                        T.C. Memo. 2009-128



                      UNITED STATES TAX COURT



     GATEWAY HOTEL PARTNERS, LLC, WASHINGTON AVENUE HISTORIC
       DEVELOPER, LLC, TAX MATTERS PARTNER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

       GATEWAY TOWER PARTNERS, LLC, HRI TOWER, TAX MATTERS
                       PARTNER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 19182-07, 20769-07.   Filed June 4, 2009.



     Gary J. Elkins, Yvonne Chalker, and Andrew L. Kramer, for

petitioners.

     Dana E. Hundrieser, for respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   These cases are before the Court on Gateway

Hotel Partners, L.L.C.’s (Gateway Hotel), and Gateway Tower
                                - 2 -

Partners, L.L.C.’s (Gateway Tower) (collectively the

partnerships), respective motions to substitute tax matters

partner and to change the captions of the cases.    For the reasons

stated herein, we shall grant the partnerships’ motions to

substitute tax matters partner and motions to change the captions

of the cases.

                             Background

     The following information is stated for purposes of this

Memorandum Opinion only; these cases have yet to be tried on the

merits.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code as amended, and all Rule references are

to the Tax Court Rules of Practice and Procedure.

Gateway Hotel

     Gateway Hotel is a Missouri limited liability company

(L.L.C.).    Before December 24, 2008, Gateway Hotel had two

members:    Washington Area Historic Developer, L.L.C. (WAHD), a

Missouri L.L.C.; and Housing Horizon, L.L.C. (Housing Horizon),1

a Texas L.L.C.    HRI Restoration, Inc. (HRI Restoration), a

Louisiana corporation, is the manager of WAHD.

     Pursuant to a call/put option dated December 24, 2008,

Gateway Interest Acquisition Corp. (GIAC), a Louisiana

corporation, purchased all of Housing Horizon’s interest in


     1
      Housing Horizon is a subsidiary of KC Tower Corp.
                                - 3 -

Gateway Hotel.    After the purchase, WAHD and GIAC were the only

members of Gateway Hotel.

Gateway Tower

     Gateway Tower is a Missouri L.L.C.    Before December 24,

2008, Gateway Tower had two members:    HRI Tower, a Louisiana

corporation, and KC Tower Corp. (KC Tower), a Delaware

corporation.    HRI Restoration is the sole shareholder of HRI

Tower.

     Pursuant to a call/put option dated December 24, 2008, GIAC

purchased all of KC Tower’s interest in Gateway Tower.    After the

purchase, HRI Tower and GIAC were the only members of Gateway

Tower.

     On January 28, 2009, the HRI Restoration board of directors

issued a resolution authorizing HRI Restoration to act on behalf

of WAHD and HRI Tower and enter into on behalf of those entities

an amendment to the respective operating agreements of Gateway

Hotel and Gateway Tower.

     The amendments to the operating agreements provided in

pertinent part that GIAC would become the new tax matters partner

for Gateway Hotel and Gateway Tower.    The amendments referred to

WAHD, HRI Tower, and GIAC as members in Gateway Hotel and Gateway

Tower but did not refer to any as member-managers.

     On January 29, 2009, the partnerships filed their respective

motions to substitute and on February 8, 2009, filed their
                                - 4 -

respective motions to change the caption of the case.    On March

12, 2009, respondent filed an objection to the granting of the

partnerships’ motions to substitute.     On March 13, 2009, KC Tower

Corp., as participating partner, filed its response to Gateway

Tower’s motion to substitute.   KC Tower Corp. did not object to

the granting of Gateway Tower’s motion.    On March 20, 2009, the

partnerships filed replies to respondent’s objection to the

granting of the partnerships’ motions.    On April 8, 2009, Housing

Horizon filed its response to Gateway Hotel’s motion to

substitute and did not object to the granting of Gateway Hotel’s

motion.

                            Discussion

     Partnerships do not pay Federal income taxes, but they are

required to file annual information returns reporting the

partners’ distributive shares of income, deductions, and other

tax items.   Secs. 701, 6031.   The individual partners then report

their distributive shares of the tax items on their Federal

income tax returns.   Secs. 701-704.

     To remove the substantial administrative burden occasioned

by duplicative audits and litigation and to provide consistent

treatment of partnership items among partners in the same

partnership, Congress enacted the unified audit and litigation

procedures of the Tax Equity and Fiscal Responsibility Act of

1982 (TEFRA), Pub. L. 97-248, sec. 402, 96 Stat. 648.    See
                                 - 5 -

Randell v. United States, 64 F.3d 101, 103 (2d Cir. 1995); H.

Conf. Rept. 97-760, at 599-600 (1982), 1982-2 C.B. 600, 662-663.

     Under TEFRA, all partnership items are decided in a single

partnership-level proceeding.    Sec. 6226; see also Randell v.

United States, supra at 103; Petaluma FX Partners, LLC v.

Commissioner, 131 T.C.       , ___ (2008) (slip. op. at 10).   The

tax matters partner of a partnership is the central figure in

partnership proceedings.    See Chomp Associates v. Commissioner,

91 T.C. 1069, 1076 (1988).    “During both administrative

proceedings and litigation, the tax matters partner serves as the

focal point for service of all notices, documents, and orders on

the partnership.”     Computer Programs Lambda, Ltd. v.

Commissioner, 89 T.C. 198, 205 (1987).    The tax matters partner

is also required to keep all partners informed of the status of

administrative and judicial proceedings involving the partnership

and may, under some circumstances, bind partners who are not

notice partners by entering into a settlement agreement with the

Commissioner.   Id.   “In the execution of these responsibilities a

tax matters partner acts as a fiduciary.”     Id.

     Section 6231(a)(7)(A) provides that the tax matters partner

of any partnership is the general partner designated as the tax

matters partner in accordance with regulations issued by the

Secretary.   Section 6231(a)(7)(B) provides that if no general

partner has been so designated, the tax matters partner is the
                                - 6 -

general partner with the largest profits interest in the

partnership at the close of the taxable year involved.    Flush

language in section 6231(a)(7) provides that if no tax matters

partner is appointed by the partnership in accordance with

section 6231(a)(7)(A) and the Secretary determines that it is

impracticable to apply 6231(a)(7)(B), then the partner selected

by the Secretary shall be treated as the tax matters partner.

     Section 301.6231(a)(7)-1, Proced. & Admin. Regs., provides

additional guidelines for selection of the tax matters partner.

A partnership may designate a tax matters partner only in

accordance with that section.   A person may be designated as the

tax matters partner of a partnership for a taxable year only if

that person was a general partner in the partnership at some time

during the taxable year for which the designation is made, or is

a general partner in the partnership as of the time the

designation is made.   Sec. 301.6231(a)(7)-1(b), Proced. & Admin.

Regs.

     Section 301-6231(a)(7)-1, Proced. & Admin. Regs., provides

in pertinent part that the current tax matters partner of a

partnership may designate a successor.   Section 301.6231(a)(7)-

1(d), Proced. & Admin. Regs., provides that this designation is

accomplished by filing a certification with the Internal Revenue

Service (IRS) informing the IRS of the selection of a new tax

matters partner.   The certification is filed at the service
                               - 7 -

center with which the partnership return is filed and includes,

inter alia, a statement that the partner filing the certification

was properly designated the tax matters partner of the

partnership and that the successor tax matters partner was

selected tax matters partner in accordance with the partnership’s

procedure for making that selection.   Sec. 301.6231(a)(7)-1(d),

Proced. & Admin. Regs.   The “more obvious purpose of respondent’s

regulations is to provide respondent with the name and address of

the * * * [tax matters partner] to be able to properly mail a

FPAA.”   Chomp Associates v. Commissioner, supra at 1078.

     Section 301.6231(a)(7)-1(h), Proced. & Admin. Regs.,

provides that a designation under section 301.6231(a)(7)-1(d),

Proced. & Admin. Regs., shall supersede all prior designations of

a tax matters partner for that year.

     Section 301.6231(a)(7)-2, Proced. & Admin. Regs., provides

for the application of section 6231(a)(7) and section

301.6231(a)(7)-1, Proced. & Admin. Regs., to the designation or

selection of a tax matters partner for an L.L.C.   Section

301.6231(a)(7)-2(a), Proced. & Admin. Regs., provides that for

purposes of applying those sections, only a member-manager of an

L.L.C. is treated as a general partner; a member of an L.L.C. who

is not a member-manager is treated as a partner other than a

general partner.   Section 301.6231(a)(7)-2(b)(3), Proced. &

Admin. Regs., defines member-manager as a member of an L.L.C. who
                                 - 8 -

alone or with others is vested with the continuing exclusive

authority to make the management decisions necessary to conduct

the business for which the organization was formed.   If there are

no elected or designated member-managers of the L.L.C., each

member will be treated as a member-manager.    Id.

     Rule 250 provides the Court with the authority to remove or

appoint a tax matters partner.    The authority in Rule 250(a) does

not apply in the instant proceeding, as each petition establishes

the identity of the tax matters partner at the time of filing.

     Pursuant to Rule 250(b)(1), the Court, after notice and

opportunity to be heard, may for cause remove a tax matters

partner.   If the Court removes a tax matters partner for cause,

or if a partner’s status as tax matters partner terminates for

any reason other than removal by the Court, and the partnership

fails to designate a successor tax matters partner within such

period as the Court may direct, then the Court may appoint

another partner as tax matters partner.   Rule 250(b)(2).   Rule

250 indicates that “responsibility for designating a successor *

* * [tax matters partner] lies with the partnership, not with the

Tax Court; if, however, the partnership fails to appoint a * * *

[tax matters partner], the Tax Court may, not must, appoint a

successor.”   Cinema ‘84 v. Commissioner, 412 F.3d 366, 372 (2d

Cir. 2005), affg. 122 T.C. 264 (2004).
                                 - 9 -

     The partnerships’ motions “request that * * * [GIAC] be

substituted” as tax matters partner on behalf of WAHD.

Respondent objects to the granting of the partnerships’ motions

to substitute on two grounds.    First, respondent argues that the

partnerships have not provided sufficient evidence to support

their contention that GIAC purchased Housing Horizon’s and KC

Tower’s respective shares in the partnerships.   Second,

respondent argues that the motions should be denied because

GIAC’s tax liability will not be determined in this proceeding.

Respondent contends that GIAC is not eligible to be tax matters

partner because GIAC was not a partner during 2002 and 2003, the

years at issue, and therefore GIAC’s tax liability will not be

determined in this proceeding.    The partnerships argue in reply

that neither of those objections is relevant to the determination

of whether GIAC should be recognized as tax matters partner.

     As discussed above, the Court has the authority to appoint a

tax matters partner only when the partnership fails to do so.

Because the partnerships have each designated a new tax matters

partner, we lack the authority to do so on their behalf.   The

partnerships have satisfied the requirements of section

301.6231(a)(7)-1(d), Proced. & Admin. Regs., notwithstanding the

fact that the record lacks evidence of Gateway Hotel’s and

Gateway Tower’s compliance with the notice requirements of that

section.   See Chomp Associates v. Commissioner, supra at 1078
                              - 10 -

(“the question is whether * * * [partner] was duly authorized to

file the petition in this case, not whether he properly notified

respondent”).   Respondent’s argument that GIAC should not be able

to serve as tax matters partner because GIAC’s liability will not

be determined during this proceeding is misplaced.   The tax

matters partner’s importance derives from his role as a fiduciary

serving on behalf of the other partners, and “His personal

interest, if any, is beside the point.”   Computer Programs

Lambda, Ltd. v. Commissioner, 89 T.C. at 205.    In any event, GIAC

purchased Housing Horizon’s and KC Tower’s respective interests

in Gateway Hotel and Gateway Tower and became the tax matters

partner for the partnerships upon execution of the amendments to

their operating agreements.   GIAC’s purchase distinguishes this

case from Mont. Sapphire Associates, Ltd., v. Commissioner, 95

T.C. 477, 481 (1990), wherein we held that an individual having

no capital or profit interest in a partnership cannot be the tax

matters partner even if elected to that position by the partners

in the partnership.   The partnerships’ motions requesting that

GIAC be substituted for WAHD and HRI Tower and to change the

captions of the cases will be granted.

     To reflect the foregoing,


                                          Appropriate orders will

                                    be issued.
