                              T.C. Memo. 2015-192



                         UNITED STATES TAX COURT



    AMERICAN MILLING, LP, UN LIMITED, TAX MATTERS PARTNER,
                           Petitioner v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 8438-13.                          Filed September 28, 2015.



      Anthony J. Rollins and John Tyler, for petitioner.

      John Aletta, Debra L. Reale, and John W. Stevens, for respondent.



                           MEMORANDUM OPINION


      MARVEL, Judge: Respondent issued a notice of final partnership

administrative adjustment (FPAA) pursuant to section 62231 to UN Limited, the

tax matters partner (TMP) of American Milling, LP (American Milling), for 2000,


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code (Code) in effect for the years at issue.
                                        -2-

[*2] 2001, 2002, and 2003 (Milling FPAA). Respondent made adjustments to the

income, expense, and deduction items that American Milling reported on its 2000,

2001, 2002, and 2003 Federal income tax returns. Petitioner, its TMP, timely filed

a petition contesting respondent’s adjustments. When the petition was filed

American Milling had its principal place of business in Illinois. This matter is

before the Court on petitioner’s motion to dismiss for lack of jurisdiction.

                                    Background

I.    Son-of-BOSS Transactions

      In 1998 David Jump engaged in a series of transactions constituting a Son-

of-BOSS tax shelter.2 To this end, Mr. Jump formed two single-member limited


      2
          A Son-of-BOSS transaction can be summarized as follows:

      a variation of a slightly older alleged tax shelter known as BOSS, an
      acronym for “bond and options sales strategy.” There are a number of
      different types of Son-of-BOSS transactions, but what they all have in
      common is the transfer of assets encumbered by significant liabilities
      to a partnership, with the goal of increasing basis in that partnership.
      The liabilities are usually obligations to buy securities, and typically
      are not completely fixed at the time of transfer. This may let the
      partnership treat the liabilities as uncertain, which may let the
      partnership ignore them in computing basis. If so, the result is that
      the partners will have a basis in the partnership so great as to provide
      for large--but not out-of-pocket--losses on their individual tax returns.
      ***

Kligfeld Holdings v. Commissioner, 128 T.C. 192, 194 (2007).
                                         -3-

[*3] liability companies: Gateway Grain, LLC (Gateway Grain), and Omaha

Pump Co., LLC (Omaha Pump).3 Gateway Grain and Omaha Pump engaged in

short sales of U.S. Treasury notes resulting in proceeds in excess of $30 million.

They then transferred the short sale proceeds and the related obligation to close the

transactions to American Boat Co., LLC (American Boat).4 Around the same time

American Milling transferred 18 tugboats to American Boat. Under section 723,

American Boat took bases in the tugboats (inside basis) equal to American

Milling’s bases in the tugboats before the contribution. Likewise, under section

722, American Milling’s initial basis in its American Boat partnership interest

(outside basis) was equal to its bases in the tugboats before the contribution.

      American Boat asserted that the contribution of the short sale proceeds

increased the contributing partners’ outside basis by more than $30 million, but

the obligation to close the short sales was not a liability for purposes of section




      3
       Mr. Jump and the Jump Family Trust (Jump Trust), a grantor trust, owned
Gateway Grain and Omaha Pump, respectively. Gateway Grain and Omaha Pump
were disregarded entities for Federal tax purposes. See secs. 301.7701-2(a),
301.7701-3(a) and (b)(1), Proced. & Admin. Regs.
      4
       Because Gateway Grain, Omaha Pump, and the Jump Trust were
disregarded entities for Federal tax purposes, Mr. Jump was treated as contributing
the short sale proceeds and related obligation to close the short sales to American
Boat. See sec. 671; sec. 301.7701-2(c)(2), Proced. & Admin. Regs.
                                        -4-

[*4] 752 and therefore had no effect on outside basis. The result was a large,

artificial increase in outside basis.

      On December 31, 1998, after closing the short sale transactions, Mr. Jump

and the Jump Trust (through Gateway Grain and Omaha Pump) transferred their

American Boat partnership interests to American Milling. Consequently, under

section 708(b)(1), American Boat’s partnership status terminated,5 triggering a

deemed distribution of American Boat’s assets. See, e.g., Palm Canyon X Invs.,

LLC v. Commissioner, T.C. Memo. 2009-288; Rev. Rul. 99-6, 1999-1 C.B. 432.

American Milling claimed a basis in the assets of American Boat (i.e., the

tugboats) equal to the legitimate bases of the tugboats plus the inflated basis

claimed from the short sale proceeds.

II.   The American Boat FPAA

      American Boat filed a Form 1065, U.S. Partnership Return of Income, for

1998. Respondent issued an FPAA to American Milling, the TMP of American

Boat, for 1998 (American Boat FPAA). In the American Boat FPAA respondent

determined, among other things, that American Boat was a sham partnership, the


      5
        American Boat became a single-member limited liability company, causing
it to be disregarded as an entity separate from its owner for Federal income tax
purposes, absent an election to be classified as a corporation. See secs. 301.7701-
2(a), 301.7701-3(a) and (b)(1), Proced. & Admin. Regs.
                                        -5-

[*5] Son-of-BOSS transactions lacked economic substance, American Boat should

be disregarded for tax purposes, and the short sale obligations were liabilities for

purposes of section 752. Respondent made adjustments to American Boat’s

ordinary income, capital contributions, outside basis, portfolio income, and

investment income.

III.   American Boat FPAA Litigation

       American Milling contested the adjustments in the American Boat FPAA in

the U.S. District Court for the Southern District of Illinois. Am. Boat Co., LLC v.

United States, No. 3:06-CV-00788-GPM-CJP (S.D. Ill. Nov. 20, 2008), aff’d, 583

F.3d 471 (7th Cir. 2009). In doing so American Milling made a jurisdictional

deposit equal to the amount of tax due pursuant to section 6226(e)(1).6 Because

American Milling was a passthrough entity, respondent calculated the amount of


       6
        The amount of the TEFRA jurisdictional deposit required to commence a
case in Federal court has split the Court of Federal Claims (the only court that
appears to have addressed the issue). In short, one judge has held that a partner
contesting an FPAA needs to deposit only the amount of the increase in his tax
liability for the year of the FPAA, see Prestop Holdings, LLC v. United States, 96
Fed. Cl. 244 (2010), while two other judges have held that the required deposit
includes all increases in the petitioning partner’s tax liabilities that arise from
adjustments made in the FPAA even if the tax is payable in years after the year the
FPAA is issued, see Russian Recovery Fund, Ltd. v. United States, 90 Fed. Cl. 698
(2009); Kislev Partners, L.P. ex rel. Bahar v. United States, 84 Fed. Cl. 385
(2008). Respondent agreed with the latter view for purposes of calculating Mr.
Jump’s jurisdictional deposit.
                                        -6-

[*6] the deposit by determining the increase in income tax for the ultimate

taxpayer--in this case Mr. Jump. Respondent included in this calculation all

adjustments flowing from the American Boat FPAA for 2000 through 2003

including, among other things, the disallowance of American Milling’s deduction

for legal fees for 2000 that flowed through to Mr. Jump. American Milling,

through Mr. Jump, paid $1,260,544 as a jurisdictional deposit.7

      The District Court held a three-day bench trial in the American Boat case.

At trial the Government introduced evidence regarding the inflated bases that

American Boat had claimed in the tugboats and American Boat’s legitimate bases

in the tugboats. The Government also introduced evidence of the inflated

depreciation deductions that American Milling had claimed with respect to the

tugboats for 2000 through 2003 and the inflated capital loss that American Milling

had claimed on the sale of some of the tugboats. These inflated depreciation

deductions and inflated capital losses mirror the adjustments respondent made in

the Milling FPAA.

      On the third day of trial the Government moved for judgment as a matter of

law on the following three issues: (1) that the short sale obligations were

      7
        This payment is treated as a deposit--not a payment of tax--for all purposes
except the calculation of interest. See sec. 6226(e)(3); sec. 301.6226(e)-1(b) and
(c), Proced. & Admin. Regs.
                                        -7-

[*7] liabilities for purpose of section 752; (2) that the Son-of-BOSS transactions

lacked economic substance; and (3) that the Son-of-BOSS transactions lacked a

business purpose. The District Court, ruling from the bench pursuant to rule 52 of

the Federal Rules of Civil Procedure, granted the Government’s motion for

judgment as a matter of law with respect to the first two issues.8 The District

Court denied the Government’s motion with respect to business purpose. At the

conclusion of trial the District Court found that American Boat had reasonable

cause for inflating the bases of the tugboats and therefore no section 6662(a)

      8
       The parties disagree on the District Court’s holding in the American Boat
case. Respondent contends that the District Court did not determine that
American Boat was a sham partnership and thus he could not rely solely on the
District Court proceeding to determine that American Milling lacked any basis in
American Boat. Petitioner, on the other hand, contends that the District Court
held that the Son-of-BOSS transactions lacked economic substance and were sham
transactions and that respondent should have assessed Mr. Jump for the liabilities
flowing from the American Boat FPAA directly following the District Court
proceeding. Because the parties dispute the holding and effect of the District
Court proceeding, we examine the record in the District Court proceeding and take
judicial notice of the record as appropriate.

       Generally, under Fed. R. Evid. 201(b), an adjudicative fact can be judicially
noticed only if it is (1) generally known within the trial court’s territorial
jurisdiction or (2) capable of accurate and ready determination by sources whose
accuracy cannot reasonably be questioned. See Estate of Reis v. Commissioner,
87 T.C. 1016, 1026 (1986). We may take judicial notice on our own, and we may
do so at any stage of the proceeding. See Fed. R. Evid. 201(c) and (d). We may
take judicial notice of the text of judicial opinions and orders and of court filings
to determine what issues the other court decided. See Estate of Reis v.
Commissioner, 87 T.C. at 1027.
                                        -8-

[*8] accuracy-related penalty applied. The District Court did not make a specific

finding that American Boat was a sham and did not determine American Boat’s

legitimate bases in the tugboats.9 Furthermore, although respondent determined in

the American Boat FPAA that American Milling’s outside basis in American Boat

was a partnership item of American Boat,10 the District Court did not make a

specific finding with respect to American Milling’s outside basis in American

Boat.

IV.     Milling FPAA

        Respondent did not directly assess against Mr. Jump any tax deficiency for

1998 resulting from the American Boat proceeding.11 Instead, on January 18,

2013, respondent mailed the Milling FPAA to petitioner. Respondent determined


        9
       The Government appealed the District Court’s finding with respect to
reasonable cause and the sec. 6662(a) accuracy-related penalty. American Boat
did not appeal the District Court’s holding that the Son-of-BOSS transactions
lacked economic substance or that the short-sale obligations were liabilities for
purposes of sec. 752. The Court of Appeals for the Seventh Circuit affirmed the
District Court’s rejection of the accuracy-related penalty. Am. Boat Co., LLC v.
United States, 583 F.3d 471, 477-478 (7th Cir. 2009).
        10
        Respondent now contends that American Milling’s outside basis in
American Boat is not a partnership item of American Boat but instead is an
affected item requiring partner-level determinations at the American Milling level.
        11
        After mailing the Milling FPAA to petitioner, respondent made “protective
assessments against Mr. Jump by disallowing the inflated bases in the tugboats
and claimed legal fees” resulting from the Son-of-BOSS transactions.
                                        -9-

[*9] that American Milling had: (1) claimed inflated depreciation deductions for

2000 through 2003 because of inflated bases in the tugboats; (2) claimed an

inflated capital loss for 2002 resulting from the sale of some of the tugboats; and

(3) erroneously claimed a deduction for 2000 of $300,000 for legal fees incurred

in connection with the Son-of-BOSS transactions.

      The Milling FPAA includes both numerical adjustments, which are set forth

in a schedule of adjustments, and the narrative explanation of items. The

explanation of items is captioned “Affected Item Notice Final Partnership

Administrative Adjustments”.12 It states that as a result of the partnership item

determinations made in the American Boat FPAA and the District Court case “all

contributions, distributions, and any other transactions that American Milling

* * * purportedly engaged in with American Boat * * * are disregarded for federal

income tax purposes. The results of the [American Boat] partnership item

      12
        Petitioner contends that the caption designating the explanation of items as
an “Affected Item Notice Final Partnership Administrative Adjustments” supports
a finding that the adjustments in the Milling FPAA are merely computational.
However, the first page of the Milling FPAA is captioned “Notice of Final
Partnership Administrative Adjustment”, which signifies that the Milling FPAA
adjusts partnership items of American Milling. The caption on the explanation of
items does not affect our jurisdiction over the Milling FPAA. See, e.g., Clovis I v.
Commissioner, 88 T.C. 980, 982 (1987) (“Because of the similar functions of the
FPAA and the statutory notice of deficiency, we are convinced that the long
established principle applicable to notices of deficiency, viz, that no particular
form is necessary, should apply with equal force to a[n] FPAA.”).
                                        - 10 -

[*10] determinations include but are not limited to reducing the basis of assets

distributed to American Milling * * * by American Boat * * * by $31,255,986”.

The explanation of items further states that the Milling FPAA adjusts American

Milling’s claimed depreciation deductions and capital loss by reducing the bases

of the tugboats by $31,255,986. Finally, the explanation of items states that

American Milling’s deduction of $300,000 for legal fees is disallowed because

American Milling “has not established that such expenses were incurred or, if

incurred, allowable under any provision of the * * * [Code]”.

                                     Discussion

I.    Introduction

      Partnerships do not pay Federal income tax, see sec. 701, but they are

required to file annual information returns reporting their partners’ distributive

shares of income, gain, loss, deductions, and credits, see sec. 6031. Under the

unified partnership audit and litigation procedures of the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, sec. 402(a), 96 Stat. at

648, the tax treatment of any partnership item generally must be determined at the

partnership level. Sec. 6221. TEFRA is a series of special tax and audit

provisions that apply in all partnership proceedings (with exceptions not relevant

here). See sec. 6231(a)(1). The goal of TEFRA is to have a single point of
                                        - 11 -

[*11] adjustment for all partnership items at the partnership level. See Kligfeld

Holdings v. Commissioner, 128 T.C. 192, 200 (2007). TEFRA, however, limits

our jurisdiction at the partnership level to partnership items. Sec. 6226(f).13

      A partnership item is “any item required to be taken into account for the

partnership’s taxable year under any provision of subtitle A [Income Taxes] to the

extent [the] regulations * * * provide that, for purposes of this subtitle, such item

is more appropriately determined at the partnership level than at the partner level.”

Sec. 6231(a)(3). The critical element is that the partnership is required to make

the determination. Sec. 301.6231(a)(3)-1(c)(1), Proced. & Admin. Regs. But the

failure of the partnership to actually make the determination does not prevent an

item from being a partnership item. Id. A “nonpartnership item” is an “item

which is (or is treated as) not a partnership item”, sec. 6231(a)(4), and an “affected

item” is a nonpartnership item that is affected by the determination of a

partnership item, sec. 6231(a)(5).

II.   Petitioner’s Arguments

      Petitioner contends that we lack jurisdiction to determine the partnership

items of American Milling that respondent adjusted in the Milling FPAA because


      13
         The Tax Court is a court of limited jurisdiction and can exercise
jurisdiction only to the extent provided by statute. Sec. 7442.
                                       - 12 -

[*12] the Milling FPAA is a “reproduction” of the American Boat FPAA and

therefore violates the rule prohibiting respondent from issuing a second FPAA, see

sec. 6223(f). Alternatively, petitioner contends that we lack jurisdiction over the

Milling FPAA because: (1) all adjustments in the Milling FPAA are

computational adjustments flowing from the American Boat FPAA and there are

no affected items requiring factual determinations at the American Milling level,

and (2) respondent did not have authority to issue the Milling FPAA because

neither the Code nor the regulations authorize the issuance of an affected items

FPAA.14

III.   Analysis

       A.    Whether the Milling FPAA Is a Duplicate of the American Boat
             FPAA and Is Therefore Prohibited Under Section 6223(f)

       Under section 6223(f), “[i]f the Secretary mails a[n] * * * [FPAA] for a

partnership taxable year with respect to a partner, the Secretary may not mail

another * * * [FPAA] to such partner with respect to the same taxable year of the

same partnership in the absence of a showing of fraud, malfeasance, or


       14
        Because we find that the adjustments in the Milling FPAA are partnership
items of American Milling and not merely affected items, see infra p. 22, we need
not address petitioner’s contention that respondent did not have authority to issue
the Milling FPAA because an affected items FPAA does not exist in the Code or
the regulations.
                                       - 13 -

[*13] misrepresentation of a material fact.” Petitioner contends in substance that

the Milling FPAA is a duplicate of the American Boat FPAA. Specifically,

petitioner contends that the adjustments to the bases of the tugboats and the

disallowance of the deduction for legal fees were made in the American Boat

FPAA and finally determined in the District Court proceeding. Petitioner relies in

part on our Opinion in Wise Guys Holdings, LLC v. Commissioner, 140 T.C. 193

(2013).

      In Wise Guys, the Commissioner issued a valid FPAA to a partnership and

thereafter issued a second FPAA for the same year to the same partnership. Id. at

194-195. We noted that the second FPAA did not set forth any partnership-level

adjustment or determination that was not listed in the first FPAA and appeared to

have been issued as the result of an administrative error. Citing section 6223(f),

we held that the Commissioner was precluded from mailing a second FPAA to the

same partnership for the same year absent a showing of fraud, malfeasance, or

misrepresentation of a material fact. Because the first FPAA was valid and the

Commissioner did not assert that the second FPAA was issued on account of

fraud, malfeasance, or misrepresentation of fact, we concluded that the second

FPAA was invalid. Id. at 199-200.
                                       - 14 -

[*14] Petitioner contends that when we invalidated the second FPAA in Wise

Guys we “did not require the two FPAA’s to be identical, but instead recognized

that the key factor in determining whether an FPAA was invalid pursuant to * * *

[section 6223(f)] was whether the adjustments and determinations of the two

FPAA’s were identical.” Petitioner mischaracterizes our analysis in Wise Guys.

We invalidated the second FPAA in Wise Guys because it was issued to the same

partnership for the same taxable year and there was no showing of fraud,

malfeasance, or misrepresentation of fact. The similarity of the content of the two

FPAAs was not essential to our holding in Wise Guys. Instead, it simply aided our

finding that the second FPAA was “more [likely] the result of a mistake or a lack

of communication on the part of * * * [respondent] than of fraud, malfeasance, or

a misrepresentation of a material fact.” Wise Guys Holdings, LLC v.

Commissioner, 140 T.C. at 199-200. Here, by contrast, respondent issued the

Milling FPAA to the TMP of American Milling--not to the TMP of American

Boat--for years distinct from those at issue in the American Boat FPAA. Wise

Guys is distinguishable because it involved a second FPAA issued to the same

taxpayer for the same tax year.

      Petitioner also contends that the Milling FPAA is a duplicate of the

American Boat FPAA because (1) the adjustments in the Milling FPAA “are
                                       - 15 -

[*15] identical” to the adjustments in the American Boat FPAA, and

(2) respondent examined the partnership returns of American Milling as part of the

District Court proceeding.15 Petitioner’s argument is difficult to understand given

that even a cursory examination of the two FPAAs reveals that they make

materially different adjustments to items of income and expense. The American

Boat FPAA adjusts the ordinary income, capital contributions, outside basis,

portfolio income, and investment income that American Boat reported on its Form

1065 for 1998. In contrast, the Milling FPAA adjusts the depreciation, capital

loss, and legal fees deductions that American Milling claimed on its Forms 1065

for 2000 through 2003. None of the adjustments in the Milling FPAA is identical

to an adjustment in the American Boat FPAA--even if some of the adjustments in

the Milling FPAA are related to the adjustments in the American Boat FPAA.




      15
         Petitioner also contends that the Milling FPAA is a duplicate of the
American Boat FPAA “because American Boat was a disregarded entity * * *
[for] all years in question.” However, American Boat did not become a
disregarded entity until the deemed liquidation of the American Boat partnership,
see Rev. Rul. 99-6, 1999-1 C.B. 432, when Mr. Jump and the Jump Trust
transferred their interests in American Boat to American Milling, see secs.
301.7701-2(a), 301.7701-3(a) and (b)(1), Proced. & Admin. Regs.; see also sec.
1.708-1(b), Income Tax Regs. For its 1998 tax year American Boat had multiple
owners and filed a Form 1065. As a result, American Milling and American Boat
were separate entities for the period examined in the American Boat FPAA.
                                       - 16 -

[*16] In addition, respondent’s examination of American Milling’s Forms 1065

for 2000 through 2003 as part of the District Court proceeding does not mean that

the partnership items of American Milling were at issue in the District Court

proceeding. Instead, respondent examined American Milling’s Forms 1065 for

2000 through 2003 for purposes of calculating the TEFRA jurisdictional deposit

under section 6226(e)(1) and establishing the sham nature of the Son-of-BOSS

transactions.

      Mr. Jump was an indirect partner in American Boat, see sec. 6231(a)(9) and

(10), and respondent calculated the TEFRA jurisdictional deposit by including all

adjustments flowing from the American Boat FPAA to Mr. Jump’s returns, see

sec. 301.6226(e)-1, Proced. & Admin. Regs.; part III supra pp. 5-6. These

adjustments resulted in part from an examination of American Milling’s returns

for 2000 through 2003, and respondent’s calculation of Mr. Jump’s increased tax

liabilities flowed from that examination. Indeed, respondent’s calculations of the

resulting tax due included the disallowed legal fees deduction, inflated

depreciation deductions, and increased capital loss appearing on the Milling

FPAA. Petitioner contends that because the adjustments to American Milling’s

returns were introduced into evidence during the District Court proceeding and
                                        - 17 -

[*17] were included in calculating the TEFRA jurisdictional deposit, the District

Court “made final” these adjustments. We disagree.

      Under section 6226(f), the District Court’s jurisdiction in American Boat

extended only to “all partnership items of * * * [American Boat] for the

partnership taxable year to which * * * [the American Boat FPAA] relates, the

proper allocation of such items among the partners, and the applicability of any

penalty * * * which relates to an adjustment to a partnership item”. The District

Court did not have jurisdiction to determine the partnership items of American

Milling that respondent adjusted in the Milling FPAA, which are adjustments for a

different entity and for tax years different from those at issue in American Boat.

Moreover, even if the District Court had made affirmative findings regarding

American Milling’s outside basis in American Boat or American Boat’s inside

bases in the tugboats for 1998,16 those determinations would not be conclusive

regarding American Milling’s bases in the tugboats for 2000 through 2003. See

infra p. 21. Accordingly, we reject petitioner’s contentions that the Milling FPAA

      16
        The bases of the tugboats contributed to American Boat by American
Milling were partnership items of American Boat. See, e.g., Nussdorf v.
Commissioner, 129 T.C. 30, 41-42 (2007) (holding that the basis of property
contributed to a partnership is a partnership item because “in order for a
partnership to determine, as required by section 723, its basis in the property that a
partner contributed to it, the partnership is required to determine the basis of such
partner in such property”).
                                        - 18 -

[*18] is an improper second FPAA or that it is a duplicate of the American Boat

FPAA and therefore invalid under section 6223(f).

      B.     Whether the Adjustments in the Milling FPAA Are Computational
             Adjustments Flowing From the American Boat FPAA

      Petitioner contends that the adjustments in the Milling FPAA “are nothing

more than computational adjustments * * * [that] do not require a partner level

determination.” We disagree.

      Section 6231(a)(6) defines computational adjustments as “the change in the

tax liability of a partner which properly reflects the treatment * * * of a

partnership item.”17 Thus, a computational adjustment is the consequence to the

partner of a determination, whether administrative or judicial, regarding a

partnership item.18 Under section 6230(a)(1), “computational adjustments are


      17
         American Milling’s deduction for legal fees was not at issue in the District
Court proceeding. To the extent petitioner contends that the deduction for legal
fees is a computational adjustment flowing from the American Boat FPAA, we
reject that contention. We consider only petitioner’s contention that the
adjustments to the depreciation deductions and capital loss are computational.
      18
         We question petitioner’s position that adjustments made to a partnership
return may be characterized as computational adjustments. Partnerships do not
pay Federal income tax, see sec. 701, and therefore there are no adjustments that
change a partnership’s tax liability, see sec. 6231(a)(6). We are mindful, however,
that “[a]ll adjustments required to apply the results of a proceeding with respect to
a partnership * * * to an indirect partner * * * [are] treated as computational
adjustments.” See id. Because we hold that the adjustments in the Milling FPAA
                                                                        (continued...)
                                        - 19 -

[*19] viewed as representing the ‘deficiency impact’ of the proper tax treatment of

the underlying partnership items.” Rawls Trading, L.P. v. Commissioner, 138

T.C. 271, 287 (2012). When computational adjustments flow from an affected

item that requires a partner-level factual determination, section 6230(a)(2) affords

the partner a prepayment forum to challenge the Commissioner’s partner-level

determinations. In the absence of any affected items requiring partner-level

determination, the partner cannot dispute the Commissioner’s computational

adjustments in deficiency mode. Instead, the partner’s remedy is limited to a claim

for refund and refund litigation if the claim is denied. See sec. 6230(a)(1), (c)(4).

      Petitioner contends that respondent’s description of the adjustments in the

Milling FPAA makes clear that the adjustments are merely computational because

respondent expressly states that the adjustments to basis, depreciation, and loss are

the result of the basis adjustments in the American Boat FPAA. However,

respondent’s description of the adjustments in the Milling FPAA simply notifies

American Milling of the reason for the adjustments. It does not preclude the need




      18
         (...continued)
are partnership items of American Milling, see infra p. 22, we need not address
this issue to conclude we have subject matter jurisdiction in this case.
                                        - 20 -

[*20] for factual determinations to determine American Milling’s correct bases in

the tugboats and related depreciation deductions and capital loss amount.

      Respondent contends that the adjustments in the Milling FPAA are both

partnership items of American Milling and affected items flowing from the

American Boat FPAA. He contends that American Milling’s basis in American

Boat and its bases in the tugboats received from American Boat are partnership

items of American Milling because they are required to be taken into account for

determining American Milling’s income and loss. See sec. 301.6231(a)(3)-

1(a)(1), Proced. & Admin. Regs. Specifically, respondent contends that the

depreciation expenses and loss from the sale of certain tugboats “wear two hats”

because they are partnership items of American Milling but were derived in part

from American Boat.

      The usual rule is that an asset distributed by a partnership to one of its

partners has a basis equal to the partnership’s basis in that asset. Sec. 732(a). But,

under section 732(b), the basis of property (other than money) distributed by a

partnership to a partner in liquidation of the partner’s interest equals the partner’s

adjusted basis in the partnership, reduced by any money distributed in the same

transaction. Accordingly, when American Boat liquidated, American Milling’s
                                        - 21 -

[*21] bases in the tugboats under section 732(b) were determined by reference to

its outside basis in American Boat.19

      The District Court did not determine American Milling’s outside basis in

American Boat as of December 31, 1998, the taxable year at issue in the American

Boat proceeding. Moreover, even if the District Court had asserted jurisdiction to

determine American Milling’s outside basis, such a determination would not

conclusively determine American Milling’s bases in the tugboats for 2000 through

2003. Indeed, determining the legitimate bases of the tugboats and the resulting

depreciation deductions and capital losses requires us to make specific factual

findings at the American Milling level. For example, American Milling could

have incurred capital improvement costs following the liquidating distribution that

increased its bases in the tugboats. Determining that American Milling did not

incur such costs is also a partnership-level determination. See, e.g., Greenwald v.

Commissioner, 142 T.C. 308, 315 (2014); see also Domulewicz v. Commissioner,

129 T.C. 11, 20 (2007) (“Neither the Code nor the regulations thereunder require

that partner-level determinations actually result in a substantive change to a


      19
        Even if a partnership is disregarded as a sham for tax purposes, the Code
provides that TEFRA procedures still apply in such cases as long as the purported
partnership filed a partnership return--which American Boat did. See secs.
6231(g), 6233; see also sec. 301.6233-1(b), Proced. & Admin. Regs.
                                       - 22 -

[*22] determination made at the partnership level.”), aff’d in part, remanded in

part sub nom. Desmet v. Commissioner, 581 F.3d 297 (6th Cir. 2009).

      Finally, petitioner concedes that the adjustments to depreciation, capital

loss, and legal fees in the Milling FPAA are correct. To the extent petitioner

argues on brief that the adjustments in the Milling FPAA are improper and do not

confer jurisdiction on us because they are not disputed or contested items, we

reject that contention. Petitioner may not remove from our jurisdiction the

determinations in the Milling FPAA and the explanation of items by conceding the

adjustments therein. See, e.g., LTV Corp. v. Commissioner, 64 T.C. 589, 591

(1975).

      We conclude that the adjustments to depreciation, capital loss, and legal

fees deductions in the Milling FPAA are partnership items of American Milling,

and we have subject matter jurisdiction in this case. We have considered the

remaining arguments made by the parties and, to the extent not discussed above,

conclude those arguments are irrelevant, moot, or without merit.

      To reflect the foregoing,


                                      An appropriate order will be issued.
