Bedrosian v. Comm'r ( 2007 )

T.C. Memo. 2007-376
UNITED STATES TAX COURT
JOHN C. BEDROSIAN AND JUDITH D. BEDROSIAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24581-06. Filed December 26, 2007.
Richard E. Hodge, William E. Johnson, Steven R. Mather, and
Elliott H. Kajan, for petitioners.
Michael L. Boman, for respondent.
MEMORANDUM OPINION
VASQUEZ, Judge: This case is before us on respondent’s
motion to dismiss for lack of jurisdiction.1 Respondent argues
1
This case involves the same or related parties as in
docket Nos. 12341-05 and 9664-07. Docket No. 12341-05 is based
(continued...)
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that the assessment of penalties relating to partnership
adjustments is not subject to deficiency procedures, and that the
deficiencies in income tax were paid and assessed prior to the
issuance of the notice of deficiency. See generally Kligfeld
Holdings v. Commissioner, 128 T.C. 192 (2007), and Notice 2000-
44, 2000-2 C.B. 255, for a general description of the transaction
in this case. Respondent determined in an affected items notice
the following deficiencies in and penalties on petitioners’
Federal income tax:
Penalty
Year Deficiency Sec. 6662(a)
[2]
1999 $3,460,695 $1,399,552.80
2000 12,137 4,854.80
2
The deficiency in docket No. 12341-05 is $38,187
greater than the deficiency listed above because the
$38,187 was assessed as a computational adjustment. See
infra pp. 4-5.
The issues for decision are: (1) Whether petitioners have
previously paid a portion of the amount stated in the affected
items notice of deficiency, and (2) whether the Court lacks
jurisdiction over the section 6662(a) penalties determined in the
affected items notice.
1
(...continued)
on a statutory notice of deficiency sent to John and Judith
Bedrosian. Docket No. 9664-07 is a partnership-level proceeding
concerning the validity of a final partnership administrative
adjustment notice.
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Background
Petitioners are husband and wife, and they resided in Los
Angeles, California, when their petition was filed. JCB Stone
Canyon Investments, LLC (JCB), a single member limited liability
company, and Stone Canyon Investors, Inc. (Investors), an S
corporation wholly owned by John and Judith Bedrosian as
community property, purported to form a partnership, Stone Canyon
Partners (Stone Canyon).
In November 1999, JCB purported to purchase and sell options
on foreign currency. JCB then purported to contribute the
purchased options, the sold options, and Texas Instruments stock
to Stone Canyon, on behalf of itself and on behalf of Investors.
In calculating the basis in the interests of JCB and Investors,
the Bedrosians did not treat the options purportedly sold by JCB
as a liability subject to the provisions of section 752.3
In December 1999, JCB purported to transfer its interest in
Stone Canyon to Investors. Investors acquired the Texas
Instruments stock previously contributed by JCB. Investors
claimed a basis in the Texas Instruments stock based on the basis
of the stock “in the hands” of Stone Canyon.
Petitioners reported an ordinary loss of $175,000 for 1999
related to their interest in Stone Canyon. Additionally,
3
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
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petitioners reported a distributive share of long-term capital
loss from Investors of $17,250,088 for 1999.
On April 8, 2005, respondent issued a notice of final
partnership administrative adjustment (FPAA) to the partners of
Stone Canyon for 1999. Neither the tax matters partner (TMP)
JCB, nor any notice partner filed a challenge to the FPAA before
the expiration of the periods prescribed in section 6226. Eleven
days after the FPAA was issued, respondent issued petitioners a
statutory notice of deficiency for 1999 and 2000. Petitioners
timely petitioned the Court to review the notice of deficiency.
That case is docket No. 12341-05.
On August 30, 2005, petitioners remitted $4,276,377 to the
IRS. The remittance was designated to cover $3,498,882 for the
1999 deficiency, $757,000 for estimated interest on the 1999
deficiency, $12,137 for the 2000 deficiency and $1,800 for the
estimated interest on the 2000 deficiency. Respondent treated
the remittance as a payment.
On September 1, 2006, respondent made the following
assessments against petitioners:
1999 2000
Deficiency attributable to $ 38,187
partnership items assessed
as a computational adjustment
Additional deficiency paid and 3,460,695 $12,137
assessed
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On September 5, 2006, respondent issued an affected items
notice of deficiency to petitioners. The affected items notice
was mailed after the 150-day period for filing a partnership
proceeding had expired. Petitioners timely filed a petition in
response to the affected items notice of deficiency.
Discussion
Respondent’s Motion To Dismiss
The Tax Court is a court of limited jurisdiction, and we may
exercise our jurisdiction only to the extent provided by
Congress. See sec. 7442; see also GAF Corp. & Subs. v.
Commissioner, 114 T.C. 519, 521 (2000). We have jurisdiction to
redetermine a deficiency if a valid notice of deficiency is
issued by the Commissioner and if a timely petition is filed by
the taxpayer. Id. We have jurisdiction in this case if
petitioners did not previously pay any deficiencies.
A. Remittance
On August 30, 2005, petitioners remitted a check for
$4,276,377. The written statement attached to the check
indicated that petitioners were making a payment of tax and
interest. Petitioners argue that they did not make a payment,
but instead furnished a cash bond or in the alternative, made a
deposit. Section 6603(a) provides:
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A taxpayer may make a cash deposit with the Secretary
which may be used by the Secretary to pay any tax * * *
which has not been assessed at the time of the deposit.
Such a deposit shall be made in such manner as the Secretary
shall prescribe.
Rev. Proc. 2005-18, 2005-1 C.B. 798, gives guidance in
determining whether a remittance is considered payment.
According to the Rev. Proc. 2005-18, sec. 4.01(1), 2005-1 C.B. at
799, the taxpayer may make a deposit by remitting to the IRS a
check or money order, accompanied by a written statement
designating the remittance as a deposit. The written statement
accompanying the check remitted by petitioners states that the
check is for an “advance payment”, not a deposit. Petitioners
argue that they made an undesignated remittance while they were
under examination, but before a liability was proposed in
writing, and therefore the remittance was a deposit. Rev. Proc.
2005-18, sec. 4.04, 2005-1 C.B. at 800, applies to an
undesignated remittance; i.e., a remittance that is not
designated as a deposit. Petitioners’ remittance came after they
had been issued a statutory notice of deficiency; therefore Rev.
Proc. 2005-18, sec. 4.04, does not apply. Accordingly,
petitioners’ remittance on August 30, 2005, is a payment of
income tax and interest, as set forth in their written statement.
We lack jurisdiction to consider deficiencies that have been
paid before the issuance of a statutory notice of deficiency.
Hillenbrand v. Commissioner, T.C. Memo. 2002-303. The written
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statement attached to the check indicated that petitioners were
paying $3,498,882 for the 1999 deficiency, $757,000 for estimated
interest on the 1999 deficiency, $12,137 for the 2000 deficiency
and $1,800 for the estimated interest on the 2000 deficiency.
Pursuant to section 6213(b)(4), the payment of a deficiency after
the mailing of a notice of deficiency does not deprive this Court
of jurisdiction over the deficiency. The payment came before the
issuance of the affected items notice, and thus section
6213(b)(4) does not apply.4
B. Penalties
Respondent has determined accuracy-related penalties
pursuant to section 6662, which petitioners have not paid. We
must now determine whether we have jurisdiction to decide the
issue concerning the accuracy-related penalties. Section 6221
provides:
Except as otherwise provided in this subchapter, the tax
treatment of any partnership item (and the applicabliltiy of
any penalty, addition to tax, or additional amount which
relates to an adjustment to a partnership item) shall be
determined at the partnership level.
Further, section 301.6231(a)(6)-1T(a)(2), Temporary Income Tax
Regs., 64 Fed. Reg. 3840 (Jan. 26, 1999), provides:
(2) Changes in a partner's tax liability with respect
to affected items that require partner level determinations
4
The payment came after the statutory notice of deficiency
issued on Apr. 19, 2005. That notice of deficiency is the
subject of docket No. 12341-05. The Apr. 19, 2005, notice of
deficiency was issued prematurely.
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(such as a partner's at-risk amount to the extent it depends
upon the source from which the partner obtained the funds
that the partner contributed to the partnership) are
computational adjustments subject to deficiency procedures.
Nevertheless, any penalty, addition to tax, or additional
amount that relates to an adjustment to a partnership item
may be directly assessed following a partnership proceeding,
based on determinations in that proceeding, regardless of
whether partner level determinations are required.
Recently, we have decided that we do not have jurisdiction to
consider penalties as they relate to partnership items. Fears v.
Commissioner, 129 T.C. 8 (2007); Domulewicz v. Commissioner, 129
T.C. 11 (2007). As a result, we lack jurisdiction over the
penalties in this case, whether or not they require factual
determinations at the partner level.
After applying the payment and dismissing jurisdiction over
the penalties, there is nothing left for this Court to consider.
As a result, respondent’s motion to dismiss wll be granted.
In reaching all of our holdings herein, we have considered
all arguments made by the parties, and, to the extent not
mentioned above, we find them to be irrelevant or without merit.
To reflect the foregoing,
An appropriate order and order
of dismissal will be entered.