T.C. Memo. 2009-265
UNITED STATES TAX COURT
GILBERT HAY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 26413-07. Filed November 23, 2009.
Terri A. Merriam, Jaret R. Coles, and Adam J. Blake, for
petitioner.
Nhi T. Luu, for respondent.
MEMORANDUM OPINION
KROUPA, Judge: This partner-level matter is before the
Court on respondent’s motion to dismiss for lack of jurisdiction
and to strike partnership items and theft loss claim from taxable
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year 1998.1 It involves this Court’s jurisdiction under the
partnership provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402, 96
Stat. 648.
Petitioner was a partner in various TEFRA partnerships
during the years at issue. Respondent issued petitioner affected
items deficiency notices (deficiency notices) for 1994 and 1995
after the related partnership-level proceedings had concluded.
The deficiencies are attributable to section 6662(a) accuracy-
related penalties based on petitioner’s underpayments of income
tax for 1994 and 1995.2 After concessions,3 we are asked to
decide whether we have jurisdiction to determine the mathematical
accuracy of respondent’s computational adjustments and
petitioner’s entitlement to a 1998 theft loss offset. We hold
that this Court lacks jurisdiction to redetermine respondent’s
computational adjustments and the theft loss offset because this
is an affected items deficiency proceeding. Accordingly, we will
1
Docket No. 26413-07 (1994 and 1995 taxable years) and
Docket No. 17595-08 (1993 taxable year) are consolidated cases.
Respondent’s motion to dismiss applies only to Docket No. 26413-
07 because petitioner has not challenged respondent’s
computational adjustments for 1993.
2
All section references are to the Internal Revenue Code in
effect for the years at issue.
3
Petitioner concedes that he is liable for the accuracy-
related penalties for 1994 and 1995 but contests the computation
of the amount of the underpayment upon which the penalties are
based.
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grant respondent’s motion to dismiss for lack of jurisdiction and
to strike the partnership items and 1998 theft loss claim.
Background
The following information is stated for purposes of
resolving the pending motion. Petitioner resided in Tennessee at
the time he filed the petition.
Computational Adjustments for 1994 and 1995
Petitioner was a partner in Washoe Ranches #7, a cattle
partnership organized and promoted by Jay Hoyt (Hoyt) during the
years at issue. Hoyt organized over 100 “investor” partnerships
like Washoe for owning and breeding cattle. The investor
partnerships were partners in upper-tier Hoyt-managed
partnerships.4
Respondent issued notices of final partnership
administrative adjustment (FPAAs) to Washoe for 1994 and 1995.
Respondent determined that the Washoe partnership “lacked
economic substance” and therefore disallowed all of Washoe’s
income and expense items for those years. Washoe’s tax matters
partner filed petitions with this Court seeking redetermination
4
This Court determined in 2000 that Hoyt cattle operations
constituted a tax shelter. Durham Farms #1, J.V. v.
Commissioner, T.C. Memo. 2000-159, affd. 59 Fed. Appx. 952 (9th
Cir. 2003). Respondent subsequently removed all Hoyt income and
deductions from the investor partnership returns, and then he
made computational adjustments to the individual partners’
returns following the respective partnership proceedings.
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of the adjustments in the 1994 and 1995 FPAAs.5 These Washoe
partnership proceedings for 1994 and 1995 settled in 2006.
Respondent made computational adjustments to petitioner’s
tax liabilities for 1994 and 1995 once the Washoe partnership
proceedings had concluded. Respondent disallowed portions of
petitioner’s distributive shares of losses from Washoe that
resulted in underpayments of petitioner’s income taxes for those
years. Respondent also determined petitioner was liable for
section 6662(a) accuracy-related penalties of $1,675 for 1994 and
$3,796 for 1995. Respondent issued petitioner the affected items
deficiency notices for 1994 and 1995, which are at issue in this
proceeding.
Petitioner timely filed a petition seeking a redetermination
of the section 6662(a) accuracy-related penalties for 1994 and
1995.
1998 Theft Loss Carryback
Petitioner also filed amended returns for 1995 and 1998
before the Washoe partnership proceedings had concluded.
Petitioner claimed a $66,685 personal theft loss from the Hoyt
investment on the amended return for 1998. Petitioner sought to
5
The partnership-level proceedings were Washoe Ranches No.
7, J.V. v. Commissioner, Docket No. 15257-98 (taxable year 1994),
and Washoe Ranches No. 7, J.V. v. Commissioner, Docket No. 14153-
99 (taxable year 1995).
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have the alleged overpayment of income tax for 1998 applied to
reduce the deficiency on the amended return for 1995.
Respondent informed petitioner seven years ago that
respondent would refrain from processing petitioner’s amended
returns until the Washoe partnership proceedings were completed.
As previously noted, the Washoe partnership proceedings concluded
in 2006. Despite the three year period since the partnership
proceedings’ conclusion, respondent has not processed the amended
returns for 1995 and 1998, nor has respondent issued petitioner a
deficiency notice for 1998. Petitioner filed a claim of
erroneous computation with respondent to obtain a refund for 1995
and also raises the theft loss issue in this proceeding to compel
a response from respondent.
Discussion
We begin our analysis with a discussion of our jurisdiction
over a TEFRA partner-level proceeding.6 This Court is a court of
limited jurisdiction, and we may exercise jurisdiction only to
the extent provided by statute. Sec. 7442; GAF Corp. & Subs. v.
Commissioner, 114 T.C. 519, 521 (2000). Our jurisdiction to
redetermine a deficiency in tax depends on a valid deficiency
6
Congress enacted the unified audit and litigation
procedures of the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA) to provide consistent treatment among partners in
the same partnership and to ease the administrative burden that
resulted from duplicative audits and litigation. See Petaluma FX
Partners, LLC v. Commissioner, 131 T.C. __, __ (2008) (slip op.
at 10).
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notice and a timely filed petition. GAF Corp. & Subs. v.
Commissioner, supra at 521. A taxpayer may generally file a
petition for redetermination of a deficiency with this Court
after receiving a deficiency notice. Sec. 6213. Our
jurisdiction to redetermine the deficiency for a given year is
limited, however, by the deficiency notice issued by the
Commissioner. Sec. 6214. Furthermore, normal deficiency
procedures apply only to affected items requiring partner-level
factual determinations and do not apply to computational
adjustments. See sec. 6230(a)(2)(A).7
We now address each of petitioner’s arguments.
I. Computational Adjustments for 1994 and 1995
We must first decide whether we have jurisdiction to
redetermine the mathematical accuracy of respondent’s
computational adjustments following the Hoyt and Washoe
partnership proceedings. Petitioner asks us to redetermine the
computational adjustments for 1994 and 1995 by reconsidering
partnership items that were finally determined in the related
partnership-level proceedings. Specifically, petitioner asks us
to remove the Hoyt-related income and corresponding self-
employment tax that flowed to petitioner from the Washoe
7
The Taxpayer Relief Act of 1997 amended sec. 6230(a)(2)(A)
to exclude “additions to tax * * * that relate to adjustments to
partnership items” from deficiency proceedings, effective for
partnership years ending after Aug. 5, 1997. Taxpayer Relief Act
of 1997, sec. 1238, Pub. L. 105-34, 111 Stat. 788 (1997).
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partnership proceeding. Petitioner also asks us to correct an
“overadjustment” from an upper-tier Hoyt partnership proceeding.
Respondent contends that we lack jurisdiction to redetermine
computational adjustments based on partnership items in an
affected items proceeding. We agree with respondent.
We have consistently held that we lack jurisdiction under
the TEFRA rules to redetermine an underpayment attributable to
partnership items in an affected items proceeding. Crowell v.
Commissioner, 102 T.C. 683, 689 (1994); Saso v. Commissioner, 93
T.C. 730, 734 (1989); Maxwell v. Commissioner, 87 T.C. 783, 788-
789 (1986). The items petitioner asks us to reconsider are all
partnership items that should have been addressed in the Hoyt and
Washoe partnership proceedings. See sec. 301.6231(a)(3)-1(a)(1),
Proced. & Admin. Regs. Final decisions for 1994 and 1995 have
already been entered at the Hoyt and Washoe partnership levels.
Accordingly, we lack jurisdiction to reconsider these items in
the present partner-level proceeding.
Petitioner also maintains that we have jurisdiction to
redetermine the accuracy-related penalties because they are
affected items, rather than partnership items, and this is an
affected items deficiency proceeding. We agree with petitioner
that the accuracy-related penalties are affected items because
they are based on tax petitioner owes as a result of adjustments
to partnership items on Washoe’s partnership returns. See Olson
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v. Commissioner, T.C. Memo. 1996-384; sec. 301.6231(a)(5)-1T(d),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6790 (Mar. 5,
1987).
We lack jurisdiction, however, in an affected items
deficiency proceeding as here to redetermine petitioner’s
liability for affected items that do not require partner-level
factual determinations. See sec. 6230(a); Brookes v.
Commissioner, 108 T.C. 1, 5 (1997); Crowell v. Commissioner,
supra; N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 744-
745 (1987). We have repeatedly held that we lack jurisdiction in
an affected items deficiency proceeding to redetermine
computational adjustments. Brookes v. Commissioner, supra at 5;
Bradley v. Commissioner, 100 T.C. 367, 371 (1993); Saso v.
Commissioner, supra at 734; Kohn v. Commissioner, T.C. Memo.
1999-150; Olson v. Commissioner, supra. Moreover, petitioner
concedes that he is liable for the penalties and has put only the
amounts of the computational adjustments at issue. Accordingly,
we find that we lack jurisdiction to redetermine respondent’s
computational adjustments for 1994 and 1995 in this partner-level
proceeding.
II. 1998 Theft Loss Carryback to 1995
The next issue we must decide is whether we have
jurisdiction to offset petitioner’s 1995 deficiency with the
theft loss petitioner claimed on the amended return for 1998.
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Respondent argues that this Court lacks jurisdiction to determine
the 1998 theft loss carryback to 1995 because we lack
jurisdiction to redetermine the deficiency for 1995. We agree.
Generally this Court has jurisdiction to consider the later
years not before the Court that may be necessary to correctly
redetermine the deficiency for the years currently before the
Court. Sec. 6214(b); Vincentini v. Commissioner, T.C. Memo.
2008-271. We have already decided, however, that we lack
jurisdiction to redetermine the deficiency for 1995 because this
is an affected items proceeding and petitioner has placed only
respondent’s computational adjustments at issue. Moreover,
petitioner cannot confer jurisdiction where none exists. See
Evans Publg., Inc. v. Commissioner, 119 T.C. 242, 249 (2002).
Accordingly, we conclude that we lack jurisdiction to determine
whether petitioner is entitled to a 1998 theft loss carryback to
tax year 1995.8
To reflect the foregoing and the concessions of the parties,
An appropriate order will
be issued.
8
We note that our holding does not bar petitioner from
obtaining future relief on these issues. Petitioner may
challenge respondent’s computational adjustments for 1994 and
1995 by paying the penalty and filing a claim for a refund. See
sec. 6230(c). Furthermore, petitioner’s claim to the 1998 theft
loss is not barred by sec. 6512(a) because the year 1998 is not
before this Court.