                     T.C. Memo. 2009-254


                   UNITED STATES TAX COURT



LVI INVESTORS, LLC, JOHN K. LUKE, A PARTNER OTHER THAN THE TAX
                MATTERS PARTNER, Petitioner v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 17834-07.              Filed November 9, 2009.



        R issued to P’s L.L.C. for 1999 a notice of final
   partnership administrative adjustment (FPAA) which
   determined that losses claimed by P in 2001 from the sale of
   stock should be disallowed because they were attributable to
   the L.L.C.’s participation in a so-called Son-of-BOSS
   transaction in 1999. The FPAA was issued more than 3 years
   after the L.L.C.’s return was filed but before the extended
   period for assessing P’s 2001 income tax had expired under
   sec. 6501(a), I.R.C. P argues that sec. 6229(a), I.R.C.,
   provides an exclusive limitations period that overrides sec.
   6501(a), I.R.C., prohibiting R from issuing the FPAA.

        Held: The issuance of the FPAA is not barred by any
   period of limitations.

        Held, further, The period for assessing P’s 2001 tax
   liability remains open.
                                -2-

          Held, further, P’s motion for summary judgment will be
     denied, and R’s motion for partial summary judgment will be
     granted.



     David D. Aughtry and Hale E. Sheppard, for petitioner.

     John Aletta, for respondent.



                        MEMORANDUM OPINION


     NIMS, Judge:   This matter is before the Court on

respondent’s motion for partial summary judgment and petitioner’s

motion for summary judgment under Rule 121.     Unless otherwise

indicated, all section references are to the Internal Revenue

Code in effect for the year in issue, and all Rule references are

to the Tax Court Rules of Practice and Procedure.

     Respondent issued an FPAA to petitioner for the 1999 tax

year of LVI Investors, LLC (LVI).     Petitioner timely filed a

petition contesting the determinations in the FPAA.     At the time

the petition was filed, LVI had been dissolved and did not have a

principal place of business.

     The issue for decision is whether the statute of limitations

on assessment bars respondent from issuing an FPAA to LVI for its

1999 tax year.

     For the reasons discussed below, we will grant respondent’s

motion for partial summary judgment and deny petitioner’s motion

for summary judgment.
                                 -3-

                             Background

     On September 15, 1999, petitioner and Gene Venesky (Venesky)

formed LVI as a Delaware limited liability company with its

principal place of business in Norcross, Georgia.   Petitioner and

Venesky each took a 50-percent membership interest in LVI.

     On the same day they formed LVI, petitioner and Venesky each

formed a single-member limited liability company, JKL

Investments, LLC (JKL), and GVI Investments, LLC (GVI),

respectively.    JKL and GVI were treated as disregarded entities

for Federal income tax purposes under section 301.7701-3, Proced.

& Admin. Regs.

     Petitioner, Venesky, and the aforementioned entities then

engaged in a series of transactions (1999 transactions) which

respondent has since determined to be, collectively, a Son-of-

BOSS transaction described in Notice 2000-44, 2000-2 C.B. 255.

On September 28, 1999, petitioner and Venesky each directed JKL

and GVI, respectively, to sell short $19 million face value

Treasury notes for $18,952,497 plus interest of $167,540.76.

Petitioner and Venesky subsequently authorized the transfer of

the proceeds from the short sales, the obligations on the short

positions, and $285,000 in margin cash to LVI as capital

contributions by JKL and GVI, respectively.   LVI then used the

contributed assets to purchase euro.
                                -4-

     On September 30, 1999, LVI closed its short position by

purchasing Treasury notes for $37,899,065.50 plus interest of

$346,440.22.   Petitioner and Venesky subsequently contributed

their interests in LVI to MQ Associates, Inc. (MQ), as capital

contributions.   The record thus far is unclear as to when MQ was

formed and what the stock ownership interests in MQ were before

and after these capital contributions.   On October 1, 1999, LVI

was dissolved, and the euro it held were distributed to MQ in

liquidation.   On October 4, 1999, MQ sold 20.53 percent of the

euro.   In 2001 petitioner and Venesky sold their MQ stock.

     Petitioner and Venesky obtained opinion letters from the law

firm Jenkens & Gilchrist, P.C. (Jenkens), which advised them that

their outside bases in LVI had been increased by the contribution

of the short sale proceeds but had not been reduced by the

contribution of the short position, which was purportedly not a

liability within the meaning of section 752.   The opinion letters

further advised that petitioner’s and Venesky’s contributions of

their LVI interests to MQ increased their bases in MQ stock by

the amount of their outside bases in LVI.

     On October 19, 2000, LVI filed a Form 1065, U.S. Partnership

Return of Income, for its 1999 tax year (partnership return).
                                 -5-

The partnership return designated petitioner as tax matters

partner and listed JKL and GVI as 50-percent members.1

     Petitioner and Mrs. Maureen O. Luke (the Lukes) filed joint

Forms 1040, U.S. Individual Income Tax Return, for their 1999,

2000, and 2001 tax years.   The Lukes’ 2001 return (personal

return) was received by respondent on October 17, 2002.

Following the advice of the Jenkens opinion letter, the Lukes

claimed an increased basis in petitioner’s MQ stock.     As a result

of that increased basis, the Lukes claimed a loss on the sale of

the stock in 2001.

     On October 4, 2005, the Lukes signed the first of a series

of Forms 872-I, Consent to Extend the Time to Assess Tax As Well

As Tax Attributable to Items of a Partnership, which collectively

extended the limitations period for assessment of their 2001 tax

liability to March 31, 2007.

     On March 14, 2007, respondent sent the FPAA for LVI’s 1999

tax year to petitioner.   The FPAA determined, among other things,

that the transactions lacked economic substance and had no

business purpose.    The FPAA also determined that LVI was a sham

partnership and was formed in connection with transactions having

a principal purpose of substantially reducing the present value


     1
      Petitioner was actually ineligible to serve as tax matters
partner because he was not a member-manager of LVI. See sec.
6231(a)(7); secs. 301.6231(a)(7)-1(b), 301.6231(a)(7)-2, Proced.
& Admin. Regs.
                                  -6-

of its partners’ aggregate Federal tax liability in a manner

inconsistent with the intent of subchapter K of the Internal

Revenue Code.   Consequently, the FPAA determined that neither LVI

nor the transactions should be respected and that any claimed

basis increases (in LVI and MQ) or losses resulting from the

transactions should be disallowed.

     On August 10, 2007, petitioner filed a petition contesting

the determinations in the FPAA.    On July 7, 2008, respondent

filed a motion for partial summary judgment on the issue of

whether the statute of limitations for assessment bars respondent

from issuing the FPAA.   On August 25, 2008, petitioner filed his

motion for summary judgment on the same issue.    Respondent has

conceded that the period for assessing the Lukes’ 1999 and 2000

income taxes has expired.

                            Discussion

     Since there are no genuine issues of material fact on the

issue as framed by the parties’ cross-motions, summary judgment

on that issue is appropriate.   See Rule 121(b); Sundstrand Corp.

v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994).

     This case is a partnership-level proceeding subject to the

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L.

97-248, sec. 402, 96 Stat. 648.    The Internal Revenue Code

imposes no limit on when the Commissioner may commence a TEFRA
                                  -7-

partnership-level proceeding by issuing an FPAA.     Rhone-Poulenc

Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533,

534 (2000).    However, any such proceeding is useless when

commenced after the time for assessing tax against the partners

has expired.    Id. at 534-535.

     Section 6501(a) generally requires the Commissioner to

assess any income tax deficiency within 3 years after a

taxpayer’s individual return is filed.    Section 6229(a) provides,

however, that the period for assessing any tax attributable to a

partnership item or an affected item shall not expire before 3

years after the later of the due date of the partnership return

or the date that the partnership return was actually filed.    We

have previously held that section 6229(a) does not override

section 6501(a) and instead sets a minimum limitations period

that may extend the latter section’s general 3-year period.

Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner,

supra.

     Respondent issued the FPAA in a timely manner because the

period for assessing the Lukes’ 2001 income tax has not closed.2

The Lukes signed timely Forms 872-I agreeing to extend the

assessment period to March 31, 2007.     Respondent issued an FPAA

     2
      The Lukes’ 2001 tax year is involved because their basis in
the MQ stock they sold in 2001 is an affected item. See sec.
6231(a)(5). A deficiency attributable to such an affected item
cannot be assessed until the conclusion of the partnership-level
proceeding. Nussdorf v. Commissioner, 129 T.C. 30, 44 (2007).
                                -8-

for LVI’s 1999 tax year before that date, and the issuance of the

FPAA suspends the period to assess the Lukes’ 2001 income tax.

See id. at 552-553; Andantech L.L.C. v. Commissioner, T.C. Memo.

2002-97, affd. in relevant part and remanded in part 331 F.3d 972

(D.C. Cir. 2003).   This is true even though the period for

assessing the Lukes’ 1999 income tax had already expired.     See

Kligfeld Holdings v. Commissioner, 128 T.C. 192 (2007); G-5 Inv.

Pship. v. Commissioner, 128 T.C. 186 (2007).

     Petitioner contends that section 6229(a) imposes a separate

and exclusive limitations period for the assessment of any tax

attributable to a partnership item.   If that contention were

correct, respondent would be barred from assessing any tax

attributable to partnership items from LVI’s 1999 tax year

because the Lukes signed the Forms 872-I more than 3 years after

the partnership return had been filed.   In addition, petitioner

contends that respondent may not issue an FPAA for LVI’s 1999 tax

year when the period for assessing the Lukes’ 1999 personal

income tax has expired.

     Petitioner offers several textual and policy arguments in

support of his positions.   Petitioner’s arguments are identical

to those we rejected in deciding Rhone-Poulenc, Kligfeld, and G-5

Inv. Pship.   Petitioner urges us to reconsider those decisions,

citing a number of Court of Appeals decisions which purportedly

recognize that section 6229(a) sets an absolute limitations
                                -9-

period.   See Weiner v. United States, 389 F.3d 152, 156-157 (5th

Cir. 2004); Monahan v. Commissioner, 321 F.3d 1063, 1065 n.2

(11th Cir. 2003), affg. T.C. Memo. 2002-52; Madison Recycling

Associates v. Commissioner, 295 F.3d 280 (2d Cir. 2002), affg.

T.C. Memo. 2001-85 and T.C. Memo. 1992-605; CC&F W. Operations

Ltd. Pship. v. Commissioner, 273 F.3d 402 (1st Cir. 2001), affg.

T.C. Memo. 2000-286; Callaway v. Commissioner, 231 F.3d 106 (2d

Cir. 2000), revg. T.C. Memo. 1998-99; Williams v. United States,

165 F.3d 29 (6th Cir. 1998); Anderson v. United States, 62 F.3d

1428 (10th Cir. 1995); Monetary II Ltd. Pship. v. Commissioner,

47 F.3d 342 (9th Cir. 1995), affg. T.C. Memo. 1992-562.

     We decline to reconsider Rhone-Poulenc, Kligfeld, and G-5

Inv. Pship. because the cases cited by petitioner have no

precedential application in this case.   The discussions of

section 6229(a) in those cases were merely dicta on the question

before us because none of the cases decided the issue of the

relationship between sections 6229(a) and 6501(a).   In fact,

subsequent cases in the Second and Ninth Circuits indicate that

those Courts of Appeals do not believe their respective prior

holdings mandate an exclusive section 6229(a) limitations period.

See Bakersfield Energy Partners, LP v. Commissioner, 568 F.3d

767, 770 n.5 (9th Cir. 2009), affg. 128 T.C. 207 (2007); Field v.

United States, 381 F.3d 109, 112 n.1 (2d Cir. 2004).   Bakersfield

refers to section 6229(a) as establishing a minimum period, while
                                -10-

Field states that section 6229(a) may extend but not limit the

time available to assess tax.   Since both cases were decided by

Courts of Appeals panels, they imply that prior decisions in

those circuits had not rejected Rhone-Poulenc because those prior

decisions could be overruled only through an en banc decision, a

Supreme Court decision, or subsequent legislation.   See U.S.

Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135, 149

(2d Cir. 2001); Montana v. Johnson, 738 F.2d 1074, 1077 (9th Cir.

1984).

     The Courts of Appeals that have decided this issue have all

approved our decision in Rhone-Poulenc.   See Curr-Spec Partners,

L.P. v. Commissioner, 579 F.3d 391 (5th Cir. 2009), affg. T.C.

Memo. 2007-289; Andantech L.L.C. v. Commissioner, 331 F.3d at

976; AD Global Fund, LLC v. United States, 481 F.3d 1351, 1354

(Fed. Cir. 2007).   Inasmuch as LVI had been liquidated and had no

principal place of business at the time the petition was filed,

appeal in this case will lie, in the absence of the parties’

contrary agreement, to the Court of Appeals for the D.C. Circuit.

See sec. 7482(b).   Under Golsen v. Commissioner, 54 T.C. 742

(1970), affd. 445 F.2d 985 (10th Cir. 1971), insofar as

applicable, we will follow the Court of Appeals for the D.C.

Circuit’s decision in Andantech L.L.C. v. Commissioner, supra,

and apply Rhone-Poulenc Surfactants & Specialties, L.P. v.

Commissioner, 114 T.C. 533 (2000), in the case at hand.
                                 -11-

     For the foregoing reasons, we hold that respondent’s

issuance of the FPAA for LVI’s 1999 tax year was not barred by

any period of limitations and that the period of limitations for

assessing taxes attributable to partnership items for the Lukes’

2001 tax year remains open.   We will therefore grant respondent’s

motion for partial summary judgment and deny petitioner’s motion

for summary judgment.   In doing so, we have considered all of the

parties’ contentions, arguments, requests, and statements.      To

the extent not discussed herein, we conclude that they are

irrelevant, moot, or without merit.

     To reflect the foregoing,


                                        An order granting respondent’s

                                 motion for partial summary judgment

                                 and denying petitioner’s motion for

                                 summary judgment will be issued.
