                          T.C. Memo. 2007-59



                        UNITED STATES TAX COURT



                  RALPH TASHJIAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14111-05L.              Filed March 12, 2007.



     Patrick J. Quinn and Bernard P. Kenneally, for petitioner.

     Catherine G. Chang, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:     The petition in this case was filed in

response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (notice of

determination).    After concessions by the parties, the issues for

decision are:
                              - 2 -

     (1) Whether petitioner’s arguments that

(a) Synergistics/Blueprint Software (Synergistics), Lumenetics,

and Data Flex partnerships were not properly subjected to the

unified audit and litigation procedures of sections 6221 through

6234 (hereinafter referred to as TEFRA procedures), for taxable

years 1982, 1983, and 1984, and (b) Dennis R. DiRicco (DiRicco)

was ineligible to serve as tax matters partner (TMP) of the

partnerships may be considered in this case;

     (2) if so, whether respondent’s Appeals officer properly

determined, during the section 6330 hearing (hearing), that

petitioner was precluded by section 6330(c)(2)(B) from

challenging the use of TEFRA audit procedures in the previous

cases;

     (3) whether respondent’s criminal investigation of

petitioner converted the partnership items on his tax returns to

nonpartnership items in 1982, 1983, and 1984;

     (4) whether petitioner was denied due process by being

unable to access records allegedly held by respondent; and,

ultimately,

     (5) whether there was an abuse of discretion by the Appeals

officer of the Internal Revenue Service (IRS) in determining that

collection of petitioner’s unpaid income tax liabilities for

1982, 1983, and 1984 should proceed.
                                 - 3 -

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in San Francisco, California, at the time that

he filed his petition.

The Synergistics, Lumenetics, and Data Flex Partnerships

     Beginning in 1980 to the present, petitioner has been in the

record promotion business working for various record companies.

During the 1980s, he was employed by Joseph Isgro (Isgro).

     While working for Isgro, petitioner was introduced to

Isgro’s tax attorney, DiRicco.    Through DiRicco, petitioner

became involved in a number of partnerships.

     In 1982 petitioner was a limited partner in Synergistics.

Synergistics recorded its Certificate of Limited Partnership on

October 13, 1983, in San Mateo County, California.    An amendment

to the Certificate of Limited Partnership was recorded on

November 10, 1983.   Petitioner and his wife at the time, Valerie

A. Tashjian (Mrs. Tashjian), made a $60,000 capital contribution

to Synergistics at the time that it was formed.    The Certificate

of Limited Partnership lists petitioner as a limited partner and
                               - 4 -

shows DiRicco as the general partner.    DiRicco signed the

certificate on behalf of petitioner and the other limited

partners as “Attorney in Fact”.   On his Form 1040, U.S.

Individual Income Tax Return, for 1982, petitioner deducted

$55,122 as a loss attributable to Synergistics.

     In 1983 petitioner was a limited partner in Lumenetics.

Lumenetics recorded its Certificate of Limited Partnership on

January 12, 1984, in San Mateo County.    The certificate lists

petitioner as a limited partner and shows Robert Steinjann

(Steinjann) as the general partner.    The certificate shows that

petitioner and Mrs. Tashjian made a $35,000 cash capital

contribution with a $70,000 note and had a 3.0702-percent

interest in the partnership.   There is no signature by, or on

behalf of, petitioner or Mrs. Tashjian in the certificate.     On

his Form 1040 for 1983, petitioner deducted losses attributable

to Lumenetics.   However, the amount of the deduction claimed is

unknown because neither party has a copy of the tax return that

was filed for that year.   On his Form 1040 for 1984, petitioner

deducted $277 attributable to Lumenetics and $361 attributable to

Synergistics.

     In 1984 petitioner was a limited partner in Data Flex.     Data

Flex recorded its Certificate of Limited Partnership on July 3,

1984, in the office of the secretary of state of the State of

California.   The certificate shows Steinjann as the general
                               - 5 -

partner.   On his Form 1040 for 1984, petitioner deducted $141,233

attributable to Data Flex.

     The principal place of business for each of the partnerships

was DiRicco’s office in San Mateo, California.    DiRicco formed,

organized, promoted, and served as the TMP for Synergistics,

Lumenetics, and Data Flex.

     Synergistics filed a tax return for 1982, which was

processed by the IRS on or about October 19, 1983.    Synergistics

was audited for 1982 under the TEFRA audit procedures.    A waiver

had been signed extending the period of limitations for

assessment of Synergistics to August 4, 1996.    Lumenetics filed a

tax return for 1983.   Lumenetics was audited for 1983 under the

TEFRA audit procedures.   Data Flex filed a tax return for 1984.

Data Flex was audited for 1984 under the TEFRA audit procedures.

     By notice of final partnership administrative adjustment

(FPAA) mailed to the TMP, dated October 1, 1987, respondent

disallowed a deduction that was reported on the Lumenetics 1983

tax return as “marketing expenses”.    In response to the FPAA,

DiRicco filed a petition with the Court on January 4, 1988, at

docket No. 114-88.   DiRicco also filed petitions with the Court

for Synergistics and Data Flex at docket Nos. 24781-87 and

20257-90, respectively.   DiRicco stipulated, on behalf of

Synergistics and Data Flex, that certain TEFRA issues in their
                                - 6 -

own cases before the Court would be bound by the Court’s findings

and decision in the Lumenetics case.

     On September 20, 1989, DiRicco pleaded guilty to, and was

convicted of, violating section 7206(2) for aiding and assisting

in the preparation of false tax returns for two of the limited

partners in the Lumenetics partnership.   DiRicco was declared

ineligible to practice law in the State of California on March 7,

1989, and resigned from the bar on July 7, 1989.   He was also

disbarred from the U.S. Supreme Court bar.   DiRicco, as TMP for

Lumenetics, continued to represent the partnership, pro se, in

the Tax Court litigation.   The case was tried on January 28,

1991.   In Lumenetics v. Commissioner, T.C. Memo. 1992-630, the

Court found that (1) Lumenetics failed to meet its burden of

proving that the partnership was entitled to the deduction for

“marketing expenses” and (2) Lumenetics failed to prove that

respondent was barred by the statute of limitations from

assessing taxes for 1983 against the Lumenetics partners with

respect to partnership items.

     The opinion in Lumenetics v. Commissioner, T.C. Memo. 1992-

630 n.4, stated, inter alia:

     When the original agreement was allegedly executed in
     October of 1983, Lumenetics was not even organized
     under the laws of the State of California. Lumenetics’
     private placement memorandum is dated Oct. 1, 1983, and
     its certificate of limited partnership * * * is dated
     Jan. 11, 1984. * * * none of the alleged investors in
     Lumenetics actually executed the certificate of limited
     partnership. Instead, * * * Steinjann, Lumenetics’
     general partner and Mr. DiRicco’s neighbor, executed
                               - 7 -

     the certificate of limited partnership apparently on
     behalf of the limited partners. [Citations omitted.]

     On November 19, 1992, Lumenetics moved to vacate the Court’s

decision.   On November 23, 1992, that motion was denied.

     On June 24, 1993, Tasha Corp. (Tasha), a limited partner of

Lumenetics, filed a Notice of Election to Participate in the

Lumenetics case.   Tasha then filed its own motion to vacate the

Lumenetics decision, arguing that DiRicco was ineligible to serve

as TMP of Lumenetics during the Court proceedings because of his

prior felony tax convictions and that DiRicco had conflicts of

interest that should have disqualified him from acting as TMP in

the Lumenetics case.   On May 5, 1995, the Court denied the motion

to vacate the Lumenetics decision.

     On June 5, 1995, Tasha filed a Notice of Appeal of the Tax

Court’s denial of its motion to vacate the Lumenetics decision to

the U.S. Court of Appeals for the Ninth Circuit.   On August 9,

1996, the U.S. Court of Appeals for the Ninth Circuit granted a

motion by Tasha for voluntary dismissal of the Notice of Appeal.

Criminal Investigation of Petitioner

     During the 1980s when petitioner was employed by Isgro,

Isgro and other promoters in the record industry were the subject

of a Federal strike force investigation for involvement in

“payola” (the payment of cash or gifts in exchange for airplay of

songs), money laundering, and other criminal activity involving

the record business.   In or about November 1986, the IRS began a
                               - 8 -

criminal investigation of petitioner for possible violation of

the internal revenue laws.   During the criminal investigation of

petitioner, the IRS suspected that petitioner’s criminal activity

occurred with respect to taxable years 1983, 1984, and later

years.   Petitioner eventually entered into a plea agreement as a

result of the investigation, and the IRS closed its investigation

on February 18, 1990.

Petitioner’s Income Tax and Section 6330 Proceedings

     As a result of the decision in Lumenetics, the partnership

losses on petitioner’s returns for 1982, 1983, and 1984, as

described above, were disallowed by the IRS, and deficiencies

were assessed against petitioner and Mrs. Tashjian.    On July 19,

1993, the IRS assessed an individual income tax liability against

petitioner in the amount of $29,565 for 1983 relating to

Lumenetics.   Additionally, on June 4, 1996, the IRS sent to

petitioner a Form 4549A-CG, Income Tax Examination Changes,

explaining how disallowances made during the TEFRA examinations

of Synergistics for 1982 and Data Flex for 1984 affected his tax

returns for those years.   On August 5, 1996, the IRS assessed

income tax liabilities against petitioner in the amounts of

$15,116 and $44,666 for 1982 and 1984, respectively.

     A Final Notice, Notice of Intent to Levy and Notice of Your

Right to a Hearing (notice) with respect to petitioner’s unpaid

liabilities was mailed to petitioner on October 28, 2004.

Petitioner timely requested a hearing in response to the notice.
                               - 9 -

Petitioner’s hearing was conducted through face-to-face meetings

and written and oral communication.       The IRS sent a notice of

determination to petitioner on June 21, 2005, sustaining the

IRS’s proposed levy with respect to petitioner’s outstanding

balances.   The notice of determination stated:

     [W]e believe that the requirements of law and
     administrative procedure have been met * * * .
     Assessments appear correct and [sic] based on
     established law, policy, and procedure. Notices of
     assessment or proposed deficiency assessments were sent
     to the address of record as required by statute. * * *

                *    *    *    *      *      *    *

     * * * You have had previous opportunities to contest
     the income tax liabilities for 1982, 1983, and 1984
     (which are the result of a Tax Court decision involving
     a partnership in which you had invested) and cannot
     raise that issue in the Due Process venue. * * *

                *    *    *    *      *      *    *

     The levy is intrusive but it is appropriate in this
     instance. You have made only occasional payments
     against these liabilities and there is no indication
     that the liabilities will be paid voluntarily. You
     have not proposed a specific alternative to collection.

                              OPINION

     The Internal Revenue Service Restructuring and Reform Act of

1998, Pub. L. 105-206, sec. 3401, 112 Stat. 685, 746, granted the

Court jurisdiction to review the Commissioner’s determination as

to the propriety of a filing of a notice of Federal tax lien

under section 6320 or a proposed levy upon property under section

6330.   Section 6330 generally provides that the IRS cannot

proceed with the collection of taxes by way of a levy on a
                               - 10 -

taxpayer’s property until the taxpayer has been given notice of

and the opportunity for an administrative review of the proposed

levy (in the form of an IRS Office of Appeals hearing).    Section

6330(c)(1) provides that the Appeals officer shall obtain

verification that the requirements of any applicable law or

administrative procedure have been met.    Section 6330(c)(2)(A)

provides that the taxpayer may raise "any relevant issue relating

to the unpaid tax” including spousal defenses, challenges to the

appropriateness of collection actions, and alternatives to

collection.    The taxpayer may also raise challenges to the

existence or amount of the underlying tax liability if he or she

did not receive a statutory notice of deficiency with respect to

the underlying tax liability or did not otherwise have an

opportunity to dispute that liability.    Sec. 6330(c)(2)(B).

     Section 6330(c)(3) provides that the determination of the

Appeals officer shall take into consideration the verification

under section 6330(c)(1), the issues raised by the taxpayer, and

whether the proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the

taxpayer that any collection action be no more intrusive than

necessary.    If the taxpayer is dissatisfied with the

determination made after the hearing, judicial review of the

determination, such as that sought in this case, is available.

See generally Goza v. Commissioner, 114 T.C. 176, 179-181 (2000).
                              - 11 -

     Where the validity of the underlying tax liability is at

issue, the Court will review the matter de novo.   Davis v.

Commissioner, 115 T.C. 35, 39 (2000).   Where the taxpayer

challenges the assessment procedures of the case, the Court will

review the matter for abuse of discretion.   Sego v. Commissioner,

114 T.C. 604, 610 (2000); Goza v. Commissioner, supra.    In order

to prevail under abuse of discretion, a taxpayer must prove that

the Commissioner exercised this discretion arbitrarily,

capriciously, or without sound basis in fact or law.   Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).

     It is unclear which position petitioner has taken.

Petitioner argues:

     The TEFRA jurisdiction did not lie due to non-formation
     of the partnership entities according to law, failure
     to have a valid * * * [TMP] represent Petitioner within
     the scope of TEFRA legislative intent, failure of
     Respondent to follow TEFRA procedures in identifying
     and selecting a proper * * * [TMP], and failure to
     treat Petitioner’s criminal investigation as a
     conversion of partnership items to non-partnership
     items. The combined effects of these errors caused the
     TEFRA assessments to be ineffective as against
     Petitioner. * * *

The TEFRA procedures as they relate to the partnerships and

petitioner’s challenge of the TMP’s representation of the

partnerships are discussed below.

     Petitioner argues that the decision in Lumenetics v.

Commissioner, T.C. Memo. 1992-630, should be void for lack of

jurisdiction because:   (1) The TEFRA audit procedures were

inapplicable to the partnerships because they were improperly
                               - 12 -

formed under California law and/or (2) the criminal investigation

of DiRicco made him a disqualified TMP and he breached his

fiduciary duties as a TMP by not giving petitioner notice of the

Lumenetics case.    Petitioner contends that, because the decision

in Lumenetics should be void for lack of jurisdiction, the

assessments against him in this case (based on partnership

adjustments made by the IRS) were improper.

       Rule 162 provides that a party seeking to vacate a decision

must file an appropriate motion within 30 days after the decision

is entered, unless the Court allows otherwise.    Whether the Court

allows the filing of a motion to vacate a decision after the

referenced 30-day period is generally within the sound discretion

of the Court.    See Estate of Egger v. Commissioner, 92 T.C. 1079,

1083 (1989); see also Adkins v. Commissioner, T.C. Memo. 2005-

260.    Even if a decision is otherwise final, the Court has

jurisdiction to vacate a decision that is void; i.e., because the

Court lacked jurisdiction to enter the decision in the first

place.    See Billingsley v. Commissioner, 868 F.2d 1081 (9th Cir.

1989); Abeles v. Commissioner, 90 T.C. 103, 105-106 (1988);

Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999, 1001-

1002 (1978); see also Adkins v. Commissioner, supra.

       Though petitioner may be allowed to raise at any time the

issue of lack of subject matter jurisdiction making a decision

void, he concedes that the proper course for him would have been

to file a motion to vacate that decision (in Lumenetics, docket
                                - 13 -

No. 114-88) under Rule 162.   Petitioner admits in his brief that

“The proper course of action to challenge the tax and interest

assessments on the grounds raised herein would be to petition the

Tax Court for leave to file a Motion to Vacate its decision.”

Adjudication of those grounds here would subject the validity of

the decision in the Lumenetics case to an impermissible

collateral attack.   Cf. Celotex Corp. v. Edwards, 514 U.S. 300,

313 (1995) (quoting Walker v. Birmingham, 388 U.S. 307, 314

(1967)); McCorkle v. Commissioner, 124 T.C. 56, 65-66 (2005);

Sennett v. Commissioner, 69 T.C. 694, 696-697 (1978); Hackworth

v. Commissioner, T.C. Memo. 2004-173.

     (As indicated above, other partners in the Lumenetics

partnership attempted and failed in the Tax Court as well as in

the U.S. Court of Appeals for the Ninth Circuit to have the

decision in Lumenetics vacated.    Our statement regarding the

proper procedure for challenging the jurisdiction of the Court in

that case should not be construed as a recommendation that the

course be further pursued.)

     Even if petitioner were entitled to contest the underlying

tax liability in this case, he has not shown, and apparently is

unable to show, that disallowance of the partnership losses

claimed on his individual returns for the years in issue is

erroneous.   Petitioner admitted at trial that he never had

records of income or expenses incurred by the partnerships that

were deducted on his returns.    The bottom line is that petitioner
                               - 14 -

has not substantiated the large deductions that he claimed

against his other income in 1982, 1983, and 1984.

     Petitioner additionally argues that the criminal

investigation of petitioner caused the partnership items of

petitioner in 1982, 1983, and 1984, to become nonpartnership

items.   Therefore, he contends that he should not be bound by the

decision in Lumenetics v. Commissioner, supra, because he should

not have been affected by the TEFRA procedure.    The Appeals

officer did not address this argument in the notice of

determination, but instead grouped it with petitioner’s other

claims and stated that petitioner was barred from raising these

issues under section 6330(c)(2)(B) because he had a previous

opportunity to do so.

     Partnership items of a partner for a partnership taxable

year become nonpartnership items as of the date the IRS mails to

such partner a notice that such items shall be treated as

nonpartnership items.   Sec. 6231(b)(1)(A).   One circumstance

under which this could happen is when the taxpayer is under

criminal investigation.   Sec. 6231(c)(1)(B).   Section

301.6231(c)-5T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.

6793 (Mar. 5, 1987), states:

          The treatment of items as partnership items with
     respect to a partner under criminal investigation for
     violation of the internal revenue laws relating to
     income tax will interfere with the effective and
     efficient enforcement of the internal revenue laws.
     Accordingly, partnership items of such a partner
     arising in any partnership taxable year ending on or
                             - 15 -

     before the last day of the latest taxable year of the
     partner to which the criminal investigation relates
     shall be treated as nonpartnership items as of the date
     on which the partner is notified that he or she is the
     subject of a criminal investigation and receives
     written notification from the Service that his or her
     partnership items shall be treated as nonpartnership
     items. The partnership items of a partner who is
     notified that he or she is the subject of a criminal
     investigation shall not be treated as nonpartnership
     items under this section unless and until such partner
     receives written notification from the Service of such
     treatment.

     In Phillips v. Commissioner, 272 F.3d 1172, 1176 (9th Cir.

2001), affg. 114 T.C. 115 (2000), the Court of Appeals for the

Ninth Circuit (the circuit to which our decision in this case is

appealable) found that the mere existence of past criminal

investigations does not prove a disabling conflict of interest.

Additionally, the court stated that the regulation, read as a

whole, vests discretion in the IRS to notify a partner that he or

she is under criminal investigation and that, until such notice

is given, partnership items remain partnership items.   Id.    The

Court of Appeals distinguished Phillips in River City Ranches #1

Ltd. v. Commissioner, 401 F.3d 1136, 1142 (9th Cir. 2005), affg.

in part and revg. on this issue T.C. Memo. 2003-150, stating:

     The lesson of Phillips is that the sole fact of past
     criminal investigations does not establish a disabling
     conflict of interest. But there is more to the
     partnerships’ assertion of a disabling conflict than
     past criminal investigations, and the record before us
     in this case is not a bare skeleton.

The Court of Appeals for the Ninth Circuit remanded the case for

further discovery on whether the TMP in that situation had a
                              - 16 -

disabling conflict of interest.   However, the current situation

is distinguishable from River City Ranches #1 Ltd., primarily

because petitioner was not purporting to act as TMP and thus owed

no comparable fiduciary duty to other partners.

     Petitioner was investigated for violation of internal

revenue laws occurring during 1983, 1984, and later.    The

partnership items at issue arose during partnership years ended

on or before the last day of the latest year for which he was

being criminally investigated.    However, there is nothing in the

record to show that written notification was ever mailed to

petitioner stating that his partnership items would be treated as

nonpartnership items.   Additionally, there is nothing to suggest

that the criminal investigation of petitioner would have

interfered with effective and efficient enforcement of internal

revenue laws or would have created a disabling conflict of

interest.

     Accordingly, the assessments made by the IRS, based on the

partnership adjustments, were proper, and the failure of the

Appeals officer specifically to address on the merits

petitioner’s argument as to the conversion of partnership items

does not warrant a remand of this case for another hearing.    See

Lunsford v. Commissioner, 117 T.C. 183, 189 (2001).

     Finally, petitioner contends that, during his criminal

investigation, several boxes of his files were seized by the

investigators.   He further contends that he and/or his counsel
                               - 17 -

requested the records and that they were never returned.

Petitioner states that DiRicco was in possession of certain of

petitioner’s records and that DiRicco failed to return those

records to petitioner, as they were allegedly stored in a

contaminated storage area and could not be recovered.    Petitioner

contends that the records that he has not recovered would show

that Isgro made some contributions to the partnerships on his

behalf but without his knowledge and that they would show his

percentage interest in the partnerships.   Because he was unable

to retrieve the records, petitioner argues, he was unable to

contact other partners or to intervene in the litigation.

Petitioner contends that the failure to return petitioner’s

records was a violation of his due process rights.

     We do not see how any of the records seized by the IRS

during its criminal investigation of him are relevant to the

adjustments made to the partnerships that affected the

assessments against petitioner.   Petitioner testified that the

documents that were taken were personal in nature and had nothing

to do with the partnerships.   The documents contained in the

record, such as Forms 1040, Schedules K-1, Partner’s Share of

Income, Credits, Deductions, etc., the notice of intent to levy,

and the notice of determination, are more than adequate to decide

the issues in this case.   Petitioner has failed to show that not

being able to access his records constitutes a denial of due

process.
                              - 18 -

Conclusion

     Petitioner has offered no credible evidence showing that

respondent’s determination was arbitrary, capricious, or without

sound basis in law.   The Appeals officer verified that applicable

law and administrative procedures had been met and determined

that the proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the

taxpayer that any collection action be no more intrusive than

necessary.   Based upon our review of the relevant evidence and

law in this case, we sustain the determination of respondent to

proceed with the proposed levy to collect petitioner’s unpaid

income tax liabilities for 1982, 1983, and 1984.

     We have considered the arguments of the parties that were

not specifically addressed in this opinion.   Those arguments are

either without merit or irrelevant to our decision.

     To reflect the foregoing,


                                         Decision will be entered

                                    for respondent.
