129 T.C. No. 10
UNITED STATES TAX COURT
COLIN P. MURPHY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 656-06. Filed September 26, 2007.
P, an individual, is the sole beneficiary of an
irrevocable trust (T) which owns a 13-percent interest
in a general partnership (O). With respect to O’s 2000
taxable year, R mailed a notice of a final partnership
administrative adjustment (FPAA) to P, rather than to
T, for the purpose of meeting the notice requirement of
sec. 6223(a), I.R.C. When the FPAA was mailed, R
possessed readily available information relating to the
2000 Federal tax returns of P, T, and O. Those returns
reported P’s name, address, and indirect (through T)
profits interest in O.
Held: Pursuant to sec. 6223(c)(3), I.R.C., and
sec. 301.6223(c)-1T(f), Temporary Proced. & Admin.
Regs., 52 Fed. Reg. 6784 (Mar. 5, 1987), R’s mailing of
the FPAA to P, readily identified in R’s records as an
“indirect partner” of O within the meaning of sec.
6231(a)(10), I.R.C., met the notice requirement of sec.
6223(a), I.R.C.
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Albert L. Grasso, Joseph A. Zarlengo, and David B. Shiner,
for petitioner.
John J. Boyle, for respondent.
OPINION
LARO, Judge: This case is a Son-of-BOSS case submitted to
the Court fully stipulated pursuant to Rule 122.1 See generally
Kligfeld Holdings v. Commissioner, 128 T.C. 192 (2007), and
Notice 2000-44, 2000-2 C.B. 255, for a general description of
Son-of-BOSS cases. Petitioner petitioned the Court on January 9,
2006, to redetermine respondent’s determination of a $444,063
deficiency in petitioner’s 2000 Federal income tax and a
$177,625.20 accuracy-related penalty under section 6662. The
determinations were contained in an affected items notice of
deficiency mailed to petitioner on October 11, 2005, relating to
respondent’s adjustments in a notice of final partnership
administrative adjustment (FPAA) issued for the 2000 taxable year
of a general partnership named Ovation Trading Partners
(Ovation).
In an order dated November 1, 2006, the Court granted
respondent’s motion to dismiss this case for lack of jurisdiction
1
Rule references are to the Tax Court Rules of Practice and
Procedure. Unless otherwise noted, section references are to the
applicable versions of the Internal Revenue Code.
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to the extent that petitioner requested a redetermination of
respondent’s adjustments to Ovation’s partnership items and of
respondent’s determination on the applicability of section 6662.2
As stipulated by the parties, the sole issue remaining for
decision is whether the FPAA sent to petitioner for Ovation’s
2000 taxable year met the notice requirement of section 6223(a).3
If the notice requirement was met, then petitioner concedes
liability for the deficiency determined in the affected items
notice of deficiency. We hold that the notice requirement was
met.
Background
All facts were stipulated or contained in the exhibits
submitted with the parties’ stipulation of facts. Those
stipulated facts and exhibits are incorporated herein by this
reference. Petitioner was born on October 16, 1985, and he
resided at 4 Carlisle Drive, Oak Brook, Illinois (Oak Brook
address), at all relevant times. His father, Kevin Murphy, also
resided at the Oak Brook address during those times.
On March 16, 1995, petitioner’s uncle (Michael Murphy),
petitioner’s accountant (Lester Detterback), and Kevin Murphy
formed the Collin Murphy Trust (CM Trust) for the sole benefit of
2
The Court also ordered stricken the paragraphs of the
petition that related to the same.
3
Petitioner raised this issue in an amended petition filed
with the Court on Nov. 30, 2006.
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petitioner.4 The CM Trust agreement stated that CM Trust was
irrevocable. The CM Trust agreement also stated that Kevin
Murphy was CM Trust’s settlor and that Michael Murphy and Lester
Detterback were CM Trust’s trustees.
Ovation is an Illinois general partnership that was formed
on October 27, 2000, and that was liquidated on December 20,
2000. Ovation’s listed owners were four single-member limited
liability companies (LLCs). The LLCs, their members, and their
interests in Ovation were as follows:
LLC Member Interest
Fender Trading, LLC Kevin Murphy 68%
CPM Gibson Trading, LLC CM Trust 13
Martin Trading, LLC Christopher Murphy Trust 13
Ibanez Trading, LLC Michael Murphy 6
On August 31, 2001, petitioner filed his 2000 Federal income
tax return. The return reported CM Trust’s tax attributes (e.g.,
income and deductions) as if CM Trust was petitioner’s grantor
trust; i.e., the return reported the items as if they had been
realized directly by petitioner. On September 9, 2001, CM Trust
filed a 2000 Form 1041, U.S. Income Tax Return for Estates and
Trusts, reporting that CM Trust was petitioner’s grantor trust
for Federal income tax purposes. The trust return included a
“GRANTOR LETTER” identifying petitioner as the grantor of CM
Trust and stated on its face that “UNDER THE TERMS OF THE TRUST
4
The CM Trust agreement lists petitioner’s name with two
“l”s instead of one.
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INSTRUMENT, THIS IS A GRANTOR TRUST. IN ACCORDANCE WITH SECTIONS
671-678 IRC, 1986, ALL INCOME IS TAXABLE TO THE GRANTOR.
STATEMENTS OF INCOME, DEDUCTIONS AND CREDITS ARE ATTACHED.” The
trust return also reported that CM Trust was a partner in
Ovation. On September 6, 2001, Ovation filed a 2000 Form 1065,
U.S. Return of Partnership Income, for the period of its
existence. The partnership return reported that CM Trust was a
general partner of Ovation, with a 13-percent interest.5 The
partnership return reported that Ovation’s designated tax matters
partner was Kevin Murphy and that Kevin Murphy’s address was the
Oak Brook address.
On December 21, 2004, respondent mailed a notice of
beginning of administrative proceeding (NBAP) for Ovation’s 2000
taxable year to six separate addressees at the Oak Brook address.
The addressees were listed as Ovation’s tax matters partner,
Kevin Murphy in a capacity as Ovation’s tax matters partner,
Michael Murphy, petitioner, and two corporations not relevant
herein. The NBAPs mailed to Ovation’s tax matters partner and to
Kevin Murphy in a capacity as Ovation’s tax matters partner were
delivered by the United States Postal Service on December 23 and
5
While the partnership return reported that the 13-percent
interest was owned by “COLIN MURPHY TRUST DTD 3/16/95 CPM GI”, an
apparent reference to the Trust and CPM Gibson Trading, LLC, a
single-member limited liability company such as CPM Gibson
Trading, LLC, is disregarded as an entity for Federal income tax
purposes. See sec. 301.7701-2(c)(2), Proced. & Admin. Regs.
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27, 2004, respectively. On January 25, 2005, respondent mailed
the subject FPAA by certified mail to seven separate addressees
at the Oak Brook address. Those addressees were listed as
Ovation’s tax matters partner, Kevin Murphy in a capacity as
Ovation’s tax matters partner, Kevin Murphy in an individual
capacity, Michael Murphy, petitioner, and the two corporations
just mentioned. Also on January 25, 2005, respondent mailed an
“untimely notice letter” concerning Ovation’s 2000 taxable year
to five separate addressees at the Oak Brook address. Those
addressees were listed as Kevin Murphy, Michael Murphy, and
petitioner, each in his individual capacity, and the two
corporations just mentioned. The untimely notice letter stated
that either the NPAB or the FPAA or both were not mailed “within
the time required under Section 6223(d)” and that “you have the
right under Section 6223(e)(3)(B) to elect to have your items in
the partnership treated as nonpartnership items * * * [by filing]
a statement of the election with this office within 45 days from
the date of this letter.” No such election was ever filed.
All copies of the FPAA issued were returned to respondent
unclaimed, and no judicial review was timely sought in response
to the FPAA. On October 11, 2005, respondent mailed the subject
affected items notice of deficiency to petitioner.
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Discussion
We decide whether the FPAA sent to petitioner met the notice
requirement of section 6223(a). Petitioner argues it did not
because CM Trust, rather than petitioner, was the partner of
Ovation and respondent did not mail an FPAA to CM Trust.
Respondent asserts that he had sufficient information identifying
petitioner as an indirect partner of Ovation and establishing
petitioner’s mailing address and indirect profits interest in
Ovation. Respondent argues section 6223(c)(3) thus required
respondent to mail the FPAA directly to petitioner, rather than
to CM Trust. We agree with respondent.
Section 6223(a) provides that the Commissioner must notify
certain partners of the beginning and end of a partnership audit.
With respect to an “indirect partner” owning an interest in the
partnership through a “pass-thru partner” who would otherwise be
entitled to notice, the Commissioner must give notice to the
indirect partner, in lieu of the pass-thru partner, if the
Commissioner is properly furnished with information as to the
indirect partner’s name, address, and indirect profits interest
in the partnership. See sec. 6223(c)(3); see also sec.
6231(a)(9) (defining a “pass-through partner” as “a partnership,
estate, trust, S corporation, nominee, or other similar person
through whom other persons hold an interest in the partnership”);
sec. 6231(a)(10) (defining an “indirect partner” as a “person
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holding an interest in a partnership through 1 or more
pass-through partners”). The Commissioner’s duty to give notice
under section 6223(a) arises to the extent the Commissioner is
furnished with readily available information containing the name,
address, and profits interest of a direct or indirect partner in
either or both of two ways. First, the Commissioner may be
furnished the referenced information through the tax return of
the partnership under audit. See sec. 6223(c)(1). Second, the
Commissioner may be furnished the referenced information through
a statement that meets the requirements of section
301.6223(c)-1T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.
6784 (Mar. 5, 1987).6 See sec. 6223(c)(2); sec.
301.6223(c)-1T(a), Temporary Proced. & Admin. Regs., supra. In
addition to information that is furnished to the Commissioner in
these two ways, the Commissioner may use other readily available
information possessed by him. In that vein, the temporary
regulations provide that the Commissioner has no obligation to
6
The temporary regulations are effective for the year in
issue. Effective with partnership taxable years beginning on or
after Oct. 4, 2001, the Commissioner has final regulations on the
subject matter at hand. See sec. 301.6223(c)-1, Proced. & Admin.
Regs. The relevant provisions of the temporary regulations that
are applicable herein are similar to the final regulations. The
temporary regulations applicable herein are similar to the final
regulations.
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search his records to obtain information not provided to him
under either of the ways set forth in section 6223(c)(1) and (2).7
When the FPAA was mailed to petitioner on January 25, 2005,
respondent possessed and had sufficient readily available
information establishing petitioner’s name, address, and indirect
profit interest in Ovation. First, on August 31, 2001,
petitioner filed his personal income tax return identifying his
relationship to and beneficial interest in CM Trust. Second, on
September 6, 2001, Ovation filed its partnership return
identifying CM Trust as a general partner in Ovation with a
13-percent interest. Third, on September 9, 2001, CM Trust filed
its trust return reporting that CM Trust was petitioner’s grantor
trust for Federal income tax purposes and that CM Trust had a
direct ownership interest in Ovation. These three returns, each
of which related to petitioner or CM Trust, established a
sufficient basis for respondent to conclude that petitioner,
through CM Trust, had a 13-percent indirect profits interest in
7
As stated in the temporary regulations:
In addition to the information on the partnership
return and that supplied on statements filed under this
section, the Internal Revenue Service may use other
information in its possession (for example a change in
address reflected on a partner’s return) in
administering subchapter C of chapter 63 of the Code.
However, the [Internal Revenue] Service is not
obligated to search its records for information not
expressly furnished under this section. [Sec.
301.6223(c)-1T(f), Temporary Proced. & Admin. Regs., 52
Fed. Reg. 6784 (Mar. 5, 1987).]
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Ovation. Under the circumstances, respondent was permitted by
the statute and regulations to mail the FPAA to petitioner, an
indirect partner of Ovation, rather than to CM Trust, the direct
partner through which petitioner held his interest in Ovation.
See Crowell v. Commissioner, 102 T.C. 683, 692-693 (1994). We
conclude that the FPAA respondent mailed to petitioner at his
reported address met the notice requirement of section 6223(a) by
virtue of section 6223(c)(3).
Petitioner seeks a contrary conclusion, arguing that CM
Trust is a complex trust rather than a grantor trust and that a
complex trust is not a “pass-thru partner” within the meaning of
section 6223(c)(3). We consider this argument unavailing. For
purposes of section 6223(c)(3), section 6231(a)(9) plainly
defines the term “pass-thru partner” to include a “trust” that
holds an interest in a partnership. We read nothing in the
relevant provisions that expresses a legislative intent to limit
that definition to any particular type of trust. Moreover, under
the facts at hand, petitioner stated affirmatively on his
personal income tax return that CM Trust was his grantor trust,
and those statements were corroborated by the like position taken
by CM Trust on its trust tax return. Thus, even if a distinction
between a grantor trust and a complex trust was important in the
application of section 6223(c)(3), a conclusion that we do not
reach but which we discuss for purposes of completeness, we would
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be hard pressed to hold that respondent is not entitled to rely
upon tax-return information in his possession (including
petitioner’s own description of CM Trust) in determining how,
where, and to whom to mail the FPAA. See Waring v. Commissioner,
412 F.2d 800, 801 (3d Cir. 1969) (holding that statements in a
tax return are admissions that are not overcome without cogent
evidence that they are wrong), affg. per curiam T.C. Memo.
1968-126; Estate of Hall v. Commissioner, 92 T.C. 312, 337-338
(1989) (same).
Petitioner has stipulated that he will concede the
correctness of respondent’s determination of the income tax
deficiency if the Court concludes, as we do, that respondent’s
mailing of the FPAA to petitioner met the notice requirement of
section 6223(a). We apply that stipulation and will enter a
decision accordingly.8 We have considered all arguments made by
8
Petitioner attempts to disregard this stipulation by
arguing in brief that the Court should hold for him on equitable
grounds because of his young age. We decline to consider this
argument, limiting the grounds for our decision to the single
issue that the parties have placed before the Court through their
stipulation.
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petitioner for holdings contrary to those expressed herein and
reject those arguments not discussed herein as irrelevant or
without merit.
Decision will be entered
for respondent to the extent
of the income tax deficiency.