                       129 T.C. No. 2



                UNITED STATES TAX COURT



             GARY R. FEARS, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 21508-05.                    Filed August 2, 2007.


     R determined, in a notice of final partnership
administrative adjustment, that P was liable for sec.
6662(a) and (h), I.R.C. penalties. R sent P a notice
of deficiency and assessed the penalties against P. P
filed a petition with this Court and asserted a
partner-level defense relating to the penalties. R
filed a motion to dismiss for lack of jurisdiction and
contended that the Court lacks jurisdiction to
determine whether P is liable for the penalties.

     Held: This Court lacks jurisdiction to determine
whether P is liable for the penalties. Secs. 6221,
6230(a)(2)(A)(i), I.R.C.


Anthony G. Tumminello, for petitioner.

John J. Boyle, for respondent.
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                               OPINION

     FOLEY, Judge:   This matter is before the Court on

respondent’s motion to dismiss for lack of jurisdiction and to

strike.   The issue for decision is whether the Court has

jurisdiction to determine whether petitioner is liable for

section 6662(a) and (h)1 penalties relating to 2001.

                            Background

     On October 27, 2000, Gateway Investment Partners (Gateway)

was formed.   GF Gateway Investments LLC (GFG) and GF Investors

Inc. (GFI), an S corporation, owned 99 percent and 1 percent of

Gateway, respectively.   Petitioner was the sole member of GFG and

the sole shareholder of GFI.

     On November 21, 2000, GFG sold two foreign currency options

(the short options) to Deutsche Bank for $4,950,000 and purchased

two foreign currency options (the long options) from Deutsche

Bank for $5 million (collectively, the option positions).     On

November 22, 2000, GFG contributed the option positions to

Gateway in return for its interest in Gateway.     On December 7,

2000, Gateway paid $20,000 for     22,264.28.   On December 13, 2000,

the option positions terminated and were not exercised.     On

December 21, 2000, GFG transferred to GFI its 99-percent interest

in Gateway.   On that same day, the euro were transferred from

     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
                                 - 3 -

Gateway to GFI and Gateway was dissolved.   On December 22, 2000,

GFI sold the euro for $20,573.

     On September 6, 2001, Gateway filed a Form 1065, U.S. Return

of Partnership Income, relating to the tax year beginning October

27, 2000, and ending December 21, 2000.   The Form 1065 showed

distributions of property other than money in the amount of

$5,020,000 (i.e., the $5 million paid for the long options and

the purchase price of the euro).    On June 28, 2001, GFI filed a

Form 1120S, U.S. Income Tax Return for an S Corporation, relating

to 2000.   The Form 1120S showed a $4,999,427 loss relating to

foreign currency (i.e., a purported basis of $5,020,000 in the

foreign currency and a $20,573 amount realized).

     On October 22, 2001, petitioner filed his 2000 Federal tax

return and reported a net operating loss of $4,146,903 relating

to GFI’s foreign currency loss.    On August 12, 2002, petitioner

filed his 2001 Federal tax return and reported a net operating

loss of $4,146,903 and an overall loss of $2,948,966.   On June

28, 2004, respondent sent Gateway, GFG, and GFI Notices of Final

Partnership Administrative Adjustment (FPAAs) relating to 2000.

On November 26, 2004, petitioner filed a petition relating to the

FPAA issued to Gateway.   The Court, however, dismissed that

petition because it was not filed by a proper party.

     On August 10, 2005, respondent sent petitioner a notice of

deficiency relating to 2001.   Respondent disallowed petitioner’s
                                - 4 -

$4,146,903 net operating loss, $156,192 loss relating to legal

fees, and $227 Schedule C, Profit or Loss From Business, loss

relating to GFG.    Respondent also determined that petitioner was

liable for an accuracy-related penalty and a gross valuation

misstatement penalty pursuant to section 6662(a) and (h),

respectively.

     On November 14, 2005, petitioner, while residing in

Collinsville, Illinois, filed his petition with the Court.     On

November 23, 2005, respondent assessed the penalties against

petitioner relating to 2001.    On January 12, 2007, the Court

filed respondent’s motion to dismiss for lack of jurisdiction and

to strike relating to the penalties.      On February 12, 2007, the

Court filed petitioner’s objection to respondent’s motion to

dismiss.

                             Discussion

     Respondent contends that the Court lacks jurisdiction to

determine whether petitioner is liable for the section 6662(a)

and (h) penalties.    The Tax Court is a Court of limited

jurisdiction, and we may exercise jurisdiction only to the extent

authorized by Congress.    Naftel v. Commissioner, 85 T.C. 527, 529

(1985).    Section 6230(a)(2)(A)(i) provides that deficiency

proceedings apply to affected items which require partner level

determinations other than penalties that relate to adjustments to

partnership items.    In the Taxpayer Relief Act of 1997, Pub. L.
                                 - 5 -

105-34, sec. 1238(a), 111 Stat. 1026 (1997 TRA), Congress amended

section 6221 to provide that the applicability of any penalty

(including an accuracy-related penalty) which relates to an

adjustment of a partnership item shall be determined at the

partnership level.2   See sec. 6221.3    The 1997 TRA further

provides that a partner may assert a partner-level defense to a

penalty in a refund forum.   See H. Conf. Rept. 105-220, at 685

(1997), 1997-4 C.B. (Vol. 2) 1457, 2155; sec. 301.6221-1T,

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6781 (Mar. 5,

1987), amended by T.D. 8808, 1991-1 C.B. 682, Jan. 25, 1999.

     The notice of deficiency includes penalties that were

determined at the partnership level relating to Gateway’s taxable

year ending December 21, 2000.    Accordingly, the Court lacks

jurisdiction to redetermine the applicability of the penalties.

Sec. 6221.

     Contentions we have not addressed are irrelevant, moot, or

meritless.




     2
        The 1997 TRA applies to partnership taxable years ending
after Aug. 5, 1997. 1997 TRA sec. 1238(c), 111 Stat. 1027.
     3
        Prior to the 1997 TRA, penalties could only be
redetermined in a partner-level proceeding. N.C.F. Energy
Partners v. Commissioner, 89 T.C. 741 (1987); See H. Conf. Rept.
105-220, at 685 (1997), 1997-4 C.B. (Vol. 2) 1457, 2155.
                            - 6 -

To reflect the foregoing,


                                         An appropriate order will

                                    be issued.
