under these
circumstances. According to petitioners, respondent is abusing
the small partnership exception by using it as an excuse to
abandon a complex "partnership level examination and then to
issue a deficiency notice at the partner level (i.e., effectively
limiting challenge to the 'modifications' of partnership
income)". We disagree. Section 6231(a)(1)(B) simply codifies
Congress' intent to exempt simple partnerships, like Executive
Inn, from the TEFRA partnership procedures. See McKnight v.
Commissioner, 99 T.C. at 185; H. Conf. Rept. 97-760 (1982), 1982-
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2 C.B. 667. As noted above, partners in simple partnerships,
like petitioners, resolve their "own tax responsibilities
separately as [individuals] with the IRS", McKnight v.
Commissioner, 99 T.C. at 185; see Tax Compliance Act of 1982 and
Related Legislation: Hearings on H.R. 6300 Before the House
Committee on Ways and Means, 97th Cong., 2d Sess. 260 (1982)
(Statement of John S. Nolan, Chairman, Section of Taxation,
American Bar Association).
Furthermore, petitioners had the right, which they have
attempted to exercise in this case, to challenge respondent's
determinations resulting from modifications to partnership income
by filing a petition for redetermination within 90 days of the
mailing of the notice of deficiency. See sec. 6213(a).
Petitioners have only themselves to blame for the fact that we
lack jurisdiction over this matter because of their untimely
filing.
Petitioners further argue that the provisions of subchapter
K (sections 701 through 761) and the definitions set forth in
section 7701(a)(2) (defining the terms "Partnership and Partner")
and (14) (defining the term "Taxpayer") somehow mandate the
application of the TEFRA partnership procedures in this case. As
noted above, the TEFRA partnership procedures "provide a method
for uniformly adjusting items of partnership income, loss,
deduction, or credit that affect each partner". Harrell v.
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Commissioner, 91 T.C. at 243. The provisions of subchapter K,
which dictate the substantive determination of a partner's tax
liability, do not in any way affect these procedures.
Furthermore, the definitions set forth in section 7701(a)
apply only "where not otherwise distinctly expressed or
manifestly incompatible with the intent thereof--". In this
case, the term "partnership" has been specifically defined for
purposes of the TEFRA partnership procedures in section
6231(a)(1). Therefore, petitioners' reliance on section
7701(a)(2) and (14) is misplaced.
Petitioners' remaining arguments are either meritless or are
mooted by our holding that the TEFRA partnership procedures do
not apply.
Since petitioners filed their petition more than 90 days
after the mailing of the deficiency notice, respondent's motion
to dismiss for lack of jurisdiction will be granted.
To reflect the foregoing,
An appropriate order of
dismissal will be entered.