Court Opinion

ID: 9905595
Source: CourtListenerOpinion
Date Created: 2023-11-29 20:03:06.188824+00
Date Added: 2024-06-11T09:23:46.002663
License: Public Domain

United States Tax Court

                               T.C. Memo. 2023-143

                  HARMAN ROAD PROPERTY, LLC,
             CAPITAL CONSERVATION PARTNERS II, LLC,
                     TAX MATTERS PARTNER,
                           Petitioner

                                            v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                      —————

Docket No. 253-22.                                        Filed November 29, 2023.

                                      —————

Anson H. Asbury, Scott C. St. Lifer, Robert B. Gardner III, and Ethan J.
Vernon, for petitioner.

Teri L. Jackson and Christina M. Everling, for respondent.

                           MEMORANDUM OPINION

       WEILER, Judge: Before this Court is respondent’s Motion to
Dismiss for Lack of Jurisdiction, filed on February 14, 2022, in which he
argues that section 6228(a)(2)(B) 1 prohibited the filing of the Petition in
this case. On August 1, 2022, petitioner filed its Objection to Motion to
Dismiss for Lack of Jurisdiction along with a Declaration in support
thereof. On March 1, 2023, respondent filed his Response to Objection
to Motion to Dismiss for Lack of Jurisdiction. For the reasons set forth
below, we will grant respondent’s Motion.

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

Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and Rule references are to the Tax Court Rules of Practice and
Procedure.

                                  Served 11/29/23
                                           2

[*2]                                Background

      The following facts are derived from the parties’ pleadings and
motion papers, including the Declaration and Exhibits attached thereto.
These facts are stated solely for the purpose of deciding respondent’s
Motion and not as findings of fact in this case. See Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).

       Harman Road Property, LLC (Harman Road or Partnership), was
organized as a Georgia limited liability company, with its initial
members being Claude Peavy Harman, Jr., owning a 99% interest, and
Capital Conservation Partners II, LLC (CCP II), owning a 1% interest.
Harman Road is treated as a partnership under the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401–
407, 96 Stat. 324, 648–71, for federal income tax purposes; petitioner,
CCP II, is the tax matters partner (TMP). 2

       On November 28, 2016, Mr. Harman sold 97% (retaining 2%) of
the total interest in Harman Road to CCP Acquisitions II, LLC, which
in turn sold its entire 97% interest in Harman Road to Harman Road
Investors, LLC. The sale of the 97% interest in Harman Road by Mr.
Harman triggered a technical termination of the Partnership under
section 708(b)(1)(B). 3

      Meanwhile, on December 9, 2016, Harman Road made a
conservation easement donation to Oconee River Land Trust, Inc., of
approximately 181.61 acres of property located in Meriwether County,
Georgia. Harman Road recorded a deed of conservation easement with
the Clerk of Superior Court of Meriwether County on December 9, 2016.

       As a result of the technical termination Harman Road’s taxable
year closed on November 28, 2016, and separate tax returns were filed
for the short taxable periods before—October 26 through November 28,
2016—and after the technical termination—November 29 through
December 31, 2016. Harman Road timely filed two federal income tax

        2 Before its repeal, TEFRA governed the tax treatment and audit procedures

for many partnerships, including Harman Road.
        3 Section 708 was amended by the Tax Cuts and Jobs Act of 2017, Pub. L. No.

115-97, § 13504(a), 131 Stat. 2054, 2141, effective for partnership taxable years
beginning after December 31, 2017, by deleting the “technical termination” provision
at issue here. That provision, section 708(b)(1)(B), provided that a partnership shall be
considered terminated only if “within a 12-month period there is a sale or exchange of
50 percent or more of the total interest in partnership capital and profits.”
                                        3

[*3] returns, Forms 1065, U.S. Return of Partnership Income, for 2016.
However, because of an error, the taxable periods reflected on the tax
returns failed to reflect the date of Harman Road’s technical
termination, which occurred on November 28, 2016. The first short-
period Form 1065 reflected a taxable period ending December 16, 2016,
and the second short-period Form 1065 (Original Return) reflected a
taxable period beginning December 17, 2016, and ending December 31,
2016. 4

       In order to correct the errors in the taxable periods reflected on
the returns for the Partnership, petitioner, on January 8, 2020, filed
Form 1065X, Amended Return or Administrative Adjustment Request
(AAR), to amend the ending date of the first short-period Form 1065
from December 16, 2016, to November 28, 2016. On January 8, 2020,
petitioner also filed a Form 8082, Notice of Inconsistent Treatment or
Administrative Adjustment Request (AAR), to adjust the beginning date
on the Original Return from December 17, 2016, to November 29, 2016,
pursuant to section 6227(c), which forms the foundation of the Petition
in this case.

       However, on November 15, 2018, which preceded petitioner’s
filing of the Form 8082 to correct the beginning date on the Original
Return, respondent issued a Notice of Beginning of Administrative
Proceeding (NBAP) to Harman Road’s TMP relating to partnership
items on the Original Return for the taxable year ending December 31,
2016. Respondent completed his examination of Harman Road’s
Original Return, and on July 16, 2020, he issued a Notice of Final
Partnership Administrative Adjustment (FPAA) to CCP II for the
examination of items on the Original Return for the taxable year ending
December 31, 2016. On October 16, 2020, petitioner timely filed a
petition with this Court disputing the FPAA and seeking readjustment
of partnership items under section 6226, and that case is docketed at
Docket No. 12304-20 (FPAA Proceeding).

       On January 7, 2022, petitioner petitioned this Court for
adjustment of the partnership items set forth in its AAR pursuant to
section 6228 (AAR Proceeding), regarding the beginning date of the
Original Return.

        4 On this second short-period Form 1065 petitioner reported a charitable

contribution deduction under section 170(h) for the December 9, 2016, conservation
easement donation.
                                           4

[*4]                                 Discussion

I.      Legal Background

       The Tax Court is a court of limited jurisdiction and may exercise
jurisdiction only to the extent authorized by Congress. Judge v.
Commissioner, 88 T.C. 1175, 1180–81 (1987); Naftel v. Commissioner,
85 T.C. 527, 529 (1985). We are without authority to enlarge upon that
statutory grant. See Phillips Petroleum Co. & Affiliated Subs. v.
Commissioner, 92 T.C. 885, 888 (1989). We nevertheless have
jurisdiction to decide whether we have jurisdiction. McCrory v.
Commissioner, 156 T.C. 90, 93 (2021).

       A partnership’s taxable year is a partnership item. Treas. Reg.
§ 301.6231(a)(3)-1(b). Pursuant to section 6227(a), a partner may file
with the IRS a request for an administrative adjustment of partnership
items for any partnership taxable year subject to certain conditions. If
the IRS does not allow any part of an AAR filed by the TMP under
section 6227(c), the TMP may file a petition with this Court for an
adjustment with respect to the partnership items to which such part of
the request relates. I.R.C. § 6228(a)(1). 5

       In addition to the express time and subject matter limits, the
ability to file a section 6228(a) action is limited by certain events in a
related partnership audit proceeding (or FPAA proceeding). The TMP
may not file a section 6228(a) action after the IRS has mailed an NBAP
to the partnership for the taxable year to which the AAR relates. I.R.C.
§ 6228(a)(2)(B). If the IRS ultimately does not mail an FPAA to the
partnership before the expiration of the partnership item period of
limitations, however, the partnership is still allowed to file a section
6228(a) action within six months after the expiration of the partnership
item period of limitations.

       If the IRS issues an FPAA after an AAR proceeding is commenced
for the same taxable year, but before the hearing of such a petition, the
petition shall be treated as an action brought under section 6226 (i.e.,
an FPAA proceeding) with respect to that administrative adjustment.
I.R.C. § 6228(a)(3)(B). If such is the case, the TMP must amend the
petition within 90 days and include any errors committed by the
Commissioner related to the FPAA. See Rule 249. There is a clear

         5 Section 6228(a)(1) permits a taxpayer to file a petition with this Court, the

district court, or the Court of Federal Claims.
                                           5

[*5] preference under the Code for an FPAA proceeding to take
precedence, since a section 6226 action includes all partnership items
for the taxable year, while a section 6228 action is limited to “only those
partnership items to which the . . . [AAR was] not allowed by the
Secretary . . . and those items with respect to which the Secretary
asserts adjustments as offsets to the adjustments requested by the
[TMP].” Compare I.R.C. § 6226(f), with § 6228(a)(5).

II.     Summary of the Parties’ Arguments

        A.     Petitioner’s Argument

       Petitioner argues that this Court is not barred from hearing the
AAR Proceeding pursuant to section 6228(a) since respondent failed to
take timely action regarding the AAR. Further, petitioner avers that the
AAR Proceeding relates to a taxable year other than the NBAP (or
FPAA) year, since the FPAA does not state the beginning date of the
taxable year under examination; rather, it identifies only the ending
date of the taxable year, December 31, 2016.

      Petitioner also argues that the Code’s definition of taxable year—
rather than the dates reflected on the return—is determinative of the
beginning and ending dates of a taxable year. Accordingly, petitioner
contends that the AAR necessarily relates to the taxable year of the
Original Return. 6

       Lastly, petitioner states that respondent has repeatedly refused
to identify the taxable year to which the NBAP relates.

        B.     Respondent’s Argument

      Respondent argues, contrary to petitioner’s contention, that the
NBAP issued to petitioner covers the entire taxable year ending
December 31, 2016, which includes the Partnership’s Original Return
and any adjustments thereto. Respondent agrees with petitioner that a
partnership’s taxable year is a partnership item under Treasury
Regulation § 301.6231(a)(3)-1(b) and avers that when he issued

        6 For petitioner’s argument that the AAR does not relate to the same taxable

year as the NBAP to carry any weight, we would have to find that Harman Road had
two distinct taxable years. Petitioner’s position is untenable by his own admission that
“the typographical error on the Original Return does not determine the partnership
taxable year; the Code controls.” Therefore, the error on the Original Return did not
create a separate taxable year for the Partnership.
                                    6

[*6] petitioner the NBAP it “covered partnership items for that taxable
year—including the proper beginning date of that taxable year.”
Consequently, respondent states that the TMP has lost the ability to file
a petition related to any AAR for the 2016 taxable year since any
“determination of the proper taxable year (including its beginning and
ending date) was part of the proceeding commenced by the NBAP.”

      Moreover, since petitioner timely petitioned this Court in
response to the FPAA in Docket No. 12304-20, respondent argues the
FPAA Proceeding is the proper case in which to determine when the
Partnership’s taxable year began pursuant to section 6226(f).

III.   Analysis

       Petitioner attempts to circumvent the preclusive effects of section
6228(a)(2)(B) by arguing that its AAR and the NBAP issued by
respondent relate to two different taxable periods. In other words,
petitioner’s argument is contingent upon a favorable reading of the
statutory text “with respect to the partnership taxable year to which
such request relates.” See I.R.C. § 6228(a)(2)(B). Accordingly, to
determine the preclusive effects of section 6228(a)(2)(B), we must
analyze whether this case involves the same taxable period as the FPAA
Proceeding. For the reasons below, we find that both cases involve the
same taxable period.

        It is undisputed that the Partnership files on a calendar year. A
taxable year generally shall not close, unless there is a partnership
termination. I.R.C. § 706(c)(1). Treasury Regulation § 301.6109-
1(d)(2)(iii) provides that the new partnership that is formed as a result
of the termination of a partnership under section 708(b)(1)(B) will retain
the employer identification number of the terminated partnership.
Under section 6031(a) every partnership that is required to file a return
must file a return of partnership income for each taxable year of the
partnership, while under section 443(a)(2), a return is required to be
made for a period of less than 12 months if the taxpayer is in existence
for only part of what would otherwise be its taxable year.

      It is also undisputed that the Partnership had a short taxable
period of less than 12 months. Originally, the Partnership reported a
taxable period commencing on December 17, 2016; however, in an
amended filing, the Partnership reported its taxable period commenced
                                            7

[*7] on November 29, 2016. 7 The date in which the short taxable period
commences for a partnership’s taxable year is a partnership item. See
Treas. Reg. § 301.6231(a)(3)-1(b). Here, the IRS issued the NBAP for the
Partnership’s taxable year ending on December 31, 2016, and does not
indicate the date on which the taxable period commences. Similarly, in
the FPAA Proceeding, petitioner states in the petition that “Harman
timely filed its federal income tax return, Form 1065, for the tax year
ended December 31, 2016,” and that the “FPAA was issued for the
taxable year ended December 31, 2016” but does not otherwise indicate
the date on which the short taxable period commences. In sum, both
cases relate to the same taxable period, not two separate periods. We
find the NBAP and the subsequent FPAA cover all partnership items for
the short taxable period ending December 31, 2016, including the date
in which the taxable period commences—whether it be December 19 or
November 29, 2016.

       Consequently, we find the text of section 6228(a)(2)(B) to be
controlling and the Petition in this case to be improper. 8 We also find
petitioner’s argument equally unavailing since respondent has stated
that the “NBAP was issued for the same taxable year to which the AAR
pertains, which is the year the Original Return covers.” 9

        7 Although both short periods fall within the same calendar year, the technical

termination has triggered two short period returns. Internal Revenue Manual
4.31.2.3.9.2.5(1) (Apr. 20, 2017) instructs that multiple short period returns are
controlled separately and indicated by their month end. However, an NBAP (and any
subsequent FPAA) is issued to the TMP for “each short period.” Id. at (3) (emphasis
added). I.R.S. Chief Couns. Notice CC 2009-027 (Aug. 21, 2009) explains: “If all
partners remain the same over multiple tax years, then the Service may address those
multiple years in a single NBAP and a single FPAA. I.R.C. §§ 6223, 6103(h)(4).” See
also Sarma v. Commissioner, T.C. Memo. 2018-201, at *9–16 (discussing the procedure
for multiple NBAPs and FPAAs for short period returns), aff’d, 45 F.4th 1312 (11th
Cir. 2022).
        8 This is analogous to the way a taxpayer is prohibited from filing a refund suit

in federal district court once he petitions this Court for redetermination in response to
a notice of deficiency, which in effect “cuts off the taxpayer’s right to seek a refund for
the year in any other forum.” McLane v. Commissioner, T.C. Memo. 2018-149, at *18,
aff’d, 24 F.4th 316 (4th Cir. 2022); see also I.R.C. § 6512.
        9 See Treas. Reg. § 1.708-1(b)(3) and (4); I.R.S. Notice 2001-5, 2001-1 C.B. 327

(stating that both terminating and new partnership file short period returns; both use
same employer identification number); see also I.R.S. Field Serv. Adv. Mem.
200132009 (Aug. 10, 2001) (stating that return filed for partnership that terminated
on sale of more than 50% that did not separate pre- and post-termination periods
nevertheless started running of period of limitations).
                                    8

[*8] Lastly, we point out to petitioner that respondent has affirmed
that he “does not seek to deny petitioner’s right to a judicial
determination of the proper taxable year” and has acknowledged that
this Court in “Docket No. 12304-20 has jurisdiction to determine the
date on which the partnership taxable year ending December 31, 2016
began.” See I.R.C. § 6226(f). Moreover, petitioner has already raised the
same issue concerning the beginning date of the taxable year ending
December 31, 2016, in its reply to answer, filed on April 2, 2021, in the
FPAA Proceeding.

       Therefore, we fail to understand petitioner’s contention that it is
necessary for us to determine the Partnership’s correct taxable year in
this AAR Proceeding, since the same issue is before us in the FPAA
Proceeding. See Rule 37. Accordingly, we find the issue to be properly
joined in the case at Docket 12304-20. See Rules 244, 38.

IV.   Conclusion

       We find that petitioner was precluded from filing the Petition in
this case by operation of section 6228(a)(2)(B). We have considered all of
the arguments that the parties made, and to the extent they are not
addressed herein, we find the arguments to be moot, irrelevant, or
without merit.

      To reflect the foregoing,

      An appropriate order will be entered.