                        T.C. Memo. 1997-95



                      UNITED STATES TAX COURT



      LIFE CARE COMMUNITIES OF AMERICA, LTD., A FLORIDA
     LIMITED PARTNERSHIP, ROBERT W. AND JOHANNA McMICHAEL,
    PARTNERS OTHER THAN THE TAX MATTERS PARTNER, Petitioners
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 21683-94.                Filed February 24, 1997.


     Stanley W. Rosenkranz, Leonard L. Kleinman, and Glenn M.

Burton, for petitioners.

     Francis C. Mucciolo and Benjamin A. deLuna, for respondent.


                        MEMORANDUM OPINION


     PANUTHOS:   Chief Special Trial Judge:     This matter is before

the Court on two unrelated motions:   (1) Respondent's motion to

dismiss for lack of jurisdiction and to strike allegations set

forth in the petition that Johanna McMichael is entitled to
                               - 2 -


innocent spouse relief pursuant to section 6013(e);1 and (2)

respondent's motion for partial summary judgment that Robert W.

McMichael remained a partner of Life Care Communities of America,

Ltd. until June 30, 1990.2   As explained in greater detail below,

we shall grant respondent's motion to dismiss and to strike and

deny respondent's motion for partial summary judgment.

Background3

     During 1981 and 1982, petitioner joined with Raymond Smith

(Smith) and Hudson Fowler (Fowler) in organizing several business

entities, including a Florida limited partnership known as Life

Care Communities of America, Ltd. (Life Care or the partnership),

for the purpose of developing, constructing, and owning a

retirement center known as Bentley Village.   Although initially a

limited partner, petitioner became a general partner of Life Care

in March 1985.

     In July 1985, Smith and Fowler used their combined voting

power to remove petitioner from managerial positions in the

1
   Unless otherwise indicated, section references are to the
Internal Revenue Code, as amended, and Rule references are to the
Tax Court Rules of Practice and Procedure.
2
   References to petitioner in the singular are to Robert W.
McMichael.
3
   The following is a summary of the relevant facts drawn from
the entire record that do not appear to be in dispute. These
facts are stated solely for purposes of deciding the pending
motions. Fed. R. Civ. P. 52(a); Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994).
                               - 3 -


partnership and other Bentley Village entities.   Shortly

thereafter, petitioner was excluded from all further partnership

business--his office was locked, and he was told not to return to

the site or to make contact with the partnership's employees.    In

addition, Smith and Fowler transferred a management contract held

by a corporation equally owned by petitioner, Smith, and Fowler,

to an entity controlled by Smith and Fowler.

     In 1987, petitioner filed suit in Florida State court

against Fowler, Smith, the partnership, and related Bentley

Village entities, alleging various causes of action including

theft, fraud, and embezzlement.   The above-described litigation

was eventually the subject of a negotiated settlement.

     In discussions culminating in the settlement of the

aforementioned litigation, petitioner, Smith, and Fowler

understood that they would not be able to reconcile their

differences and that either Smith and Fowler, on the one hand, or

petitioner, on the other, would have to relinquish their

ownership interests in Life Care and the related Bentley Village

entities.   Initially, attempts at settling the dispute were

hampered by the parties' inability to agree as to the value of

the various Bentley Village entities.   In this regard, by letter

dated June 15, 1988, Marshall G. Reissman (Mr. Reissman), counsel

for Smith and Fowler, wrote to Stanley W. Rosenkranz (Mr.

Rosenkranz), counsel for petitioner, proposing that the
                               - 4 -


litigation be settled by petitioner's relinquishing his interests

in the various Bentley Village entities, including Life Care, to

Smith and Fowler, for an immediate payment of $500,000, a

$100,000 annual consulting fee for 5 years, and a lump-sum

payment at the end of 5 years at a price to be determined under a

mutually agreeable formula.

     The litigation eventually was settled on January 12, 1989,

pursuant to an agreement entitled "Mutual Release and Settlement

Agreement" (the settlement agreement).    Contrary to the terms set

forth in Mr. Reissman's June 15, 1988, letter, the settlement

agreement provides alternative options respecting the sale of the

parties' respective partnership interests.    Specifically, the

settlement agreement allowed petitioner an 8-month period within

which to exercise an option to purchase Smith's and Fowler's

partnership interests in Life Care.    However, during this same

8-month period, Smith and Fowler could preempt petitioner by

exercising their own options to purchase petitioner's partnership

interest in Life Care.   The settlement agreement further stated

that, in the event that petitioner did not exercise his option

within the prescribed 8-month period, Smith and Fowler would be

required to pay petitioner $2,370,000 that would be allocated 50

percent to a consulting fee and 50 percent to the purchase of

petitioner's interests in the various Bentley Village entities,
                               - 5 -


including petitioner's partnership interest in Life Care.    The

settlement agreement includes a paragraph that states:

          In exchange for a cash payment of Two Hundred
     Thousand Dollars ($200,000.00) at the time the Mutual
     Release and Settlement Agreement is executed, all
     existing lawsuits would be dismissed with prejudice and
     complete releases would be exchanged with McMichael.

Petitioner was paid $200,000 upon the execution of the settlement

agreement.

     Petitioner did not exercise his option to purchase Smith's

and Fowler's partnership interests in Life Care.   By letter dated

November 16, 1989, Mr. Reissman advised Mr. Rosenkranz that Smith

and Fowler would purchase petitioner's interests in the various

Bentley Village entities pursuant to the agreement dated January

12, 1989, and that it was his clients' position that the sale

would be effective January 12, 1989.   On June 30, 1990,

petitioner, Smith, Fowler, and other interested parties executed

an agreement (the sale agreement) providing for the transfer of

petitioner's interests in the Bentley Village entities, including

Life Care, to Smith, Fowler, and others, for $2,570,000.    The

agreement states that $200,000 of the purchase price was paid

upon execution of the settlement agreement.

     Life Care issued petitioner Forms K-1 for each of the

taxable years 1989 and 1990.   However, petitioners decided to

exclude petitioner's distributive share of the partnership's

items of income, loss, deduction, and credit in their joint
                                - 6 -


Federal income tax returns for 1989 and 1990 on the ground that

petitioner was no longer a partner in Life Care after January 12,

1989.

     On June 27, 1994, respondent mailed separate notices of

final partnership administrative adjustment (FPAA) to the tax

matters partner (TMP) for Life Care determining adjustments to

the partnership's tax returns for 1989 and 1990.   On August 8,

1994, respondent mailed a copy of the FPAA to petitioners.   Each

of the FPAA's contains identical language stating:

     It is determined that the purchase and sale of
     partnership interests between partners Robert
     McMichael, Hudson Fowler, and Raymond Smith was
     effective on June 30, 1990 rather than on January 13,
     1989. The correct distributive shares of partnership
     income, loss, deductions, and credits have been
     determined based on their ownership percentages in
     accordance with section 706 of the Internal Revenue
     Code.

The TMP for Life Care did not file a petition for readjustment

with the Court respecting the above-described FPAA's.   However,

petitioners filed a timely petition with the Court ostensibly as

partners other than the TMP.4

Discussion

1.   Respondent's Motion To Dismiss for Lack of Jurisdiction and
     To Strike

     As indicated, the petition for readjustment includes

allegations that Johanna McMichael is entitled to relief as an

4
   At the time the petition was filed, Life Care maintained its
principal place of business in Naples, Florida.
                                - 7 -


innocent spouse under section 6013(e).    Respondent moves to

dismiss for lack of jurisdiction and to strike asserting that the

Court lacks jurisdiction to address the matter in this

partnership level proceeding.

      It is now well settled that the Tax Court lacks jurisdiction

to consider whether a taxpayer/partner is entitled to innocent

spouse relief under section 6013(e) in the context of partnership

level proceedings.   See Dynamic Energy, Inc. v. Commissioner, 98

T.C. 48 (1992); Marthinuss v. Commissioner, T.C. Memo. 1995-58,

and cases cited therein.   The question of whether Johanna

McMichael is entitled to innocent spouse relief can be raised in

a partner level affected items proceeding following the issuance

of a notice of deficiency by invoking the Tax Court's overpayment

jurisdiction.   See, e.g., Mann-Howard v. Commissioner, T.C. Memo.

1992-537.   Consequently, we shall grant respondent's motion to

dismiss for lack of jurisdiction and to strike.

2.   Respondent's Motion for Partial Summary Judgment

      Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Florida Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    Summary judgment upon all

or any part of the legal issues in controversy is appropriate "if

the pleadings, answers to interrogatories, depositions,

admissions, and any other acceptable materials, together with the

affidavits, if any, show that there is no genuine issue as to any
                                - 8 -


material fact and that a decision may be rendered as a matter of

law."    Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C.

518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994); Zaentz v.

Commissioner, 90 T.C. 753, 754 (1988); Naftel v. Commissioner, 85

T.C. 527, 529 (1985).   The moving party bears the burden of

proving that there is no genuine issue of material fact, and

factual inferences will be read in a manner most favorable to the

party opposing summary judgment.    Dahlstrom v. Commissioner, 85

T.C. 812, 821 (1985); Jacklin v. Commissioner, 79 T.C. 340, 344

(1982).

        Respondent argues for partial summary judgment on the basis

that petitioner remained a Life Care partner until June 30, 1990.

Respondent contends that the "clear and unambiguous" terms of the

settlement agreement executed January 12, 1989, and the sale

agreement executed June 30, 1990, support her position.   Further,

respondent contends that petitioner is precluded by the rule

articulated in Commissioner v. Danielson, 378 F.2d 771 (3d Cir.

1967), vacating and remanding 44 T.C. 549 (1965), as adopted by

the Court of Appeals for the Eleventh Circuit in Bradley v.

United States, 730 F.2d 718 (11th Cir. 1984), from offering

evidence to vary or counter the terms of the two agreements.5

5
   This case is appealable to the Court of Appeals for the
Eleventh Circuit. Thus, although this Court has declined to
adopt the rule of Commissioner v. Danielson, 378 F.2d 771 (3d
Cir. 1967), vacating and remanding 44 T.C. 549 (1965), see
                                                   (continued...)
                               - 9 -


     Petitioners assert that material issues of fact regarding

the termination of petitioner's status as a Life Care partner

remain in dispute and that the rule in Commissioner v. Danielson,

supra, is not applicable under the circumstances presented.

     For Federal tax purposes, the terms "partnership" and

"partner" are defined in section 7701(a)(2) as follows:

          (2) Partnership and partner.--The term
     "partnership" includes a syndicate, group, pool, joint
     venture, or other unincorporated organization, through
     or by means of which any business, financial operation,
     or venture is carried on, and which is not, within the
     meaning of this title, a trust or estate or a
     corporation; and the term "partner" includes a member
     in such a syndicate, group, pool, joint venture, or
     organization.

See sec. 761(a).   The existence or nonexistence of a partnership

under State law is not determinative for Federal tax purposes.

Commissioner v. Tower, 327 U.S. 280, 287 (1946); Frazell v.

Commissioner, 88 T.C. 1405, 1412 (1987); Hensel Phelps

Construction Co. v. Commissioner, 74 T.C. 939, 947-948 (1980),

affd. 703 F.2d 485 (10th Cir. 1983).

     In Commissioner v. Culbertson, 337 U.S. 733, 742 (1949), the

Supreme Court held that, in determining whether a partnership has

been formed for tax purposes, the proper inquiry is:


(...continued)
Coleman v. Commissioner, 87 T.C. 178, 202 n.17 (1986), affd.
without published opinion 833 F.2d 303 (3d Cir. 1987), we would
be obliged to follow the holding of Bradley v. United States, 730
F.2d 718 (11th Cir. 1984), if that case were directly on point.
Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), affd. 445
F.2d 985 (10th Cir. 1971).
                              - 10 -


     whether, considering all the facts--the agreement, the
     conduct of the parties in execution of its provisions,
     their statements, the testimony of disinterested
     persons, the relationship of the parties, their
     respective abilities and capital contributions, the
     actual control of income and the purposes for which it
     is used, and any other facts throwing light on their
     true intent--the parties in good faith and acting with
     a business purpose intended to join together in the
     present conduct of the enterprise. * * * [Fn. ref.
     omitted.]

As we see it, a similar inquiry is required where, as in the

present case, the dispute concerns the date that an individual's

status as a partner of a limited partnership is terminated.

     Although one can draw an inference from both the settlement

agreement and sale agreement that petitioner remained a Life Care

partner until June 1990, the agreements do not define the

membership of the Life Care partnership or otherwise address

petitioner's status.   The agreements do little more than describe

the terms and conditions by which petitioner ultimately

transferred his Life Care partnership interest.   In this regard,

we are not persuaded that the duration of petitioner's status as

a Life Care partner is prescribed solely or unambiguously by the

terms of the agreements.

     Consistent with the preceding discussion, we conclude that

respondent's reliance on Commissioner v. Danielson, supra, is

misplaced.   In short, Danielson stands for the proposition that,

absent proof showing mistake, fraud, undue influence, duress, or

the like, a taxpayer generally is bound by the terms of an
                              - 11 -


agreement to which he is a party where the agreement includes

specific allocations or characterizations evincing tax

consequences.   See Schatten v. United States, 746 F.2d 319, 321-

322 (6th Cir. 1984) (per curiam); Bradley v. United States,

supra; Spector v. Commissioner, 641 F.2d 376 (5th Cir. 1981),

revg. 71 T.C. 1017 (1979).   Accordingly, an application of the

Danielson rule does not abrogate our obligation to consider other

factors such as the conduct and relationship of the parties.

Commissioner v. Culbertson, supra.

     The record in this case includes conflicting assertions as

to whether petitioner remained a Life Care partner following the

execution of the settlement agreement on January 12, 1989.6    In

addition to the inferences that may be drawn from the agreements,

we note that Life Care issued Forms K-1 to petitioner for the

taxable years 1989 and 1990 suggesting that the partnership

considered petitioner a partner during those periods.    On the

other hand, there is no dispute that the parties negotiating the

settlement agreement recognized that the animosity between

petitioner and Smith and Fowler would preclude the continuation

of the partnership as originally formed.   In addition, petitioner

submitted an affidavit stating that it was the intent of the

parties to the settlement agreement that petitioner would no


6
   It appears that petitioner concedes that he was a partner
until Jan. 12. 1989.
                              - 12 -


longer act as a Life Care partner after the execution of the

settlement agreement and that he was in fact excluded from

partnership activities after January 12, 1989.    Consistent with

these assertions, Mr. Reissman sent a letter to Mr. Rosenkranz

dated November 16, 1989, advising that Smith and Fowler would

purchase petitioner's interest in the various Bentley Village

entities pursuant to the agreement dated January 12, 1989, and

that it was their position that the sale would be effective

January 12, 1989.

     Viewing the known facts in a light most favorable to

petitioner, we conclude that material facts remain in dispute and

that additional factual development is necessary to resolve the

question of whether petitioner remained a partner of Life Care

until June 30, 1990.   In particular, we are unable to determine

from the record presented the intent of the parties respecting

the composition of the Life Care partnership after the execution

of the settlement agreement on January 12, 1989.    Consequently,

we will deny respondent's motion for partial summary judgment.

     To reflect the foregoing,

                                      An order will be issued

                                 granting respondent's motion to

                                 dismiss for lack of jurisdiction

                                 and to strike and denying

                                 respondent's motion for partial
- 13 -


summary judgment.
