DocketNumber: Docket No. 3198-10, 23598-12, 23599-12, 23600-12.
Citation Numbers: 2014 U.S. Tax Ct. LEXIS 60
Judges: \"Mark V. Holmes\"
Filed Date: 10/14/2014
Status: Non-Precedential
Modified Date: 11/21/2020
This is a consolidated group of four cases that is heading to trial at a special session next month in San Diego. They all involve two tax years of a partnership named Block Developers, LLC that is subject to
NBAPs are important because, if a person who is entitled to get one doesn't, he receives in compensation a right to elect out of
Block's TMP3 moved for partial summary judgment earlier this year on the issue of whether the Roth IRAs were pass-thru partners under
The case has now gone through discovery, and petitioners are back with a new summary-judgment motion. They now argue that the Commissioner was required to give the individual IRA account holders NBAPs under an exception to the general rule that we applied in deciding the last summary-judgment motion.
The Court assumes the parties are familiar with the background facts and the usual rules for summary judgment motions.
Our analysis begins with
But what cases are those?
The first is when the partnership reports the "names, addresses, and profits interests" of the indirect partners on the partnership's own tax return.
The second is when the Commissioner has "additional information furnished to him by . . . any . . . person in accordance with regulations . . . ."
Block, however, does argue that the Commissioner had the "names, addresses, and profits interests" of its indirect partners in its own records informally "furnished" or figured out by IRS agents it doesn't say — much more than 30 days before it mailed out the NBAP to Block's TMP for either of the two tax years at issue here. It argues that
This section gives the Commissioner leeway to use information about indirect partners that it learns other than from the face of a partnership return or a formal written statement. Here's the relevant language: [T]he Internal Revenue Service
Block says it learned through discovery (and, specifically, its carefully written requests for admission) that the Commissioner knew more than 30 days2014 U.S. Tax Ct. LEXIS 60">*64 before it mailed NBAPs to the TMP and the Roth IRAs (which were Block's direct partners) exactly who the indirect partners were. And Block is right that the Commissioner admitted that the agent working the audit knew those indirect partners' names and addresses, and that each of the four IRAs had exactly one beneficiary.
Block acknowledges that the regulation specifically says that the Commissioner doesn't have to search its records, but it argues that once the agent working the case does so, he can't just drop a veil of ignorance over his face and continue the audit as if he didn't know what he in fact did.
Block further acknowledges that the first sentence of the quoted portion of the regulation seems to say that the Commissioner has discretion in using this information — that an agent can peek around the veil and still proceed as if he didn't know what he learned. But it argues that this reading would run headlong into the language of
This is not crazy. In
We hesitate to resolve such disputed and intricate readings on a motion for summary judgment. The Commissioner, however, also points out that
As we've noted, Block got the Commissioner to admit that each IRA had only one beneficiary, but this is not the same as getting him to admit that he knew each IRA's2014 U.S. Tax Ct. LEXIS 60">*66 "profits interest." In these cases, that is a very contested ground. One of the Commissioner's arguments is that Block was actually a scheme to undervalue a related firm named Soil Retention, Inc. that Block purchased in what was arguably a far-from-arms'-length transaction to transfer value from its owners (beneficiaries of two of the IRAs involved) to their children (beneficiaries of the other two IRAs involved). The FPAA5 lists several theories for why this violates the Code, and we have to agree with the Commissioner that one reason for his issuing the FPAA was that he did
This is a genuine dispute about a material fact, and so it is
ORDERED that Block's August 29, 2014 motion for partial summary judgment is denied.
/s/ Mark V. Holmes
Dated: Washington, D.C.
October 14, 2014
1.
2. Practitioners know this as an NBAP — Notice of Beginning of Administrative Proceeding.↩
3. TMP means "tax matters partner." Under
4. Block also argues that the Code, in
5. A final partnership administrative adjustment (FPAA) generally includes: (1) a Notice of Final Partnership Administrative Adjustment, (2) Form 870-PT, Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts, including a Schedule of Adjustments, and (3) an "Exhibit A-Explanation of Items," listing the Commissioner's other adjustments or determinations.↩