good morning counsel good morning may please the court daniel eleven on behalf of the appellant's and your honors i'm going to try to save two minutes for a bible the i r s audited mr codecs individual return it made adjustments it allowed the seaview losses that audit closed the statute of limitations expired and the i r s started a second audit of seaview under the kaffir procedures for we go any farther i want to i want to be ninety nine point fifteen percent interest isn't it the tax partner for purposes of this claim it is not because it's a disregarded entity so this gets us to the question you're o understand your argument as it relates to the second issue as to the merits but as to the standing issue i'm still having tough time understanding why since  she is a pass through entity it can't be a tax matters partner i couldn't find anything to suggest that your honor let me take issue with calling it a path or entity because it's not it's a disregarded ad which is different and if it's a disregard entity it means it's treated as in the stinks for it's individual owner for federal tax purposes so what the check the box regulations are suggesting is the fact that it's a pass through entity has nothing to do with it the fact that it is a disregarded entity then gets me to the merits which turns this circular so i have to decide the merits to determine when the standing is precisely and who has not i understand your argument because i didn't find anything about a pass through entity it's not that because if i were only a pass through entity and not a disregarded entity as you argue it is then you'd have no case right if it were a pastor randy like a partnership or an ass corp it would be totally different but it's not it's a disregarded entity so we know you're really not answering my question i just want to yes or no answer if this were a pass through entity it could be that tax matters partner if it's a disregarded entity which goes to the merits here then you're suggesting it can't be if it were passed around because  decide any of this case without deciding how you deal with these disregard and what does it mean to be disregarded in so let me just go to the point that i think is really important on that because the i r s is saying it its brief for you get there i want you to answer my colleague's question do you agree with his position that in order in order for you to get to where you want  to you cannot be treated your you can't treat this in any way as a passer partnership not the elysees no you cannot treat them as a pass through and the because they're not in so let me explain why they're not the bottom line is they are passed through entities but you're suggesting that that's not enough it's also disregarded him we will your honor there maybe we're just arguing semantics for purposes the federal tax law the disregard that he's that's not disputed the check the box regulations say if you're single member l l c which he was your idea i understand your argument so let's go the next question what's your authority for the idea that the disregarded in that he could not be a pass through partner let me give you three start with the with the federal circuit cases literally mcnamee this court's decision candy which was unpublished all those were employment cases right and the question c is the employer under state law no question for federal tax purposes which is where we are for federal tax purposes purposes the individual is considered the employer that is the disregarded entity disappears and it's not a question of passthrough recall what the i r s said to this court in its candy briefing at the sting wishes between a partnership which the past two and a disregard and it's just one level but honestly all you're arguing right here is just to say to me this revenue ruling two thousand and four eighty eight two thousand and four dash to c b should be disregarded if it's wrong but all that's all you're saying you're qualify for a tear for exception and all you're saying is this revenue ruling is wrong i am saying the revenue really is and why don't we give that's a good more deference is no thoroughness of reasoning in the reasoning that it  doesn't ploy is incorrect so what do we do then with the two thousand and two chief counsel's advice memorandum which could reach the same conclusion i'm glad you asked but that does reach the same conclusion totally different reasoning your honor the i r s chief counsel advice memo from two thousand and two focuses on what you can discern from the face of the return that's the logic that animates that they totally changed yours in two thousand and four and they say they talk with the ultimate owner and they're talking about sort of state law ownership so the i r s between two year period it's which is the justification which suggests that the reasoning there's no consistent reasoning because the question understood more deference right is thoroughness of reasoning persuasiveness look at what the i r s did i'd point you to revenue ruling two thousand and four seventy seven one week before two thousand four hundred eight that's a partnership it has two partners disregarded l l c in the disregard elsie's owner it's a partnership under state law because the two partners the i r s says you cannot treat that as a partnership for federal tax purposes why not because the disregarded l l c and its individual owner are indistin therefore for federal tax purposes there's just one partner and you can't have a partnership with just one partner so it says that's not a partnership or a federal tax purposes and otherwise it does exactly what you're supposed to do it disregards the l l c you're left with its owner who's an individual that's one week before two thousand for eighty eight and i'd submit the reasoning of two thousand for seventy seven is completely consistent with checked the box in the reasoning of two thousand four eighty eight is inconsistent with it and it other they're these other state law creations which is why the check the box regulations have to have a way to deal them they can all left to be corporations right and that's what the they're small partners that's really important because what they're saying is that election matters in terms of applying a small partnership exception and the other point is your honor and we call it some in our brief but there's a whole series of i r s regulations that talk about treating disregarded and these as persons in specific instances in of course nothing prevents the i r s from writing a regulation to say that a disregard can't be a small partner they write the regulations they just didn't write one here they did a revenue ruling but they didn't write a regulation when they've wanted to treat disregard and these differently like they did after literally hello and back to me they rewrote the regulation that's their standing to represent the partners knowing that they did tax me that the tax court dismissed the case for that reason i said ok and then i suppose i'm not to go further because i understood what councils arguing respond to his argument he's saying regulations means that you do not pay tax and you do not file a return that's what disregarded means if you look to the check the box regulations the language says that if you are disregarded anybody your activities are treated as if you're a sole proprietorship which means that you don't file an independent return for the business those items are reflected directly on the owner of the taxpayer's return and that's what happened here is that the for the purposes of  and then if you will to the circuit case law that that opposing counsel reference in his opening argument we were trio and the acme there you had two businesses that operated through a disregarded entity and because that entity was disregarded did not file a tax return and did not pay taxes that those items food through directly to the owner's return and therefore the owners directly liable for the tax liability that's what it is regarded any means and to suggest that it means that the n e p doesn't exist which is really what what tax payers argument is here is is i think to an more it from the whole point of the check the box regulations which was designed to make it easy to figure out when the internal revenue code is clear not clear as to how you treat a particular entity whether it's a c corporation or an s corporation or a partnership which is subject to subject or k when there's some question which women viability companies created when they came into existence in the fifty's and sixty's i believe the check the box regulations said instead of doing this factual intensive analysis which we did before under what were called the kidney regulations let's make the simple let's let taxpayers choose they can either be a district they can either be a passthrough or they could be considered effectively an association or a c corporation and if you're a  therefore you don't file your own return your items of taxation are reflected on the owner's return directly it does not mean your honor that the entity does not exist what's the status of the  so just to be clear you agree with the petitioner that in order to decide the jurisdictional question in this case you actually have to decide the merits no your honor i think that the court properly this term and that this was a that the this was a it test for this is a test for partnership because clearly the partners were passed through partners and so therefore the case should be dismissed you don't need to get to the additional step of well who's of the the proper or who is the proper tax matters partner which is i think you know you don't have to go further down that road because as the court recognized there is this other petition out there and so you don't need to worry about waiting letting mr coe dick and then and then says petition so in order to dismiss the case for lack of think that they potentially raised a challenge to the to the penalty liability right and so i mean yes it gets into certainly this is there is a a not a bright line between the determination  action and terminations of of the of the merits but that goes to i believe then nature of the claims that they're raising ok so the but the underlying issue is does tougher apply to c v right correct ok does it matter one way or the other to the commissioner whether that is she was decided in the context of this case or in the context of the a g case do you does the government have any advantage or disadvantage one way or the other i do not believe so your honor does i'm going to ask counsel when he steps back up do you think maybe you don't know because i'm wondering like there's two cases and why we do where you duking it out in two cases opposed to one case and i'm thinking maybe a g k is concerned is if this tax court ruling is affirmed the government will then turn around and say aha a premise of the if this tax court's ruling which was affirmed is that tougher apply so therefore you lose in the a g cake case so if that happens as well the government do that put co taken a g k in that kind of a catch twenty two i don't i don't agree with all due respect i don't think it's a catch twenty two because let me ask you this if we affirm the tax court in this case will you argue as a matter of collateral stoppel that it's already been decided whether tougher applies to seaview i think it's a very simple question yes or no and then explain if i could preface with i don't i don't have i haven't i haven't addressed that question with the service and that that is that's a that issue is pending before the iraq before the tax court which is a issue that is addressed by those cases are handled by chief counsel's office an internal revenue service and so therefore i would need to consult with them before that however i would say this to your concern your honor is that the concept of a tax matters to raise a claim because it was the tax matters partner that presupposes that test for is applicable and and that is i think why for example mr coe took brought this case independently  would also add that a partnership proceeding in general is a test for a concept and if there is a partnership is not subject to test for then this would all be happening at the individual partner well and so to white why doesn't the service of the tax court say ok if a g k brings to the petition bring a petition or are not going to say aha you've just admitted that tougher applies and therefore you lose why doesn't just in the service agent k ok well we'll let you bring the petition and we're not going to take that as an admission it's just a g case petition will just be the vehicle where you can do got the substantive issue that's at the bottom of this well your taxpayer in this case didn't give the service the opportunity to do that i mean because of this case and pressing this particular issue that this is not a tat tat for partnership or is it that for partnership but i am saying that because we're here and we're duking out as to whether this partnership is a tougher partnership or not for two thousand and one then that is going to bear on the other case which is i presume why that case was state and so  and so we think is going to get resolved in this case i say it i think it i think it was properly resolved by the tax court and and that the merits issues that a g kay raises can go forward and be lit senator because of course asking questions about ok with it but but your honour's i think that this is clearly an instance where you have a test for partnership because they do not meet the small partnership exception because this is plainly a pastor partner and the only way the tax payers try to get around that is by leveraging one term called a disregarded entity and a check the box regulations but that completely separates it from the purpose let me go just to the proper case point and then and then back to the disregard at any point on the proper case point the government brought a motion to dismiss on the ground that tougher applied so the issue the government cannot reconcile its position that the disregard any is a pass through partner with its position in the revenue ruling that says twenty two thousand four seventy seven that says you can't have a partnership with a disregard at indy in its individual owner because you have just one partner totally irreconcilable and it can't reconcile its position with what it says in its brief which is if you a left under the disregard under the check the box rules to be a sikh or then you qualify under the statute as a permissible small partner that is that election matters and when you make the disregarded and in the election you are not electing to be a pastor and it be your electing to be treated as in as as as the individual owner like a sole proprietorship or a branch or division those are the statutory words not  say pass through in the check the box regulations it says the activities are treated like a sole proprietorship branch or division of the owner and it's black letter law that a sole proprietorship in its individual owner are the same there they're one in the