Court Opinion

ID: 4336792
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:00:46.969765+00
Date Added: 2024-06-11T14:47:49.818831
License: Public Domain

129 T.C. No. 13

                UNITED STATES TAX COURT

            PETER D. ADKISON, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 2532-06.                Filed October 16, 2007.

     R sent to P a notice of deficiency for 1999. P
filed a petition seeking to invoke the Court’s
jurisdiction to redetermine the deficiency and to
decide P’s claim for relief under sec. 6015(c), I.R.C.
R moved to dismiss for lack of jurisdiction on the
grounds (1) the notice of deficiency is invalid because
the underlying adjustments constitute “partnership
items” that are the subject of an ongoing partnership-
level proceeding in Federal District Court, and (2) P’s
claim for relief under sec. 6015(c), I.R.C.,
constitutes an “affected item” that can be reviewed
only after the partnership-level proceeding is
completed.

     The parties agree that the notice of deficiency is
invalid because the underlying adjustments constitute
“partnership items” that are the subject of an ongoing
partnership-level proceeding in Federal District Court.
P opposes dismissal of his claim under sec. 6015(c),
I.R.C.
                               - 2 -

          Held: The Court lacks jurisdiction to review P’s
     claim for relief under sec. 6015(c), I.R.C., because,
     in the context of the TEFRA partnership proceeding, P’s
     claim for relief from joint and several liability on a
     joint return may be raised only after R has sent a
     notice of computational adjustment following the
     completion of partnership-level proceedings.

     John Mark Colvin, for petitioner.

     Thomas D. Greenaway, for respondent.

                              OPINION

     COHEN, Judge:   This case is before us on respondent’s motion

to dismiss for lack of jurisdiction on the ground the notice of

deficiency is invalid and prohibited by section 6225.    Unless

otherwise indicated, all section references are to the Internal

Revenue Code in effect for the year in issue.

                            Background

     The parties stipulated certain facts solely for our action

on respondent’s motion to dismiss for lack of jurisdiction.

Peter D. Adkison (petitioner) resided in Seattle, Washington, at

the time that he filed his petition.

     Petitioner filed a joint Federal income tax return for 1999

with his spouse, Cathleen S. Adkison.    The Adkisons claimed

deductions and losses on their 1999 tax return in connection with

their participation in a partnership known as Shavano Strategic

Investment Fund, LLC (Shavano).   Shavano engaged in a tax shelter
                               - 3 -

transaction referred to as Bond Linked Issue Premium Structure or

BLIPS.

     The Adkisons separated in December 1999 and were divorced in

late 2001.

     In 2002, in response to an Internal Revenue Service (IRS)

announcement soliciting taxpayers to disclose their participation

in certain tax shelter transactions, the Adkisons informed the

IRS that they participated in the BLIPS transaction through

Shavano during 1999.   During 2003, the IRS began an examination

of the Adkisons’ 1999 tax return.

     In 2004, petitioner submitted to the IRS an election to

participate in a settlement program pertaining to the Shavano tax

shelter transaction.   Although the parties attempted to draft a

final closing agreement with regard to petitioner’s tax liability

for 1999, the negotiations failed when petitioner requested that

the closing agreement include language stating that petitioner

was entitled to relief pursuant to section 6015(c), which

provides that taxpayers filing a joint return may seek an

allocation of the tax liability associated with the return.    In

October 2004, petitioner remitted to the IRS $2.5 million to be

posted as a cash bond against his tax liability for 1999.

     On December 21, 2004, respondent sent a Notice of Final

Partnership Administrative Adjustment (FPAA) to Shavano for its

taxable year ended December 21, 1999.   In May 2005, a partner
                               - 4 -

other than the tax matters partner of Shavano filed a petition

for readjustment with the U.S. District Court for the Northern

District of California (District Court case).

     On June 9, 2005, petitioner submitted to the IRS a Form

8857, Request for Innocent Spouse Relief, seeking relief from

joint and several liability on the joint return he filed for the

taxable year 1999.   Petitioner requested that the full amount of

the tax due for 1999 be allocated in equal shares to him and to

Cathleen Adkison pursuant to section 6015(c).   Petitioner has not

received a notice of determination from the IRS with regard to

his Form 8857.

     On November 10, 2005, respondent sent a joint notice of

deficiency for 1999 to petitioner and Cathleen Adkison.

The deficiency of $5,837,482 set forth in the notice is

attributable to the following adjustments related to the

Adkisons’ participation in Shavano:    (1) The disallowance of a

capital loss of $27,213,056; (2) the disallowance of a

partnership loss of $184,822; and (3) a reduction of itemized

deductions (investment interest expense) of $812,327.    The notice

of deficiency includes an explanation that respondent made a

number of alternative determinations including a determination

that Shavano was a sham and/or Shavano was formed solely for the

purposes of tax avoidance.
                               - 5 -

     On February 6, 2006, petitioner filed a petition with the

Court.   Petitioner asserted in the petition that he was invoking

the Court’s jurisdiction (1) to redetermine the deficiency under

section 6213(a) and (2) to review respondent’s failure to respond

to petitioner’s request for an allocation of his tax liability

for 1999 under section 6015(c).

     On December 15, 2006, respondent filed a motion to dismiss

for lack of jurisdiction asserting that the notice of deficiency

is invalid because the adjustments therein constitute “affected

items” that are dependent upon the completion of partnership-

level proceedings in the District Court case.    Secs. 6221, 6225,

6230(a)(2).   Respondent further asserts that petitioner submitted

his claim for relief under section 6015(c) prematurely insofar as

the partnership-level proceedings have not been completed, and,

in any event, respondent did not “assert” a deficiency against

petitioner within the meaning of section 6015(e)(1).

     Petitioner agrees that the Court lacks jurisdiction in this

case to redetermine a deficiency pursuant to section 6213(a)

because the notice of deficiency is invalid.    Petitioner

maintains, however, that he is an “individual against whom a

deficiency has been asserted” within the meaning of section

6015(e)(1), and, therefore, he properly invoked the Court’s

jurisdiction to review his claim for relief under section

6015(c).
                                - 6 -

                              Discussion

     The Tax Court is a court of limited jurisdiction, and we may

exercise our jurisdiction only to the extent provided by

Congress.   See sec. 7442; see also GAF Corp. & Subs. v.

Commissioner, 114 T.C. 519, 521 (2000).    The jurisdictional

dispute in this case requires an examination of the

interrelationship between the Court’s jurisdiction to review a

claim for relief from joint and several liability on a joint

return under section 6015 and the Court’s jurisdiction under the

unified partnership audit and litigation procedures contained in

sections 6221 through 6234.    See Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),

96 Stat. 648.

Section 6015

     Section 6013(d)(3) provides that, if a husband and wife file

a joint Federal income tax return, “the tax shall be computed on

the aggregate income and the liability with respect to the tax

shall be joint and several.”    However, section 6015(a) provides

that, notwithstanding section 6013(d)(3), an individual who has

made a joint return may elect to seek relief from joint and

several liability on such return.    For a detailed discussion of

the legislative history of section 6015 (and its predecessor

section 6013(e)), see Cheshire v. Commissioner, 115 T.C. 183,

188-189 (2000), affd. 282 F.3d 326 (5th Cir. 2002).
                               - 7 -

     Congress vested the Tax Court with jurisdiction to review a

taxpayer’s election to claim relief from joint and several

liability on a joint return under various circumstances.   See

King v. Commissioner, 115 T.C. 118, 121-122 (2000); Corson v.

Commissioner, 114 T.C. 354, 363-364 (2000).   A taxpayer may seek

relief from joint and several liability on a joint return by

raising the matter as an affirmative defense in a petition for

redetermination filed in response to a notice of deficiency under

section 6213(a).   See Butler v. Commissioner, 114 T.C. 276, 287-

288 (2000).   In addition, a taxpayer may file with the Court a

so-called stand-alone petition seeking relief from joint and

several liability on a joint return if (1) the Commissioner

issues a final determination letter denying the taxpayer’s claim

for such relief or (2) the Commissioner has failed to rule on the

taxpayer’s claim for relief within 6 months of its filing.    See

sec. 6015(e)(1); Mora v. Commissioner, 117 T.C. 279 (2001);

Corson v. Commissioner, supra at 363.   A taxpayer also may

request relief from joint and several liability on a joint return

in a petition for review of a lien or levy action.   See secs.

6320(c), 6330(c)(2)(A)(i).

TEFRA Partnership Provisions

     The proper tax treatment of any partnership item generally

is determined at the partnership level pursuant to the TEFRA

partnership provisions.   The TEFRA procedures apply with respect
                               - 8 -

to all taxable years of a partnership beginning after

September 3, 1982.   Sparks v. Commissioner, 87 T.C. 1279, 1284

(1986); Maxwell v. Commissioner, 87 T.C. 783, 789 (1986).       A

partnership item is any item required to be taken into account

for the partnership’s taxable year under any provision of

subtitle A to the extent regulations prescribed by the Secretary

provide that, for purposes of subtitle A, such item is more

appropriately determined at the partnership level than at the

partner level.   Sec. 6231(a)(3).   Partnership items normally

include each partner’s proportionate share of the partnership’s

aggregate items of income, gain, loss, deduction, or credit.

Sec. 301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs.

     Partnership items are distinguished from affected items,

which are defined in section 6231(a)(5) as any item to the extent

such item is affected by a partnership item.     White v.

Commissioner, 95 T.C. 209, 211 (1990).    The first type of

affected item is purely a computational adjustment made to record

the change in a partner’s tax liability resulting from the proper

treatment of partnership items.     Sec. 6231(a)(6); White v.

Commissioner, supra at 211.   Once the decision in a partnership-

level proceeding is final, the Commissioner is permitted to

assess a computational adjustment against a partner without

issuing a notice of deficiency.     Secs. 6225, 6230(a)(1); N.C.F.
                                 - 9 -

Energy Partners v. Commissioner, 89 T.C. 741, 744 (1987); Maxwell

v. Commissioner, supra at 792 n.7.

     The second type of affected item is an adjustment to a

partner’s tax liability to reflect the proper treatment of a

partnership item that is dependent upon factual determinations to

be made at the individual partner level.     N.C.F. Energy Partners

v. Commissioner, supra at 744.     Section 6230(a)(2)(A)(i) provides

that the normal deficiency procedures apply to those affected

items that require partner-level determinations.    See N.C.F.

Energy Partners v. Commissioner, supra at 743-744; see also

Crowell v. Commissioner, 102 T.C. 683, 689 (1994).    A valid

notice of deficiency concerning an affected item generally is

dependent upon a final decision in the underlying partnership-

level proceeding.   Sec. 6225(a); GAF Corp. & Subs. v.

Commissioner, supra at 526 (citing Dubin v. Commissioner, 99 T.C.

325, 328 (1992)); see Crowell v. Commissioner, supra at 694-695.

     In 1997, Congress passed the Taxpayer Relief Act of 1997,

Pub. L. 105-34, sec. 1237(a) and (b), 111 Stat. 1025, amending

the TEFRA provisions to add specific rules that are applicable

when the spouse of a partner seeks relief from joint and several

liability on a joint tax return.    As discussed in detail below,

the new provisions, set forth in section 6230(a)(3) and

6230(c)(5), prescribe the procedures under which a spouse of a

partner seeking relief under section 6015 may raise such a claim
                                 - 10 -

either in a deficiency proceeding or in a refund suit.    Section

6230(a)(3) and 6230(c)(5) is effective as if included in TEFRA as

originally enacted.   See Taxpayer Relief Act of 1997, sec.

1237(d), 111 Stat. 1026.

     Section 6230(a)(3)(A) provides in part:

          SEC. 6230(a).    Coordination With Deficiency
     Proceedings.--

                 *     *     *     *      *   *   *

               (3) Special rule in case of assertion by
          partner’s spouse of innocent spouse relief.--

                    (A) Notwithstanding section 6404(b), if
               the spouse of a partner asserts that section
               6013(e) applies with respect to a liability
               that is attributable to any adjustment to a
               partnership item * * * then such spouse may
               file with the Secretary within 60 days after
               the notice of computational adjustment is
               mailed to the spouse a request for abatement
               of the assessment specified in such notice.
               Upon receipt of such request, the Secretary
               shall abate the assessment. Any reassessment
               of the tax with respect to which an abatement
               is made under this subparagraph shall be
               subject to the deficiency procedures
               prescribed by subchapter B. * * *

To summarize, section 6230(a)(3)(A) provides that, after the

Commissioner has issued to the spouse of a partner a notice of

computational adjustment following the completion of a

partnership-level proceeding, the Commissioner, upon the request

of the spouse, must abate the underlying assessment to permit the

spouse to assert a claim for relief from joint and several

liability pursuant to the deficiency procedures of subchapter B.
                               - 11 -

     In addition to the deficiency procedures described above,

section 6230(c)(5) provides in pertinent part:

          SEC. 6230(c). Claims Arising Out of Erroneous
     Computations, Etc.--

                 *    *    *     *      *   *    *

               (5) Rules for seeking innocent spouse
          relief.--

                    (A) In general.--The spouse of a partner
               may file a claim for refund on the ground
               that the Secretary failed to relieve the
               spouse under section 6015 from a liability
               that is attributable to an adjustment to a
               partnership item (including any liability for
               any penalties, additions to tax, or
               additional amounts relating to such
               adjustment).

                    (B) Time for filing claim.--Any claim
               under subparagraph (A) shall be filed within
               6 months after the day on which the Secretary
               mails to the spouse the notice of
               computational adjustment referred to in
               subsection (a)(3)(A).

In sum, section 6230(c)(5)(A) and (B) provides that the spouse of

a partner may file a claim for relief from a tax liability

attributable to an adjustment to a partnership item within

6 months after the Commissioner has mailed to the spouse a notice

of computational adjustment.   In connection with these

provisions, section 6230(c)(5)(C) provides that, if the

Commissioner disallows the spouse’s claim for relief under

section 6015, the spouse may bring a refund suit within the

period specified in section 6230(c)(3) (which in turn refers to

section 6532 relating to periods of limitations on refund suits).
                                - 12 -

Section 6015(g)(3) provides that no credit or refund shall be

allowed in respect of a claim for relief under section 6015(c)--

the provision on which petitioner relies.

     When section 6230(a)(3) and (c)(5) was originally enacted in

1997, both provisions contained express references to section

6013(e).   One year later, however, Congress added new section

6015 to the Internal Revenue Code and made conforming amendments

striking section 6013(e) and replacing the reference to section

6013(e) appearing in section 6230(c)(5)(A) with a reference to

section 6015.   See IRS Restructuring and Reform Act of 1998, Pub.

L. 105-206, sec. 3201(a), (e)(1) and (2), 112 Stat. 740.      By all

appearances, Congress simply overlooked the reference to section

6013(e) contained in section 6230(a)(3)(A) and failed to make a

conforming amendment to that section.    In any event, both

provisions reflect congressional intent that the spouse of a

partner may initiate a claim for relief from joint and several

liability attributable to an adjustment of a partnership item

only after the Commissioner issues to the spouse a notice of

computational adjustment following the completion of a

partnership-level proceeding.

     With the foregoing as background, we return to the parties’

contentions.
                              - 13 -

The Affected Items Notice of Deficiency

     The Court’s jurisdiction to redetermine a deficiency

attributable to an affected item is dependent upon a valid

(affected items) notice of deficiency and a timely filed

petition.   Crowell v. Commissioner, 102 T.C. at 694.   The record

reflects, and the parties agree, that the adjustments set forth

in the notice of deficiency are attributable to adjustments to

partnership items.   Those partnership items are the subject of

the partnership-level proceeding that is pending before the

District Court.   Under the circumstances, it follows that the

notice of deficiency is invalid, and it is insufficient to permit

petitioners to invoke the Court’s jurisdiction to redetermine a

deficiency under section 6213(a).   GAF Corp. & Subs. v.

Commissioner, 114 T.C. at 528; Maxwell v. Commissioner, 87 T.C.

at 788, 793.

Section 6015

     Although petitioner may not invoke the Court’s jurisdiction

under section 6213(a), the petition includes allegations that

petitioner is entitled to relief from joint and several liability

on a joint return under section 6015.   Respondent maintains that

the Court lacks jurisdiction to review petitioner’s claim for

relief under section 6015 because (1) the notice of deficiency

upon which the petition is based is invalid and (2) petitioner’s

entitlement to relief under section 6015 is an affected item that
                                - 14 -

may be adjudicated only following a final decision in the related

partnership-level proceeding.    Respondent relies primarily on

Life Care Cmtys. of Am. v. Commissioner, T.C. Memo. 1997-95, and

Mann-Howard v. Commissioner, T.C. Memo. 1992-537, for the

proposition that the spouse of a partner must prosecute a claim

for relief under section 6015 in an affected items proceeding.

     Petitioner asserts that various developments in this case,

including the parties’ attempt to settle petitioner’s tax

liability for 1999, and eventually the issuance of both the FPAA

and the invalid notice of deficiency, demonstrate that respondent

“asserted” a deficiency against him within the meaning of section

6015(e)(1)(A).   As petitioner sees it, his petition is a valid

stand-alone petition for relief under section 6015(e).

     Taking into account the ongoing partnership-level

proceeding, we conclude that respondent has not “asserted” a

deficiency against petitioner within the meaning of section

6015(e)(1)(A).   As explained below, petitioner’s claim for relief

under section 6015 is premature and will not crystallize into a

justiciable case or controversy until the underlying partnership-

level proceeding is final and respondent has issued to petitioner

a notice of computational adjustment.

     The question of when the Court may exercise jurisdiction to

review a claim for relief from joint and several liability on a

joint return in the context of a TEFRA partnership proceeding is
                              - 15 -

not a new one.   In cases such as Dynamic Energy, Inc. v.

Commissioner, 98 T.C. 48 (1992), and Marthinuss v. Commissioner,

T.C. Memo. 1995-58, the Court indicated that the spouse of a

partner is not entitled to an adjudication of his or her

entitlement to relief from joint and several liability on a joint

return in a partnership-level proceeding.   Further, in cases such

as Life Care Cmtys. of Am. v. Commissioner, supra, and Mann-

Howard v. Commissioner, supra, the Court indicated that the

spouse of a partner normally would be able to prosecute a claim

for relief from joint and several liability on a joint return in

response to an affected items notice of deficiency issued after

the completion of partnership-level proceedings.

     As previously discussed, Congress prescribed specific

procedures for purposes of TEFRA partnership actions under which

the spouse of a partner is permitted to obtain an adjudication of

a claim for relief from joint and several liability on a joint

return. Section 6230(a)(3), which refers to section 6013(e) (now

stricken), provides a remedy in the form of a deficiency

proceeding, whereas section 6230(c)(5) provides an alternative

remedy in the form of a refund action.   Significantly, in either

case, the spouse of a partner may assert a claim for relief from

joint and several liability only after the Commissioner has

issued to the spouse a notice of computational adjustment.

However, the Commissioner may issue a notice of computational
                                - 16 -

adjustment to a partner (or the spouse of a partner) only

following the completion of proceedings at the partnership level.

Sec. 6225.

     Consistent with the foregoing, the Court has exercised its

jurisdiction to review stand-alone petitions filed with the Court

pursuant to section 6015 after the Commissioner issued to the

spouse of a partner a notice of computational adjustment.    See

Mora v. Commissioner, 117 T.C. 279 (2001); Abelein v.

Commissioner, T.C. Memo. 2004-274.

     Consistent with the preceding discussion, we conclude that

petitioner is not a person against whom a deficiency has been

asserted within the meaning of section 6015(e)(1).   The related

partnership-level proceedings have not been completed, and

respondent has not had the occasion to issue to petitioner either

a notice of computational adjustment or a valid affected items

notice of deficiency.   Until one of those events occurs, or

respondent institutes a collection action under sections 6320

and/or 6330, petitioner’s claim for relief under section 6015 is

premature, and the Court lacks jurisdiction to consider it.

     Because the Court lacks jurisdiction over the petition in

this case, respondent’s motion to dismiss for lack of

jurisdiction will be granted.
                        - 17 -

To reflect the foregoing,

                                 An order of dismissal for lack

                            of jurisdiction will be entered

                            granting respondent’s motion to

                            dismiss for lack of jurisdiction.