                          T.C. Memo. 1998-138



                        UNITED STATES TAX COURT

            FIRST BLOOD ASSOCIATES, RICHARD M. GREENBERG,
              TAX MATTERS PARTNER, ET AL.,1 Petitioner,
           v. COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket Nos.     623-92, 13014-92,           Filed April 14, 1998.
                   15641-92, 12062-94.


     Thomas E. Redding, for participants Michael J. and JoAnn

Scarfia.

     Joseph F. Long and Gerald A. Thorpe, for respondent.



                          MEMORANDUM OPINION

     POWELL, Special Trial Judge:        These consolidated cases are

before the Court on participants Michael J. and JoAnn Scarfia's


     1
          Cases of the following petitioners are consolidated
herewith: First Blood Associates, Richard M. Greenberg, Tax
Matters Partner, docket No. 13014-92; First Blood Associates,
Richard M. Greenberg, Tax Matters Partner, docket No. 15641-92;
and First Blood Associates, Eugene C. Lipsky, A Partner Other
Than the Tax Matters Partner, docket No. 12062-94.
                                - 2 -


(collectively the Scarfias) motion to dismiss for lack of

jurisdiction.    Respondent concedes that the filing of a petition

in bankruptcy by Mr. Scarfia divested this Court of jurisdiction

over Mr. Scarfia and his partnership items pursuant to section

6231(b) and (c)2 and section 301.6231(c)-7T(a), Temporary Proced.

& Admin. Regs., 52 Fed. Reg. 6793 (Mar. 5, 1987) (the bankruptcy

rule).   The primary issue is whether the operation of the

bankruptcy rule also divests this Court's jurisdiction over Mrs.

Scarfia, who is deemed a partner and a party to this proceeding

subject to the unified audit and litigation procedures of

sections 6221 through 6231 enacted by the Tax Equity & Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),

96 Stat. 648, by virtue of having filed joint income tax returns

with Mr. Scarfia.

                             Background

     First Blood Associates (the partnership) is one of a number

of partnerships formed to purchase and exploit the rights to

certain films.   The general partners of those partnerships were

Richard M. Greenberg and/or A. Frederick Greenberg.3   Respondent

     2
          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.
     3
          On its partnership returns for the years in issue the
partnership claimed loss deductions based upon the alleged
purchase of the first-run motion picture "First Blood" starring
                                                   (continued...)
                                   - 3 -


began an examination of the partnership at some point in the mid-

1980's as part of a national project focusing on the various

partnerships of the Greenberg brothers.

     Respondent issued notices of final partnership

administrative adjustments (FPAA's) determining adjustments to

partnership items for the following partnership taxable years:

                                     Partnership
           4
Docket No.     FPAA Date             Taxable Year    Petition Date

623-92         Oct.   21,   1991     1983-1987       Jan.   8, 1992
13014-92       Mar.   24,   1992       1988          June   12, 1992
15641-92       Apr.   20,   1992       1989          July   10, 1992
12062-94       Mar.   14,   1994       1990          July   11, 1994

     At the time the petitions in docket Nos. 623-92, 13014-92,

and 15641-92 were filed the partnership's principal place of

business was located at Greenwich, Connecticut.     At the time the

petition in docket No. 12062-94 was filed the partnership was in




     3
      (...continued)
Sylvester Stallone. We note that whether the partnership
obtained the benefits and burdens of ownership in the film is not
here at issue, but has formed the basis for considerable
securities litigation. See, e.g., Block v. First Blood
Associates, 988 F.2d 344, 347 (2d Cir. 1993), and cases cited
therein.
     4
          The petitions in docket Nos. 623-92, 13014-92, and
15641-92 were filed by the tax matters partner (TMP). The
petition in docket No. 12062-94 was filed by notice partner
Eugene C. Lipsky. Sec. 6226(b) provides in part that if the TMP
does not file a petition, then any notice partner may, within 60
days after the close of the 90-day period set forth in sec.
6226(a), file a petition for readjustment of partnership items
for the taxable year involved.
                                - 4 -


dissolution; the partnership's principal place of business during

its wind-down period was located in New York, New York.

     The Scarfias were married and filed joint Federal income tax

returns for the years at issue.    Mr. Scarfia's investment in the

partnership was purchased only in his name.    The Schedules K-1

issued by the partnership were issued solely in the name of Mr.

Scarfia.    The Scarfias resided in the State of Florida for all

periods relevant to this proceeding.

     On April 25, 1986, Mr. Scarfia filed a petition in

bankruptcy with the U.S. Bankruptcy Court for the Middle District

of Florida.5   Mr. Scarfia subsequently was granted a discharge by

order of the Bankruptcy Court dated March 20, 1992.    Mrs. Scarfia

did not file a petition in bankruptcy.

                             Discussion

The TEFRA Provisions

     Pursuant to the TEFRA provisions the tax treatment of

"partnership items" generally is to be determined at the

partnership level.    See Maxwell v. Commissioner, 87 T.C. 783, 788

(1986).    Partnership items include each partner's proportionate

share of the partnership's aggregate items of income, gain, loss,

deduction, or credit.    Sec. 6231(a)(3); sec. 301.6231(a)(3)-



     5
          Mr. Scarfia's bankruptcy case originally was filed
pursuant to ch. 11 on Apr. 25, 1986, and was converted to ch. 7
on Nov. 4, 1986.
                                - 5 -


1(a)(1)(i), Proced. & Admin. Regs.      Nonpartnership items are

items that are not partnership items.      Sec. 6231(a)(4).

     This Court's jurisdiction of a partnership action is

predicated upon the mailing of a valid FPAA by the Commissioner

to the tax matters partner (TMP) and the timely filing by the TMP

or other eligible partner of a petition seeking a readjustment of

partnership items.   Rule 240(c); Seneca, Ltd. v. Commissioner, 92

T.C. 363, 365 (1989), affd. without published opinion 899 F.2d

1225 (9th Cir. 1990).   Neither the Scarfias nor respondent

disputes that the FPAA's were valid and that the petitions were

timely filed in these cases.

     For purposes of the TEFRA provisions section 6231(a)(2)

defines a partner as follows:

          (A) a partner in the partnership, and

          (B) any other person whose income tax liability under
     subtitle A is determined in whole or in part by taking into
     account directly or indirectly partnership items of the
     partnership.

     Section 301.6231(a)(2)-1T(a)(1), Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 6790 (Mar. 5, 1987), provides that a spouse

who files a joint return with an individual holding a separate

interest in the partnership shall be treated as a partner for

purposes of the TEFRA provisions and is permitted to participate

in administrative and judicial proceedings.

     Section 6226(c)(1) provides that if a partnership action is

brought under section 6226(a) or (b) each person who was a
                               - 6 -


partner in such partnership at any time during the year in issue

shall be treated as a party to such action.   However, section

6226(d)(1)(A) provides, in pertinent part, that section 6226(c)

shall not apply to a partner after the day on which the

partnership items of such partner for the particular partnership

taxable year become nonpartnership items by reason of one of the

events described in section 6231(b).   Section 6231(b)(1)(D)

provides, in part, that for purposes of the TEFRA provisions the

partnership items of a partner shall become nonpartnership items

as of the date a change occurs under subsection (c) of section

6231.

     Section 6231(c) provides that in certain special enforcement

areas the Secretary may provide by regulations for the conversion

of a partner's partnership items into nonpartnership items.

Computer Programs Lambda, Ltd. v. Commissioner, 89 T.C. 198, 203

(1987); see H. Conf. Rept. 97-760, at 610 (1982), 1982-2 C.B.

600, 667.   Pursuant to this grant of authority, the Secretary

promulgated the so-called bankruptcy rule which provides as

follows:

          (a) Bankruptcy. The treatment of items as partnership
     items with respect to a partner named as a debtor in a
     bankruptcy proceeding 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 before the last
     day of the latest taxable year of the partner with respect
     to which the United States could file a claim for income tax
     due in the bankruptcy proceeding shall be treated as
     nonpartnership items as of the date the petition naming the
                                 - 7 -


       partner as debtor is filed in bankruptcy. [Sec.
       301.6231(c)-7T(a), Temporary Proced. & Admin. Reg., 52 Fed.
       Reg. 6793 (Mar. 5, 1987).]

The effect of the conversion is to remove the debtor-partner from

the partnership proceeding and subject the converted items to the

deficiency procedures applicable to the partner's individual tax

case.      Computer Programs Lambda, Ltd. v. Commissioner, supra at

203.

Nature of Mrs. Scarfia's Interest in the Partnership

       In order to assess the impact of the bankruptcy rule upon

Mrs. Scarfia, we must first ascertain the nature of her interest,

if any, in the partnership.     State law determines ownership of

property, and Federal income tax liability follows ownership.

United States v. Mitchell, 403 U.S. 190, 197 (1971).     It is

undisputed that the Scarfias resided in the State of Florida for

all periods relevant to this proceeding.     Therefore, we apply the

laws of Florida to ascertain the nature of Mrs. Scarfia's

interest, if any, in Mr. Scarfia's partnership investment.

       Florida is not a community property State.6   Herrera v.

Herrera, 673 So.2d 143, 144 (Fla. Dist. Ct. App. 1996); Green v.

Green, 442 So.2d 354, 355 (Fla. Dist. Ct. App. 1983).     The

Florida constitution provides generally that:     "There shall be no

       6
          Although not relevant to the instant matter, we note
that community property principles have taken root in Florida to
a limited degree. See Florida Uniform Disposition of Community
Property Rights at Death Act, Fla. Stat. Ann. secs. 732.216-
732.228 (West 1995).
                               - 8 -


distinction between married women and married men in the holding,

control, disposition, or encumbering of their property, both real

and personal".   Fla. Const. art. X, sec. 5; see Hallman v.

Hospital & Welfare Bd., 262 So.2d 669, 670 (Fla. 1972).      Florida

law permits husbands and wives to hold, control, encumber, or

dispose of separate property without joinder or consent of their

spouses in all respects as if they were unmarried.   Fla. Stat.

Ann. sec. 708.08 (West 1988); Holland v. Holland, 406 So.2d 496,

497-498 (Fla. Dist. Ct. App. 1981).

     In the instant cases, the parties have stipulated that Mr.

Scarfia purchased the partnership interest in his name, and that

the partnership issued all Schedules K-1 solely in Mr. Scarfia's

name.   We conclude that Mrs. Scarfia had neither a joint interest

in Mr. Scarfia's partnership investment nor a separate interest

in the partnership.

Analysis Under TEFRA

     The parties agree that as of the date that Mr. Scarfia filed

a voluntary petition in bankruptcy, all partnership items

attributable to him were converted to nonpartnership items by

conjunctive operation of the bankruptcy rule and section 6231(b)

and (c).   As a result of that conversion, this Court in a

partnership proceeding does not have jurisdiction with respect to

Mr. Scarfia pursuant to section 6226(d)(1)(A) and (f).
                                 - 9 -


     The parties further agree that Mrs. Scarfia's status as a

partner for TEFRA purposes derives solely from the joint income

tax returns she filed with Mr. Scarfia.    Sec. 6231(a)(2); sec.

301.6231(a)(2)-1T(a)(1), Temporary Proced. & Admin. Regs., 52

Fed. Reg. 6790 (Mar. 5, 1987).    It is also undisputed that by the

filing of joint returns Mrs. Scarfia became jointly and severally

liable for any taxes due thereon.    Sec. 6013(d)(3).   The parties

diverge, however, on whether the conversion of Mr. Scarfia's

partnership items to nonpartnership items pursuant to the

bankruptcy rule has any impact upon our jurisdiction over Mrs.

Scarfia in this proceeding.

     Mrs. Scarfia posits that Mr. Scarfia's status as a debtor in

a bankruptcy proceeding has a twofold effect upon her.    First,

she contends that any partnership items that could be adjusted in

the TEFRA proceeding that would affect her tax liability are

converted to nonpartnership items, thereby removing the basis for

this Court's subject matter jurisdiction under section 6226(f)

with regard to her.   Second, she argues that because her tax

liability is no longer "determined in whole or in part by taking

into account directly or indirectly partnership items of the

partnership", she ceases to be a partner within the meaning of

section 6231(a)(2)(B) and, consequently, must no longer be within

the personal jurisdiction of this Court under section 6226(c).
                               - 10 -


     Significantly, Mrs. Scarfia is unable to point to any

statute or regulation explicitly divesting this Court of

jurisdiction over her as a necessary concomitant to the

conversion of Mr. Scarfia's partnership items under the

bankruptcy rule.   The bankruptcy rule provides that the

"partnership items of such a partner * * * shall be treated as

nonpartnership items as of the date the petition naming the

partner as debtor is filed in bankruptcy".    Sec. 301.6231(c)-

7T(a), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6793 (Mar.

5, 1989); (Emphasis added.).    Mrs. Scarfia does not contend that

she ever was in bankruptcy, and thus she is not within the

literal application of this rule.

     Instead, Mrs. Scarfia makes an interpretative argument based

upon section 6226(d)(1)(A).    That section provides that this

Court loses personal jurisdiction over a partner after the day on

which "the partnership items of such partner * * * became

nonpartnership items" by reason of certain events, including the

naming of the partner as a debtor in bankruptcy.    (Emphasis

added.)   To bring herself within the ambit of section

6226(d)(1)(A), Mrs. Scarfia argues that the quoted language

should be interpreted to mean "the partnership items related to

such partner".

     We disagree with Mrs. Scarfia's construction of the statute.

The language in section 6226(d)(1)(A) parallels that of the
                                - 11 -


bankruptcy rule.   Both are specific in targeting only the debtor

and in converting only the partnership items of the debtor.

Moreover, Mrs. Scarfia's expansive reading of section

6226(d)(1)(A) is contrary to the fundamental principle of

statutory construction that where a statute is clear on its face,

unequivocal evidence of legislative purpose is required to

override the plain meaning of the words used.    Huntsberry v.

Commissioner, 83 T.C. 742, 747-748 (1984).    As Mrs. Scarfia has

proffered no such evidence, we decline to adopt the broad

interpretation urged upon us.

     Respondent argues that the resolution of this issue is

controlled by this Court's decision in Dubin v. Commissioner, 99

T.C. 325 (1992).    In Dubin this Court addressed the impact of the

bankruptcy rule upon a taxpayer who held a joint interest in a

partnership with her husband and with whom she had filed a joint

return.    The taxpayer's husband was named as a debtor in a

bankruptcy proceeding prior to the issuance of a single notice of

deficiency that disallowed certain partnership losses and

credits.   The taxpayer filed a motion to dismiss for lack of

jurisdiction on the ground that respondent's notice of deficiency

was invalid for failure to comply with the TEFRA procedures.     We

noted that section 6231(a)(12) provides a general rule, subject

to regulatory exception, that spouses with a joint interest in a

partnership are treated as one person (or partner).    We reasoned
                              - 12 -


that section 301.6231(a)(12)-1T(a), Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 6793 (Mar. 5, 1987), supersedes that rule by

providing that, with certain narrow exceptions, spouses holding a

joint interest are to be treated as two distinct partners.7    We

concluded our analysis as follows:

     Because the focus in the bankruptcy rule is limited to the
     partner's status as a debtor in bankruptcy, we are compelled
     here to look only to petitioner's status, since she is the
     only partner before us, and, although she is a partner, she
     is not in bankruptcy. Accordingly, we find the bankruptcy
     rule to be inapplicable. [Dubin v. Commissioner, supra at
     334.]

Because the taxpayer was unaffected by the conversion of her

husband's partnership items we held the notice of deficiency

issued to the taxpayer to be invalid.

     We recognize that Dubin v. Commissioner, supra, involved a

joint partnership interest arising under community property law,

thereby implicating different statutory and regulatory provisions

than those here at issue.   However, we see no meaningful

distinction between the provisions applicable to a spouse whose

partner status derives from community property principles (viz, a

joint partnership interest) and a spouse who is deemed a partner




     7
          Our decision in Dubin v. Commissioner, 99 T.C. 325,
333-334 (1992), reflected our interpretation that, for purposes
of the bankruptcy rule, the term "person" as used in sec.
6231(a)(12) is synonymous with the term "partner" in sec.
301.6231(a)(12)-1T(a), Temporary Proced. & Admin. Regs., 52 Fed.
Reg. 6793 (Mar. 5, 1987).
                              - 13 -


because a joint return was filed.8     Cf. Estate of Callaway v.

Commissioner, T.C. Memo. 1998-99.

     In addition, we note that the policy behind the bankruptcy

rule is inapplicable to Mrs. Scarfia's situation.     The purpose

for the bankruptcy rule is to prevent the automatic stay of 11

U.S.C. section 362(a)(8) (1988), from impeding the TEFRA

proceeding.   See Computer Programs Lambda, Ltd. v. Commissioner,

89 T.C. at 203.   Title 11 U.S.C. section 362(a)(8) (1988),

generally provides that the filing of a bankruptcy petition

operates as a stay of the commencement or continuation of a

proceeding before the Tax Court concerning the debtor.     See Kieu

v. Commissioner, 105 T.C. 387, 391 (1995).     Since other partners

are unaffected by the resolution of a debtor-partner's bankruptcy

proceeding, the TEFRA proceeding should not be delayed pending

the outcome of a single partner's bankruptcy proceeding.     Mrs.

Scarfia is not a debtor in a bankruptcy proceeding.

Consequently, there is no concern about an automatic stay, and



     8
          Indeed, the relevant regulatory provisions utilize
similar language in their treatment of a partner with a direct
interest (e.g., through community property) and an indirect
interest (through filing of a joint return). Compare sec.
301.6231(a)(12)-1T(a), Temporary Proced. & Admin. Regs., supra
("Thus, both spouses are permitted to participate in
administrative and judicial proceedings.") with sec.
301.6231(a)(2)-1T(a)(1), Temporary Proced. & Admin. Regs., 52
Fed. Reg. 6790 (Mar. 5, 1987) ("Thus, the spouse who files a
joint return with a partner will be permitted to participate in
administrative and judicial proceedings.").
                                  - 14 -


thus no reason to convert her partnership items to nonpartnership

items and remove her from these proceedings.

       In sum, Mrs. Scarfia may not harness the bankruptcy rule as

an expedient to ride Mr. Scarfia's coattails out of these TEFRA

proceedings.       We hold that Mrs. Scarfia's partnership items did

not convert to nonpartnership items at the time that Mr.

Scarfia's partnership items converted to nonpartnership items

pursuant to the bankruptcy rule, and, therefore, she remains a

party subject to this Court's jurisdiction.

Allocation of Partnership Items

       By amended petitions the Scarfias request that this Court

determine the proper allocation of partnership items between

them.9      Mrs. Scarfia maintains that, even if she remains a party

to these proceedings, her joint and several liability neither

endows her with a separate ownership interest in Mr. Scarfia's

partnership investment nor creates partnership items allocable to

her.       Thus, she requests that we allocate 100 percent of the

partnership investment to Mr. Scarfia and zero percent to her.

       Nothing in either the bankruptcy rule or the statute allows

such an allocation of partnership items between spouses.



       9
          Sec. 6226(f) vests this Court with subject matter
jurisdiction to determine all partnership items of the
partnership for the partnership taxable year to which the FPAA
relates and the proper allocation of such items among the
partners.
                                 - 15 -


     We have considered all the other arguments made by the

parties and, to the extent not discussed above, find them to be

irrelevant or without merit.10

     To reflect the foregoing,

                                      An appropriate order will be

                                 issued denying the motion to

                                 dismiss for lack of jurisdiction

                                 as to JoAnn Scarfia, and granting

                                 the motion to dismiss for lack of

                                 jurisdiction as to Michael J.

                                 Scarfia.




     10
          Also without merit is Mrs. Scarfia's argument that a
failure to allocate 100 percent of the partnership interest to
Mr. Scarfia could potentially result in double taxation.
Respondent is entitled to have any tax liability arising from Mr.
Scarfia's investment in the partnership satisfied only once. See
Dolan v. Commissioner, 44 T.C. 420, 430 (1965). Full payment of
a joint and several obligation by one obligor extinguishes the
liability of all obligors. Kroh v. Commissioner, 98 T.C. 383,
397 (1992); Dolan v. Commissioner, supra at 430.
