Court Opinion

ID: 4336896
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:04:05.718208+00
Date Added: 2024-06-11T14:47:20.780980
License: Public Domain

T.C. Memo. 2007-376

                       UNITED STATES TAX COURT

    JOHN C. BEDROSIAN AND JUDITH D. BEDROSIAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 24581-06.                Filed December 26, 2007.

     Richard E. Hodge, William E. Johnson, Steven R. Mather, and

Elliott H. Kajan, for petitioners.

     Michael L. Boman, for respondent.

                         MEMORANDUM OPINION

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

motion to dismiss for lack of jurisdiction.1     Respondent argues

     1
        This case involves the same or related parties as in
docket Nos. 12341-05 and 9664-07. Docket No. 12341-05 is based
                                                   (continued...)
                                      - 2 -

that the assessment of penalties relating to partnership

adjustments is not subject to deficiency procedures, and that the

deficiencies in income tax were paid and assessed prior to the

issuance of the notice of deficiency.         See generally Kligfeld

Holdings v. Commissioner, 128 T.C. 192 (2007), and Notice 2000-

44, 2000-2 C.B. 255, for a general description of the transaction

in this case.   Respondent determined in an affected items notice

the following deficiencies in and penalties on petitioners’

Federal income tax:

                                                 Penalty
     Year                Deficiency            Sec. 6662(a)
                   [2]
     1999                $3,460,695           $1,399,552.80
     2000                    12,137                4,854.80
     2
        The deficiency in docket No. 12341-05 is $38,187
     greater than the deficiency listed above because the
     $38,187 was assessed as a computational adjustment. See
     infra pp. 4-5.

The issues for decision are:       (1) Whether petitioners have

previously paid a portion of the amount stated in the affected

items notice of deficiency, and (2) whether the Court lacks

jurisdiction over the section 6662(a) penalties determined in the

affected items notice.

     1
      (...continued)
on a statutory notice of deficiency sent to John and Judith
Bedrosian. Docket No. 9664-07 is a partnership-level proceeding
concerning the validity of a final partnership administrative
adjustment notice.
                               - 3 -

                             Background

     Petitioners are husband and wife, and they resided in Los

Angeles, California, when their petition was filed.   JCB Stone

Canyon Investments, LLC (JCB), a single member limited liability

company, and Stone Canyon Investors, Inc. (Investors), an S

corporation wholly owned by John and Judith Bedrosian as

community property, purported to form a partnership, Stone Canyon

Partners (Stone Canyon).

     In November 1999, JCB purported to purchase and sell options

on foreign currency.   JCB then purported to contribute the

purchased options, the sold options, and Texas Instruments stock

to Stone Canyon, on behalf of itself and on behalf of Investors.

In calculating the basis in the interests of JCB and Investors,

the Bedrosians did not treat the options purportedly sold by JCB

as a liability subject to the provisions of section 752.3

     In December 1999, JCB purported to transfer its interest in

Stone Canyon to Investors.   Investors acquired the Texas

Instruments stock previously contributed by JCB.   Investors

claimed a basis in the Texas Instruments stock based on the basis

of the stock “in the hands” of Stone Canyon.

     Petitioners reported an ordinary loss of $175,000 for 1999

related to their interest in Stone Canyon.   Additionally,

     3
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
                                - 4 -

petitioners reported a distributive share of long-term capital

loss from Investors of $17,250,088 for 1999.

       On April 8, 2005, respondent issued a notice of final

partnership administrative adjustment (FPAA) to the partners of

Stone Canyon for 1999.    Neither the tax matters partner (TMP)

JCB, nor any notice partner filed a challenge to the FPAA before

the expiration of the periods prescribed in section 6226.      Eleven

days after the FPAA was issued, respondent issued petitioners a

statutory notice of deficiency for 1999 and 2000.     Petitioners

timely petitioned the Court to review the notice of deficiency.

That case is docket No. 12341-05.

       On August 30, 2005, petitioners remitted $4,276,377 to the

IRS.    The remittance was designated to cover $3,498,882 for the

1999 deficiency, $757,000 for estimated interest on the 1999

deficiency, $12,137 for the 2000 deficiency and $1,800 for the

estimated interest on the 2000 deficiency.    Respondent treated

the remittance as a payment.

       On September 1, 2006, respondent made the following

assessments against petitioners:

                                            1999          2000

       Deficiency attributable to       $    38,187
       partnership items assessed
       as a computational adjustment

       Additional deficiency paid and    3,460,695      $12,137
       assessed
                                  - 5 -

     On September 5, 2006, respondent issued an affected items

notice of deficiency to petitioners.        The affected items notice

was mailed after the 150-day period for filing a partnership

proceeding had expired.     Petitioners timely filed a petition in

response to the affected items notice of deficiency.

                               Discussion

Respondent’s Motion To Dismiss

     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).        We have jurisdiction to

redetermine a deficiency if a valid notice of deficiency is

issued by the Commissioner and if a timely petition is filed by

the taxpayer. Id.    We have jurisdiction in this case if

petitioners did not previously pay any deficiencies.

     A.    Remittance

     On August 30, 2005, petitioners remitted a check for

$4,276,377.    The written statement attached to the check

indicated that petitioners were making a payment of tax and

interest.    Petitioners argue that they did not make a payment,

but instead furnished a cash bond or in the alternative, made a

deposit.    Section 6603(a) provides:
                               - 6 -

          A taxpayer may make a cash deposit with the Secretary
     which may be used by the Secretary to pay any tax * * *
     which has not been assessed at the time of the deposit.
     Such a deposit shall be made in such manner as the Secretary
     shall prescribe.

Rev. Proc. 2005-18, 2005-1 C.B. 798, gives guidance in

determining whether a remittance is considered payment.

According to the Rev. Proc. 2005-18, sec. 4.01(1), 2005-1 C.B. at

799, the taxpayer may make a deposit by remitting to the IRS a

check or money order, accompanied by a written statement

designating the remittance as a deposit.    The written statement

accompanying the check remitted by petitioners states that the

check is for an “advance payment”, not a deposit.   Petitioners

argue that they made an undesignated remittance while they were

under examination, but before a liability was proposed in

writing, and therefore the remittance was a deposit.    Rev. Proc.

2005-18, sec. 4.04, 2005-1 C.B. at 800, applies to an

undesignated remittance; i.e., a remittance that is not

designated as a deposit.   Petitioners’ remittance came after they

had been issued a statutory notice of deficiency; therefore Rev.

Proc. 2005-18, sec. 4.04, does not apply.    Accordingly,

petitioners’ remittance on August 30, 2005, is a payment of

income tax and interest, as set forth in their written statement.

     We lack jurisdiction to consider deficiencies that have been

paid before the issuance of a statutory notice of deficiency.

Hillenbrand v. Commissioner, T.C. Memo. 2002-303.    The written
                              - 7 -

statement attached to the check indicated that petitioners were

paying $3,498,882 for the 1999 deficiency, $757,000 for estimated

interest on the 1999 deficiency, $12,137 for the 2000 deficiency

and $1,800 for the estimated interest on the 2000 deficiency.

Pursuant to section 6213(b)(4), the payment of a deficiency after

the mailing of a notice of deficiency does not deprive this Court

of jurisdiction over the deficiency.   The payment came before the

issuance of the affected items notice, and thus section

6213(b)(4) does not apply.4

     B.   Penalties

     Respondent has determined accuracy-related penalties

pursuant to section 6662, which petitioners have not paid.   We

must now determine whether we have jurisdiction to decide the

issue concerning the accuracy-related penalties.   Section 6221

provides:

     Except as otherwise provided in this subchapter, the tax
     treatment of any partnership item (and the applicabliltiy of
     any penalty, addition to tax, or additional amount which
     relates to an adjustment to a partnership item) shall be
     determined at the partnership level.

Further, section 301.6231(a)(6)-1T(a)(2), Temporary Income Tax

Regs., 64 Fed. Reg. 3840 (Jan. 26, 1999), provides:

          (2) Changes in a partner's tax liability with respect
     to affected items that require partner level determinations

     4
        The payment came after the statutory notice of deficiency
issued on Apr. 19, 2005. That notice of deficiency is the
subject of docket No. 12341-05. The Apr. 19, 2005, notice of
deficiency was issued prematurely.
                                 - 8 -

     (such as a partner's at-risk amount to the extent it depends
     upon the source from which the partner obtained the funds
     that the partner contributed to the partnership) are
     computational adjustments subject to deficiency procedures.
     Nevertheless, any penalty, addition to tax, or additional
     amount that relates to an adjustment to a partnership item
     may be directly assessed following a partnership proceeding,
     based on determinations in that proceeding, regardless of
     whether partner level determinations are required.

Recently, we have decided that we do not have jurisdiction to

consider penalties as they relate to partnership items.        Fears v.

Commissioner, 129 T.C. 8 (2007); Domulewicz v. Commissioner, 129
T.C. 11 (2007).   As a result, we lack jurisdiction over the

penalties in this case, whether or not they require factual

determinations at the partner level.

     After applying the payment and dismissing jurisdiction over

the penalties, there is nothing left for this Court to consider.

As a result, respondent’s motion to dismiss wll be granted.

     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 irrelevant or without merit.

     To reflect the foregoing,

                                         An appropriate order and order

                                 of dismissal will be entered.