Court Opinion

ID: 7796355
Source: CourtListenerOpinion
Date Created: 2022-08-01 00:02:07.36868+00
Date Added: 2024-06-11T16:26:24.939589
License: Public Domain

United States Tax Court

                                T.C. Memo. 2022-79

                          TREVOR R. PETTENNUDE,
                                Petitioner

                                            v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                      —————

Docket No. 636-21L.                                              Filed July 18, 2022.

                                      —————

Ulises Pizano-Diaz, for petitioner.

Daniel J. Bryant and Brian A. Pfeifer, for respondent.

                           MEMORANDUM OPINION

       BUCH, Judge: This collection case is pending before the Court on
the Commissioner’s Motion for Summary Judgment. Trevor Pettennude
seeks review of the Commissioner’s determination to proceed with
collection of his unpaid 2009 and 2011 federal income tax liabilities by
levy. The assessments at issue arose from Tax Court decisions
disallowing a partnership’s section 45 credits. 1 The issues for decision
are (1) whether Mr. Pettennude may challenge his underlying liabilities,
and if so, whether he is liable for additional tax as a partner of Ecotec
Coal, LLC (Ecotec), and (2) whether the Commissioner abused his
discretion in sustaining collection action. Because Mr. Pettennude had
a prior opportunity to challenge his underlying liabilities, he may not
challenge them in this proceeding; and because Mr. Pettennude never

        1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code (Code), Title 26 U.S.C., in effect at all relevant times, all regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. All monetary amounts are rounded to the nearest dollar.

                                  Served 07/18/22
                                       2

[*2] sought or suggested any collection alternatives, the Commissioner
did not abuse his discretion in sustaining the collection action.

                                Background 2

       Mr. Pettennude, an entrepreneur who works primarily in the
mortgage and banking industries, invested in Ecotec. Ecotec is a Florida
limited liability company that is treated as a partnership for federal
income tax purposes. In 2006, Ecotec claimed $118,554,804 in section 45
credits on the basis of its participation in the refined coal industry. It
carried most of the credits forward to later years and then solicited
capital contributions from new members in exchange for coal credits. In
2009, Mr. Pettennude invested on the premise that he would receive
credits that he could claim on his individual federal income tax returns.
Documents in the Commissioner’s administrative record showed that
Mr. Pettennude was one of more than 100 partners in Ecotec, and his
interest in Ecotec’s profits was less than one percent.

       The Commissioner examined Ecotec’s partnership returns for
2008 through 2011. Because Ecotec had more than 10 partners, the
Commissioner followed the partnership unified audit and litigation
procedures under the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, codified
at sections 6221 through 6234 and repealed for returns filed for
partnership tax years beginning after December 31, 2017. The
Commissioner issued Ecotec’s tax matters partner (TMP) notices of
Final Partnership Administrative Adjustment (FPAAs) for 2008
through 2011, disallowing Ecotec’s claimed coal credits. The
Commissioner did not send copies of the FPAAs to Mr. Pettennude. The
TMP filed Tax Court petitions for 2008 through 2010 at Docket No.
25961-13 and for 2011 at Docket No. 28181-15. In 2017, the Tax Court
entered stipulated decisions pursuant to Rule 248(a) wherein the parties
agreed that Ecotec was not entitled to the claimed credits for 2008
through 2011. In those decisions, the TMP certified that no party
objected to entry of the decisions.

       As a result of the Tax Court decisions       in Ecotec’s partnership-
level cases, the Commissioner adjusted Mr.          Pettennude’s individual
income tax liabilities. The Commissioner sent       Mr. Pettennude a notice
of computational adjustment for 2009 and for        2010 through 2011. The

         2 These facts are derived from the administrative record underlying the

collection proceeding, except where otherwise noted.
                                    3

[*3] notices informed him that he owed additional tax of $812,885 and
$27,289 for 2009 and 2011, respectively. The notice did not show any
additional liability for 2010.

       After Mr. Pettennude failed to pay the liabilities shown in the
notices, the Commissioner began collection efforts. The Commissioner
mailed Mr. Pettennude a notice of intent to levy for 2009 and 2011. In
response, Mr. Pettennude requested a hearing using Form 12153,
Request for a Collection Due Process or Equivalent Hearing. On the
form he indicated that he was challenging his underlying liabilities and
did not propose any collection alternatives. In a letter to the
Commissioner, his attorney argued that Mr. Pettennude was denied due
process because he “never received a CP321N Notice under [section]
6212(a)” allowing him to appeal the adjustment in Tax Court. The
Commissioner assigned the case to a settlement officer in the IRS
Independent Office of Appeals. The settlement officer conducted a
hearing with Mr. Pettennude’s attorney, who challenged only the
underlying liabilities. Although the settlement officer provided extra
time to discuss collection alternatives, Mr. Pettennude never provided
the documents required for considering collection alternatives.

        The settlement officer determined that collection action was
appropriate. She determined that the underlying liabilities resulted
from Ecotec’s TEFRA proceedings. She visited the Tax Court’s website
and confirmed that the 2009 and 2011 tax periods were addressed in
Ecotec’s Tax Court cases. She also secured examination workpapers and
contacted revenue agents within the IRS’s Examination Division to
understand why Mr. Pettennude might not have received personal
notice of the FPAAs that led to those cases (and eventually the
adjustments he disputes). The revenue agent confirmed that the FPAAs
were appropriately issued at the partnership level. The settlement
officer also placed the following documents in the administrative record:
(1) a notice of computational adjustment for 2009; (2) a notice of
computational adjustment for 2011; (3) a 2011 Schedule K–1, Partner’s
Share of Income, Deductions, Credits, etc., on which Ecotec identified
Mr. Pettennude as a partner; (4) transcripts for multiple years; and
(5) Mr. Pettennude’s 2011 return, on which he claimed a $27,289 credit
for “[r]enewable electricity, refined coal, and Indian coal production.” On
the basis of this evidence, the settlement officer determined that Mr.
Pettennude was precluded from challenging his underlying liabilities
because he was a party to Ecotec’s TEFRA proceedings. Accordingly, the
Commissioner mailed a notice of determination sustaining the proposed
levy.
                                    4

[*4] Mr. Pettennude petitioned the Tax Court. He resided in Denver,
Colorado, when he timely filed his Petition. In the Petition, Mr.
Pettennude challenged only his underlying liabilities.

                               Discussion

       Before the Court is the Commissioner’s Motion for Summary
Judgment, which Mr. Pettennude opposes. Mr. Pettennude seeks to
challenge his underlying liabilities, which flow from adjustments made
to items reported on partnership returns for a partnership in which Mr.
Pettennude was treated as a partner. The resolution of this case requires
that we consider the intersection of collection proceedings and the
partnership unified audit and litigation procedures enacted as part of
TEFRA. The Commissioner argues that summary judgment is
appropriate because there is no genuine dispute as to any material fact
and a decision may be rendered as a matter of law. Specifically, the
Commissioner argues that Mr. Pettennude’s underlying liabilities are
not properly at issue in this collection case because he had a prior
opportunity to challenge them.

       Mr. Pettennude opposes the motion and argues that his
underlying liabilities are properly before the Court. Mr. Pettennude
bases his challenge to the underlying liabilities on his claim that he was
not an Ecotec partner in 2009 and 2011 and thus he should not be liable
for adjustments that flowed through to him from Ecotec. He argues that
whether he was a partner is a dispute of material fact such that
summary judgment is inappropriate.

       Whether Mr. Pettennude was a partner in Ecotec is
determinative of his liabilities; thus his challenge to his status as a
partner is tantamount to a challenge to his underlying liabilities. But as
discussed below, Mr. Pettennude’s underlying liabilities are not properly
before us.

I.    Summary Judgment Standard

      We may grant summary judgment when there is no genuine
dispute as to any material fact and a decision may be rendered as a
matter of law. Rule 121(b); Naftel v. Commissioner, 85 T.C. 527, 529
(1985). The moving party bears the burden of showing that there is no
genuine dispute as to any material fact. Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).
When a motion for summary judgment is properly made and supported,
an opposing party may not rest on mere allegations or denials. Rule
                                     5

[*5] 121(d). Rather, the party’s response, by affidavits or declarations,
or as otherwise provided in Rule 121, must set forth specific facts
showing there is a genuine factual dispute for trial. Id. In deciding
whether to grant summary judgment, we view the facts and make
inferences in the light most favorable to the nonmoving party.
Sundstrand Corp., 98 T.C. at 520. We make factual inferences in the
light most favorable to Mr. Pettennude, the nonmoving party.

II.    Standard of Review

      When the taxpayer’s underlying liability is properly at issue, we
determine the liability de novo. Sego v. Commissioner, 114 T.C. 604, 610
(2000). Where the underlying liability is not properly at issue, we review
the Commissioner’s collection determination for abuse of discretion. Id.
Whether the underlying liability may be raised in a collection proceeding
turns on whether the taxpayer received a notice of deficiency or
otherwise had a prior opportunity to dispute the liability. See
§ 6330(c)(2)(B); Treas. Reg. § 301.6330-1(e) and (f); see also Davison v.
Commissioner, T.C. Memo. 2019-26, at *12–13, aff’d, 805 F. App’x 259
(5th Cir. 2020). Both before the Commissioner and in his Petition, Mr.
Pettennude challenges only his underlying liabilities.

III.   Underlying Liabilities

       The first issue is whether Mr. Pettennude may dispute his
underlying liabilities. There is no dispute that he did not receive a notice
of deficiency for the 2009 and 2011 liabilities that the Commissioner
seeks to collect. Therefore, the question before us is whether he
otherwise had a prior opportunity to dispute his liabilities. The
Commissioner argues that Mr. Pettennude had a prior opportunity
because (1) the Commissioner issued FPAAs to Ecotec’s TMP for 2009
and 2011 and (2) when the TMP petitioned the Tax Court, Mr.
Pettennude was considered to be a partner in Ecotec and was treated as
a party to the proceedings. Mr. Pettennude argues that the FPAAs were
not a prior opportunity because he did not receive notice of them; and he
further alleges that he was unaware of any administrative or court
proceedings before he received the notices of computational
adjustments.

      Generally, the issuance of an FPAA at the conclusion of a TEFRA
examination provides an opportunity for a partner to challenge the
Commissioner’s determinations. Davison, T.C. Memo. 2019-26,
at *12–13; see Hudspath v. Commissioner, T.C. Memo. 2005-83, 89
                                    6

[*6] T.C.M. (CCH) 1051, 1057, aff’d, 177 F. App’x 326 (4th Cir. 2006).
The Commissioner must issue various notices regarding partnership
proceedings, including FPAAs, to a partnership’s TMP. §§ 6223(a),
6231(a)(7). Regarding the requisite notice to other partners, special
rules apply to partnerships with more than 100 partners, such as Ecotec.
See § 6223(b)(1). A partner who has a less than one-percent interest in
such a partnership’s profits is sometimes referred to as a “non-notice
partner” because such partners generally are not entitled to receive
notice directly from the Commissioner. § 6223(b)(1). And unlike the
TMP, they cannot file a petition to challenge an FPAA. § 6226(b); Energy
Res., Ltd. v. Commissioner, 91 T.C. 913, 916 (1988). Mr. Pettennude was
not entitled to direct notice because he had a less than one-percent
profits interest in Ecotec, which had more than 100 partners.

       The issuance of an FPAA to the TMP constitutes adequate notice
to non-notice partners. We have held that the TEFRA provisions
denying direct notice to non-notice partners do not violate due process
because the “[TMP], who receives notice and has the right to petition the
Tax Court to reconsider the FPAA, acts as the agent for the other
partners.” Blonien v. Commissioner, 118 T.C. 541, 553 (2002),
supplemented by T.C. Memo. 2003-308. For example, section 6223(g)
requires the TMP to keep partners informed of partnership-level
proceedings, which includes notifying each partner of FPAAs, proposed
stipulated decisions, and settlement agreements. A partner who does
not wish to be bound by the TMP may move to participate in the
proceeding. § 6226(c)(2); Rule 245(b). However, Mr. Pettennude argues
that he lacked notice of any partnership proceedings. We infer, in the
light most favorable to him, that the TMP failed to inform him of the
partnership proceedings. However, the TMP’s failure to notify a partner
of partnership proceedings or send a partner copies of an FPAA does not
affect the applicability of adjustments to such a partner. See § 6230(f);
Kimball v. Commissioner, T.C. Memo. 2008-78, 95 T.C.M. (CCH) 1306,
1308; Vander Heide v. Commissioner, T.C. Memo. 1996-74, 71 T.C.M.
(CCH) 2151, 2153. In Vander Heide, an adjustment flowed through to
married taxpayers—non-notice partners—following a partnership-level
settlement. Vander Heide, 71 T.C.M. (CCH) at 2152. The taxpayers
argued they lacked notice, but we held they were bound by the
settlement notwithstanding any TMP notification failures. Id. at 2152–
53. We emphasized that the taxpayers were “not victims” of the
Commissioner or the Code but of “unscrupulous purveyors of tax
shelters who, having sold [them] scam investments . . . , failed to follow
procedures and disappeared with the funds.” Id. at 2153.
                                    7

[*7] Similarly, Mr. Pettennude is bound by the partnership item
determinations set forth in the decisions entered in Ecotec’s Tax Court
cases. When a TMP files a petition for readjustment of partnership
items, he does so in a representative capacity as to all partners, who are
treated as parties to the Tax Court proceeding. § 6226(c). They are bound
by the partnership item determinations resulting from that proceeding.
§ 6223(g). Partnership items include the partnership aggregate and each
partner’s distributive share of income, gain, loss, deduction, or credit,
and the items necessary to determine a partner’s percentage interest in
the partnership. § 6231(a)(3); Treas. Reg. § 301.6231(a)(3)-1(a)(1), (4).
To the extent that a taxpayer’s claim that he is not a partner would
affect the distributive shares of the other partners, as is the case here,
the question of whether he is a partner is a partnership item. Blonien,
118 T.C. at 551–52. Mr. Pettennude never moved to participate in
Ecotec’s Tax Court proceedings, where he could have appropriately
challenged whether he was a partner. As a result, he was treated as a
party to those proceedings and is bound by their outcomes. Further, the
TMP entered decisions under Rule 248(a), which provides that when a
TMP executes a stipulation consenting to the entry of decision and files
it with the Tax Court, it binds all parties. The TMP’s signature
constitutes a certification that no party objects, and the decisions in the
cases to which Mr. Pettennude was a party explicitly stipulate that no
party objected.

       The Commissioner’s issuing FPAAs to Ecotec’s TMP provided a
prior opportunity to Mr. Pettennude. Because the TMP was his agent,
the Commissioner’s notifying the TMP was sufficient for due process
purposes, even if the TMP never forwarded the FPAAs to him. And when
the TMP commenced Tax Court proceedings, Mr. Pettennude was a
party to those proceedings, and the decisions entered in those
proceedings bound him. As a result, he is precluded from challenging his
underlying liabilities.

IV.   Abuse of Discretion

       Because Mr. Pettennude’s underlying liabilities are not at issue,
our review of the notice of determination is for abuse of discretion. See
Sego, 114 T.C. at 610. An abuse of discretion occurs if the settlement
officer exercises her discretion “arbitrarily, capriciously, or without
sound basis in fact or law.” Woodral v. Commissioner, 112 T.C. 19, 23
(1999). To answer the question of whether the settlement officer abused
her discretion, we consider whether she (1) properly verified that the
Commissioner met all requirements of applicable law and
                                     8

[*8] administrative procedure, (2) considered any relevant issues
petitioner raised, and (3) considered whether the proposed collection
action is no more intrusive than necessary. See § 6330(c).

        Because Mr. Pettennude only challenged the underlying
liabilities and did not raise collection alternatives, our review here will
primarily focus on the first criterion—the verification requirement. See
Cavazos v. Commissioner, T.C. Memo. 2008-257, 96 T.C.M. (CCH) 341,
343–44 (“It is not an abuse of discretion . . . to sustain a levy and not
consider any collection alternatives when the taxpayer has proposed
none.”). As part of the collection review process, settlement officers must
verify whether an assessment was properly made for each tax and period
listed on the collection notice (here, 2009 and 2011). See Ron Lykins, Inc.
v. Commissioner, 133 T.C. 87, 97 (2009); Dinino v. Commissioner, T.C.
Memo 2009-284, 98 T.C.M. (CCH) 559, 564.

       In considering whether the settlement officer satisfied the
verification requirement in Mr. Pettennude’s case, the issue is not
whether Mr. Pettennude is in fact a partner who is liable for the
adjustments, but whether the settlement officer abused her discretion
in finding the assessment was valid. The settlement officer concluded
that the assessments were valid by determining that they were based
on Ecotec’s TEFRA proceedings. The settlement officer verified that the
record contained a notice of computational adjustment for 2009 and
2011. From that, the settlement officer reasonably concluded that all
requirements of applicable law and administrative procedure were
followed. Because the settlement officer’s finding was supported by the
administrative record, she did not abuse her discretion in verifying the
validity of the assessments and determining that collection action was
appropriate.

V.    Conclusion

        In this collection case, Mr. Pettennude challenged his underlying
liabilities for 2009 and 2011. He had a prior opportunity to dispute those
liabilities: The Commissioner issued FPAAs to Ecotec’s TMP; the TMP
filed Tax Court petitions from those FPAAs; Mr. Pettennude was a party
to those proceedings; and he could have elected to participate in those
proceedings. Thus, his underlying liabilities are not properly at issue in
this collection proceeding, and he is precluded from challenging them.
§ 6330(c)(2)(B); Treas. Reg. § 301.6330-1(e)(3), (f). The settlement officer
verified that applicable law and administrative procedure had been
followed in making the assessments. Thus, we will grant the
                                     9

[*9] Commissioner’s Motion for Summary Judgment. See Lewis v.
Commissioner, 128 T.C. 48, 61–62 (2007).

       No genuine dispute of material fact exists in this collection action,
and we will enter a decision for the Commissioner as a matter of law. To
reflect the foregoing,

      An appropriate order and decision will be entered.