T.C. Memo. 2009-305
UNITED STATES TAX COURT
THOMAS AND DEBORAH MCINTYRE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 24581-07, 21997-08. Filed December 23, 2009.
Terri A. Merriam and Adam J. Blake, for petitioners.
Nhi T. Luu, for respondent.
MEMORANDUM OPINION
KROUPA, Judge: These consolidated cases are before the
Court on respondent’s motion to dismiss for lack of jurisdiction
and to strike partnership items and a theft loss claim from
taxable year 1998. Both cases are partner-level proceedings
involving this Court’s jurisdiction under the partnership
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provisions of the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA), Pub. L. 97-248, sec. 402, 96 Stat. 648.
Petitioners were partners in various Hoyt-related1 TEFRA
partnerships in 1995 and 1996 and received distributive shares of
the partnerships’ losses for those years. Petitioners’
partnership losses for 1996 also generated a net operating loss
(NOL) that petitioners carried back to 1994.2 Respondent issued
petitioners affected items deficiency notices (affected items
notices) for 1994, 1995 and 1996 disallowing the losses after the
related partnership-level proceedings had concluded.3 The
affected items are section 6662(a)4 accuracy-related penalties
1
The partnerships were organized, promoted, sold, and
managed by Jay Hoyt. Hoyt organized over 100 similar “investor”
partnerships for owning and breeding cattle. 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.
2
Petitioners’ partnership losses for 1995 also generated a
net operating loss that petitioners carried back to taxable years
1992 and 1993 that are not at issue.
3
Docket No. 24581-07 relates to the affected items notices
for 1994 and 1995 that respondent issued on July 26, 2007.
Docket No. 21997-08 relates to the affected items notices for
1995 and 1996 that respondent issued on June 4, 2008.
4
All section references are to the Internal Revenue Code in
effect for the years at issue.
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based on petitioners' underpayments of income tax for those
years.
We are asked to decide whether we have jurisdiction to
redetermine the accuracy of respondent’s computational
adjustments and petitioners’ entitlement to a 1998 theft loss
offset. We dealt with this same issue in Hay v. Commissioner,
T.C. Memo. 2009-265. 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 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. Petitioners resided in Colorado at
the time they filed the petition.
Computational Adjustments for 1994, 1995, and 1996
Petitioners were partners in Shorthorn Genetic Engineering
1990-1, Durham Genetic Engineering 1986-2, Durham Genetic
Engineering 1986-3, and Durham Genetic Engineering 1986-4
(collectively, the partnerships) in 1995 and 1996. Decision
documents for taxable years 1995 and 1996 were entered in the
partnership proceedings beginning in April 2006.
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Respondent made computational adjustments to petitioners’
tax liabilities for 1995 and 1996 based on the decisions entered
in the partnership proceedings. Respondent disallowed portions
of petitioners’ distributive shares of losses from the
partnerships for 1995 and 1996 resulting in underpayments for
those years. Respondent also disallowed the NOL carryback from
1996 to 1994 resulting in an underpayment for 1994. Respondent
did not remove certain section 1231 gain for 1995 that
petitioners claim was related to the Hoyt investment and should
have been removed. Respondent determined petitioners were liable
for section 6662(a) accuracy-related penalties for the
underpayments for 1994, 1995, and 1996. Respondent issued
petitioners the affected items notices for those years, which are
at issue in this proceeding.
1998 Theft Loss Carryback
Petitioners filed amended returns for 1995, 1996 and 1998.
Petitioners claimed a $70,619 personal theft loss from the Hoyt
investment on the amended return for 1998. Petitioners sought to
have the alleged overpayment of income tax for 1998 carried back
to reduce the deficiency on the amended return for 1995 and then
carried forward to reduce the deficiency for 1996.
Respondent informed petitioners six years ago that
respondent would refrain from processing petitioners’ amended
returns until the partnership proceedings were completed. As
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previously noted, the partnership proceedings concluded in 2006.
Despite the three years since the partnership proceedings’
conclusion, respondent has not processed the amended returns for
1995, 1996 and 1998, nor has respondent issued petitioners a
deficiency notice for 1998. Petitioners filed a claim of
erroneous computation with respondent to obtain a refund and also
raise the theft loss issue in this proceeding to compel
respondent to process their returns. Rather than processing
their returns, respondent filed the pending motion to dismiss for
lack of jurisdiction and to strike the partnership items and the
theft loss claim from 1998.
Discussion
We begin our analysis with a discussion of our jurisdiction
over a TEFRA partner-level proceeding.5 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
notice and a timely filed petition. GAF Corp. & Subs. v.
Commissioner, supra at 521. A taxpayer may generally file a
5
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. 84, 90 (2008).
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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).6
I. Computational Adjustments for 1994, 1995, and 1996
We must first decide whether we have jurisdiction to
redetermine respondent’s computational adjustments following the
partnership proceedings. Petitioners ask us to redetermine the
computational adjustments by reconsidering partnership items that
were finally determined in the related partnership-level
proceedings. Specifically, petitioners ask us to remove Hoyt-
related section 1231 gain from the computation for 1995.
Petitioners also ask us to determine that they were not partners
in a Hoyt partnership in 1996 and that respondent therefore
improperly disallowed the losses for that year and the NOL
carryback to 1994. Respondent contends that we lack jurisdiction
6
The Taxpayer Relief Act of 1997 amended sec. 6230(a)(2)(A)
to exclude “penalties, [and] 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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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 deficiency 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 section 1231 gain petitioners
ask us to reconsider is a partnership item that should have been
addressed in the partnership proceedings. See sec.
301.6231(a)(3)-1(a)(1), Proced. & Admin. Regs. Final decisions
for 1995 and 1996 have already been entered at the partnership
level. We hold, therefore, that we lack jurisdiction to
redetermine respondent’s computational adjustments for 1995 in
this proceeding.
Petitioners make a second argument regarding the
computational adjustments for 1996. Petitioners argue that
respondent improperly disallowed the losses claimed on the return
for 1996 and carried back to 1994 as Hoyt related because
petitioners were not involved in any Hoyt partnerships in 1996.
We lack jurisdiction to determine in this proceeding whether
petitioners were partners in a Hoyt partnership in 1996. Partner
status is a partnership item where it is necessary to know who
the partners are when determining each partner’s distributive
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share. Blonien v. Commissioner, 118 T.C. 541, 551 (2002).
Respondent’s computational adjustments after the 1996 partnership
proceedings were based on petitioners’ distributive share of
partnership losses. Petitioners should have raised the argument
that they were not partners in 1996 at the partnership
proceeding. They cannot raise it now. We lack jurisdiction to
determine whether the losses were improperly disallowed because
petitioners’ status as partners is a partnership item and we lack
jurisdiction to redetermine deficiencies attributable to
partnership items in an affected items deficiency proceeding.
See Crowell v. Commissioner, supra; Saso v. Commissioner, supra;
Maxwell v. Commissioner, supra.
Petitioners make a third argument regarding our ability to
redetermine the accuracy-related penalties for each of the years
at issue. Petitioners maintain we have jurisdiction over the
accuracy-related penalties because they are affected items,
rather than partnership items, and this is an affected items
deficiency proceeding. We agree with petitioners that the
accuracy-related penalties are affected items because they are
based on tax petitioners owe as a result of adjustments to
partnership items on the partnership returns. See Olson 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).
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We lack jurisdiction, however, in an affected items
deficiency proceeding as here to redetermine 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 the Commissioner’s
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. Accordingly, we find
that we lack jurisdiction to redetermine respondent’s
computational adjustments for 1994, 1995, and 1996 in this
partner-level proceeding.
II. 1998 Theft Loss Carryback to 1995 and 1996
The next issue we must decide is whether we have
jurisdiction to offset petitioners’ 1995 and 1996 deficiencies
with the theft loss petitioners claimed on the amended return for
1998. Respondent argues that this Court lacks jurisdiction to
determine whether petitioners are entitled to the 1998 theft loss
carryback because we lack jurisdiction to redetermine the
deficiencies for 1995 and 1996. We agree.
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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 deficiencies for 1995 and 1996
because the deficiencies are attributable to partnership items
and we lack jurisdiction to redetermine deficiencies attributable
to partnership items in an affected items proceeding. Moreover,
petitioners 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 petitioners are entitled to a 1998 theft loss carryback
to tax years 1995 and 1996.7
To reflect the foregoing and the concessions of the parties,
An appropriate order will
be issued.
7
We note that our holding does not bar petitioners from
seeking future relief on these issues. Petitioners may challenge
respondent’s computational adjustments for 1994, 1995 and 1996 by
paying them and filing a claim for a refund. See sec. 6230(c).