internal_revenue_service national_office technical_advice_memorandum april tam-105188-04 cc corp bo4 number release date index uil no case-mis no taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend --------------- --------------------- -------------------- -------- ---------------- ------- ------------------- -------------------------------------- ---------------------------------- ------------------------ distributing ---------------------------------------------------------------------------- -------------------------------------------------------------------- controlled ---------------------------------------------------------------------------- -------------------------------------------------------------------- business b year year year date date date date --------------------------- -------------------------- ----------------------- ----------------- ------- ------- ------- tam-105188-04 date a b c d e f ---------------------- ---- -------- ------------- ------------- -------------- ------------- issue does controlled’s separate_return_limitation_year srly cumulative register under sec_1_1502-21t include only the items of income gain deduction and loss generated by controlled and any applicable subgroup members as defined in sec_1 21t c or does it also include distributing’s items of income gain deduction and loss conclusion controlled’s srly cumulative register includes only the items of income gain deduction and loss generated by controlled and any applicable subgroup members because the context does not require that distributing be treated as an extension of controlled for purposes of sec_1_1502-21t see sec_1_1502-21t facts distributing is a publicly-traded company and the common parent of an affiliated_group that files consolidated tax returns on a calendar-year basis distributing group distributing was engaged in several different businesses both directly and through its subsidiaries in year a year after but before distributing entered into a plan_of_reorganization under which it would spin off business b on date a date during year distributing formed controlled but did not transfer to it significant assets distributing included controlled in its year consolidated tax_return transferred to controlled the assets including stock of wholly-owned subsidiaries related to business b the business b assets constituted approximately a percent of the operating_assets of distributing based on financial statement book_value on date on date a date during year after but before distributing as part of a reorganization that qualified for tax-free treatment under following the distribution of controlled stock to the shareholders of distributing tam-105188-04 controlled’s market capitalization was b percent of the cumulative market capitalization of distributing and controlled the fair_market_value of the assets received by controlled from distributing exceeded the basis of the assets by a material amount sec_368 and sec_355 of the internal_revenue_code the code distributing distributed all the stock of controlled to its shareholders on date a date during year on date a date during year in anticipation of the spin-off of controlled an initial_public_offering of controlled stock was consummated following the distribution distributing continued to conduct other lines of business both directly and through its remaining subsidiaries controlled was the publicly-traded common parent of an affiliated_group that files consolidated tax returns on a fiscal-year basis controlled_group the controlled_group included the subsidiaries that distributing transferred to controlled on date cnol of dollar_figurec of that amount approximately dollar_figured was attributable to controlled dollar_figuree was attributable to other former distributing group members and the remainder was attributable to members of the controlled_group that were not former distributing group members the distributing group filed an amended tax_return for year and claimed a refund due to a cnol carryback of approximately dollar_figuref of the controlled group’s cnol taxpayer’s position should be treated as the alter ego of controlled and therefore that the cumulative register of controlled should include the income history of distributing dating back to distributing’s taxable_year the taxpayer argues that with regard to carrybacks of srly attributes the cumulative register rule is built on a matching principle because controlled’s losses were generated by business b which was transferred to controlled by distributing the taxpayer argues that sec_1_1502-21t must be interpreted at least broadly enough to allow for inclusion of distributing’s income history in the cumulative register of controlled to match controlled’s losses with the income history of distributing in addition taxpayer asserts that an interpretation of sec_1 21t f as applied to the transaction at issue that is based on the principles of the taxpayer argues that by application of sec_1_1502-21t distributing in year the controlled_group reported a consolidated_net_operating_loss the taxpayer has not specified whether the period of inclusion of distributing’s items should end as of the transfer of business b or as of the date of the distribution of the controlled stock sec_1_1502-21t and g provides that the cumulative register of a member begins as of its first taxable_year in the group beginning on or after date however under sec_1 21t g subject_to certain requirements that have been met in this case a consolidated_group may apply the cumulative register rules for all consolidated_return years ending on or after date tam-105188-04 separate_return filing disregards the impact of the significant changes to the srly regulations that occurred in finally the taxpayer argues that an interpretation that resolves the issue at hand based on separate_return principles also disregards the contextual analysis required by sec_1_1502-21t and reduces that provision to an anti- abuse rule law and analysis sec_1_1502-21t provides that in the case of a net_operating_loss sec_1_1502-21t provides that in the case of a carryback the srly sec_1_1502-21t provides that the aggregate of the net_operating_loss_carryovers_and_carrybacks of a member arising or treated as arising in srlys that are included in the cnol deductions for all consolidated_return years of the group under sec_1_1502-21t may not exceed the aggregate consolidated_taxable_income cti for all consolidated_return years of the group determined by reference to only the member’s items of income gain deduction and loss this is commonly referred to as the cumulative register rule carryover or carryback for which there is a srly subgroup the principles of sec_1 21t c apply to the srly subgroup and not separately to its members subgroup is composed of the member carrying back the loss the loss member and each other member of the group from which the loss is carried back that has been continuously affiliated with the loss member from the year to which the loss is carried through the year in which the loss arises means a transferor or distributor of assets to a member the successor in a transaction i to which sec_381 applies or ii that occurs on or after date in which the successor’s basis for the assets is determined directly or indirectly in whole or in part by reference to the basis of the assets of the transferor or distributor but only if the amount by which basis differs from value in the aggregate is material reference to a corporation member common parent or subsidiary includes as the context may require a reference to a successor or predecessor as defined in sec_1 f otherwise determine any increase in the cti of a srly subgroup that is attributable to a successor is disregarded unless the successor acquires substantially_all the assets and liabilities of its predecessor and the predecessor ceases to exist or after date see sec_1_1502-21t however sec_1_1502-21t the sec_1_1502-21t regulations apply to all consolidated_return years beginning on for the years at issue sec_1_1502-1 provided that the term predecessor sec_1_1502-21t provides that for purposes of sec_1_1502-21t any sec_1_1502-21t provides that except as the commissioner may the issue addressed by this technical_advice_memorandum is whether tam-105188-04 provides that a consolidated_group may apply the rules of sec_1_1502-21t to all consolidated_return years ending on or after date and beginning before date but the rules of sec_1_1502-21t are applied only with respect to the losses and deductions of those corporations that became members of the group including members of a subgroup and to acquisitions occurring on or after date and only with respect to such losses and deductions controlled’s srly cumulative register under sec_1_1502-21t includes only its items of income gain loss and deduction and those items of the members of any applicable srly subgroup3 or whether it also includes distributing’s items of income gain loss and deduction beginning in based on the type of transaction undertaken and in light of the text of the regulations at issue the regulations the well-established purpose of the srly rules and the indications of intent provided in the preamble to those regulations this memorandum concludes that controlled’s cumulative register does not include items of distributing reference to a corporation member common parent or subsidiary includes as the context may require a reference to a successor or predecessor as defined in sec_1 f sec_1_1502-1 provides general definitions of predecessor and successor for purposes of the consolidated_return_regulations for the period at issue sec_1_1502-1 provided that predecessor means a transferor or distributor of assets to a member the successor in a transaction i to which sec_381 applies or ii that occurs on or after date in which the successor’s basis for the assets is determined directly or indirectly in whole or in part by reference to the basis of the assets of the transferor or distributor but only if the amount by which basis differs from value in the aggregate is material basis transaction meeting the requirements of sec_1_1502-1 therefore distributing qualifies as a predecessor of controlled under the general definition contained in sec_1_1502-1 however sec_1_1502-21t puts forth a higher threshold for treatment of a predecessor as an extension of a member that is subject_to the srly regulations under sec_1_1502-21t any reference to a member of a group includes as the context may require a reference to a successor or predecessor as defined in sec_1_1502-1 emphasis added if distributing is found to be a predecessor that is treated as an extension of controlled for purposes of the cumulative register distributing transferred to controlled the assets of business b in a carryover sec_1_1502-21t provides that for purposes of sec_1_1502-21t any the taxpayer has not argued that distributing should be treated as a subgroup member for purposes of the carryback of controlled’s year loss regarding the srly limitation see co-78-90 1991_1_cb_757 on date the irs and the treasury_department issued temporary regulations that were substantially identical see t d 1996_2_cb_119 these temporary regulations are electively applicable by taxpayers for years ending on or after date see sec_1_1502-21t on date the irs and the treasury_department issued proposed_regulations thus the controversy in this case concerns the meaning of the phrase as the tam-105188-04 computation under the context standard of sec_1_1502-21t the income history of distributing will be included in the cumulative register of controlled context may require controlled generated a loss in year from its operation of business b in year distributing had transferred to controlled all of the assets of business b but continued to operate other businesses the taxpayer contends that because of the compelling relationship between distributing and controlled the context requires that distributing be treated as an extension of controlled_taxpayer bases its argument at least in part on application of the matching principles that it asserts led to the introduction of the cumulative register in the regulations expounds on the meaning of the phrase as the context may require however an examination of the pertinent sections of the regulations the accompanying preamble as well as the well-developed history and purpose of the srly regulations provides a strong basis for interpretation of this language neither the regulations nor the final version of the srly regulations a history and purpose of the srly rules the srly rules have historically served to police the line between consolidated_return years and separate_return years one of the most valuable features of consolidated filing is the right of a group to freely offset the losses of one member against the income and gain of other members see sec_1501 sec_1_1502-11 however it was established very early in the history of consolidated filing that the right to such unlimited offset extends only to losses_incurred during years of affiliation see 286_us_319 affirming the opinion of the 5th circuit and stating that deduction of a separate year loss of one member against consolidated_taxable_income attributable to a different member is unreasonable and cannot have been intended by the framers of the statute with regard to whether such a limitation impeded the proper functioning of the precursors to sec_172 and sec_1502 the circuit_court of appeals had stated the view we take gives full effect to them both it does not permit affiliation to deprive the taxpayer of his net_loss privilege or in any manner diminish it it does not permit affiliation to enlarge or in any manner change it f 2d 5th cir the srly rules implement the principle established by woolford realty and limit a group’s ability to offset separate_return_year losses of one member against the income of other members the regulations in effect for the years prior to the issuance of the regulations currently at issue pre-1991 regulations provided for a clear separate entity-based rule regarding the use of srly losses a consolidated_group could use such losses to offset only the income generated by the member carrying over such losses see sec_1_1502-21a unfortunately these regulations created certain tam-105188-04 anomalous results as discussed in the preamble to the regulations at issue for example if the member carrying over the srly loss produced income in a consolidated_return_year but the group had no positive cti for that year the member’s srly losses could not be absorbed in that year because the pre-1991 regulations contained no mechanism to carry over the member’s contribution to cti to other years the srly losses could not be absorbed in a different consolidated_return_year unless the member also contributed to cti in that other year see co-78-90 1991_1_cb_757 regulations operated on a member-by-member fragmentation basis therefore if multiple group members moved together between consolidated groups a strange outcome could result assume for example that two members of the same group joined another group and one member carried over a portion of its net operating losses arising in the old group although in the first group the carryovers could have offset the income of both members the new group generally could absorb the carryovers only to the extent that the specific member carrying over the loss contributed to the new group’s cti see id pincite in describing the troubling nature of this outcome the preamble to the regulations states another anomaly was caused by the fact that the srly limitation of the pre-1991 t he tax laws should be neutral with respect to changes in ownership so that losses arising among members of a group are able to be used among the members following an ownership_change subject only to the restrictions imposed on a single entity in similar circumstances id in an attempt to address the problems that resulted from application of the pre- regulations in the irs and treasury_department proposed the regulations now at issue b regulations and preamble subgrouping and cumulative register the regulations introduced to the srly regime two significant structural changes in order to address the anomalies described above first the regulations introduced subgrouping rules under these rules if a subgroup exists with regard to a particular srly tax attribute the srly limitation is based on the aggregate contribution to cti by the members included in the srly subgroup rather than being computed on a member-by-member basis see sec_1_1502-21t this change composed of the member carrying over the loss the loss member and each other member that was a member of the former group that becomes a member of the group at the same time as the loss member composed of the member carrying back the loss the loss member and each other member of the group from which the loss is carried back that has been continuously affiliated with the loss member from the year to which the loss is carried through the year in which the loss arises sec_1_1502-21t provides that in the case of a carryback the srly subgroup is sec_1_1502-21t provides that in the case of a carryover the srly subgroup is tam-105188-04 preserves the members’ pre-existing right to freely offset income of one member against loss of another the addition of the subgrouping rules moves away from strict separate_entity treatment in certain respects clearly calculating the aggregate contribution of a subgroup will produce a different total than calculating the contribution solely of the member that carries the srly attribute indeed the purpose of the subgrouping rule is to treat the various members of the subgroup as if they were divisions of a single corporation and to apply the carryover and carryback rules to that single entity the application of this rule does not result in free use of the srly attributes by the consolidated_group rather implementation of the single entity concept results in the continued free use of the srly attributes only among those members that had such free use within the group in which the loss was incurred thus application of the subgrouping rule departs from separate_return outcomes only to the extent necessary to address the lack of neutrality that had resulted from the application of the pre-1991 regulations when multiple members moved together between consolidated groups found at sec_1_1502-21t under this provision a member’s contribution to cti is measured cumulatively over the period during which the corporation is a member of the group as a result a member’s srly losses may be absorbed in a consolidated_return_year in which the member does not contribute to cti to the extent of the member’s cumulative net positive contribution to cti over a course of years introduction of the cumulative register concept moves away from strict separate-entity treatment in certain respects for example under sec_172 losses may be carried back only a limited number of years and then must be carried forward because the cumulative register rule_of sec_1_1502-21t constructs a running total beginning as early as it is possible for a taxpayer to have a much larger or much smaller usable carryback under the regulations than under the separate_return application of sec_172 the regulations also introduced the concept of the cumulative register see co-78-90 c b pincite l osses arising among members of a group are able to be used among the members following an ownership_change subject only to the restrictions imposed on a single entity in similar circumstances sec_1_1502-21t provides the aggregate of the net_operating_loss_carryovers_and_carrybacks of a member arising or treated as arising in srlys that are included in the cnol deductions for all consolidated_return years of the group may not exceed the aggregate consolidated_taxable_income for all consolidated_return years of the group determined by reference to only the member’s items of income gain deduction and loss for example assume that in year sec_1 through sec_1 joined in the filing of a consolidated_return with group x sec_1 had large amounts of income in each of year sec_1 through but in each of year sec_4 and sec_1 had no income or loss at the end of year sec_1 left the group in year sec_1 incurred a loss assuming a 2-year carryback period under sec_172 sec_1 is eligible to carry back its year loss to year sec_4 and however applying sec_172 on a separate_return basis s is unable to use any of the year loss in the carryback years because sec_1 generated no taxable_income in those years in contrast under the regulations group x can use the sec_1 year loss to the extent of sec_1’s positive cumulative register for years during year sec_1 through limited by cti tam-105188-04 because a consolidated_group offsets consolidated_year items of all members before applying sec_172 it is impossible to replicate a perfect separate_entity outcome regarding the use of srly attributes by a consolidated_group despite this inability to reach a perfect resolution it is notable that the cumulative register tracks only the items of the member that carries over or back a srly attribute or the items of the members of the subgroup that exists with respect to the tax attribute see sec_1_1502-21t and further the preamble to the regulations indicates that to the extent that a subgroup exists the drafters intended that the cumulative register would generally track only the subgroup that is initially established once a group becomes a subgroup within another group it is generally not permitted to increase its membership permitting increases in the membership of subgroups would effectively eliminate the srly limitation co-78-90 c b pincite thus the cumulative register rule respects separate_entity principles enhanced by the subgrouping rules and departs from separate_return outcomes only to the extent necessary to correct to the extent possible the anomalous outcome produced under the pre-1991 regulations which effectively disregarded economic contributions of members to the group in years in which a group did not produce positive cti predecessors and successors the regulations incorporated into the srly rules the predecessor and successor concepts here at issue sec_1_1502-21t provides predecessors and successors- in general for purposes of this section any reference to a corporation member common parent or subsidiary includes as the context may require a reference to a successor or predecessor as defined in sec_1_1502-1 as noted above the regulations do not expound upon the meaning of the phrase as the context may require with regard to claims for treatment of predecessors and successors as extensions of one another however the preamble provides insight into the intended application of this rule to inclusion of predecessor items that would enlarge the cumulative register of a successor in order to prevent one member’s inappropriate use of the historic contribution to consolidated_taxable_income by another member predecessors will be taken into account only as the context may require in addition a srly limitation may not be increased by a member transferring a portion of its assets in order to divide its if a corporation has taxable_income for one year the corporation can carry to that year tax attributes from its other years by application of sec_172 however if that corporation is a member of a consolidated_group for the year at issue sec_172 is applied only after the taxable_income of the member has been combined with and possibly offset by items of other members of the group see sec_1_1502-11 tam-105188-04 contribution to consolidated_taxable_income between itself and other members of the group co-78-90 c b pincite emphasis added thus the preamble clarifies that predecessor items will be allowed to expand successor cumulative registers in very limited cases ie only as the context may require emphasis added the preamble expresses no such intent with regard to inclusion of successor items one illustration of the application of the context requirement in the case of carryovers but not carrybacks sec_1_1502-21t contains the following specific rule regarding the inclusion of items of successors in the cumulative registers of predecessors beyond the explanation contained in the preamble the regulations do provide limitation on srly subgroups except as the commissioner may otherwise determine any increase in the consolidated_taxable_income of a srly subgroup that is attributable to a successor is disregarded unless the successor acquires substantially_all the assets and liabilities of the predecessor and the predecessor ceases to exist sec_1_1502-21t was intended to address tax_avoidance situations in the regulations address these concerns by instituting a relatively harsh which a taxpayer may try to increase its cumulative register by segregating poorly performing assets in a subsidiarydollar_figure another matter of concern was the possibility of taxpayers transferring assets to other group members in order to qualify those members as successors and thus bring additional positive_income history into the transferor’s cumulative registerdollar_figure rule which results in the inclusion of negative contributions to a cumulative register by successors but the exclusion of positive contributions except to the extent that the successor acquires substantially_all the assets and liabilities of the predecessor and the predecessor ceases to exist therefore the regulations do not allow for positive expansion of the cumulative register except in the case of entity-combining transactions this result is consonant with the application of separate_return principles to the carryback and carryover of srly attributes into a consolidated_group although sec_1_1502-21t by its terms appears to apply solely to successors of members of a subgroup the provision is widely interpreted as applicable to successors outside of the subgroup context see eg andrew j dubroff et al federal income_taxation of corporations filing consolidated_returns sec_42 a 2d ed transferring a portion of its assets in order to divide its contribution to consolidated_taxable_income between itself and other members of the group is generally not permitted to increase its membership permitting increases in the membership of subgroups would effectively eliminate the srly limitation see co-78-90 c b pincite once a group becomes a subgroup within another group it see co-78-90 c b pincite a srly limitation may not be increased by a member by its terms the rule_of sec_1_1502-21t is inapplicable to carryback situations responses to the taxpayer’s arguments the taxpayer urges an interpretation of the srly rules that breaks from their tam-105188-04 however this sole illustration of context requirement under sec_1_1502-21t provides an indication that the cumulative register was intended to remain faithful to the separate_entity principles of the earlier srly rules c the taxpayer has argued that an interpretation of sec_1_1502-21t that is guided by the principles of separate_return filing as applied to the facts presented disregards the impact of the significant changes to the srly regulations which occurred in in particular the taxpayer argues that with regard to carrybacks of srly attributes the cumulative register rule is based on a matching principle because controlled’s losses were generated by business b which was transferred to controlled by distributing the taxpayer argues that distributing constituted the alter ego of controlled thus the taxpayer asserts that the sec_1_1502-21t context requirement must be interpreted to allow for inclusion of distributing’s income history in the cumulative register of controlled to match controlled’s losses with the income history of distributing historic function of ensuring that the usage of tax_attributes is not enlarged by reason of members carrying such tax_attributes into a consolidated_group this result is not grounded in the structural changes that appeared in the regulations the taxpayer’s desired result would match the losses from business b with the income generated by that business in prior years but controlled’s cumulative register would also include the income history of other businesses that remained with distributing which have no connection with controlled the context of the transaction undertaken by the taxpayer provides no persuasive reason for a result that diverges so dramatically from the result that would have been reached in a non-consolidated setting the offsetting of separate_return_year attributes of one member against income of different members taxpayer’s interpretation of sec_1_1502-21t would change the function of the srly rules in a fundamental manner taxpayer’s proposed result allows the functional equivalent of the carryback of losses generated by a new subsidiary to a taxable_year of its non-consolidated corporate parent there is no indication in either the regulatory language or the associated preamble that such a substantial change was intended in contrast the two major structural changes in the srly rules that were introduced in the regulations were carefully outlined in the regulatory text see sec_1_1502-21t and and extensively explained in the preamble see co-78-90 c b pincite the taxpayer argues that the matching principles that support at least the introduction of the cumulative register militate in favor of inclusion of predecessor income history under the facts presented however the preamble to the regulations explains the specific anomalies that subgrouping and the cumulative register were intended to address that preamble provides no link between the as discussed above the well-established purpose of the srly rules is to prevent tam-105188-04 cumulative register matching principles and application of the predecessor and successor rules in fact the only reference in the preamble to the application of the predecessor concept to cumulative registers in a carryback concept indicates an intention generally to disallow the addition of predecessor income histories into successor cumulative registersdollar_figure the cumulative register is indeed based on a matching principle as discussed above the pre-1991 regulations included no mechanism to provide a taxpayer with a srly credit for its economic contribution to the group in a particular year if the group did not have positive cti in that year as a result the pre-1991 regulations could produce the anomalous result of allowing no use of a srly attribute in spite of positive contribution to cti by the srly member the cumulative register rule allows the consolidated_group to use the separate_return_year attributes but only to the extent of the cumulative contribution by the srly member to the group thus the rule allows for matching of income and losses of a particular corporation across taxable years and harmonizes the operations of the sec_172 carryback and carryover rules with the rules for computing cti under sec_1_1502-11 in contrast the lack of matching that the taxpayer seeks to address is inherent in the system of corporate_taxation that is except to the extent that a loss is generated during a consolidated_return_year the code and regulations do not provide for use of that loss by any other corporation unless specific requirements are satisfied see sec_381 the taxpayer further argues that the existence of the rule_of sec_1_1502-21t is evidence that the context language of sec_1_1502-21t is intended to be expansive and thus its existence cuts in favor of broader inclusion of predecessor items in cumulative registers sec_1_1502-21t states that a predecessor’s cumulative register may be increased by inclusion of items of the successor only if the successor acquires substantially_all the assets and liabilities of the predecessor and the predecessor ceases to exist because sec_1_1502-21t does not specifically provide a rule for inclusion of successor’s income history in the cumulative register of the predecessor the taxpayer argues that such inclusion is implicit in sec_1_1502-21t and that only the existence of sec_1_1502-21t prevents positive_income history of successors from being included further because no provision comparable to sec_1_1502-21t applies in the carryback context the taxpayer argues that the predecessor rules should be applied in a more expansive manner than the successor rules sec_1_1502-21t that contravene the history and purpose of the srly rules further the preamble to the regulations clearly indicates that in carryback situations predecessor income was intended to be added to cumulative registers of successors in see co-78-90 c b pincite in order to prevent one member’s inappropriate use of the historic contribution to consolidated_taxable_income by another member predecessors will be taken into account only as the context may require emphasis added the taxpayer draws inferences from the somewhat opaque language of finally the taxpayer argues that an interpretation of the regulations that tam-105188-04 very limited circumstances only as the context may require the preamble also indicates specific concerns with manipulation of cumulative registers in the carryover context and that the somewhat punitive rule_of sec_1_1502-21t was intended to combat those concerns based on these factors the existence of sec_1_1502-21t should be interpreted not to cut in favor of an expansive reading of the context requirement of sec_1_1502-21t resolves the issue at hand based on separate_return principles disregards the context requirement of sec_1_1502-21t and reduces that provision to an anti-abuse rule taxpayer points to the extensive history of the irs and the treasury_department in drafting anti-abuse_rules and notes that sec_1_1502-21t bears little resemblance to such anti-abuse rulesdollar_figure intended at least in part to serve an anti-abuse purposedollar_figure nevertheless sec_1 21t f constitutes more than an anti-abuse rule for example in the course of finalizing the srly regulations the irs and treasury_department further considered the application of the predecessor and successor rules with regard to cumulative registers in the carryover context those final regulations went one step further in interpreting as the context may require beyond strict separate_entity treatment allowing expansion of the cumulative register to include the income of successors in the cumulative registers of predecessors but only in the context of wholly-owned successors see sec_1_1502-21dollar_figure the preamble to the regulations indicates that in the course of finalizing those regulations the irs and the treasury_department took into account the context surrounding such transactions and determined that strict separate_entity treatment should not be followed because in such cases application of sec_1_1502-21t produced unduly harsh results t d 1999_2_cb_34 dollar_figure it is clear from the preamble to the regulations that sec_1_1502-21t was there has been no suggestion that the transaction at issue constituted tax_avoidance see co-78-90 c b pincite in order to prevent one member’s inappropriate use of the historic contribution to consolidated_taxable_income by another member predecessors will be taken into account only as the context may require in addition a srly limitation may not be increased by a member transferring a portion of its assets in order to divide its contribution to consolidated_taxable_income between itself and other members of the group extension of the single entity_theory of subgrouping and a successor can be viewed as part of the pre- transfer whole concerns regarding administrability appear to have led the drafters to not differentiate between transfers to subsidiaries that result in an expansion of the pool of assets and those transfers that do not transactions the preamble to the final regulations expresses particular sympathy with regard to divisive sec_351 in many if not most of such transactions inclusion of such wholly-owned successors will be an i f t a member of a srly subgroup formed t1 by contributing to it one of its businesses and t1 produced net operating losses those losses would be included in determining the taxable_income of the subgroup on the other hand if t1 produced taxable_income that income would not be included in the subgroup’s taxable_income if no transfer to t1 had occurred and the tam-105188-04 conclusion if the distributing group were not filing a consolidated_return for the carryback_year at issue the year nol_carryback of controlled could not be used to offset the income of distributing the well-established purpose of the srly rules is to prevent the offsetting of separate_return_year attributes of one member against income of other members and thus to promote neutrality with regard to the use of separate_return_year attributes carried into consolidated groups versus those carried into separate_return years the major structural changes introduced in the regulations further promote neutrality there is no indication in the text of the regulations nor in their preamble that the new rules were intended to fundamentally change the application of the principles of sec_172 sec_381 or the pre-existing srly rules by enabling separate_return_year attributes to be used against taxable_income of other entities with the exception of srly subgroup members thus on the facts presented we conclude that under sec_1_1502-21t the context does not require that distributing be treated as an extension of controlled for purposes of computing controlled’s cumulative register consequently controlled’s srly cumulative register includes only the items of income gain loss and deduction generated by controlled and any applicable subgroup members as defined in sec_1_1502-21t caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent business had remained in t all of its income or loss as the case may be would be included in determining the subgroup’s taxable_income t d c b pincite


significant ignificant to - tax_exempt_and_government_entities_division index index no no department of the treasury internal_revenue_service washington d c jul in re company consulting firm x this letter constitutes notice that waivers of the percent excise_tax due under section f of the internal_revenue_code code have been granted with respect to the liquidity shortfalls for the plan for the fourth quarter of second and third quarters of and the first quarter of impacted quarters this letter also constitutes notice that a waiver of the percent excise_tax due under sec_4971 of the code has been granted with respect to the liquidity_shortfall for the first quarter of the plan_year ending december hereinafter these quarters will be referred to as the ' all four quarters of the first quarter of the first the waivers of the percent tax have been granted in accordance with sec_4971 of the code for any quarter for which these waivers have been granted the amount of the waiver is equal to percent of the amount of the excess of the liquidity_shortfall of the plan as determined under sec_412 of the code for the quarter over the aggregate amount of any contributions paid in the form of liquid_assets which served to reduce the liquidity_shortfall for the quarter and which were paid to the plan between the last day of the quarter and the due_date of the required_installment under sec_412 for such quarter the waiver of the percent tax has been granted in accordance with sec_4971 of the code for the quarter for which this waiver has been granted the amount of the waiver is equal to percent of the amount of the excess of the liquidity_shortfall of the plan as determined under sec_412 of the code for the quarter over the aggregate amount of any contributions paid in the form of liquid_assets which served to reduce the liquidity_shortfall for the quarter and which were paid to the plan between the last day of the quarter and the due_date of the required_installment under sec_412 for such quarter the liquidity shortfalls for the plan arose as a result of the inability of the company to satisfy the liquidity requirement of sec_412 of the code for the impacted quarters and - through the information submitted indicates that the company was unaware that the liquidity shortfalls existed for the impacted and quarters until notified by consulting firm x of these requirements on september the required shortfall amounts were paid_by september after becoming aware of the liquidity shortfalls for the impacted the the impacted october shortfall aniounts and the date that they were reported to the company the company contributed more than the amount of the shortfalls and the plan’s liquidity_shortfall had been eliminated after becoming aware of the liquidity_shortfall amounts the company requested a waiver of the excise_taxes due under sec_4971 f of the code for the impacted quarters quarters consulting firm x re-examined the plan for plan years additional liquidity shortfalls were discovered for quarters and reported to the company on liquidity between the due_date for the and - and and ' consulting firm x is a well respected leading firm in the field of services with offices throughout the united_states consulting firm x had material in its possession before the payment due dates of the impacted quarters to put it on notice of the potential for liquidity shortfalls but did not timely make any calculations nor did it inform the company of the potential for liquidity shortfalls in a timely manner there was no other information available to the company that was sufficient for it to determine that there were liquidity shortfalls for the impacted quarters based on the information above it is concluded that the liquidity shortfalls experienced by the plan was due to reasonable_cause and not willful neglect and that reasonable steps were taken to remedy such liquidity shortfalls because the liquidity requirement of sec_412 of the code was satisfied for the plan for the quarter ending june the percent excise_tax of sec_4971 does not apply with respect to the liquidity shortfalls that existed for the plan for the second third and fourth quarters of the plan_year ending december and the first quarter of the plan_year ending december this ruling is being given with the understanding that all the representations made pursuant to this request are accurate if such representations made pursuant to this request are not accurate the company may not rely upon this ruling letter this ruling letter is directed only to the taxpayer that requested it sec_61 k provides that it may not be used or cited by others as precedent a copy of this letter has been sent to the employee_plans classification manager in acopy of this letter is also being furnished to your authorized representative pursuant to a power_of_attorney form on file if you have any questions on this ruling letter please contact employee_plans actuarial group


t c memo united_states tax_court estate of albert simon deceased ellen s simon personal representative and ellen s simon petitioners v commissioner of internal revenue respondent docket no filed date lane m gensburg anthony calandriello and sandra d mertens for petitioners meso t hammoud for respondent memorandum opinion thornton judge this is a partner-level affected items deficiency proceeding under the tax equity and fiscal responsibility act of tefra pub_l_no sec_402 stat pincite respondent issued to ellen s simon and the estate of albert simon deceased an affected items notice_of_deficiency for that determined a dollar_figure deficiency in their federal_income_tax a dollar_figure accuracy-related_penalty under sec_6662 a dollar_figure accuracy-related_penalty under sec_6662 and a dollar_figure addition_to_tax under sec_6651 the deficiency_notice relates to albert simon’s participation in a son-of-boss transaction transaction that formally involved a tefra partnership charlevoix investment partners charlevoix respondent issued the deficiency_notice to petitioners after no one timely challenged a notice of final_partnership_administrative_adjustment fpaa related to charlevoix’s corresponding taxable_year respondent moves to dismiss this case to the extent that it relates to the accuracy-related_penalties penalties asserting that section a a i excludes the penalties from a deficiency proceeding as a prerequisite to their assessment petitioners object to respondent’s motion and have filed a cross- subsequent section references are to the internal_revenue_code in effect for the year in issue unless otherwise indicated dollar amounts are rounded while the face of the deficiency_notice states that the dollar_figure was determined under sec_6662 other portions of the notice clarify that the dollar_figure was determined under sec_6651 motion to dismiss the case in full asserting that the court lacks jurisdiction because the deficiency_notice is invalid the deficiency_notice is invalid petitioners claim because the internal_revenue_service irs failed to give proper notice of the fpaa respondent has filed an objection to petitioners’ motion we hold that the irs gave proper notice of the fpaa and that the deficiency_notice is valid we also hold that the court lacks jurisdiction to decide the portion of this case that relates to the penalties and will grant respondent’s motion dismissing this case to that extent we will deny petitioners’ motion in full petitioners also argue that the court lacks jurisdiction because the applicable_period of limitations for assessment has expired because the expiration of the period of limitations for assessment is an affirmative defense that does not implicate the court’s jurisdiction see 220_f3d_1255 11th cir aff’g tcmemo_1998_347 766_f2d_401 9th cir 129_tc_11 n aff’d in part remanded in part on other grounds sub nom 581_f3d_297 6th cir 102_tc_683 40_tc_1061 cf 547_us_198 a statute_of_limitations defense is not ‘jurisdictional’ we reject this argument without further discussion i introduction background neither party requested a hearing as to either subject motion and we conclude that a hearing is not necessary to decide the motions for the sole purpose of deciding the motions we draw the following background information from the agreed-upon allegations in the pleadings and from the uncontroverted statements in the motions and in the accompanying memoranda including the exhibits attached to the motions and to the memoranda ms simon’s legal address was in michigan when the petition was filed ii background ascs investments llc ail is a limited_liability_company that mr simon wholly owned ascs investments inc aii is an s_corporation that mr simon wholly owned charlevoix is a general_partnership the sole partners of which were ail and an individual whose identity is not relevant to our analysis ail had a interest in charlevoix’s profit loss and capital mr simon caused charlevoix to be formed on date to facilitate the transaction and he caused charlevoix’s partners to contribute essentially offsetting digital options to charlevoix incident to the formation on date the partners had purportedly gone long on some of the options at a total cost of dollar_figure and had gone short on the remaining options at a total selling_price of dollar_figure the options terminated according to their terms on date and charlevoix purchased publicly traded stock one day later approximately one week after that ail contributed its interest in charlevoix to aii and charlevoix terminated and distributed its assets mainly the stock to aii aii sold the distributed assets and reported that it realized large capital losses on the sale the losses were noneconomic losses attributable to inflated bases in the assets the losses passed through to mr simon as aii’s shareholder charlevoix filed a form_1065 u s return of partnership income for its taxable_year from october to date return the return was both charlevoix’s initial and its final return and it did not designate a tax_matters_partner the return which mr simon signed for the partnership on date listed charlevoix’s address as charlevoix ave petoskey michigan petoskey address a schedule_k-1 partner’s share apparently the partners had not treated the short options as a liability under sec_752 some documents refer to the street address of the petoskey address as charlevoix ave while other documents refer to that street address as charleviox ave or charlevoix ave apartment we refer to continued of income credits deductions etc included in the return likewise listed ail’s address as the petoskey address the only other schedule_k-1 included in the return related to the individual partner the name and address of the individual partner were redacted from the court’s copy of that document during the petoskey address was the simons’ residential address and the listed address of charlevoix’s principal_place_of_business charlevoix ail and aii ceased operation on or shortly after date and in date the simons moved to equestrian way charlevoix michigan equestrian way address the simons resided at the equestrian way address through date the irs audited charlevoix’s return and an irs revenue_agent sl in boston massachusetts mailed to the petoskey address by certified mail a notice of beginning of administrative_proceeding nbap dated date addressed to charlevoix’s tax_matters_partner in care of mr simon as a member the u s postal service returned the nbap to the irs after continued all of the variations as the petoskey address while the nbap was addressed to charlevoix’s tax_matters_partner in care continued unsuccessfully attempting to deliver it on three occasions sl also mailed to the petoskey address a letter dated date addressed to charlevoix in care of mr simon as a member sl mailed to the petoskey address another copy of the nbap but dated date addressed to ail attn mr albert simon single owner in addition sl mailed to the equestrian way address a copy of the nbap dated date addressed to albert ellen s simon sl mailed to the equestrian way address an nbap dated date for charlevoix’s taxable_year ended date addressed to charlevoix’s tax_matters_partner in care of mr simon as a member at or about the same time sl separately mailed to the equestrian way address two other letters one addressed to charlevoix’s tax_matters_partner in care of mr simon as a member and the other addressed simply to charlevoix’s tax_matters_partner on date mr and ms simon each signed as to their taxable_year a form 872-i consent to extend the time to assess tax as well as tax attributable to items of a partnership the consent lists the simons’ present continued of mr simon as a member the envelope in which the nbap was mailed and the accompanying return receipt was simply addressed to charlevoix’s tax_matters_partner address as the equestrian way address and lists their former address in naples florida from date through date the simons signed six additional similar consents each listing the equestrian way address as their address the seventh and final consent extended the period of limitations for assessment through date on date an irs agent bk in st paul minnesota mailed to the petoskey address separate copies of an fpaa for charlevoix’s taxable_year ended date addressed respectively to charlevoix’s tax_matters_partner and to ail the irs did not mail a copy of the fpaa to mr simon either individually or as an indirect_partner the fpaa in part adjusted to zero the partnership items of other deductions ordinary dividends net_short-term_capital_loss investment_income included in portfolio_income net_loss from self- employment distributions of property and money capital contributions net_loss per books and cost or other bases in the options the fpaa in part also determined that charlevoix is disregarded for federal_income_tax purposes the last two consents were signed after mr simon died ms simon signed those consents on his behalf a certified mail list that the u s postal service stamped as received on date reports that the irs separately mailed three copies of the fpaa the name and the address corresponding to the third copy have been redacted yet it appears that the third copy was most likely mailed to the partner outside_basis is reduced to zero a penalty applies to the portion of any underpayment attributable to a gross valuation_basis misstatement and a penalty applies to the portion of any underpayment attributable to negligence or disregard of rules and regulations or to a substantial_understatement_of_income_tax or to a substantial_valuation_misstatement the u s postal service ultimately returned the fpaas to the irs as not deliverable as addressed--unable to forward the fpaa was never timely challenged eg by filing a petition in this court and the fpaa was defaulted on date respondent subsequently assessed the penalties and the addition_to_tax of dollar_figure dollar_figure dollar_figure and dollar_figure respectively and issued the deficiency_notice underlying this case on date all items underlying the deficiency in the deficiency_notice relate to adjustments to the partnership items of charlevoix and the penalties in the deficiency_notice are the same penalties determined in the fpaa discussion respondent moves to dismiss this case to the extent of the penalties asserting that an assessment of the penalties is not subject_to the normal deficiency procedures outlined in sec_6211 through respondent asserts that the applicability of the penalties is a partnership-level determination that is outside of this court’s jurisdiction in this partner-level proceeding petitioners state in their objection to respondent’s motion that they do not dispute that penalties of the type we have here are regularly determined in a partnership-level proceeding they argue however that the penalties and all other items in the deficiency_notice are no longer partnership items required to be determined at the partnership level because they state the irs failed to give proper notice of the fpaa as required by sec_6223 they assert that neither charlevoix ail aii nor mr simon in his capacity as an indirect_partner received proper notice of the fpaa and that the irs knew as early as date that the petoskey address was no longer a valid address and the proper address was the equestrian way address they assert that the irs must make a good_faith effort to provide notice of an fpaa and that the irs failed that standard here given that the irs had sufficient information readily available and directly in the hands of the agents handling the underlying examination to enable the irs to ascertain the names addresses and profits interest of all direct and indirect partners when the fpaa was issued they conclude that the court lacks jurisdiction over the deficiency_notice and have cross-moved to dismiss this case on those grounds we disagree with petitioners’ assertions that the irs failed to give proper notice of the fpaa and that the deficiency_notice is invalid the irs must timely mail an fpaa to certain partners before assessing a partner with an amount attributable to a partnership_item see sec_6223 d a 129_tc_11 aff’d in part remanded in part on other grounds sub nom 581_f3d_297 6th cir see also 102_tc_683 noting that an fpaa may be properly mailed even if it is not actually received by either the tax_matters_partner or a notice_partner within the meaning of sec_6231 and respectively for this purpose the term partnership_item includes any item_of_income gain loss deduction or credit that the secretary has determined is more appropriately determined at the partnership level than at the partner level sec_6231 see also sec_301_6231_a_3_-1 proced admin regs a computational adjustment must then be made to the tax_liability of a partner to reflect partnership items after the partnership-level proceeding is complete see domulewicz v commissioner t c pincite see also secs c a ii a when the making of a computational adjustment requires that facts be determined at the partner level then the normal deficiency procedures outlined in sec_6211 and sec_6216 apply and the irs must issue an affected items notice_of_deficiency to the partner in order to assess tax attributable to that adjustment see sec a a i see also sec a -1t a temporary proced admin regs fed reg date neither party disputes that the items underlying the deficiency are computational adjustments that relate to partnership items in the fpaa the court has jurisdiction over the items underlying the deficiency because those items are computational adjustments and the determination of the tax attributable to the adjustments requires that certain facts be determined at the partner level see domulewicz v commissioner t c pincite see also desmet v commissioner f 3d pincite those facts relate to aii’s sale of its assets and include the identity of the assets whether the assets came from charlevoix the portion of the assets sold the holding_period for the assets and the character of any gain_or_loss see domulewicz v commissioner t c pincite see also desmet v commissioner f 3d pincite the court likewise has jurisdiction over the sec_6651 addition_to_tax because that addition_to_tax is attributable to the deficiency see sec_6665 and b the penalties however are a effective for partnership taxable years beginning after date these temporary regulations and sec_301_6223_c_-1t temporary proced admin regs fed reg date discussed infra have been replaced with final regulations see sec_301_6223_c_-1 sec_301_6231_a_6_-1 proced admin regs the referenced temporary regulations apply because charlevoix’s taxable_year in issue began on date different story the court lacks jurisdiction in this partner-level proceeding to redetermine the accuracy-related_penalties because the deficiency procedures do not apply to the assessment of penalties determined at the partnership level regardless of whether partner-level determinations must be made to assess the penalty see sec a a i domulewicz v commissioner t c pincite cf 138_tc_67 holding that where the overstatement of a purported partner’s basis in property received upon liquidation of a disregarded partnership is attributable to claiming that capital contributions were made to the partnership the underpayment_of_tax resulting from the sale of that property is attributable to the reduction to zero of the claimed capital contributions to the partnership and the court has jurisdiction in the partnership-level proceeding to determine the applicability of the gross_valuation_misstatement penalty to the loss resulting from the sale of the property rawls trading l p v commissioner tcmemo_2012_ at deciding the applicability of defenses to accuracy-related_penalties in a tefra partnership-level proceeding involving son-of-boss transactions after deciding that the tefra entities were disregarded as shams among other reasons petitioners seek contrary conclusions arguing that the items in the deficiency_notice are no longer partnership items because the irs failed to give proper notice of the fpaa as required by sec_6223 we disagree sec_6223 requires that the irs notify certain partners of the beginning and end of a partnership audit the irs generally must use the names addresses and profits interests shown on the partnership return to determine to whom and where to send that notice sec_6223 where an indirect_partner owns an interest in a partnership through a pass-thru_partner who otherwise would be entitled to notice the irs must give notice to the indirect_partner in lieu of the pass-thru_partner if the irs is properly furnished with information as to the indirect partner’s name address and indirect profits interest in the partnership see sec_6223 see also sec_6231 defining a pass-through partner as a partnership estate_trust s_corporation nominee or other similar person through whom other persons hold an interest in the partnership sec_6231 defining an indirect_partner as a person holding an interest in a partnership through or more pass-through partners if the irs fails to give proper notice to we have jurisdiction in this partner-level affected items proceeding to decide whether the affected items notice_of_deficiency is invalid on the ground that the irs failed to properly notify a partner of the underlying partnership-level proceeding see crowell v commissioner t c pincite a partner then the partner may elect to have the adjustments or ensuing decision or settlement agreement apply to the partner if the period in which to challenge the fpaa has expired without the filing of such a challenge or if a decision resulting from a challenge is final see sec_6223 if the partner does not make this election then the partnership items of the partner for the partnership taxable_year to which the proceeding relates are characterized as nonpartnership_items see id the irs’ duty to give a direct or indirect_partner notice under sec_6223 arises only to the extent that the irs is furnished with readily available information containing the name address and profits interest of the partner in either or both of two ways see 129_tc_82 first the irs may be furnished the referenced information through the tax_return of the partnership under audit see id pincite see also sec_6223 second the irs may be furnished the referenced information through a written_statement that meets the requirements of sec_301_6223_c_-1t temporary proced admin regs fed reg date see murphy v commissioner sec_301_6223_c_-1t b temporary proced admin regs fed reg date requires that the written_statement contain certain minimal information and be properly filed with the irs and states that the irs will take the additional information in the statement into account if received at least continued t c pincite see also sec_6223 sec_301_6223_c_-1t a temporary proced admin regs supra in addition the irs may but is not required to use other readily available information that it possesses eg a change in address shown on a partner’s return sec_301_6223_c_-1t f temporary proced admin regs supra the irs however has no obligation to search its records to obtain information not provided to it under either of the ways set forth in sec_6223 and id petitioners do not dispute that the irs mailed a copy of the fpaa to charlevoix’s partners at the address shown on the return and that no additional information was given to the irs in the manner prescribed in the temporary regulations they assert in their objection to respondent’s motion that continued days before the mailing of the notice to the partner to be filed properly the statement must be filed with the service_center where the partnership return is filed unless the person filing the statement knows that the nbap was already mailed to the tax_matters_partner in which case the statement should be filed with the office that mailed the nbap sec_301_6223_c_-1t b temporary proced admin regs supra to set forth the required minimal information the statement must identify the partnership each partner for whom the information is provided and the person providing the information by name address and taxpayer_identification_number explain that the statement is submitted to correct or supplement earlier information regarding the partners in the partnership specify the taxable_year to which the information pertains set forth the corrected or additional information and be signed by the person providing the information sec_301_6223_c_-1t b temporary proced admin regs supra during discovery they obtained irs files replete with evidence that beginning in date the irs used the equestrian way address for both the petitioners individually and for charlevoix and its tax_matters_partner they assert in their memorandum that implicit in the tefra statutory scheme is a requirement that the irs must make a good_faith effort to provide notice to a taxpayer of an nfpaa sec_6223 generally directing the irs to use the address information listed on the taxpayer’s partnership return does not excuse or vitiate the irs’s obligation to comport with due process and make a good_faith effort in mailing the nfpaa to a current address they conclude that proper notice of the fpaa requires that the irs have sent the fpaa to the equestrian way address in lieu of or at least in addition to the address shown on the return we disagree with petitioners’ conclusion petitioners have cited no opinion holding that the irs must send an fpaa to an address other than an address shown on the partnership return under audit or on a statement that meets the requirements of sec_301_6223_c_-1t temporary proced admin regs supra nor are we aware of any such opinion petitioners rely selectively upon sec_6223 which provides the secretary shall use additional information furnished to him by the tax_matters_partner or any other person in accordance with regulations prescribed by the secretary emphasis added ignoring the text which we have emphasized petitioners draw from the word shall that the irs must use all information in its possession notwithstanding how it was obtained but when sec_6223 is read in its entirety as it must be it explicitly establishes that the irs is required to use additional information only if it is furnished in the manner set forth in the regulations as previously discussed petitioners did not furnish additional information in the manner prescribed by the regulations petitioners also rely upon stone canyon partners v commissioner tcmemo_2007_377 aff’d sub nom 358_fedappx_868 9th cir to support their conclusion there in a setting factually similar to the setting at hand the partnership scp filed a partnership return for showing its address as stone canyon road scp had two partners a limited_liability_company and an s_corporation each wholly owned by the taxpayers a husband and wife and the schedules k-1 attached to the return reported that the partners had the same address as the partnership the partnership return did not list the taxpayers’ address on date the irs mailed an nbap to the taxpayers at their residential address on rocco drive approximately two weeks later the taxpayers’ representative sent a letter to the revenue_agent stating that scp’s new address was north canon drive approximately two months after that the representative told the revenue_agent that the north canon address was no longer a good mailing address that correspondence should henceforth be mailed to the taxpayers’ private mailbox on beverly glen circle and that the taxpayers still resided at the rocco address three days after that the irs mailed copies of an fpaa to the stone canyon address to the north canon address and to the beverly glen address the irs did not mail a copy of the fppa to the rocco address the court held in stone canyon partners that the mailing of the fpaa to the stone canyon address met the notice requirement in sec_6223 petitioners read our opinion in stone canyon partners to uphold the notice requirement because the irs made a good_faith attempt to notify all affected persons of the fpaa petitioners draw from the opinion a good_faith principle that requires the irs to mail a copy of an fpaa to every address at which the irs knows that an affected partner may be contacted applying that principle here petitioners continue proper notice required that the irs have mailed a copy of the fpaa to the equestrian way address at which the irs knew that mr simon resided we do not read our opinion in stone canyon partners so broadly as petitioners do the court held that the address shown on the partnership return was a proper address for sending notice of the fpaa even though an irs employee knew of a different address and had sent correspondence to that address in addition the court disagreed with the taxpayers’ argument that the irs’ knowledge of the rocco address meant that the irs had to mail a copy of the fpaa to that address stating in part scp never updated in the prescribed manner the address that was on the partnership return for sec_301_6223_c_-1t b and temporary proced admin regs supra provides the procedure for furnishing respondent with additional information petitioner argues that respondent mailed numerous items to rocco and therefore was aware of the address the mailing of correspondence does not alter respondent’s obligations relating to the mailing of the fpaa triangle investors ltd pshp v commissioner supra pincite t c petitioner never followed the petitioners also draw their good-faith principle from crowell v commissioner t c pincite and 89_tc_1 aff’d without published opinion 853_f2d_928 11th cir petitioners’ reliance on those cases to support their principle is equally misplaced in 95_tc_610 the irs mailed the fpaa to the address on the partnership return although the revenue_agent who audited the partnership return knew that the partnership’s current address was different ie the tax_matters_partner had submitted a power_of_attorney form to the irs stating that the irs should use the new address and had orally advised the revenue_agent of the new address the court held that the irs had not been properly advised of a change_of address for notice purposes stating continued procedures outlined in the regulations for furnishing respondent with additional information pertaining to a change_of address of scp or the tmp jcb as a result the address on the form_1065 the stone canyon address was a proper address which to mail the fpaa for accord 455_fedappx_91 2d cir 139_tc_219 see also 95_tc_610 due process requires that notice be reasonably calculated under all circumstances to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections 339_us_306 see also 89_tc_1 aff’d without published opinion 853_f2d_928 11th cir the secretary in part through specific congressionally delegated authority has provided a reasonable regulatory procedure to meet that requirement the irs followed this general procedure by mailing separate copies continued in light of the detailed instructions as to how updating partnership information is to be furnished it cannot be said that the verbal exchanges with the revenue_agent were sufficient to notify the appropriate irs office of the partnership’s change_of address and the power_of_attorney in this case did not alter the irs’s obligations relating to the mailing of the fpaa id pincite of the fpaa to the petoskey address addressed respectively to charlevoix’s tax_matters_partner and to ail the only partners other than the partner whom the return identified and provided an address for accord 455_fedappx_91 petitioners have not explained why they did not send in the referenced statement to change their address they were responsible for updating their contact information in the manner prescribed in the temporary regulations to the extent that they believed any such update was appropriate they did not update their contact information in that manner the fact that an fpaa was not mailed to the equestrian way address is due to their own inaction we will grant respondent’s motion and dismiss this case for lack of jurisdiction to the extent of the penalties in addition we will deny petitioners’ cross-motion because the irs gave proper notice of the fpaa and sec_6223 therefore does not operate to convert the partnership items to we note for completeness that the record does not establish that the particular irs office that mailed the fpaa knew that the petoskey address was an invalid address nor have petitioners explained why the return which mr simon signed on behalf of charlevoix in date and the attached schedule_k-1 issued to ail both report those entities’ address as the petoskey address given that the entities had ceased operation and the simons had moved to the equestrian way address many months before nonpartnership_items as petitioners contend we have considered all arguments and to the extent not discussed we have rejected those arguments as without merit to reflect the foregoing an appropriate order will be issued