                            T.C. Memo. 1996-74



                          UNITED STATES TAX COURT



             DOUGLAS A. VANDER HEIDE AND JANET VANDER HEIDE,
                              Petitioners v.
               COMMISSIONER OF INTERNAL REVENUE, Respondent


       Docket No. 13745-95.                 Filed February 22, 1996.


       Douglas A. Vander Heide and Janet Vander Heide, pro se.


       Louise C. Pais, for respondent.


                            MEMORANDUM OPINION


       NAMEROFF, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7443A(b)(4)1 and Rules 180, 181, and

183.       This case is before the Court on respondent's motion to


       1
           Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the years at issue.
All Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 2 -


dismiss this case for lack of jurisdiction insofar as it relates

to adjustments arising from petitioners' interest in J & S World

Nurseries Limited Partnership (Nurseries).    At the time of the

filing of the petition herein, petitioners resided in Simi

Valley, California.   Some of the facts have been stipulated and

are so found.   The stipulation of facts and attached exhibits are

incorporated herein by this reference.

     During the years 1985 and 1986, petitioners were limited

partners in Nurseries.   Their interest was .45 percent and there

were over 100 partners in Nurseries.    On March 12, 1993, Form

870-P(AD), Settlement Agreement for Partnership Adjustments, was

executed by Harvey Minars, tax matters partner (TMP) for

Nurseries and by Robert Rosenblatt, Associate Chief, New York

City Appeals on behalf of respondent.    The Form 870-P(AD)

represented an offer made by the TMP of Nurseries and provided

that, if accepted by the Commissioner,

     the treatment of partnership items under this agreement
     will not be reopened in the absence of fraud,
     malfeasance, or misrepresentation of fact; and no claim
     for refund or credit based on any change in the
     treatment of partnership items may be filed or
     prosecuted.

     This offer is made by the [TMP] and binds all non
     notice and other partners to the terms of the agreement
     for whom the [TMP] may act under section 6224(c)(3) * *
     *

     In addition, the Form 870-P(AD) provided for the waiver of

the restrictions on assessment and collection of any deficiency
                               - 3 -


attributable to partnership items.     See sec. 6225(a).

Petitioners did not file a statement denying the settlement

authority of Nurseries' TMP under section 6224(c)(3)(B) at least

30 days prior to the date on which the settlement agreement was

entered into by the Commissioner and Nurseries' TMP.       See section

301.6224(c)-1T(a)(2), Temporary Proced. & Admin. Regs., 52 Fed.

Reg. 6786 (Mar. 5, 1987).   Indeed, at that time, petitioners were

unaware of the partnership proceeding.

     By letters dated June 14, 1993, and August 9, 1993,

petitioners were advised by respondent of changes made to their

1985 and 1986 joint Federal income tax returns as a result of the

settlement of the partnership items of Nurseries as they flowed

through to petitioners' 1985 and 1986 returns.     The computation

form attached to the letter for 1985 reflected that petitioners'

claimed ordinary loss of $74,978 with respect to Nurseries was

disallowed except for a $25,000 settlement allowance, that a

deficiency was computed in the amount of $18,429, that no

additions or penalties were being asserted, but that interest was

to be computed at 120 percent of the normal rates pursuant to

section 6621(c).   Similarly for 1986, the petitioners' claimed

loss for Nurseries of $11,309 was disallowed resulting in a

deficiency of $9,995.   These deficiencies and appropriate

interest were subsequently assessed, and petitioners began making

arrangements to pay them.
                                - 4 -


     During 1985 and 1986, petitioners were also partners in a

partnership entitled Hambrose Leasing 1985-4 (Hambrose).       The

details of the structure of Hambrose and of petitioners'

percentage investment in Hambrose are not a part of the record,

but it appears that Hambrose was not a TEFRA partnership.       On May

26, 1995, respondent issued notices of deficiency with respect to

petitioners' 1985 and 1986 Federal income tax returns determining

deficiencies in income taxes of $11,055 for 1985 and $25,573 for

1986, plus additions to tax under section 6653(a)(1)(A) and (B),

and section 6661(a) in connection with the adjustment of

petitioners' claimed losses attributable to Hambrose.     In

addition, in the notices of deficiency respondent determined that

interest was to be computed under section 6621(c) at 120 percent

of normal rates.

     A timely petition was filed with respect to the notices of

deficiency.   However, petitioners attempted to place into issue

the deficiencies arising out of the adjustments made to their

1985 and 1986 returns in connection with their investment in

Nurseries.    Respondent moved to dismiss that aspect of the case

for lack of jurisdiction and to strike all references in the

petition to Nurseries.   Petitioners contend that they were never

notified about the examination and settlement of Nurseries and

they therefore deserve an opportunity to litigate the

deficiencies related to Nurseries.      The resolution of this issue
                               - 5 -


requires a consideration of the unified audit and litigation

procedures enacted as part of the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324.

     The TEFRA partnership provisions were enacted in response to

the administrative problems experienced by the Internal Revenue

Service in auditing returns of partnerships, particularly tax

shelter partnerships with numerous partners.   Staff of Joint

Comm. on Taxation, General Explanation of the Revenue Provisions

of the Tax Equity and Fiscal Responsibility Act of 1982, at 268

(J. Comm. Print 1982).   As we stated in an earlier case

interpreting the TEFRA partnership provisions:

          By enacting the partnership and audit litigation
     procedures, Congress provided a method for uniformly
     adjusting items of partnership income, loss, deduction,
     or credit that affect each partner. Congress decided
     that no longer would a partner's tax liability be
     determined uniquely but "the tax treatment of any
     partnership item [would] be determined at the
     partnership level." Sec. 6221. [Maxwell v.
     Commissioner, 87 T.C. 783, 787 (1986).]

A "partnership item" is defined as an item that is more

appropriately determined at the partnership level than at the

partner level.   Sec. 6231(a)(3).   Partnership items include each

partner's proportionate share of a partnership's aggregate items

of income, gain, loss, deduction, or credit.   Sec. 6231(a)(3);

sec. 301.6231(a)(3)-1(a)(1)(i), Proced. & Admin. Regs.     The

treatment of partnership items is decided at the partnership

level, rather than in separate proceedings involving individual
                                - 6 -


partners.   See secs. 6221-6223; see also Harris v. Commissioner,

99 T.C. 121, 125 (1992), affd. 16 F.3d 75 (5th Cir. 1994).

     Section 6223(a) generally provides that the Commissioner

shall mail to each partner notice of the beginning of an

administrative proceeding (NBAP) at the partnership level with

respect to a partnership item, as well as the final partnership

administrative adjustment (FPAA) resulting from any such

proceeding.   However, the requirement for providing notices under

section 6223(a) does not apply to a partner of a partnership if

the partnership has more than 100 partners and the partner has

less than a 1-percent interest in the profits of the partnership.

See sec. 6223(b)(1).    Section 6223(g) requires the TMP to keep

each partner informed of all administrative and judicial

proceedings for the adjustment at the partnership level of

partnership items.   Taking petitioners' statements at face value,

we presume that Nurseries' TMP failed to advise petitioners of

Nurseries' partnership administrative proceeding.    However,

section 6230(f) provides that the failure of the TMP to forward

copies of the NBAP or FPAA to a partner, or otherwise fail to

fulfill his responsibilities, does not affect the applicability

of partnership proceedings or adjustments to such partner.      As we

have said elsewhere in regard to the alleged unfairness

surrounding the FPAA:

     Be that as it may, that is the procedure which the
     Congress has created, and we have no authority to
                                 - 7 -


     rewrite the statute in order to change procedure and
     substitute our own idea of "fairness." If there is any
     such inequity, it is up to Congress to revise the law.
     * * * [Genesis Oil & Gas, Ltd. v. Commissioner, 93 T.C.
     562, 566 (1989).]

     In regards to the settlement of a partnership proceeding,

section 6224(c)(3) provides that in the absence of fraud,

malfeasance, or misrepresentation of fact, a TMP may bind a

nonnotice partner by any settlement agreement entered into by the

TMP and in which the TMP expressly states that such agreement

shall bind the other partners.

     Once a partnership proceeding is finalized through

settlement, computational adjustments at the partner level are

made to record the change in the partners' tax liability that

results from adjustments in the settlement to partnership items.

The accuracy of the computational adjustments may be contested,

as provided in section 6230(c), but the treatment of the

partnership items under the settlement is conclusive.    Sec.

6230(c)(4).2    However, the Code does not provide this Court with

jurisdiction of a section 6230(c) type of judicial proceeding.

     Therefore it can be concluded that we have no jurisdiction

to consider anything pertaining to partnership items of

Nurseries.     Petitioners, as nonnotice partners of Nurseries, were


     2
          A proceeding under sec. 6230(c) requires, inter alia, a
timely claim for refund within 6 months of the notice of
computational adjustment. Petitioners did not file such a
document.
                               - 8 -


bound by the settlement entered into between Nurseries' TMP and

the Commissioner, and they have failed to bring an appropriate

and timely section 6230 proceeding.

     We sympathize with petitioners, but must point out that

petitioners are not victims of respondent or the Internal Revenue

Code.   They are victims of unscrupulous purveyors of tax shelters

who, having sold scam investments to petitioners, failed to

follow procedures and disappeared with the funds.   Petitioners

are also victims of their own greed and naivete by investing in

these scams, obtaining outrageous deductions and credits without

paying attention to the details of the tax laws, nor putting into

place some sort of check and balance system to monitor their own

investments.

     Respondent's motion to dismiss will be granted, and all

references to Nurseries in the petition will be stricken.


                                              An appropriate order

                                         will be issued.
