Ashland v. Commissioner , 584 F. App'x 573 ( 2014 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT AUG 19 2014
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
MELVIN W. ASHLAND and BROOKE No. 13-71498
C. ASHLAND,
Tax Ct. No. 25306-08
Petitioners - Appellants,
v. MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
Appeal from a Decision of the United States Tax Court
Diane L. Kroupa, Judge, Presiding
Submitted August 12, 2014**
Anchorage, Alaska
Before: FARRIS, D.W. NELSON, and NGUYEN, Circuit Judges.
Melvin and Brooke Ashland appeal from a decision of the Tax Court
dismissing for lack of subject matter jurisdiction the issue of whether they properly
deducted in 2002 an alleged distribution from Cutler & Co. LLC. We have
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
jurisdiction under 26 U.S.C. § 7482 and review questions of law de novo and
factual findings for clear error. See Meruelo v. C.I.R., 691 F.3d 1108, 1114 (9th
Cir. 2012). We affirm.
As an LLC, Cutler is treated as a partnership for tax purposes. 26 C.F.R. §
301.7701–3(b). Its alleged guaranteed payment to Brooke Ashland was a
“partnership item,” 26 C.F.R. § 301.6231(a)(3)–1(a)(2), and the issue of whether it
made this payment must be decided at the partnership level. 26 U.S.C. § 6221. In
the present individual deficiency proceeding, the Tax Court lacked jurisdiction to
determine whether the payment was made. See Bergford v. C.I.R., 12 F.3d 166,
170 (9th Cir. 1993).
The Ashlands argue that Cutler is covered by the “small partnership”
exception, under which “[t]he term ‘partnership’ shall not include any partnership
having 10 or fewer partners each of whom is an individual . . . , a C corporation, or
an estate of a deceased partner.” 26 U.S.C. § 6231(a)(1)(B)(i). We understand the
argument but it overlooks the fact that one of Cutler’s partners in 2002, Airport
Plaza, was a “pass-thru partner” – a partnership “through [which] other persons
[held] an interest in the [Cutler] partnership.” 26 U.S.C. § 6231(a)(9). The
exception does not apply. 26 C.F.R. § 301.6231(a)(1)–1(a)(2).
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The Ashlands respond that Airport Plaza dissolved in 2001, per the terms of
its General Partnership Agreement. However, on January 11, 2002, Airport Plaza
executed the Cutler Amended and Restated Operating Agreement. Further, the
Agreement Regarding Restructuring of Cutler, dated June 14, 2002, provided for
the prospective dissolution of Airport Plaza upon the sale of certain Cutler assets.
Thus, the Tax Court properly found that for tax purposes, Airport Plaza continued
to exist in 2002. 26 U.S.C. § 708.
The Ashlands assert that, even if Airport Plaza existed in 2002, it was not a
pass-thru partner of Cutler. Yet, since 1997, Airport Plaza had held Brooke
Ashland’s and Stephan Brennan’s Cutler membership interests. Cutler’s Amended
and Restated Operating Agreement stated that Airport Plaza owned a 92.472%
interest in Cutler. The Cutler Restructuring Agreement confirmed that Airport
Plaza continued to hold a membership interest.
AFFIRMED.
3