TAX COURT OPINION

Case: Gary R. Fears
Docket Number: 21508-05
Judge: Foley
Opinion Type: reported
Filed: 08/02/2007
Pages: 6

r T'_ ,n PJW , 129 T .C . No . 2 UNITED STATES TAX COU R Fo L(._ __ m GARY R . FEARS, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No . 21508-05 . Filed August 2, 2007 . R determined, in a notice of final partnership administrative adjustment, that P was liable for sec . 6662(a) and (h), I .R .C . penalties . R sent P a notice of deficiency and assessed the penalties against P . P filed a petition with this Court and asserted a partner-level defense relating to the enalties . R filed a motion to dismiss for lack of Jurisdiction and contended that the Court lacks jurisdiction to determine whether P is liable for the enalties . Held : This Court lacks jurisdict on to determine whether P is liable for the penalties . Secs . 6221, 6230(a) (2) (A) (i) , I .R .C . Anthony G . Tumminello , for petitioner . John J . Boyle , for respondent . SERVED AUG - 2 2007 - 2 - OPINION FOLEY, Judge : This matter is before the Court o n respondent's motion to dismiss for lack of jurisdiction and to strike . The issue for decision is whether the Court has jurisdiction to determine whether petitioner is liable for section 6662(a) and (h)1 penalties relating to 2001 . Background On October 27, 2000, Gateway Investment Partners (Gateway) was formed . GF Gateway Investments LLC (GFG) and GF Investors Inc . (GFI), an S corporation, owned 99 percent and 1 percent of Gateway, respectively . Petitioner was the sole member of GFG and the sole shareholder of GFI . On November 21, 2000, GFG sold two foreign currency options (the short options) to Deutsche Bank for $4,950,000 and purchased two foreign currency options (the long options) from Deutsche Bank for $5 million (collectively, the option positions) . On November 22, 2000, GFG contributed the option positions to Gateway in return for its interest in Gateway . On December 7, 2000, Gateway paid $20,000 for €22,264 .28 . On December 13, 2000, the option positions terminated and were not exercised . On December 21, 2000, GFG transferred to GFI its 99-percent interest in Gateway . On that same day, the euro were transferred fro m 1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue . - 3 - Gateway to GFI and Gateway was dissolved . 0 December 22, 2000 , GFI sold the euro for $20,573 . On September 6, 2001 ; Gateway filed a F prm 1065, U .S . Retur n of Partnership Income, relating to the tax y Oar beginning Octobe r 27, 2000, and ending December 21, 2000 . The Form 1065 showe d distributions of property other than money i the amount o f $5,020,000 (i .e ., the $5 million paid for th 0 long options an d the purchase price of the euro) . On June 28 , 2001, GFI filed a Form 11205, U .S . Income Tax Return for an S Corporation, relatin g to 2000 . The Form 1120S showed a $4,999,427 loss relating to foreign currency (i .e ., a purported basis of $5,020,000 in the foreign currency and a $20,573 amount realiz ed) . On October 22, 2001, petitioner filed h is 2000 Federal tax return and reported a net operating loss of $4,146,903 relating to GFI's foreign currency loss . On August 1 2, 2002, petitioner filed his 2001 Federal tax return and report ed a net operating loss of $4,146,903 and an overall loss of $2 ,948,966 . On June 28, 2004, respondent sent Gateway, GFG, and GFI Notices of Final Partnership Administrative Adjustment (FPAAs ) relating to 2000 . On November 26, 2004, petitioner filed a pet ition relating to th e FPAA issued to Gateway . The Court, however, dismissed that petition because it was not filed by a pro p r party . On August 10, 2005, respondent sent pet itioner a notice of deficiency relating to 2001 . Respondent di allowed petitioner' s - 4 - $4,146,903 net operating loss, $156,192 loss relating to legal fees , and $227 Schedule C, Profit or Loss From Business, loss relating to GFG . Respondent also determined that petitioner was liable for an accuracy-related penalty and a gross valuation misstatement penalty pursuant to section 6662(a) and (h), respectively . On November 14, 2005, petitioner, while residing in Collinsville, Illinois, filed his petition with the Court . On November 23, 2005, respondent assessed the penalties against petitioner relating to 2001 . On January 12, 2007, the Court filed respondent's motion to dismiss for lack of jurisdiction and to strike relating to the penalties . On February 12, 2007, the Court filed petitioner's objection to respondent's motion to dismiss . Discussion Respondent contends that the Court lacks jurisdiction t o determine whether petitioner is liable for the section 6662(a) and (h) penalties . The Tax Court is a Court of limited jurisdiction, and we may exercise jurisdiction only to the extent authorized by Congress . Naftel v . Commissioner , 85 T .C . 527, 529 (1985) . Section 6230(a)(2)(A)(i) provides that deficiency proceedings apply to affected items which require partner level determinations other than penalties that relate to adjustments to partnership items . In the Taxpayer Relief Act of 1997, Pub . L . - 5 - 105-34, sec . 1238(a), 111 Stat . 1026 (1997 T RA), Congress amended section 6221 to provide that the applicability of any penalty (including an accuracy-related penalty) which relates to an adjustment of a partnership item shall be determined at the partnership level .2 See sec . 6221 .3 The 1997 TRA further provides that a partner may assert a partner-level defense to a penalty in a refund forum . See H . Conf . Rept . 105-220, at 685 (1997), 1997-4 C .B . (Vol . 2) 1457, 2155 ; sec . 301 .6221-1T, Temporary Proced . & Admin . Regs ., 52 Fed . Reg . 6781 (Mar . 5, 1987), amended by T .D . 8808, 1991-1 C .B . 682, Jan . 25, 1999 . The notice of deficiency includes penalties that were determined at the partnership level relating to Gateway's taxable year ending December 21, 2000 . Accordingly, the Court lacks jurisdiction to redetermine the applicability of the penalties . Sec . 6221 . Contentions we have not addressed are irrelevant, moot, o r meritless . 2 The 1997 TRA applies to partnership after Aug . 5, 1997 . 1997 TRA sec . 1238(c) , axable years endin g 111 Stat . 1027 . 3 Prior to the 1997 TRA, penalties cou redetermined in a partner-level proceeding . Partners v . Commissioner , 89 T .C . 741 (1987) 105-220, at 685 (1997), 1997-4 C .B . (Vol . 2) d only be N .C .F . Energ y See H . Conf . Rept . 1457, 2155 . To reflect the foregoing, - 6 An appropriate order wil l be issued .