SCOTUS Reports

Tag: Greenwald v. Commissioner

  • Greenwald v. Commissioner, 142 T.C. 308 (2014): Jurisdiction over Affected Items in TEFRA Partnership Proceedings

    Greenwald v. Commissioner, 142 T. C. 308 (U. S. Tax Ct. 2014)

    In Greenwald v. Commissioner, the U. S. Tax Court ruled it had jurisdiction over deficiency proceedings involving affected items from TEFRA partnership proceedings, emphasizing the need for partner-level determinations. The case clarified that outside basis, when affected by partner-level facts, is an affected item necessitating deficiency procedures rather than automatic assessment, impacting how partnership liquidations and subsequent tax assessments are handled.

    Parties

    Israel Greenwald and Ruth Greenwald, et al. , as petitioners, versus the Commissioner of Internal Revenue as respondent. The case consolidated with other petitioners including Brian Auchter, Nancy Auchter, Paul H. Hildebrandt, Judith A. Hildebrandt, Michael Cohen, Susan Cohen, Bernard J. Sachs, Joan K. Sachs, David Kraus, Susan Kraus, Jonathan L. Levine, Sarah S. Levine, John A. Hildebrandt, Jean E. Hildebrandt, David S. Marsden, and Rosemary Marsden.

    Facts

    Israel Greenwald was a limited partner in Regency Plaza Associates of New Jersey (Regency Plaza), a partnership subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) audit and litigation procedures. Regency Plaza made a section 754 election in 1995 following the transfer of a partnership interest, which remained in effect. In 1996, Regency Plaza filed for bankruptcy under chapter 11, and its property was foreclosed upon in 1997, leading to the partnership’s termination on July 31, 1997. The Internal Revenue Service (IRS) issued a notice of final partnership administrative adjustment (FPAA) to Regency Plaza for its 1996 and 1997 taxable years, which was challenged and later settled in partnership-level proceedings. Subsequent to this, the IRS issued notices of deficiency to the partners, including the Greenwalds, adjusting their long-term capital gains for 1997. The partners moved to dismiss for lack of jurisdiction, arguing that outside basis, which affected their gains, was a partnership item that should have been determined at the partnership level.

    Procedural History

    The IRS issued an FPAA to Regency Plaza for the taxable years ending December 31, 1996, and July 31, 1997. The partners, including Greenwald, participated in the resulting TEFRA proceedings, which were consolidated and settled. Following the settlement, the IRS issued notices of deficiency to the partners for their 1997 taxable year, adjusting their long-term capital gains based on the partnership-level determinations. The partners filed petitions in response to these notices and later moved to dismiss the case for lack of jurisdiction, asserting that outside basis was a partnership item that should have been determined in the TEFRA proceedings. The Tax Court denied the motion to dismiss, asserting jurisdiction over the affected items requiring partner-level determinations.

    Issue(s)

    Whether the Tax Court has jurisdiction over deficiency proceedings involving affected items, such as outside basis, that require partner-level determinations following TEFRA partnership-level proceedings?

    Rule(s) of Law

    The Tax Court has jurisdiction to redetermine deficiencies involving affected items that require partner-level determinations, as per 26 U. S. C. § 6230(a)(2)(A)(i). A partner’s outside basis is an affected item to the extent it is not a partnership item, and partner-level determinations are required when such items affect the amount of gain or loss on the disposition of a partnership interest. The critical element is whether the determination is required to be made by the partnership, as defined in 26 U. S. C. § 6231(a)(3) and 26 C. F. R. § 301. 6231(a)(3)-1(c)(1).

    Holding

    The Tax Court held that it has jurisdiction over the deficiency proceedings involving affected items, specifically outside basis, that require partner-level determinations. The court determined that outside basis, in the context of this case, was an affected item necessitating partner-level factual determinations, and thus the IRS was required to follow deficiency procedures as per 26 U. S. C. § 6230(a)(2)(A)(i).

    Reasoning

    The court’s reasoning centered on the distinction between partnership items and affected items. Partnership items are determined at the partnership level and are conclusive, whereas affected items require partner-level determinations if they impact the partner’s tax liability. The court cited the case of Tigers Eye Trading, LLC v. Commissioner and United States v. Woods, which clarified that outside basis can be a partnership item when the partnership is a sham, but in this case, Regency Plaza was treated as a bona fide partnership. The court emphasized that even if some components of the partner’s basis may have been determined at the partnership level, partner-level determinations were still necessary to accurately calculate any deficiency, particularly in relation to the gain or loss on the disposition of the partnership interest. The court also addressed the argument that no partner-level determinations were necessary due to the discharge of partnership liabilities, stating that such an assertion was mistaken. The court concluded that the IRS must follow deficiency procedures when partner-level determinations are required to determine the correct amount of tax, thus preserving the partners’ right to a prepayment forum.

    Disposition

    The Tax Court denied the petitioners’ motion to dismiss for lack of jurisdiction and retained jurisdiction over the deficiency proceedings involving affected items that required partner-level determinations.

    Significance/Impact

    The decision in Greenwald v. Commissioner has significant implications for the application of TEFRA audit and litigation procedures, particularly in the context of partnership liquidations and the determination of affected items such as outside basis. The ruling clarifies that the Tax Court has jurisdiction over deficiency proceedings when partner-level determinations are necessary, ensuring that partners have a prepayment forum to contest assessments based on affected items. This case also reinforces the distinction between partnership items, which are conclusively determined at the partnership level, and affected items, which may require additional partner-level factual determinations. Subsequent courts have relied on this decision to uphold jurisdiction in similar cases, and it has practical implications for tax practitioners and partners in navigating TEFRA proceedings and subsequent deficiency assessments.

  • Greenwald v. Commissioner, 142 T.C. No. 18 (2014): Jurisdiction and Affected Items in Partnership Taxation

    Greenwald v. Commissioner, 142 T. C. No. 18 (U. S. Tax Court 2014)

    In Greenwald v. Commissioner, the U. S. Tax Court affirmed its jurisdiction over deficiency proceedings involving affected items in partnership taxation. The case clarified that outside basis in a bona fide partnership is an affected item requiring partner-level determinations, not a partnership item determinable at the partnership level. This ruling impacts how tax deficiencies are assessed following partnership-level proceedings, ensuring partners have a pre-payment forum to contest such determinations.

    Parties

    Israel Greenwald and Ruth Greenwald, et al. , were the petitioners, representing multiple consolidated cases. The respondent was the Commissioner of Internal Revenue.

    Facts

    Israel Greenwald was a limited partner in Regency Plaza Associates of New Jersey (Regency Plaza), a partnership subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) audit and litigation procedures. Regency Plaza liquidated in 1997 following a foreclosure. The IRS issued a notice of final partnership administrative adjustment (FPAA) for 1996 and 1997, which was settled in a TEFRA proceeding. Subsequently, the IRS issued notices of deficiency to the Greenwalds and other partners for 1997, adjusting their long-term capital gains based on partnership items determined in the TEFRA proceeding. The Greenwalds moved to dismiss these deficiency proceedings for lack of jurisdiction, arguing that outside basis was a partnership item that should have been determined at the partnership level.

    Procedural History

    Following the TEFRA partnership-level proceeding, the IRS issued notices of deficiency to the Greenwalds and other partners for the taxable year 1997. The Greenwalds filed petitions in the U. S. Tax Court contesting these deficiencies and later moved to dismiss for lack of jurisdiction, asserting that outside basis was a partnership item that should have been addressed in the partnership-level proceeding. The Tax Court denied the motion to dismiss, asserting jurisdiction over the case.

    Issue(s)

    Whether the Tax Court has jurisdiction to hear deficiency proceedings involving affected items, specifically the partners’ outside basis, which requires partner-level determinations following a TEFRA partnership-level proceeding?

    Rule(s) of Law

    Under section 6230(a)(2)(A)(i) of the Internal Revenue Code, if an adjustment to an affected item requires partner-level determinations, the IRS must follow deficiency procedures. Section 6231(a)(3) defines partnership items as those more appropriately determined at the partnership level, while section 301. 6231(a)(5)-1T(b) of the Temporary Procedure and Administration Regulations clarifies that a partner’s basis in his partnership interest is an affected item to the extent it is not a partnership item.

    Holding

    The Tax Court held that it had jurisdiction over the deficiency proceedings because the partners’ outside basis was an affected item requiring partner-level determinations, not a partnership item determinable at the partnership level.

    Reasoning

    The Court’s reasoning focused on the distinction between partnership items and affected items under TEFRA. The Court cited the regulations that define outside basis as an affected item unless it is a partnership item due to specific circumstances like a section 754 election. The Court rejected the petitioners’ reliance on cases like Tigers Eye Trading, LLC v. Commissioner and United States v. Woods, noting that those cases involved partnerships deemed shams, a situation not present here. The Court emphasized that, in the absence of a sham, partner-level determinations are necessary to calculate deficiencies accurately, particularly when the outside basis could be affected by partner-specific facts such as litigation costs. The Court also highlighted that the statutory framework of TEFRA requires deficiency procedures for affected items needing partner-level determinations to ensure partners have a pre-payment forum to contest assessments. This reasoning aligns with the legislative intent of TEFRA to streamline partnership audits while preserving partners’ rights to contest affected items at the partner level.

    Disposition

    The Tax Court denied the petitioners’ motion to dismiss, affirming its jurisdiction over the deficiency proceedings.

    Significance/Impact

    Greenwald v. Commissioner clarifies the distinction between partnership items and affected items in TEFRA proceedings, particularly regarding outside basis. The decision ensures that partners have the opportunity to contest deficiencies at the partner level when affected items are involved, reinforcing the procedural protections under TEFRA. The ruling has been influential in subsequent cases involving partnership taxation, emphasizing the need for partner-level determinations in certain contexts. It also highlights the Tax Court’s role in resolving disputes over affected items, thereby affecting how the IRS assesses and litigates partnership-related tax deficiencies.