Block Developers, LLC v. Comm'r
This text of 2017 T.C. Memo. 142 (Block Developers, LLC v. Comm'r) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
Decisions will be entered under
HOLMES,
As he neared retirement Jansson opposed a more relentless force--the IRS. He thought he had found a way to cut his income tax and preserve his wealth from estate tax by creating a partnership that would be owned by a series of Roth IRAs. He argues that it's a solid wall between the Commissioner and his wealth; the Commissioner argues that it's only a paper barrier.
Jansson and his wife*143 of more than 50 years, Margareta, were born in Sweden. Jansson went to carpentry school there and began his career in construction. Though carpentry school provided him a fine education, Jansson *144 earned an engineering degree in 1964 from Stockholm Higher Technical College. He then moved out of wood and earned a postgraduate degree in concrete. In 1969 he began to build a career by founding a construction company. Jansson's wife and their two then-young sons (Fred and Niklas) immigrated to the United States in 1983, and Jansson stayed behind to sell his company. When he had, he rejoined his family in California.
His American story begins with an earlier kind of concrete block--the Loffel Block. Loffel Blocks2 are a patented type of concrete block used to build retaining walls. Soon after arriving in the United States, Jansson partnered with two other men--one of whom also had some experience in the concrete business--and together they signed an agreement to license the right to make and sell these blocks. Jansson and his partners planned to sell retaining walls and use separate teams to produce and install the blocks. But the plan failed before the*144 licensing term even ended: Errors in the manual provided by the Loffel licensor led to a *145 lawsuit. Jansson settled the suit on favorable terms, under which he was able to make and sell blocks under the Loffel license free from any obligation to pay royalties.
In June 1987 Jansson ventured out on his own and formed a corporation that he eventually named Soil Retention Systems, Inc.3 Jansson was, and continues to be, SR Systems' sole shareholder. SR Systems at first just distributed Loffel Blocks throughout southern California but Jansson formed an LLC to build a new plant in Perris, California, to make the blocks. SR Systems then made and sold these blocks for many years.
Jansson had bigger ambitions, though--he thought he could build a better block. He wanted something more durable, more versatile, and more plantable. His first innovation was a block that one could plant
The Verdura Block System, like Loffel*145 Blocks, is used to build retaining walls. It's meant to counteract the lateral force created by gravity and the mass of the soil. For lower walls, the simple weight of a single wall of blocks keeps things where they are supposed to be. What makes the Verdura Block System novel, though, is that the blocks interlock to form a grid. The system works in a single tier to a height of 49 feet, with multiple tiers backfilled with up to 30 cubic yards of dirt behind them. The blocks are also capable of supporting vegetation. The effect is pleasing to the eye and makes buildable lots on hills that otherwise would not support them. The system was a success and has been used in the construction of casinos, resorts, golf courses, parks, and even the San Diego Zoo.
Jansson heavily marketed the system. He went to local trade shows, distributed brochures, and placed ads in building magazines. He visited general contractors, engineers, and architects to show them his product.
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Decisions will be entered under
HOLMES,
As he neared retirement Jansson opposed a more relentless force--the IRS. He thought he had found a way to cut his income tax and preserve his wealth from estate tax by creating a partnership that would be owned by a series of Roth IRAs. He argues that it's a solid wall between the Commissioner and his wealth; the Commissioner argues that it's only a paper barrier.
Jansson and his wife*143 of more than 50 years, Margareta, were born in Sweden. Jansson went to carpentry school there and began his career in construction. Though carpentry school provided him a fine education, Jansson *144 earned an engineering degree in 1964 from Stockholm Higher Technical College. He then moved out of wood and earned a postgraduate degree in concrete. In 1969 he began to build a career by founding a construction company. Jansson's wife and their two then-young sons (Fred and Niklas) immigrated to the United States in 1983, and Jansson stayed behind to sell his company. When he had, he rejoined his family in California.
His American story begins with an earlier kind of concrete block--the Loffel Block. Loffel Blocks2 are a patented type of concrete block used to build retaining walls. Soon after arriving in the United States, Jansson partnered with two other men--one of whom also had some experience in the concrete business--and together they signed an agreement to license the right to make and sell these blocks. Jansson and his partners planned to sell retaining walls and use separate teams to produce and install the blocks. But the plan failed before the*144 licensing term even ended: Errors in the manual provided by the Loffel licensor led to a *145 lawsuit. Jansson settled the suit on favorable terms, under which he was able to make and sell blocks under the Loffel license free from any obligation to pay royalties.
In June 1987 Jansson ventured out on his own and formed a corporation that he eventually named Soil Retention Systems, Inc.3 Jansson was, and continues to be, SR Systems' sole shareholder. SR Systems at first just distributed Loffel Blocks throughout southern California but Jansson formed an LLC to build a new plant in Perris, California, to make the blocks. SR Systems then made and sold these blocks for many years.
Jansson had bigger ambitions, though--he thought he could build a better block. He wanted something more durable, more versatile, and more plantable. His first innovation was a block that one could plant
The Verdura Block System, like Loffel*145 Blocks, is used to build retaining walls. It's meant to counteract the lateral force created by gravity and the mass of the soil. For lower walls, the simple weight of a single wall of blocks keeps things where they are supposed to be. What makes the Verdura Block System novel, though, is that the blocks interlock to form a grid. The system works in a single tier to a height of 49 feet, with multiple tiers backfilled with up to 30 cubic yards of dirt behind them. The blocks are also capable of supporting vegetation. The effect is pleasing to the eye and makes buildable lots on hills that otherwise would not support them. The system was a success and has been used in the construction of casinos, resorts, golf courses, parks, and even the San Diego Zoo.
Jansson heavily marketed the system. He went to local trade shows, distributed brochures, and placed ads in building magazines. He visited general contractors, engineers, and architects to show them his product. Home Depot eventually approached Jansson and advertised the Verdura Block System on televisions in the store.
This lifetime of work has led to great success in his field, and Jansson justly considers himself an expert in concrete*146 and concrete products. He currently sells *147 his Verdura Block System at 30-40 outlets--it remains his biggest seller4 and he himself now belongs to no fewer than ten trade associations.
But success had led Jansson to worry. America is more lawsuit-happy than Sweden, and as Jansson's operations grew and diversified over the years he started to fear potential liability. He split his activities into different companies:
• Toy Rentals: An S corporation that Jansson formed in 1993. It owns the equipment used to install the blocks. Though it has no employees, it rents its equipment to Jansson's other S corporations as needed.
• SR Products: An S corporation that Jansson formed in 1998. SR Products has about thirty employees and immediately after its incorporation took over the manufacturing and distribution of the blocks from SR Systems.
• SR Designs: An S corporation that Jansson formed in 2004. SR Designs lays out the grading plans for particular jobs with the help of a civil engineer and has only a few employees.
Jansson's entire family derives financial support through their roles in the SR businesses. Jansson's son Niklas is--according to Jansson--the vice president of each business, but as a formal*147 matter Niklas is the vice president of SR Systems only. Julia Jansson (Niklas's wife) is something like an office manager for each *148 business--but also something more, as she tends to the wide range of chores that Jansson gives her.
Such informality is rampant within the companies. Though each business technically runs a separate portion of Jansson's overall enterprise, there is a great deal of everyday overlap. SR Systems employs about thirty people as foremen, laborers, and machine operators, but all share the same office space and phone number with SR Products and SR Designs. It's not just personnel--neither management nor resources are strictly split between them. And much of the documentation Jansson produced about these businesses bears the name only of "Soil Retention".
Jansson wanted his businesses to survive his retirement; and he credibly testified that although he was unfamiliar with estate planning, he did have a general goal in mind: He wanted to be able to get money out of the businesses, and had previously toyed with the idea of selling his patents but a deal never materialized. Looking for some guidance, he started going to seminars about retirement*148 and pension planning. And at one of these he met Bill Maxam.
Maxam became the Janssons' estate planner. He himself has an entrepreneurial edge; while he practiced law for more than 40 years, he found the *149 time to build and manage four apartment buildings and three houses and even owns a chain of coin laundries. Somewhere between late 1997 and throughout 2001 Maxam met with Mr. and Mrs. Jansson four or five times, and came up with a complicated retirement plan that featured a role for himself as investor as well as adviser. It called for him to buy two of Jansson's most successful patents, each member of the Jansson family to open a Roth IRA, and Jansson to form a fifth business entity--a partnership with Maxam himself.
In January 2001 Jansson and Maxam signed a purchase option in which Jansson irrevocably granted Maxam the right to buy his Verdura Block patents for an amount "to be negotiated and paid" within the year. Jansson's stated reason for selling the patents was to replenish his cash after he'd spent a great deal on the factory in Perris. This prospective sale was coupled with another option, this one between SR Products and Maxam, under which Maxam agreed to pay SR Products*149 10% of its gross sales of blocks produced under the patents if the option were exercised. (It's not clear from the record how Maxam and SR Products decided on this rate.) That license option was for two years.
The next step was to create Roth IRAs, and this was done in April when Jansson, his wife, Fred, and Niklas opened self-directed Roth IRAs. Each Jansson *150 made a $2,000 initial deposit. Each Jansson was the sole beneficiary of his or her Roth IRA, and each retained the authority to direct its investments.
Maxam then formed Block Developers, LLC, under Nevada law.5 The parties stipulated that an amendment to Block Developers' articles of organization made Maxam its sole member and William J. Maxam, APC, its tax matters partner (and later a member). It was several months before Maxam opened a bank account for Block Developers. This was Block Developers' only account, and Maxam has held sole signature authority on it since it opened.
Next on the agenda was putting the Roth IRAs to work. Maxam drafted subscription agreements for each Jansson family Roth IRA and one for Maxam APC. Each Jansson signed his agreement on behalf of his Roth IRA and through this obtained an interest in Block*150 Developers:
| Mr. Jansson Roth IRA | 23.75 |
| Mrs. Jansson Roth IRA | 23.75 |
| Fred Roth IRA | 23.75 |
| Niklas Roth IRA | 23.75 |
| Maxam APC | 5.00 |
*151 Each Roth IRA bought its interest for $1,912, and Maxam APC paid $850. There were no additional contributions.
Maxam then drafted a patent-sales contract to exercise the option. Under this contract Jansson sold the Verdura Block patents to Block Developers for $250,000 payable in one upfront installment of $1,000 with $249,000 due the next month.6 The next step was to deal with the license option. Maxam drafted a license and SR Products signed it in September. The license covered only the Verdura Block patents and obligated SR Products to pay a 10% royalty on gross receipts from the sale of Verdura Blocks.7
*152 In November Block Developers paid its first installment of $1,000 to Jansson with money it got from Maxam and for which it later reimbursed him. The money for the second installment traveled a more circuitous route: By December 2001 SR Products had paid Block Developers about $270,000 in royalties. Less than two weeks later, Block Developers paid its second installment of $249,000 to SR Products. "Paid" might be too strong*151 a word. What happened was that SR Products just reduced its royalty payment to Block by the $249,000. (And it later offset the increase to taxable income from the patent sale with a large deduction for the payment of royalties.) With the patents sold and the royalty agreement in place, the flow of money to the Janssons' Roth IRAs could begin: From 2001 through 2007 SR Products paid around $1.2 million8 to Block Developers in royalties--$800,000 of which went into the Janssons' Roth IRAs. *153 The record does not reflect where the rest of the money wound up, but Block has no employees and seemingly has few, if any expenses. During the 2006 tax year alone, it distributed $66,500 to each Jansson Roth IRA.
Jansson's stated reason for entering into the deal with Maxam was that he needed cash, but we have to find this to be a pretext. The money that he got from the sale of the patents came straight from SR Products. And we do not find credible some of the other reasons for these transactions. Jansson explained that Block Developers was supposed to provide asset protection. But if the corporate form was its means, it is hard for us to see how it even marginally improved on the protection that Jansson*152 had already built up with the web of corporations in which he had already organized his businesses.
Jansson also testified that he'd hoped to increase profits on the patents by having Block Developers license the Verdura Block patents to other manufacturers. Block Developers, however, has never been an exhibitor at any trade show or produced any marketing material for Verdura Blocks. It was always Jansson and his sons, either individually or through SR Systems, that went to trade shows and advertised the Verdura Block System. It was always Jansson or SR Systems that distributed marketing materials--marketing material that never even *154 had Block Developers' name on it.9 From 2001 to 2007 Block Developers did not even have employees who could have done these things. Block Developers never reimbursed Jansson or SR Products for any of their work advertising the Verdura Block patents. And Block Developers never owned or leased or controlled the land or equipment on which the Jansson companies produced the Verdura Blocks.
Block Developers' recordkeeping was also inconsistent and incomplete. Its billing statements to SR Products do not match actual payments. If SR Products did not have the funds*153 to pay royalties, it simply didn't pay and there is no evidence in the record to suggest that Block Developers ever sought any recourse against SR Products when this happened.
That leaves us with the one remaining motive that the trial produced for this series of transactions among the Jansson family, the Jansson companies, and Maxam: estate and tax planning. But we must find it more likely than not that the estate planning involved centered on creating large and sporadic royalty *155 deductions from the moneys of profitable businesses to tax-free Roth IRAs using Block Developers as an otherwise nonfunctional conduit.
All the Janssons filed joint Forms 1040 for the 2005 and 2006 tax years. Neither Mr. and Mrs. Jansson nor Fred nor Niklas attached Form 5329, Additional Taxes on Qualified Plans (including IRAs) and other Tax-Favored Accounts, to the returns or has filed them since. Block Developers itself did timely file Forms 1065, U.S. Return of Partnership Income, for its 2005 and 2006 tax years.
The IRS quickly figured out whose Roth IRA belonged to whom and that those IRAs all claimed to be partners in Block. The parties stipulated that on or before June 15, 2008, the Commissioner's*154 revenue agent knew each Jansson's name and address and that on or before September 30, 2008, knew that each Jansson was the sole beneficiary of his or her respective Roth IRA. In December 2008 the Commissioner sent each of the Jansson Roth IRAs, in their capacities as partners of Block Developers, a notice of beginning of administrative proceeding a formal notice commonly abbreviated NBAP--that formally notified them he had begun an administrative proceeding--an audit, really--of Block Developers' 2005 tax return. Less than a year later he sent NBAPs to the Roth IRAs for Block Developers' 2006 tax year.
*156 Then the Commissioner did something odd. On December 22, 2009,10 he sent an NBAP to each Jansson to tell each that he had begun an administrative proceeding about Block Developers for the 2005 and 2006 tax years. He included with each of these NBAPs another IRS form, Letter 3857, Untimely Notice Letter, advising each of them that the NBAP he was sending was untimely. The letters specifically advised the Janssons that the Commissioner was unable to mail the NBAPs to the Janssons within the time required under
*157 The Commissioner shortly thereafter closed his investigation and issued each of the Janssons a notice of deficiency for the 2006 tax year. He also issued William J. Maxam, APC, as the tax matters partner11 of Block Developers, a notice of final partnership administrative adjustment (FPAA).12
These notices of deficiency and the FPAAs set off a paper avalanche, and by the time it ended we had petitions from Mr. and Mrs. Jansson for their 2005 2007 tax years, from their son Fred for his 2005-2007 tax years, from their other son Niklas for his 2005 and 2006 tax years, from Niklas and his then-new wife for their 2007 tax year, and from Block Developers*156 for its 2005 and 2006 tax years.
The cases then fell into motions practice. The casualties that ensued were the Janssons' petitions that sought review of the notices of deficiency for their 2005-2007 tax years. The Janssons all argued that we lacked jurisdiction in those cases because all the items listed in them were partnership adjustments that needed *158 to be determined at the partnership level and this meant that only Block Developers' own case should go forward. The Commissioner moved to dismiss them on somewhat similar grounds, but added that the Janssons' election to opt out of the partnership proceeding for 2005 was ineffective because the IRS had in fact sent timely NBAPs to the IRAs and it was therefore the IRAs' responsibility to pass on those NBAPs to the Janssons as indirect partners of Block Developers itself.
We cut through this knot of abstruse procedure by simply dismissing the Janssons' individual petitions for lack of jurisdiction without having to analyze and find facts.
This meant that Block Developers' petition went forward as to the 2005 tax year, and is the only vehicle anyone can ride for that year. But the Commissioner
*159 realized that his NBAPs to the Janssons really were untimely as to their 2006 year, which meant they really did have the right to opt out of the partnership proceeding for that year. Out went another round of notices of deficiency--these limited to their 2006 tax year--to Mr. and Mrs. Jansson and their two sons, and in came another round of petitions to challenge them.
Block then moved for partial summary judgment--asking us to find that its partners (the Roth IRAs) were not "pass-thru" partners after all. Based on clear precedent we explained that Roth IRAs are trusts, and that
*160 The Commissioner made the following adjustments for Block Developers:13
| Other deductions | $55,424 | $19,332 |
The notices of deficiency for the individual Janssons were similar in their bottom lines:14
| Mr. Jansson | $11,793 | $2,653.42 | $1,827.91 |
| Mrs. Jansson | 11,793 | 2,653.42 | 1,827.91 |
| Niklas | 11,793 | 2,653.43 | 1,827.92 |
| Fred | 11,793 | 2,653.43 | 1,827.92 |
We consolidated the cases and tried them in San Diego. Block's principal place of business was in California when it filed its petition. And all the Janssons were Californians when they filed their petitions.
There remain only two issues for us to decide: • Was the Commissioner required to timely notify Block Developers' indirect partners (the Janssons) and not just their Roth IRAs?; and • Are the Janssons liable for excise taxes for excess Roth IRA contributions under
The Janssons first try to knock down a chunk of the Commissioner's case with a procedural challenge for the 2005 tax year.
So far so good for the Commissioner. But the Janssons argue that they have procedural rights as "indirect" partners. Indirect partners are persons who have a profits interest in the partnership "by reason of ownership of an interest through 1 or more pass-thru partners."
The regulations say: (a) In general.--In addition to the names, addresses, and profits interests as shown on the partnership return, the Internal Revenue Service (b) Procedure for furnishing additional information.--(1) In general. Any person may furnish additional information at any time by filing a written statement with the Internal Revenue Service. * * * * * * * (f) Internal Revenue Service
When the Commissioner doesn't send out an NBAP as these regulations require, an indirect*161 partner has some remedies.
But how do these regulations apply here? All parties agree that the revenue agent assigned to the case was aware that the Janssons were Block Developers' indirect partners. And all agree that the revenue agent didn't get that information from the face of the return or from a formal written statement filed with the IRS.15 All agree instead that the agent found the information while searching the Janssons' tax information during the audit.
The regulation states that an agent is not required to search IRS records for this information. The issue is whether--once the agent voluntarily searched the records and found that the Janssons were indirect partners--he was required
*164 to issue an NBAP to each of them rather than just to their Roth IRAs. We can find the answer in the regulation itself. Here we find it in
This is not the first time we've reached this conclusion. In
We've also addressed the situation where the Commissioner chose to send an FPAA to indirect partners rather than a direct partner*163 because he had sufficient information to identify them.
A Roth IRA is a retirement account that offers special tax advantages to taxpayers. Contributions to a Roth IRA are not deductible, earnings that accrue are tax-free, and qualified distributions down the line are not included in a taxpayer's gross income.
In December 2003, the IRS*164 issued ● an individual who owns a business, ● a Roth IRA maintained for that individual, and ● a corporation the shares of which are substantially owned or acquired by the Roth IRA.
*167 The transactions that the Notice describes typically feature the exchange of property from the existing business to the corporation owned by the Roth IRA for less than fair market value, but the stumbling block to its validity is that the transaction has "the effect of transferring value to the Roth IRA Corporation comparable to a contribution to the Roth IRA."
One of the Janssons' major arguments is that
Substance-over-form is a court-constructed rule--it says that in tax cases a court doesn't just follow the labels a taxpayer uses, but looks to see what in fact is going on.
More recently, and on facts quite similar to those before us now, we decided
*169 We didn't question Bevco's legal status as a corporation. We didn't question the price it charged for Palowniak's services. And we didn't question the right of a Roth IRA to own an interest in a closely held corporation. We nonetheless concluded that the taxpayer's transfers were nothing more than a mechanism for transferring value to his Roth IRA.
Our decision turned on a few major points: ● The services that Polowniak performed for Bevco were the same he had always performed--the new corporation had no effect on how he conducted his business. ● There was a lack of normal business dealings between the two corporations. Neither adhered to contracts, and recordkeeping was sparse. ● Bevco's administration was inconsistent--an employee for the old business performed tasks for Bevco without regard for the fact that it was a separate business, and Bevco did not even have a designated address or contact information. ● Polowniak's claims to a legitimate business purpose were easily debunked by the record.
The*167 similarities between
As in
Jansson's claim that Block Developers had a legitimate business purpose falls apart rather quickly after even a cursory view of the record. He says that he sold the Verdura Block patents to generate cash. This is illogical--the money Block Developers paid to SR Products in exchange for the Verdura Block patents *171
Even if the Janssons correctly valued the sale of the patents on paper, and even if they correctly set the royalty rates that they charged SR Products*169 on paper, we cannot ignore the underlying reality of the transaction. We find that Block Developers was just a conduit to shunt money to the Janssons' Roth IRAs and was not engaged in any real business activity. We therefore find that Block Developers' transfers to the Janssons' Roth IRAs were excess contributions that triggered the excise tax the Commissioner seeks.
We do acknowledge that the substance-over-form doctrine is not something the Commissioner can use to pound every Roth IRA transaction he doesn't like. The Sixth Circuit recently reversed one of our decisions rooted in the doctrine.
Footnotes
1. Consolidated with this case are: Niklas Jansson, docket number 23598-12; Jan E. Jansson and Margareta Jansson, docket number 23599-12; and Fredrik Jansson, docket number 23600-12.↩
2. During trial the parties referred to these blocks as the "Löffelstein Blocks," but their stipulations and briefing refer only to Loffel Blocks. In an effort to be consistent, we use only the term "Loffel Blocks" to refer to blocks produced by the Loffel Block Company.↩
3. In 1998 Jansson elected S corporation status for SR Systems. An S corporation is a corporation governed under the laws of subchapter S of the Internal Revenue Code. S corporations generally don't pay federal income tax but are, like partnerships, passthrough entities that channel income and deductions to their owners.
See Gitlitz v. Commissioner , 531 U.S. 206, 209, 121 S. Ct. 701, 148 L. Ed. 2d 613 (2001)Hill v. Commissioner , T.C. Memo 2010-268↩4. Jansson sells other concrete products as well. He invented Drivable Grass --concrete capable of supporting growth of grass. He also has a product called Enviroflex--a vertical interlocking concrete block designed for use where there are high-velocity waterflows.↩
5. Though an LLC, Block Developers has elected to be taxed as a partnership, and we'll therefore refer to Block Developers' members as partners.
See sec. 301.7701-3(a)↩ , Proced. & Admin. Regs. (Unless stated otherwise, all section references are to the Internal Revenue Code and regulations in effect for the years at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.)6. If the U.S. Patent and Trademark Office decides that an inventor is entitled to a patent, it sends him a notice of allowance.
See 35 U.S.C. sec. 151(a) (2012) . Once the inventor returns it with the required fees and swears to the patent's specification, he is officially granted a patent under seal of the PTO and his patent is recorded in the PTO.See id. secs. 152-53 . An "assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the * * * [PTO]." Id.sec. 261↩ . Block Developers never recorded a security interest in the Verdura Block patents and never recorded the purported assignment with the PTO.7. Maxam testified during trial that he arrived at 10% after extensive negotiations. He consulted an accountant about on the value of the patents--bringing various documentation and dates on projected sales to their meetings. He also discussed his potential investment with an architect. He and Jansson met several times. During these meetings Jansson allowed Maxam access to his books and records reflecting sales. Using all this information, Maxam himself created various matrices to help him arrive at the 10% rate. This all would have been very important if valuation proved to be an issue in these cases, though colored by the inclusion of the 10% royalty rate in the initial option agreement signed months before this work that allegedly led to the same rate months later.↩
8. This number is inconsistent with the amount SR Products deducted on its returns for those years. From 2001 through 2007 SR Products deducted $2.4 million for royalties paid to Block Developers.↩
9. Jansson did testify that he would direct potential licensees to Block Developers or Maxam, but the record has no evidence that this ever resulted in a second licensee. Maxam also testified that he had on a couple of occasions tried to court prospective licensees, but he did not provide their names or other identifying information to the Court, and we don't find this credible.↩
10. The record also shows that an additional NBAP was issued to each of the Janssons in October 2009 for just the 2005 tax year. But the parties stipulated the December 2009 NBAPs issued for the 2005
and↩ 2006 tax years, so those are the ones we will work with.11. Under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
Pub. L. No. 97-248, sec. 402(a), 96 Stat. at 648 , a partnership must designate one of its partners as the tax matters partner (TMP) to handle its administrative issues with the Commissioner and manage any resulting litigation.Sec. 6231(a)(7)↩ .12. An FPAA generally includes: (1) a notice of final partnership administrative adjustment, (2) Form 870-PT, Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts, including a Schedule of Adjustments, and (3) an Exhibit A Explanation of Items, that lists the Commissioner's other adjustments or determinations.↩
13. Block claimed on its returns that the deductions were for various management fees, office expenses, accounting fees, and amortization. Neither the Janssons nor Maxam addressed this issue during trial or on brief. We deem these conceded and need not discuss them further.
See Rule 151(e) ;Petzoldt v. Commissioner , 92 T.C. 661, 683 (1989)Tufft v. Commissioner , T.C. Memo 2009-59↩14. The Commissioner originally determined the Janssons had deficiencies in income tax as well as penalties under
section 6662A↩ . He has since conceded those issues because he took too long and the statute of limitations has run.15. The Commissioner argues that the agent never had information about the Janssons' profit shares in Block Developers, but the parties stipulated otherwise. We generally hold parties to their stipulations, and we will do so here.
See Rule 91(e)↩ .16. We were, however, a bit ambiguous. In the introduction to our analysis we described the Commissioner's argument that his agent was "required" to mail notice to the indirect partners, and then said "we agree." The Janssons argue this supports their position. We disagree, because we did not
hold that the Commissioner was required undersection 301.6223(c)-1(f) to mail notice to indirect partners once he has that information available.Murphy does not contradictTaurus FX↩ .17. Likewise, we do not need to find that Block Developers was a sham partnership to determine whether the Janssons are liable for excise taxes, and we will not address that argument. We also do not address the Commissioner's alternative argument that Jansson improperly assigned his income to Block Developers.↩
18. The Commissioner also asserted
section 6651(a)(1) and(2) additions to tax against each Jansson.Section 6651(a)(1) imposes an addition to tax for failure to timely file a tax return. Because the Janssons failed to file their Forms 5329, the Commissioner prepared substitutes undersection 6020(b) determining the excise tax due for each year. This presumptively makes the Janssons liable as well for thesection 6651(a)(2) addition to tax for failure to pay tax shown on a return for each year at issue. The Janssons provided no defense to either addition to tax at trial or on brief, and we therefore deem them to have conceded these issues.See Rule 151(e) ;Petzoldt , 92 T.C. at 683Tufft , T.C. Memo. 2009-59↩
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