T.C. Memo. 2008-147
UNITED STATES TAX COURT
EARL W. AND MARILYN L. MCCLASKEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18744-06. Filed June 9, 2008.
Edward T. Perry, for petitioners.
David Rakonitz, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined that petitioners are
liable for additions to tax for negligence under section
6653(a)(1)1 of $169 and $175 for 1983 and 1985, respectively, and
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years at issue. Rule
references are to the Tax Court Rules of Practice and Procedure.
(continued...)
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under section 6653(a)(2) for 50 percent of the interest due on
$3,386 and $286, respectively. The issue for decision is whether
respondent timely mailed notices of the beginning of an
administrative proceeding (NBAPs) and notices of final
partnership administrative adjustment (FPAAs) with respect to
Contra Costa Jojoba Research Partners (CCJRP) for the years at
issue.2
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
California when their petition was filed.
After attending seminars in 1983 on the benefits of
investing in the research and development of methods of growing
and enhancing jojoba plants, petitioners decided to invest in
CCJRP, a limited partnership that purported to do work with the
jojoba plant. In 1983 they received a 2.857-percent interest in
CCJRP in exchange for $5,500 cash and a $8,250 promissory note.
1
(...continued)
Amounts are rounded to the nearest dollar.
2
In their pretrial memorandum petitioners raised the issue
of whether they were negligent in claiming losses with respect to
CCJRP on their 1983 and 1985 returns. In their opening and reply
briefs petitioners expressly state that the only issue for
decision is whether respondent timely mailed NBAPs and FPAAs. It
is clear that petitioners intended to abandon or concede all
other issues. Because petitioners bear the burden of proof on
those issues, see Rule 142(a), we need not address them.
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In 1983 and 1985 CCJRP provided petitioners Schedules K-1,
Partner’s Share of Income, Credits, Deductions, etc., in which
CCJRP allocated petitioners ordinary losses of $12,500 and
$1,290, respectively. In turn, on their 1983 and 1985 joint
Forms 1040, U.S. Individual Income Tax Return, petitioners
claimed ordinary losses with respect to their interest in CCJRP
of $12,500 and $1,290, respectively.
On April 12, 1989, respondent issued FPAAs for 1983 and 1985
to CCJRP’s tax matters partner. On July 13, 1989, a petition in
the name of CCJRP, Charles B. Toepfer, Tax Matters Partner, was
filed with the Court at docket No. 17323-89. On January 28,
1994, to settle the case at docket No. 17323-89, the tax matters
partner and respondent filed a stipulation to accept and be bound
by the result in Utah Jojoba I Research v. Commissioner (Utah
Jojoba I), a test case at docket No. 7619-90. Petitioners
testified that the only documents they received with respect to
CCJRP were Schedules K-1 and that they knew nothing of the
partnership proceedings.
We issued our opinion in Utah Jojoba I on January 5, 1998,
holding that the partnership was not entitled to deduct its
losses for research and development expenditures. See Utah
Jojoba I Research v. Commissioner, T.C. Memo. 1998-6. On April
11, 2005, the Court entered a decision against CCJRP sustaining
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the partnership item adjustments as determined and set forth in
the FPAAs. That decision was not appealed.
On June 12 and July 3, 2006, respondent timely issued
petitioners affected items notices of deficiency for the years at
issue disallowing the CCJRP losses petitioners claimed.3
Petitioners timely filed a petition, and trial was held on
October 24, 2007.
OPINION
Notice of Partnership Proceedings Required
The tax treatment of a partnership item generally is
determined at the partnership level pursuant to the unified audit
and litigation procedures set forth in sections 6221 through
6231.4 Tax Equity and Fiscal Responsibility Act of 1982, Pub. L.
97-248, sec. 402(a), 96 Stat. 648. On the other hand,
nonpartnership items are determined at the individual partner
level. Affiliated Equip. Leasing II v. Commissioner, 97 T.C.
575, 576 (1991). 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.
3
The limitations period in this case expired on July 10,
2006, 1 year and 90 days after the Court’s Apr. 11, 2005,
decision was entered. See secs. 6229(d), 7481(a)(1), 7483; Ghose
v. Commissioner, T.C. Memo. 2008-80.
4
These procedures apply with respect to all taxable years of
a partnership beginning after Sept. 3, 1982. Sparks v.
Commissioner, 87 T.C. 1279, 1284 (1986); Maxwell v. Commissioner,
87 T.C. 783, 789 n.4 (1986).
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301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs. A
nonpartnership item is an item which is not a partnership item.
Sec. 6231(a)(3) and (4).
Section 6223(a) generally provides that the Commissioner
shall mail to each partner an NBAP with respect to a partnership
item, as well as an FPAA resulting from any such proceeding.
Section 6223(e)(2) provides that the Commissioner’s failure to
provide notice of partnership-level proceedings to a partner may
result in that partner’s share of partnership items being treated
as nonpartnership items.5 See sec. 6231(b)(1)(D).
Petitioners contend that the CCJRP partnership items became
nonpartnership items by virtue of respondent’s failure to notify
them of partnership-level proceedings. See Crowell v.
Commissioner, 102 T.C. 683 (1994). If respondent did not provide
petitioners with proper notice of the partnership proceedings and
petitioners’ share of partnership items is treated as a
nonpartnership item, the validity of the affected items
deficiency notices is in question. See id. at 691. The
Commissioner cannot issue a valid affected items deficiency
notice to a partner if that partner’s share of partnership items
is entitled to nonpartnership item treatment. Id. Where the
5
The parties dispute the effect of respondent’s failure to
mail an NBAP if an FPAA is properly mailed. Because we determine
that NBAPs were timely mailed, we need not address the parties’
arguments on this point.
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validity of an affected items deficiency notice is questioned in
this manner, the Commissioner must demonstrate that he complied
with the notice requirements set forth in section 6223(a). Id.
at 691-692. As is the case with a notice of deficiency, the
validity of properly mailed partnership notices is not contingent
upon actual receipt by either the tax matters partner or a notice
partner. Id. at 692; Yusko v. Commissioner, 89 T.C. 806, 810
(1987); Downs v. Commissioner, T.C. Memo. 2000-155.
Mailing of the NBAPs
As evidence of the mailing of the 1983 NBAP on October 10,
1985, respondent introduced an NBAP mailing log and the testimony
of Peggy Allred, who is familiar with the practices and
procedures for mailing NBAPs during the relevant period. For the
years at issue, respondent did not mail NBAPs by certified mail.
In 1985 respondent tracked NBAP mailings using a log. The 1983
NBAP mailing log is dated October 10, 1985, which matches the
date on the 1983 NBAP. The log is initialed, which shows it was
reviewed for accuracy. The log shows petitioners’ names,
address,6 percentage interest in CCJRP, and petitioner husband’s
Social Security Number.
6
Respondent mailed the NBAPs and FPAAs to petitioners’ home
address, where they had lived since 1965. Petitioners do not
claim that the notices were sent to an incorrect address.
Rather, they claim that the notices were not mailed at all.
-7-
As evidence of the timely mailing of the 1985 NBAP on
September 14, 1987, respondent introduced the testimony of Peggy
Allred and a Certification of NBAP Notices which respondent used
to track the mailing of NBAPs in 1987. The date of the
certification matches the date on the NBAP. The certification
shows petitioners’ names, address, percentage ownership in CCJRP,
and petitioner husband’s Social Security Number. It is signed
and dated September 14, 1987.
The evidence indicates that respondent complied with all
applicable procedures in mailing the NBAPs at issue.
Nevertheless, petitioners testified that they did not receive the
NBAPs. As with an FPAA, actual receipt of the NBAP is not
necessary. Crowell v. Commissioner, supra at 692. Petitioners
presented no other evidence which would tend to indicate the
NBAPs were not properly mailed.7 We therefore find on the
preponderance of the evidence that the NBAPs for the years at
issue were timely mailed to petitioners.8
7
Respondent’s disclosure office was at first unable to
provide petitioners copies of certain NBAPs and FPAAs because the
1985 examination file was missing. These documents were later
found. We draw no inference from respondent’s temporary
inability to locate the file.
8
Sec. 6223(d)(1) provides that an NBAP be mailed more than
120 days before the date that the Commissioner mails the FPAA to
the tax matters partner. Respondent mailed the 1983 and 1985
NBAPs on Oct. 10, 1985, and Sept. 14, 1987, respectively, and the
FPAAs on Apr. 12, 1989, more than 120 days later.
-8-
Mailing of the FPAAs
As evidence of the timely mailing of the FPAAs on May 30,
1989, respondent introduced into evidence FPAA Certified Mail
Listings for the years at issue and the testimony of Susan Kent,
who is familiar with respondent’s practices and procedures for
FPAA mailings in 1989. In 1989 respondent mailed FPAAs by
certified mail and tracked FPAA mailings by using an FPAA
Certified Mail Listing. See Wayne Caldwell Escrow Pship. v.
Commissioner, T.C. Memo. 1996-401. After preparation of the mail
listings, respondent would correct any discrepancies between the
actual mail dates and the dates on the listing.
As shown by postmaster stamps, the postmaster reviewed the
FPAA Certified Mail Listings for accuracy. The postmaster
stamped both listings with the date May 30, 1989. Petitioners’
names, address, and ownership interest in CCJRP are on both FPAA
Certified Mail Listings along with petitioner husband’s Social
Security Number.
An FPAA Certified Mail Listing is highly probative evidence
of the fact and date of mailing. Id.; see Coleman v.
Commissioner, 94 T.C. 82, 90-91 (1990). “There is a strong
presumption in the law that a properly addressed letter will be
delivered, or offered for delivery, to the addressee.” Zenco
Engg. Corp. v. Commissioner, 75 T.C. 318, 323 (1980), affd.
without published opinion 673 F.2d 1332 (7th Cir. 1981).
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Further, it is clear that in general, and in the absence of
evidence to the contrary, compliance with certified mail
procedures raises a presumption of official regularity in
delivery with respect to notices sent by the Commissioner. See
United States v. Zolla, 724 F.2d 808, 810 (9th Cir. 1984); United
States v. Ahrens, 530 F.2d 781, 784-785 (8th Cir. 1976); Clough
v. Commissioner, 119 T.C. 183, 187-188 (2002).
The evidence indicates that respondent complied with all
procedures in mailing the FPAAs at issue. Petitioners testified
that they did not receive the FPAAs and that if delivery had been
attempted, they would have accepted it. They further testified
that they were unaware of the disallowance of CCJRP’s losses. As
stated previously, actual receipt of the FPAAs is not required.
Crowell v. Commissioner, supra at 692. Petitioners failed to
present any other evidence that would indicate the FPAAs were not
properly mailed. Therefore, we find on the preponderance of the
evidence that respondent timely mailed petitioners FPAAs with
respect to CCJRP for the years at issue.9
Conclusion
Because respondent timely mailed all notices required by
section 6223(a), the partnership items are not entitled to
9
Sec. 6223(d)(2) provides that the Commissioner shall mail
an FPAA to a notice partner within 60 days of the mailing of the
FPAA to the tax matters partner. Respondent mailed the FPAAs to
the tax matters partner on Apr. 12, 1989, and to the notice
partners on May 30, 1989, less than 60 days later.
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nonpartnership item treatment under section 6223(e)(2).
Accordingly, the notices of deficiency are valid, and petitioners
are liable for the additions to tax.
In reaching our holdings herein, we have considered all
arguments made, and, to the extent not mentioned above, we find
them to be moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.