Court Opinion

ID: 4339797
Source: CourtListenerOpinion
Date Created: 2018-11-14 07:57:55.488411+00
Date Added: 2024-06-11T14:21:00.908776
License: Public Domain

JOHN C. BEDROSIAN AND JUDITH D. BEDROSIAN, PETITIONERS
  v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
        Docket No. 12341–05.           Filed August 13, 2014.

      Ps invested in a Son-of-BOSS transaction through a part-
    nership that was subject to the Tax Equity and Fiscal Respon-
    sibility Act of 1982 (TEFRA), Pub. L. No. 97–248, 96 Stat.
    324. R issued an FPAA with respect to the partnership; R
    included with the FPAA a notice under I.R.C. sec. 6223(e),
    informing Ps of their right to opt out of the TEFRA pro-
    ceeding. The FPAA was properly mailed, but Ps claim that
    they did not receive it within the time in which to file a
    timely petition. Ps filed an untimely petition, which the Court
    dismissed; the Court of Appeals for the Ninth Circuit upheld
    the dismissal. R also issued a notice of deficiency (NOD) that

                                                                      83
84          143 UNITED STATES TAX COURT REPORTS                       (83)

     duplicated the adjustments in the FPAA and included addi-
     tional adjustments. Ps filed a timely petition with respect to
     the NOD. Ps moved for summary judgment asking that we
     determine that we have jurisdiction over all of the items in
     the NOD, including those that were included in the previously
     issued FPAA. Held: The partnership items did not convert to
     nonpartnership items under I.R.C. sec. 6223(e)(2) because the
     partnership proceeding was ongoing at the time the IRS
     mailed the FPAA. Held, further, the partnership items did not
     convert to nonpartnership items under I.R.C. sec. 6223(e)(3)
     because filing a petition with respect to an NOD is not
     substantial compliance with procedures for opting out of a
     TEFRA proceeding. Held, further, the Secretary did not
     reasonably determine under I.R.C. sec. 6231(g)(2) that TEFRA
     did not apply to the partnership. Held, further, we are bound
     by the Court of Appeals for the Ninth Circuit’s prior holding
     that we lack jurisdiction over the partnership items in the
     NOD.

  Richard E. Hodge and Steve Mather, for petitioners.
  Melanie R. Urban and Janet Reiners Balboni,                         for
respondent.
                               OPINION

   BUCH, Judge: This case combines a system for examining
and litigating partnership controversies that differs from typ-
ical deficiency procedures with missteps by both the agency
charged with administering this system and petitioners’ rep-
resentatives. The confluence of these missteps ultimately
deprives us of jurisdiction over the partnership items set
forth in the notice of deficiency that underlies this matter—
a result mandated by both the statutory scheme and control-
ling precedent of the Court of Appeals for the Ninth Circuit,
to which this case is appealable. But first, some background.

                            Background
I. The Transaction
  The underlying transaction in this case is what has come
to be known as a Son-of-BOSS transaction, with this variant
using foreign currency options. See generally Kligfeld
Holdings v. Commissioner, 128 T.C. 192 (2007); Notice 2000–
44, 2000–2 C.B. 255. The Bedrosians created two entities,
JCB Stone Canyon Investments, LLC (LLC), and Stone
Canyon Investors, Inc. (S corporation), which in turn formed
(83)                BEDROSIAN v. COMMISSIONER                           85

a third entity, Stone Canyon Partners (Stone Canyon). On
October 16, 2000, the Bedrosians timely filed Form 1040,
U.S. Individual Income Tax Return, for 1999 in which they
claimed large flowthrough losses stemming from the trans-
action through their interests in the LLC and the S corpora-
tion.
   Because Stone Canyon had flowthrough entities as its
partners, the small partnership exception of section
6231(a)(1)(B)(i) 1 did not apply, and Stone Canyon was sub-
ject to the unified audit and litigation procedures of sections
6221–6234, commonly referred to as TEFRA. 2 These proce-
dures affect not only the audit and litigation of a pass-
through entity, but also the preparation of a passthrough
entity’s return.
   The same day that the Bedrosians filed their return, Stone
Canyon timely filed Form 1065, U.S. Partnership Return of
Income, for 1999. On line 4 of Schedule B, Other Informa-
tion, Stone Canyon answered ‘‘no’’ to the question ‘‘Is this
partnership subject to the consolidated audit procedures of
sections 6221 through 6233? If ‘Yes,’ see Designation of Tax
Matters Partner below’’. Notwithstanding the ‘‘no’’ answer on
line 4, Stone Canyon designated the LLC as its tax matters
partner (TMP). Stone Canyon attached to its Form 1065 a
Schedule K–1, Partner’s Share of Income, Credits, Deduc-
tions, etc., identifying the LLC as being an ‘‘INDIVIDUAL’’
in response to the question ‘‘What type of entity is this
partner?’’, even though the name of the partner was the LLC
name. Stone Canyon identified the S corporation as an ‘‘S
CORPORATION’’ in response to the same question on a
second Schedule K–1.
II. The Audit
   The parties have spilled a great amount of ink on the sub-
ject of what transpired during the audit, most of which is
irrelevant to the ultimate conclusions in this case. Nonethe-
less, we summarize what transpired to provide context.
  1 Allsection references are to the Internal Revenue Code (Code) in effect
for the years at issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure, unless otherwise indicated.
   2 TEFRA is shorthand for the Tax Equity and Fiscal Responsibility Act

of 1982, Pub. L. No. 97–248, sec. 1(a), 96 Stat. at 324.
86           143 UNITED STATES TAX COURT REPORTS                      (83)

  In September 2003 Revenue Agent Harold Jung mailed
Mr. Bedrosian a letter informing him that the Internal Rev-
enue Service (IRS) had selected his Form 1040 for 1999 for
audit. In the letter Revenue Agent Jung requested that Mr.
Bedrosian consent to extend the period of limitations, which
was set to expire in less than two months, on an enclosed
Form 872, Consent to Extend the Time to Assess Tax. On
September 10, 2003, the Bedrosians submitted to the IRS
Form 2848, Power of Attorney and Declaration of Represent-
ative, designating Richard E. Hodge, an attorney, and Linda
Olson, a certified public accountant, as their representatives
with respect to the examination of their Form 1040 for
1999. 3 Revenue Agent Jung did not request a Form 2848
with respect to Stone Canyon, the S corporation, or the LLC.
  The Bedrosians submitted to the IRS the completed Form
872, in which they agreed to extend the period of limitations
for assessment of their individual income tax for 1999 to
August 31, 2004. Revenue Agent Jung did not request a form
extending the period of limitations for assessment of tax
attributable to partnership items and affected items of Stone
Canyon for 1999. The parties agree that the Form 872 was
ineffective to extend the period of limitations for assessment
of tax attributable to partnership items and affected items of
Stone Canyon for 1999. 4
  The next month, for reasons unexplained in the record, the
administrative files with respect to the audit were trans-
ferred from Revenue Agent Jung to Revenue Agent Deborah
Smyth. By that time, the period set forth in section 6229(a),
which is the minimum period within which to assess tax
attributable to partnership items and affected items for
Stone Canyon’s 1999 tax year, had expired. 5 Revenue Agent
Smyth was well aware of that fact. And while she believed
after reviewing the administrative files that Stone Canyon
was subject to the TEFRA procedures, she continued con-
  3 Notwithstanding being included on the Form 2848, it appears from the

record that Mr. Hodge did not have any involvement in the audit.
  4 See sec. 6229(b)(3); Ginsburg v. Commissioner, 127 T.C. 75 (2006).
  5 See Rhone-Poulenc Surfactants & Specialties L.P. v. Commissioner, 114
T.C. 533 (2000). Stone Canyon’s Form 1065 for 1999 was filed on October
16, 2000. The period described in sec. 6229(a) would have expired on Octo-
ber 16, 2003.
(83)            BEDROSIAN v. COMMISSIONER                    87

ducting the Stone Canyon audit by examining the
Bedrosians’ Form 1040 for 1999.
   She also examined the Bedrosians’ Form 1040 for 2000,
which was filed on October 15, 2001. On their Form 1040 for
2000 the Bedrosians claimed a comparatively small net oper-
ating loss carryover from 1999 and a deduction for legal,
accounting, consulting, and advisory fees (collectively, trans-
action fees).
   At Revenue Agent Smyth’s request the Bedrosians sub-
mitted to the IRS a second Form 872 for 1999, in which they
agreed to further extend the period of limitations for assess-
ment from August 31, 2004, to April 30, 2005. Also at Rev-
enue Agent Smyth’s request, the Bedrosians submitted to the
IRS Form 872–I, Consent to Extend the Time to Assess Tax
As Well As Tax Attributable to Items of a Partnership, for
2000 in which they agreed to extend the period of limitations
for assessment of their income tax, including tax attributable
to partnership items and affected items of Stone Canyon, to
April 30, 2005.
   In May 2004 Revenue Agent Smyth mailed a letter to Ms.
Olson (with copies to the Bedrosians) offering the Bedrosians
the opportunity to participate in a settlement. They chose not
to participate. In November 2004 Revenue Agent Smyth
mailed Ms. Olson a letter (with copies to the Bedrosians)
acknowledging the Bedrosians’ choice and requesting that
they provide additional information with respect to the trans-
action. Enclosed with the letter was the IRS’ fourth informa-
tion document request. The letter stated: ‘‘Once we receive
the information, we will provide you with Form 4549–A,
Income Tax Examination Changes (Audit Report), which will
show the tax deficiency, any applicable penalties, and
interest you owe. If you wish to agree to the determination,
you will sign and return Form 870 (Waiver).’’
   Revenue Agent Smyth later participated in a conference
call with IRS Office of Chief Counsel attorneys and the IRS
Son-of-BOSS TEFRA coordinator to discuss ‘‘how to proceed
with this case in order to disallow the net operating loss
carryforward deductions claimed on Petitioners’ Form 1040
for the 2000 tax year, in view of * * * [her] determination
that the limitations period for issuing a notice of final part-
nership administrative adjustment (FPAA) for the 1999 tax
year had expired.’’ The TEFRA coordinator advised Revenue
88           143 UNITED STATES TAX COURT REPORTS                      (83)

Agent Smyth that the IRS should issue an FPAA for 1999 in
order to disallow the NOL carryforward deduction for 2000.
Revenue Agent Smyth’s understanding of the TEFRA
coordinator’s advice was ‘‘not that the Service would issue an
FPAA for the 1999 tax year instead of the notice of deficiency
* * * for the 1999 and 2000 tax years * * * [but] that the
Service would issue an FPAA in addition to the notice of
deficiency for the 1999 and 2000 tax years.’’
   Revenue Agent Smyth called Ms. Olson and informed her
that the IRS would soon issue a notice of beginning of
administrative proceeding (NBAP) for 1999. Ms. Olson
inquired as to why the IRS would issue an NBAP with
respect to Stone Canyon for 1999 when Revenue Agent
Smyth was in the process of issuing audit reports with
respect to the Bedrosians’ Form 1040 for that same year.
Revenue Agent Smyth responded that ‘‘the NBAP was proce-
dural and that the TEFRA examination would be ‘opened
and shut’.’’
   On February 2, 2005, Revenue Agent Smyth mailed sepa-
rate copies of the NBAP to Mr. Bedrosian as the sole man-
aging member of the LLC and to him in his individual
capacity. Revenue Agent Smyth did not mail a copy of the
NBAP to Mr. Hodge or to Ms. Olson, presumably because the
IRS did not request and did not have a power of attorney on
file authorizing either of them to represent Stone Canyon,
the S corporation, or the LLC. Also on February 2, Revenue
Agent Smyth mailed Ms. Olson a letter stating in relevant
part: ‘‘As promised, enclosed are copies of the proposed audit
reports for the Bedrosians for their 1999 through 2002 tax
years * * *. Besides using these for reference purposes, I
would suggest that they also be checked for accuracy—given
the large number of inter-related adjustments created by
exam changes.’’ 6 Revenue Agent Smyth enclosed in the letter
Forms 4549–A for 1999 through 2002.
   A few days later, Revenue Agent Smyth began drafting
both an FPAA for Stone Canyon and a notice of deficiency for
the Bedrosians. She completed the drafting of both the FPAA
and the notice of deficiency the following day.
  6 It appears that Revenue Agent Smyth reviewed the Bedrosians’ Forms

1040 for 2001 and 2002 for the limited purpose of making carryover adjust-
ments arising from the adjustments for 1999 and 2000.
(83)                BEDROSIAN v. COMMISSIONER                           89

  A series of correspondence followed. On February 15, 2005,
Revenue Agent Smyth mailed Ms. Olson Forms 870, Waiver
of Restrictions on Assessment and Collection of Deficiency in
Tax and Acceptance of Overassessment, and corrected Forms
4549–A for 1999 and 2000; these related to the examination
of the Bedrosians. On February 18, 2005, Ms. Olson mailed
Revenue Agent Smyth a letter informing her that the
Bedrosians had received the NBAPs and had forwarded them
to her; the NBAPs related to the examination of Stone
Canyon. Ms. Olson further informed Revenue Agent Smyth
of a new address for Stone Canyon, the S corporation, and
the LLC. In fact, those entities were not yet receiving mail
at that new address. In the last paragraph of the letter, Ms.
Olson wrote: ‘‘You mentioned that these administrative pro-
ceedings would basically be opened and shut. Are there * * *
any more documents that need to be reviewed other than the
closing of the proceedings? If so then I may need to prepare
[p]ower of [a]ttorneys for each of them.’’ Revenue Agent
Smyth never responded to Ms. Olson’s letter dated February
18, 2005, which her office received on February 22. However,
Revenue Agent Smyth continued communicating with Ms.
Olson regarding the Bedrosians’ audit. On March 29, 2005,
Revenue Agent Smyth mailed Ms. Olson a letter (with copies
to the Bedrosians) stating in relevant part:
    Enclosed you will find Form 4549–A, Income Tax Examination
  Changes (Audit Report) which shows the tax deficiency, any applicable
  penalties, and interest; explanations for the adjustments are provided on
  Form 886–A, Explanation of Items. To agree to the tax, penalties, and
  interest, you may sign the enclosed Form 870 (Waiver) and return to me
  at the above address. * * *
   If you do not agree with the tax, penalties, and interest shown on the
  Audit Report, a statutory notice of deficiency will be sent to you.

Then on March 30, 2005, Revenue Agent Smyth closed her
case file with instructions to the IRS’ processing unit to issue
the notice of deficiency to the Bedrosians.
  On April 8, 2005 (62 days after mailing the NBAPs), the
IRS mailed a total of 14 copies of the FPAA for 1999 to three
different addresses on file for the Bedrosians, Stone Canyon,
the S corporation, and the LLC. The IRS did not mail a copy
of the FPAA to Mr. Hodge or to Ms. Olson. In the FPAA the
IRS made partnership-level adjustments the effect of which
was to disallow the losses stemming from the transaction.
90           143 UNITED STATES TAX COURT REPORTS              (83)

The IRS enclosed with the FPAA a notice under section
6223(e) labeled ‘‘Untimely Notice Letter—TEFRA Proceeding
is Ongoing’’ informing the recipient that the IRS had failed
to issue an NBAP within the time required (at least 120 days
before the FPAA) and that the recipient could elect under
section 6223(e)(3)(B) to opt out of the TEFRA proceeding.
The IRS also enclosed with the FPAA Form 870–PT, Agree-
ment for Partnership Items and Partnership Level Deter-
minations as to Penalties, Additions to Tax, and Additional
Amounts, and Form 4605–A, Examination Changes—Part-
nerships, Fiduciaries, Small Business Corporations, and
Domestic International Sales Corporations, for 1999.
  Eleven days later, on April 19, 2005, the IRS mailed the
Bedrosians the notice of deficiency (with a copy to Ms. Olson)
for 1999 and 2000 (2005 notice). In the 2005 notice the IRS
made partner-level adjustments disallowing the flowthrough
losses on the Bedrosians’ Form 1040 for 1999. Because the
Bedrosians owned 100% of the interest in Stone Canyon
through their interests in the LLC and the S corporation, the
adjustments in the FPAA and those in the notice of defi-
ciency resulted in the disallowance of the same losses, the
former at the partnership level and the latter at the partner
level. The IRS made some additional adjustments in the 2005
notice, including computational adjustments and adjustments
disallowing the NOL carryover and the transaction fees for
2000. The IRS determined deficiencies, additions to tax, and
penalties with respect to the Bedrosians’ Federal income tax
for 1999 and 2000 as follows:
                              Addition to tax      Penalty
      Year       Deficiency   sec. 6651(a)(1)    sec. 6662(a)
      1999       $3,498,882      $134,781        $1,392,553
      2000           12,137         -0-               4,855

III. Litigation History
  On July 5, 2005, the Bedrosians timely filed a petition dis-
puting the adjustments in the 2005 notice. Respondent
answered. On August 30, 2005, the Bedrosians remitted
$4,269,819 to the IRS. They designated the remittance to
cover the 1999 and 2000 deficiencies and estimated interest
on those deficiencies. The IRS treated the remittance as a
payment.
(83)                 BEDROSIAN v. COMMISSIONER                             91

   On June 30, 2006, almost a year after the Bedrosians had
filed their petition, respondent moved to dismiss this case for
lack of jurisdiction on the ground that the 2005 notice was
invalid in that it consisted entirely of adjustments to part-
nership items or affected items. Respondent now claims that
he has ‘‘consistently taken the position that * * * [the] Part-
nership is subject to the TEFRA provisions of the Code.’’ 7 We
held that we do not have jurisdiction over the adjustments
to partnership items or affected items that were listed in the
notice of deficiency but that we do have jurisdiction over the
disallowance of the deductions for transaction fees for 2000.
Bedrosian v. Commissioner, T.C. Memo. 2007–375 (2005
notice case). The parties agreed that all of the adjustments
for 1999 were partnership items or affected items. See id.,
slip op. at 7. We granted respondent’s motion to dismiss
insofar as it related to the adjustments for 1999 and the
NOL carryover for 2000 and denied the motion insofar as it
related to the transaction fees. 8
   On September 5, 2006, the IRS issued an affected items
notice of deficiency to the Bedrosians (2006 notice). On
November 30, 2006, the Bedrosians filed a timely petition in
response to the 2006 notice. We held that we lacked jurisdic-
tion over that case, however, because the deficiencies had
been paid and assessed before the issuance of the 2006
notice. Bedrosian v. Commissioner, T.C. Memo. 2007–376
(2006 notice case), aff ’d, 358 Fed. Appx. 868 (9th Cir. 2009).
In other words, there was no deficiency.
   On May 1, 2007, the LLC, as the TMP of Stone Canyon,
filed an untimely petition in response to the FPAA. Both par-
ties filed motions to dismiss, with the TMP alleging that the
  7 If, at the time the petition was filed, respondent believed that Stone
Canyon was subject to the TEFRA procedures, he should not have waited
almost a year to file a motion to dismiss for lack of jurisdiction. See Inter-
nal Revenue Manual (IRM) pt. 35.3.2.1(3) (Sept. 21, 2012) (‘‘A jurisdic-
tional defect should be raised in a motion to dismiss for lack of jurisdiction
as soon as the jurisdictional defect is discovered and any evidence needed
to support such a motion is acquired. Field attorneys should avoid waiting
to raise such defects in the answer, stipulation or motion under T.C. Rule
122 in order to ensure a prompt resolution of the case and to avoid unnec-
essary work for the Tax Court.’’). A similar provision was in effect at the
time the petition was filed.
   8 At that time neither party raised, nor did we consider, the possible ap-

plication of sec. 6223(e) or 6231(g).
92          143 UNITED STATES TAX COURT REPORTS               (83)

FPAA was invalid because it was not mailed to the proper
address and respondent alleging that the petition was
untimely. We granted respondent’s motion to dismiss the
FPAA case for lack of jurisdiction. We held that the FPAA
was valid and that the petition was untimely. Stone Canyon
Partners v. Commissioner, T.C. Memo. 2007–377 (FPAA
case), aff ’d sub nom. Bedrosian v. Commissioner, 358 Fed.
Appx. 868 (9th Cir. 2009).
   The respective petitioners appealed the orders of dismissal
for lack of jurisdiction in the 2006 notice case and the FPAA
case and attempted to appeal the order in this 2005 notice
case to the Court of Appeals for the Ninth Circuit. The Court
of Appeals affirmed the dismissals in the 2006 notice case
and the FPAA case. Bedrosian v. Commissioner, 358 Fed.
Appx. at 869–871. To the extent the Bedrosians sought to
appeal the holding in this case, the Court of Appeals dis-
missed the appeal for lack of jurisdiction on the ground that
we had dismissed this case only in part and that there was
no final judgment from which an appeal could properly be
taken. Id. at 870. Notwithstanding that it dismissed the
appeal, however, the Court of Appeals remarked about our
jurisdiction in this case: ‘‘But both parties concede that the
2005 notice of deficiency was invalid because it was issued
while partnership proceedings were pending. No assessment
could possibly deprive the Tax Court of jurisdiction over that
particular deficiency, because the Tax Court never had juris-
diction over ‘such deficiency’ in the first place.’’ Id. We inter-
pret this statement as meaning that the 2005 notice was
invalid only insofar as it covered partnership items.
   On February 2, 2010, the Bedrosians filed a motion for
leave to file an amended petition in this case and lodged an
amended petition raising a new theory, that ‘‘[t]he interests
of justice require a finding that Petitioners’ be deemed to
have elected that the partnership items of * * * [the Part-
nership] be converted to nonpartnership items on or before
April 19, 2005’’. On June 1, 2010, respondent filed an objec-
tion to the Bedrosians’ motion.
   In June 2010 this case was assigned to a Special Trial
Judge pursuant to section 7443A and Rules 180 and 183.
Because leave to amend a pleading shall be freely given,
Rule 41, the Bedrosians’ motion was granted, thus allowing
the amendment.
(83)             BEDROSIAN v. COMMISSIONER                   93

   Next the Bedrosians filed a motion for summary judgment
arguing (1) that the Court has jurisdiction over all of the
adjustments in the 2005 notice of deficiency and (2) that the
adjustments for 1999 are barred by the statute of limitations.
Along with the motion, the Bedrosians filed a memorandum
of points and authorities in which they argued that the
adjustments in the 2005 notice that relate to partnership
items were converted to nonpartnership items because, they
assert, the partnership items for 1999 were converted to non-
partnership items by operation of section 6223(e)(2) and the
partnership items for 2000 (and alternatively for 1999) were
converted to nonpartnership items through a deemed election
under section 6223(e)(3) that was made by filing the petition
in this case. The Bedrosians’ motion for summary judgment
did not address the transaction fees for 2000, which we pre-
viously held were neither partnership nor affected items.
Bedrosian v. Commissioner, T.C. Memo. 2007–375.
Respondent filed an objection to the Bedrosians’ motion for
summary judgment to which the Bedrosians replied.
   The Special Trial Judge filed and served on the parties rec-
ommended findings of fact and conclusions of law (proposed
report) pursuant to Rules 182(e) and 183. The proposed
report concludes that ‘‘the petition is sufficient to effect an
election of nonpartnership item treatment.’’ The proposed
report does not address the Bedrosians’ statute of limitations
argument. Pursuant to Rule 183(c), respondent filed objec-
tions to the proposed report and the Bedrosians filed a
response to respondent’s objections. In accordance with Rule
183(c), this case was then assigned to a Judge of this Court.
   While considering the issues addressed in the proposed
report, the Court ordered the parties to file additional memo-
randa regarding the potential applicability of section
6231(g)(2). Under Rule 183(d), ‘‘[t]he Judge to whom the case
is assigned may adopt the Special Trial Judge’s rec-
ommended findings of fact and conclusions of law, or may
modify or reject them in whole or in part, or may direct the
filing of additional briefs, or may receive further evidence, or
may direct oral argument, or may recommit the rec-
ommended findings of fact and conclusions of law with
instructions.’’ See also Rawls Trading, L.P. v. Commissioner,
138 T.C. 271, 284 (2012) (‘‘[W]e are under an affirmative
duty to investigate the extent of our subject matter jurisdic-
94            143 UNITED STATES TAX COURT REPORTS                        (83)

tion.’’). More specifically, the Court inquired whether
respondent reasonably determined that TEFRA did not apply
to Stone Canyon for the years at issue. In short, section
6231(g)(2) provides that the TEFRA procedures do not apply
to a partnership if the Secretary reasonably but erroneously
determines, on the basis of the partnership’s return, that the
partnership is not subject to TEFRA. If section 6231(g)(2)
applies, then a partnership that should be subject to TEFRA
will instead be subject to the deficiency procedures of sub-
chapter B of chapter 63 of the Code (i.e., the normal defi-
ciency procedures).
   The parties filed opening and answering briefs addressing
their positions as to whether section 6231(g)(2) applies under
the facts of this case. Respondent argues that section
6231(g)(2) does not apply because the IRS did not determine
that Stone Canyon was not subject to TEFRA and that, if the
IRS had made such a determination, the determination
would not have been reasonable. In contrast, the Bedrosians
argue that section 6231(g)(2) applies because the IRS deter-
mined that the normal deficiency procedures applied, and
that the IRS’ determination was reasonable. 9
   This briefing turned into a sideshow. Respondent admitted
to making erroneous statements on the record regarding
what happened during the course of the examination, and
the Bedrosians went on the offensive. In their answering
brief, the Bedrosians accused respondent of taking ‘‘delib-
erately false and fraudulent actions and * * * [making] false
and fraudulent representations to the Court since the outset
of this case.’’ Respondent subsequently filed a response to the
Bedrosians’ allegations of fraud, in which respondent
‘‘apologize[d] to the Court and to Petitioners’ Counsel for not
clearly identifying and explaining the ostensible conflict
between the Memorandum Brief and respondent’s prior rep-
resentations.’’ The Bedrosians then filed a reply to respond-
ent’s response to the allegations of fraud, in which they con-
tend that the ‘‘implausibility and incongruity of respondent’s
   9 Notably, it appears that the Bedrosians’ position regarding sec. 6231(g)

would, in effect, undermine their statute of limitations argument. The ef-
fect of sec. 6231(g)(2) is to render the whole of the TEFRA provisions inap-
plicable to the partnership at issue. As a result, sec. 6229(b)(3), the
linchpin of the Bedrosians’ statute of limitations argument, would be inap-
plicable.
(83)            BEDROSIAN v. COMMISSIONER                   95

statements and actions with respect to respondent’s current
position, combined with respondent’s previous misrepresenta-
tions, make the current version of the ‘facts’ impossible to
believe.’’ Ultimately, this sideshow has no bearing on this
case.

                         Discussion
I. Summary Judgment
  Summary judgment may be granted where the pleadings
and other materials show that there is no genuine dispute as
to any material fact and that a decision may be rendered as
a matter of law. Rule 121(b); Sundstrand Corp. v. Commis-
sioner, 98 T.C. 518, 520 (1992), aff ’d, 17 F.3d 965 (7th Cir.
1994). The burden is on the moving party (in this case, the
Bedrosians) to demonstrate that there is no genuine dispute
as to any material fact and that they are entitled to judg-
ment as a matter of law. FPL Grp., Inc. & Subs. v. Commis-
sioner, 116 T.C. 73, 74–75 (2001). In considering a motion for
summary judgment, evidence is viewed in the light most
favorable to the nonmoving party. Bond v. Commissioner,
100 T.C. 32, 36 (1993). The nonmoving party may not rest
upon the mere allegations or denials of his or her pleading
but must set forth specific facts showing there is a genuine
dispute for trial. Sundstrand Corp. v. Commissioner, 98 T.C.
at 520.
II. Conversion Under Section 6223(e)
   The Bedrosians’ motion for summary judgment focuses on
section 6223(e). Section 6223(e) provides alternate rules for
when the IRS fails to issue certain notices within certain
time constraints. More specifically, the IRS is required to
issue an NBAP at least 120 days before it issues an FPAA.
Sec. 6223(d)(1). The failure to allow sufficient time between
the NBAP and the FPAA does not invalidate either notice.
Starlight Mine v. Commissioner, T.C. Memo. 1991–59 n.3
(‘‘Petitioners also contend that the FPAA was invalid because
not all the notice partners were sent copies of the FPAA.
However, see section 6223(e) for a notice partner’s rights in
such a situation; there is no provision therein for invali-
dating an FPAA sent to the TMP.’’). Instead, the failure gives
rise to statutory rights under section 6223(e). The specific
96           143 UNITED STATES TAX COURT REPORTS            (83)

remedy afforded to the taxpayer differs depending on wheth-
er the proceeding is ongoing at the time the IRS mails notice
to the taxpayer. Compare sec. 6223(e)(2), with id. para. (3).
     A. Section 6223(e)(2)—Proceedings Finished
   The Bedrosians first argue that their partnership items
converted to nonpartnership items by operation of law under
section 6223(e)(2). Section 6223(e)(2) applies if, at the time
the IRS mails notice to the taxpayer, the TEFRA proceeding
has concluded. The Code specifically defines what it means
for the proceeding to have concluded: either (i) the period
within which to have filed a petition with respect to an FPAA
must have expired with no petition’s having been filed or (ii)
a decision with respect to an FPAA proceeding that was actu-
ally brought must have become final. Only if one of those
events has occurred will a partner’s items be deemed con-
verted to nonpartnership items unless the partner opts to be
bound by the TEFRA proceeding. Sec. 6223(e)(2).
   Factually, neither of those events had occurred at the time
notice was mailed to the partners of Stone Canyon. The IRS
mailed the NBAP and the FPAA 62 days apart, and at the
time that either was mailed, the TEFRA proceeding was
ongoing. Therefore, section 6223(e)(2) simply could not apply.
The Bedrosians argue, however, that we should read a third
test for the conclusion of a partnership proceeding into sec-
tion 6223(e)(2)—that the period of limitations for assessment
has expired.
   There is no support for this argument in the statute; more-
over, it is logically unworkable. The Code is explicit
regarding what causes a conversion under section 6223(e)(2),
and there is no mention of a period of limitations. Moreover,
the expiration of the period of limitations does not cause a
conversion of partnership items to nonpartnership items
under the other TEFRA provisions relating to the conversion
of partnership items found in section 6231(b) and (c).
   To the extent the Bedrosians ask us to read such a rule
into the statute, we cannot do so. Congress writes the laws;
we do not. And such a rule would make little sense. The
period of limitations for one partner may be very different
from that for another. If one partner is an unidentified
partner, then section 6229(e) would hold open that partner’s
period of limitations until at least one year after that partner
(83)                 BEDROSIAN v. COMMISSIONER                             97

is properly identified, which may be longer than the periods
of limitations of other partners. 10 Likewise, because section
6229 operates only as a minimum period of limitations, if one
partner had a substantial omission of income on his personal
return, then that partner’s period of limitations would be
held open beyond those of the other partners. See generally
Rhone-Poulenc Surfactants & Specialties, L.P. v. Commis-
sioner, 114 T.C. at 533. Moreover, section 6226(d)(1) explic-
itly provides that the time and place for a partner to raise
an affirmative defense relating to the period of limitations is
in the TEFRA proceeding. Treating the expiration of the
period of limitations as an automatic conversion would con-
flict with this provision. The rule the Bedrosians advocate
would simply be unworkable.
   In short, we agree with the proposed report’s discussion of
section 6229(e)(2) both for the reasons stated in it and those
stated above.
  B. Section 6223(e)(3)—Proceedings Still Going On
  The Bedrosians’ alternative argument is that they made a
timely election to have their partnership items converted to
nonpartnership items under section 6223(e)(3). Like section
6223(e)(2), discussed above, section 6223(e)(3) applies when
the IRS issues an NBAP or an FPAA outside of the time-
frame required by section 6223(d). In this case, the IRS
issued the NBAP with respect to Stone Canyon less than 120
days before the FPAA, so this first hurdle is met. In contrast
to section 6223(e)(2), section 6223(e)(3) applies only if the
TEFRA proceeding is ongoing at the time the IRS issues the
notice. Again, as discussed above, the notices were mailed to
the partners 62 days apart. When the NBAP was mailed, the
FPAA had not yet been issued, so the period within which to
petition for a review of the FPAA had not yet begun to run.
And because the FPAA was mailed simultaneously to the
TMP and to the Bedrosians, at the time the FPAA was
mailed the period within which to file a petition from that
  10 Indeed, the unidentified partner rule may well apply to the Bedrosians

in this case. The Bedrosians are not identified on the face of the partner-
ship return, and there is nothing in the record to indicate that their identi-
fying information was provided in accordance with the regulations under
sec. 6223. See Taylor v. Commissioner, T.C. Memo. 1992–219. However, we
need not decide this question.
98           143 UNITED STATES TAX COURT REPORTS                        (83)

FPAA had just begun. It certainly had not lapsed. Thus, the
TEFRA proceeding was ongoing, so this hurdle is likewise
met. In such a situation, a taxpayer has the same options as
under section 6223(e)(2), but the manner of electing is
reversed. Specifically, if a partner makes a timely election,
the partner may opt out of the TEFRA proceeding by having
his items converted to nonpartnership items. Sec.
6223(e)(3)(B). In the absence of an election, however, the
partner remains bound by the TEFRA proceeding. Sec.
6223(e)(3) (‘‘the partner shall be a party to the proceeding
unless such partner elects’’).
   The question for the Court is whether the Bedrosians made
the election. The proposed report finds that such an election
was made under the doctrine of substantial compliance; we
conclude otherwise as a matter of law. We give due regard
to the findings of fact in the proposed report, see Rule 183(d),
and indeed, we take no issue with those findings of fact. It
is in the application of the law to those facts where we find
error.
   To opt out of the TEFRA proceeding under section 6223(e),
the electing partner must make an election as follows:
   (2) Time and manner of making election. The election shall be made
 by filing a statement with the Internal Revenue Service office mailing
 the notice regarding the proceeding within 45 days after the date on
 which that notice was mailed.
   (3) Contents of statement. The statement shall—
   (i) Be clearly identified as an election under section 6223(e)(2) or (3),
   (ii) Specify the election being made (that is, application of final part-
 nership administrative adjustment, court decision, consistent settlement
 agreement, or nonpartnership item treatment),
   (iii) Identify the partner making the election and the partnership by
 name, address, and taxpayer identification number,
   (iv) Specify the partnership taxable year to which the election relates,
 and
   (v) Be signed by the partner making the election.
   [Sec. 301.6223(e)–2T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.
 6785 (Mar. 5, 1987).]

The Bedrosians focus on their petition as their purported
election under this regulation. The petition, however, did not
satisfy the criteria for making an election under section
6223(e)(3).
  We begin with the fact that the petition was not filed
within the time for making an election under section
(83)                BEDROSIAN v. COMMISSIONER                            99

301.6223(e)–2T, Temporary Proced. & Admin. Regs., supra.
The regulation requires that the election be made within 45
days after the date on which the notice is mailed. Although
it is unclear whether the ‘‘notice’’ refers to the NBAP or the
FPAA, because the FPAA is the later notice in this case, we
will presume the FPAA is the operative notice. 11 The peti-
tion was filed on July 5, 2005, 88 days after the mailing of
the FPAA.
   The petition also was not filed with the proper office for
making an election under section 6223(e). The regulation
requires that the election be filed with the office that issued
the notice (we will presume ‘‘notice’’ refers to the FPAA). The
petition was not filed with the office that issued the FPAA;
indeed, it was not filed with the IRS at all. The petition was
filed with this Court.
   The petition also does not clearly indicate that it was an
election under section 6223(e)(3). In fact, the original petition
filed in this case did not indicate that the Bedrosians
intended to make an election of any kind; this position was
first raised by the amended petition, lodged 1,761 days after
the IRS mailed the FPAA, which stated that the Bedrosians
should ‘‘be deemed to have elected that the partnership items
of Stone Canyon Partners be converted to nonpartnership
items’’. Moreover, because the Bedrosians did not know of
their eligibility to make an election and did not contemplate
that they were making such an election, it is unsurprising
that the original petition did not specify the nature of the
election that was being made (in this case, nonpartnership
item treatment).
   Some of the requirements for making an election under
section 6223(e) might, arguably, be satisfied by the petition.
It identified the partner and the partnership, although it did
not contain the partnership address or taxpayer identifica-
tion number. The petition mentioned the years at issue in
the deficiency case, which are the same years that would
have been the subject of an election. And although not signed
  11 The current regulation clarifies that the FPAA is the operative notice,

but that regulation became effective on October 4, 2001, for partnership
years beginning after that date. See sec. 301.6223(e)–2(e), Proced. &
Admin. Regs. A temporary regulation was effective for the partnership
years at issue, and the IRS took the same position even before the final
regulations. Field Service Advisory 1993, 1993 WL 1469668.
100         143 UNITED STATES TAX COURT REPORTS                      (83)

by the partner making the election, the petition was signed
by counsel for that partner.
   The Bedrosians argue that it would be ‘‘untenable’’ to hold
them to the requirements of making a proper election
because they had not received actual notice within the 45-
day period within which to make such an election. This
amounts to rearguing the Stone Canyon Partners case that
we already decided and that the Court of Appeals for the
Ninth Circuit already affirmed. Stone Canyon Partners v.
Commissioner, T.C. Memo. 2007–377. Actual notice is not the
standard; the standard is whether the IRS met the require-
ments for sending proper notice. We already held that it did,
and the Court of Appeals already affirmed our decision in
that case.
   Recognizing that the Bedrosians did not make a proper
election, the proposed report turns to the doctrine of substan-
tial compliance, correctly setting forth the standard. The pro-
posed report states:
   The substantial compliance doctrine is a narrow equitable doctrine
 that courts use to avoid taxpayer hardship if the taxpayer establishes
 that he or she intended to comply with a provision, did everything
 reasonably possible to comply with the provision, but did not comply
 with the provision because of a failure to meet the provision’s specific
 requirements. [Proposed report at 13–14 (citing Samueli v. Commis-
 sioner, 132 T.C. 336, 345 (2009), Sawyer v. Cnty. of Sonoma, 719 F.2d
1001, 1007–1008 (9th Cir. 1983), and Fischer Indus., Inc. v. Commis-
 sioner, 87 T.C. 116, 122 (1986), aff ’d, 843 F.2d 224 (6th Cir. 1988)).]

The proposed report correctly notes that the manner in
which the election is made is regulatory, not statutory, and
thus strict compliance is not required. Id. at 14–15. In doing
so, however, the proposed report states that ‘‘the Court has
found that the documents submitted in lieu of a formal elec-
tion must ‘evidence an affirmative intent on taxpayer’s part
to make the required election and be bound thereby.’ ’’ Id. at
17 (quoting Fischer Indus., Inc. & Subs. v. Commissioner, 87
T.C. at 122). But the proposed report does not address this
affirmative intent requirement in its substantial compliance
analysis.
   The Bedrosians did not have the affirmative intent to
make the required election; they had not received the FPAA
or the notice under section 6223(e). Presumably they did not
even know that such an election was available to them at the
(83)                BEDROSIAN v. COMMISSIONER                          101

time. Indeed, elsewhere the proposed report acknowledges as
much, stating that ‘‘petitioners raise a new theory [in their
amended petition] that there was a constructive or deemed
election converting all partnership items for 1999 and 2000
into nonpartnership items.’’ If an election under section
6223(e) was a new theory in 2010 when the amended petition
was filed, then it could not have been the Bedrosians’
‘‘affirmative intent’’ in 2005 when they filed their initial peti-
tion.
   The proposed report thoroughly strings together examples
of substantial compliance, yet it does not address the
common thread of intent. In the cited cases, the people who
successfully invoked the doctrine of substantial compliance
intended to make an election. Indeed, the first such case
cited by the proposed report is Samueli v. Commissioner, 132
T.C. 336, which involved a failed attempt to invoke substan-
tial compliance, but even there the taxpayers were able to
show intent. That TEFRA-related case involved a situation in
which the taxpayers alleged that, when they filed an
amended individual income tax return, they really intended
to file an administrative adjustment request under section
6227. Their argument failed because ‘‘[t]he requisite intent
needed to be present contemporaneously with the filing of
the partner AAR, not later when petitioners believed it to be
more advantageous to have had that intent initially.’’ Id. at
345–346. Likewise here; the intent to make an election under
section 6223(e) needed to be present at the time the pur-
ported election was made, not 1,761 days later and with the
benefit of hindsight.
   Another case cited in the proposed report also focused on
intent, but phrased the standard a bit more expansively. In
Fischer Indus., Inc., the Court articulated the standard as
one that is governed by intent, stating:
    ‘‘We have examined the cases as to what constitutes a statement of
  election under various provisions of the Internal Revenue Code and have
  found that, absent a formal election, a submitted return and its attached
  schedules must evidence an affirmative intent on taxpayer’s part to
  make the required election and be bound thereby. Failure to manifest
  such intent has repeatedly resulted in taxpayer’s alleged election being
  rejected.’’ * * * [Fischer Indus., Inc. v. Commissioner, 87 T.C. at 122
  (quoting Atl. Veneer Corp. v. Commissioner, 85 T.C. 1075, 1082–1083
  (1985), aff ’d, 812 F.2d 158 (4th Cir. 1987)); citations omitted.]
102          143 UNITED STATES TAX COURT REPORTS                    (83)

In that case, the Court noted that an election can, in some
situations be made on an amended return, stating that ‘‘if
the circumstances necessitating an election arise after the
filing of an original return, [the election can be made] as
soon as practicable on an amended return.’’ Id. In the case
before us, the purported election does not appear on a return
but on the petition filed in this Court. If we were to apply
the standard from Fischer in this case, we would ask
whether the Bedrosians’ intent to elect out of TEFRA
appeared on either the original petition filed in this case or
‘‘as soon as practicable on an amended’’ petition. Again, no
such intent appears on the original petition. The Bedrosians
first raised the notion of an election under section 6223(e) at
least 33 months after they became aware of the FPAA. 12 In
the interim, Stone Canyon and the Bedrosians had lost juris-
dictional arguments in both this Court and in the Court of
Appeals for the Ninth Circuit. This was not ‘‘as soon as prac-
ticable’’; this was with the benefit of hindsight. And an
attempt to benefit from hindsight weighs against a finding of
substantial compliance. Taylor v. Commissioner, 67 T.C.
1071, 1077–1078 (1977).
   Even if we look past the lack of intent, there is a lack of
substantial compliance in the manner the election was made.
The proposed report cites various cases that found substan-
tial compliance where a taxpayer made a footfault in making
an election. Such footfaults include making the election with
the wrong IRS office, Hewlett-Packard Co. v. Commissioner,
67 T.C. 736, 748 (1977), omitting information, Sperapani v.
Commissioner, 42 T.C. 308, 330–333 (1964), or making an
untimely election, Estate of Chamberlain v. Commissioner,
T.C. Memo. 1999–181, aff ’d, 9 Fed. Appx. 713 (9th Cir.
2001). In the various examples of substantial compliance
cited in the proposed report, however, the taxpayers made
isolated footfaults. A taxpayer may well have intended to
make an election, but as a result of an error or omission the
taxpayer did not fully comply with the requirements to make
an election. In such a situation a taxpayer might be deemed
to have substantially complied. But aggregating footfaults
  12 The 33 months is calculated from the time the petition was filed in

this Court with respect to the Stone Canyon FPAA until the date the
amended petition was lodged.
(83)             BEDROSIAN v. COMMISSIONER                  103

eventually moves away from compliance, beyond substantial
compliance, and all the way to noncompliance. The
Bedrosians did not submit the supposed election to the
proper IRS office, did not include the necessary information,
and did not make an election in the time allowed. This
cannot be said to be substantial compliance.
   The proposed report concludes that ‘‘[f]ailing to treat the
petition as an election where a reasonable fix can be made
under the circumstances would lead to a harsh result which
is well out of proportion to the omission. Without such a fix,
petitioners would be denied their day in Court.’’ Proposed
report at 18 (citations omitted). The Bedrosians’ day in court
to challenge partnership items was available to them by
filing a timely petition from the FPAA. If they did not receive
notice, it was by operation of the last known address rule as
implemented through TEFRA. While the result might be
unfortunate, this is the way the TEFRA rules operate in this
case. And the Bedrosians have already challenged whether
the TEFRA notice was effective and lost, in both this Court
and the Court of Appeals for the Ninth Circuit. It is not for
us to create a remedy where none exists.
   In sum, we conclude that the Bedrosians did not intend to
make an election under section 6223(e)(3). Even if we look
past their lack of intent, we conclude that their petition did
not substantially comply with the requirements to make such
an election. In so concluding, we do not disturb the findings
of fact in the proposed report.
III. Application of Section 6231(g)(2)
  In an effort to explore options that even the parties had
not considered, the Court ordered the parties to submit
memoranda on the question of whether section 6231(g)(2)
might apply in this case. Under section 6231(g)(2), the
TEFRA provisions do not apply to a partnership if the Sec-
retary reasonably determines, on the basis of the face of the
partnership return, that TEFRA does not apply.
  A. Application of TEFRA
   In prior cases we have described the TEFRA procedures as
‘‘distressingly complex and confusing’’. See, e.g., Tigers Eye
Trading, LLC v. Commissioner, 138 T.C. 67, 92 (2012);
Rhone-Poulenc Surfactants & Specialties, L.P. v. Commis-
104         143 UNITED STATES TAX COURT REPORTS                    (83)

sioner, 114 T.C. at 539–540. It can even be complex and con-
fusing to determine whether a partnership is subject to
TEFRA.
   The TEFRA provisions begin with the presumption that
TEFRA applies to any entity that is required to file a part-
nership return. Sec. 6231(a)(1)(A). But there is an exception
for small partnerships. A small partnership is any partner-
ship having 10 or fewer partners each of whom is an indi-
vidual (other than a nonresident alien), a C corporation, or
an estate of a deceased partner. Sec. 6231(a)(1)(B)(i). Implicit
in this exception, a partnership will not be considered to be
a small partnership if any partner during the taxable year
is a ‘‘pass-thru partner’’. Id.; Brennan v. Commissioner, T.C.
Memo. 2012–187, 2012 WL 2740897, at *3; sec.
301.6231(a)(1)–1(a)(2), Proced. & Admin. Regs. A ‘‘pass-thru
partner’’ is a partnership, estate, trust, S corporation,
nominee, or other similar person through whom other per-
sons hold an interest in the partnership, and includes dis-
regarded entities such as single-member LLCs. See 6611,
Ltd. v. Commissioner, T.C. Memo. 2013–49, at *62 n.29;
Tigers Eye Trading, LLC v. Commissioner, T.C. Memo. 2009–
121, 2009 WL 1475159, at *11; Rev. Rul. 2004–88, 2004–2
C.B. 165.
   Stone Canyon was subject to TEFRA. Both partners of
Stone Canyon were passthrough partners; as a result it did
not qualify as a small partnership and was subject to the
TEFRA procedures. Yet until the IRS issued its notices, and
perhaps afterward, there was apparent confusion over
whether TEFRA applied to the adjustments at issue.
  B. Section 6231(g)
  Congress was aware of the problem of determining
whether TEFRA applies, and it enacted section 6231(g) as
part of the Taxpayer Relief Act of 1997, Pub. L. No. 105–34,
sec. 1232(a), 111 Stat. at 1023, in an attempt to address the
problem. Section 6231(g) provides:
  SEC. 6231(g). PARTNERSHIP RETURN TO BE DETERMINATIVE OF
 WHETHER SUBCHAPTER APPLIES.—
    (1) DETERMINATION THAT SUBCHAPTER APPLIES.—If, on the basis of
  a partnership return for a taxable year, the Secretary reasonably
  determines that this subchapter applies to such partnership for such
  year but such determination is erroneous, then the provisions of this
(83)                   BEDROSIAN v. COMMISSIONER                          105

       subchapter are hereby extended to such partnership (and its items) for
       such taxable year and to partners of such partnership.
          (2) DETERMINATION THAT SUBCHAPTER DOES NOT APPLY.—If, on the
       basis of a partnership return for a taxable year, the Secretary reason-
       ably determines that this subchapter does not apply to such partner-
       ship for such year but such determination is erroneous, then the provi-
       sions of this subchapter shall not apply to such partnership (and its
       items) for such taxable year or to partners of such partnership.

This provision was intended as a relief provision for the IRS
in situations in which the IRS has difficulty determining
whether a partnership is subject to TEFRA. The House Ways
and Means Committee report makes this clear, stating, in
part:
                             Reasons for Change
    The IRS often finds it difficult to determine whether to follow the
  TEFRA partnership procedures or the regular deficiency procedures.
  * * * [T]he IRS might inadvertently apply the wrong procedures and
  possibly jeopardize any assessment. Permitting the IRS to rely on a part-
  nership’s return would simplify the IRS’ task.
                           Explanation of Provision
    The bill permits the IRS to apply the TEFRA audit procedures if,
  based on the partnership’s return for the year, the IRS reasonably deter-
  mines that those procedures should apply. Similarly, the provision per-
  mits the IRS to apply the normal deficiency procedures if, based on the
  partnership’s return for the year, the IRS reasonably determines that
  those procedures should apply.
    [H.R. Rept. No. 105–148, at 587–588 (1997), 1997–4 C.B. (Vol. 1) 319,
  909–910.]

  As the committee report makes clear, Congress’ goal in
enacting section 6231(g) was to simplify the IRS’ task of
choosing between the TEFRA procedures and the normal
deficiency procedures by permitting the IRS to rely on a part-
nership’s return. Paragraph (1) of section 6231(g) extends the
TEFRA procedures to a non-TEFRA partnership where the
IRS reasonably but erroneously determines that those proce-
dures apply. Paragraph (2) of section 6231(g) operates to
make the provisions of TEFRA inapplicable to a TEFRA
partnership where the IRS reasonably but erroneously deter-
mines that TEFRA does not apply. By providing these alter-
natives, it is clear that Congress intended that the IRS
would make one of two mutually exclusive determinations
with respect to a partnership on the basis of the partner-
ship’s return: either TEFRA applies or it does not.
106        143 UNITED STATES TAX COURT REPORTS             (83)

  C. Section 6231(g)(2)
   The parties agree that Stone Canyon is properly subject to
TEFRA. As previously stated, section 6231(g)(1) operates to
bring a non-TEFRA partnership within the scope of TEFRA;
that section is clearly not applicable here. Section 6231(g)(2)
has the opposite effect. It operates to take a TEFRA partner-
ship outside the scope of TEFRA by making the provisions of
TEFRA inapplicable to the partnership. The parties disagree
whether section 6231(g)(2) applies here.
   Section 6231(g)(2) applies to a partnership for a taxable
year if three elements are met: (1) the IRS determined on the
basis of the partnership’s return that the TEFRA procedures
did not apply to the partnership for that year; (2) the deter-
mination was reasonable; and (3) the determination turned
out to be erroneous. This third element is not at issue. The
parties agree that Stone Canyon is subject to TEFRA. Thus
it follows that if the IRS had determined on the basis of the
Stone Canyon return that TEFRA does not apply, then that
determination would have been erroneous.
   The parties dispute the first two elements of section
6231(g)(2). The Bedrosians argue that the ‘‘IRS Clearly
Determined that the Normal Deficiency Procedures Applied
in Our Case’’ and that ‘‘there is ample evidence of the reason-
ableness’’ of that determination. Respondent argues that the
IRS ‘‘did not determine by reference to the Partnership
return that the normal deficiency procedures apply in this
instance’’ and that ‘‘any determination that [the] TEFRA
procedures did not apply to the Partnership would have been
unreasonable as [a] matter of law.’’ We address each of these
elements in turn.
  1. A Determination That TEFRA Does Not Apply
   The first element of section 6231(g)(2) is met in this case
if, on the basis of Stone Canyon’s 1999 return, the IRS deter-
mined that the TEFRA procedures did not apply. Neither the
statute nor the committee report provides any guidance as to
the meaning of the phrase ‘‘on the basis of a partnership
return’’ or as to when the IRS is to make its determination.
However, both the TEFRA and non-TEFRA provisions pro-
vide a clear indication of when the IRS has made a deter-
mination—the notice that concludes the examination. In a
(83)                BEDROSIAN v. COMMISSIONER                           107

TEFRA case this is the notice of final partnership adminis-
trative adjustment; in a deficiency case this is the notice of
deficiency.
   We have made clear, back to the earliest days of TEFRA
litigation, that the FPAA is the IRS’ determination. In
Clovis I v. Commissioner, 88 T.C. 980, 982 (1987), we wrote:
    The FPAA is to the litigation of partnership items and affected items
  pursuant to the partnership audit and litigation provisions of section
  6221 et seq., what the statutory notice of deficiency is to tax controver-
  sies before this Court that involve respondent’s determination of a defi-
  ciency, i.e., it is the notice to affected taxpayers that respondent has
  made a final administrative determination for particular tax years.
  * * *

Inherent in the determination of partnership items is the
determination that TEFRA applies to the partnership in
which those items arose; if TEFRA did not apply there would
be no FPAA and no partnership items.
   In contrast, one might argue that the IRS determined at
some earlier time that TEFRA did not apply. Undoubtedly,
the IRS initially treated the examination underlying this
case as though it was not a TEFRA examination. The Form
1040 was assigned to Revenue Agent Jung for examination.
Shortly thereafter, the IRS requested that the Bedrosians
extend their period of limitations, not that attributable to
items of Stone Canyon. The Bedrosians provided a power of
attorney with respect to their personal tax matters, not those
of Stone Canyon. See sec. 301.6223(c)–1(e)(2), Proced. &
Admin. Regs. (providing specific requirements for furnishing
a power of attorney with respect to TEFRA proceedings);
Internal Revenue Manual (IRM) pt. 8.19.6.5(2) (June 1, 2007)
(‘‘For a Form 2848 to cover both partnership items and non-
partnership items, the partner should state in the power of
attorney that authority for both matters is granted to the
representative.’’). The IRS then communicated with the
Bedrosians’ representative about the examination, including
providing proposed audit changes that related to items origi-
nating in the partnership. But none of this amounts to a
determination. These events are part of the give-and-take of
an ongoing examination.
   To look to the actions within an ongoing exam to find a
‘‘determination’’ would be an unworkable rule raising any
number of problems. This would arguably permit anyone to
108        143 UNITED STATES TAX COURT REPORTS             (83)

look behind the final notice (either FPAA or notice of defi-
ciency) to try to argue that the IRS had, at some earlier time,
determined that the opposite procedure applies. Looking
behind the notice is disfavored. See Greenberg’s Express, Inc.
v. Commissioner, 62 T.C. 324, 327–328 (1974) (‘‘As a general
rule, this Court will not look behind a deficiency notice to
examine the evidence used or the propriety of respondent’s
motives or of the administrative policy or procedure involved
in making his determinations.’’). In making that inquiry, the
Court would look to some undefined standard for what con-
stituted such a determination. Moreover, it would leave open
the question of which IRS employees have the authority to
make such a determination. Section 6231(g) rests that power
with the Secretary, but we can find no specific delegation of
this authority.
   In contrast, notices that conclude an audit, an FPAA or a
notice of deficiency, have long been understood as determina-
tions. Clovis I v. Commissioner, 88 T.C. at 982. The IRS has
delegated the authority to issue them. See, e.g., Delegation
Orders 4–8 (authority to issue a notice of deficiency) and
4–19 (authority to issue an FPAA). And the notices have the
benefit of providing a clear demarcation of when a deter-
mination was made.
   In this case, however, the IRS issued both notices: the IRS
issued an FPAA for Stone Canyon on April 8, 2005, and a
notice of deficiency to the Bedrosians making the same
adjustments (plus additional adjustments) 11 days later. We
believe the earlier notice controls.
   Neither section 6231(g) nor the committee report explicitly
addresses the possibility that the IRS might audit a partner-
ship using both procedures. When Congress enacted the
TEFRA procedures, it intended the normal deficiency proce-
dures and the TEFRA procedures to be separate and distinct
procedures, with the former governing nonpartnership items
and the latter governing partnership items. Even the IRM
describes the two procedures as ‘‘mutually exclusive’’. See
IRM pt. 4.31.2.1.1(1) (June 1, 2004) (‘‘[T]he TEFRA partner-
ship rules and the deficiency procedures are mutually exclu-
sive.’’). Nonetheless, the IRS occasionally follows both proce-
dures in practice to protect the Government’s interests when
it is unsure which of the procedures applies. See id. pt.
4.31.2.1.8(1) (June 20, 2013) (‘‘These key cases are controlled
(83)             BEDROSIAN v. COMMISSIONER                  109

as both TEFRA and nonTEFRA. This is done when it is
unclear whether a key case is TEFRA or nonTEFRA to pro-
tect the government’s interest.’’).
   By implication, however, section 6231(g) makes it clear
that only one determination can be made for the partnership.
In other areas within TEFRA, a single partner can be
removed from a TEFRA proceeding such that adjustments
are made with respect to one partner while all other partners
are bound by the TEFRA proceeding. See, e.g., secs.
6227(d)(1), (3), 6231(c)(2). In contrast, section 6231(g)
addresses partnershipwide, not partner-specific, determina-
tions. Both section 6231(g)(1) and (2) make this clear: if para-
graph (1) applies, ‘‘then the provisions of this subchapter are
hereby extended to such partnership’’, and if paragraph (2)
applies, ‘‘then the provisions of this subchapter shall not
apply to such partnership.’’ (Emphasis added.) There is
nothing in section 6231(g) to indicate that Congress intended
to allow the IRS to determine that TEFRA applies to one
partner in a partnership while simultaneously determining
that it does not apply to another partner in the same part-
nership. Thus, we conclude that the IRS must make a single
determination for the partnership.
   In this instance, the IRS determined that TEFRA applies
to the partnership. The FPAA was the first notice issued and
clearly indicated that the IRS was taking the position that
TEFRA applied to Stone Canyon. Because section 6231(g)
requires a single, partnershipwide determination, the IRS
could not thereafter determine that TEFRA did not apply to
that same partnership. And, under the facts of this case, a
determination that TEFRA did not apply to Stone Canyon
would not have been reasonable.
  2. Reasonableness
  If the IRS had determined that TEFRA does not apply to
Stone Canyon, that determination would not have been
reasonable.
  For section 6231(g)(2) to apply, the IRS must reasonably
determine that the partnership at issue is not subject to
TEFRA. The Code does not define what is reasonable for pur-
poses of section 6231(g)(1) or (2). There is no indication that
Congress intended the term ‘‘reasonable’’ to have any specific
meaning, and so we give it its ordinary meaning. See Crane
110          143 UNITED STATES TAX COURT REPORTS                         (83)

v. Commissioner, 331 U.S. 1, 6 (1947); Keene v. Commis-
sioner, 121 T.C. 8, 14 (2003).
   In determining the ordinary meaning of words, it is appro-
priate to consult dictionaries. See Nat’l Muffler Dealers Ass’n,
Inc. v. United States, 440 U.S. 472, 480 n.10 (1979); Rome I,
Ltd. v. Commissioner, 96 T.C. 697, 704 (1991). The Random
House College Dictionary 1100 (rev. ed. 1980) defines the
term ‘‘reasonable’’ as: (1) ‘‘agreeable to or in accord with rea-
son or sound judgment; logical’’; (2) ‘‘not exceeding the limit
prescribed by reason; not excessive’’; (3) ‘‘moderate in price;
not expensive’’; (4) ‘‘endowed with reason’’; and (5) ‘‘capable
of rational behavior, decision, etc.’’. Webster’s II New River-
side University Dictionary 980 (1984) similarly defines the
term as: (1) ‘‘[c]apable of reasoning’’; (2) ‘‘[g]overned by or in
accordance with reason or sound thinking’’; (3) ‘‘[w]ithin the
bounds of common sense’’; and (4) ‘‘[n]ot extreme or exces-
sive’’.
   These definitions are not inconsistent with the use of the
term ‘‘reasonable’’ elsewhere in the Code. The use of that
term that is the most analogous to the current situation can
be found in the phrase ‘‘reasonable basis’’ when referring to
the standard of reporting. See, e.g., secs. 6662(d)(2)(B), 6676,
6694(a)(2)(B); see also 31 C.F.R. sec. 10.34(a) (2011) (setting
forth the Circular 230 ethical standards regarding tax return
preparation). Determining whether TEFRA applies to a par-
ticular partnership involves the application of the law
(specifically, section 6231(a)(1)) to a set of facts (specifically,
the information shown on the face of a partnership return).
The reasonable basis standard of reporting involves the same
type of inquiry. For that purpose, reasonable basis is defined
as
 a relatively high standard of tax reporting, that is, significantly higher
 than not frivolous or not patently improper. The reasonable basis
 standard is not satisfied by a return position that is merely arguable or
 that is merely a colorable claim. If a return position is reasonably based
 on one or more of the authorities set forth in § 1.6662-4(d)(3)(iii) (taking
 into account the relevance and persuasiveness of the authorities, and
 subsequent developments), the return position will generally satisfy the
 reasonable basis standard even though it may not satisfy the substantial
 authority standard as defined in § 1.6662–4 (d)(2). * * * [Sec. 1.6662–
 3(b)(3), Income Tax Regs.]
(83)            BEDROSIAN v. COMMISSIONER                   111

   Against this backdrop, we analyze whether a determina-
tion based on the Stone Canyon partnership return that
TEFRA does not apply to Stone Canyon would have been
reasonable. Stone Canyon’s Form 1065 for 1999 contained
conflicting and necessarily erroneous information. On one
hand, Stone Canyon expressly reported that it was not sub-
ject to the TEFRA procedures by answering ‘‘no’’ to the ques-
tion on line 4 of Schedule B, which asks: ‘‘Is this partnership
subject to the consolidated audit procedures of sections 6221
through 6233? If ‘ Yes,’ see Designation of Tax Matters
Partner below’’. Yet Stone Canyon designated a TMP.
   Notwithstanding these inconsistencies, the Schedules K–1
that were included with and are part of the partnership
return make it clear that the partnership must have been
subject to TEFRA as a matter of law. One of the Schedules
K–1 listed an LLC as one of the members of Stone Canyon
but then identified the LLC as an individual. Another
Schedule K–1 listed an S corporation as one of the members
of Stone Canyon and identified it as an S corporation. The
presence of any passthrough partner precludes the applica-
tion of the small partnership exception of section
6231(a)(1)(B) and renders the partnership subject to TEFRA
as a matter of law. Relying on the face of the partnership
return, the only reasonable conclusion is that TEFRA applies
to Stone Canyon.
   The Bedrosians even acknowledged this point in one of the
memoranda that they filed before the Court raised the issue
of section 6231(g)(2). They stated: ‘‘It was clear from the
Stone Canyon Partners’ partnership returns that partners in
Stone Canyon Partners were themselves pass-through enti-
ties. This makes Stone Canyon Partners subject to the
TEFRA procedures automatically.’’ Memorandum of Points
and Authorities in Support of Petitioners’ Motion for Sum-
mary Judgment, at 15 (Nov. 30, 2010).
   Because it would have been unreasonable to determine
that TEFRA does not apply to Stone Canyon, we find that
section 6231(g)(2) does not apply.
IV. Law of the Case
  As discussed above, we conclude that no election was made
under section 6223(e)(2) to opt out of the TEFRA proceedings
112         143 UNITED STATES TAX COURT REPORTS              (83)

regarding Stone Canyon. We also conclude that the IRS did
not determine that TEFRA did not apply to Stone Canyon
(and if it made such a determination, it would have been
unreasonable). In addition to these reasons, we must rule
against the Bedrosians because we are bound by what the
Court of Appeals for the Ninth Circuit has already decided
in this case.
   We previously held that we lack jurisdiction over the part-
nership items that were included in the notice of deficiency
at issue here, which, in essence, the Bedrosians ask us to
reconsider. But the Court of Appeals already agreed with
this Court’s determination that the notice of deficiency was
invalid as to the partnership items. As the Court of Appeals
put it: ‘‘[T]he Tax Court never had jurisdiction over ‘such
deficiency’ in the first place.’’ Bedrosian v. Commissioner, 358
Fed. Appx. at 870. The phrase ‘‘such deficiency’’ refers to the
partnership items that the IRS included in the notice of defi-
ciency; however, we still had jurisdiction over the nonpart-
nership items for 2000 (i.e., the transaction fees). As a result,
the Court of Appeals dismissed the Bedrosians’ appeal from
our decision in T.C. Memo. 2007–375 because ‘‘there is no
final judgment as to all claims.’’ The Court of Appeals
remanded the case for further proceedings concerning the
taxable year 2000, and we received the mandate on February
1, 2010.
   The ‘‘law of the case’’ doctrine ‘‘posits that when a court
decides upon a rule of law, that decision should continue to
govern the same issues in subsequent stages in the same
case.’’ Arizona v. California, 460 U.S. 605, 618 (1983). It has
been recognized and repeatedly applied by this Court and by
the Court of Appeals for the Ninth Circuit, see, e.g., United
States v. Alexander, 106 F.3d 874 (9th Cir. 1997); Herrington
v. Cnty. of Sonoma, 12 F.3d 901 (9th Cir. 1993); Pollei v.
Commissioner, 94 T.C. 595 (1990); Dixon v. Commissioner,
T.C. Memo. 2006–190, and precludes reconsideration of an
issue that has been decided in this case, Thomas v. Bible,
983 F.2d 152, 154 (9th Cir. 1993). The issues that a lower
court is precluded from reconsidering ‘‘include those that
were decided by the appellate court expressly or by necessary
implication.’’ Pollei v. Commissioner, 94 T.C. at 601 (citing In
re Beverly Hills Bancorp, 752 F.2d 1334 (9th Cir. 1984)).
(83)               BEDROSIAN v. COMMISSIONER                          113

   Following either the section 6223(e) approach advocated by
the Bedrosians or the section 6231(g)(2) approach would
require that we reconsider our prior opinion in T.C. Memo.
2007–375 wherein we held that we lack jurisdiction over the
very same items over which the Bedrosians now ask us to
find jurisdiction. Doing so would violate the law of the case.
Following the section 6223(e) approach would have us find
jurisdiction over the partnership items in the 2005 notice of
deficiency; the Court of Appeals for the Ninth Circuit has
already held that we do not have jurisdiction over those
items. Following the section 6231(g)(2) approach would
render the FPAA and the Stone Canyon Partners proceeding
a nullity; the Court of Appeals already upheld the validity of
the notice that underlay that proceeding and affirmed our
decision in that case. The law of the case doctrine precludes
us from reconsidering these rulings.
   It is worth noting that the Bedrosians raised their allega-
tions regarding the IRS’ muddled handling of this case in the
Stone Canyon Partners FPAA case. They alleged two affirma-
tive defenses to the adjustments in the FPAA. The first
defense was that the FPAA was invalid because it was not
mailed to the last known address. Their second affirmative
defense was as follows:
    The Commissioner failed to properly conduct a partnership-level pro-
  ceeding * * * and issued a Notice of Deficiency proposing adjustments
  to partners’ returns less than one month after issuing the FPAA, in vio-
  lation of law. As a result, even if the FPAA had been timely received,
  the premature issuance of the Notice of Deficiency proposing adjust-
  ments based on the FPAA would have misled the partnership and its
  partners into concluding that the procedures for obtaining judicial
  review of the Notice of Deficiency superseded and obviated the proce-
  dures for obtaining judicial review of the FPAA. Therefore, any pur-
  ported adjustments made by Commissioner in the FPAA are of no force
  and effect * * *.

  In this passage, the Bedrosians clearly alleged that the
IRS ‘‘failed to properly conduct a partnership-level pro-
ceeding’’; that the FPAA was ‘‘of no force and effect’’; that the
notice of deficiency issued to them individually could reason-
ably be construed as the method the IRS had selected to
resolve the 1999 partnership items; and that the notice of
deficiency issued to them individually ‘‘superseded and obvi-
ated’’ the FPAA. Although the Bedrosians did not frame their
114           143 UNITED STATES TAX COURT REPORTS          (83)

argument using the terminology of section 6231(g)(2), their
factual allegations are essentially the same factual allega-
tions that they now advance to support their contention that
this case should be governed by individual deficiency proce-
dures. For whatever reason, the Bedrosians abandoned this
theory and argued the last known address issue, which was
rejected both by this Court and by the Court of Appeals for
the Ninth Circuit. They cannot now collaterally attack what
has become a final decision.

                               Conclusion
  The Bedrosians cannot use this deficiency proceeding to
make a collateral attack because of the final decision in
Stone Canyon Partners or the opinion of the Court of Appeals
in their prior appeal in this case. Their arguments regarding
sections 6223(e) and 6231(g) amount to just that. Moreover,
their arguments fail on the merits. The Bedrosians’ partner-
ship items did not automatically convert under section
6231(e)(2), and they neither made an election under section
6223(e)(3) nor substantially complied with the procedures for
making such an election. Regarding section 6231(g)(2), the
IRS determined that TEFRA applied to Stone Canyon, as evi-
denced by the Stone Canyon FPAA. If the IRS had deter-
mined that TEFRA did not apply to Stone Canyon, that
determination would not have been reasonable because Stone
Canyon had passthrough partners, which preclude it from
falling within the small partnership exception.
  To reflect the foregoing,
                           An appropriate order will be issued.
  Reviewed by the Court.
  HALPERN, GALE, HOLMES, KERRIGAN, LAUBER, and NEGA,
JJ., agree with this opinion of the Court.
  KROUPA, J., 13 concurs in the result only.
  GUSTAFSON and MORRISON, JJ., did not participate in the
consideration of this opinion.

 13 Judge   Kroupa retired on June 16, 2014.
(83)            BEDROSIAN v. COMMISSIONER                   115

   HALPERN, J., concurring: I have joined the majority’s
opinion and write separately only to address Judge Vasquez’
complaint that we have denied the Bedrosians their day in
court. I do not believe that to be the case. Judge Vasquez is
the author of our Memorandum Opinion Stone Canyon Part-
ners v. Commissioner, T.C. Memo. 2007–377, 2007 WL
4526512, aff ’d, 358 Fed. Appx. 868 (9th Cir. 2009). In that
case, we disposed of two competing motions to dismiss for
lack of jurisdiction. One was made by JCB Stone Canyon
Investments LLC (LLC), as tax matters partner (TMP) of
Stone Canyon Partners. The grounds for that motion were
that the Commissioner had failed to issue a valid notice of
final partnership administrative adjustment (FPAA) since he
had addressed no copy to a proper address. The Commis-
sioner’s competing motion was on the grounds that the peti-
tion was untimely. We denied the TMP’s motion and granted
the Commissioner’s motion.
   In its untimely filed petition, the TMP stated that the
adjustments proposed in the FPAA were ‘‘the same adjust-
ments’’ proposed in the notice of deficiency on which this case
is based. The TMP assigned error to the FPAA and raised
two affirmative defenses: one, that the FPAA was not mailed
to the proper address, and, two, as noted by the majority, see
op. Ct. p. 113, that the Commissioner’s muddled handling of
the case deprived the FPAA of any vitality. Only the first
affirmative defense was advanced as a ground for the TMP’s
motion.
   We first addressed the TMP’s motion. It argued that the
FPAA was invalid ‘‘because it was never mailed to the appro-
priate address, and as a result petitioner did not receive
notice as required pursuant to the Code.’’ We reviewed the
rules governing the proper address for an FPAA and noted:
‘‘As is the case with a statutory notice of deficiency, the
validity of a properly mailed FPAA is not contingent upon
actual receipt by either the tax matters partner or a notice
partner.’’ Stone Canyon Partners v. Commissioner, 2007 WL
4526512, at *3. We then turned to determining whether any
of the 14 FPAAs the Commissioner mailed to three different
addresses were sufficient. The FPAAs were addressed var-
iously to ‘‘Stone Canyon Partners, c/o John Bedrosian’’, ‘‘JCB
Stone Canyon Investments, LLC, c/o John Bedrosian’’, ‘‘Stone
Canyon Investors, Inc., c/o John Bedrosian’’, ‘‘John
116              143 UNITED STATES TAX COURT REPORTS                    (83)

Bedrosian’’, and ‘‘Judith Bedrosian’’. We stated not once but
twice: ‘‘By mailing FPAAs to multiple addressees at multiple
addresses, respondent made a good faith effort to notify all
affected parties of the partnership adjustments, thus satis-
fying the notice requirement of sec. 6223(a).’’ Id., 2007 WL
4526512, at *4. With respect to one of the addresses, to
which FPAAs addressed directly to the Bedrosians were sent,
we stated: ‘‘[That] address was a proper address to which
respondent could mail the FPAAs to the Bedrosians as
individuals and as indirect partners of * * * [LLC] and
* * * [Stone Canyon Investors, Inc.].’’
   On the basis of our finding that the section 6223(a) notice
requirements were satisfied, we denied the TMP’s motion
and granted the Commissioner’s motion that the petition
filed almost two years after the FPAAs were mailed was
untimely and, thus, invalid. See id. at *5. The Court of
Appeals acknowledged the Bedrosians’ assertion that they
did not receive the FPAA at any address. Bedrosian v.
Commissioner, 358 Fed. Appx. at 869. It held, however:
‘‘Because we determine that the IRS validly mailed the
FPAA to the Bedrosians, we affirm the Tax Court’s dismissal
for lack of jurisdiction of their untimely petition.’’ Id.
   Because the Commissioner sent them an FPAA, the
Bedrosians were ‘‘notice partners’’. See sec. 6231(a)(8). Con-
sequently, upon the failure of the TMP to file a petition in
response to the FPAA, either of them could have done so. See
sec. 6226(b). Their opportunity for a day in court to contest
the FPAA—which the TMP (effectively, the Bedrosians) in
the petition conceded presented ‘‘the same adjustments’’ pro-
posed in the notice of deficiency on which this case is based—
expired 150 days after the FPAA was issued. See id. They
failed to meet that deadline. As one court has aptly put it in
response to a due process challenge to a period of limitations:
    While it is undeniably true that access to the courts and an oppor-
 tunity to be heard are fundamental aspects of procedural due process,
 it is equally clear that the bar imposed by a validly enacted and reason-
 able statute of limitations does not deprive a suitor of his day in court
 in derogation of that clause.5 * * * [First fn. ref. omitted.]
      5As   one court has stated:
   Statutes of limitation have been part of the law of every civilized
 nation from time immemorial. Since each sovereignty may organize its
 judicial tribunals according to its own notions of policy, it has been rec-
(83)                BEDROSIAN v. COMMISSIONER                           117

  ognized since the early days of this republic that statutes of limitation
  are within the sovereign power of each state to enact. Such statutes,
  having the effect of denying any judicial remedy for the enforcement of
  an otherwise valid claim, are justified on grounds of policy and as stat-
  utes of repose ‘‘designed to protect the citizens from stale and vexatious
  claims and to make an end to the possibility of litigation after the lapse
  of a reasonable time.’’ Guaranty Trust Co. of New York v. United States,
  304 U.S. 126, 58 S. Ct. 785, 82 L. Ed. 1224 (1937). The legislative body,
  in enacting such legislation, may weigh the conflicting interests between
  one person’s right to enforce an otherwise valid claim and another per-
  son’s right to be confronted with any claim against him before the lapse
  of time has likely rendered unavailable or difficult the matter of
  obtaining or presenting proof. Any balance of these conflicting interests
  which is not arbitrary or capricious is within the legislative authority
  and not subject to constitutional attack for lack of due process.
  Hargraves v. Brackett Stripping Machine Co., 317 F. Supp. 676, 682–83
  (E.D. Tenn. 1970). * * *
    [Saffioti v. Wilson, 392 F. Supp. 1335, 1339 (S.D.N.Y. 1975).]

  Indeed, the very argument that the Bedrosians make here
concerning the Commissioner’s muddled handling of the case,
the TMP raised in assigning error to the FPAA. Judge
Vasquez’ penultimate paragraph in his report in Stone
Canyon Partners v. Commissioner, 2007 WL 4526512, at *5,
reads as follows: ‘‘In reaching all of our holdings herein, we
have considered all arguments made by the parties, and, to
the extent not mentioned above, we find them to be irrele-
vant or without merit.’’ While it is not clear whether he
intended that bit of boilerplate to refer to arguments other
than those made in support of the motions, the TMP’s
affirmative defense certainly raised the issue in the case.
  Petitioners have had their opportunity for a day in court.
Whether they actually received the FPAA is beside the point.
All Congress required is that it be mailed to them at a
proper address. Judge Vasquez found that it was. Stone
Canyon Partners is a partnership-level case, and, for that
reason, the partners do not, upon failure to file a petition in
response to the FPAA, have the opportunity to sue for a
refund, as they would if the case were a deficiency case. See
sec. 7422(h); see also, e.g., McCann v. United States, 105 Fed.
Cl. 120, 122 (2012), aff ’d, 2012 WL 6839761 (Fed. Cir. Nov.
27, 2012). That is a legislative choice that we have no
authority to mitigate.
  GALE, HOLMES, BUCH, LAUBER, and NEGA, JJ., agree with
this concurring opinion.
118         143 UNITED STATES TAX COURT REPORTS                        (83)

   GOEKE, J., concurring: I agree with the majority’s rea-
soning on the merits of petitioners’ arguments and accord-
ingly concur in the judgment. I write separately to critique
its law of the case doctrine analysis and to discuss the
implications of petitioners’ failure to timely challenge the
Stone Canyon FPAA.
   The majority concludes that we may not find that we have
jurisdiction over the partnership items in the 2005 notice of
deficiency, ‘‘because we are bound by what the Court of
Appeals for the Ninth Circuit has already decided in this
case.’’ See op. Ct. p. 112. The majority goes on to state:
    We previously held that we lack jurisdiction over the partnership
 items that were included in the notice of deficiency at issue here, which,
 in essence, the Bedrosians ask us to reconsider. But the Court of
 Appeals already agreed with this Court’s determination that the notice
 of deficiency was invalid as to the partnership items. As the Court of
 Appeals put it: ‘‘[T]he Tax Court never had jurisdiction over ‘such defi-
 ciency’ in the first place.’’ * * * [See id.]

I do not agree that we are bound by the quoted statement.
   The law of the case doctrine ‘‘ordinarily precludes a court
from re-examining an issue previously decided by the same
court, or a higher appellate court, in the same case.’’ Moore
v. James H. Matthews & Co., 682 F.2d 830, 833 (9th Cir.
1982). ‘‘A significant corollary to the doctrine is that dicta
have no preclusive effect.’’ Milgard Tempering, Inc. v. Selas
Corp. of Am., 902 F.2d 703, 715 (9th Cir. 1990) (citing Ducey
v. United States, 830 F.2d 1071, 1072 (9th Cir. 1987).
   I acknowledge that the Court of Appeals for the Ninth Cir-
cuit apparently agreed with our initial decision that we
lacked jurisdiction over the partnership items in the 2005
notice of deficiency, but it appears that the statement the
majority quotes was dictum. On appeal the Court of Appeals
considered three Tax Court opinions: (1) its dismissal for lack
of jurisdiction of the Bedrosians’ untimely petition chal-
lenging the 2005 FPAA; (2) its partial dismissal of the
Bedrosians’ petition challenging the 2005 notice of deficiency;
and (3) its dismissal for lack of jurisdiction of the Bedrosians’
petition challenging the 2006 affected items notice of defi-
ciency. The Court of Appeals affirmed opinions (1) and (3)
but held that it did not have jurisdiction to review opinion
(83)               BEDROSIAN v. COMMISSIONER                          119

(2), because it was not a ‘‘final decision’’. 1 See Bedrosian v.
Commissioner, 358 Fed. Appx. 868, 870 (9th Cir. 2009), aff ’g
T.C. Memo. 2007–376.
   The case before us concerns our jurisdiction over the part-
nership items in the 2005 notice of deficiency (opinion (2)
above). The statement the majority quotes appears in the
Court of Appeals’ analysis of our dismissal of the Bedrosians’
petition challenging the 2006 affected items notice (opinion
(3) above). The Court of Appeals concluded it could not
review opinion (2) but in its analysis of opinion (3) suggested
that it agreed with opinion (2). It is not clear whether the
Court of Appeals’ statement about opinion (2) was necessary
to its holding on opinion (3). Consequently, it is unclear
whether the statement precludes us from reconsidering our
jurisdiction in this case.
   The law of the case doctrine typically precludes a court
from reexamining an issue it previously decided in the same
case. See Moore, 682 F.2d at 833. We previously opined that
we had no jurisdiction over the partnership items in the 2005
notice of deficiency. Consequently, the law of the case doc-
trine already binds us on the basis of our own opinion. I find
it unnecessary and incorrect to determine whether it also
binds us on the basis of the Court of Appeals’ opinion.
   Additionally, I find it worth noting that the Court of
Appeals’ affirmation of our dismissal of the separate Stone
Canyon partnership case (holding that the FPAA was valid
and that the petition filed in response to the FPAA was
untimely) necessarily means that the partnership pro-
ceedings were complete as to partnership items and that the
Commissioner was free to proceed to make assessments or
determinations regarding affected items. The partnership
item adjustments determined in the FPAA became final
when the time for filing a petition expired. See sec. 6225.
And our dismissal of the partnership proceeding for lack of
a timely filed petition prevents us in a partner-level pro-
ceeding from upsetting the FPAA adjustments. See sec.
6226(h) (providing that if a petition challenging the adjust-
ments in an FPAA is dismissed, ‘‘the decision of the court
  1 The Court of Appeals found that because we had only partially dis-

missed the Bedrosians’ petition challenging the 2005 notice of deficiency,
their appeal was interlocutory.
120          143 UNITED STATES TAX COURT REPORTS                       (83)

dismissing the action shall be considered as its decision that
the * * * [FPAA] is correct’’).
  As we stated in Tigers Eye Trading, LLC v. Commissioner,
138 T.C. 67, 89 (2012):
  Under the TEFRA procedures all partnership items, the proper alloca-
  tion of those partnership items among the partners, and the applicability
  of any penalty, addition to tax, or additional amount that relates to an
  adjustment to a partnership item are determined in a single partner-
  ship-level proceeding. Sec. 6226. The determinations of partnership
  items in partnership-level proceedings are binding on the partners and
  may not be challenged in subsequent partner-level proceedings. See secs.
  6230(c)(4), 7422(h).

  PARIS, J., agrees with this concurring opinion.

   VASQUEZ, J., dissenting: Our society has a longstanding
and ‘‘ ‘deep-rooted historic tradition that everyone should
have his own day in court.’ ’’ Richards v. Jefferson Cnty., Ala.,
517 U.S. 793, 798 (1996) (quoting 18 Charles Alan Wright et
al., Federal Practice and Procedure, sec. 4449, p. 417 (1981)).
‘‘The opportunity to be heard is an essential requisite of due
process of law in judicial proceedings.’’ Id. at 797 n.4. This
Court ‘‘has consistently and zealously guarded a taxpayer’s
right to his day in court, whenever there was a bona fide dis-
pute between him and the Commissioner of Internal Rev-
enue.’’ Petersen v. Commissioner, T.C. Memo. 1977–4, 1977
Tax Ct. Memo LEXIS 439, at *6. We have recognized the
importance not only to the affected taxpayer, but also to the
public’s confidence in the tax collection system that the
opportunity for judicial review of bona fide disputes be pro-
tected. Id.
   The opinion of the Court departs from these deeply
ingrained principles by denying the Bedrosians their day in
court. 1 I believe the result reached by the opinion of the
Court is not only inconsistent with the interests of justice but
is also the product of an erroneous view of the governing law.
   The opinion of the Court devotes the bulk of its energy to
arguing that sections 6223(e) and 6231(g)(2), two highly com-
  1 This Court previously held that we have jurisdiction over the trans-

action fees for 2000, see Bedrosian v. Commissioner, T.C. Memo. 2007–375,
and the opinion of the Court does not disturb this holding.
(83)             BEDROSIAN v. COMMISSIONER                   121

plicated provisions within TEFRA, do not apply in this case.
See op. Ct. pp. 95–111. The opinion of the Court then goes
on to conclude, seemingly irrespective of its prior discussion,
that this Court must rule against the Bedrosians under the
‘‘law of the case’’ doctrine. See id. pp. 111–114. I respectfully
disagree. I will first explain why the reliance of the opinion
of the Court on the ‘‘law of the case’’ doctrine is misplaced.
I will then show how section 6231(g)(2) operates to confer
jurisdiction on this Court.
I. Law of the Case
   The ‘‘law of the case’’ doctrine is ‘‘part of a related set of
preclusion principles that includes stare decisis, res judicata,
and collateral estoppel.’’ Gonzalez v. Arizona, 624 F.3d 1162,
1185 n.16 (9th Cir. 2010). These preclusion principles are all
aimed at promoting the efficient operation of the courts. Id.
They are distinguished, however, by the type or stage of
litigation in which they separately apply. Id.
   The law of the case doctrine generally precludes a court
from ‘‘reconsidering an issue previously decided by the same
court, or a higher court in the identical case.’’ Milgard Tem-
pering, Inc. v. Selas Corp. of Am., 902 F.2d 703, 715 (9th Cir.
1990) (citing Richardson v. United States, 841 F.2d 993, 996
(9th Cir. 1988), amended, 860 F.2d 357 (9th Cir. 1988)). For
the law of the case doctrine to apply, ‘‘the issue in question
must have been ‘decided explicitly or by necessary implica-
tion in [the] previous disposition.’ ’’ Id. (quoting Liberty Mut.
Ins. Co. v. EEOC, 691 F.2d 438, 441 (9th Cir. 1982)). A court
may exercise its discretion to depart from the law of the case
in three instances: ‘‘(1) the first decision was clearly erro-
neous and would result in manifest injustice; (2) an inter-
vening change in the law has occurred; or (3) the evidence on
remand was substantially different.’’ Id.
   As the opinion of the Court correctly notes, the Court of
Appeals for the Ninth Circuit dismissed the Bedrosians’
appeal in this case for lack of jurisdiction because we had not
entered a final judgment as to all claims. See op. Ct. p. 112.
However, the opinion of the Court then erroneously con-
cludes that this Court ‘‘must rule against the Bedrosians
because we are bound by what the Court of Appeals for
the Ninth Circuit has already decided in this case.’’ See
122           143 UNITED STATES TAX COURT REPORTS                          (83)

 id. The opinion of the Court quotes the Court of Appeals’
statement that ‘‘ ‘the Tax Court never had jurisdiction over
‘‘such deficiency’’ in the first place.’ ’’ See id. (quoting
Bedrosian v. Commissioner, 358 Fed. Appx. 868, 870 (9th Cir.
2009)). 2 The opinion of the Court overlooks the fact that the
Court of Appeals’ statements in this case constitute dicta. See
Md. Nat’l Bank v. Vessel Madam Chapel, 46 F.3d 895, 902
(9th Cir. 1995) (‘‘Because the * * * [Court of Appeals for the
Fourth Circuit] action was dismissed for lack of jurisdiction,
the statement upon which * * * [the claimant-appellee]
relies is dicta and therefore not persuasive.’’); United States
v. Eccles, 850 F.2d 1357, 1365 (9th Cir. 1988) (‘‘Because we
lack jurisdiction to hear the defendant’s appeal, any state-
ments that we could make here as to the appealability after
trial of the defendant’s claims would constitute dicta.’’).
   The law in the Ninth Circuit, in which an appeal of this
case would lie, see sec. 7482(b)(1)(A), is absolutely clear that
dicta do not have preclusive effect for purposes of the law of
the case doctrine, see Milgard Tempering, Inc., 902 F.2d at
715 (‘‘A significant corollary to the [law of the case] doctrine
is that dicta have no preclusive effect.’’); Ducey v. United
States, 830 F.2d 1071, 1072 (9th Cir. 1987) (‘‘Dicta is not
given preclusive effect under the law of the case doctrine in
this circuit.’’); Russell v. Commissioner, 678 F.2d 782, 785
(9th Cir. 1982) (‘‘Because the res judicata discussion in our
prior * * * decision was dicta, it is not part of the law of the
case.’’). Accordingly, the opinion of the Court is simply mis-
  2 The  complete sentence from which the opinion of the Court extracts the
quotation from the Court of Appeals’ opinion reads as follows: ‘‘No assess-
ment could possibly deprive the Tax Court of jurisdiction over that par-
ticular deficiency, because the Tax Court never had jurisdiction over ‘such
deficiency’ in the first instance.’’ Bedrosian v. Commissioner, 358 Fed.
Appx. 868, 870 (9th Cir. 2009), aff ’g T.C. Memo. 2007–376. This statement
appears in the portion of the opinion dealing with the affected items notice
issued in 2006 rather than in the separate section of the opinion dealing
with the notice of deficiency issued in 2005. The exact meaning of the
quoted statement is unclear, especially considering that in the previous
paragraph of its opinion the Court of Appeals had expressly held that it
lacked jurisdiction to consider an appeal with respect to the 2005 notice
of deficiency because the appeal was interlocutory inasmuch as the Tax
Court had dismissed the Bedrosian’s challenge to the 2005 notice of defi-
ciency only in part, ‘‘retaining jurisdiction’’ over certain issues reflected in
the notice of deficiency. Id.
(83)               BEDROSIAN v. COMMISSIONER                          123

taken that the Court of Appeals’ statements in dicta bind us
in this case.
   The opinion of the Court also contends that our prior
holding in this case binds us. 3 We held in our prior opinion
that we do not have jurisdiction over respondent’s adjust-
ments for 1999 in the April 19, 2005, notice of deficiency
because the partnership proceeding was pending at the time
that notice was issued. See Bedrosian v. Commissioner, T.C.
Memo. 2007–375, slip op. at 7. The opinion of the Court cor-
rectly notes that ‘‘[f]ollowing either the section 6223(e)
approach advocated by the Bedrosians or the section
6231(g)(2) approach would require that we reconsider our
prior opinion’’, but then erroneously concludes that doing so
would violate the law of the case doctrine. See op. Ct. p. 113.
   To the contrary, ‘‘ ‘[a]ll rulings of a trial court are subject
to revision at any time before the entry of judgment.’ ’’ City
of Los Angeles, Harbor Div. v. Santa Monica Baykeeper, 254
F.3d 882, 888 (9th Cir. 2001) (quoting United States v.
Houser, 804 F.2d 565, 567 (9th Cir. 1986)); see also Fed. R.
Civ. P. 54(b) (‘‘[A]ny order or other decision, however des-
ignated, that adjudicates fewer than all the claims or the
rights and liabilities of fewer than all the parties does not
end the action as to any of the claims or parties and may be
revised at any time before the entry of a judgment adjudi-
cating all the claims and all the parties’ rights and liabil-
ities.’’). 4 It is undisputed that we did not enter a final judg-
ment as to all claims in this case. See Bedrosian v. Commis-
sioner, 358 Fed. Appx. at 870. Therefore, we have the power
to reconsider, modify, or rescind our prior opinion (and the
accompanying interlocutory order).
   The holding in our prior opinion that we lacked jurisdiction
over the items in the notice of deficiency for 1999 was based
on an agreement of the parties, which we accepted, that
these items were either partnership items or affected items.
See Bedrosian v. Commissioner, T.C. Memo. 2007–375, slip
op. at 7. We did not at the time consider the possible applica-
tion of section 6231(g)(2), nor did we have the affidavits of
  3 Judge Goeke agrees with the opinion of the Court as to this point in

his concurring opinion.
  4 Where, as here, there is no Tax Court Rule on point, we consult the

Federal Rules of Civil Procedure for guidance. Rule 1(a); Davis v. Commis-
sioner, T.C. Memo. 2006–272, slip op. at 5.
124        143 UNITED STATES TAX COURT REPORTS              (83)

the IRS revenue agent and the Bedrosians’ power of attorney
(POA) with regard to the events that transpired during the
course of the audit. The parties now dispute the characteriza-
tion of the 1999 items, and it is most prudent for us to
reconsider this issue on the merits. See, e.g., Rawls Trading,
L.P. v. Commissioner, 138 T.C. 271, 284 (2012) (‘‘[W]e are
under an affirmative duty to investigate the extent of our
subject matter jurisdiction.’’).
   Lastly, we consider the Stone Canyon Partners proceeding.
The opinion of the Court correctly states that ‘‘[f]ollowing the
section 6231(g)(2) approach would render the FPAA and the
Stone Canyon Partners proceeding a nullity’’. See op. Ct. p.
113. But then the opinion of the Court suggests that both the
law of the case doctrine and the collateral estoppel doctrine
preclude us from reconsidering our ruling in that proceeding.
See id. This is not so.
   As previously stated, the law of the case doctrine precludes
a court from ‘‘reconsidering an issue previously decided by
the same court, or a higher court in the identical case.’’
Milgard Tempering, Inc., 902 F.2d at 715 (emphasis added).
The Stone Canyon Partners proceeding is not identical to the
case before us. The parties might be related. There might be
issues in common. But, unquestionably, it is not the identical
case.
   The collateral estoppel doctrine likewise does not apply
because it is an affirmative defense which was not raised by
either party in this proceeding. See Rule 39; Taylor v.
Sturgell, 553 U.S. 880, 907 (2008) (‘‘Claim preclusion, like
issue preclusion, is an affirmative defense.’’); Kightlinger v.
Commissioner, T.C. Memo. 1998–357, slip op. at 24 (‘‘[W]e
observe that because res judicata and collateral estoppel are
affirmative defenses and neither was pleaded by petitioner,
they are deemed waived.’’). While this Court may raise collat-
eral estoppel sua sponte, it is not obligated to do so.
Monahan v. Commissioner, 109 T.C. 235, 250–251 (1997).
‘‘Sua sponte consideration of issue preclusion generally
should be limited to circumstances where the parties are
given an opportunity to address the applicability of the doc-
trine to a particular issue.’’ Id. at 251. They have not been
given that opportunity here. And, regardless, I seriously
(83)                 BEDROSIAN v. COMMISSIONER                             125

question whether the requirements of collateral estoppel
would have even been met. 5
   Judge Goeke’s concurring opinion relies on section 6226(h),
which might, at first blush, appear to support its argument
that the Bedrosians are precluded from contesting any of the
adjustments in the FPAA as part of their deficiency case.
Section 6226(h) generally provides that a court’s dismissal of
an action brought under the section is considered to be its
decision that the FPAA is correct. However, no partnership
action with respect to Stone Canyon was actually brought
under section 6226. The TMP of Stone Canyon did not file a
petition in response to the FPAA within 90 days under sec-
tion 6226(a), nor did any other partner file a petition within
60 days after the close of the 90-day period under section
6226(b). The dismissal of a partnership action which was not
properly brought under section 6226, as is the case here, has
no preclusive effect. See Cent. Valley AG Enters. v. United
States, 531 F.3d 750, 765–766 (9th Cir. 2008) (‘‘TEFRA con-
tains no provision stating that an FPAA has preclusive effect
based solely on the failure to timely pursue TEFRA remedies
and notwithstanding the lack of a Tax Court proceeding.’’);
see also A.I.M. Controls, L.L.C. v. Commissioner, 672 F.3d
390, 392 n.2 (5th Cir. 2012) (‘‘Because Royce Mitchell was
not a tax matters partner of * * * [the partnership], he
lacked authority to bring an action under * * * [section]
6226(a), and * * * [section] 6226(h)’s bar was not triggered
by the district court’s dismissal of his action.’’).
   In short, there is no bar that prevents this Court from con-
sidering the merits of section 6231(g)(2). The reliance of the
opinion of the Court on the law of the case doctrine is wholly
  5 In  Peck v. Commissioner, 90 T.C. 162, 166–167 (1988), aff ’d, 904 F.2d
525 (9th Cir. 1990), we set forth five requirements that must be met before
application of collateral estoppel in the context of a factual dispute: (1) the
issue in the second suit must be identical in all respects with the one de-
cided in the first suit; (2) there must be a final judgment rendered by a
court of competent jurisdiction; (3) collateral estoppel may be invoked
against parties and their privies to the prior judgment; (4) the parties
must actually have litigated the issues and the resolution of these issues
must have been essential to the prior decision; and (5) the controlling facts
and applicable legal rules must remain unchanged from those in the prior
litigation. The opinion of the Court does not discuss these requirements,
and it is far from clear whether the first, fourth, and fifth requirements
have been met.
126           143 UNITED STATES TAX COURT REPORTS                         (83)

inapposite. One of the underlying rationales for preclusion
doctrines, such as law of the case, is to prevent litigants from
taking the proverbial second bite at the apple. But that is not
what the Bedrosians ask of us. They have yet to take their
first bite.
II. The TEFRA Procedures
   I now arrive at section 6231(g)(2), which presents an issue
largely of first impression in any court. I thus believe it is
appropriate to take a step back and look at how that section
fits into the statutory scheme of TEFRA as a whole.
  A. Background
  ‘‘TEFRA’s design is premised on the conceptual dichotomy
of partnership and nonpartnership items.’’ 6 Rawls Trading,
L.P. v. Commissioner, 138 T.C. at 286. The tax treatment of
partnership items must be resolved under the TEFRA proce-
dures at the partnership level. Sec. 6221. The tax treatment
of nonpartnership items must be resolved under the normal
deficiency procedures at the individual level. 7 See secs.
6212(a), 6230(a)(2); Huff v. Commissioner, 138 T.C. 258, 263
(2012). The House conference report, H.R. Conf. Rept. No.
97–760, at 611 (1982), 1982–2 C.B. 600, 668, makes these
rules explicitly clear:
    Existing rules relating to administrative and judicial proceedings, stat-
  utes of limitations, settlements, etc., will continue to govern the deter-

  6 Compare sec. 6231(a)(3) (defining the term ‘‘partnership item’’, with re-

spect to a partnership, to mean ‘‘any item required to be taken into ac-
count for the partnership’s taxable year under any provision of subtitle A
to the extent regulations prescribed by the Secretary provide that, for pur-
poses of this subtitle, such item is more appropriately determined at the
partnership level than at the partner level’’), with sec. 6231(a)(4) (defining
the term ‘‘nonpartnership item’’ to mean ‘‘an item which is (or is treated
as) not a partnership item’’).
  7 There is a third category of items within TEFRA called affected items.

An affected item, as its name implies, is a nonpartnership item which is
affected by a partnership item. Sec. 6231(a)(5). There are two types of af-
fected items: (1) items that require factual determinations to be made at
the partner level (factually affected items), and (2) items that require
merely a computational adjustment (computationally affected items). See
Petaluma FX Partners, LLC v. Commissioner, 135 T.C. 581, 595 n.2 (2010).
The normal deficiency procedures apply to factually affected items (other
than penalties, additions to tax, and additional amounts that relate to ad-
justments to partnership items). Sec. 6230(a)(2)(A)(i).
(83)                BEDROSIAN v. COMMISSIONER                          127

  mination of a partner’s tax liability attributable to nonpartnership
  income, loss, deductions, and credits. Neither the Secretary nor the tax-
  payer will be permitted to raise nonpartnership items in the course of
  a partnership proceeding nor may partnership items, except to the
  extent they become nonpartnership items under the rules, be raised in
  proceedings relating to nonpartnership items of a partner.

   As the opinion of the Court acknowledges, Congress
intended the TEFRA procedures and the normal deficiency
procedures to be ‘‘mutually exclusive’’. See op. Ct. p. 108; see
also Internal Revenue Manual (IRM) pt. 4.31.2.1.1(1) (June
1, 2004) (‘‘[T]he TEFRA partnership rules and the deficiency
procedures are mutually exclusive.’’). Merriam Webster’s
Collegiate Dictionary 768 (10th ed. 1996) defines the term
‘‘mutually exclusive’’ as ‘‘being related such that each
excludes or precludes the other’’. In other words, the IRS’
choice to audit a partnership return using the TEFRA proce-
dures precludes the IRS from conducting that same audit
under the normal deficiency procedures. Likewise, the IRS’
choice to audit a partnership return using the normal defi-
ciency procedures precludes the IRS from conducting that
same audit under the TEFRA procedures. The rules Congress
prescribed require the IRS to choose one, and only one, of the
procedures.
   However, in this case, like many before it, the IRS has
chosen to apply both procedures. This practice has resulted
in duplicative audits, confusion among the taxpayers, an
unnecessary burden on the court system, and in this case a
rare IRS apology to the Court for a lack of consistency and
candor. 8 See op. Ct. pp. 94–95. That makes this case the
appropriate vehicle to start enforcing the rules.
  B. Section 6231(g)(2)
   So how does section 6231(g) fit into this picture? That sec-
tion was Congress’ attempt to address the difficulties faced
by the IRS in determining which of the procedures to apply.
See H.R. Rept. No. 105–148, at 587–588 (1997), 1997–4 C.B.
(Vol. 1) 319, 909–910. The IRS’ approach was (and still is) to
  8 We note that duplicative audits and litigation were some of the prob-
lems Congress sought to resolve in enacting TEFRA. See Adams v. John-
son, 355 F.3d 1179, 1186–1187 (9th Cir. 2004); Maxwell v. Commissioner,
87 T.C. 783, 787 (1986); H.R. Conf. Rept. No. 97–760, at 599–600 (1982),
1982–2 C.B. 600, 662–663.
128         143 UNITED STATES TAX COURT REPORTS              (83)

disregard the rules and apply both procedures when the IRS
is uncertain as to the correct procedures. See IRM pt.
4.31.2.1.8(1) (June 20, 2013) (‘‘These key cases are controlled
as both TEFRA and nonTEFRA. This is done when it is
unclear whether a key case is TEFRA or nonTEFRA to pro-
tect the government’s interest.’’). But Congress had a dif-
ferent approach in mind.
   Congress’ approach was to permit the IRS to rely on a
partnership’s return and to make that return determinative
of the audit procedures to be followed. See H.R. Rept. No.
105–148, supra at 587–588, 1997–4 C.B. (Vol. 1) at 909–910
(‘‘Partnership return to be determinative of audit procedures
to be followed’’); see also sec. 6231(g) (‘‘Partnership Return To
Be Determinative of Whether Subchapter Applies.’’). If the
IRS selects the correct procedures, section 6231(g) does not
come into play. If the IRS selects the wrong procedures, but
is reasonable in doing so, section 6231(g) treats the wrong
procedures as the correct ones. If the IRS acts unreasonably
in its determination, it does so at its peril and ‘‘possibly
jeopardize[s] any assessment’’. H.R. Rept. No. 105–148, supra
at 587–588, 1997–4 C.B. (Vol. 1) at 909–910; see also IRM pt.
4.31.2.1.1(1) (June 1, 2004) (‘‘If the Service applies the wrong
procedures, e.g., erroneously proceeds at the partnership
level rather than at the partner level, or vice versa, barred
deficiencies and/or refunds can result.’’).
  1. Determination To Apply the Normal Deficiency Proce-
     dures
  The record in this case clearly establishes that the IRS
selected the normal deficiency procedures to audit Stone
Canyon’s return. The very first notice the IRS sent to the
Bedrosians in this case was a letter informing them that
their Form 1040, U.S. Individual Income Tax Return, for
1999 had been selected for audit. A Form 1040 is an indi-
vidual income tax return. The letter did not mention that the
IRS had commenced, or was even considering, a TEFRA
audit of Stone Canyon’s return. The IRS enclosed in the
letter a standard Form 872, Consent to Extend the Time to
Assess Tax, which is used to extend the period of limitations
with respect to nonpartnership items as part of an indi-
vidual-level audit. See sec. 6501(c)(4). It does not extend the
period of limitations with respect to partnership items or
(83)                 BEDROSIAN v. COMMISSIONER                         129

affected items (unless it has been specifically modified for
that purpose—and it was not here). See sec. 6229(b)(3); Gins-
burg v. Commissioner, 127 T.C. 75, 87 (2006).
   The Bedrosians submitted to the IRS a Form 2848, Power
of Attorney and Declaration of Representative, with respect
to their individual income tax return for 1999, consistent
with their understanding that the IRS had commenced an
individual-level audit. At no point during the audit did the
IRS request that a Form 2848 be executed for Stone Canyon,
the LLC, or the S corporation. 9 Over the course of an audit
lasting more than a year and a half, the IRS exchanged mul-
tiple communications with the Bedrosians and their POA,
including information document requests, proposed settle-
ment agreements (on Forms 870, Waiver of Restrictions on
Assessment and Collection of Deficiency in Tax and Accept-
ance of Overassessment), and proposed audit changes. All of
these actions were taken at the individual level.
   On brief respondent admits that his ‘‘revenue agent erred
in soliciting an extension of the limitations period on Forms
872 and in soliciting a settlement agreement on Form 870’’
but argues with respect to the other events that ‘‘the revenue
agent focused on Petitioners’ individual income tax liability
as a matter of practicality in conducting an examination of
a Son-of-Boss partnership subject to TEFRA, not because the
revenue agent believed that the Partnership was not subject
to the TEFRA provisions of the Code.’’
  9 Internal   Revenue Manual (IRM) pt. 4.10.3.2.1.1(1) (Mar. 1, 2003)
states:
    When a taxpayer obtains representation, the examiner will ensure
  that the authorization, Form 2848, Power of Attorney (POA), Form 8821,
  Tax Information Authorization (TIA), or a similar privately designed
  form, is properly executed. Service personnel are prohibited from dis-
  closing tax information of a confidential nature to any unauthorized per-
  son. Upon receipt, the authorization must be date stamped and reviewed
  to ensure that it contains all required information. * * *
Had the IRS determined that the TEFRA procedures applied to Stone Can-
yon, the IRS should have at minimum secured a power of attorney from
Mr. Bedrosian in his capacity as the sole managing member of the LLC
(the TMP of Stone Canyon). See id. pt. 4.31.2.2.6(1) (June 20, 2013) (‘‘A
TMP may appoint a power of attorney (POA) to represent the partnership
before the Service and to perform all acts for the partnership except for
the execution of ‘legally significant documents’.’’).
130           143 UNITED STATES TAX COURT REPORTS                       (83)

   The opinion of the Court goes along with this argument
and holds that all of the actions that take place before the
issuance of an FPAA or a notice of deficiency are the ‘‘give-
and-take of an ongoing examination.’’ See op. Ct. p. 107.
None of them matter. According to the opinion of the Court,
the only action that matters for purposes of section 6231(g)
is the final notice that concludes an audit. See id. at 106–
107.
   The opinion of the Court’s backward-looking approach is
contrary to both the statute and the legislative history. Nei-
ther the statute nor the legislative history provides any guid-
ance as to the meaning of the phrase ‘‘on the basis of a part-
nership return’’. See id. The opinion of the Court does not
attempt to come up with an appropriate definition. Instead,
it simply reads this phrase out of the statute on the ground
that ‘‘[l]ooking behind the notice is disfavored.’’ 10 See id. at
108.
   Under the opinion of the Court’s approach, if the IRS
issues an FPAA at the end of a partnership audit, then the
IRS is said to have made a determination to apply the
TEFRA procedures for purposes of section 6231(g), and vice
versa, regardless of which procedures the IRS actually used
throughout the audit. It matters not to the opinion of the
Court whether the IRS even consulted the partnership’s
return. Such an approach is contrary to the basic principle
of statutory construction that all words of a statute are to be
given meaning. See Market Co. v. Hoffman, 101 U.S. 112, 115
(1879) (‘‘It is a cardinal rule of statutory construction that
significance and effect shall, if possible, be accorded to every
word.’’).
   This approach would also render meaningless any distinc-
tion between the TEFRA procedures and the normal defi-
ciency procedures with respect to an audit. The legislative
history to the statute is clear that a partnership’s return is
to be determinative of the audit procedures the IRS is to
  10 We note that there are exceptions to the rule that we generally do not

look behind a notice of deficiency. An exception applies, for example, where
there is ‘‘substantial evidence of unconstitutional conduct on respondent’s
part’’. See Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 328
(1974). We believe that another exception is appropriate for purposes of
sec. 6231(g) because the statute and the legislative history specifically
speak to the audit procedures to be followed by the IRS. See infra p. 131.
(83)               BEDROSIAN v. COMMISSIONER                         131

apply. See H.R. Rept. No. 105–148, supra at 587–588, 1997–
4 C.B. (Vol. 1) at 909–910. Similarly, the heading of the
statute states that a ‘‘[p]artnership return [is] to be deter-
minative of whether subchapter applies.’’ Sec. 6231(g). The
subchapter in question is subchapter C of chapter 63, other-
wise known as the ‘‘unified partnership audit and litigation
procedures of the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA)’’. Rawls Trading, L.P. v. Commissioner, 138
T.C. at 272 (emphasis added).
   If, as the opinion of the Court contends, the IRS does not
make its determination until it issues an FPAA or a notice
of deficiency, then the determination, even if made on the
basis of a partnership’s return, would have no bearing on the
audit procedures the IRS is to apply. An FPAA and a notice
of deficiency are the final notices that conclude an audit. The
opinion of the Court’s reading of the statute would turn it
into a provision that speaks solely to the proper litigation
procedures going forward. This is simply not a logical
construction of the statute. See United States v. Koyomejian,
946 F.2d 1450, 1458 (9th Cir. 1991) (‘‘The role of the courts
is to give legislative enactments a sensible and logical
construction whenever it is possible to do so through the use
of ordinary tools of reasoning and statutory construction,
rather than to adopt a sterile and unreasonable interpreta-
tion that Congress itself would clearly find unacceptable.’’).
   I believe that Congress intended the IRS to make its deter-
mination at the outset of an audit by examining a partner-
ship’s return and the attached Schedules K–1, Partner’s
Share of Income, Credits, Deductions, etc. This Court
reached the same conclusion in Harrell v. Commissioner, 91
T.C. 242 (1988), 11 for purposes of two very similar TEFRA
provisions. The issue in Harrell was how to apply the now-
repealed same share rule of the small partnership exception.
The same share rule was satisfied if ‘‘each partner’s share of
each partnership item * * * [was] the same as his share of
every other item.’’ Sec. 6231(a)(1)(B)(i)(II) (1982). We held in
Harrell v. Commissioner, 91 T.C. at 246:

  11 Z-Tron Computer Research & Dev. Program v. Commissioner, 91 T.C.
258 (1988), is a companion case to Harrell and was filed on the same day.
132         143 UNITED STATES TAX COURT REPORTS                     (83)

 [F]or purposes of determining whether a partnership is a small partner-
 ship and whether the same share rule is satisfied, the test should be
 applied by determining whether the partnership reported more than one
 partnership item for the year and, if so, how those items were shared
 by each partner. This determination should be made by respondent as of
 the date of commencement of the audit of the partnership (but not nec-
 essarily on that date) by examining the partnership return and the cor-
 responding Schedules K–1, and any amendments thereto received prior to
 this date. [Emphasis added.]
   In reaching our holding in Harrell, we looked at the pur-
pose of the small partnership exception in the context of
TEFRA as a whole. We explained that the small partnership
exception ‘‘serves the limited purpose of determining to
whom to issue a statutory notice or whether to issue an
FPAA’’. Id. at 247. Because of that, and for the sake of
judicial economy, we would not for purposes of the same
share rule ‘‘permit a partner or representative of a partner-
ship or respondent to claim a result other than that identi-
fied in the return and Schedules K–1 as filed and amended
prior to the date of commencement of the partnership audit.’’
Id. We reasoned that ‘‘relying on the partnership returns and
accompanying Schedules K–1’’ would minimize ‘‘the extent to
which respondent must interpret the partnership agreement
each year’’, id. at 248, and we concluded that said approach
‘‘best serves the purpose of simplicity that is behind the part-
nership audit and litigation provisions’’, id.
   We also looked at section 6233, which prescribes in general
that where an entity files a return as a partnership, it will
be subject to the TEFRA procedures even though it is later
determined that the putative partnership is not a partner-
ship for tax purposes. We found that for purposes of section
6233 ‘‘Congress mandated that the information on the tax
return would be determinative of the procedures to be fol-
lowed, even if the underlying facts later prove the return to
be incorrect.’’ Id. We concluded that the approach in Harrell
with respect to the same share rule was ‘‘totally consistent
with the approach mandated by Congress in section 6233,
i.e., making the determination regarding the application of
the TEFRA procedures on the basis of the partnership
information return.’’ Id. (emphasis added).
   I believe that Congress intended the approach in Harrell
to apply for purposes of section 6231(g). Section 6231(g) is
similar to section 6231(a)(1)(B)(i)(II) (1982) (i.e., the same
(83)             BEDROSIAN v. COMMISSIONER                  133

share rule of the small partnership exception) and section
6233, discussed above, in that all three provisions revolve
around the IRS’ selection of either the TEFRA procedures or
the normal deficiency procedures by which to audit a part-
nership return. Moreover, for all three provisions, Congress
sought to make the information on a partnership’s return
determinative of the audit procedures the IRS is to apply.
   Unlike the opinion of the Court’s approach, the Harrell
approach gives effect to the phrase ‘‘on the basis of a partner-
ship return’’. Moreover, the IRS’ determination would actu-
ally govern the procedures to be used throughout the audit,
as Congress had intended. And under the Harrell approach,
there is no question that the IRS made a determination, on
the basis of Stone Canyon’s return, to apply the normal defi-
ciency procedures. See supra pp. 128–129; see also op. Ct. p.
107 (‘‘Undoubtedly, the IRS initially treated the examination
underlying this case as though it was not a TEFRA examina-
tion.’’).
  2. Reasonableness
  The second half of the inquiry under section 6231(g)(2) is
one of reasonableness. The statute applies only if the IRS’
determination to follow the normal deficiency procedures was
reasonable. The opinion of the Court holds that ‘‘the only
reasonable conclusion is that TEFRA applies to Stone
Canyon.’’ See op. Ct. p. 111. The opinion of the Court
acknowledges all of the inconsistencies on Stone Canyon’s
return, but chooses to disregard them, looking solely at the
attached Schedules K–1. Id. The opinion of the Court also
chooses to disregard the IRS’ lack of candor in this case,
calling it a ‘‘sideshow’’. Id. pp. 94–95. I do not dismiss such
conduct so lightly, especially where, as here, it has a direct
bearing on one of the issues in this case—the question of
reasonableness.
  On December 1, 2004, during the audit, the IRS’ revenue
agent participated in a conference call with IRS Office of
Chief Counsel attorneys and the IRS Son-of-BOSS TEFRA
coordinator. The revenue agent filed an affidavit in this case
claiming that she wanted to discuss ‘‘how to proceed with
this case in order to disallow the net operating loss
carryforward deductions claimed on Petitioners’ Form 1040
for the 2000 tax year, in view of * * * [her] determination
134          143 UNITED STATES TAX COURT REPORTS                       (83)

that the limitations period for issuing a notice of final part-
nership administrative adjustment (FPAA) for the 1999 tax
year had expired.’’ The revenue agent explains in her affi-
davit that two months later, the TEFRA coordinator advised
her that the IRS should issue an FPAA for 1999 in order to
disallow the NOL carryforward deduction for 2000.
   Actually, though, the IRS wanted to disallow a $17 million
loss deduction on the Bedrosians’ 1999 return, an amount
that dwarfs the approximately $80,000 NOL carryforward
deduction in comparison. The problem was that the IRS had
been using the wrong audit procedures for more than a year
and had allowed the correct period of limitations to lapse. 12
   On February 1, 2005, approximately a year and a half into
the audit, the IRS’ revenue agent called the Bedrosians’ POA
and told her that the IRS would soon issue an NBAP for
1999. The POA inquired as to why the IRS would issue an
NBAP (a partnership-level notice) when the IRS was in the
process of issuing audit reports with respect to the
Bedrosians’ individual income tax return for 1999. The rev-
enue agent responded that ‘‘the NBAP was procedural and
that the TEFRA examination would be ‘opened and shut’.’’
The POA in all likelihood had no idea what the revenue
agent meant by that.
   The very next day the revenue agent mailed the NBAP to
the Bedrosians but not to their POA. The revenue agent
instead mailed the POA proposed individual audit reports for
1999. Approximately two weeks later, the POA mailed the
revenue agent a letter stating that the Bedrosians had for-
warded the NBAP to her and inquiring whether the revenue
agent needed, among other things, executed Forms 2848 for
Stone Canyon, the LLC, and the S corporation. The revenue
agent received the POA’s letter but decided not to respond to
it. 13 The following month, though, the revenue agent mailed
the POA finalized audit reports making adjustments at the
individual level.
   In April 2005 the IRS issued an FPAA and a notice of defi-
ciency separated by only 11 days. 14 The IRS disallowed the
  12 The general three-year periods of limitations under secs. 6229(a) and

6501(a) had both expired.
  13 The POA’s letter was stamped ‘‘received’’ on February 22, 2005, by the

IRS office in which the revenue agent worked.
  14 Both notices were actually drafted on the same day.
(83)               BEDROSIAN v. COMMISSIONER                          135

$17 million loss deduction for 1999 in the FPAA and in the
notice of deficiency, the former at the partnership level and
the latter at the individual level. The IRS knew or should
have known that it was not proper to disallow this exact
same loss deduction in both notices. See H.R. Conf. Rept. No.
97–760, supra at 611, 1982–2 C.B. at 668. In August 2005
the IRS assessed, and the Bedrosians paid, more than $4
million in tax and interest as a result of the $17 million loss
deduction adjustment.
  On October 19, 2006, at a hearing over which I presided,
I asked respondent’s counsel why the IRS had issued a notice
of deficiency 11 days after it had issued an FPAA. Respond-
ent’s counsel offered three reasons. First, the $17 million loss
was incurred at the level of the S corporation and not the
partnership. Second, the characterization of the transaction
fees was not clear. And the third reason offered by respond-
ent’s counsel was as follows:
    I think significantly, Your Honor, on the taxpayers’ 1065, Form 1065,
  Schedule B, Question 4, ‘Is this partnership subject to the consolidated
  audit procedures of Section 6221 through 6233?’ Answer, ‘No.’ They put
  on their return that they weren’t subject to the TEFRA procedures.

So it seemed, at least in part, that the IRS followed both
procedures in the audit because it was not clear, on the basis
of Stone Canyon’s partnership return, which of the proce-
dures was the correct one.
  At a September 21, 2010, hearing before Chief Special
Trial Judge Peter J. Panuthos, counsel for respondent made
this point explicitly clear:
    The difficulty with the situation as the Service saw it was that the
  partnership return, on the partnership return when asked if this was a
  TEFRA partnership it had been marked no this was not a TEFRA part-
  nership. Therefore, given the fact that also there was a TMP appointed,
  the Service did not quite have a complete handle on whether or not this
  was a TEFRA partnership, so they are caught between a rock and a
  hard place.

Then on September 20, 2012, in respondent’s objection to
Chief Special Trial Judge Panuthos’ recommended findings of
fact and conclusions of law, respondent’s counsel once again
affirmed:
   Respondent was unsure at the time the notice of deficiency was issued,
  whether the partnership was subject to the Code’s TEFRA partnership
136         143 UNITED STATES TAX COURT REPORTS                     (83)

 procedures and, if subject to the TEFRA procedures, whether certain
 items would be regarded by the Court as partnership items or affected
 items. Indeed, Mr. Bedrosian signed the partnership’s Form 1065, on
 which a box was checked stating that the partnership was not subject
 to the TEFRA partnership procedures.

After the Court brought section 6231(g)(2) to the parties’
attention, respondent changed his position. The uncertainties
surrounding Stone Canyon’s partnership return disappeared.
On brief, respondent explained his new position as follows:
   [S]ince the information reported on the partnership return shows that
 both partners in the partnership were pass-thru partners, the small
 partnership exception does not apply to the partnership. Therefore,
 based on the partnership return, * * * [the IRS] could have reasonably
 determined only that the partnership was subject to the TEFRA partner-
 ship provisions.

Stone Canyon’s representation that it was not subject to the
TEFRA procedures no longer seemed to matter. In fact,
respondent suggested on brief that the IRS might not have
even considered it:
   The statement on the subject partnership return that the partnership
 taxable year is not subject to the TEFRA procedures cannot, in context,
 serve as evidence that * * * [the IRS] made a reasonable determination,
 on the basis of the partnership return, that the TEFRA procedures do
 not apply. While * * * [the IRS] could have considered such a statement
 in making * * * [its] determination, there is no authority for binding
 * * * [the IRS] to such a statement when the partnership return also
 provided a statement that there was at least one pass-thru partner.

Then, in respondent’s response to petitioners’ allegations of
fraud (i.e., respondent’s apology to the Court), respondent
made the bold claim:
   Respondent has consistently taken the position that * * * [the] Stone
 Canyon Partnership is subject to the TEFRA provisions of the Code.

Needless to say, respondent’s claim is simply not true.
   In short, the IRS has been less than open and candid with
both the Bedrosians and this Court. The opinion of the Court
concludes that the IRS’ conduct has no bearing on the out-
come of this case. The opinion of the Court contends that
‘‘the Schedules K–1 that were included with and are part of
the partnership return make it clear that the partnership
must have been subject to TEFRA as a matter of law’’ and
(83)             BEDROSIAN v. COMMISSIONER                  137

that ‘‘the only reasonable conclusion is that TEFRA applies
to Stone Canyon.’’ See op. Ct. p. 111. I respectfully disagree.
   I do not believe the opinion of the Court’s bright-line test
is appropriate. The opinion of the Court seems to mistakenly
equate the term ‘‘reasonable’’ with the term ‘‘correct’’. If
every incorrect determination were also found to be
unreasonable, then section 6231(g)(2) would serve no pur-
pose. Section 6231(g)(2), by its terms, applies only if a deter-
mination is both incorrect and reasonable. I believe the ques-
tion of reasonableness is most appropriately determined
under all of the facts and circumstances. See, e.g., Pac.
Grains, Inc. v. Commissioner, 399 F.2d 603, 606 (9th Cir.
1968) (stating that the reasonableness of compensation is a
question of fact to be determined on the basis of all the facts
and circumstances), aff ’g T.C. Memo. 1967–7; Patel v.
Commissioner, 138 T.C. 395, 417 (2012) (stating that reason-
able cause and good faith are determined on a case-by-case
basis, taking into account all pertinent facts and cir-
cumstances); Price v. Commissioner, 102 T.C. 660, 662 (1994)
(stating that for purposes of an award of litigation costs, the
determination of the reasonableness of the Commissioner’s
position is based on all the facts and circumstances), aff ’d
without published opinion sub nom. TSA/Stanford Assocs.,
Inc. v. Commissioner, 77 F.3d 490 (9th Cir. 1996); Mont-
gomery v. Commissioner, 65 T.C. 511, 519 (1975) (stating
that the existence of a reasonable prospect of recovery
depends on the facts and circumstances); Carithers-Wallace-
Courtenay v. Commissioner, 5 T.C. 942, 945 (1945) (stating
that the reasonableness of an addition for a bad debt reserve
depends upon the facts and circumstances); EMI Corp. v.
Commissioner, T.C. Memo. 1985–386 (stating that whether a
corporation’s accumulation of earnings for a contingent
liability is reasonable depends upon all the facts and cir-
cumstances).
   When I look at all of the facts and circumstances of this
case, there is no question in my mind that a determination
to apply the normal deficiency procedures on the basis of
Stone Canyon’s return would be reasonable. The information
on Stone Canyon’s Form 1065, U.S. Partnership Return of
Income, for 1999, including the attached Schedules K–1, was
confusing and contradictory. As even the opinion of the Court
138          143 UNITED STATES TAX COURT REPORTS                   (83)

points out, the return ‘‘contained conflicting and necessarily
erroneous information.’’ See op. Ct. p. 111.
   Stone Canyon expressly reported that it was not subject to
the TEFRA procedures, and yet it designated a TMP, which
exists only in the world of TEFRA partnerships. Stone
Canyon attached a Schedule K–1 to its return listing an LLC
as one of its partners. However, Stone Canyon identified the
LLC as an ‘‘INDIVIDUAL’’, which would not be a pass-
through partner. See sec. 6231(a)(9). The opinion of the Court
brushes aside these inconsistencies and places all of its reli-
ance on a second Schedule K–1 in which Stone Canyon
identified its other partner as an ‘‘S CORPORATION’’. How
could one know, looking solely at the partnership return,
whether this information was not also incorrect?
   The information on Stone Canyon’s return was plainly
unreliable. I fail to see why Stone Canyon’s representation
that it was not subject to TEFRA is any less credible, and
entitled to any less reliance, than the other information on
the return. The statements respondent’s counsel made to this
Court in 2006, 2010, and 2012 clearly indicate that the IRS
relied on Stone Canyon’s representation. To impose upon the
IRS an affirmative duty to seek out additional information
from Stone Canyon or its partners for the sole purpose of dis-
cerning what information on the return was correct so that
the IRS could apply the correct procedures in the audit would
undercut the very purpose of section 6231(g). I believe that
it would be reasonable for the IRS to apply either the normal
deficiency procedures or the TEFRA procedures on the basis
of the return.
   My conclusion is bolstered by the Court of Appeals for the
Seventh Circuit’s opinion in Cole v. Commissioner, 637 F.3d
767 (7th Cir. 2011), aff ’g T.C. Memo. 2010–31. In that case,
the taxpayer husband incorrectly represented on a Form
1065 that an LLC (taxed as a partnership) owned by him, his
wife, and his wife’s family trust was not subject to the
TEFRA procedures. 15 Id. at 770, 779. The taxpayers argued
on appeal that the Tax Court erred in taking jurisdiction
over the items originating from the LLC because the IRS
failed to apply the TEFRA procedures to the LLC. Id. at 779.
  15 A trust, like an S corporation, is a passthrough partner. See sec.

6231(a)(9).
(83)              BEDROSIAN v. COMMISSIONER                 139

The Court of Appeals summarily dismissed the taxpayers’
argument, finding that the taxpayers’ attempt to raise
TEFRA, when the taxpayer husband expressly stated that
the LLC was not subject to TEFRA, was ‘‘misguided’’. Id.
  3. Whether Section 6231(g)(2) Confers Jurisdiction
   I would find that all three requirements of section
6231(g)(2) have been met in this case: (1) the IRS made a
determination to follow the normal deficiency procedures on
the basis of Stone Canyon’s return; (2) it was reasonable for
the IRS to do so; and (3) the determination turned out to be
erroneous. Where, as here, the requirements of the statute
are met, ‘‘the provisions of this subchapter shall not apply to
such partnership (and its items) for such taxable year or to
partners of such partnership’’. The statute should be con-
strued to mean exactly what it says and the conclusion here
should be: The TEFRA procedures do not apply to Stone
Canyon and its partners for 1999. See Conn. Nat’l Bank v.
Germain, 503 U.S. 249, 253–254 (1992) (‘‘[C]ourts must pre-
sume that a legislature says in a statute what it means and
means in a statute what it says there.’’).
   Consequently, Stone Canyon would be treated as though it
were subject solely to the normal deficiency procedures for
1999. Therefore, there would be no distinction between part-
nership items, nonpartnership items, and affected items of
Stone Canyon. See sec. 6231(a)(3), (4) and (5). Nor would any
items of Stone Canyon be properly determinable in a part-
nership-level proceeding. See sec. 6221. Instead, all items of
Stone Canyon would be taken into account by the partners
of Stone Canyon in accordance with their distributive shares,
see secs. 701–704, and would be properly determinable on a
partner-by-partner basis at the individual level, see sec. 6212.
And that is exactly how the IRS audited and adjusted Stone
Canyon’s items in this case. I would hold that this Court has
jurisdiction over all of the items in the notice of deficiency
through the application of section 6231(g)(2).
III. Conclusion
  The IRS’ conduct in this case led both the Bedrosians and
this Court down the wrong path. This Division of the Court
issued the opinion in this case and the two related cases. At
the time we knew little of what happened during the audit.
140        143 UNITED STATES TAX COURT REPORTS             (83)

There had never been a trial in this case. Fortunately, nei-
ther the law of the case doctrine nor any other judicial doc-
trine of which I am aware prevents this Court from reaching
the right result in the end. I do not know whether the
Bedrosians are entitled to any of the loss deductions they
claimed, but I wholeheartedly believe they are entitled to
their day in court to make their case.
   Judge Halpern writes in his concurring opinion that the
Bedrosians missed their opportunity to have their day in
court by failing to timely petition in response to the FPAA.
See Halpern op. p. 116. Judge Halpern overlooks the fact
that the IRS led the Bedrosians to believe that the April 19,
2005, notice of deficiency, in response to which they filed a
timely petition, was the appropriate notice. It is the IRS, and
not the taxpayer, that chooses audit procedures. In this case,
the IRS chose the normal deficiency procedures and applied
those procedures, and only those procedures, for approxi-
mately a year and a half. But at that late stage of the audit,
the IRS changed course in an attempt to gain an unfair
advantage over the Bedrosians. The IRS began a partner-
ship-level audit, allegedly to disallow NOL carryforward
deductions on the Bedrosians’ Form 1040 for 2000, and told
the Bedrosians’ POA that said audit would be ‘‘opened and
shut’’. All the while, the IRS continued to examine Stone
Canyon at the individual level until the very last day of the
audit. I would hold that section 6231(g)(2) applies to treat
this case exactly as the IRS treated it from the outset—as an
individual deficiency case.
   Because the interests of substantial justice so require, I
respectfully dissent.
   THORNTON, COLVIN, and FOLEY, JJ., agree with this dis-
sent.

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