                        T.C. Memo. 2004-75



                      UNITED STATES TAX COURT



                DUANE E. HUDSPATH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 14741-02.            Filed March 18, 2004.


     Duane E. Hudspath, pro se.

     Taylor Cortright and Ronald D. Pinsky, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   The issue for decision is whether petitioner

is liable for deficiencies relating to 1996 and 1997 and a

section 6662(a)1 accuracy-related penalty relating to 1996.




     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
                                - 2 -

                           FINDINGS OF FACT

     In the mid-1990s, petitioner formed Stephens City

Chiropractic (SCC), a limited liability company; Win Enterprise

(WIN), a limited company; Fair Hollow Trust (FHT), a domestic

trust; and Fair Exit Trust (FET), a foreign trust.      Petitioner

transferred 90 percent of his interest in SCC to FHT and retained

10 percent.   Petitioner also transferred a percentage of his

interest in WIN to FHT.2    Petitioner subsequently transferred his

interest in FHT to FET.

     In 1996 and 1997, petitioner, who is legally blind,

performed services as a chiropractor for SCC.      In addition,

petitioner received $8,160 and $8,400 in Social Security benefits

relating to 1996 and 1997, respectively.      Petitioner timely filed

his 1996 and 1997 Federal income tax returns and, on those

returns, reported the income he received from SCC and WIN

relating to those years.

     On April 14, 2000, respondent sent the SCC and WIN tax

matters partners separate notices of final partnership

administrative adjustment (FPAAs).      In the FPAAs, respondent

determined that FHT was a sham trust and attributed its

respective shares of SCC and WIN income and expenses to

petitioner.   On that day, respondent also sent petitioner a



     2
        The record does not disclose the percentage of WIN that
petitioner transferred to FHT or personally retained.
                              - 3 -

notice of deficiency that included adjustments relating to

partnership items.

     In response to the FPAAs, Jimmy C. Chisum, on July 17, 2000,

initiated a single partnership-level proceeding, Stephens City

Chiropractic, PLC v. Commissioner, docket No. 7982-00.     On April

2, 2001, this Court dismissed the partnership-level proceeding

for lack of jurisdiction on the ground that Mr. Chisum failed to

establish his capacity to act on behalf of the entities.3    On

July 1, 2001, the decision in the partnership-level proceeding

became final.

     In response to the notice of deficiency, petitioner, on July

14, 2000, initiated a partner-level proceeding, Hudspath v.

Commissioner, docket No. 7901-00.   On December 7, 2001, this

Court granted respondent’s motion to dismiss for lack of

jurisdiction and to strike the portion of the partner-level

proceeding relating to partnership items on the ground that

respondent had sent petitioner, pursuant to section 6225, a

notice of deficiency prior to the completion of the partnership-

level proceeding.




     3
        Mr. Chisum has initiated several proceedings that this
Court has dismissed on similar grounds. E.g., Universal Trust
06-15-90 v. Commissioner, T.C. Memo. 2000-390; Banana Moon Trust
v. Commissioner, T.C. Memo. 2000-73; Jeff Burger Prods., LLC v.
Commissioner, T.C. Memo. 2000-72.
                              - 4 -

     On April 24, 2002, respondent and petitioner entered into a

stipulation relating to the partner-level proceeding, which

included the following language:

          4. The tax treatment of petitioner’s partnership
     items relating to WIN Enterprise, LC and Stephens City
     Chiropractic, PLC will be resolved in a separate
     partnership proceeding conducted in accordance with the
     TEFRA partnership procedures.

          5. The adjustments necessary to apply the results
     of the TEFRA partnership proceeding described in
     subparagraph 4 to petitioner, shall be treated as
     computational adjustments under I.R.C. § 6231(a)(6) and
     assessed, credited or refunded accordingly.

          6. To the extent that the computation of
     petitioner’s tax liability which properly reflects the
     tax treatment of the partnership items relating to WIN
     Enterprise, LC and Stephens City Chiropractic, PLC, as
     determined in the TEFRA partnership proceeding
     described in subparagraph 4, would also result in a
     change in petitioner’s tax liability attributable to
     nonpartnership items, as previously determined in this
     docketed proceeding, such change may be treated as a
     computational adjustment under I.R.C. § 6231(a)(6) and
     assessed, credited or refunded accordingly.

The stipulation further provided that petitioner was entitled to

overpayments of $716 and $709 relating to 1996 and 1997,

respectively,4 and that petitioner owed no section 6662(a)

accuracy-related penalties relating to those years.

On April 26, 2002, this Court entered a decision that

incorporated the facts stipulated by the parties as the findings

of the Court.


     4
        The overpayments resulted from interest expense
deductions relating to payments petitioner made on behalf of SCC
in 1996 and 1997.
                               - 5 -

     On June 3, 2002, respondent sent petitioner a notice of

computational adjustment relating to partnership items.    That

notice set forth net income adjustments of $18,347 and $21,123 to

petitioner’s 1996 and 1997 taxable years, respectively.

     By notice of deficiency dated June 21, 2002, respondent

determined deficiencies of $2,739 and $4,044 relating to 1996 and

1997, respectively, and a $955 section 6662(a) accuracy-related

penalty relating to 1996.   On June 24, 2002, respondent assessed

a computational adjustment against petitioner resulting from

adjustments of the partnership items.   On September 16, 2002,

petitioner, while residing in Stephens City, Virginia, filed his

petition with this Court.

                              OPINION

     Petitioner contends that respondent’s determinations

relating to this affected items proceeding should not be

sustained because respondent informed petitioner that, pursuant

to the April 24, 2002, stipulation, petitioner would have an

opportunity to challenge the partnership items.   In support of

his contention, petitioner, who is blind, asserts that he

justifiably relied on respondent to explain the terms of the

stipulation.

     Petitioner’s credible testimony and the plain language of

the stipulation (i.e., “The tax treatment of petitioner’s

partnership items * * * will be resolved in a separate
                                - 6 -

partnership proceeding”.   (Emphasis added.)) established that

respondent misled petitioner.   These facts, however, do not

override the mandate of section 6221 that “the tax treatment of

any partnership item * * * shall be determined at the partnership

level.”   Maxwell v. Commissioner, 87 T.C. 783, 787-788 (1986).

     Respondent complied with the partnership audit and

litigation procedures and, upon completion of the partnership-

level proceeding, assessed a computational adjustment against

petitioner.   See secs. 6223, 6225(a)(2), 6230(a)(1), 6231(a)(6);

Brookes v. Commissioner, 108 T.C. 1, 5 (1997).   Petitioner had

the opportunity, in the partnership-level proceeding, to

challenge the partnership items, but he failed to do so.

Accordingly, petitioner is precluded from challenging those items

in this proceeding.   See secs. 6221, 6226; Brookes v.

Commissioner, supra at 5-7.

     Petitioner further contends that respondent’s determinations

relating to this proceeding are untimely.   We disagree.

Respondent sent petitioner the notice of deficiency relating to

this proceeding prior to the expiration of the period prescribed

by section 6229(d).   Sec. 6229(d)(1) and (2) (providing that the

mailing of an FPAA suspends the running of the 3-year limitations

period until 1 year after the Court’s decision relating to a

partnership-level proceeding becomes final); Aufleger v.
                               - 7 -

Commissioner, 99 T.C. 109, 112 (1992).   Thus, respondent’s

determinations are timely.

     With respect to the affected items, petitioner contends that

he is not liable for a section 6662(a) accuracy-related penalty,

taxes on his 1996 and 1997 Social Security benefits, or

additional self-employment taxes.   Indeed, pursuant to this

Court’s April 26, 2002, decision, petitioner is not liable for a

section 6662(a) accuracy-related penalty relating to 1996.5    The

computational adjustments resulting from adjustments of the

partnership items, however, subjected a portion of petitioner’s

Social Security benefits to tax and increased his self-employment

tax liability.   See secs. 86(a) through (d), 1401, 1402,

6231(a)(6).   Thus, respondent’s deficiency determinations are

sustained.

     Contentions we have not addressed are irrelevant, moot, or

meritless.




     5
        Congress amended sec. 6221 to provide that for
partnership taxable years ending after Aug. 5, 1997, the
partnership-level proceeding includes the determination of
penalties, additions to tax, or additional amounts relating to an
adjustment to partnership items. See Taxpayer Relief Act of
1997, Pub. L. 105-34, sec. 1238(a), 111 Stat. 1026. The sec.
6662(a) accuracy-related penalty in this proceeding, however,
relates to 1996 (i.e., prior to the effective date of the
amendment to sec. 6221) and is, thus, an affected item dependent
on factual determinations to be made at the partner level. See
secs. 6230(a)(2)(A)(i), 6231(a)(5); Saso v. Commissioner, 93 T.C.
730, 734 (1989).
                            - 8 -

To reflect the foregoing,


                                         Decision will be entered

                                    for respondent as to the

                                    deficiencies relating to 1996

                                    and 1997 and for petitioner

                                    as to the section 6662(a)

                                    accuracy-related penalty

                                    relating to 1996.
