                                               RANDALL J. AND KAREN G. THOMPSON, PETITIONERS
                                                   v. COMMISSIONER OF INTERNAL REVENUE,
                                                                RESPONDENT
                                                        Docket No. 30586–08.                 Filed December 27, 2011.

                                                   On the basis of a final decision in a partnership-level pro-
                                                ceeding for RJT Investments X, LLC, which had made all
                                                partnership allocations for its tax year ended Dec. 31, 2001,
                                                to P–H, R determined an income tax deficiency and an
                                                accuracy-related penalty for Ps’ 2001 tax year. Immediately
                                                after issuing a notice of deficiency to Ps, R directly assessed
                                                the deficiency and penalty amounts determined in that notice.
                                                R has since acknowledged errors in these deficiency and pen-
                                                alty amounts and has made corresponding assessment abate-
                                                ments. Nonetheless, R argues that the notice of deficiency is
                                                invalid and that the Court lacks jurisdiction over the case
                                                because the changes to Ps’ 2001 tax liability shown on the
                                                notice are computational adjustments that are not subject to
                                                deficiency procedures. Ps have conceded the amount of the
                                                deficiency but urge us to follow Petaluma FX Partners, LLC
                                                v. Commissioner, 591 F.3d 649 (D.C. Cir. 2010), affg. in part,
                                                revg. in part and remanding in part 131 T.C. 84 (2008), and
                                                hold that the accuracy-related penalty does not relate to an
                                                adjustment to a partnership item and can be assessed only
                                                following deficiency procedures. Held: Computing Ps’ income
                                                tax deficiency arising from the adjustments finalized in the
                                                partnership-level proceeding in RJT Invs. X, LLC v. Commis-
                                                sioner, docket No. 11769–05 (June 6, 2006), affd. 491 F.3d 732
                                                (8th Cir. 2007), does not require any partner-level determina-
                                                tions, and assessing or collecting this deficiency is not subject
                                                to deficiency procedures. Held, further, the errors in the notice
                                                of deficiency do not constitute a ‘‘determination’’ under sec.
                                                6212(a), I.R.C. Held, further, the accuracy-related penalty may
                                                be directly assessed and is not subject to deficiency proce-
                                                dures, notwithstanding the need for partner-level determina-
                                                tions. Held, further, the notice of deficiency is invalid and the
                                                Court lacks jurisdiction over this case. R’s motion to dismiss
                                                for lack of jurisdiction will be granted.

                                           Edward M. Robbins, Jr., for petitioners.
                                           James A. Kutten, for respondent.

                                      220




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                                      (220)                        THOMPSON v. COMMISSIONER                                        221


                                                                                  OPINION

                                        WHERRY, Judge: This case is before the Court on respond-
                                      ent’s motion to dismiss for lack of jurisdiction. The case con-
                                      stitutes a partner-level action under the unified partnership
                                      audit and litigation procedures of the Tax Equity and Fiscal
                                      Responsibility Act of 1982 (TEFRA), Pub. L. 97–248, sec.
                                      402(a), 96 Stat. 324. 1

                                                                                Background
                                      I. Partnership-Level Proceeding
                                         Petitioner husband, Randall J. Thompson, engaged in a
                                      Son-of-BOSS (BOSS) market linked deposit transaction in
                                      2001, seeking to offset approximately $21,500,000 in capital
                                      gains. To facilitate the BOSS transaction, petitioner husband
                                      formed RJT Investments X, LLC (RJT), on October 12, 2001.
                                      For its tax year ended December 31, 2001, RJT made all part-
                                      nership allocations to petitioner husband. The Commissioner
                                      issued a notice of final partnership administrative adjust-
                                      ment (FPAA) to RJT for 2001 on March 21, 2005, disallowing
                                      deductions and losses and determining an accuracy-related
                                      penalty under section 6662.
                                         Petitioner husband, as the tax matters partner of RJT, peti-
                                      tioned this Court challenging the FPAA in a partnership-level
                                      proceeding, RJT Invs. X, LLC v. Commissioner, docket No.
                                      11769–05. The Court entered a decision in that case on June
                                      6, 2006. That decision was affirmed by the Court of Appeals
                                      for the Eighth Circuit in RJT Invs. X, LLC v. Commissioner,
                                      491 F.3d 732 (8th Cir. 2007).
                                      II. Issuance of Notice
                                        Petitioners’ 2001 Form 1040, U.S. Individual Income Tax
                                      Return, included income, deductions, and losses relating to
                                      RJT. In a stipulation of facts filed June 16, 2011, the parties
                                      agree that ‘‘On September 22, 2008, respondent timely
                                      mailed an affected items notice of deficiency for the year
                                      ending December 31, 2001, to petitioners determining a defi-
                                      ciency in federal income tax and an addition to tax pursuant
                                        1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986

                                      (Code), as amended and in effect for the year at issue, 2001, and all Rule references are to the
                                      Tax Court Rules of Practice and Procedure.




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                                      222                 137 UNITED STATES TAX COURT REPORTS                                     (220)


                                      to I.R.C. § 6662(h).’’ The ‘‘copy of the affected items notice of
                                      deficiency issued to petitioners for the year ending December
                                      31, 2001’’ attached to the stipulation of facts shows the fol-
                                      lowing amounts: (1) $4,634,243.00, labeled ‘‘Tax’’; and (2)
                                      $1,853,697.20, labeled ‘‘IRC 6662(h)’’. The stipulation of facts
                                      further states that ‘‘On September 23, 2008, respondent
                                      assessed the following against petitioners regarding the flow
                                      through adjustments from RJT Investments X, LLC (a)
                                      $1,853,697.20 penalty pursuant to I.R.C. § 6662, (b)
                                      $4,634,243.00 tax, and (c) $3,053,575.48 interest.’’
                                         Petitioners filed a petition on December 19, 2008, before
                                      the December 22, 2008, date shown as the ‘‘Last Day to File
                                      a Petition With the United States Tax Court’’ on the Sep-
                                      tember 22, 2008, notice of deficiency. On December 2, 2009,
                                      respondent filed a motion to dismiss for lack of jurisdiction
                                      (motion), and a memorandum in support of respondent’s
                                      motion to dismiss for lack of jurisdiction. Pursuant to an
                                      order of the Court of December 8, 2009, petitioners timely
                                      filed a memorandum in opposition to respondent’s motion to
                                      dismiss for lack of jurisdiction on December 31, 2009.
                                         Respondent’s motion asks
                                      that this case be dismissed for lack of jurisdiction upon the ground that
                                      no valid statutory notice of deficiency * * * has been sent to petitioners
                                      with respect to taxable year 2001, nor has respondent made any other
                                      determination with respect to petitioners’ taxable year 2001 that would
                                      confer jurisdiction on this Court. [Emphasis supplied.]

                                      The motion argues that the September 22, 2008, ‘‘notice of
                                      deficiency is invalid as the determination relates to computa-
                                      tional flow through adjustments that are immediately assess-
                                      able and not affected items requiring partner-level deter-
                                      minations made through a notice of deficiency’’.
                                      III. Errors in Notice
                                        In reviewing the record in the case, the Court noted two
                                      apparent errors by respondent in making adjustments to
                                      petitioners’ 2001 Form 1040 to give effect to the June 6,
                                      2006, decision in the partnership-level proceeding. The Court
                                      brought these apparent errors to the parties’ attention. 2 The
                                        2 The Court uncovered these apparent errors when comparing the June 6, 2006, decision in

                                      the partnership-level proceeding and petitioners’ Form 1040, on the one hand, with the adjust-
                                      ments shown on Form 886–A, Explanation of Items, attached to the Sept. 22, 2008, notice of




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                                      (220)                        THOMPSON v. COMMISSIONER                                        223


                                      parties subsequently filed a stipulation of settlement on July
                                      26, 2011. The stipulation of settlement states in part that
                                      To the extent that this Court has jurisdiction to redetermine respondent’s
                                      determination in the September 22, 2008, affected item notice of deficiency,
                                      the parties agree that respondent’s determination regarding the deficiency
                                      and penalty pursuant to I.R.C. § 6662(h) for 2001, modified as set forth
                                      on the Audit Statement and Statement—Income Tax Changes attached
                                      hereto as Exhibit B, is correct. [Emphasis supplied.]

                                        Exhibit B attached to the July 26, 2011, stipulation of
                                      settlement, includes a Form 3610, Audit Statement, and a
                                      Form 5278, Statement—Income Tax Changes, for petitioners
                                      for tax year 2001, each bearing a date of July 18, 2011. The
                                      July 18, 2011, Form 3610 shows a ‘‘statutory deficiency’’ of
                                      $4,248,420. Line 21 of the July 18, 2011, Form 5278 confirms
                                      that the ‘‘Deficiency—increase in tax’’ is $4,248,420. By
                                      comparison, on the September 22, 2008, notice of deficiency,
                                      the amount shown as ‘‘Deficiency’’ under ‘‘Tax’’ is
                                      $4,634,243. 3
                                      deficiency, on the other. One of these adjustments sought to give effect to the holding in the
                                      partnership-level decision of June 6, 2006, that ‘‘RJT Investments X, LLC is disregarded for Fed-
                                      eral income tax purposes.’’ Explaining that ‘‘We have adjusted your return in accordance with
                                      the Tax Court decision for RJT Investments X, LLC’’, Form 886–A purports to deny petitioners
                                      the entire amount of the short-term capital loss that they had claimed on Schedule D, Capital
                                      Gains and Losses, on account of ‘‘LIQUIDATION OF RJT INVESTMENTS X, LLC’’. Form 886–
                                      A shows a ‘‘Per Return’’ short-term capital loss of $22,006,759 and a corresponding positive ‘‘Ad-
                                      justment’’ in the same amount. However, the Court observed that petitioners’ Schedule D had
                                      actually claimed, on line 7, a ‘‘Net short-term capital * * * loss’’ of $21,032,415. The amount
                                      of $22,006,759 was, in fact, the claimed ‘‘Cost or other basis’’ of the purported investment in
                                      the partnership, shown in column (e) of line 1 of Schedule D.
                                         Another adjustment on Form 886–A sought to give effect to the determination in the partner-
                                      ship-level decision of June 6, 2006, that the appropriate amount of the ‘‘Partnership Item’’ de-
                                      scribed as ‘‘Investment income included in portfolio income’’ was zero and not $206. The Court
                                      noted that this redetermination of the relevant partnership item should have ‘‘zeroed out’’ the
                                      $206 amount shown on petitioners’ Schedule K–1, Partner’s Share of Income, Credits, Deduc-
                                      tions, etc., on line 4(b), Ordinary dividends. Nonetheless, if the $206 amount was actually re-
                                      ceived by petitioner husband, it should arguably still have been shown on petitioners’ Schedule
                                      B, Interest and Ordinary Dividends, under Part II, Ordinary Dividends. Instead of being de-
                                      noted ‘‘FROM K–1—RJT INVESTMENTS X, LLC’’, as petitioners had done, the dividend should
                                      have been attributed directly to the underlying security. However, it is unclear whether the
                                      partnership-level decision of June 6, 2006, had eliminated the partnership item of $206 of divi-
                                      dend or merely rendered it a nonpartnership item. If the latter, then there should have been
                                      no net amount of adjustment to petitioners’ Schedule B. But Form 886–A, under ‘‘Dividends’’,
                                      zeroed out the $206 amount with a negative adjustment in the same amount, without an accom-
                                      panying positive adjustment to reflect the nonpartnership character of the item.
                                         3 Also, the July 18, 2011, Form 3610 shows an amount under ‘‘§ IRC 6662(h)’’ of $1,699,368.

                                      Again, the July 18, 2011, Form 5278 confirms on line 24 that ‘‘Penalties and/or Additions to
                                      Tax’’ under ‘‘IRC 6662’’ amount to $1,699,368. By comparison, on the Sept. 22, 2008, notice of
                                      deficiency, the amount shown for ‘‘IRC 6662(h)’’ is $1,853,697.20.
                                         We note that the deficiency and penalty amounts in the attachments to the July 26, 2011,
                                      stipulation of settlement are based on petitioners’ revised taxable income that reflects disallow-
                                                                                                    Continued




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                                      224                 137 UNITED STATES TAX COURT REPORTS                                     (220)


                                        We recognize that the September 22, 2008, notice of defi-
                                      ciency contains deficiency and penalty amounts that are
                                      larger than the respective amounts that respondent has now
                                      stipulated as ‘‘correct’’. Presumably, respondent now believes
                                      that the smaller stipulated amounts are the appropriate
                                      versions of what he characterized in paragraph 7 of his
                                      motion as ‘‘computational assessments [that] are authorized
                                      by I.R.C. § 6230(a)(1) to be directly assessed without the
                                      issuance of an affected items notice of deficiency.’’

                                                                                 Discussion
                                        We consider, in sequence, our jurisdiction over petitioners’
                                      income tax deficiency and the accuracy-related penalty.
                                      I. Jurisdiction Over Deficiency
                                         Whether we have jurisdiction over petitioners’ income tax
                                      deficiency, in turn, requires us to decide the following three
                                      issues: (1) Whether an affected items notice of deficiency
                                      issued in the absence of a need for partner-level determina-
                                      tions is void ab initio; (2) whether an erroneous computa-
                                      tional adjustment, which both was made and can be cor-
                                      rected without partner-level determinations, constitutes an
                                      additional determination rendering valid the notice con-
                                      taining it; and (3) whether any partner-level determinations
                                      are required, in petitioners’ case, to properly reflect the treat-
                                      ment of partnership items made in the partnership-level pro-
                                      ceeding.
                                           A. Notice Void Ab Initio
                                        We first confront the argument that even though an
                                      affected items notice of deficiency may not be required in the
                                      ance of a net short-term capital loss of $21,032,415, the actual amount petitioners had claimed
                                      on their Schedule D, and not the ‘‘Per Return’’ amount of $22,006,759 shown on Form 886–A.
                                      We further note, however, that this revised taxable income still does not account for the $206
                                      dividend amount.
                                         As we explain infra Discussion, pt. I.C., we decline to look behind the purported affected items
                                      notice of deficiency in testing its validity. We acknowledge that in discovering what appeared
                                      to be errors in that notice, we considered material submitted by the parties, including peti-
                                      tioners’ Form 1040, and compared it with attachments to the notice. We ignored all such mate-
                                      rial in conducting our jurisdictional inquiry. Further, because we conclude infra Discussion, pts.
                                      I.E. and II.C., that we lack jurisdiction over the case, we wish to make it clear that in alerting
                                      the parties to these apparent errors we did not make any findings on these issues, which speak
                                      for themselves in accordance with the statements on the documents. Though the parties have
                                      come to an agreement regarding these apparent errors, we disclaim any responsibility for, or
                                      jurisdiction over, their agreement.




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                                      (220)                        THOMPSON v. COMMISSIONER                                        225


                                      absence of a need for partner-level determinations, once the
                                      Commissioner does issue such a notice, he is bound by it. If
                                      this is correct, then, pursuant to section 6213(a), ‘‘no assess-
                                      ment of a deficiency in respect of any tax * * * shall be
                                      made, begun, or prosecuted * * *, if a petition has been filed
                                      with the Tax Court, until the decision of the Tax Court has
                                      become final.’’ This argument presumes that an affected
                                      items notice of deficiency is elective if no partner-level deter-
                                      minations are needed. Moreover, once the Commissioner
                                      makes the election, then the restrictions on assessments are
                                      necessarily activated. This argument, and the electiveness of
                                      an affected items notice of deficiency, are refuted by the plain
                                      language of the statute.
                                         The applicability or inapplicability of deficiency procedures
                                      under section 6230 is statutorily mandated and bereft of any
                                      administrative discretion. Under section 6230(a)(1), ‘‘Except
                                      as provided in paragraph (2) [relating to affected items
                                      requiring partner-level determinations] or (3) [relating to
                                      items ceasing to be partnership items], subchapter B of this
                                      chapter [containing deficiency notice procedures and require-
                                      ments] shall not apply to the assessment or collection of any
                                      computational adjustment.’’ (Emphasis supplied.) Conversely,
                                      under section 6230(a)(2)(A), ‘‘Subchapter B shall apply to any
                                      deficiency attributable to * * * affected items which require
                                      partner level determinations’’. (Emphasis supplied.) Thus, for
                                      giving partner-level effect to the treatment of any partner-
                                      ship item, the deficiency procedures of subchapter B, sections
                                      6211 through 6216, either apply or do not, depending upon
                                      whether partner-level determinations are, or are not, needed.
                                      The Commissioner enjoys no element of choice of any sort.
                                         In the absence of a need for partner-level determinations,
                                      sections 6211 through 6216 simply do not apply. Con-
                                      sequently, whatever notice the Commissioner may inappro-




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                                      priately (albeit understandably) issue, 4 it cannot trigger the
                                      restraints on assessment of section 6213(a). 5
                                           B. Any Other Determination
                                         We now consider the contention that in making an erro-
                                      neous computational adjustment, respondent has ‘‘made any
                                      other determination with respect to petitioners’ taxable year
                                      2001 that would confer jurisdiction on this Court.’’
                                         It may be argued that if an affected items notice of defi-
                                      ciency determines an amount higher than the amount that
                                      the Commissioner eventually concedes as the definitive defi-
                                      ciency, then the notice does not properly reflect the treat-
                                      ment of the partnership items at issue. 6 Specifically, the
                                      argument posits that the acknowledged errors in computing
                                      the impact of the treatment of one or more partnership items
                                      cause the notice’s determination no longer to be a ‘‘computa-
                                      tional adjustment’’ under section 6231(a)(6) but to constitute
                                      a ‘‘deficiency’’ within the meaning of section 6211(a). The
                                      argument would bring the notice of deficiency within the pur-
                                      view of the deficiency procedures of sections 6211 through
                                      6216. Consequently, whether or not partner-level determina-
                                        4 See the Commissioner’s Chief Counsel Notice CC–2009–11 (Mar. 11, 2009), which outlines

                                      a protective assessment procedure for ‘‘those cases in which a partner has sold at a loss * * *
                                      the TEFRA partnership interest’’. Notice CC–2009–11 acknowledges that
                                      If the IRS issues a notice of deficiency, the statute of limitations is tolled, but only if section
                                      6230(a)(2) authorizes the notice of deficiency. * * * To account for this uncertainty in classifying
                                      affected items, the IRS should issue a notice of deficiency with respect to the affected items and
                                      any penalties relating to the affected items * * * [regardless of the need for partner-level deter-
                                      minations. Also], the IRS should assess the entire deficiency, including any penalties, reflecting
                                      both the outcome of the partnership-level proceeding as well as what was included in the af-
                                      fected item notice of deficiency.
                                         5 We note that no Court of Appeals has yet concluded as much. The Court of Appeals for the

                                      Sixth Circuit in Desmet v. Commissioner, 581 F.3d 297, 302 (6th Cir. 2009), affg. in part and
                                      remanding on other grounds Domulewicz v. Commissioner, 129 T.C. 11 (2007), appears to have
                                      come close when it acknowledged that ‘‘TEFRA prefers that * * * computational adjustments
                                      be assessed directly to the partner’s return, without a second set of proceedings against each
                                      partner.’’ By comparison, the Court of Appeals for the Ninth Circuit in Napoliello v. Commis-
                                      sioner, 655 F.3d 1060, 1064 n.1 (9th Cir. 2011), affg. T.C. Memo. 2009–104, declined to ‘‘reach
                                      the question of whether the notice of deficiency would be invalid if no partner-level determina-
                                      tion were necessary.’’ We do not enjoy the luxury of leaving the issue unresolved here.
                                         6 Petitioners have chosen not to make this argument and declared instead that the computa-

                                      tional errors in the affected items notice of deficiency ‘‘have no bearing on the Court’s jurisdic-
                                      tion in this case.’’ Ironically, petitioners’ failure to advance this argument has no bearing on our
                                      jurisdictional inquiry. We have an affirmative duty to investigate the extent of our jurisdiction
                                      regardless of the parties’ submissions. See, e.g., Arbaugh v. Y & H Corp., 546 U.S. 500, 514
                                      (2006) (underlining that courts ‘‘have an independent obligation to determine whether subject-
                                      matter jurisdiction exists, even in the absence of a challenge from any party’’); United States
                                      v. Cotton, 535 U.S. 625, 630 (2002) (holding that ‘‘subject-matter jurisdiction, because it involves
                                      a court’s power to hear a case, can never be forfeited or waived’’).




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                                      tions are needed, the argument would conclude that the
                                      notice is valid and validly confers jurisdiction on us to
                                      redetermine the deficiency shown in the notice.
                                         Supporting this argument is the tenet that the words
                                      ‘‘properly reflects’’ in the definition of ‘‘computational adjust-
                                      ment’’ in section 6231(a)(6) are construed to require an objec-
                                      tively ascertainable treatment of a partnership item. Fur-
                                      ther, the argument assumes that any such ascertainment
                                      should be made in the light of all relevant information,
                                      regardless of when or how it is revealed. Extending this
                                      argument to its logical conclusion yields manifest inconsist-
                                      encies with the intent and design of the two-tier TEFRA
                                      regime. These inconsistencies would inevitably arise because
                                      a ‘‘computational adjustment’’ is a predicate for not just a
                                      direct assessment under section 6230(a)(1), but also an
                                      affected items notice of deficiency under section
                                      6230(a)(2)(B). 7
                                         In particular, the exclusions from the ‘‘no-second-notice’’
                                      rule of section 6212(c), which are contained in section
                                      6230(a)(2)(C) and are restricted to a notice issued under sec-
                                      tion 6230(a)(2)(B), would be unavailable if an error in a com-
                                      putational adjustment is deemed to be ‘‘another determina-
                                      tion’’. If this determination represents a section 6211(a) defi-
                                      ciency (instead of a section 6231(a)(6) computational adjust-
                                      ment), then the notice containing it would constitute a sec-
                                      tion 6212(a) notice of deficiency (instead of a section
                                      6230(a)(2)(B) affected items notice of deficiency).
                                         Any time we redetermine downwards a deficiency shown in
                                      an otherwise validly issued affected items notice of defi-
                                      ciency, after making partner-level determinations, we are
                                      necessarily holding incorrect the computational adjustment
                                      shown on the notice. If the judicially determined error in the
                                         7 See Bush v. United States, 655 F.3d 1323, 1332 (Fed. Cir. 2011) (acknowledging that ‘‘Our

                                      holding that the assessments in this case meet the definition of ‘computational adjustment’
                                      under I.R.C. § 6231(a)(6) does not end our analysis. Notices of deficiency would still be due for
                                      any deficiencies (including any that would otherwise be a computational adjustment) attrib-
                                      utable to ‘affected items which require partner level determinations’ under § 6230(a)(2)(A)(i).’’
                                      (Emphasis supplied.)); Desmet v. Commissioner, supra at 302 (explaining that ‘‘the IRS may pro-
                                      ceed to make computational adjustments to each partner’s return * * * in one of two ways.
                                      First, the IRS may directly assess the tax against the individual partner by making a computa-
                                      tional adjustment—applying the new tax treatment of all partnership items to that partner’s
                                      return. * * * Second, if the partner’s liability relates to ‘affected items which require partner
                                      level determinations,’ then the IRS must send a notice of deficiency to that partner, thereby ini-
                                      tiating proceedings against him individually, pursuant to the standard deficiency procedures set
                                      forth in I.R.C. §§ 6211–16.’’ (Emphasis supplied.) (Citations omitted.)).




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                                      computational adjustment is conceived of as ‘‘another deter-
                                      mination’’ that the Commissioner has made, then our holding
                                      would ipso facto trigger the prohibition against a second
                                      notice contained in section 6212(c). Therefore, if no notice
                                      had been previously issued for the same tax year, then the
                                      affected items notice would foreclose the possibility of
                                      another notice, even with respect to nonpartnership items.
                                      More troubling, a prior notice for the same tax year for non-
                                      partnership items would render invalid the notice underlying
                                      our redetermination. In other words, our redetermination
                                      would be moot precisely because we disagree with the
                                      Commissioner’s initial determination.
                                         We reject such perverse results and the stilted logic that
                                      inexorably leads to them. Instead, we hold that the words
                                      ‘‘properly reflects’’ in the definition of ‘‘computational adjust-
                                      ment’’ in section 6231(a)(6) are construed as of the time the
                                      notice is issued and without looking behind that notice. Thus,
                                      if the notice, on its face, purports to give proper effect to the
                                      treatment of a partnership item, then the resulting deter-
                                      mination is a computational adjustment within the meaning
                                      of section 6231(a)(6). Consequently, under section
                                      6230(a)(2)(A), the validity of this notice depends solely on the
                                      need for partner-level determinations.
                                           C. Do Not Look Behind the Notice; Do Not Go to Tax Court
                                         For a jurisdictional inquiry, the words ‘‘properly reflects’’ in
                                      the definition of ‘‘computational adjustment’’ in section
                                      6231(a)(6) are construed to require not a reflection that is
                                      ‘‘proper’’ (i.e., accurate and correct) in an abstract sense, but
                                      merely a reflection that the Commissioner contends is
                                      proper. Looking for a reflection in the Commissioner’s all-too
                                      human eye instead of one in a perfectly reflecting mirror,
                                      under section 6231(a)(6), is in complete harmony with our
                                      construction of ‘‘deficiency’’ in section 6211(a). Under section
                                      6211(a), we do not seek to establish an objectively verifiable
                                      existence of a deficiency to test the validity of a notice of defi-
                                      ciency. We focus, instead, on the Commissioner’s determina-
                                      tion of a proclaimed deficiency.
                                         As we explained in Hannan v. Commissioner, 52 T.C. 787,
                                      791 (1969): ‘‘it is not the existence of a deficiency but the
                                      Commissioner’s determination of a deficiency that provides a




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                                      predicate for Tax Court jurisdiction. * * * Indeed, were this
                                      not true, then the absurd result would be that in every case
                                      in which this Court determined that no deficiency existed,
                                      our jurisdiction would be lost.’’ This would, among other
                                      things, read out of the Code our incidental refund jurisdiction
                                      of section 6512(b). See id.; see also Huffman v. Commis-
                                      sioner, T.C. Memo. 1991–144 (holding that even after the
                                      Commissioner subsequently conceded the entire amount of
                                      the deficiency initially determined in the notice of deficiency,
                                      the notice continued to retain validity for jurisdictional pur-
                                      poses), affd. in part and revd. in part on other grounds 978
                                      F.2d 1139 (9th Cir. 1992).
                                         Further, in eschewing to look behind the affected items
                                      notice of deficiency, we are being perfectly consistent with
                                      our precedent in testing the validity of other ‘‘ticket[s] to the
                                      tax court’’, Corbett v. Frank, 293 F.2d 501, 502 (9th Cir.
                                      1961), viz, section 6212(a) notices of deficiency and section
                                      6330(d)(1)(A) notices of determination. 8
                                         Our holding is also in accord with Meyer v. Commissioner,
                                      97 T.C. 555 (1991). In Meyer v. Commissioner, supra at 559,
                                      we observed that the Commissioner ‘‘can immediately assess
                                      and collect the addition to tax under section 6651(a)(1) * * *
                                      if such additions are determined (i.e., measured) by the
                                      amount of tax shown on the taxpayer’s return’’. For one of
                                      the tax years at issue in that case, the Commissioner had
                                      summarily assessed an erroneous amount as an addition to
                                      tax under section 6651(a)(1). Subsequently, the Commis-
                                      sioner abated this erroneous assessment and included a
                                        8 In the context of a sec. 6212(a) notice of deficiency, we laid down a general rule of not look-

                                      ing behind the notice to determine its validity in Greenberg’s Express, Inc. v. Commissioner, 62
                                      T.C. 324, 327 (1974). We have adhered to this rule ever since. See Pietanza v. Commissioner,
                                      92 T.C. 729, 735 (1989), affd. without published opinion 935 F.2d 1282 (3d Cir. 1991); Riland
                                      v. Commissioner, 79 T.C. 185, 201 (1982); Estate of Brimm v. Commissioner, 70 T.C. 15, 22
                                      (1978). Also, in deciding whether the Commissioner has made a ‘‘determination’’ within the
                                      meaning of sec. 6212(a), we need only examine the face of the notice. See Sealy Power, Ltd. v.
                                      Commissioner, 46 F.3d 382, 388 n.25 (5th Cir. 1995), affg. in part and revg. in part T.C. Memo.
                                      1992–168; Clapp v. Commissioner, 875 F.2d 1396, 1402 (9th Cir. 1989); Campbell v. Commis-
                                      sioner, 90 T.C. 110 (1988); cf. Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987) (holding that
                                      because the face of the notice of deficiency revealed that the Commissioner had failed to make
                                      a ‘‘determination’’ within the meaning of sec. 6212(a), the notice was insufficient to confer juris-
                                      diction on the Court), revg. 81 T.C. 855 (1983).
                                        We extended these principles of limiting our gaze to a notice’s surface to sec. 6330(d)(1)(A)
                                      notices of determination in Lunsford v. Commissioner, 117 T.C. 159, 164 (2001). In so doing,
                                      we overruled precedent holding that we must first look behind the determination to see whether
                                      a proper hearing was offered in order to have jurisdiction. See Meyer v. Commissioner, 115 T.C.
                                      417 (2000), abrogated by Johnson v. Commissioner, 117 T.C. 204 (2001).




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                                      smaller amount as a section 6651(a)(1) addition to tax in a
                                      section 6212(a) statutory notice of deficiency.
                                         We did not attempt to verify the accuracy of the smaller
                                      amount. Instead, we noted that the ‘‘inclusion of the addi-
                                      tions to tax under sections 6651(a)(1) * * * in the deficiency
                                      notice * * * raises a jurisdictional question’’. Id. at 562.
                                      Even though the Commissioner had not challenged our juris-
                                      diction, we did so sua sponte. ‘‘Having concluded that the
                                      additions to tax in question are not subject to the deficiency
                                      procedures, * * * [we ruled] on our own motion [to] dismiss
                                      this case for lack of jurisdiction and strike as it relates to’’
                                      the amount of the section 6651(a)(1) addition to tax shown on
                                      the notice. Id. We refrained from looking behind the notice
                                      to consider whether the amount shown on the notice was the
                                      proper section 6651(a)(1) addition to tax. We do the same
                                      here with respect to the section 6230(a)(1) computational
                                      adjustment that does not need any partner-level determina-
                                      tions.
                                         Finally, we note that if we were to hold otherwise, we
                                      would allow a taxpayer to proceed with a petition by
                                      assigning errors to a notice, even though adjudicating such
                                      errors would not require that we make partner-level deter-
                                      minations. Allowing taxpayers such a prepayment forum
                                      would circumvent congressional intent as expressed in sec-
                                      tion 6230(c) limiting a partner’s relief from erroneous com-
                                      putational adjustments to a claim or suit for refund. Whether
                                      such a restriction is reasonable or just is for Congress to
                                      decide, and we believe it already has. 9
                                           D. No Partner-Level Determinations Needed
                                        The September 22, 2008, notice of deficiency made four dis-
                                      crete computational adjustments to petitioners’ 2001 income
                                      tax liability, each of which purportedly ‘‘properly reflects the
                                         9 Compare sec. 6230(a)(3)(A) (using the phrase ‘‘request for abatement’’ (emphasis supplied) for

                                      seeking innocent spouse relief from ‘‘a liability that is attributable to any adjustment to a part-
                                      nership item’’), with sec. 6230(c)(1) (using the phrase ‘‘claim for refund’’ (emphasis supplied) for
                                      a claim made ‘‘on the grounds that * * * the Secretary erroneously computed any computational
                                      adjustment necessary * * * to apply to the partner a * * * decision of a [TEFRA partnership-
                                      level proceeding]’’). See also Ackerman v. United States, 643 F. Supp. 2d 140, 146, 147–148
                                      (D.D.C. 2009) (after confirming that ‘‘The critical question in this case is whether the term
                                      ‘claim for refund’ [in sec. 6230(c)(1)] requires that payment be made before the claim is filed’’,
                                      the court concluded ‘‘that Congress purposely used the term ‘claim for refund’ in section 6230(c).
                                      * * * It is unlikely * * * that Congress did not intend ‘claim for refund’ when it wrote ‘claim
                                      for refund’ in section 6230(c).’’ (Emphasis supplied.) (Citations omitted.)).




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                                      treatment under this subchapter of a partnership item’’. Sec.
                                      6231(a)(6). These adjustments comprised: (a) Eliminating the
                                      $206 of dividend income reported on petitioners’ 2001
                                      Schedule B as income from RJT’s Schedule K–1; (b) elimi-
                                      nating the $12,415 capital loss reported on petitioners’ 2001
                                      Schedule D, line 5, as a flowthrough loss from RJT’s Schedule
                                      K–1; (c) eliminating the $81,040 investment expense deduc-
                                      tion reported on Schedule A, Itemized Deductions, line 22, as
                                      a flowthrough deduction from RJT’s Schedule K–1; and (d)
                                      eliminating the reported loss on liquidation of RJT reported
                                      on petitioners’ 2001 Schedule D, line 1. 10
                                         All of these computational adjustments follow directly from
                                      the treatment of partnership items determined in the part-
                                      nership-level proceeding, and none of them requires any
                                      partner-level determinations within the meaning of section
                                      6230(a)(2) and section 301.6231(a)(6)–1(a)(2), Proced. &
                                      Admin. Regs.
                                           1. No Profit Motive Found; No Loss Allowed
                                         We begin with the following unremarkable twin propo-
                                      sitions. The validity of each is readily apparent from the rel-
                                      evant Code sections, viewed in the light of the Commis-
                                      sioner’s interpretive regulations and the gloss of our own
                                      precedent. First, if a TEFRA partnership-level proceeding
                                      determines that partnership activities were not engaged in
                                      with a profit motive, then for a given tax year a partner’s
                                      distributive share of partnership income serves as an upper
                                      limit on that partner’s distributive shares of partnership
                                      losses and deductions. 11 Second, if the partnership activities
                                      were deemed a sham, the partner may not claim a loss on
                                      liquidating any part of his partnership interest.
                                         If an ‘‘activity is not engaged in for profit’’, section
                                      183(b)(2) limits deductions attributable to that activity to
                                      ‘‘the gross income derived from such activity for the taxable
                                        10 These adjustments necessitated respondent’s making the following accompanying changes

                                      to petitioners’ individual tax liability, which are not deemed to constitute partner-level deter-
                                      minations under sec. 301.6231(a)(6)–1(a)(2), Proced. & Admin. Regs.: Decreasing petitioners’
                                      2001 itemized deductions by $170,283 to eliminate the $81,040 investment expense deduction
                                      mentioned above and to reflect a higher ‘‘floor’’ for such deductions; and recomputing petitioners’
                                      2001 alternative minimum tax.
                                        11 This excludes, pursuant to sec. 183(b)(1), ‘‘deductions which would be allowable * * * with-

                                      out regard to whether or not such activity is engaged in for profit’’, such as State and local taxes
                                      and casualty losses. No such deductions are at issue here.




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                                      year’’. ‘‘[T]he term ‘activity not engaged in for profit’ means
                                      any activity other than one with respect to which deductions
                                      are allowable for the taxable year under section 162 or under
                                      * * * section 212.’’ Sec. 183(c).
                                        Though section 183 is limited on its face to ‘‘an individual
                                      or an S corporation’’, we have previously and repeatedly
                                      agreed with the Commissioner that ‘‘section 183 of the Code
                                      applies to the activities of a partnership, and the provisions
                                      of section 183 are applied at the partnership level and
                                      reflected in the partner’s distributive shares.’’ Rev. Rul. 77–
                                      320, 1977–2 C.B. 78; see also Rev. Rul. 78–22, 1978–1 C.B.
                                      72 (holding that an individual engaged in the same economic
                                      activity both as a sole proprietor and as a partner is deemed
                                      to be engaged in two distinct activities for section 183 pur-
                                      poses). 12
                                        The two revenue rulings cited above predate TEFRA. How-
                                      ever, section 301.6231(a)(3)–1(b), Proced. & Admin. Regs.,
                                      makes it clear that their logic carries over to TEFRA and ‘‘The
                                      term ‘partnership item’ includes * * * whether partnership
                                         12 We have concurred with this reasoning and concluded that in a sec. 183 inquiry in a part-

                                      nership context, ‘‘the profit motive analysis is made at the partnership level.’’ Antonides v. Com-
                                      missioner, 91 T.C. 686, 694 (1988), affd. 893 F.2d 656 (4th Cir. 1990); see also Peat Oil & Gas
                                      Associates v. Commissioner, 100 T.C. 271 (1993) (holding that motives of promoters and man-
                                      agers of partnership control a sec. 183 analysis), affd. sub nom. Ferguson v. Commissioner, 29
                                      F.3d 98 (2d Cir. 1994); Krause v. Commissioner, 99 T.C. 132, 168 (1992) (‘‘Whether activities
                                      of partnerships were engaged in with actual and honest profit objectives is analyzed at the part-
                                      nership level.’’), affd. 28 F.3d 1024 (10th Cir. 1994); Rosenfeld v. Commissioner, 82 T.C. 105
                                      (1984) (declaring irrelevant the intent of individual coowners for analyzing partnership’s profit
                                      motive); Surloff v. Commissioner, 81 T.C. 210, 233 n.58 (1983) (stating that for sec. 183 pur-
                                      poses, ‘‘the partnership itself is the entity that is or is not in a trade or business’’).
                                         We find unanimity among the various Courts of Appeals that have considered this issue,
                                      which have all held that a sec. 183 analysis for a profit motive in a partnership context is prop-
                                      erly conducted at the partnership level. See Copeland v. Commissioner, 290 F.3d 326 (5th Cir.
                                      2002), affg. in part and revg. in part on other grounds T.C. Memo. 2000–81; Hill v. Commis-
                                      sioner, 204 F.3d 1214 (9th Cir. 2000); Underwood v. Commissioner, 203 F.3d 836 (10th Cir.
                                      2000).
                                         However, we do detect a difference of opinion between at least two Courts of Appeals in how
                                      sec. 183 operates to disallow deductions claimed by a partner in a TEFRA partnership. The
                                      Court of Appeals for the Ninth Circuit has stated that sec. 183 directly ‘‘applies to partnerships
                                      despite the statute’s failure to mention them.’’ Hill v. Commissioner, supra at 1218. The Court
                                      of Appeals for the Fifth Circuit, on the other hand, has held ‘‘that the factors from I.R.C. § 183
                                      are only tools for determining the requisite profit objective under I.R.C. §§ 162 and 174; deduc-
                                      tions for partnership expenses are not allowed or disallowed directly under I.R.C. § 183 itself.’’
                                      Copeland v. Commissioner, supra at 335.
                                         The preceding suggests that while the Court of Appeals for the Ninth Circuit would consider
                                      the disallowance of a deduction under sec. 183 a partnership item for TEFRA purposes, the
                                      Court of Appeals for the Fifth Circuit would treat it as an ‘‘affected item’’. This difference of
                                      opinion does not affect our conclusion regarding the absence of any need for partner-level deter-
                                      minations in this case. See infra notes 17 and 19.




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                                      activities have been engaged in with the intent to make a
                                      profit for purposes of section 183’’.
                                           2. Sham Partnership and Shamed Partner
                                         We recognize the analytical separability of a partner’s
                                      intent in investing in the partnership from the partnership’s
                                      intent in engaging in partnership activities. However, ‘‘We
                                      have never held that the mere presence of an individual’s
                                      profit objective will require us to recognize for tax purposes
                                      a transaction which lacks economic substance.’’ Cherin v.
                                      Commissioner, 89 T.C. 986, 993 (1987).
                                         For a partner to claim a loss on liquidating his partnership
                                      interest, his underlying investment must have been ‘‘entered
                                      into for profit’’ within the meaning of section 165(c)(2). But
                                      if the partnership activities themselves were a sham, ‘‘then
                                      such niceties as whether * * * [the partner’s investment]
                                      was ‘primarily’ for profit, or whether the test is an objective
                                      or subjective one are simply not involved.’’ Mahoney v.
                                      Commissioner, 808 F.2d 1219, 1220 (6th Cir. 1987), affg.
                                      Forseth v. Commissioner, 85 T.C. 127 (1985); see also
                                      Hoffpauir v. Commissioner, T.C. Memo. 1996–41 (holding
                                      that ‘‘A taxpayer may not deduct * * * losses under section
                                      165(c)(2) from a tax shelter which lacks economic substance,
                                      even if the taxpayer intended to make a profit.’’).
                                         In other words, for an allowable loss on liquidating a part-
                                      nership interest, each of the following is a necessary condi-
                                      tion. The partner must have had a profit motive for investing
                                      in the partnership, and the partnership transactions them-
                                      selves must not be devoid of economic substance. See Illes v.
                                      Commissioner, 982 F.2d 163, 165 (6th Cir. 1992) (formulating
                                      a two-part test for deducting investment losses in which ‘‘The
                                      threshold question is whether the transaction has economic
                                      substance. If the answer is yes, the question becomes
                                      whether the taxpayer was motivated by profit to participate
                                      in the transaction.’’), affg. T.C. Memo. 1991–449.
                                         Even if the partner had acquired his partnership interest
                                      with the individual motive of making a profit, he may not
                                      deduct as losses any amounts invested in the partnership if
                                      the partnership activities were a sham. See Illes v. Commis-
                                      sioner, supra at 165; Rose v. Commissioner, 868 F.2d 851,
                                      853 (6th Cir. 1989) (declaring that a ‘‘court will not inquire




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                                      into whether a transaction’s primary objective was for the
                                      production of income or to make a profit, until it determines
                                      that the transaction is bona fide and not a sham’’), affg. 88
                                      T.C. 386 (1987); Collins v. Commissioner, 857 F.2d 1383,
                                      1385 (9th Cir. 1988) (stating that ‘‘the court does not inquire
                                      into a transaction’s primary objective until it determines that
                                      the transaction is bona fide, that is, not a sham’’), affg. T.C.
                                      Memo. 1987–217. 13
                                           E. Conclusion
                                         In the related partnership-level proceeding here, RJT Invs.
                                      X, LLC v. Commissioner, docket No. 11769–05, the Commis-
                                      sioner had filed a motion for summary judgment on April 5,
                                      2006. That motion asked the Court to sustain the determina-
                                      tions set forth in the FPAA including the claims
                                      That the formation of RJT Investments X, LLC, the acquisition of any
                                      interest in RJT Investments X, LLC by Randall Thompson and any other
                                      partner, the purchase of offsetting positions on market-linked deposits, the
                                      transfer of offsetting positions on market-linked deposits, the purchase of
                                      assets and the distribution of assets had no business purpose, lacked eco-
                                      nomic substance, and constituted an economic sham for income tax pur-
                                      poses and were not entered into for a profit motive and therefore should be
                                      disregarded for income tax purposes. [Emphasis supplied.]

                                      We granted this motion in its entirety in our order filed April
                                      19, 2006.
                                        Because we had concluded in the April 19, 2006, order that
                                      a profit motive was absent at the partnership-level, our sub-
                                      sequent decision filed June 6, 2006, disallowed all partner-
                                      ship-level deductions and losses. 14 That decision also
                                         13 See also Marinovich v. Commissioner, T.C. Memo. 1999–179; Schafer v. Commissioner, T.C.

                                      Memo. 1994–569; Farmer v. Commissioner, T.C. Memo. 1994–342; Wright v. Commissioner, T.C.
                                      Memo. 1994–288; Daoust v. Commissioner, T.C. Memo. 1994–203; cf. Fid. Intl. Currency Advisor
                                      A Fund, LLC v. United States, 747 F. Supp. 2d 49, 236 (D. Mass. 2010) (concluding as a matter
                                      of law that ‘‘Even if taxpayers invest in a partnership with the individual objective of making
                                      a profit, they are not entitled to deduct any amounts invested in the partnership as losses under
                                      Section 165(c)(2) if the partnership transactions are not entered into for profit’’, but going on
                                      to contend that applicability of sec. 165(c)(2) is an ‘‘affected item’’ and beyond the subject matter
                                      jurisdiction of a TEFRA partnership-level proceeding). Even assuming arguendo that applying
                                      sec. 165(c)(2) to limit a loss claimed on liquidating a partnership interest is an ‘‘affected item’’,
                                      its resolution does not require any additional factual partner-level determinations if the partner-
                                      ship-level proceeding had previously concluded that the partnership activities were an economic
                                      sham. See infra note 19.
                                         14 We acknowledge that neither our order filed Apr. 19, 2006, nor our decision filed June 6,

                                      2006, in RJT Invs. X, LLC v. Commissioner, docket No. 11769–05, cited sec. 183. We note, how-
                                      ever, that the redetermination of partnership items set forth in our June 6, 2006, decision is
                                      perfectly consistent with a sec. 183 analysis applied at the partnership level. We also note that




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                                      redetermined the partnership income to be zero, 15 while
                                      leaving undisturbed the allocation of all partnership items to
                                      petitioner husband. 16
                                         Our partnership-level holding that the partnership activi-
                                      ties ‘‘were not entered into for a profit motive’’ is sufficient
                                      to deny petitioners any distributive shares of partnership
                                      deductions and losses on their individual tax return for tax
                                      year 2001. 17 Also, the partnership-level conclusion that part-
                                      nership activities ‘‘constituted an economic sham’’ forecloses
                                      petitioners from claiming any loss on liquidating a partner-
                                      ship interest in a disregarded partnership. 18
                                      pursuant to sec. 6226(h): ‘‘If an action brought under this section is dismissed, * * * the deci-
                                      sion of the court dismissing the action shall be considered as its decision that the notice of final
                                      partnership administrative adjustment is correct’’. The Commissioner’s motion for summary
                                      judgment filed Apr. 5, 2006, had pointed out that ‘‘the practical effect of [petitioner’s] calling
                                      no witnesses and being held to the issues and arguments raised in his issues memorandum
                                      means that there are no genuine issues that can be disputed at trial.’’ That motion, granted
                                      on Apr. 19, 2006, had asked as ultimate relief ‘‘that the determinations of the Commissioner
                                      [set forth in the FPAA] be sustained.’’ On the basis of the foregoing, we have presented above
                                      an explication of the findings and holdings of the partnership-level proceeding. Though both our
                                      Apr. 19, 2006, order and June 6, 2006, decision were terse, parsing and explicating their find-
                                      ings and holdings here does not, and cannot be construed to, constitute a partner-level deter-
                                      mination.
                                         15 See supra note 3, pointing out that respondent has chosen not to include the $206 dividend

                                      amount in petitioners’ taxable income for tax year 2001 as a nonpartnership item. We need not,
                                      and therefore do not, decide whether including this amount would have necessitated partner-
                                      level determinations. We note that ascertaining whether receipt of a dividend constitutes ‘‘quali-
                                      fied dividend income’’, as defined by sec. 1(h)(11)(B)(i), could, in certain circumstances, entail
                                      making partner-level determinations.
                                         16 ‘‘A court with which a petition is filed in accordance with this section shall have jurisdiction

                                      to determine all partnership items of the partnership for the partnership taxable year to which
                                      the notice of final partnership administrative adjustment relates, [and] the proper allocation of
                                      such items among the partners’’. Sec. 6226(f) (emphasis supplied).
                                         17 This case, absent a stipulation of the parties to the contrary, is appealable to the Court of

                                      Appeals for the Eighth Circuit, which does not appear to have decided whether deductions may
                                      be disallowed directly under sec. 183 at the partnership level. If the Court of Appeals were to
                                      do so by, for example, following Hill v. Commissioner, 204 F.3d at 1218, discussed supra note
                                      12, it would obviate the need for any partner-level determinations. Even assuming arguendo
                                      that the Court of Appeals for the Eighth Circuit follows Copeland v. Commissioner, 290 F.3d
                                      at 335, discussed supra note 12, and treats the consequences of applying sec. 183 to the partner-
                                      ship as an ‘‘affected item’’, no partner-level determinations would be called for here. See infra
                                      note 19.
                                         18 Our Apr. 19, 2006, order granting respondent’s motion for summary judgment may be con-

                                      strued as determining at the partnership level, and as a partnership item, the absence of a prof-
                                      it motive in ‘‘the acquisition of any interest in RJT Investments X, LLC by Randall Thompson’’.
                                      That order has now become ‘‘final’’ within the meaning of sec. 7481(a)(2)(A). This alone should
                                      suffice for concluding that no further partner-level determinations are needed here.
                                         However, even if we assume that applying sec. 165(c)(2) to deny a loss on liquidating a part-
                                      nership interest is an ‘‘affected item’’ to be determined in a partner-level proceeding, such a de-
                                      termination requires no further partner-level facts once the partnership activities have been
                                      deemed to lack economic substance. See supra note 13 and accompanying text; infra note 19.
                                         Moreover, a partnership-level conclusion that the partnership ‘‘is disregarded for Federal in-
                                      come tax purposes’’, while leaving unchanged the allocation of all partnership items to petitioner
                                                                                                      Continued




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                                         We arrive at these conclusions without the need for
                                      ‘‘partner level determinations’’ within the meaning of section
                                      6230(a)(2)(A)(i). 19 Consequently, pursuant to section
                                      6230(a)(1), we find ourselves without jurisdiction over peti-
                                      tioners’ income tax deficiency. 20
                                      II. Jurisdiction Over Penalty
                                        Our June 6, 2006, decision in RJT Invs. X, LLC v.
                                      Commissioner, docket No. 11769–05, determined that an
                                      accuracy-related penalty applied at the partnership level.
                                      The June 6, 2006, decision had specifically and explicitly
                                      exercised subject matter jurisdiction over computing the
                                      partners’ outside bases. 21 We had concluded that ‘‘RJT
                                      Investments X, LLC was a sham, lacked economic substance,
                                      and was formed and/or availed [of] to overstate artificially
                                      the basis of the interest of Randall Thompson in RJT Invest-
                                      ments X, LLC in the amount of $22,006,759 for purposes of
                                      tax avoidance.’’ On the basis of this finding of overstated out-
                                      side basis, we had sustained ‘‘the 40-percent gross valuation
                                      misstatement penalty under section 6662(a), (b)(3), (e), and
                                      (h), I.R.C. * * * to any gross valuation misstatement
                                      resulting from adjustments of the above partnership items.’’

                                      husband, effectively reduces the purported partnership to a ‘‘single-member disregarded entity’’.
                                      Cf. sec. 301.7701–3(a) and (b), Proced. & Admin. Regs. (providing in part that ‘‘unless the entity
                                      elects otherwise, a domestic eligible entity is * * * Disregarded as an entity separate from its
                                      owner if it has a single owner’’). It is a truism that no loss can be recognized on liquidating
                                      a single-member disregarded entity.
                                         19 See Callaway v. Commissioner, 231 F.3d 106, 110 & n.4 (2d Cir. 2000) (‘‘An example of an

                                      affected item that requires no further factual determination at the partner level * * * [is an]
                                      allowable deduction * * * which * * * depends on the partner’s distributive share of the part-
                                      nership income or loss. Determining the allowed deduction is a mathematical calculation and
                                      requires no further factual finding.’’), revg. on other grounds T.C. Memo. 1998–99. We are con-
                                      fronted in the instant case by, in effect, ‘‘a mathematical formula’’ that requires petitioner hus-
                                      band’s distributive shares of partnership deductions and losses to be no higher than his distribu-
                                      tive share of zero income. Further, the partnership-level finding of an economic sham causes
                                      sec. 165(c)(2) to eliminate, or set to zero, any claimed loss on liquidating the partnership inter-
                                      est.
                                         20 We are mindful that respondent has not spelled out the arguments that we have developed

                                      and relied upon to demonstrate the absence of a need for partner-level determinations. We are
                                      equally mindful, however, that we are engaged in exploring the outer limits of our subject mat-
                                      ter jurisdiction. In conducting this exercise, we would be derelict in our duty if we were to rest
                                      solely on the parties’ submissions. See supra note 6.
                                         21 In RJT Invs. X, LLC v. Commissioner, docket No. 11769–05, the partnership, through its

                                      tax matters partner, had filed a motion on Apr. 5, 2006, arguing in part that it ‘‘seeks an order
                                      from the Court that the Court’s jurisdiction in this case * * * Excludes * * * Redetermining
                                      Randall Thompson’s outside basis in’’ the partnership. We had denied that motion in its entirety
                                      in our order filed Apr. 19, 2006.




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                                           A. ‘‘Out-Of-Sight’’ Outside Basis
                                         After the petition in this case was filed, the Court of
                                      Appeals for the D.C. Circuit issued its opinion in Petaluma
                                      FX Partners, LLC v. Commissioner, 591 F.3d 649, 655 (D.C.
                                      Cir. 2010), affg. in part, revg. in part, vacating in part and
                                      remanding on penalty issues 131 T.C. 84 (2008), in which it
                                      ‘‘rejected the Tax Court’s conclusion that outside basis was a
                                      partnership item * * * [that] could * * * be determined in
                                      the partnership-level proceeding.’’ On a direct appeal of that
                                      particular partnership-level proceeding, the Court of Appeals
                                      concluded that ‘‘the Tax Court lacked jurisdiction to deter-
                                      mine outside basis * * * [and] to determine that penalties
                                      apply with respect to outside basis because those penalties do
                                      not relate to an adjustment to a partnership item.’’ Id.
                                         In a supplemental brief, petitioners urge us to heed the
                                      Court of Appeals for the D.C. Circuit and hold ‘‘that the pen-
                                      alty determination in a case like this does not relate to an
                                      adjustment to a partnership item, rather the penalty deter-
                                      mination is a non-partnership item which must be deter-
                                      mined with a Subtitle B statutory notice of deficiency.’’
                                           B. Estoppel by Any Other Name
                                        We withhold comment on how compelling the admonition
                                      by the Court of Appeals for the D.C. Circuit and the urging
                                      by petitioners may otherwise be and merely observe that
                                      both arrive too late for this case, where the partnership-level
                                      proceeding has already been concluded. Our June 6, 2006,
                                      decision in RJT Invs. X, LLC v. Commissioner, docket No.
                                      11769–05, and its findings were affirmed, 491 F.3d 732 (8th
                                      Cir. 2007), and are now ‘‘final’’ within the meaning of section
                                      7481(a)(2)(A). Petitioners may not, in this partner-level
                                      action, collaterally attack subject matter jurisdiction that we
                                      had previously exercised in the partnership-level pro-




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                                      ceeding. 22 The findings in that proceeding are no longer sub-
                                      ject to review by this Court. 23
                                        ‘‘A valid jurisdictional judgment has preclusive effect,
                                      * * * even if erroneous.’’ Cutler v. Hayes, 818 F.2d 879, 888
                                      (D.C. Cir. 1987); see also Lambert v. Conrad, 536 F.2d 1183,
                                      1185 (7th Cir. 1976) (holding that ‘‘a court has jurisdiction to
                                      determine its jurisdiction; and once it has made that deter-
                                         22 ‘‘Under collateral estoppel, once an issue is actually and necessarily determined by a court

                                      of competent jurisdiction, that determination is conclusive in subsequent suits based on a dif-
                                      ferent cause of action involving a party to the prior litigation.’’ Montana v. United States, 440
                                      U.S. 147, 153 (1979) (emphasis supplied). While the reference to ‘‘a court of competent jurisdic-
                                      tion’’ might suggest that collateral estoppel presupposes valid subject matter jurisdiction, in fact
                                      the doctrine applies to preclude a subsequent challenge to subject matter jurisdiction. See Carr
                                      v. District of Columbia, 646 F.2d 599, 608 (D.C. Cir. 1980) (holding that ‘‘ ‘When the question
                                      of the [rendering] tribunal’s (subject matter) jurisdiction is raised in the original action, * * *
                                      there is no reason why the determination of the issue should not therefore be conclusive under
                                      the usual rules of issue preclusion.’ ’’ (quoting Restatement (second) of Judgments sec. 15, cmt.
                                      c at 154 (Tent. Draft No. 6, 1979) (emphasis supplied)).
                                         Privity for invoking collateral estoppel is supplied by sec. 6226(c)(1) (specifying that ‘‘each per-
                                      son who was a partner in such partnership at any time during such year shall be treated as
                                      a party to such action’’ (emphasis supplied)).
                                         23 Collateral estoppel is usually invoked as an affirmative defense. Under Rule 39, ‘‘A party

                                      shall set forth in the party’s pleading any matter constituting an avoidance or affirmative de-
                                      fense, including * * * collateral estoppel’’. Jefferson v. Commissioner, 50 T.C. 963, 966–967
                                      (1968), suggests that unless collateral estoppel is affirmatively pleaded, it is deemed waived.
                                      However, we have long held that we may raise collateral estoppel sua sponte. See, e.g.,
                                      Monahan v. Commissioner, 109 T.C. 235, 250 (1997); Fazi v. Commissioner, 105 T.C. 436, 445
                                      (1995).
                                         More importantly, insisting that the Commissioner affirmatively plead collateral estoppel in
                                      every TEFRA partner-level action is an unworkable rule. It would necessitate that we assert
                                      jurisdiction even if only to preclude relitigating partnership items. This would defeat, by proce-
                                      dure, clearly enunciated legislative intent of attaining speed and symmetry at the partner level.
                                         TEFRA represents in large part the codification of the collateral estoppel doctrine in the part-
                                      nership context. See generally Wolff v. Commissioner, T.C. Memo. 1994–196 (‘‘The implication
                                      here is that in pre-TEFRA proceedings a partner would not be collaterally estopped by the liti-
                                      gation involving another partner in the same partnership.’’), revd. on other grounds 148 F.3d
                                      186 (2d Cir. 1998); H. Conf. Rept. 97–760, at 62 (1982), 1982–2 C.B. 600, 662 (noting that under
                                      pre-TEFRA law, ‘‘a judicial determination of an issue relating to a partnership item generally
                                      is conclusive only as to those partners who are parties to the proceeding’’); Staff of Joint Com-
                                      mittee on Taxation, General Explanation of the Revenue Provisions of the Tax Equity and Fiscal
                                      Responsibility Act of 1982, at 268 (J. Comm. Print 1982) (observing that before enactment of
                                      TEFRA, ‘‘Duplication of manpower and administrative and judicial effort was required in some
                                      cases to determine the aggregate tax liability attributable to a single partnership item. Incon-
                                      sistent results could be obtained * * * with respect to the same item’’). Requiring the Commis-
                                      sioner to affirmatively plead collateral estoppel in a TEFRA partner-level action to give pre-
                                      clusive effect to the prior findings and conclusions of a partnership-level proceeding would fa-
                                      tally undermine the basic premises of TEFRA—conservation of judicial effort and consistent
                                      treatment of all partners in the same partnership.
                                         Secs. 6221, 6226(f), and 6230(c)(4) embody the codification of collateral estoppel with respect
                                      to the partnership-level adjudication of partnership items and penalties relating to adjustment
                                      of partnership items. Relitigating these items in a partner-level prepayment forum is, thus,
                                      statutorily estopped. Subject to the requirements of sec. 7422(h), a refund forum may be ‘‘al-
                                      lowed to assert any partner level defenses that may apply or to challenge the amount of the
                                      computational adjustment.’’ Sec. 6230(c)(4).




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                                      mination, its decision is binding unless reversed on appeal’’
                                      (emphasis supplied)).
                                           C. Conclusion
                                        Pursuant to section 6230(a)(1), the penalty may be directly
                                      assessed as a computational adjustment, notwithstanding the
                                      need for partner-level determinations. 24 The issuance of a
                                      purported notice of deficiency cannot trigger deficiency proce-
                                      dures where none applies. See sec. 6230(a)(2)(A)(i); see also
                                      sec. 301.6231(a)(6)–1(a)(3), Proced. & Admin. Regs.
                                        The Court has considered all of petitioners’ and respond-
                                      ent’s contentions, arguments, requests, and statements. To
                                         24 We note a potential ambiguity in the parenthetical phrase ‘‘other than penalties, additions

                                      to tax, and additional amounts that relate to adjustments to partnership items’’ at the end of
                                      sec. 6230(a)(2)(A)(i). The parenthetical phrase carves out these penalties from the set of affected
                                      items requiring partner-level determinations that are always subject to deficiency procedures.
                                      Read without the parenthetical phrase, sec. 6230(a)(2)(A)(i) is explicit that deficiency procedures
                                      ‘‘shall apply to any deficiency attributable to * * * affected items which require partner level
                                      determinations’’. (Emphasis supplied.) Thus, one plausible reading of the impact of the par-
                                      enthetical carveout is that deficiency procedures never apply to penalties relating to adjustments
                                      to partnership items. However, an equally plausible reading is that deficiency procedures do not
                                      always apply to these penalties; i.e., deficiency procedures may or may not apply to such a pen-
                                      alty. The latter construction would render elective a notice of deficiency that contains these pen-
                                      alties. Compare supra Discussion, pt. I.A., arguing against the electiveness of an affected items
                                      notice of deficiency with respect to the income tax deficiency shown on the notice. Under this
                                      ‘‘elective’’ construction, the validity of an affected items notice of deficiency pertaining to a sec.
                                      6662 penalty relating to an adjustment to a partnership item would not be disturbed by a subse-
                                      quent direct assessment of this penalty.
                                         Because the statutory language is ambiguous, we turn to the regulations for guidance. See
                                      Mayo Found. v. United States, 562 U.S. ll, ll , 131 S. Ct. 704, 713 (2011) (clarifying that
                                      the Commissioner’s regulatory pronouncements are generally entitled to the standard of def-
                                      erence set forth in Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984)).
                                         The governing regulation for petitioners’ tax year at issue, 2001, is sec. 301.6231(a)(6)–1(a)(3),
                                      Proced. & Admin. Regs. Unlike the statute, the regulation is unambiguous that ‘‘any penalty,
                                      addition to tax, or additional amount that relates to an adjustment to a partnership item is not
                                      subject to the deficiency procedures’’. (Emphasis supplied.) The regulation does not eliminate all
                                      ‘‘elective’’ phraseology, however; it provides that the penalty ‘‘may be directly assessed * * * fol-
                                      lowing the partnership proceeding, based on determinations in that proceeding, regardless of
                                      whether any partner level determinations may be required.’’ Sec. 301.6231(a)(6)–1(a)(3), Proced.
                                      & Admin. Regs. (emphasis supplied).
                                         The word ‘‘may’’ retains the notion of a choice on the Commissioner’s part. However, in its
                                      context in the regulation, following immediately after a clause that unambiguously rejects the
                                      applicability of deficiency procedures to a penalty, ‘‘may’’ seems to denote a different choice—
                                      not a choice between directly assessing a penalty and subjecting it to deficiency procedures, but
                                      instead a choice between directly assessing the penalty and not assessing it at all. The implica-
                                      tion appears to be that the Commissioner may elect not to assess a penalty against a given tax-
                                      payer partner, and allow this partner to go penalty free, despite successfully defending the as-
                                      serted penalty at the partnership level.
                                         If the regulation governs, any affected items notice of deficiency showing a penalty relating
                                      to an adjustment to a partnership item is invalid. Despite having issued such a notice, the Com-
                                      missioner can proceed with a direct assessment and collection of the penalty, limiting the tax-
                                      payer partner’s recourse to a suit or claim for refund. See sec. 6230(c)(4) (stating that in such
                                      a refund claim or suit, ‘‘a partner shall be allowed to assert any partner level defenses that may
                                      apply’’ to the penalty).




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                                      the extent not discussed herein, we conclude that they are
                                      meritless, moot, or irrelevant.
                                        To reflect the foregoing,
                                                                      An order of dismissal for lack of jurisdic-
                                                                   tion will be entered.
                                        Reviewed by the Court.
                                        COLVIN, HALPERN, VASQUEZ, THORNTON, and PARIS, JJ.,
                                      agree with this majority opinion.
                                        COHEN, J., concurs in the result only.
                                        GUSTAFSON and MORRISON, JJ., did not participate in the
                                      consideration of this opinion.



                                         GOEKE, J., dissenting: The final holding of the majority
                                      opinion is that we do not have jurisdiction because the notice
                                      of deficiency is invalid. I disagree with this conclusion. I con-
                                      clude that I am unable to simply concur in the result because
                                      I believe we have jurisdiction. Because the parties have
                                      resolved the issue which I believe provides jurisdiction and
                                      the other issues were properly resolved in the prior partner-
                                      ship-level case, the jurisdiction issue has no practical effect
                                      on the resolution of this matter but rather only on the
                                      manner the resolution is documented. In future cases, I
                                      believe the question of jurisdiction presented here will not be
                                      so easily resolved and we will be forced to distinguish aspects
                                      of the precedent we create today.
                                         Section 301.6231(a)(6)–1(a), Proced. & Admin. Regs., pro-
                                      vides that ‘‘if a change in a partner’s tax liability cannot be
                                      made without making one or more partner-level determina-
                                      tions’’, the deficiency procedures shall apply to the change(s).
                                      The issue of whether the change in a partner’s tax liability
                                      which results from a partnership determination requires ‘‘one
                                      or more partner-level determinations’’ is acknowledged by
                                      the Chief Counsel of the Internal Revenue Service as a deci-
                                      sion that creates ‘‘uncertainty’’. To account for this
                                      uncertainty the Chief Counsel has issued instructions that
                                      partners who have reported a loss as a result of the sale of
                                      a partnership interest or a distribution by a partnership will
                                      be issued affected items notices of deficiency. Chief Counsel
                                      Notice CC–2009–11 (Mar. 11, 2009). The present case is such




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                                      a situation, and it is clear the notice of deficiency in this case
                                      was not inadvertent.
                                         When faced with similar notices of deficiency issued by the
                                      Commissioner to resolve the uncertainty of whether an issue
                                      requires partner-level determinations, I submit we should
                                      not find such notices of deficiency invalid. We should take
                                      jurisdiction to carefully resolve the uncertainty. This is not
                                      to say that the majority has not carefully resolved the
                                      present case, but the time and effort to address what is
                                      determined to be a jurisdictional issue in itself demonstrates
                                      the impracticality of the majority’s approach. 1
                                         I believe we are legally incorrect in the holding that the
                                      notice of deficiency in the present case is invalid. The deter-
                                      mination of invalidity rests on the restrictions contained in
                                      section 6230(a)(1), which, as the majority states, provides the
                                      deficiency procedures ‘‘shall not apply’’ to computational
                                      adjustments except where the deficiency is attributable to
                                      ‘‘affected items which require partner level determinations’’,
                                      in which case the deficiency procedures do apply. Respondent
                                      issued the notice of deficiency because he determined that it
                                      might be required pursuant to section 6230(a)(2)(A)(i). The
                                      present notice of deficiency was issued to resolve whether
                                      there is in fact a deficiency. It determines a deficiency for a
                                      specific year and is identified as a notice of deficiency. These
                                      are the elements of a valid notice. Campbell v. Commissioner,
                                      90 T.C. 110, 115 (1988) (‘‘The notice must advise the tax-
                                      payer that respondent has, in fact, determined a deficiency,
                                      and must specify the year and amount.’’). If a notice incor-
                                      rectly determines a deficiency, we do not lose jurisdiction.
                                      See, e.g., Neely v. Commissioner, 115 T.C. 287 (2000). The
                                      majority finds that respondent’s intentional determination of
                                      a deficiency is invalid and therefore this invalidates the
                                      notice of deficiency. This determination is not supported by
                                      the precedent the majority cites. This case is not based upon
                                      a clear error or inadvertent use of the deficiency procedures.
                                      Respondent clearly and intentionally determined a deficiency
                                      where the existence of a deficiency was uncertain. This
                                      describes the circumstances in our deficiency docket in gen-
                                      eral. After careful scrutiny of facts which were not apparent
                                        1 Petitioners filed their petition on Dec. 19, 2008. Respondent filed his motion to dismiss for

                                      lack of jurisdiction 1 year later on Dec. 2, 2009. After extended briefing and consideration, we
                                      are deciding on Dec. 27, 2011, that we lack jurisdiction.




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                                      from the face of the notice of deficiency and after a settle-
                                      ment reached by the parties, we now know that the amount
                                      of tax determined in the notice of deficiency was incorrect.
                                      However, our conclusion that the deficiency determined in
                                      the notice was incorrect does not invalidate the notice of defi-
                                      ciency. 2
                                        We should expect this issue to arise in the near future in
                                      the context of other complex partnership issues with complex
                                      partner-level computations. Have we now made the deter-
                                      mination of the correct application of section 6230 in each of
                                      these cases a jurisdictional analysis? I hope not.
                                        KROUPA, J., agrees with this dissent.



                                         HOLMES, J., dissenting: I agree with part II of the majority
                                      opinion—that collateral estoppel precludes the Thompsons
                                      from relitigating the issues of whether outside basis is a
                                      partnership item and whether we had jurisdiction at the
                                      partnership level to sustain the 40-percent penalty for mis-
                                      stating it. I agree with part I of the opinion where it says
                                      that the ‘‘applicability or inapplicability of deficiency proce-
                                      dures under section 6230 is statutorily mandated’’ and that
                                      deficiency procedures either apply or don’t apply, depending
                                      upon whether the deficiency is attributable to any affected
                                      items that require partner-level determinations. But I dis-
                                      agree with the majority’s holding that the final computation
                                      of the Thompsons’ income tax liability requires no partner-
                                      level determinations, which means that I also have to dis-
                                      agree with their decision to dismiss the Thompsons’ entire
                                      case for lack of subject matter jurisdiction. I write separately
                                      because I fear that the majority’s analysis of whether an
                                      ‘‘affected item requires partner-level determinations’’ is
                                      wrong, and will further muddy this already turbid TEFRA
                                      pond.
                                                                                          I.

                                        The Commissioner’s argument that we lack jurisdiction
                                      depends largely on the related partnership case, RJT Invs. X,
                                      LLC v. Commissioner, docket No. 11769–05 (June 6, 2006),
                                        2 As the majority writes in citing and quoting extensively from Hannan v. Commissioner, 52

                                      T.C. 787 (1969).




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                                      affd. 491 F.3d 732 (8th Cir 2007). In that case we found that
                                      the Thompsons’ partnership was ‘‘formed and/or availed to
                                      overstate artificially the basis of the interest of Randall
                                      Thompson in RJT Investments X, LLC in the amount of
                                      $22,006,759 for purposes of tax avoidance.’’ We also upheld
                                      the penalties that related to those determinations—over the
                                      objections of RJT that we had no jurisdiction to do so—and
                                      entered decision in the case. The Eighth Circuit affirmed in
                                      RJT Invs. X v. Commissioner, 491 F.3d 732 (8th Cir. 2007). 1
                                        After the partnership proceedings, the Commissioner
                                      issued a notice of deficiency which made four adjustments:
                                         • Eliminating the $206 of dividend income reported on
                                      petitioners’ 2001 Schedule B, Interest and Ordinary Divi-
                                      dends, as income from RJT’s Schedule K–1;
                                         • Eliminating the $12,415 capital loss reported on peti-
                                      tioners’ 2001 Schedule D, line 5, as a flowthrough loss from
                                      RJT’s Schedule K–1;
                                         • Eliminating the $81,040 investment expense deduction
                                      reported on Schedule A, Itemized Deductions, line 22, as a
                                      flowthrough deduction from RJT’s Schedule K–1; and
                                         • Eliminating the reported loss on liquidation of RJT
                                      reported on petitioners’ 2001 Schedule D, Capital Gains and
                                      Losses, line 1.
                                         Partnerships don’t pay income tax; partners do. This
                                      means that there has to be another step after a partnership
                                      case is over before the Commissioner can figure out an indi-
                                      vidual partner’s tax bill. The Code calls this a ‘‘computational
                                      adjustment,’’ which is just the bottom-line ‘‘change in the tax
                                      liability of a partner which properly reflects the treatment
                                      * * * of a partnership item.’’ Sec. 6231(a)(6). To make com-
                                      putational adjustments, however, the IRS must follow certain
                                      procedures: Sometimes the IRS has to send each partner a
                                      notice of deficiency, sometimes the IRS can just directly
                                      assess each partner and send him a notice of computational
                                      adjustment, and sometimes the IRS has to do some combina-
                                      tion of both. See sec. 6230(a); sec. 301.6231(a)(6)–1(a),
                                      Proced. & Admin. Regs.; see also Napoliello v. Commissioner,
                                        1 Although the Eighth Circuit affirmed our decision, it nowhere discussed whether we were

                                      right to hold that outside basis is a partnership item. See RJT Invs. X v. Commissioner, 491
                                      F.3d 732 (8th Cir. 2007). The Eighth Circuit stated plainly that the only issues it was deciding
                                      were whether we had properly found RJT to be a sham and whether that determination should
                                      be made at the partnership level. Id. at 735.




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                                      655 F.3d 1060, 1063–1064 (9th Cir. 2011) (citing Olson v.
                                      United States, 172 F.3d 1311, 1317 (Fed. Cir. 1999)), affg.
                                      T.C. Memo. 2009–104.
                                        Figuring out which adjustments fall into which baskets has
                                      proven to be a major legal problem. The Code’s test is easy
                                      to state: When a computational adjustment is attributable to
                                      an affected item 2 that requires a determination at the
                                      partner level, the Commissioner has to send the partner a
                                      notice of deficiency, which gives him a chance to come to Tax
                                      Court before paying. See sec. 6230(a)(2)(A)(i). The regulation
                                      uses more words, but says the same thing: ‘‘[If] a change in
                                      a partner’s tax liability cannot be made without making one
                                      or more partner-level determinations, that portion of the
                                      change in tax liability attributable to the partner-level deter-
                                      minations shall be made under the deficiency procedures’’.
                                      Sec. 301.6231(a)(6)–1(a)(1), Proced. & Admin. Regs. The Code
                                      and regulations also have a rule that when a partnership-
                                      level determination leads to a computational adjustment that
                                      does not require a partner-level determination, the Commis-
                                      sioner is to assess the increase in tax summarily, send the
                                      partner a notice of computational adjustment, and leave him
                                      to pay and sue for a refund: No ticket to Tax Court for him.
                                      See sec. 6230(a)(1); sec. 301.6231(a)(6)–1(a)(2), Proced. &
                                      Admin. Regs.
                                        This makes a blurry line—between ‘‘items which require
                                      partner level determinations’’ and items which do not—a
                                      blurry line with jurisdictional consequences. 3 It’s usually not
                                      a good idea to make jurisdiction this confusing, and courts
                                      have had to make do with what they can to try to make this
                                      cranny of the Code as clean as possible.
                                        And that leads to this case. The majority concludes that all
                                      of the computational adjustments made in the notice of defi-
                                      ciency that the Commissioner sent to the Thompsons ‘‘follow
                                      directly from the treatment of partnership items determined
                                         2 Affected items aren’t partnership items but are affected by partnership items. See sec.

                                      6231(a)(5).
                                         3 The matter is profoundly ambiguous, and the Secretary should not view our Opinion as fore-

                                      closing the possibility that he could clear this area up much more efficiently through regulation
                                      than the Commissioner has been able to do through litigation. As we pointed out in Tigers Eye
                                      Trading, LLC v. Commissioner, T.C. Memo. 2009–121, he may be en route to doing so. See No-
                                      tice of Proposed Rulemaking, 74 Fed. Reg. 7205 (Feb. 13, 2009) (proposing section 301.6231(c)–
                                      9, Proposed Proced. & Admin. Regs., which would allow the Commissioner, upon notice, to con-
                                      vert all partnership items of an abusive tax shelter partnership to nonpartnership items, there-
                                      by routing partner- and partnership-level disputes through a single deficiency proceeding).




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                                      in the partnership-level proceeding, and none of them
                                      requires any partner-level determinations within the
                                      meaning of section 6230(a)(2) and section 301.6231(a)(6)–
                                      1(a)(2), Proced. & Admin. Regs.’’
                                        I disagree. Remember the list of the four changes the
                                      Commissioner wanted to make to the Thompsons’ tax bill
                                      after RJT Investments was over:
                                         • Eliminating the $206 of dividend income from RJT’s
                                      Schedule K–1;
                                         • Eliminating the $12,415 capital loss from RJT’s Schedule
                                      K–1;
                                         • Eliminating the $81,040 investment expense deduction
                                      from RJT’s Schedule K–1; and
                                         • Eliminating the reported loss on liquidation of RJT from
                                      the Thompson’s Schedule D.
                                         The fourth item stands out—why’s the Commissioner
                                      eliminating an item from the individual partner’s tax return
                                      when that item doesn’t appear on the partnership’s own
                                      return?

                                                                                          A.

                                        The majority says that we can go ahead and eliminate it
                                      anyway because we’ve decided in RJT Investments that the
                                      partnership was a sham, and no one can take a loss in dis-
                                      posing of an interest in a sham partnership. 4 I don’t dis-
                                      agree. But it doesn’t quite answer the jurisdictional question
                                      that we have—does a taxpayer get to come to our Court to
                                      learn this lesson, or does he have to go to a refund court to
                                      hear the same bad news?
                                        Finding the correct (or at least a better) answer, I think,
                                      begins with a look at what it was exactly that the Commis-
                                      sioner did after RJT Investments was over. In RJT Invest-
                                      ments we held that the Thompsons’ outside basis was a part-
                                      nership item and determined it to be zero, 5 so the Commis-
                                        4 Or to put it in more sophisticated language, the consequence of determining a partnership

                                      to be a sham is to say that the rules of subchapter K don’t apply. This means we disregard
                                      the partnership as an entity separate from its partners, and treat the assets of the disregarded
                                      partnership as if they were owned directly by the purported partners.
                                        5 Since the Eighth Circuit’s decision in RJT Investments, the D.C. and Federal Circuits have

                                      held that there’s no jurisdiction at the partnership level to determine a partner’s outside basis
                                      in a partnership because it’s an affected item, not a partnership item. See Jade Trading, LLC
                                      v. United States, 598 F.3d 1372 (Fed. Cir. 2010), affg. in part, revg. in part, vacating in part
                                                                                                    Continued




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                                      sioner made a conforming change to the Thompsons’ return.
                                      He issued them a notice of deficiency in which he adjusted
                                      their outside basis in RJT to zero. This certainly made the
                                      treatment of outside basis at the partner level consistent
                                      with its treatment at the partnership level. 6 This particular
                                      adjustment doesn’t involve any partner-level determina-
                                      tions—section 301.6231(a)(6)–1(a)(2), Proced. & Admin.
                                      Regs., tells us that ‘‘substituting redetermined partnership
                                      items for the partner’s previously reported partnership items
                                      * * * does not constitute a partner-level determination.’’
                                         The problem is that merely zeroing out the Thompsons’
                                      outside basis doesn’t get the Thompsons their correct tax
                                      liability. That’s why the Commissioner’s computational
                                      adjustment was off—he skipped a partner-level step.
                                         The notice of deficiency zeroed out the Thompsons’ outside
                                      basis by substituting zero for the more than $22 million basis
                                      that they had reported, and then increasing their taxable
                                      income by $22,006,759 of ‘‘Short-Term Capital Gain/Loss.’’
                                      Although the $22,006,759 amount does appear on the
                                      Thompsons’ return, that was not the amount of the loss that
                                      they reported for the disposition of their interest in RJT:
                                             Description of          Date acquired/          Sale            Cost or           Gain or
                                               property                date sold             price         other basis          (loss)

                                           Liquidation of
                                             RJT Invest-                 10/12/01
                                             ments X, LLC                12/21/01          $986,759       $22,006,759    ($21,020,000)

                                      Stipulation of Facts, Exhibit 2–J. As one can see from this
                                      exhibit, their claimed loss was $21,020,000. This means that
                                      the Commissioner ended up converting the Thompsons’ fic-
                                      tional loss into a fictional $986,759 gain.
                                         It’s not that the Commissioner had the correct mathe-
                                      matical formula and just made a math error. As we
                                      explained in Huffman v. Commissioner, 126 T.C. 322, 344–
                                      345 (2006), affd. 518 F.3d 357 (6th Cir. 2008), there is a
                                      distinction between a ‘‘mathematical error’’ and omitting a
                                      step that requires math. Mathematical or clerical errors gen-
                                      and remanding in part 80 Fed. Cl. 11 (2007); Petaluma FX Partners, LLC v. Commissioner, 591
                                      F.3d 649 (D.C. Cir. 2010), affg. in part, revg. in part, vacating in part and remanding in part
                                      131 T.C. 84 (2008).
                                        6 Although I do not believe—certainly after two circuits have both ruled the same way—that

                                      we had jurisdiction over outside basis at the partnership level, the Thompsons are collaterally
                                      estopped from attacking our contrary decision in their case.




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                                      erally include typographical mistakes, or errors in addition,
                                      subtraction, multiplication, or division. See sec. 6213(g)(2). If
                                      the computational adjustment was incorrect only because the
                                      Commissioner made a mathematical or clerical error while
                                      applying the correct mathematical formula, then I would
                                      agree that it wouldn’t require any partner-level determina-
                                      tions within the meaning of section 6230(a)(2)(A)(i). 7
                                         But in this case, the Commissioner also needed to make
                                      another adjustment—either reducing the Thompsons’
                                      reported sale price for RJT from $986,759 to zero, or reducing
                                      their reported short-term capital gains to zero, or both. Nei-
                                      ther the sale price (which, I acknowledge, was nothing more
                                      than the return of most of the cash that the Thompsons put
                                      into the deal) nor the short-term loss is anywhere to be found
                                      on RJT’s return.
                                         This becomes a bigger problem after the Courts of Appeals’
                                      decisions in Jade Trading and Petaluma, with their holdings
                                      that outside basis isn’t even a partnership item. See Jade
                                      Trading, LLC v. United States, 598 F.3d 1372 (Fed. Cir.
                                      2010), affg. in part, revg. in part, vacating in part and
                                      remanding in part 80 Fed. Cl. 11 (2007); Petaluma FX Part-
                                      ners, LLC v. Commissioner, 591 F.3d 649 (D.C. Cir. 2010),
                                      affg. in part, revg. in part, vacating in part and remanding
                                      in part 131 T.C. 84 (2008). Without the benefit of collateral
                                      estoppel, would we be able to hold that the disallowance of
                                      a loss like this one can be made without a partner-level
                                      determination, when outside basis, the sale price, and the
                                      resulting loss are nowhere on the partnership’s return?
                                                                                          B.

                                         The problem springs from an ambiguity in the phrase
                                      ‘‘affected items which require partner level determinations.’’
                                      The Code doesn’t define ‘‘determinations’’ or ‘‘requires’’, and
                                      the majority doesn’t try to do it either. But a minute’s reflec-
                                      tion suggests that there are at least two plausible readings
                                      of the phrase. The first is one that construes the phrase to
                                         7 See Bush v. United States, 655 F.3d 1323 (Fed. Cir. 2011) (holding that when the IRS simply

                                      has to perform mathematical calculations—i.e., plug numbers into a formula—to determine a
                                      partner’s tax liability, it is a computational adjustment that does not require further determina-
                                      tions at the partner level); Gosnell v. United States, 107 AFTR 2d 2011–2748, 2011–2 USTC
                                      par. 50,488 (D. Ariz. 2011) (finding that no partner-level determination was needed because the
                                      substitution of a forty-percent penalty and disallowance of out-of-pocket costs required only
                                      mathematical calculations).




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                                      read ‘‘affected items which require legal or factual partner-
                                      level determinations.’’ If this reading is the better one, then
                                      deficiency procedures apply to a computational adjustment
                                      that requires any question of fact or law to be decided at the
                                      partner level before the Commissioner can make the com-
                                      putational adjustment.
                                         A second reading is one that construes the phrase to read
                                      ‘‘affected items which, on the facts of this particular case,
                                      require partner-level factual determinations.’’ The majority
                                      adopts the second reading, but without discussing any alter-
                                      native. 8
                                         One problem with this reading is that determinations
                                      aren’t just factual—it’s well settled that determinations can
                                      be legal, factual, or some combination of both. 9 Section
                                      301.6231(a)(3)–1(b), Proced. & Admin. Regs., also con-
                                      templates this when it explains that a ‘‘ ‘partnership item’
                                      includes * * * legal and factual determinations that underlie
                                      the determination of the amount, timing, and characteriza-
                                      tion of items of income, credit, gain, loss, deduction, etc.’’
                                         The term ‘‘determination’’ refers to deciding something’s
                                      nature or outcome. See Terminal Wine Co. v. Commissioner,
                                      1 B.T.A. 697, 701 (1925) (stating that a determination is ‘‘the
                                      final decision by which the controversy as to the deficiency
                                      is settled and terminated, and by which a final conclusion is
                                      reached relative thereto and the extent and measure of the
                                      deficiency defined’’). 10 ‘‘By its very definition and etymology
                                      the word * * * irresistibly connotes consideration, resolution,
                                      conclusion, and judgment.’’ Scar v. Commissioner, 814 F.2d
                                          8 Words in a statute generally must be interpreted according to their ordinary, everyday

                                      meaning. See, e.g., Commissioner v. Soliman, 506 U.S. 168, 174 (1993). We should only adopt
                                      a ‘‘restricted rather than a literal or usual meaning of its words where acceptance of that mean-
                                      ing would * * * thwart the obvious purpose of the statute.’’ Commissioner v. Brown, 380 U.S.
                                      563, 571 (1965). As I illustrate infra part I.C., the majority’s limited construction of the word
                                      ‘‘determinations’’ in fact thwarts the obvious purpose of TEFRA.
                                          9 See, e.g., Smith v. Massachusetts, 543 U.S. 462, 468 (2005) (noting a distinction between

                                      ‘‘legal rather than factual determination[s]’’ with regard to certain criminal procedural safe-
                                      guards); Fid. Intl. Currency Advisor A Fund v. United States, 661 F.3d 667 (1st Cir. 2011) (not-
                                      ing that the trial court made various factual and legal determinations with regard to disallowed
                                      digital option transactions); Napoliello v. Commissioner, 655 F.3d 1060, 1065 (9th Cir. 2011) (re-
                                      jecting petitioner’s contention that section 301.6231(a)(3)–1(b), Proced. & Admin Regs., encom-
                                      passes only accounting items and the factual and legal determinations underpinning the same),
                                      affg. T.C. Memo. 2009–104.
                                          10 See also Rule 155(a) (‘‘Where the Court has filed or stated its opinion determining the

                                      issues in a case, it may withhold entry of its decision for the purpose of permitting the parties
                                      to submit computations pursuant to the Court’s determination of the issues showing the correct
                                      amount to be included in the decision.’’).




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                                      1363, 1368 (9th Cir. 1987) (citing Terminal Wine Co., 1
                                      B.T.A. at 701).
                                         I can’t say that the majority’s reading is without support
                                      in our caselaw. It comes from our decision in N.C.F. Energy
                                      Partners and cases that apply its holding. See N.C.F. Energy
                                      Partners v. Commissioner, 89 T.C. 741 (1987), superseded by
                                      statute on other grounds; 11 see also Callaway v. Commis-
                                      sioner, 231 F.3d 106, 110 (2d Cir. 2000), revg. T.C. Memo.
                                      1998–99; Adkison v. Commissioner, 129 T.C. 97, 102 (2007),
                                      affd. 592 F.3d 1050 (9th Cir. 2010); Crowell v. Commissioner,
                                      102 T.C. 683, 689 (1994); Carmel v. Commissioner, 98 T.C.
                                      265, 268 (1992); Woody v. Commissioner, 95 T.C. 193, 202
                                      (1990); Dial, USA, Inc. v. Commissioner, 95 T.C. 1, 6 (1990).
                                         In N.C.F. Energy Partners we noted the distinction
                                      between affected items requiring only a computational
                                      adjustment that can be directly assessed and those subject to
                                      subsequent deficiency proceedings. 89 T.C. at 743–744.
                                      Although we said that affected items are subject to deficiency
                                      procedures if they require factual determinations at the
                                      partner level, we did not use ‘‘factual’’ in any way that
                                      implied that we were saying that affected items are not sub-
                                      ject to deficiency procedures if they require ‘‘legal’’ deter-
                                      minations at the partner level. See id. at 744. 12
                                         Look again at what the majority is doing in its opinion—
                                      it is making a legal determination that the Thompsons may
                                      not claim any loss at the partner level from the liquidation
                                      of their partnership interest because we held in RJT Invest-
                                      ments that the partnership was an economic sham. 13 This is
                                         11 Before the 1997 amendments, TEFRA provided for the determination of all penalties at the

                                      partner level. See N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 744–745 (1987). This
                                      is because penalties imposed on a partner because of an adjustment to a partnership item are
                                      ‘‘affected items.’’ But amendments to TEFRA in 1997 changed this structure and provided for
                                      the determination of some penalties at the partnership level.
                                         12 The example we gave in N.C.F. Energy Partners of an affected item requiring deficiency pro-

                                      cedures—the addition to tax for negligence pursuant to section 6662(b)(1) (former section
                                      6653(a))—is itself one that requires both factual findings and also a legal determination that
                                      (i) the facts are sufficient to establish negligent disregard for tax rules and regulations and (ii)
                                      that no exception or excuse applies. 89 T.C. at 744–745.
                                         13 By way of analogy: Where a taxpayer has previously been convicted of a crime involving

                                      tax fraud, such as criminal tax evasion under section 7201, he is collaterally estopped from de-
                                      nying the existence of fraud with regard to any civil penalties the Commissioner asserts under
                                      section 6663. See, e.g., DiLeo v. Commissioner, 96 T.C. 858, 885 (1991), affd. 959 F.2d 16 (2d
                                      Cir. 1992). We don’t lose jurisdiction despite the lack of triable factual issues with regard to
                                      imposing the fraud penalty, but rather find for the Commissioner based upon collateral estoppel,
                                      making a legal determination that the civil fraud penalty applies. See, e.g., Williams v. Commis-
                                      sioner, T.C. Memo. 2009–81; Anderson v. Commissioner, T.C. Memo. 2009–44.




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                                      a legal determination because it resolves a question of law—
                                      namely, whether anyone in the Thompsons’ situation is enti-
                                      tled to claim such a loss. See McCarthy Trust v. Commis-
                                      sioner, 817 F.2d 558, 559 (9th Cir. 1987) (stating that when
                                      the parties do not dispute the substance of the transaction,
                                      ‘‘Application of the Internal Revenue Code * * * is a ques-
                                      tion of law’’), affg. 86 T.C. 781 (1986). But it’s a legal deter-
                                      mination that the majority’s making at the partner level
                                      without even realizing it 14—after all, in RJT Investments, we
                                      didn’t and couldn’t redetermine the Thompsons’ reported loss
                                      from the liquidation of their interest in RJT at the partner-
                                      ship level because it wasn’t a partnership item 15 or a penalty
                                      that related to an adjustment to a partnership item. See sec.
                                      6226(f) (laying out our partnership-level jurisdiction). The
                                      Thompsons’ loss is an affected item that must be determined
                                      (i.e., allowed or disallowed) at the partner level. See
                                      Petaluma FX Partners, LLC v. Commissioner, 591 F.3d at
                                      655.
                                         The determination in RJT Investments that RJT is a sham
                                      is certainly the determination of a ‘‘partnership item,’’ but
                                      the effect this has on the Thompsons’ claimed capital loss
                                      from the disposition of their interest in RJT is nevertheless
                                      one step removed from the partnership level. It seems such
                                      an easy step to take, but the conclusion that the Thompsons
                                      can’t claim a loss on disposition of RJT is a low-hanging fruit
                                      that we shouldn’t be touching at the partnership level: It’s an
                                      affected item that requires a determination at the partner
                                      level (no matter how obvious or easy it seems) before the
                                      Commissioner can pluck, peel, and eat it.
                                         The sham determination only indirectly affects the loss
                                      reported by the Thompsons for the liquidation of their
                                      interest in RJT, and doesn’t just flow through to the partners’
                                          14 In note 18, the majority concludes: ‘‘[E]ven if we assume that applying sec. 165(c)(2) to deny

                                      a loss on liquidating a partnership interest is an ‘affected item’ to be determined in a partner-
                                      level proceeding, such a determination requires no further partner-level facts once the partner-
                                      ship activities have been deemed to lack economic substance.’’ Majority op. note 18 (emphasis
                                      added).
                                          15 Section 6231(a)(3) defines ‘‘partnership item’’ as ‘‘[(A)] any item required to be taken into

                                      account for the partnership’s taxable year under any provision of subtitle A[, (B)] to the extent
                                      regulations prescribed by the Secretary provide that, for purposes of this subtitle, [(C)] such
                                      item is more appropriately determined at the partnership level than at the partner level.’’ Part-
                                      nership items include factors that affect the determination of partnership items such as the
                                      ‘‘legal and factual determinations that underlie the determination of the amount, timing, and
                                      characterization of items of income, credit, gain, loss, deduction, etc.’’ Sec. 301.6231(a)(3)–1(b),
                                      Proced. & Admin. Regs.




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                                      returns as a numerical adjustment. This is consistent with
                                      our holding in Petaluma on remand. 135 T.C. 581, 587
                                      (2010). In that Opinion, we held that a sham determination
                                      only indirectly affects outside basis at the partner level. Id.
                                      We also held that the sham determination didn’t flow
                                      through to the partners’ returns as a numerical computa-
                                      tional adjustment. Id.
                                         Plus, the Thompsons’ loss from the liquidation of their
                                      interest doesn’t look like the kind of affected item the regula-
                                      tions say can be adjusted without any partner-level deter-
                                      minations. Section 301.6231(a)(6)–1(a)(2), Proced. & Admin.
                                      Regs., says:
                                      Changes in a partner’s tax liability with respect to affected items that do
                                      not require partner-level determinations (such as the threshold amount of
                                      medical deductions under section 213 that changes as the result of deter-
                                      minations made at the partnership level) are computational adjustments
                                      that are directly assessed.

                                      This regulation tells us that exemptions, credits, and deduc-
                                      tions that have percentage limitations based on the tax-
                                      payer’s adjusted gross income are types of affected items that
                                      don’t require partner-level determinations—it’s something
                                      anyone with a calculator can do as a math chore without the
                                      need for any fact finding or even simple legal analysis at the
                                      partner level.
                                         I also think that it’s important to consider, when thinking
                                      about whether a computational adjustment requires partner-
                                      level determinations, whether a partner had the opportunity
                                      at the partnership level to dispute all issues of law and fact
                                      that will affect the computational adjustment. See Randell v.
                                      United States, 64 F.3d 101, 108 (2d Cir. 1995). Otherwise we
                                      may see cases like the Thompsons’ again in a collection due
                                      process proceeding. 16 See Manko v. Commissioner, 126 T.C.
                                      195 (2006).
                                         16 Once the Commissioner assesses a tax, he is allowed to collect any unpaid portion of it by

                                      filing liens against, and levying on, a taxpayer’s property. The Code allows taxpayers a collection
                                      due process hearing before the IRS can use a lien or levy to collect the unpaid taxes. See secs.
                                      6320, 6330. We have jurisdiction to review the Commissioner’s determinations after such hear-
                                      ings. Our review of the Commissioner’s determinations in cases like the Thompsons’ would be
                                      de novo, inasmuch as the partner never received a notice of deficiency or had the opportunity
                                      to dispute his underlying tax liability. See Grunsted v. Commissioner, 136 T.C. 455, 458 n.4
                                      (2011); Prince v. Commissioner, 133 T.C. 270, 274 (2009); Lindberg v. Commissioner, T.C. Memo.
                                      2010–67.




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                                                                                          C.

                                         It’s true, as the majority points out in note 5, that the
                                      Ninth Circuit didn’t ‘‘reach the question of whether the
                                      notice of deficiency would be invalid if no partner-level [fac-
                                      tual] determination[s] were necessary.’’ Napoliello, 655 F.3d
                                      at 1064 n.1. But the Ninth Circuit also noted that such a
                                      ‘‘proposition would deprive taxpayers of procedural safe-
                                      guards were we to adopt it.’’ Id. I fear that the majority’s
                                      construction of ‘‘determinations’’ won’t work well and will
                                      lead to results contrary to TEFRA’s purpose.
                                         This case shows us how that might happen—the majority’s
                                      approach deprives the Thompsons of a prepayment forum to
                                      challenge the Commissioner’s disallowance of the loss. Maybe
                                      that doesn’t make a lot of difference in this case—it’s hard
                                      to see how the Thompsons would care about whether we
                                      have jurisdiction because (if we did have jurisdiction) we’d
                                      exercise it to disallow their loss and find them collaterally
                                      estopped from disputing the penalty at issue.
                                         But taking a case to conference usually means that we
                                      think it should be analyzed for its effects on tax law more
                                      generally. Our holding today, I suggest, means that in future
                                      cases we will need to conduct a case-by-case analysis as to
                                      whether a particular taxpayer’s reported loss on the liquida-
                                      tion of his partnership interest could be adjusted in a notice
                                      of computational adjustment or only in a notice of deficiency.
                                      This kind of individualized case processing would, I fear,
                                      defeat a major purpose of TEFRA. Congress has always made
                                      it clear that ‘‘[p]artnership proceedings under rules enacted
                                      in TEFRA, must be kept separate [and distinct] from defi-
                                      ciency proceedings involving the partners in their individual
                                      capacities.’’ H. Conf. Rept. 105–220, at 677 (1997), 1997–4
                                      C.B. (Vol. 2) 1471, 2147; see also Maxwell v. Commissioner,
                                      87 T.C. 783, 788, 793 (1986). This is not only clear from the
                                      legislative history, but also from the Code itself. Secs. 6221,
                                      6226(f), 6230, 6231. Congress tried to draw a thick line
                                      between partnership-tax matters and all other tax items of
                                      the partners—presumably for administrative efficiency. See
                                      Maxwell, 87 T.C. at 793.
                                         A case-by-case patrolling of the border between affected
                                      items that do and don’t require partner-level factual deter-
                                      minations only increases the probability that the IRS’s bulk-




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                                      processing employees will make what we will later call a mis-
                                      take. What happened after Petaluma illustrates this
                                      problem: The IRS released Chief Counsel Notice CC–2009–11
                                      on March 11, 2009, because it was uncertain as to how a
                                      reviewing court would classify particular items. The notice
                                      instructs the IRS to issue both a notice of deficiency and a
                                      notice of computational adjustment for the same items and
                                      amounts. Our decision today only complicates matters. Not
                                      wanting to blow the statute of limitations, the Commissioner
                                      will protect the Treasury by doubling the notices in every
                                      case and forcing the courts to decide each one. This is a nec-
                                      essary consequence of blurring general distinctions to be
                                      more precise in individual cases. It’s not a development we
                                      should encourage.
                                         The majority’s construction of affected items subject to
                                      deficiency proceedings as only those requiring partner-level
                                      factual determinations also threatens to cause inconsistent
                                      treatment between partners. When we require each partner
                                      to litigate the issue of whether computational adjustments
                                      require partner-level factual determinations, we risk treating
                                      partners of the same partnership differently even in our
                                      Court. (And refund courts may also disagree with our
                                      characterization of computational adjustments that can be
                                      directly assessed.)
                                         A computational adjustment relating to a loss reported by
                                      a partner on the liquidation of his interest is just the type
                                      of item that should be routed through deficiency procedures
                                      because it may require partner-level factual determinations,
                                      and will always require a partner-level legal determination.
                                      In similar cases there might be factual questions raised by
                                      the Commissioner’s treatment of, for example, the other
                                      components that a partner considered in computing his
                                      claimed loss (e.g., the cash or property he received from the
                                      disregarded partnership). And in all such cases the computa-
                                      tional adjustment for the loss will require a partner-level
                                      legal determination on the effects of the partnership-level
                                      proceeding. An individual partner’s loss on disposition of his
                                      partnership interest cannot be determined at the partnership
                                      level. We therefore should assert jurisdiction at the partner
                                      level, because correctly redetermining the loss will generally
                                      require us to answer questions of both law and fact. I believe




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                                      this is a permissible construction of section 6230(a)(2), and
                                      one that we should have adopted.

                                                                                          II.

                                                                                Conclusion
                                        The silt we stir today will cloud the cases we plunge into
                                      tomorrow. I respectfully dissent.
                                        KROUPA, J., agrees with this dissent.

                                                                               f




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