                        T.C. Memo. 2001-85



                      UNITED STATES TAX COURT



                 MADISON RECYCLING ASSOCIATES,
      DAVID A. BELDON, ROBERT T. BOYD, DOUGLAS C. BRANDON,
    STEWART PIERCE BROWN, LLOYD E. BUSCH, DAVID J. D’ANTONI,
        JOHN H. DELANEY, JR., DANIEL C. GREER, GERALD O.
     HENDERSON, CHARLES D. HOERTZ, ESTATE OF JOSEPH KESSEL,
        THOMAS P. KOREHLE, JOSIAH O. LOW, III, ROBERT J.
     RIPSTON, HOWARD S. SIEVER, LAVONNE F. SIEVER, JAMES W.
   SIMPSON, JR., R. BARRY UBER, LILLIAN D. WILLIAMS, PARTNERS
       OTHER THAN THE TAX MATTERS PARTNER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10601-88.                       Filed April 9, 2001.



     Gillard B. Johnson III, for petitioners.

     John R. Mikalchus and Maureen T. O’Brien, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GERBER, Judge:   This case was assigned to Special Trial

Judge Lewis R. Carluzzo pursuant to section 7443A(b)(5) and Rules
                                - 2 -

180, 181, and 183.1   The Court agrees with and adopts the opinion

of the Special Trial Judge, which is set forth below.

                 OPINION OF THE SPECIAL TRIAL JUDGE

     CARLUZZO, Special Trial Judge:     On December 24, 1987,

respondent issued a Notice of Final Partnership Administrative

Adjustment (FPAA) to Madison Recycling Associates (Madison) for

the year 1982.   The issue to be decided is whether the period of

limitations for assessing any income tax attributable to any

partnership item (or affected item) for Madison’s 1982 taxable

year expired prior to the issuance of the FPAA.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

Madison’s principal place of business was in New York, New York,

when the petition was filed in this case.

     Madison’s 1982 Form 1065, U.S. Partnership Return of Income,

(the information return) was filed with the Internal Revenue

Service at the Brookhaven Service Center, Holtsville, New York,

on March 14, 1983.    The return was prepared by H. W. Freedman &

Co. and signed by Richard Roberts (Roberts), who at the time

was Madison’s tax matters partner (TMP) and general partner.

At the time that Madison’s 1982 return was prepared and filed,

Harris W. Freedman (Freedman) and Shaye Jacobson (Jacobson) were


     1
       Section references are to the Internal Revenue Code of
1986, as amended and in effect during the relevant periods. Rule
references are to the Tax Court Rules of Practice and Procedure.
                               - 3 -

certified public accountants licensed to practice in New York,

and partners in H. W. Freedman & Co.   In June 1984, Jacobson

purchased Freedman’s interest in H. W. Freedman & Co.

     In 1983, the IRS determined that Roberts had violated

section 6700 by promoting and selling limited partnership

interests in plastics recycling partnerships (the partnerships).

Pursuant to section 7408, on August 8, 1983, the United States

filed a civil complaint in the U.S. District Court for the

District of Massachusetts seeking an injunction against Roberts

and other promoters of the partnerships.   On the same day, in

accordance with a consent agreement signed by Roberts on August

4, 1983, the court issued a permanent injunction against Roberts

and other promoters to prevent them from further organizing,

promoting, or selling abusive tax shelters.    See Announcement of

Injunctions Under Section 7408 of the Code, 1985-1 C.B. 671.

Roberts moved to Paris, France, sometime during 1984; apparently

he has continued to live there ever since.    In January 1985,

respondent assessed a section 6700 civil penalty of $205,000

against Roberts for his role in the promotion of the

partnerships.

     The examination of Madison’s 1982 tax year began sometime in

1984.   On April 2, 1984, Roberts, Freedman, and Jacobson signed a

Form 2848, Power of Attorney and Declaration of Representative,
                               - 4 -

in which Roberts appointed Freedman and Jacobson as his

attorneys-in-fact in connection with that examination.

     Jacobson, as attorney-in-fact for Roberts, signed two Forms

872-P, Consent to Extend the Time to Assess Tax Attributable to

Items of a Partnership.   The first, signed by him on November 5,

1985, extended the period of limitations for assessments related

to Madison’s 1982 tax year to June 30, 1987.   The second, signed

by him on August 6, 1986, extended the period to December 31,

1987.

     Sometime between August and October of 1985, while the

examination of Madison’s 1982 tax year was in process, respondent

initiated a criminal tax investigation of Roberts.   The special

agent assigned to conduct the criminal investigation did not

contact Roberts, who was then in France, during the criminal

investigation.   On December 9, 1986, the criminal investigation

of Roberts was discontinued without a recommendation that Roberts

be prosecuted for any tax-related crimes.

                              OPINION

     Madison is a partnership subject to the provisions of the

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L.

97-248, sec. 402(a), 96 Stat. 648, and therefore the treatment of

partnership items is determined at the partnership level.   The

parties now are in agreement with respect to the adjustments made
                                 - 5 -

in the FPAA,2 but disagree as to whether the FPAA was timely.

     In general, the period for assessing any income tax

attributable to any partnership item (or affected item) for a

partnership taxable year will not expire before the date which

is 3 years after the later of:    (1) The date on which the

partnership files its information return for the taxable year in

question, or (2) the last day for filing such return for such

year (without extensions).    See sec. 6229(a).    The period may be

extended if the partnership’s TMP, “or any other person

authorized by the partnership in writing to enter into such an

agreement”, enters into a timely extension agreement with the

Internal Revenue Service.    Sec. 6229(b)(1)(B).

     In this case, Madison’s 1982 information return was filed on

March 14, 1983.   With respect to that return, the 3-year period

for “assessing any * * * [income tax] with respect to any person

which is attributable to any partnership item (or affected item)”

expired on April 15, 1986.    Sec. 6229(a); see sec. 1.6031-

1(e)(2), Income Tax Regs.    Taken in sequence, the two Forms 872-P

(the consents) signed by Jacobson, as attorney-in-fact for

Roberts, extended until December 31, 1987, the period of

limitations for making assessments attributable to Madison’s 1982



     2
       The adjustments in this case arise from transactions
similar to those discussed in Provizer v. Commissioner, T.C.
Memo. 1992-177, affd. without published opinion 996 F.2d 1216
(6th Cir. 1993).
                                - 6 -

tax year.    If the consents are valid, the FPAA is timely and the

period of limitations for making assessments attributable to

Madison’s 1982 tax year remains in suspense pursuant to section

6229(d); if the consents are not valid, the period of limitations

for making assessments attributable to Madison’s 1982 tax year

expired before the FPAA was issued.

     Petitioners, relying upon Transpac Drilling Venture 1982-12

v. Commissioner, 147 F.3d 221 (2d Cir. 1998), revg. and remanding

Transpac Drilling Venture 1982-16 v. Commissioner, T.C. Memo.

1994-26, argue that the consents are invalid.    Petitioners point

out that Roberts had previously been the subject of section 6700

sanctions and was under criminal investigation at the time that

the consents were signed.    According to petitioners, a conflict

of interest legally removed Roberts’ authority to act, personally

or through his attorney-in-fact, on behalf of Madison.3

     In Transpac Drilling Venture 1982-12, the IRS began a civil

examination of the Transpac partnerships in the latter part

of 1983.    In November 1985, a criminal referral was made.

The promoter and the tax matters partners of the Transpac

partnerships were the targets in the ensuing criminal tax

investigation.   Sometime during the course of the criminal


     3
       Petitioners also argue that the power of attorney did not
give Jacobson the authority to extend the period of limitations
for Madison’s 1982 taxable year. We have previously considered
and rejected that argument in Madison Recycling Associates v.
Commissioner, T.C. Memo. 1992-605.
                                  - 7 -

investigation, the tax matters partners became cooperating

Government witnesses in the investigation of the promoter, a

convicted tax felon.     In exchange for their cooperation, the tax

matters partners were granted immunity from prosecution or

offered suspended sentences.      While the criminal investigation

was proceeding, the IRS pursued a civil examination of the

Transpac partnerships.      Because the statute of limitations

applicable to the civil examination was about to expire, the IRS

solicited consents from the limited partners but most refused.

The IRS then approached the tax matters partners--who at this

point were targets of the ongoing criminal investigation--and

solicited and received consents from them on behalf of the

Transpac partnerships.    See id. at 223.

     In Transpac Drilling Venture 1982-12, the Court of Appeals

for the Second Circuit found that the tax matters partners who

signed the consents had “a powerful incentive to ingratiate

themselves to the government” since their grants of immunity or

sentencing agreements depended upon their cooperation with the

Government.   Id. at 227.    The Court of Appeals further found that

“the criminal investigation created an overwhelming pressure on

the TMPs to ignore their fiduciary duties to the limited

partners” and determined that if “serious conflicts exist, a TMP

may be barred from acting on behalf of the partnership”.         Id.
                               - 8 -

     The facts of Transpac Drilling Venture 1982-12, are

distinguishable from the facts of this case.   Unlike the tax

matters partners in Transpac Drilling Venture 1982-12, nothing

here suggests that the consents were agreed to because Roberts,

acting personally or through his attorney-in-fact, had a powerful

incentive to ingratiate himself with the Government.   Nothing

suggests that Roberts was a prospective Government witness

against other promoters of plastics recycling partnerships;

nothing suggests that the consents were agreed to in return for

some grant of immunity or sentencing agreements that depended

upon Roberts’ cooperation with the Government.   Indeed, there is

no evidence that Roberts (or his attorney-in-fact) was aware of

the criminal tax investigation at the time the consents were

signed.   Unless he was aware of the existence of the criminal

investigation against him, we fail to see how Roberts, acting

personally or through his attorney-in-fact, could have been

influenced by personal concerns in a such a way that he could not

properly discharge his fiduciary duties to the limited partners

of Madison.   See Agri-Cal Venture Associates v. Commissioner,

T.C. Memo. 2000-271.

     We also disagree with petitioners’ suggestion that the

section 6700 proceedings resulted in a conflict of interest;

those proceedings had been completed, and the section 6700

sanctions were imposed prior to the time that the consents were
                               - 9 -

executed by Jacobson.   See Phillips v. Commissioner, 114 T.C.

115, 132 (2000).

     The “‘mere existence of an investigation’” targeting the tax

matters partner does not, in and of itself, “‘subvert a tax

matters partner’s judgment and bend him to the government’s will

in dereliction of his fiduciary duties to his partners.’”

Phillips v. Commissioner, supra at 132 (quoting Olcsvary v.

United States, 240 Bankr. 264, 266-267 (E.D. Tenn. 1999)); see

also Agri-Cal Venture Associates v. Commissioner, supra.

Consequently, without more, we reject petitioners’ contention

that the completed section 6700 proceedings or the criminal tax

investigation targeting Roberts caused him to lose his authority

to act on behalf of Madison due to a conflict of interest.        It

follows that the consents are not rendered invalid on that

ground.   Because the FPAA was issued within the period

contemplated by the consents, the FPAA was timely, and we so

hold.

     To reflect the foregoing and the agreement of the parties

with respect to the adjustments made in the FPAA,

                                       Decision will be entered

                               under Rule 155.
