*13 A decision based on the stipulation of the parties will be entered.
Ps were limited partners in several partnerships with the
same designated tax matters partner (TMP). At the request of the
Internal Revenue Service (IRS), the TMP executed Forms 872,
Consent to Extend the Time to Assess Tax, extending the periods
of limitations for the years in issue.
Before executing the extensions, the TMP had been the
subject of criminal tax investigations by the IRS. The tax
investigations ended before the TMP executed most of the
extensions.
Ps alternatively contend: (1) That the second and third
sentences of
the initiation of a criminal tax investigation of the TMP
converted his partnership items into nonpartnership items as a
matter of law; (2) that the criminal tax investigation of the
TMP created a conflict of interest between the TMP's duties as a
fiduciary of the partnerships and his self-interest as the
subject of a criminal*14 tax investigation and that such a conflict
necessitated his removal as TMP based on the rationale of
Transpac Drilling Venture 1982-12 v.
(2d Cir. 1998), revg. and remanding Transpac Drilling Venture
1982-16 v.
respondent abused his discretion by not issuing a written notice
informing the TMP that his partnership items would be treated as
nonpartnership items.
HELD:
tax investigation did not create a disabling conflict of
interest and therefore did not terminate the TMP's designation.
HELD, FURTHER: Ps have not established that respondent abused
his discretion by not notifying the TMP that his partnership
items would be treated as nonpartnership items.
*116 OPINION
DAWSON, *15 JUDGE: This case was assigned to Special Trial Judge Stanley J. Goldberg pursuant to Rules 180, 181, and 183. All Rule references are to the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue. The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
GOLDBERG, SPECIAL TRIAL JUDGE: Respondent determined deficiencies in petitioners' Federal income taxes, additions to taxes, and penalties for the taxable years and in the amounts set forth below:
*117 Additions to Tax
__________________________________
Year Deficiency 6651(a) 6653(a) 6653(a)(1)(B)
________________________________________________________
1980 $ 3,917 -- -- --
1981 17 -- -- --
1982 1,248*16 -- -- --
1983 11,334 $ 1,043 -- --
1984 1,196 -- -- --
1985 4,662 -- -- --
1986 8,068 139 -- --
1987 54,708 7,402 $ 2,760 2
1988 52,048 8,981 2,670 --
[table continued]
Additions to Tax Additional
_________________ Interest
Year 6659 6661 Sec. 6621(c)
________________________________________________
1980 -- -- 1
1981 -- -- --
1982 -- --
1983 -- --
1984 -- --
1985 -- --
1986 -- --
1987 $16,412 $13 ,677
1988 15,614 13,012
[table continued]
Additions
to tax Penalties
_________ ______________________________________
*17
Year Deficiency 6651(a) 6662(h) 6662(e) 6662(d) 6662(c)
_____________________________________________________________________
1989 $ 43,986 $ 4,008 $ 17,594 $ 8,797 $ 8,797 $ 8,797
1990 25,515 4,697 6,593 3,296 5,103 5,103
1991 41,240 7,435 16,238 8,119 8,248 8,248
1992 222,282 10,792 88,913 44,456 44,456 44,456
After concessions, the sole issue to be decided is*18 whether the periods of limitations for the years in issue expired before the issuance of the final partnership administrative adjustments (FPAA's). The resolution of this issue depends upon whether Walter J. Hoyt III, as tax matters partner for the partnerships involved herein, validly executed various Forms 872, Consent to Extend the Time to Assess Tax.
This case was submitted fully stipulated pursuant to Rule 122. The stipulations of facts and the attached exhibits are incorporated herein by this reference. At the time the petition was filed, petitioners lived in Shell Beach, California.
In 1983, petitioners became limited partners in the Shorthorn Genetic Engineering 1983-2 partnership (SGE 83-2) and claimed losses and investment tax carrybacks to the 1980, 1981, and 1982 taxable years. Petitioners subsequently became limited partners in both the Durham Shorthorn Breed Syndicate 1987-E partnership (DSBS 87-E) and the Timeshare Breeding Service Joint Venture partnership (TBS J.V.). These three partnerships, hereinafter collectively referred to as the Hoyt partnerships, are TEFRA 1 partnerships subject to the provisions of sections 6221 through 6233 *118 for all post- 1982 taxable years*19 in issue. Petitioners claimed losses from the Hoyt partnerships through 1992.
Walter J. Hoyt III (Mr. Hoyt) was designated the tax matters partner (TMP) on the Hoyt partnership returns for the years in issue, with the sole exception of SGE 83-2, which did not list a designated TMP on its partnership return for the 1983 tax year. 2
As TMP, Mr. Hoyt executed extensions of the periods of limitations, extending the periods for*20 assessment and collection for the Hoyt partnerships as set forth below:
Date of
Form Date Extension Date FPAA
Partnership Year 1 Signed Signed Expiration Was Issued
____________________________________________________________________
SGE 83-2 1983 872-0 9/25/86 Indefinite 9/19/89
SGE 83-2 1984 872-0 8/01/87 Indefinite 9/19/89
SGE 83-2 1985 None - -- 9/19/89
SGE 83-2 1986 None - -- 6/25/90
SGE 83-2 1987 872-P 2/15/91 12/31/92 --
872 4/06/91 12/31/92 -
872 7/25/92 06/30/93 --
872-P 7/25/92 06/30/93 -
872-P 3/06/93 12/31/93 11/22/93
SGE 83-2 1988 872-P 2/14/91 *21 12/31/92 -
872 4/06/91 12/31/92 -
872 7/25/92 06/30/93 -
872-P 7/25/92 06/30/93 -
872-P 3/06/93 12/31/93 11/22/93
SGE 83-2 1989 872 7/25/92 06/30/93 -
872-P 7/25/92 06/30/93 -
872-P 3/06/93 12/31/93 11/22/93
SGE 83-2 1990 None - - 9/12/94
SGE 83-2 1991 None - - 3/27/95
SGE 83-2 1992 None - - 6/25/95
DSBS 87-E 1988 872-P 2/14/91 12/31/92 -
872 4/06/91 12/31/92 -
872 7/25/92 06/30/93 -
872-P 7/25/92 *22 06/30/93 -
872-P 3/06/93 12/31/93 10/25/93
DSBS 87-E 1989 872 7/25/92 06/30/93 -
872-P 7/25/92 06/30/93 -
872-P 3/06/93 12/31/93 10/18/93
DSBS 87-E 1990 None - - 7/15/94
DSBS 87-E 1991 None - - 4/24/95
TBS J.V. 1987 872-P 2/22/91 12/31/92 --
872 7/25/92 06/30/93 --
872-P 7/25/92 06/30/93 --
872-P 3/06/93 12/31/93 12/30/93
872 7/25/92 06/30/93 --
872-P 7/25/92 06/30/93 --
872-P 3/06/93 *23 12/31/93 12/30/93
TBS J.V. 2 1989 872 7/25/92 06/30/93 --
872-P 7/25/92 06/30/93 --
872-P 3/06/93 12/31/93 None 3
TBS J.V. 1990 None -- -- None
TBS J.V. 1991 None -- -- None
TBS J.V. 1992 None -- -- None
*119 Pursuant to the stipulations of the parties, 3 the periods of limitations for the following years are still in issue: (1) The 1983, 1987, 1988, and 1989 taxable years for SGE 83-2; (2) the 1988 and 1989 taxable years*24 for DSBS 87-E; and (3) the 1988, 1989, and 1990 taxable years for TBS J.V.
On April 23, 1984, the Examination Division of the Internal Revenue Service*25 (Examination Division) requested that the Criminal Investigation Division (CID) of the Internal Revenue Service (IRS) investigate Mr. Hoyt for allegedly preparing false and fraudulent individual income tax returns for 12 individuals. 4 Mr. Hoyt allegedly advised the 12 individuals that although they did not join certain Hoyt-managed partnerships until 1984, they could deduct partnership losses on their 1983 Federal income tax returns.
CID assigned a special agent to the investigation on April 24, 1984, and by June 3, 1985, the agent had deposed over 60 partners of various Hoyt-managed partnerships. 5
On April 21, 1986, CID*26 recommended that Mr. Hoyt be prosecuted under section 7206(2) for aiding and assisting in the preparation of false and fraudulent individual income tax returns for 12 individuals and referred the matter to the Sacramento IRS District Counsel. On July 31, 1986, District Counsel referred the matter to the United States Department of Justice *120 (Justice Department) for criminal prosecution. The Justice Department declined prosecution on August 12, 1987. 6
In addition to the earlier referral, the Examination Division referred a criminal fraud case involving Mr. Hoyt to CID on July 28, 1989. The criminal fraud referral was unrelated to the earlier criminal tax investigation for which the Justice Department had already declined criminal prosecution. CID accepted the criminal fraud referral and began a fraud investigation of Mr. Hoyt on October 17, 1989.
On October 13, 1989, the*27 U.S. Attorney's Office asked CID to join an ongoing grand jury investigation of Mr. Hoyt. CID joined the grand jury investigation after receiving permission from the IRS Regional Commissioner.
CID finished working on both the criminal fraud referral and the grand jury investigation no later than October 1, 1990. The U.S. Attorney's Office ended the grand jury investigation of Mr. Hoyt on October 2, 1990, without an indictment. The record before us does not refer to subsequent criminal investigations of Mr. Hoyt.
On April 17, 1995, petitioners filed a voluntary petition for bankruptcy in the United States Bankruptcy Court for the Eastern District of California (bankruptcy court). 7 Petitioners' partnership items in the Hoyt partnerships were converted to nonpartnership items on that date. 8
*28 Respondent mailed notices of deficiency to petitioners on January 30, 1996. Respondent's determinations, set forth above, are based solely on petitioners' involvement in the Hoyt partnerships.
On April 29, 1996, the bankruptcy court entered an order granting petitioners' Motion for Relief from the Automatic Stay for the sole purpose of permitting them to file a petition with the Tax Court in this case.
1. GENERAL DISCUSSION
The TMP is the central figure of partnership proceedings, and, consequently, his status is of critical importance to the *121 proper functioning of the partnership audit and litigation procedures. He serves as the focal point for service of all notices, documents, and orders for the partnership in both administrative and judicial proceedings. See
The TMP may extend the period of limitations with respect to all partners in a partnership by an agreement between the IRS and the TMP, *29 or the period may be extended by an agreement between the IRS and any other person authorized by the partnership in writing. 9 See
A TMP is generally designated at the time the partnership return is filed. See
The designation of a TMP remains effective until the termination of the*30 designation pursuant to
(l) Termination of designation -- (1) In general. A
designation of a tax matters partner for a taxable year under
this section shall remain in effect until --
* * * * * * *
(iv) The partnership items of the tax matters partner
become nonpartnership items under
special enforcement areas); * * *
In turn,
The treatment of items as partnership items with respect to a
partner under criminal investigation for violation of the
internal revenue laws relating to income tax will interfere with
the effective and efficient enforcement of the internal revenue
laws. Accordingly, partnership items of such a partner arising
in any partnership taxable year ending on or before the last day
of the latest taxable year of the partner to which the criminal
investigation relates shall be treated as nonpartnership items
as of the date on which the partner is notified that he or she
is the subject of a criminal*32 investigation and receives written
notification from the Service that his or her partnership items
shall be treated as nonpartnership items. The partnership items
of a partner who is notified that he or she is the subject of a
criminal investigation shall not be treated as nonpartnership
items under this section unless and until such partner receives
written notification from the Service of such treatment.
Generally, there is a 3-year period of limitations on the assessment of a tax attributable to any partnership item. And, generally, the issuance of an FPAA will suspend the period of limitations. See, e.g.,
2. PETITIONERS' POSITION
Petitioners contend that Mr. Hoyt's extensions of the period of limitations are invalid because at the time he executed the appropriate Forms 872 he no longer was the TMP of the Hoyt partnerships because he had been the subject of a criminal tax investigation. Therefore, they contend that since the extension agreements were invalidly executed, the periods of limitations for the years in issue expired before the FPAA's were issued.
Petitioners base their contentions on three alternative arguments: *33 (1) That the second and third sentences of
3. RESPONDENT'S POSITION
Respondent contends that Mr. Hoyt was TMP at all times when he executed extensions of the periods of limitations for the Hoyt partnerships. Respondent contends that
As an initial matter, we must decide whether Mr. Hoyt was validly designated TMP of SGE 83-2 for the 1983 taxable year. Petitioners contend that Mr. Hoyt could not have served as SGE 83-2's TMP for 1983 because he was not a general partner of SGE 83-2 for that year and was not validly designated TMP on SGE 83-2's 1983 partnership return.
With the exception of SGE 83-2's 1983 partnership return, Mr. Hoyt was designated TMP on the returns for the Hoyt partnerships for all of their post-1982 taxable years pursuant to
It is clear from the record that Mr. Hoyt was the sole general partner of SGE 83-2 in 1983 and therefore was the general partner having the largest profits interest in the partnership at the close of the 1983 taxable year pursuant to
We will now examine each of petitioners' arguments in turn.
5. VALIDITY OF
Petitioners contend that the second and third sentences of
Petitioners base their position on the interrelationship of
Our understanding of petitioners' argument is as follows: (1) The Secretary may determine in situations enumerated in
In sum, petitioners conclude that once a partner is removed as TMP upon the initiation of a criminal tax investigation, the partner so removed cannot serve as TMP as long as he remains the subject of a criminal tax investigation and that any previous designation of that partner as TMP will cease. Petitioners, however, concede that a partner subject to a criminal tax investigation could serve as TMP upon completion of that investigation but would probably have to be redesignated TMP.
On the basis of the above argument, petitioners argue that Mr. Hoyt could not have served as TMP after the initial criminal tax investigation which began on April 24, 1984.
In addressing petitioners' argument, we turn first to the interpretation of the language of
When interpreting statutes, the function of courts is to construe the language of the statute to give effect to the intent of Congress. See
Accordingly,
Enforcement Areas. --
(1) Applicability of Subsection. -- This subsection applies
in case of
* * * * * * *
(B) criminal investigations,
*39 * * * * * * *
(E) other areas that the Secretary determines by
regulation to present special enforcement considerations.
*126 (2) Items May Be Treated As Nonpartnership Items. -- TO THE
EXTENT THAT THE SECRETARY DETERMINES AND PROVIDES BY REGULATIONS
that to treat items as partnership items will interfere with the
effective and efficient enforcement of this title in any case
described in paragraph (1), such items shall be treated as non-
partnership items for purposes of this subchapter. [Emphasis
added.]
(3) Special Rules. -- THE SECRETARY MAY PRESCRIBE BY
REGULATION SUCH SPECIAL RULES AS THE SECRETARY DETERMINES TO BE
NECESSARY TO ACHIEVE THE PURPOSES OF THIS SUBCHAPTER IN ANY CASE
DESCRIBED IN PARAGRAPH (1). [Emphasis added.]
From the plain language of the statute, it is clear that the Secretary has authority to promulgate regulations in order to "achieve the purposes of this subchapter" in cases involving
In addition, courts are to interpret a regulation as a whole, in light of the overall statutory scheme, and not to give force to one phrase in isolation. See
It is clear that
*127 The treatment of items as partnership items with respect to a
partner * * * [in a specifically described circumstance] will
interfere with the effective and efficient enforcement of the
internal revenue laws.
After this introductory language, each special enforcement regulation specifically sets forth what circumstances will*42 interfere with the effective and efficient enforcement of the internal revenue laws and when partnership items in that situation will be treated as nonpartnership items.
For example, in the case of criminal tax investigations, partnership items would not be treated as nonpartnership items unless a partner: (1) Was notified that he was the subject of a criminal tax investigation; and (2) received written notification that his partnership items would be treated as nonpartnership items. See
*128 Petitioners' interpretation of the interaction between
In Transpac Drilling Venture 1982-16 v.
Finally, we note that case law in the Ninth Circuit, in which this case would be appealable, supports our decision as to the validity of
The debtors [sic] argument that Hoyt's partnership items became
nonpartnership items as of the date his criminal investigation
began is simply unsupported and ignores the entirety of * * *
supra.]
Though we agree with petitioners that the bankruptcy court's reliance on language from
Additionally, the bankruptcy court in In re Miller, 13
Miller also argues that the regulations are in conflict
with the Internal Revenue Code and by merely showing that Hoyt
was under criminal investigation, Hoyt's status as a TMP was
terminated. We disagree. If this were true, no party with any
certainty would know when a criminal investigation began in
order to terminate a TMP's status. This uncertainty would
undermine one of the main goals in enacting TEFRA.
*46 * * * * * * *
The regulations promulgated by the Secretary are not
manifestly contrary to the statute as Miller suggests. Rather,
the Secretary enacted Temporary Treasury Regulation Section
301.6231(c)-5T to carry out the provisions of 26 U.S.C. section
6231(c)(2) and its purpose.
Hoyt's authority as the designated TMP could not be
terminated based on the criminal investigation until he received
written notification from the IRS of the conversion of items to
nonpartnership. In summary, it is both the regulations and the
Internal Revenue Code which provides that the TMP designation
shall be terminated upon the criminal investigation and the
written notification that partnership items shall be treated as
nonpartnership items. Therefore, we hold that the TMP had
authority to enter into consents with the IRS to extend the time
for assessments and bind Miller to the extensions. [Fn. ref.
omitted.]
We conclude that the Secretary's regulatory treatment of the partnership items of partners under criminal*47 tax investigation comports with the language of
*130 6. REMOVAL OF TMP FOR VIOLATING A FIDUCIARY DUTY
Petitioners contend that Mr. Hoyt should have been removed as TMP by the IRS because of a conflict of interest between Mr. Hoyt's fiduciary duty to petitioners, as partners of the Hoyt partnerships, and his self-interest as the subject of several criminal tax investigations.
Petitioners rely on Transpac Drilling Venture 1982-12 v.
However, the Transpac decision involved distinguishable facts. In Transpac, the IRS began a civil tax audit of the Transpac partnerships in the latter part of 1983. By November 1985, however, the civil audit had uncovered issues which were referred to CID for criminal investigation. See
While the criminal investigation was proceeding, the IRS approached limited partners of the Transpac partnerships and asked them to sign extension agreements for the 1982 taxable year. Most of the limited partners refused, so the IRS then approached the partnership's TMP's and made the same extension requests. The TMP's acquiesced and executed the extension agreements and thereafter continued to execute extension agreements through March 1988. 14 See
The TMP's approached*49 by the IRS were themselves under criminal tax investigation, as was the primary promoter of the Transpac partnerships, who was already a convicted tax felon. Sometime during the course of the criminal tax investigations, the TMP's became cooperating Government witnesses whose own sentencing, or grants of immunity, depended on their cooperation with the Government. See
In addition, the Court of Appeals for the Second Circuit found that when the limited partners in the Transpac partnerships inquired about the status of the civil audits, the IRS misled the limited partners by telling them to ask for information from the TMP's, who in turn had been expressly ordered not to disclose any information about the existence of the criminal investigation. See
In Transpac, the Court of Appeals reasoned that "where serious conflicts exist, a TMP may be barred from acting on behalf of the partnership, quite apart from the issuance of a government letter under current Regulation 301.6231(c)-5T". Id. The Court of Appeals proceeded to hold that the TMP's in that case had a serious conflict of interest which voided their consents to the extensions of*50 the periods of limitations. The Court of Appeals found it "especially disquieting" that the IRS knew the extensions were unwanted by the limited partners on whose behalf the TMP's purported to act. See id. The Court of Appeals noted that the IRS, before seeking extensions of the periods of limitations from the TMP's, had already transformed its civil audits of the partnerships into criminal investigations of the TMP's. The Court of Appeals reasoned that the conversion of the civil audits into criminal investigations created a powerful incentive on the part of the TMP's to ingratiate themselves with the Government and to ignore their fiduciary duties to the limited partners. See id.
We emphasize that in Transpac the TMP's executed the extension agreements near the time the TMP's were cooperating with the Government in anticipation of either grants of immunity or sentencing agreements. See
Unlike Transpac, there is no evidence in this case that: (1) The IRS approached limited partners to execute any extension agreements or that they refused to sign such agreements; (2) the promoter/TMP of the Hoyt partnerships was, before or during the relevant period, indicted or convicted of a tax felony or cooperating with the Government as a witness; or (3) the IRS misled partners of the Hoyt partnerships about the existence of criminal investigations or ever instructed Mr. Hoyt to say nothing about such criminal tax investigations.
*132 In addition, the record reflects that the criminal investigations of Mr. Hoyt ended prior to Mr. Hoyt's execution of every one of the extension agreements in issue except one. Only one of the extension agreements for the years in issue, concerning the 1983 taxable year of SGE 83-2, was executed by Mr. *52 Hoyt while he was under criminal tax investigation.
In
There is no evidence that Hoyt had any contact with the
investigators at all, much less that he executed the extensions
under pressure for leniency. Indeed, since these tax
investigations never resulted in prosecution, it is possible
that Hoyt viewed them with contempt or haughty disdain rather
than fear. * * *
* * * * * * *
The [Court of Appeals] in Transpac did not assume that the mere
existence of an investigation would subvert a tax matters
partner's judgment and bend him to the government's will in
dereliction of his fiduciary duties to his partners. * * *
Mr. Hoyt continued to promote the existing Hoyt partnerships after the initiation of the criminal tax investigations. Mr. Hoyt continued to defend his legal position throughout the criminal tax investigations and continued to maintain that all partnership items were legitimate, *53 a legal position which was consistent with that of his partners.
Mr. Hoyt also encouraged the limited partners to refuse to cooperate with Government investigators. W.J. Hoyt & Sons sent letters to some limited partners telling them that they could refuse to be deposed by the IRS, and, if already deposed, that they could refuse to sign the interview transcript.
In sum, we are not persuaded that Mr. Hoyt had a disabling conflict of interest in this case or violated his fiduciary duty to petitioners. On the basis of the record, we find and hold that Mr. Hoyt did not have a conflict of interest which required the removal of his TMP designation or invalidated the extensions of the periods of limitations.
7. ABUSE OF DISCRETION BY RESPONDENT
Petitioners contend that respondent's failure to send a written notice to Mr. Hoyt, informing him that his partnership *133 items would be treated as nonpartnership items pursuant to
Petitioners once again rely on Transpac Drilling Venture 1982-12 v.
The taxpayer has the burden of proof when alleging an abuse of discretion. See
The parties have stipulated that the IRS has no formal criteria to determine when, or whether, a written notice notifying a partner that his partnership items will be treated as nonpartnership items is to be sent to a taxpayer who is the subject of a criminal tax investigation. The IRS makes each determination upon the particular facts of each case.
As previously indicated, the Transpac decision involved distinguishable facts, and petitioners have not alleged the facts that the Court of Appeals for the Second Circuit found*55 so disquieting. Here, petitioners are unable to show that respondent's actions in continuing to recognize Mr. Hoyt as TMP were unlawful or arbitrary. Accordingly, we find that petitioners have not established that respondent abused his discretion by not notifying Mr. Hoyt that his partnership items would be treated as nonpartnership items pursuant to
8. EXPIRATION OF PERIOD OF LIMITATIONS WITH REGARD TO TBS J.V.
As a supplemental matter, we address the parties' contentions regarding TBS J.V.'s 1989 and 1990 taxable years. Respondent contends that TBS J.V. failed to file partnership returns for both the 1989 and 1990 taxable years and that *134 therefore the period of limitations for 1989 and 1990 did not expire before April 17, 1995. Petitioners contend that TBS J.V. filed both a 1989 and a 1990 partnership return and that the existence of an extension agreement executed by Mr. Hoyt for TBS J.V.'s 1989 taxable year is evidence of the timely filing of the underlying 1989 tax return. Petitioners argue that since Mr. Hoyt was not the TMP for the years in issue, he was not authorized to sign the extension for TBS J.V.'s 1989*56 tax year and the period of limitations for 1989 has therefore expired.
The period for assessing tax attributable to a partnership item shall not expire before 3 years after the later of: (1) The date that the partnership return was filed for the taxable year; or (2) the last date for filing the return for the year (without regard to any extensions). See
Respondent has submitted a certified transcript of TBS J.V.'s account for the 1989 and 1990 taxable years showing that the IRS has no record of TBS J.V.'s filing a partnership return for either taxable year through September 23, 1998. Petitioner, however, has been unable to adduce any evidence establishing that TBS J.V. filed a partnership return for either the 1989 or the 1990 taxable year.
The existence of an extension agreement executed by Mr. Hoyt for TBS J.V.'s 1989 taxable year is not evidence of the timely filing of the underlying 1989 tax return. However, since we have held that Mr. Hoyt was the valid TMP of the Hoyt partnerships for the years in issue, and since petitioners concede*57 that Mr. Hoyt signed an extension agreement for TBS J.V.'s 1989 taxable year, even if a 1989 return had been filed, the period of limitations for the 1989 taxable year would not have expired before April 17, 1995.
Upon the basis of the record, we find that TBS J.V. failed to file partnership returns for both the 1989 and 1990 taxable years and hold that the period of limitations for TBS J.V.'s 1989 and 1990 taxable years did not expire before April 17, 1995.
*135 9. CONCLUSION
The parties have stipulated that if this Court finds that the respective periods of limitations had not expired before the mailing of the FPAA's, then the FPAA's were timely and properly sent to the TMP of the Hoyt Partnerships for each of the partnership years in issue.
Upon the basis of the record, we find that Mr. Hoyt was the TMP when he executed extension agreements with respect to the years in issue and, therefore, hold that the periods of limitations with respect to years in issue had not expired pursuant to
Because we find that Mr. Hoyt was TMP of the Hoyt partnerships when he executed extension agreements for the years in issue, we need not, and do not, address*58 other issues raised by the parties.
The parties stipulated that if we hold that the extension agreements are valid, which we have, the amounts set forth below are the correct amounts 16 of the deficiencies in petitioners' Federal income taxes and additions to taxes for the years involved herein:
Year Deficiency Sec. 6651(a) Sec. 6621(c)
______________________________________________________________
1980 $ 3,917 -0- Applies
1981 17 -0- Applies
1982 1,248 -0- Applies
1983 11,334 $ 1,043 Applies
1984 1,196 -0- Applies
1985 4,662 -0- Applies
1986 8,068 139 Applies
1987 3,337 -0- None
1988 11,831 1,562 None
1989*59 4,776 87 None
1990 8,319 1,258 None
1991 8,243 836 None
1992 6,619 9 None
*136 To reflect the foregoing,
A decision based on the stipulation of the parties will be entered.
Footnotes
2. Respondent determined that an additional amount is to be computed equal to 50 percent of the interest attributable to the entire 1987 underpayment pursuant to sec. 6653(a)(1)(B).↩
1. Respondent determined that interest is to be computed at 120 percent of the interest payable under sec. 6601 with respect to any substantial underpayment attributable to tax-motivated transactions.↩
1. Congress enacted the TEFRA partnership procedures as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a), 96 Stat. 324, 648.↩
2. Though Mr. Hoyt was not designated TMP on SGE 83-2's 1983 return, he signed the 1983 tax return for SGE 83-2 as general partner. Mr. Hoyt also executed an extension of the period of limitations for SGE 83-2's 1983 tax year on Sept. 26, 1986.↩
1. Before 1989, the correct taxable year for both SGE 83-2 and DSBS 87-E was the calendar year. Beginning with the short taxable year ending Sept. 30, 1989, the correct taxable year for both SGE 83-2 and DSBS 87-E was the year ending Sept. 30, as the result of respondent's acceptance of Forms 1128, Application for Change in Accounting Period, filed for those partnerships. The correct taxable year of TBS J.V. was the calendar year for all years in issue.↩
2. The parties do not agree as to whether a return was filed for this taxable year at any time through Sept. 23, 1998.↩
3. No FPAA had been issued as of Apr. 17, 1995, the date petitioners filed a petition in bankruptcy. ↩
3. The parties have stipulated that the periods of limitations for the assessment and collection of any deficiency in income tax due from petitioners with respect to: (1) Shorthorn Genetic Engineering 83-2 partnership for the 1984, 1985, and 1986 calendar years and for its fiscal years ending Sept. 30, 1990 and 1991; and (2) Durham Shorthorn Breed Syndicate 87-E partnership for the fiscal years ending Sept. 30, 1990 and 1991, have not expired.
Petitioners concede that the statute of limitations does not bar assessment and collection of any income tax deficiency from the Timeshare Breeding Service Joint Venture partnership for its 1991 calendar year or any partnership in this case whose taxable year ended with, or within, petitioners' 1992 calendar year. Partnership items of each of those partnerships for those years became nonpartnership items as of Apr. 17, 1995.↩
4. None of the 12 individuals are petitioners in the present case.↩
5. In turn, these partners apparently learned of the IRS criminal tax investigation of Mr. Hoyt because of the depositions requested by the special agent.↩
6. From the record, it is clear that the latest that Mr. Hoyt knew that the Justice Department had declined prosecution was on or about Nov. 6, 1987.↩
7. Petitioners' bankruptcy case, No. 95-23293-A-13, was still pending at the time the petition was filed.↩
8.
Sec. 301.6231(c)-7T , Temporary Proced. & Admin. Regs.,52 Fed. Reg. 6793↩ (Mar. 5, 1987), provides that the partnership items of a partner named as a debtor in a bankruptcy proceeding become nonpartnership items as of the date the bankruptcy petition is filed.9. The period of limitations for a specific partner may also be extended by an agreement between the IRS and that partner. See
sec. 6229(b)(1)(A)↩ .10. The temporary regulation,
sec. 301.6231(a)(7)-1T(c) , Temporary Proced. & Admin. Regs.,52 Fed. Reg. 6791 (Mar. 5, 1987), contained the same provision.Sec. 301.6231(a)(7)-1 ↩, Proced. & Admin. Regs. is the final regulation effective for all designations, selections, and terminations of a TMP occurring on or after Dec. 23, 1996.11. The temporary regulation,
sec. 301.6231(a)(7)-1T(l)(4) , Temporary Proced. & Admin. Regs.,52 Fed. Reg. 6792↩ (Mar. 5, 1987), was identical.12. These temporary regulations apply to partnership taxable years beginning after Sept. 3, 1982. See
52 Fed. Reg. 6779↩ (Mar. 5, 1987).13. Counsel for petitioners also served as counsel for the taxpayers in
In re Leland, 160 B.R. 834">160 B.R. 834 (E.D. Cal. 1993), and inIn re Miller, 174 B.R. 791">174 B.R. 791 (E.D. Cal. 1994), affd.81 F.3d 169">81 F.3d 169↩ (9th Cir. 1996).14. As the IRS did not issue FPAA's until November 1989, the 3-year period of limitations would have expired but for the signed extensions.↩
15. Two of the TMP's were granted immunity from prosecution, while the third entered into a plea bargain resulting in a suspended sentence.↩
16. These amounts do not include interest, payments made after the mailing of the notices of deficiency, frozen refunds, or the applicability of any penalty for substantial underpayment of tax.↩