                                 T.C. Memo. 2020-51



                          UNITED STATES TAX COURT



                   DEWAYNE BRIDGES, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 26519-16.                            Filed April 27, 2020.



      Val J. Albright, Zachary T. Jones, David M. Nissman, and Michelle Y. Ku,

for petitioner.

      Justin C. Barnhill, Randall L. Eager, Jr., Brooke N. Stan, and Douglas S.

Polsky, for respondent.



                            MEMORANDUM OPINION


      RUWE, Judge: This matter is before the Court on petitioner’s motion to

dismiss for lack of jurisdiction the portion of this case that relates to certain
                                        -2-

[*2] adjustments to Dani, LLC’s returns that flowed through to petitioner.1

Respondent determined that certain adjustments to Dani, LLC’s returns flowed

through to petitioner and were subject to the normal deficiency procedures rather

than procedures from the Tax Equity and Fiscal Responsibility Act of 1982

(TEFRA), Pub. L. No. 97-248, sec. 402(a), 96 Stat. at 648 (codified as amended at

sections 6221-6234), and issued petitioner a notice of deficiency.

      The issue for decision is whether respondent, in reliance on section

6231(g)(2),2 reasonably determined that TEFRA procedures did not apply to Dani,

LLC, for the 2011 and 2012 tax years. Section 6231(g)(2) provides: “If, on the

basis of a partnership return for a taxable year, the Secretary reasonably

determines that this subchapter [TEFRA] does not apply to such partnership for

such year but such determination is erroneous, then the provisions of this

subchapter shall not apply to such partnership (and its items) for such taxable year

or to partners of such partnership.” (Emphasis added.) For the reasons discussed

below, we will deny petitioner’s motion to dismiss.


      1
       On October 4, 2018, this Court consolidated this case with a related case at
docket No. 26528-16 for trial, briefing, and opinion. These cases, however, were
not consolidated for purposes of this motion.
      2
       Unless otherwise indicated, all section references are to the Internal
Revenue Code (Code) in effect at all relevant times, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
                                        -3-

[*3]                                 Background

       When the petition was filed, petitioner resided in the U.S. Virgin Islands.

       During the 2011 and 2012 tax years Dani, LLC, was a U.S. limited liability

company (LLC) formed under the laws of the State of Missouri. Certain

adjustments to Dani, LLC’s tax returns flowed through to petitioner’s individual

income tax returns for the years at issue. During the years at issue Dani, LLC,

appears to have had two partners: the DeWayne W. Bridges Revocable Trust

(Bridges Trust) and the Steven C. Mitchem Revocable Trust (Mitchem Trust).

Each partner owned 50% of Dani, LLC.3

Dani, LLC’s Tax Returns

       Central to the question before this Court is who the partners in Dani, LLC,

reasonably appeared to be according to Dani, LLC’s tax returns for the 2011 and

2012 tax years. Petitioner argues that it was impossible for respondent to

reasonably determine who the partners were solely on the basis of the returns

because the returns were “inconsistent and irreconcilable”. Respondent argues

that petitioner and Mr. Mitchem appeared to be the partners on the returns. We




       3
        Respondent has conceded solely for purposes of these consolidated cases
that the Bridges Trust and the Mitchem Trust were the actual passthrough partners
in Dani, LLC, during 2011 and 2012.
                                         -4-

[*4] summarize the applicable sections of Dani, LLC’s returns for 2011 and 2012

and provide images of applicable portions of the returns where appropriate.

      Dani, LLC, timely filed partnership returns on Forms 1065, U.S. Return of

Partnership Income, for the 2011 and 2012 tax years.

      Schedule B, Other Information, of each return answered “no” to the

question “[a]t any time during the tax year, was any partner in the partnership a

disregarded entity, a partnership (including an entity treated as a partnership), a

trust, an S corporation, an estate (other than an estate of a deceased partner), or a

nominee or similar person?”

      Schedule B of each return answered “no” to the question at the end of the

tax year, “[d]id any foreign or domestic corporation, partnership (including any

entity treated as a partnership), trust, or tax-exempt organization, or any foreign

government own, directly or indirectly, an interest of 50% or more in the profit,

loss, or capital of the partnership?”

      Schedule B of each return also answered “yes” to the question at the end of

the tax year, “[d]id any individual or estate own, directly or indirectly, an interest

of 50% or more in profit, loss, or capital of the partnership?”
                                         -5-

[*5] A copy of the pertinent part of Schedule B from Dani, LLC’s Form 1065 for

2011, which is substantively identical to the Schedule B from Dani, LLC’s Form

1065 for 2012, is provided below.




      Part II, Individuals or Estates Owning 50% or More of the Partnership, of

Schedule B-1, Information on Partners Owning 50% or More of the Partnership, of

each return listed Steven C. Mitchem and petitioner as 50% partners of Dani, LLC,

in their capacities as individuals or estates. A copy of the pertinent part of Part II

of Dani, LLC’s Schedule B-1 for 2011, which is substantively identical to Part II

of Dani, LLC’s Schedule B-1 for 2012, is provided below.
                                        -6-

[*6]




       Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc., for

2011 and 2012 list both Steven C. Mitchem and Dewayne Bridges as Dani LLC’s

two partners. On each applicable Schedule K-1 Mr. Mitchem and petitioner are

listed as 50% owners of Dani, LLC. And on Line I of Part II of each applicable

Schedule K-1 in response to the question “[w]hat type of entity is this partner”

Dani, LLC, clearly and unambiguously answered “individual”. The 2011

Schedule K-1 for petitioner, which is substantively identical to his 2012 Schedule

K-1, and the 2011 Schedule K-1 for Mr. Mitchem, which is substantively identical

to his 2012 Schedule K-1, are provided below.
       -7-

[*7]
       -8-

[*8]
                                        -9-

[*9] Despite the overwhelming evidence on the returns that petitioner and Mr.

Mitchem were 50% partners in Dani, LLC, in their capacities as individuals,

information on an attachment to the Schedules K-1 suggested Dani, LLC, may

have had a different partner. Line 20Y, Additional Supplemental Information to

Schedule K-1, a statement that was attached to the 2011 and 2012 Schedules K-1,

inaccurately stated that Dani, LLC, was 100% owned by Half Done, LLC, a

disregarded entity which was 100% owned by SCS Processing, LLC, a foreign

disregarded entity located in St. Kitts and Nevis. In fact it appears that Dani, LLC,

was the 100% owner of Half Done, LLC, which was the 100% owner of SCS

Processing, LLC. This information was again repeated on Line 20C, Other Items

and Amounts, of the same attachment. A copy of Line 20Y is provided below for

2012 for petitioner, which is substantively identical to his 2011 Line 20Y and Mr.

Mitchem’s 2011 and 2012 Lines 20Y.
                                       - 10 -

[*10]




        SCS Processing, LLC, and Half Done, LLC, also appear on Dani, LLC’s

Forms 8858, Information Return of U.S. Persons With Respect To Foreign

Disregarded Entities, as disregarded entities for 2011 and 2012. On the first page

of Form 8858, however, the form appears to state that Dani, LLC, was the owner

of Half Done, LLC.
                                        - 11 -

[*11] The tax returns make no mention of the Bridges Trust and the Mitchem

Trust, nor do they at any time ever imply that the trusts owned Dani, LLC.

The Audit

      Petitioner has provided an exhaustive summary of the audit, most of which

is irrelevant to the issue before us. Nonetheless, we briefly summarize certain

portions of the audit to give context to our decision.

      Revenue Agent Joi Smith was assigned to examine petitioner’s and Mr.

Mitchem’s returns for the 2011 and the 2012 tax years. As part of the

examination, Agent Smith was tasked with determining whether any adjustments

to Dani, LLC’s tax returns, which would flow through to petitioner’s and Mr.

Mitchem’s individual income tax returns, would trigger TEFRA procedural

requirements.

      Agent Smith began her examination on July 30, 2013. In the course of this

examination Agent Smith reviewed Dani, LLC’s returns, conducted research, and

had a series of internal discussions. The research and internal discussions sought

to, among other things, reconcile certain inconsistences on the returns regarding

the identity of Dani, LLC’s partners.

      As part of these internal discussions Agent Smith contacted TEFRA

Coordinator Bill Kahnke, Partnership Program Analyst Cindy Milligan, and
                                       - 12 -

[*12] Technical Specialist Frank Cincotta in February 2014. Most of these

internal discussions centered around identifying who the partners of Dani, LLC,

were according to the returns and the related issue of whether TEFRA procedures

should apply to Dani, LLC. There appears to have been some initial confusion

regarding both of these issues.

      Ultimately, these initial discussions appear to have culminated with an

email from TEFRA Coordinator Deborah Collins to Agent Smith which stated “in

regards to Dani, LLC is is not [sic] TEFRA”, which Agent Smith purportedly

understood to mean that TEFRA did not apply. Petitioner disputes Agent Smith’s

understanding of the email and argues that the email should not be read to say that

TEFRA did not apply.

      After these conversations, Agent Smith scheduled an initial meeting with

Dani, LLC’s representatives and sent out an information document request

seeking, among other things, financial records, operating agreements, and

organization charts.

      On April 22, 2014, an initial meeting took place between Agent Smith and

Dani, LLC’s representatives. By that date representatives of Dani, LLC, had

provided Agent Smith with two relevant items: an operating agreement and a
                                       - 13 -

[*13] chart. On both the operating agreement and the chart it appeared that the

partners in Dani, LLC, were the Bridges Trust and the Mitchem Trust.

      Agent Smith wrote “true owners” on a copy of the chart provided by Dani,

LLC, on April 22, 2014, next to where the Bridges Trust and the Mitchem Trust

were listed, although Agent Smith claims that this writing referred to petitioner

and Mr. Mitchem and not the trusts. This same chart also showed that Dani, LLC,

was the owner of Half Done, LLC. A copy of the chart is provided below.
                                        - 14 -

[*14]




Notice of Deficiency

        Respondent issued petitioner a notice of deficiency on October 11, 2016.

Respondent determined deficiencies of $2,923,658 and $4,204,640 for the 2011

and 2012 tax years, along with additions thereto under section 6651(a)(1) of
                                       - 15 -

[*15] $657,823 and $946,044 for the 2011 and 2012 tax years, additions thereto

under section 6651(a)(2) of $730,914.50 for the 2011 tax year and an amount to be

computed at a later date for the 2012 tax year, and additions thereto under section

6654 of $57,882.05 and $75,381.83 for the 2011 and 2012 tax years.

      The Form 886A, Explanation of Items, accompanying the notice of

deficiency stated that arrangements between Dani, LLC, SCS Processing, LLC,

and Sand Dollar Capital Management, LLLP, lacked economic substance and that

any transaction entered into during tax years 2011 and 2012 pursuant to any

arrangement between those entities was disregarded for Federal tax purposes. It

also stated that the “other” expenses claimed on the returns of Dani, LLC, for tax

years 2011 and 2012 were not deductible. In addition it stated that petitioner

received net income from Dani, LLC, that was U.S. source income.

                                    Discussion

I.    Jurisdiction

      This Court is a court of limited jurisdiction; we may exercise our

jurisdiction only to the extent provided by statute. See sec. 7442; GAF Corp. &

Subs. v. Commissioner, 114 T.C. 519, 521 (2000). We have jurisdiction to

redetermine a deficiency if the Commissioner issues a valid notice of deficiency
                                        - 16 -

[*16] and the taxpayer files a timely petition. GAF Corp. & Subs. v.

Commissioner, 114 T.C. at 521.

      Petitioner argues that respondent erroneously determined that TEFRA did

not apply to Dani, LLC, and that the notice of deficiency issued to petitioner for

tax years 2011 and 2012 was invalid insofar as adjustments to or from Dani, LLC,

were determined, as Dani, LLC, was an LLC whose members included two grantor

trusts at all relevant times and therefore was subject to TEFRA. See sec.

6231(a)(9); sec. 301.6231(a)(1)-1(a)(2), Proced. & Admin. Regs. Therefore,

petitioner argues that this Court lacks jurisdiction. For the reasons discussed

below, we find that the notice of deficiency was valid and that this Court has

jurisdiction.

II.   TEFRA and Section 6231(g)(2)

      Section 6231(a)(1)(A) generally applies the TEFRA provisions to any entity

that is required to file a partnership return. But section 6231(a)(1)(B)(i) provides

an exception to this general rule. Under section 6231(a)(1)(B)(i), TEFRA

provisions do not apply to small partnerships, which include “any partnership
                                        - 17 -

[*17] having 10 or fewer partners each of whom is an individual (other than a

nonresident alien), a C corporation, or an estate of a deceased partner.”4

      TEFRA provisions do apply, however, if any partner in the partnership is a

“pass-thru partner”. Sec. 301.6231(a)(1)-1(a)(2), Proced. & Admin. Regs. A

“pass-thru partner” is a “partnership, estate, trust, S corporation, nominee, or other

similar person through whom other persons hold an interest in the partnership with

respect to which proceedings under this subchapter are conducted.” Sec.

6231(a)(9). A passthrough partner includes disregarded entities such as single-

member LLCs. See, e.g., Seaview Trading, LLC v. Commissioner, 858 F.3d 1281

(9th Cir. 2017); Bedrosian v. Commissioner, 143 T.C. 83, 104 (2014), aff’d, 940

F.3d 467 (9th Cir. 2019); Rev. Rul. 2004-88, 2004-2 C.B. 165.

      When the notice of deficiency was issued, respondent had concluded that

Dani, LLC’s partners were petitioner and Mr. Mitchem, that the small partnership

exception applied, and that TEFRA did not apply. Respondent has now conceded

for purposes of this motion that the small partnership exception did not apply

because the Bridges Trust and the Mitchem Trust, and not petitioner and Mr.

Mitchem, were the partners of Dani, LLC, at all relevant times.


      4
       Sec. 6231(a)(1)(B)(ii) also allows a partnership to elect to have the small
partnership exception not apply but no such election took place in this case.
                                        - 18 -

[*18] Respondent argues that even if the small partnership exception did not

apply, he may still rely on section 6231(g)(2). If section 6231(g)(2) applies,

respondent did not need to follow the procedural requirements of TEFRA and this

Court would have jurisdiction.

      Section 6231(g)(2) provides: “If, on the basis of a partnership return for a

taxable year, the Secretary reasonably determines that this subchapter [TEFRA]

does not apply to such partnership for such year but such determination is

erroneous, then the provisions of this subchapter shall not apply to such

partnership (and its items) for such taxable year or to partners of such

partnership.” (Emphasis added.)

      This Court has noted in the past that TEFRA procedures are “distressingly

complex and confusing” and that it “can even be complex and confusing to

determine whether a partnership is subject to TEFRA.” Bedrosian v.

Commissioner, 143 T.C. at 103-104 (citing Tigers Eye Trading, LLC v.

Commissioner, 138 T.C. 67, 92 (2012), aff’d in part, rev’d in part sub nom. Logan

Tr. v. Commissioner, 616 F. App’x 426 (D.C. Cir. 2015), and Rhone-Poulenc

Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533, 539-540 (2000)).

We have also noted that the difficulties in determining whether TEFRA

partnership procedures apply are generally caused by the difficulties in
                                       - 19 -

[*19] determining whether the partnership in question was an exempt “small

partnership”, which is precisely the issue before us. See Jimastowlo Oil, LLC v.

Commissioner, T.C. Memo. 2013-195.

       Congress was aware of the difficulties the Commissioner has faced in

determining whether TEFRA applies and enacted section 6231(g)5 as part of the

Taxpayer Relief Act of 1997, Pub. L. No. 105-34, sec. 1232(a), 111 Stat. at 1023,

to help alleviate the problem. See Bedrosian v. Commissioner, 143 T.C. at 104-

107.

       The provision was intended as a relief provision for the Commissioner in

situations where he has difficulty determining whether a partnership is subject to

TEFRA. The House Ways and Means Committee Report makes this clear, where

       5
        Sec. 6231(g) has two separate paragraphs. Para. (1) serves a similar
purpose to that of para. (2) and provides: “If, on the basis of a partnership return
for a taxable year, the Secretary reasonably determines that this subchapter applies
to such partnership for such year but such determination is erroneous, then the
provisions of this subchapter are hereby extended to such partnership (and its
items) for such taxable year and to partners of such partnership.” In effect, this
provision states that if the Commissioner erroneously determines that TEFRA
applies to a non-TEFRA partnership, the partnership will be subject to TEFRA so
long as that determination was reasonable on the basis of the partnership’s tax
return.
       Further, the title of subsec. (g), “Partnership return to be determinative of
whether subchapter applies”, can assist this Court in resolving any ambiguity in
the statute. See Caltex Oil Venture v. Commissioner, 138 T.C. 18, 28 (2012)
(citing Fla. Dep’t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33, 47
(2008)).
                                       - 20 -

[*20] the “Reasons for Change” states: “The IRS often finds it difficult to

determine whether to follow the TEFRA partnership procedures or the regular

deficiency procedures. * * * [T]he IRS might inadvertently apply the wrong

procedures and possibly jeopardize any assessment. Permitting the IRS to rely on

a partnership’s return would simplify the IRS’ task.” H.R. Rept. No. 105-148, at

587-588 (1997), 1997-4 C.B. (Vol. 1) 319, 909-910 (emphasis added). As this

Court previously noted, “Congress’ goal in enacting section 6231(g) was to

simplify the IRS’ task of choosing between the TEFRA procedures and the normal

deficiency procedures by permitting the IRS to rely on a partnership’s return.”

Bedrosian v. Commissioner, 143 T.C. at 105.

      The Commissioner may rely on section 6231(g)(2) if three elements are met:

(1) the Commissioner determined on the basis of the partnership return that the

TEFRA procedures did not apply to the partnership for that year, (2) the

determination was reasonable, and (3) the determination turned out to be

erroneous. Bedrosian v. Commissioner, 143 T.C. at 106. Both parties agree for

purposes of this motion that respondent’s determination that TEFRA did not apply

was erroneous. Accordingly, we analyze the first two elements below.
                                       - 21 -

[*21] A.    On the Basis of the Partnership Return

      The first element of section 6231(g)(2) is met if, on the basis of Dani LLC’s

2011 and 2012 returns, respondent determined that the TEFRA procedures did not

apply. See Bedrosian v. Commissioner, 143 T.C. at 106. Respondent may rely

solely on the returns when making a determination as to whether TEFRA applies.

See sec. 6231(g); Bedrosian v. Commissioner, 143 T.C. at 103-105; Sarma v.

Commissioner, T.C. Memo. 2018-201, at *22.

      Respondent argues that he made his erroneous determination on the basis of

the partnership returns and that disputed information provided during the

examination that conflicted with those returns, such as the operating agreement

and the chart that suggested the partners in Dani, LLC, were the Bridges Trust and

the Mitchem Trust, does not prevent him from relying on section 6231(g)(2).

      Based on the record we agree with respondent that he made his

determination on the basis of the partnership returns. Further, we agree with

respondent that conflicting information provided during the give-and-take of the

examination that remained in dispute did not prevent him from relying on the

returns to make a TEFRA determination.

      Petitioner argues that respondent’s erroneous determination that TEFRA did

not apply was not made solely on the basis of the returns and therefore he cannot
                                        - 22 -

[*22] rely on section 6231(g)(2).6 In addition petitioner argues that the chart and

operating agreement provided to respondent during the examination showed that

the partners in Dani, LLC, were grantor trusts, and therefore respondent could not

rely on the partnership returns to make a determination.

      Petitioner cites, among other nonprecedential sources, Chief Counsel

Advice 201319014 (May 10, 2013) to argue that respondent could not rely on the

partnership returns to make a TEFRA determination because respondent “can[not]

reasonably rely on * * * [a] return if * * * [he is] aware of contrary facts.”

Petitioner argues that the partnership identities disclosed on the operating

agreement and chart constitute “contrary facts” that prevented respondent from

reasonably relying on the returns.

      Chief Counsel Advice is not the law and may not be used or cited as

precedent. Sec. 6110(b)(1)(A), (k)(3); see Elbaz v. Commissioner, T.C. Memo.

2015-49, at *8 (“[W]e may not use or cite as precedent IRS Chief Counsel Advice

* * * in deciding this case.”); see also Ellison v. Commissioner, T.C. Memo. 2004-

57, slip op. at 18 (“Parties are statutorily proscribed from citing chief counsel


      6
       The determination as to whether TEFRA applied was made with the notice
that concluded the examination. In this case that was the notice of deficiency
issued to petitioner on October 11, 2016. See Bedrosian v. Commissioner, 143
T.C. 83, 106-107 (2014), aff’d, 940 F.3d 467 (9th Cir. 2019).
                                          - 23 -

[*23] advice as precedent.”). But we also note that the information in the

operating agreement and the chart did not rise to the level of “contrary fact” until

after a TEFRA determination was made. In fact neither petitioner nor respondent

appears to have believed that either the Bridges Trust or the Mitchem Trust was a

partner until after a petition was filed with this Court, as the initial petition filed

identified petitioner, rather than the Bridges Trust, as a partner in Dani, LLC.

      In Bedrosian v. Commissioner, 143 T.C. at 107-108, this Court highlighted

that although a TEFRA determination is not made until the notice that concludes

the examination, as a practical matter the Commissioner will inevitably have to

choose to treat the examination as though it is or is not a TEFRA examination at

an earlier date. As a result, during the give-and-take of an examination

information that conflicts with the returns may arise before a TEFRA

determination has been made.

      Disputed information that arises during the give-and-take of an

examination, such as the partnership identities disclosed in the operating

agreement and the chart, does not prevent the Commissioner from relying on

section 6231(g). If we found otherwise, we would neuter section 6231(g) as a

relief provision and discourage a fair, efficient, and cooperative examination

process. Further, petitioner does not provide any precedential legal authority for
                                        - 24 -

[*24] his position, which directly contradicts both the plain language of section

6231(g) and congressional intent.

      Respondent made an attempt to resolve potential ambiguities on the returns,

and after his inconclusive investigation, ultimately relied on the partnership

returns when he made the determination that TEFRA did not apply. Accordingly,

we find that on the basis of Dani LLC’s 2011 and 2012 returns respondent

determined that the TEFRA procedures did not apply and that neither the

operating agreement nor the chart prevented him from relying on section

6231(g)(2). The only question for us to decide, then, is whether respondent’s

determination was reasonable on the basis of the partnership returns.

      B.     A Reasonable Determination

      The second element of section 6231(g)(2) is met if the Commissioner

“reasonably determines” on the basis of the partnership returns that the partnership

at issue is not subject to TEFRA. (Emphasis added.) Because of legislative

silence on the definition of “reasonably”, this Court has given the term its ordinary

meaning. Bedrosian v. Commissioner, 143 T.C. at 109. This Court has opted to

interpret the ordinary meaning of “reasonably” in light of both the dictionary

definition of reasonable and the reasonable basis standard under the Code. Id.

at 109-110 (comparing “reasonably” under section 6231(g) to the dictionary
                                        - 25 -

[*25] definition of “reasonable” as well as the “reasonable basis” standard under

the Code). This Court has also highlighted that determining whether TEFRA

applies to a partnership requires a similar type of inquiry as the reasonable basis

standard. Id. at 110 (“[D]etermining whether TEFRA applies to a particular

partnership involves the application of the law (specifically, section 6231(a)(1)) to

a set of facts (specifically, the information shown on the face of a partnership

return). The reasonable basis standard of reporting involves the same type of

inquiry.”). In Bedrosian v. Commissioner, 143 T.C. at 110, this Court defined the

reasonable basis standard as

      a relatively high standard of tax reporting, that is, significantly higher
      than not frivolous or not patently improper. The reasonable basis
      standard is not satisfied by a return position that is merely arguable or
      that is merely a colorable claim. If a return position is reasonably
      based on one or more of the authorities set forth in § 1.6662-
      4(d)(3)(iii) (taking into account the relevance and persuasiveness of
      the authorities, and subsequent developments), the return position
      will generally satisfy the reasonable basis standard even though it
      may not satisfy the substantial authority standard as defined in §
      1.6662-4 (d)(2). * * * [Sec. 1.6662-3(b)(3), Income Tax Regs.]

(Alteration in original.) It is against this backdrop that we analyze whether

respondent’s determination that TEFRA did not apply was reasonable.

      Petitioner’s answers on Schedule B strongly imply that Dani, LLC’s

partners were individuals and directly contradict the claim that the partners were
                                       - 26 -

[*26] passthrough entities. The Schedules B-1 directly list petitioner and Mr.

Mitchem as partners and 50% owners and strongly suggest they are individuals.

The Schedules K-1 clearly list petitioner and Mr. Mitchem as individuals, partners,

and 50% owners of Dani, LLC. Further, the Schedules K-1 were issued to

petitioner and Mr. Mitchem, and Schedules K-1 are generally issued only to the

partners of the partnership. Sec. 6031(b).

      The only hints that TEFRA might apply are hidden away on Lines 20Y and

20C of an attachment to the Schedules K-1, where petitioner incorrectly states that

Dani, LLC, was 100% owned by Half Done, LLC, a disregarded entity which was

in turn 100% owned by SCS Processing, LLC, a foreign disregarded entity located

in St. Kitts and Nevis. In fact it appears that Dani, LLC, was the owner of Half

Done, LLC. This information on the attachments to the returns that itself isn’t

even correct is directly contradicted by every other applicable portion of the

returns.

      Respondent’s determination did not need to be right, it just needed to be

reasonable. His determination that TEFRA did not apply, based on the conclusion

that the partners in Dani, LLC, were petitioner and Mr. Mitchem, was eminently

reasonable and well grounded in the information shown on the face of the returns.
                                       - 27 -

[*27] Petitioner argues that this case is comparable to Bedrosian and that we

should find respondent’s determination unreasonable because the mention of a

passthrough partner on a return by law operates to make the determination that

TEFRA does not apply unreasonable. We disagree with petitioner’s

characterization of Bedrosian and think the facts in Bedrosian actually favor

respondent.

      Petitioner argues that “[t]he presence of any passthrough partner precludes

the application of the small partnership exception of section 6231(a)(1)(B) and

renders the partnership subject to TEFRA as a matter of law.” Bedrosian v.

Commissioner, 143 T.C. at 111. In Bedrosian v. Commissioner, 143 T.C. at 110-

111, one Schedule K-1 listed an S corporation as a partner, while the other

Schedule K-1 listed an LLC as a partner, although it identified the LLC as an

individual on the Schedule K-1. Under those circumstances the Court found “the

only reasonable conclusion” was that TEFRA applied. Id. at 111. The

Commissioner was able to ignore the errant and obviously incorrect statement that

the LLC was an individual because the totality of the return and common sense

demonstrated that the partners in that partnership were an S corporation and

an LLC.
                                         - 28 -

[*28] In the case before us the analogous portions of the Schedules K-1 (along

with the rest of the returns) clearly identify petitioner and Mr. Mitchem as both the

partners and as individuals. The mentions on the returns of Half Done, LLC, and

SCS Processing, LLC, are similar to the inaccurate listing of the LLC as an

“individual” on the Schedule K-1 in Bedrosian, and this minor inconsistency does

not demonstrate the “presence” of a passthrough partner as a matter of law when it

is contradicted by the rest of the returns.

      Petitioner also argues that the returns are “internally inconsistent and

irreconcilable” and that it was impossible for respondent to make a reasonable

determination as to whether TEFRA applied. But in Bedrosian the return was

arguably even more inconsistent because, in addition to the inconsistency on the

Schedule K-1, an answer on Schedule B directly contradicted the partner identities

on the Schedules K-1 as well. In that case this Court did not think those

inconsistencies prevented a TEFRA determination from being made. We think

respondent can disregard minor, inaccurate inconsistencies contradicted by the

totality of the returns here as well. Petitioner cannot litter his returns with

misleading and inaccurate information, selectively rely upon the information, and

then expect to bamboozle his way to a procedural victory.

      Accordingly, petitioner’s motion to dismiss will be denied.
                                       - 29 -

[*29] In reaching our conclusion, we have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are irrelevant or

without merit.


                                                An appropriate order will be issued.
