     Case: 19-60367      Document: 00515302393         Page: 1    Date Filed: 02/07/2020




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                        United States Court of Appeals
                                                                                 Fifth Circuit


                                      No. 19-60367
                                                                               FILED
                                                                         February 7, 2020
                                                                          Lyle W. Cayce
ALLEN R. DAVISON, III,                                                         Clerk

              Petitioner - Appellant

v.

COMMISSIONER OF INTERNAL REVENUE,

              Respondent - Appellee




                     Appeal from the United States Tax Court
                                  No. 15509-12L


Before ELROD, SOUTHWICK, and HAYNES, Circuit Judges.
PER CURIAM:*
       Allen Davison III was assessed additional income-tax liability for tax
year 2005 after computational adjustments for two partnerships, Cedar Valley
Bird Co., LLP and TARD Properties, LLC. Davison was a partner in Six-D
Partnership, which was itself a partner in both Cedar Valley and TARD
Properties.    All three entities were subject to the Tax Equity and Fiscal
Responsibility Act of 1982 (“TEFRA”), I.R.C. §§ 6221–6234, under which




       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                       No. 19-60367
taxation for partnership items is determined at the partnership level. 1 In
2010, the IRS issued two Notices of Final Partnership Administrative
Adjustment (“FPAAs”) reflecting computational adjustments for both Cedar
Valley and TARD Properties. No petition was filed to challenge either FPAA.
See id. § 6226(a)–(c). Six-D had transferred its interest in TARD Properties to
T.A.R.D. Business Trust (“TARD Trust”), but the IRS found it to be a sham
transaction. Faced with a potential whipsaw, 2 the IRS took the inconsistent
position that both Six-D and TARD Trust held the relevant interest in TARD
Properties in 2005.
       As a result of the computational adjustments, the additional income-tax
liability flowed through Six-D to Davison. After Davison failed to pay the new
assessments, the IRS issued a notice of intent to levy and right to a hearing to
Davison in 2012. Davison timely requested a collection due process (“CDP”)
hearing, which is the subject of this appeal. Davison attempted to contest the
liability that resulted from the TARD Properties FPAA on the theory that
TARD Trust had been found solely responsible for the additional assessments.
Finding that Davison could not challenge the underlying liability because he
had a prior opportunity to do so at the partnership level, the hearing officer
sustained the proposed levy. The Tax Court affirmed. Davison v. Comm’r, 117
T.C.M. (CCH) 1117 (2019).

           I. Underlying Tax Liability
       We review de novo the Tax Court’s legal determination that Davison



       1  Unless otherwise noted, citations to the Internal Revenue Code refer to the sections
in effect during years relevant to this case. Some have since been repealed or amended.
       2“A whipsaw occurs when taxpayers treat the same transaction involving the same
income inconsistently, thus creating the possibility that the income could go untaxed.”
Bouterie v. Comm’r, 36 F.3d 1361, 1373 (5th Cir. 1994).


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                                    No. 19-60367
could not challenge his underlying tax liability in his CDP hearing. Estate of
Duncan v. Comm’r, 890 F.3d 192, 197 (5th Cir. 2018).
      An FPAA adjustment may be challenged via partnership-level petition.
See I.R.C. § 6226(a)–(c). Upon completion of these proceedings, or if no petition
is filed, the FPAA becomes final and conclusive. See id. § 6230(c)(4); Randell
v. United States, 64 F.3d 101, 104 (2d Cir. 1995); Genesis Oil & Gas, Ltd. v.
Comm’r, 93 T.C. 562, 565–66 (1989). Even so, in the case of a computational
adjustment, as here, “[a] partner may file a claim for refund” and challenge the
adjustment (although substantive determinations remain binding).                  I.R.C.
§ 6230(c)(1). Here, no petition was filed on either FPAA before the deadline,
and Davison has not filed a claim for refund.
      In his CDP hearing, Davison could challenge the underlying tax liability
only if he (a) did not receive notice of the deficiency or (b) did not have an
opportunity to dispute the deficiency. Id. § 6330(c)(2)(B). The Tax Court
determined that Davison, who held an indirect interest in Cedar Valley and
TARD Properties, was not entitled to individual notice of a deficiency created
by a computational adjustment. Davison, 117 T.C.M. (CCH) at 14–15. Davison
does not appeal this holding. He does argue, for the first time on appeal, that
Six-D’s tax-matters partner did not receive the FPAA notices because they
were sent to a defunct address. Because the issue was not timely raised in his
CDP hearing, we cannot consider it on appeal. 3 Giamelli v. Comm’r, 129 T.C.
107, 114 (2007); Treas. Reg. § 301.6330-1(f)(2), Q&A (F3).              In any event,
Davison does not argue that the IRS failed to comply with the notice statute,
which requires only that the IRS mail notice to the names and addresses
furnished to it by the partnership. See I.R.C. § 6223(a), (c).


      3  The same is true of Davison’s challenge to the I.R.C. § 6662(a) accuracy-related
penalty the IRS imposed, as the Tax Court held. Davison, 117 T.C.M. (CCH) at 16.


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      Davison also had an opportunity to contest the deficiency at the
partnership level.   When a “partnership item has been resolved at the
partnership level,” it “cannot be contested at the individual partner level.”
Randell, 64 F.3d at 104. Tax liability stemming from an FPAA is not properly
at issue in an individual’s CDP proceedings. Hudspath v. Comm’r, T.C.M.
(RIA) 2005-083, 2005 WL 826677, at *10 (Apr. 11, 2005) (holding that a
taxpayer could not use a CDP hearing to challenge a tax liability stemming
from two FPAAs), aff’d, 177 F. App’x 326 (4th Cir. 2006). Therefore, we agree
with the Tax Court and Appeals Office that Davison cannot challenge the
underlying tax liability stemming from the Cedar Valley or TARD Properties
FPAAs. See I.R.C. § 6330(c)(2)(B); Davison, 117 T.C.M. (CCH) at 12–15.

         II. Tax Levy
      Because we affirm the Tax Court’s legal conclusion that Davison could
not challenge his underlying tax liability, we review the Appeals Office’s
decision to sustain the levy against Davison for abuse of discretion. Jones v.
Comm’r, 338 F.3d 463, 466 (5th Cir. 2003) (per curiam). We do not conduct an
independent review but instead determine only whether the Appeals Office’s
decision “was arbitrary, capricious, or without sound basis in fact or law.”
Murphy v. Comm’r, 125 T.C. 301, 320 (2005).
      Davison argues, ostensibly in equity, that the assignment-of-income
doctrine requires that he be absolved of liability for the assessments derived
from the TARD Properties FPAA. But these arguments depend on an incorrect
assertion that TARD Trust was stipulated to be solely liable for those
assessments.   To the contrary, the parties stipulated that, faced with a
potential whipsaw created by the determined-to-be sham transfer from Six-D
to TARD Trust, the IRS considered both entities to hold the relevant interest
in TARD Properties. As we have recognized, when faced with a potential


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whipsaw, the IRS may take inconsistent positions, such as considering two
different taxpayers responsible for the same tax liability, to protect the public
fisc and avoid non-payment of taxes. Bouterie v. Comm’r, 36 F.3d 1361, 1374
(5th Cir. 1994). Davison does not argue that the IRS lacked a “reasonable basis
in fact and law” to do so. See id. There is no evidence that “double taxation”
will occur here, as Davison forewarns. It is thus not inequitable on the facts
before us to hold Davison, via Six-D, liable for these assessments.
      Because all other legal and procedural requirements were satisfied in
the CDP hearing, we agree with the Tax Court, for the reasons stated in its
opinion, that the Appeals Office did not abuse its discretion by sustaining the
levy. See Davison, 117 T.C.M. (CCH) at 18–19. As noted by the Tax Court,
Davison is free to negotiate with the IRS or file a claim for refund, but he
cannot obtain relief in the instant proceedings. See id. at 19 n.14.
      AFFIRMED.




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