Opinion
20369-22
07-03-2023
PHILLIPS FAMILY, LP,DAVID PHILLIPS, TAX MATTERSPARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph W. Nega, Judge
This case is before the Court on respondent's Motion to Dismiss for Lack of Jurisdiction as to TEFRA Partnership Items & To Strike, filed May 16, 2023 (motion). By Order issued June 27, 2023, the Court assigned this case to the undersigned division for the purpose of disposing of the motion.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
I. Background
The Commissioner issued two notices of final partnership administrative adjustment (FPAAs) to petitioner for the 2015 and 2016 taxable years, respectively. The 2015 FPAA made the following adjustments: (1) an increase in the amount of Phillips Family, LP's (PFLP) distributive share of ordinary loss from DP TPI Star LP; (2) a corresponding increase in the amount of net loss from self-employment; (3) an increase in the amount of tax exempt interest income; and (4) an increase in the amount of nondeductible expenses. The 2016 FPAA made the following adjustments: (1) an increase in the amount of PFLP's distributive share of ordinary income from DP TPI Star LP; and (2) a corresponding increase in the amount of net earnings from self-employment. Petitioner timely filed a Petition with this Court, disputing the FPAAs.
In the motion, respondent seeks to dismiss this case as to all of the adjustments in the 2016 FPAA and as to some of the adjustments in the 2015 FPAA (items #1 and #2 referenced in the above paragraph), on the grounds that the adjustments relate to items that passed to PFLP through DP TPI Star LP, a lower-tier partnership. Respondent represents that he contacted petitioner's counsel, who had no objection to the granting of the motion.
II. Discussion
During the years at issue, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, § 402(a), 96 Stat. 324, 648-71 governed the tax treatment and audit procedures for many partnerships, including PFLP. Under TEFRA, a petition timely filed by a tax matters partner within 90 days of the mailing of a valid FPAA vests this Court with jurisdiction "to determine all partnership items of the partnership for the partnership taxable year to which the [FPAA] relates, the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item." § 6226(a) and (f); see SNJ Ltd. v. Commissioner, 28 F.4th 936, 946-47 (9th Cir. 2022) (characterizing the 90-day period as jurisdictional). Generally, the tax treatment of a partnership item is determined at the partnership level. § 6221. With respect to a deficiency attributable to partnership items, the Commissioner generally may not assess or collect until after (1) the expiration of a 150-day period after the issuance of a FPAA and (2) a final decision in Tax Court, if a partnership-level proceeding is initiated within the 150-day period. § 6225(a).
TEFRA was repealed by the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, § 1101(a), 129 Stat. 584, 625.
A partnership item is defined as "any item required to be taken into account for the partnership's taxable year . . . to the extent regulations prescribed by the Secretary provide that . . . such item is more appropriately determined at the partnership level than at the partner level." § 6231(a)(3). The applicable regulations provide that "[t]he partnership aggregate and each partner's share of . . . [i]tems of income, gain, loss, deduction, or credit" are partnership items. Treas. Reg. § 301.6231(a)(3)-1(a)(1). If the partnership items of a lower-tier partnership-that is, a partnership in which the partnership that received the notice of FPAA owns an interest-are included in the FPAA of the partnership before us, we are without jurisdiction to determine those lower-tier partnership items. See Sente Inv. Club P'ship of Utah v. Commissioner, 95 T.C. 243, 247-48 (1990) (partially dismissing partnership case for lack of jurisdiction as to lower-tier partnership items adjusted in FPAA); ES NPA Holding, LLC v. Commissioner, T.C. Memo. 2021-68, at *15-17; cf. Rawls Trading, L.P. v. Commissioner, 138 T.C. 271, 285-86 (2012) (dismissing partnership case for lack of jurisdiction where all adjustments in FPAA were computational adjustments stemming from lower-tier partnership items).
DP TPI Star LP was a lower-tier partnership subject to TEFRA during the years at issue. We agree with respondent that the entirety of the adjustments in the 2016 FPAA and some of the adjustments in the 2015 FPAA are items that flow from DP TPI Star LP. See Treas. Reg. § 301.6231(a)(3)-1(a)(1)(i); see also Olsen-Smith, Ltd. v. Commissioner, T.C. Memo. 2005-174, 90 T.C.M. (CCH) 64, 66 ("Subtitle A requires that a partnership separately state . . . the amount of income that would be [net earnings from self-employment] in the hands of the ultimate recipients if those recipients were in fact individuals."). Accordingly, we are without jurisdiction in this case to determine those adjustments to items flowing through from DP TPI Star LP that were included in the 2015 and 2016 FPAAs (i.e., PFLP's distributive share of ordinary income or loss and net earnings or loss from self-employment). We will grant respondent's motion, partially dismiss this case for lack of jurisdiction, and deem stricken all references in the Petition to items flowing through from DP TPI Star LP.
Because DP TPI Star LP had at least one pass-thru partner (PFLP) during the years at issue, see § 6231(a)(9), it cannot qualify for the small partnership exception of section 6231(a)(1)(B)(i), see Bedrosian v. Commissioner, 143 T.C. 83, 104 (2014), aff'd, 940 F.3d 467 (9th Cir. 2019).
Presumably, these items are partnership items of DP TPI Star LP; however, in the motion respondent expressly noted that he does not know whether the items have their source in DP TPI Star LP or another lower-tier partnership.
Accordingly, it is
ORDERED that respondent's Motion to Dismiss for Lack of Jurisdiction as to TEFRA Partnership Items & To Strike, filed May 16, 2023, is granted, in that so much of this case as relates to (1) the adjustments to the distributive share of ordinary loss and net loss from self-employment in the 2015 FPAA and (2) all adjustments in the 2016 FPAA is dismissed for lack of jurisdiction. It is further
ORDERED that all references in the Petition to (1) the adjustments to the distributive share of ordinary loss and net loss from self-employment in the 2015 FPAA and (2) all adjustments in the 2016 FPAA are deemed stricken. It is further
ORDERED that jurisdiction over this case is no longer retained by the undersigned and this case is restored to the general docket for trial or other disposition.