                         T.C. Memo. 1996-299



                       UNITED STATES TAX COURT



     CASCADE PARTNERSHIP, JAMES M. AND MARGARET C. COSTELLO,
                TAX MATTERS PARTNER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18078-90.                        Filed June 26, 1996.



     Larry N. Johnson, for petitioner.

     Edward D. Fickess, for respondent.



                         MEMORANDUM OPINION

     GERBER, Judge:    The parties, by means of cross-motions for

partial summary judgment, seek resolution of their controversy

over whether the period for assessment had expired at the time

respondent mailed the Notice of Final Partnership Administrative

Adjustment (FPAA).    More specifically, the question we consider

is whether a consent (to extend the period for assessment)

executed by one of the partnership’s general partners,
                               - 2 -

effectively extended the assessment period.   Petitioner contends

that the general partner, who executed the consent, was not

authorized to do so and that the consent is of no effect.

Respondent contends that the general partner was authorized to

execute the consent, thereby extending the period for assessment.

Alternatively, respondent argues that, even if the executing

general partner was unauthorized, petitioner is equitably

estopped from now asserting that the general partner lacked

authority.


Background

     Cascade Partnership (Cascade) was formed under the Uniform

Partnership Act of the State of Washington, Wash. Rev. Code sec.

25.04 (West 1969), on November 9, 1982, by 20 individuals.    Each

of Cascade’s 20 partners was also a partner in Price Waterhouse,

a certified public accounting partnership that also specializes

in tax matters.   John R. Walsh, Jr. (Walsh), who also was a Price

Waterhouse partner but not a partner of Cascade, was the promoter

of Cascade.   Walsh promoted partnership interests to James M.

Costello (Costello) and 19 other partners of Price Waterhouse.

Walsh was appointed by the 20 partners to manage Cascade by means

of the following partnership language:

     The partners appoint John R. Walsh, Jr., as the manager
     who shall have all the rights to manage the partnership
     assets including designating an agent to serve under
     his direction. He shall not be liable for any loss or
     diminution of the partnership’s assets unless due to
     his gross negligence, misconduct or lack of good faith.
                               - 3 -

     The partnership agreement also contained the statement that

“All decisions and management of the partnership shall be made by

the majority of the shares held by the partners.”    The

partnership shares were in $1,000 units, with total capital

investment set at $300,000.   No partner possessed a majority

percentage interest in Cascade.   The partner with the largest

percentage interest, as of the close of 1982, was William Smart.

     Cascade, a TEFRA1 partnership for Federal tax purposes, was

formed as an investment vehicle for the 20 Price Waterhouse

accounting partners to collectively invest as a limited partner

in Wall Street Associates (Wall Street), a partnership not

subject to the provisions of TEFRA.    Wall Street issued a

Schedule K-1 in Cascade’s name in care of Walsh.    By a letter

dated February 27, 1985, respondent notified Cascade of the

commencement of an examination of Cascade’s 1982 and 1983 income

tax returns under the unified partnership audit procedures of

sections 6221-6233.2   The letter was addressed to “Cascade

Partnership, Tax Matters Partner, Third Floor, Times Square

Building, Seattle, Washington 98101.”    An Information Document




     1
        TEFRA partnership provisions were added to the Code by
the Tax Equity & Fiscal Responsibility Act of 1982 (TEFRA), Pub.
L. 97-248, sec. 402(a), 96 Stat. 324, 648.
     2
        All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
                               - 4 -

Request (Form 4564), requesting financial and partnership

information, was sent along with the February 27, 1985, letter.

     Cascade’s partnership return for 1982 was signed on behalf

of the partnership by Costello as a general partner.   It was also

signed by Walsh as preparer.   Initially, respondent’s agent dealt

and corresponded with Walsh in connection with Cascade’s audit.

In a June 12, 1985, letter to Walsh at Price Waterhouse,

respondent’s agent confirmed a July 1985 appointment with Walsh

and indicated that the examination would be limited to inspecting

certain requested records and verifying each partner’s Cascade

basis.   In that letter, the agent pointed out that Cascade was a

pass-through partnership that would most likely be placed in

suspense until the examination of Wall Street was completed.

From the correspondence, it appears that respondent’s agent

believed that Walsh was authorized to represent Cascade.

     After receiving notice that the period for assessment would

soon expire, respondent’s agent sent a letter dated January 22,

1986, to Cascade, in care of Walsh, attaching a Special Consent

to Extend the Time to Assess Tax Attributable to Items of a

Partnership (Form 872-O) and requesting its execution to extend

the assessment period.   After receipt of the Form 872-O, Walsh,

realizing that he was not a partner of Cascade, contacted

Costello, the only partner of Cascade who worked in close

approximation to Walsh at Price Waterhouse.   Walsh advised

Costello that a partner of Cascade had to sign the Form 872-O,
                               - 5 -

and Costello agreed to be the signing partner.   Costello signed

the Form 872-O on February 13, 1986, and returned it to

respondent’s agent.   Costello signed the Form 872-O on the line

designated for the tax matters partner (TMP), rather than the one

designated for a representative of the partnership, because he

was a general partner of Cascade.   Costello did not do any

research to determine if he was or was not authorized to sign as

TMP and/or on behalf of Cascade or its other partners.    During

March 1986, Walsh received a copy of the Form 872-O that had been

counter-executed on behalf of respondent on March 4, 1986.

     By a March 11, 1988, letter addressed to Cascade, in care of

Costello as TMP, respondent transmitted a summary report of the

examination that contained a single adjustment disallowing

$1,083,338 of pass-through loss claimed through Wall Street.     The

letter also directed Costello, as TMP, to provide a copy of the

summary report to the other partners.   Costello, in an April 5,

1988, letter, corresponded with respondent, advising that Wall

Street’s examination was at the Appeals level and, because of

Cascade’s pass-through status, petitioner chose not to attend a

closing conference.   Petitioner protested with respect to the

summary report in a September 27, 1988, document that was signed

by Costello as TMP.   Respondent’s agents continued to send

correspondence to Costello addressed to him as Cascade’s TMP.

Costello received a May 14, 1990, FPAA containing a determination

disallowing the pass-through loss claimed through Wall Street.
                               - 6 -

Costello’s petition to this Court, filed August 13, 1990,

disagreed with the adjustment and requested that the case be held

in suspense until the outcome of the Wall Street examination.      At

the time Costello executed the petition, he had become aware that

there may be some question about whether he was authorized to be

Cascade’s TMP.   In spite of this recognition, Costello signed the

petition to this Court containing the allegation that it was

filed by him in his capacity as Cascade’s TMP.   By an August 13,

1990, order of this Court, the caption of this case was changed.

The original caption (as shown on the petition) reflected “James

M. Costello and Margaret C. Costello” as petitioners.    The order

changed the caption to reflect “Cascade Partnership, James M. and

Margaret C. Costello, Tax Matters Partner”.   On March 27, 1995,

almost 5 years later, petitioner moved to amend its petition in

order to plead that the assessment period had expired prior to

the time respondent mailed the FPAA in this case.    Thereafter,

the parties each moved for partial summary judgment.

     Walsh had not been formally designated as Cascade’s TMP, and

he had not received a power of attorney from Cascade or its

partners for the specific purpose of representing the partnership

before respondent.   Costello, although a general partner of

Cascade, had not been expressly designated as Cascade’s TMP, and

he was not the partner with the largest partnership interest.

Costello held himself out as an agent of Cascade and permitted

respondent to believe that he was Cascade’s TMP.    Respondent’s
                              - 7 -

agents relied to their detriment on Costello’s manifestation of

authority to act as TMP on behalf of Cascade.   The other 19

partners of Cascade were aware that Costello held himself out as

Cascade’s TMP.


Discussion

     Rule 121(b) provides that a motion for summary judgment

shall be allowed and considered if the pleadings and admissions

show that there is no genuine issue of material fact and that a

decision may be rendered as a matter of law.    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); Marshall v.

Commissioner, 85 T.C. 267, 271 (1985).   The facts are viewed in a

light most favorable to the nonmoving party.    Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982).   In this case both parties

moved for summary judgment based on documents and affidavits.

There is no genuine issue of material fact as between the

parties, and this matter is ripe for resolution by means of

summary judgment.
                                - 8 -

     Petitioner argues for a decision in its favor because the

FPAA was issued outside the normal 3-year period for assessment

because the consent to extend the assessment period was executed

by a person who was without capacity to do so.   More

specifically, petitioner contends that under the applicable

statutes and regulations Costello was not Cascade’s TMP,3 and he

was otherwise not authorized in writing by the partnership to

extend the assessment period.

     Conversely, respondent argues that the consent was valid and

effective to extend the period for assessment to include the date

on which the FPAA was mailed.   More specifically, respondent

contends that under the partnership agreement and the law of the

State of Washington, Costello was authorized in writing to bind

the partnership to the consent extending the assessment period.

Addressing petitioner’s argument, respondent contends that even

if Costello was not an authorized TMP, petitioner should be

equitably estopped from now denying that Costello lacked

authority to execute the consent to extend the assessment period.

     Section 6229(a) generally provides for a 3-year period

within which respondent may assess a partnership or affected

     3
       A TMP is defined as the general partner designated as such
by the partnership or the general partner with the largest
profits interest at the close of the year in question (or, where
there is more than one such partner, then the one of such
partners whose name appears first alphabetically). If no partner
is designated and the Secretary determines it is impracticable to
apply the above rules, then the Secretary may select a TMP. Sec.
6231(a)(7).
                                 - 9 -

item.   Section 6229(b) permits extension of the 3-year period by

means of agreement.   Subparagraph (A) of section 6229(b)(1)

permits an individual partner to extend the assessment period

with respect to that partner.    Subparagraph (B) of section

6229(b)(1) provides for extensions applicable to all partners by

means of agreements entered into with the TMP or any other

partner who is authorized in writing by the partnership to enter

into an extension agreement.

     At the time (early 1986) that Costello executed the Form

872-O, no regulations had been issued concerning the provisions

of section 6229.   Temporary procedural regulations were adopted

providing specific requirements for the written authorization for

persons, other than a TMP, to execute a consent binding on all

partners after the 1986 consent to extend the assessment period

had been executed.    See sec. 301.6229(b)-1T, Temporary Proced. &

Admin. Regs., 52 Fed. Reg. 6789 (Mar. 5, 1987).    Under the

temporary regulation, the statement or writing is to contain the

identity of the partnership and the person being authorized,

along with their address and taxpayer identification number.    In

addition, the particular taxable year(s) of the partnership was

to be identified, and the writing was to be signed by all persons

who were general partners at any time during the effective year

or years of the authorization.

     In Amesbury Apartments, Ltd. v. Commissioner, 95 T.C. 227,

242 (1990), we held that the taxpayer’s reliance on this
                              - 10 -

temporary regulation for a consent executed prior to the

regulation’s issuance was misplaced.   We held that the regulation

would not invalidate prior authority given to execute a consent

signed by all persons who were general partners at any time

during the effective year or years of the authorization.

Petitioner relies on the temporary regulation because no writing

existed here.

      It was also noted in Amesbury Apartments, Ltd. v.

Commissioner, supra at 242-243, and Cambridge Research v.

Commissioner, 97 T.C. 287, 295 (1991), that the regulation’s

specific requirements for authorizing a person to execute a

consent are not mandatory.   More significantly, respondent would

not have been informed by such notification, as set forth in the

regulation, because that regulatory requirement did not exist at

the time the consent in question was executed by Costello.

     Respondent does not address the temporary regulation.

Instead, respondent relies on State of Washington statutory

provisions for her argument that Costello, as a general partner,

was capable of binding Cascade to the agreement to extend the

assessment period.   In particular, respondent relies on Wash.

Rev. Code section 25.04.090, which, in pertinent part, provides:

     Partner agent of partnership as to partnership
     business.

          (1) Every partner is an agent of the partnership
     for the purpose of its business, and the act of every
     partner, including the execution in the partnership
     name of any instrument, for apparently carrying on in
                               - 11 -

     the usual way the business of the partnership of which
     he is a member binds the partnership, unless the
     partner so acting has in fact no authority to act for
     the partnership in the particular matter, and the
     person with whom he is dealing has knowledge of the
     fact that he has no such authority.

     A partner who deals with third persons without notice of any

lack of authority, binds the other partners “if the transaction

be such as the public may reasonably conclude is directly and

necessarily embraced within the partnership business as being

incident or appropriate to such business according to the course

and usage of conducting it."     Cummings v. Nordmark, 438 P.2d 605,

606 (Wash. 1968) (quoting Merrill v. O’Bryan, 93 P. 917, 918

(Wash. 1908)).   Whether a partner is within the scope of his

authority is a question for the trier of fact.     Dowling v.

Exchange Bank, 145 U.S. 512 (1892); Cummings v. Nordmark, supra

at 606.

     Respondent also relies on Amesbury Apartments, Ltd. v.

Commissioner, supra, a case in which we held valid a consent to

extend the assessment period that was signed for the partnership

by an accountant.   The accountant signed the consent based on a

power of attorney authorizing him to represent that partnership

before the Internal Revenue Service, including the power to

extend the period for assessment with respect to the partnership.

The power of attorney had been signed by one of two general

partners, who was not the TMP.
                                - 12 -

     Respondent argues that a partnership can only act through

its agents and that a general partner is an agent who, under

Washington law, may bind a partnership.     In this regard, and in

connection with Washington law, this Court has held that the

execution of a consent is not an extraordinary act, and thus not

beyond the authority normally extended to a general partner.

Cambridge Research v. Commissioner, supra at 297.

     Petitioner argues that the partnership agreement modified

the normal provisions of the Washington statute, which embodies

the Uniform Partnership Act.     Petitioner refers to paragraph 11

of the partnership agreement that provides:     “All decisions and

management of the partnership shall be made by the majority of

the shares held by the partners.”     Petitioner contends that the

quoted provision generally limits any partner from acting on

behalf of the partnership.

         In a similar case involving a Louisiana partnership, we

held that a partner, who was neither the TMP nor explicitly

authorized by the other partners, had effectively extended the

period for assessment by joining in the execution of consents

with the Government agent.     See Medical & Business Facilities,

Ltd. v. Commissioner, T.C. Memo. 1994-38, revd. 60 F.3d 207 (5th

Cir. 1995).4    This Court’s holding in that case was based on two

analyses.     First, under Louisiana law and Federal tax cases, it

     4
        See also Investment Engrs., Ltd. v. Commissioner, T.C.
Memo. 1994-255.
                               - 13 -

was held that the general partner, who signed the consent, had

authority to bind the partnership.      Second, interpreting the

partnership agreement in that case, we held that the signing

partner was not prohibited from extending the period for

assessment for the partnership.

     However, the U.S. Court of Appeals for the Fifth Circuit

reversed our decision in Medical.     The Court of Appeals disagreed

with our interpretation of the partnership agreement.      Based on

its interpretation, the Court of Appeals found that the general

partner who signed the consent, under State law, was not

authorized to bind the partnership.      Finally, the Court of

Appeals addressed an estoppel argument raised at the appellate

level.

     The Court of Appeals stated that

     In order for equitable estoppel to apply, the
     government must show that * * * [the partnership] was
     aware of the facts, that * * * [the partnership]
     intended the IRS to act on its representation that * *
     * [the signing partner] was the TMP, that the
     government did not know of the facts, and that the
     government reasonably relied on * * * [the
     partnership's] representations to its substantial
     detriment. * * * [Medical & Business Facilities, Ltd.
     v. Commissioner, 60 F.3d at 212.]

     The Court of Appeals also explained that the regulations,

which provided the circumstances under which a TMP is designated

and made known to the Commissioner, were promulgated March 5,

1987.    See sec. 301.6231(a)(7)-1T, Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 6791 (Mar. 5, 1987).      That regulation
                              - 14 -

required the designation of a TMP at the time the return is filed

or, subsequently, by a statement filed at the service center at

which the partnership return was filed.   The Court of Appeals

then reasoned that the Commissioner would be on actual notice of

the identity of the TMP after March 5, 1987, and would not be in

reasonable reliance of a partner’s portrayal as TMP.   Based on

that reasoning and the fact that several consents were executed

by the general partner as TMP, both before and after the

regulation was promulgated or enacted, the Court of Appeals in

Medical held that estoppel did not apply.   Because only one of

the consents was executed prior to the promulgation of the

regulation, the court held that “the Commissioner’s estoppel

argument applies to only one of the consents”.   Medical &

Business Facilities, Ltd. v. Commissioner, 60 F.3d at 212.

     The facts of this case are generally similar to those in

Medical.   One significant difference that distinguishes this case

from Medical is that, in this case, only one consent was executed

on March 4, 1986, which was prior to the March 5, 1987,

promulgation of the regulation.   The consent used in this case is

of the open-ended variety, in that it continues in effect until

certain action(s) are taken by the parties.

     The facts in this case show that the partnership was aware

of the circumstances.   Costello executed documents as the TMP of

the partnership.   Walsh, the promoter and manager of the

partnership, specifically requested Costello to execute the
                               - 15 -

consent.    Costello was requested by respondent’s agents to notify

the other partners of action taken by respondent.    There is no

question that Costello, Walsh, and the other partners were aware

that respondent was acting on Costello’s execution of documents,

including the consent and correspondence with respondent.     In

addition, Costello signed the partnership return for the year in

question.   We also note that Walsh, Costello, and the other 19

partners of Cascade were all partners in a nationally known firm

of certified public accountants that, among other matters,

specializes in Federal taxation.    Finally, it is clear that

respondent did not know that Costello was not the appointed or

qualified TMP and that Costello's representations were reasonably

relied on to respondent's substantial detriment.    Under these

circumstances, we hold that Cascade is estopped to deny

Costello’s authority to execute a consent binding the partnership

to an extension of the period for assessment.

     There is no need to express our agreement or disagreement

with the rationale of the U.S. Court of Appeals for the Fifth

Circuit.    This is so because the facts in this case are

distinguishable from the facts in Medical & Business Facilities,

Ltd. v. Commissioner, supra, as to the estoppel issue.      Moreover,

the partnership’s place of business was Washington State, and the

U.S. Court of Appeals for the Ninth Circuit would be the

appropriate appellate venue.    See sec. 7482(b)(1)(E); Golsen v.

Commissioner, 54 T.C. 742, 756-757 (1970), affd. 445 F.2d 985
                               - 16 -

(10th Cir. 1971); Lawrence v. Commissioner, 27 T.C. 713 (1957),

revd. on other grounds 258 F.2d 562 (9th Cir. 1958).   The U.S.

Court of Appeals for the Ninth Circuit has not addressed this

specific question and, accordingly, it is not necessary to

analyze whether the consent was properly executed under any other

theory.

     Additionally, the circumstances here are reminiscent of

those we considered in Mishawaka Properties v. Commissioner, 100

T.C. 353 (1993) (Mishawaka).   In Mishawaka, a TEFRA partnership

petition filed during the period designated for the TMP was

executed by a partner other than the TMP for that partnership.

Neither Mishawaka Properties Co.'s partners nor respondent

designated a TMP.   About 4 years after the petition was filed and

after pretrial and test case activity, Mishawaka Properties Co.'s

partners moved to dismiss because the petition was filed by a

partner other than a TMP.

     Relying on Kraasch v. Commissioner, 70 T.C. 623 (1978), we

held that the Mishawaka Properties Co. partners implicitly

adopted and/or ratified the filing of the petition by knowingly

allowing their interests to be represented before the Internal

Revenue Service and before this Court.   In part, our holding

relied on California cases providing that

     “A purported agent's act may be adopted expressly or it
     may be adopted by implication based on conduct of the
     purported principal from which an intention to consent
     to or adopt the act may be fairly inferred, including
     conduct which is 'inconsistent with any reasonable
                              - 17 -

     intention on his part, other than that he intended
     approving and adopting it.'" * * *[Rakestraw v.
     Rodrigues, 500 P.2d 1401] at 1405 [1972] (quoting
     Ballard v. Nye, 138 Cal. 588, 597, 72 P. 156, 159
     (1903)).

Mishawaka Properties v. Commissioner, supra at 364-365.      We

further stated that:

     The underlying concept of the implied ratification
     principle is to reach the same result where the
     person(s) with control over the authority allow others
     to exercise it without repudiation. That principle is
     no less appropriate or proper in the setting of
     sections 6226 and 6231 than in sections 6212 and 6213.

Id. at 365.   Although the holding in Mishawaka is not directly

relevant, the circumstances and rationale of that case are

comparable to those considered in this case.

     To reflect the foregoing,

                                      An appropriate order will be

                                 issued granting respondent’s and

                                 denying petitioner’s motion for

                                 partial summary judgment.
