                        T.C. Memo. 2010-153



                      UNITED STATES TAX COURT



   DEVONIAN PROGRAM, CARL VALERI, A PARTNER OTHER THAN THE TAX
                  MATTERS PARTNER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8638-08.              Filed July 19, 2010.




     Bernard S. Mark and Richard S. Kestenbaum, for petitioner.

     Halvor N. Adams, III, Theodore R. Leighton, Rose E. Gole,

Margaret Burow, and James P.A. Caligure, for respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   Respondent issued a notice of final

partnership administrative adjustment (FPAA) to Devonian Program.

This case involves competing petitions--one filed by an entity

respondent maintains is the tax matters partner (TMP), which
                               - 2 -

timely filed a petition, and the other filed by a partner.

Respondent filed a motion to dismiss for lack of jurisdiction

because of the prior petition involving the same partnership.

For the reasons stated herein, we will grant respondent’s motion.

                            Background

     The following information is stated for purposes of this

Memorandum Opinion only; this case has yet to be tried on the

merits.   Unless otherwise indicated, all section references are

to the Internal Revenue Code as amended.

     Devonian Program (Devonian) was organized in 1999 as a

partnership with more than one member.1    On April 20, 2000,

Devonian filed a Form 1065, U.S. Partnership Return of Income,

for its 1999 tax year (partnership return).    The partnership

return designated Basin Gas Corp. (Basin) as Devonian’s tax

matters partner.   Basin is a corporation owned by Carl Valeri

(Mr. Valeri).   Mr. Valeri is the sole shareholder, director,

officer, and president of Basin.   Mr. Valeri dealt with the day-

to-day operations of Basin along with all administrative duties.

     Investors in Devonian acquired their interests therein by

executing a subscription agreement.    The subscription agreement

incorporates a private placement memorandum.    The subscription

agreement appointed Basin the manager and attorney-in-fact of



     1
      Devonian has at times referred to itself as America
International 1999 Venture.
                               - 3 -

Devonian.   The private placement memorandum provides in part that

Basin will receive a flat fee of $292,500 for services and will

pay $3,000 for a 17-percent interest in Devonian’s revenues.

     Jerry Karlik is employed in an administrative capacity by

Basin and helped prepare the private placement memorandum for

Devonian.

     Respondent began an audit of Devonian at some time before

August 22, 2001.   On August 22, 2001, Mr. Valeri, as president of

Basin, filed a Form 2848, Power of Attorney and Declaration of

Representative, designating Gail Anger (Mr. Anger), a certified

public accountant, to represent Devonian with respect to the

audit.   On December 3, 2001, respondent’s revenue agent issued a

letter to Mr. Anger requesting information to confirm that Basin

was a general partner of Devonian for the years ending December

31, 1999 and 2000, and copies of Schedules K-l, Partner’s Share

of Income, Credits, Deductions, etc., showing that Basin was a

general partner of Devonian for 1999 and 2000.

     On December 5, 2001, Mr. Anger sent a letter to respondent

stating the following:

     In addition, under the terms of the Subscription
     Agreement, we contributed $3,000 for a seventeen per
     cent equity interest at Payout, as defined in the
     Agreement. Since this is not a Limited Partnership,
     liability is not limited. Therefore, we are considered
     “General” partner.

Although Mr. Valeri did not sign the December 5, 2001, letter, he

authorized his staff to stamp his signature on the letter and was
                                - 4 -

aware that the letter had been sent.    Included in the letter were

Schedules K-1 from Devonian for Basin for 1999 and 2000.    Both

Schedules K-1 prepared by Mr. Anger for 1999 and 2000 identified

Basin as a general partner of Devonian.    The 1999 Schedule K-1

reported that Basin had contributed $3,000 of capital during 1999

and had a $3,000 capital account balance at the end of that year.

The 2000 Schedule K-1 reported that Basin had a $3,000 capital

account balance at both the beginning and end of 2000.    Mr.

Valeri did not inform respondent that what was sent in the

December 5, 2001, letter was incorrect at any point before his

petition was filed.

     On June 26, 2006, Mr. Valeri signed a Form 872-P, Consent to

Extend the Time to Assess Tax Attributable to Partnership Items,

for Devonian’s 1999 tax year as president of Basin on the line

that instructs “Tax Matters Partner Sign Here.”

     On November 27, 2007, the FPAA was issued to Basin for the

taxable year 1999 and was addressed as follows:

                      BASIN GAS CORPORATION
                      TAX MATTERS PARTNER
                      DEVONIAN PROGRAM
                      238 SOUTH EDISON STRET
                      SALT LAKE CITY, UT    84111-2307

     On February 7, 2008, Basin timely mailed a petition with

respect to the FPAA in accordance with section 6226(a), and its

petition was assigned docket No. 3881-08.    On April 11, 2008, Mr.
                              - 5 -

Valeri filed a second petition with respect to the same FPAA, and

his petition was assigned docket No. 8638-08.

     On May 27, 2008, respondent filed a motion to dismiss Mr.

Valeri’s petition for lack of jurisdiction because Basin, which

Devonian designated as its TMP on its 1999 Form 1065, had filed a

petition with respect to the FPAA within the period provided by

section 6226(a).

     On June 19, 2008, Mr. Valeri filed a notice of objection to

respondent’s motion to dismiss for lack of jurisdiction.    By

order dated July 24, 2008, the Court ordered respondent to file

a response thereto on or before August 25, 2008; respondent’s

response was filed on August 11, 2008.   The motion to dismiss for

lack of jurisdiction was heard on October 27, 2008.

                           Discussion

I. Introduction

     We must decide whether Basin was a general partner in

Devonian for Federal tax purposes.    In Mont. Sapphire Associates,

Ltd. v. Commissioner, 95 T.C. 477, 481 (1999), this Court found

that only a general partner is eligible to be the TMP.2    Basin


     2
      Sec. 6231(a)(7)(A) provides that the tax matters partner
(TMP) of any partnership is the general partner designated as the
TMP in accordance with regulations issued by the Secretary. Sec.
301.6231(a)(7)-1, Proced. & Admin. Regs., provides guidelines for
selection of the TMP. A person may be designated the TMP of a
partnership for a taxable year only if that person was a general
partner in the partnership at some time during the taxable year
for which the designation is made or is a general partner in the
                                                   (continued...)
                                - 6 -

was designated the TMP of Devonian in accordance with section

301.6231(a)(7)-1(c), Proced, & Admin. Regs., and timely mailed

its petition to the Court with respect to the FPAA within the 90-

day period prescribed by section 6226(a).     Respondent’s motion to

dismiss for lack of jurisdiction hinges on whether Basin was a

general partner of Devonian during 1999.     If Basin was a general

partner, then respondent’s motion to dismiss for lack of

jurisdiction should be granted.     This Court would lack

jurisdiction because a partner other than the TMP may file a

petition for readjustment with respect to an FPAA only if the TMP

does not file a readjustment petition within the 90-day period

set forth in section 6226(a).   See sec. 6226(b)(1).

II.   Whether Basin Was a Partner

      Federal law determines whether an individual is a partner in

a partnership for Federal tax purposes, though status under State

law may be relevant.   Estate of Kahn v. Commissioner, 499 F.2d

1186, 1189 (2d Cir. 1974), affg. Grober v. Commissioner, T.C.

Memo. 1972-240; Luna v. Commissioner, 42 T.C. 1067, 1077 (1964);

sec. 301.7701-1(a), Proced. & Admin. Regs.

      This Court and others have relied on Commissioner v.

Culbertson, 337 U.S. 733, 742-743 (1949), where the Commissioner

challenges a person’s status as a partner for Federal tax


      2
      (...continued)
partnership as of the time the designation is made.     Sec.
301.6231(a)(7)-1(b), Proced. & Admin. Regs.
                                 - 7 -

purposes.   In Commissioner v. Culbertson, supra at 742-743, the

Supreme Court listed several objective factors that influence the

determination of whether a partnership is valid, including:      The

agreement between the parties; the conduct of the parties in

executing its provisions; the parties’ statements; the testimony

of disinterested persons; the relationship of the parties; their

respective abilities and capital contributions; the actual

control of income; and the purposes for which the income is used.

Id. at 742; see also Va. Historic Tax Credit Fund 2001 LP v.

Commissioner, T.C. Memo. 2009-295.

     In the present case, the validity of the partnership is not

disputed but the analysis in Commissioner v. Culbertson, supra at

742, quoted below is helpful to our determination:

          The question is not whether the services or
     capital contributed by a partner are of sufficient
     importance to meet some objective standard * * * but
     whether, considering all the facts * * * the parties in
     good faith and acting with a business purpose intended
     to join together in the present conduct of the
     enterprise. * * *

     Mr. Valeri argues that Basin was not and never has been a

partner because Basin does not have any capital or profit

interest in Devonian and that it was strictly a manager/agent of

the other partners.   Mr. Valeri argues that Basin did not sign

the subscription agreement as an investor but signed only to

create an agency relationship.    Mr. Valeri contends that the

$3,000 paid to Devonian was strictly a contingent interest.
                               - 8 -

Respondent argues that Basin was a partner and did have a capital

interest in Devonian.   Respondent points to numerous parts of the

private placement memorandum which provide that Basin is

receiving interests in Devonian.   Respondent contends that the

$3,000 that Basin paid to Devonian for 17 percent of the net

revenues was not a contingency interest because Basin could

reassign any or all of its 17-percent interest and the interest

was payable to Basin even if it were replaced as manager.

     We agree with respondent that Basin was a general partner.

Basin, acting with a business purpose, intended to join together

with the other partners of Devonian in the conduct of a business

enterprise.   According to Mr. Valeri, Basin cannot be an investor

because it never received any interest in Devonian and its

receipt of a $292,500 fee and of a 17-percent interest in

Devonian’s net revenues were strictly for services rendered.3

Basin executed a subscription agreement which by its terms

incorporated the Devonian private placement memorandum.    The

private placement memorandum identifies Basin as the TMP of

Devonian and gives Basin “exclusive and complete discretion and

control over the management, business, and affairs of Devonian”.

The subscription agreement and private placement memorandum

provided that “Basin shall be entitled to a fee equal to $292,500


     3
      Respondent concedes that the $292,500 was for services
rendered but disagrees that Basin’s 17-percent interest in net
revenues was to be received for services rendered.
                               - 9 -

in addition to 17% of the net revenues attributable to the

Program at Payout, for which it will pay $3,000.”    There are

several parts of the private placement memorandum which refer to

Basin as holding an “interest” in Devonian.    The “Management Fee”

section of the private placement memorandum provides, in part:

          The Manager will be entitled to a fee equal to
     $292,500, if Program is fully subscribed, for services
     in arranging for the acquisition and drilling of the
     Well(s) and for day-today administration of Program
     operations through the end of 1999. In addition, the
     Manager will receive a 17% interest in the Program’s
     revenues at Payout (and after the driller’s 40% back-
     in) for which it will pay aggregate consideration of
     $3,000.

The summary of significant assumptions and accounting policies of

the private placement memorandum provides:    “After payout, the

Manager will receive a 17% interest of the Program’s interest

[sic]`.”   Mr. Valeri admitted in his December 5, 2001, letter to

respondent that Basin had contributed $3,000 to Devonian for a

17-percent interest in Devonian at payout.    The $3,000 was an

investment, not compensation for services.    Any return Basin

received from its 17-percent interest would be a return on

investment dependent on the profits from Devonian.

     Additionally, Mr. Valeri claims that the Schedules K-1 sent

to respondent during the audit were incorrect.    Schedules K-1 for

tax years 1999 and 2000 were issued to Basin.    The Schedules K-1

reported that (1) Basin was a general partner, (2) Basin had a

capital interest in Devonian, and (3) Basin had contributed
                              - 10 -

$3,000 of capital to Devonian.    Mr. Valeri approved the sending

of the Schedules K-1, never contacted respondent to tell him of

any incorrect information on the Schedules K-1, and stated that

he realized what was wrong only “over the past year or two” after

he had discussions with a lawyer and an accountant.

     Mr. Valeri was not sure whether he signed the 1999

partnership return in his individual capacity or as the president

of Basin.   He first testified that he signed the 1999 partnership

return in his individual capacity as a partner of Devonian.

Later, he said he was not sure whether he signed it in his

individual capacity or as the president of Basin and that he

could not remember because he signs a lot of returns.     We found

Mr. Valeri’s testimony to be vague, questionable, and self-

serving.

     Mr. Karlik testified that he helped Mr. Valeri with the

private placement memorandum by preparing the document,

forwarding it to attorneys and accountants, and updating Mr.

Valeri on any new tax legislation.     Mr. Karlik also stated that

both he and Mr. Valeri knew that the Schedules K-1 issued to

Basin were incorrect when they were sent to respondent during the

audit but failed to tell respondent or anyone else because they

thought it was “meaningless” since the Schedules K-1 were not

filed with the original return.   Mr. Karlik’s answers regarding

the Schedules K-1 issued to Basin were unconvincing.
                             - 11 -

After examining all of the facts in the record, we find that

Basin became a general partner of Devonian.    Basin, as a general

partner designated as the TMP of Devonian on the partnership’s

return, was qualified to file the petition in docket No. 3881-08

on Devonian’s behalf, and we will therefore dismiss Mr. Valeri’s

petition for lack of jurisdiction.    See sec. 6226(b)(1).

     To reflect the foregoing,



                                          An appropriate order of

                                     dismissal for lack of

                                     jurisdiction will be entered.
