Tax News

CCH (cch.taxgroup.com) reports:

The Tax Court had jurisdiction over a deficiency determined in an affected items notice of deficiency that disallowed a passthrough loss resulting from a SON-OF-BOSS transaction designed to offset gain from the sale of stock with a corresponding loss. The affected items notice was issued after the tax matters partner (TMP) failed to file a petition with the Tax Court with regarding the notice of final partnership administrative adjustment (FPAA). In the FPAA, the IRS determined that the partnership was not entitled to deduct a short-term capital loss from the sale of Treasury notes or any interest expense. The IRS also determined that the basis of the property distributed to the partners was zero and that accuracy-related penalties would apply. The affected items notice made three adjustments to the taxpayer's income. The taxpayer's reported long-term capital gain was disallowed based on the determination that the basis of the distributed property was zero, the share of expenses was disallowed and computational itemized deductions were adjusted.
The taxpayer's argument that the Tax Court lacked jurisdiction because the long-term capital gain determination in the affected items notice of deficiency was a computational adjustment was rejected. Because there was an increase in the taxpayer's tax liability from an affected item that required a factual determination at the partner level, the deficiency procedures applied. The IRS's determination in the FPAA regarding the sale of stock distributed by the partnership dealt only with the partnership item components. Moreover, the IRS could not have made an assessment as to the long-term capital gain determination by examining the taxpayer's return and making ministerial adjustments. The taxpayer's return made no reference to the object of the sale underlying the claimed long-term capital loss.
The Tax Court, however, did not have jurisdiction over accuracy-related penalties determined in the affected items notice of deficiency. A plain reading of Code Sec. 6230 indicated that the deficiency procedures do not apply to the assessment of any partnership item penalty determined at the partnership level, regardless of whether further partner-level determinations were required.
M.V. Domulewicz, 129 TC No. 3, Dec. 57,038
Other References:
Code Sec. 6230
CCH Reference - 2007FED ¶37,769.15
CCH Reference - 2007FED ¶37,769.35
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CCH Reference - TRC