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Joseph R. Harris, Petitioner v. Commissioner of Internal Revenue, RespondentHarris v. CommissionerDocket No. 4153-87July 28, 1992, Filed
United States Tax Court *59
An appropriate order will be issued and decision will be entered in accordance with petitioner's computation .Held, net operating loss carrybacks attributable to settlement of partnership items of a partnership subject to the rules of subchapter C of chapter 63 (the partnership provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324), I.R.C., may be taken into account in redetermining partners' personal tax liability pursuant toRule 155, Tax Court Rules of Practice and Procedure , in a deficiency proceeding undersec. 6214(b), I.R.C. Held, further, entry of decision in such deficiency proceeding will not be deferred pending resolution of other partnership-level proceedings under TEFRA partnership provisions.H. Karl Zeswitz, Jr. ,Mary Corrigan Gorman, for respondent.Wells,Judge .WELLS*122 SUPPLEMENTAL OPINION
Wells,
Judge: The instant matter arises out of a dispute*60 between the parties over their differing computations under
Rule 155 . 1 The issue presented by the parties arose after our memorandum opinion on the merits of the instant case was issued on February 20, 1990,T.C. Memo. 1990-80 . 2*62 Petitioner has requested that the Court defer entry of the decision in the instant case in order to avoid the possibility that petitioner might be precluded from carrying back, to the years in issue, certain net operating losses (NOL's) arising out of partnerships subject to sections 6221 through 6233 (the partnership provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324) in taxable years not before the Court. 3 Petitioner argues that the risk that he will be prevented from claiming refunds arising out of any NOL carrybacks attributable to partnerships subject to the TEFRA provisions is sufficient to warrant deferral of entry of decision "in the interests of fairness and justice".Estate of Bailly v. Commissioner, 81 T.C. 949">81 T.C. 949There are two classes of NOL carrybacks potentially applicable to petitioner's tax liability for the years in issue. The first arises from a settlement made after the memorandum*63 opinion in the instant case had been issued. The settlement covered TEFRA years of an unrelated partnership known as Bank Software. Petitioner seeks to apply an NOL carryback in the amount of $ 38,042 resulting from the settlement of Bank Software TEFRA partnership items for petitioner's 1984 taxable year in the computation of his personal tax liability for his 1981 taxable year under
Rule 155 in the instant case. The second class of NOL carrybacks relates to petitioner's assertion of potential settlements of TEFRA partnership items of two partnerships, namely, Research One partnership and Research Two partnership. As no settlement has been reported to the Court for either of such partnerships, the amount of the NOL carrybacks arising out of such partnerships for such years has not been ascertained.After due consideration, we hold that the NOL carrybacks arising out of the settlement of Bank Software may be taken into account in the instant
Rule 155 computation, but that the unascertained NOL carrybacks arising out of the yet-to-be settled partnerships may not be taken into account in such computation. We note at the outset that, in seeking to offset the NOL carrybacks against*64 the deficiencies for the years in issue, it appears as though petitioner is raising a new issue. Generally, new issues may not be raised in aRule 155 proceeding.Rule 155(c) ;Gladstone v. Commissioner, T.C. Memo. 1992-10Yoo Han & Co. v. Commissioner, T.C. Memo. 1991-308Himmelwright v. Commissioner, T.C. Memo 1989-587">T.C. Memo. 1989-587Himmelwright v. Commissioner, T.C. Memo. 1988-114Cloes v. Commissioner, 79 T.C. 933">79 T.C. 933Rule 155 proceeding are limited to "purely mathematically generated computational items".The Home Group, Inc. v. Commissioner, 91 T.C. 265">91 T.C. 265875 F.2d 377">875 F.2d 377 (2d Cir. 1989). Petitioner also must amend his pleadings in order to have the NOL carrybacks considered in*65 the instant case. 4At a hearing held on the instant matter, petitioner stated his willingness to amend his pleadings to place the NOL carrybacks in issue, if such action was required. Respondent indicated that there is no objection to the amendment of petitioner's pleadings on any grounds other than that the Court does not have jurisdiction to take TEFRA partnership items into account in the redetermination of a deficiency in a non-TEFRA proceeding. As the computation petitioner submitted pursuant to
Rule 155 reflects the carryback arising out of the Bank Software settlement, which we will allow to be taken into account in theRule 155 computation in the instant proceeding for the reasons discussed below, we will treat petitioner's computation as a motion to amend the petition to include such claim. Accordingly, *66 we will proceed to consider the jurisdictional objection made by respondent.Petitioner contends that we have jurisdiction to take the carrybacks attributable to partnerships governed by the TEFRA provisions into account in redetermining petitioner's tax liability for the years in issue. Petitioner argues that
section 6214(b) empowers this Court to consider such facts in relation to the taxes due for other years as may be necessary to correctly decide the amount of the deficiencies for the years in issue. Petitioner relies upon several cases in which we have held that it is appropriate to consider NOL carrybacks and carryforwards in redetermining the correct amount of tax in years before us. SeeHill v. Commissioner, *125 95 T.C. 437">95 T.C. 437Calumet Industries, Inc. v. Commissioner, 95 T.C. 257">95 T.C. 257Lone Manor Farms, Inc. v. Commissioner, 61 T.C. 436">61 T.C. 436510 F.2d 970">510 F.2d 970 (3d Cir. 1975);State Farming Co. v. Commissioner, 40 T.C. 774">40 T.C. 774Phoenix Coal Co. v. Commissioner, 231 F.2d 420">231 F.2d 420T.C. Memo. 1955-28 . Such cases, however, did not involve the TEFRA partnership provisions and, consequently, do not resolve the issue before us. Petitioner does not assert any other basis for our jurisdiction, such as the overpayment provisions of section 6512.Respondent contends that the procedure for taking the NOL carrybacks into account is provided by the TEFRA partnership provisions, and not by the provisions ordinarily governing the redetermination of deficiencies, such as
section 6214(b) . The TEFRA partnership provisions provide that issues related to partnerships subject to such provisions are to be resolved in proceedings governed by subchapter C of chapter 63, and not under the normal deficiency procedures, which are provided in subchapter B of chapter 63. Sec. 6230(a), (d)(6). Consequently, we have held that the parties may neither raise nonpartnership items in the course of a partnership proceeding nor raise partnership items in nonpartnership deficiency proceedings. SeeTrost v. Commissioner, 95 T.C. 560">95 T.C. 560Maxwell v. Commissioner, 87 T.C. 783">87 T.C. 783A "partnership item" is defined as an item which is more appropriately determined at the partnership level than at the partner level. Sec. 6231(a)(3). Examples of partnership items include items of income, gain, loss, credit, or deduction of the partnership. Sec. 301.6231(a)(3)-1, Proced. & Admin. Regs. Separation is also required with respect to affected items, defined to mean any item to the extent such item is affected by a partnership item. Sec. 6231(a)(5);
Affiliated Equipment Leasing II v. Commissioner, 97 T.C. 575">97 T.C. 575Maxwell v. Commissioner, supra .Maxwell v. Commissioner, supra at 790-791*126 When the Commissioner and a partner enter into a settlement with respect to partnership*69 items, however, such items become nonpartnership items. Sec. 6231(b)(1)(C). Petitioner argues that items covered by a settlement become nonpartnership items and can be considered in a proceeding to redetermine the partner's personal tax liability. Respondent, however, counters that the items covered by a settlement are not converted into nonpartnership items for all purposes. A settlement is applied to a partner by means of a computational adjustment and not under the ordinary deficiency and refund procedures. Sec. 6230(a)(2)(A)(ii); sec. 6230(c);
Powell v. Commissioner, 96 T.C. 707">96 T.C. 707Powell v. Commissioner, supra .We, however, do not read the provisions of section 6230(a)(2)(A)(ii), which provides that items covered by a settlement are not subject to the provisions of subchapter B of chapter 63, as depriving us of jurisdiction to take account of the settled items pursuant to
section 6214(b) . The*70 purpose of section 6230(a)(2)(A)(ii) is to enable the Commissioner to collect amounts due as a result of settlements without the necessity of issuing a statutory notice of deficiency, and we find no suggestion that such provision was intended to restrict the jurisdiction of this Court in the situation present in the instant case. SeeWoody v. Commissioner, 95 T.C. 193">95 T.C. 193Munro v. Commissioner, 92 T.C. 71">92 T.C. 712 C.B. 600">1982-2 C.B. 600 , 668.We can see no reason, therefore, why we should be required to ignore any computational adjustments resulting from a settlement of TEFRA partnership items in computing a deficiency due from a partner in such partnership in a case that is before us. Respondent seems to concede as much, stating that, because the settled items have been previously determined, if such items are to be taken into account at all, they may be taken into account for computational purposes only. Respondent notes that the settled partnership items may not be redetermined in the instant proceeding, that the NOL carrybacks claimed must be consistent with the partnership settlement, and that the carryback claim must be made in the applicable limitations period for claiming refunds. We agree with respondent on all of such points. The purpose of
Rule 155 is to compute the tax due from petitioner, not to redetermine substantive issues. Accordingly, in claiming*72 the carrybacks, petitioner should only be accorded the same treatment that he would be allowed if the refunds attributable to such carrybacks were allowed pursuant to a computational adjustment made at the conclusion of the partnership level proceedings.Turning to the facts in the instant case, we hold that petitioner may include the NOL carrybacks attributable to the Bank Software settlement in the
Rule 155 computation. We may take such carrybacks into account for purposes of computing the correct liability for the years in issue pursuant to the jurisdiction conferred on us bysection 6214(b) . Inasmuch as respondent has not challenged the amount of the carryback claimed in petitioner'sRule 155 computation, we will take such amount as being conceded by respondent to be correct.The potential carrybacks which may arise from any settlement regarding the TEFRA years of the Research One and Research Two partnerships, however, are different. As noted above, prior to the resolution of partnership level proceedings, partnership and affected items may not be taken into account in a partner's personal tax case.
Affiliated Equipment Leasing II v. Commissioner, 97 T.C. 575">97 T.C. 575Maxwell v. Commissioner, 87 T.C. 783">87 T.C. 783In deciding whether to grant petitioner's motion, we must balance petitioner's claim of potential harm against countervailing factors of economy and efficiency in judicial administration, as well as the interests of other petitioners who have agreed to be bound by the result of the instant case in having their tax liability settled. Accordingly, we must consider whether the risk of harm to petitioner is sufficient to justify the burden which would be placed on this Court, as well as the inconvenience to petitioners in other cases stipulated to be bound by the outcome of the instant case and awaiting entry of decision in order to proceed with appeal or finalizing*74 such cases.
Petitioner argues that, in the event respondent does not allow the potential NOL carryback resulting from the asserted potential Research One and Research Two partnerships' settlements, petitioner will be precluded from bringing suit for a refund because the bar of section 6512 will apply, due to the filing of the petition in the instant case. Section 6512(a) provides that no suit for refund may be maintained with respect to a year for which a taxpayer has filed a valid petition with the Tax Court. Congress, however, has ensured that such filing will not interfere with a partner's ability to pursue the remedies provided under the TEFRA partnership provisions. Section 6230(d)(6) provides that the provisions relating to limitations on credit or refund contained in subchapter B of chapter 66 (sections 6511-6515) do not apply to any credit or refund of overpayments attributable to partnership items or affected items. Section 6512 is one of the provisions made inapplicable to refunds claimed under the TEFRA partnership provisions. The enactment of section 6230(d)(6) evinces Congress' intent that a partner should not be impeded by the ordinary refund provisions in seeking*75 a refund attributable to the resolution of a partnership level proceeding. Consequently, petitioner could maintain a refund suit under the TEFRA provisions even though he has filed a petition in the Tax Court covering the years to which he *129 seeks to carry back the NOL's, irrespective of the section 6512 bar.
Moreover, section 6512(a)(4) provides that the bar of section 6512(a) does not apply as to "overpayments attributable to partnership items, in accordance with subchapter C of chapter 63." As we stated in
Woody v. Commissioner, 95 T.C. 193">95 T.C. 193
Thus section 6512(a) recognizes the necessity for separate proceedings arising out of partnership items and nonpartnership items. If petitioner had previously maintained a proceeding in this Court with respect to nonpartnership items, he would not be precluded from bringing the present proceedings with respect to [affected items requiring partner level determinations] * * *. Similarly, he is not precluded from bringing a separate refund action because of a prior proceeding for the same taxable year involving other items. * * * [Citation omitted.]Petitioner's apprehension is that*76 section 6512(a)(4) might be ineffective to raise the bar of section 6512(a) with respect to the carrybacks because such carrybacks are "affected items" rather than "partnership items". See
Maxwell v. Commissioner, 87 T.C. 783">87 T.C. 7832 C.B. 600">1982-2 C.B. 600 , 668.In construing the language of the statute, we must give effect to the intent of Congress.
United States v. American Trucking Association, Inc., 310 U.S. 534">310 U.S. 534Martin Fireproofing v. Commissioner, 92 T.C. 1173">92 T.C. 1173Haggar Co. v. Helvering, 308 U.S. 389">308 U.S. 389Helvering v. Stockholms Enskilda Bank, 293 U.S. 84">293 U.S. 84Polyak v. Commissioner, 94 T.C. 337">94 T.C. 337Petitioner also argues that, if the Court enters a decision in the years before it, such years might be closed by the statute of limitations at the time his claim to the carryback arises, and he will consequently be prevented from claiming refunds attributable to such carrybacks in such years. Petitioner points out that section 6511, which generally governs the time for claiming refunds due to carrybacks, is supplanted by the TEFRA partnership provisions, but the TEFRA partnership provisions do not contain provisions similar to those contained in section 6511. Secs. 6230(d)(6), 6511(g). Petitioner argues that such differences in the provisions could restrict the time for claiming refunds due to items involved in a TEFRA partnership proceeding.
The TEFRA partnership provisions, however, provide a mechanism for preventing the difficulty to which petitioner alludes. Section 6230(c)(1)(B) allows a partner to file*79 a claim for refund on the grounds that respondent failed to allow a credit to the partner or make a refund to the partner in the amount of the overpayment attributable to the application of a settlement, a final partnership administrative adjustment (FPAA), or a court decision. The language of such provision is sufficiently broad to encompass the situation where the application of the settlement to the partners produces NOL carrybacks which cause an overpayment in years prior to the years to which the settlement relates. Section 6230(d)(5) provides, moreover, that respondent, to the extent practicable, is *131 to make any credit or refund attributable to a partnership item or affected item without requiring the partner to file a refund claim.
Section 6230(c)(2)(B) provides that a refund claim is to be filed within 2 years of the date on which the settlement becomes final. A suit may be brought with respect to unallowed portions of such claim within 2 years of the time such claim is disallowed, as provided by section 6532. Sec. 6230(c)(3). No refund is allowed, however, after the expiration of the time for assessing a tax with respect to the items giving rise to the claim. *80 Sec. 6230(d)(1). Section 6229(f) provides that, if before the period of limitations runs, partnership items become nonpartnership items due to a settlement between the partner and respondent, or for certain other reasons, the running of the limitations period is extended for 1 year. The section 6229 limitations period acts to extend the limitations period otherwise available under section 6501 when such period has otherwise expired. Sec. 6501(o)(2);
Woody v. Commissioner, 95 T.C. 193">95 T.C. 193Consequently, petitioner will not be prevented from claiming or suing for refunds attributable to carrybacks resulting from settlements of the TEFRA years of Research One and Research Two at the conclusion of the TEFRA partnership proceedings. The instant case is therefore distinguishable from
Estate of Bailly v. Commissioner, 81 T.C. 949">81 T.C. 949Rule 155 computations results from petitioner's claim of an NOL carryback from the Bank Software settlement, which we treat as a motion to amend petitioner's pleadings. Inasmuch as we have found that the NOL carrybacks attributable to the Bank Software settlement may be considered in the instant deficiency proceeding, we will grant petitioner's motion to amend his pleadings.*132 To reflect the foregoing,
An appropriate order will be issued and decision will be entered in accordance with petitioner's computation .Footnotes
*. Daniel S. Goldberg, who represents petitioners in other cases involving the same issues as those decided in the instant case, filed papers as amicus curiae in the instant proceeding (hereinafter referred to as amicus).↩
1. Unless otherwise noted, all section, subchapter, and chapter references are to the Internal Revenue Code as in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. In our memorandum opinion on the merits of the issues involved in the instant case, we sustained respondent's disallowance of certain deductions claimed by petitioner arising out of his interest in the Research One Limited Partnership for petitioner's 1979, 1981, and 1982 taxable years on grounds that the partnership was not engaged in a trade or business during such years. We ordered that the decision be entered under
Rule 155↩ . Pursuant to such order, the parties filed their differing computations.3. Alternatively, amicus has suggested that the Court enter its decision in the instant case, but specifically reserve the availability of the carryback, holding that the deficiencies owed may be decreased by NOL carrybacks from the years affected by the partnership provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324. Previously, we have ruled that our decision in a case must consist of a specific dollar amount.
Estate of Bailly v. Commissioner, 81 T.C. 949">81 T.C. 949Estate of Bailly v. Commissioner, supra↩ .4. An amended pleading may be filed, with leave of Court, at any time prior to the entry of final decision. Rule 41(a);
Stromsted v. Commissioner, 53 T.C. 330">53 T.C. 330
Document Info
Docket Number： Docket No. 4153-87
Judges： Wells
Filed Date： 7/28/1992
Precedential Status： Precedential
Modified Date： 10/19/2024