                         T.C. Memo. 2012-15



                       UNITED STATES TAX COURT



   BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES,
                          Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20664-10.              Filed January 17, 2012.



     Roger J. Jones, Kim Marie K. Boylan, and Andrew R. Roberson,

for petitioner.

     Daniel Allen Rosen, for respondent.



                         MEMORANDUM OPINION


     CHIECHI, Judge:    This case is before the Court on respon-

dent’s motion to dismiss (respondent’s motion).   The Court will

grant respondent’s motion.
                               - 2 -

                            Background

     The record establishes and/or the parties do not dispute the

following.

     Petitioner is a corporation with its principal place of

business in Rochester, New York.

     In December 1993, petitioner engaged in a financing transac-

tion (transaction) that involved the formation of Wilmington

Partners L.P. (Wilmington), an entity subject to the provisions

of sections 6221-6234.1   As part of the transaction, Bausch &

Lomb International Holdings Corp. (BLIHC), a member of peti-

tioner’s consolidated Federal income tax (tax) return group,

contributed a note (the 1993 reset note) to Wilmington in ex-

change for a partnership interest.     BLIHC claimed a basis of

$550,000,000 in the 1993 reset note, which was equal to the face

value of that note.

     In 1999, BLIHC sold a portion of its partnership interest in

Wilmington to an unrelated party for $199,137,637 in cash.     In

its consolidated tax return for 1999 (1999 consolidated return),

petitioner reported (1) a long-term capital loss of $347,910,187

from that sale and (2) a net capital loss of $143,849,923.

Petitioner carried that net capital loss (1) back to its taxable

year 1998 and (2) forward to its taxable year 2001 and certain



     1
      All section references are to the Internal Revenue Code in
effect at all relevant times.
                              - 3 -

subsequent taxable years, including 2005, the taxable year at

issue in this case.

     In 2004, respondent began an administrative proceeding with

respect to Wilmington for its taxable year ended June 4, 1999

(1999-1) and its taxable year ended December 25, 1999 (1999-2).

On May 12, 2006, respondent issued a notice of final partnership

administrative adjustment with respect to Wilmington for its

taxable years 1999-1 and 1999-2 (1999-1 and 1999-2 FPAA).

     In the 1999-1 and 1999-2 FPAA, respondent made, inter alia,

the following adjustment:

          A. Basis in Reset Note contributed by B&L Inter-
     national Holdings Corp.: It is determined that the
     note contributed by Bausch & Lomb International Hold-
     ings Corporation to Wilmington Partners L.P. on or
     about December 23, 1993 in the amount of $550,000,000
     had a basis of zero at the time of its contribution.
     * * * Accordingly, the note contributed by Bausch &
     Lomb International Holdings Corporation has no basis
     for the tax years ended June 4, 1999 [1999-1] and
     December 25, 1999 [1999-2].

     On August 7, 2006, the tax matters partner of Wilmington

filed a petition with the Court, thereby commencing the case at

docket No. 15098-06 with respect to the 1999-1 and 1999-2 FPAA

(Wilmington Partners case).

     On June 21, 2007, the Commissioner of Internal Revenue

(Commissioner) issued to Bausch & Lomb Incorporated and Consoli-

dated Subsidiaries (Bausch & Lomb) a notice of deficiency (no-

tice) with respect to its taxable years 1998 through 2001 (1998-

2001 notice).
                               - 4 -

      On September 14, 2007, Bausch & Lomb filed a petition with

the Court, thereby commencing the case at docket No. 20958-07

with respect to the 1998-2001 notice (Bausch & Lomb I).

      On April 14, 2008, the Commissioner issued to Bausch & Lomb

a notice of deficiency with respect to its taxable years 2002

through 2004 (2002-2004 notice).

      In Bausch & Lomb I, the Commissioner filed a motion to

dismiss that case for lack of jurisdiction.   On April 30, 2008,

the Court granted that motion in an unpublished order (April 30,

2008 Order of dismissal for lack of jurisdiction in Bausch & Lomb

I).   In doing so, the Court held that the 1998-2001 notice was

“invalid because the * * * [Wilmington Partners case] has not

concluded.”

      On July 11, 2008, Bausch & Lomb filed a petition with the

Court, thereby commencing the case at docket No. 17108-08 with

respect to the 2002-2004 notice (Bausch & Lomb II).

      On July 28, 2008, Bausch & Lomb filed an appeal in the U.S.

Court of Appeals for the Second Circuit from the Court’s April

30, 2008 Order of dismissal for lack of jurisdiction in Bausch &

Lomb I.

      In Bausch & Lomb II, the Commissioner filed a motion to

dismiss that case for lack of jurisdiction.   On May 21, 2009, the

Court issued a Memorandum Opinion, Bausch & Lomb Inc. v. Commis-

sioner, T.C. Memo. 2009-112, and on May 22, 2009, entered an
                               - 5 -

Order of dismissal for lack of jurisdiction (Order of dismissal

for lack of jurisdiction in Bausch & Lomb II) granting the

Commissioner’s motion to dismiss for lack of jurisdiction and

dismissing Bausch & Lomb II.   In that Memorandum Opinion, the

Court held that the 2002-2004 notice was invalid because “respon-

dent improperly issued the [2002-2004] deficiency notice deter-

mining petitioner’s deficiencies and penalties related to BLIHC’s

basis in the 1993 Reset Note before the decision of this Court

has become final” in the Wilmington Partners case.   Id.

     On June 11, 2009, Bausch & Lomb filed an appeal in the Court

of Appeals for the Second Circuit from the Court’s Order of

dismissal for lack of jurisdiction in Bausch & Lomb II.

     On October 21, 2009, the Court issued an Order in the

Wilmington Partners case, in which the Court ordered, inter alia,

the Commissioner to show cause why the Court should not enter a

decision barring the Commissioner from assessing any tax relating

to the adjustments in the 1999-1 and 1999-2 FPAA.

     On May 28, 2010, the Court issued an Order and Decision (May

28, 2010 Order and Decision) in the Wilmington Partners case.    In

that Order and Decision, the Court concluded, inter alia:

     The appropriate basis to use in measuring the claimed
     loss and any related carryforwards is Wilmington’s
     1999-2 basis in the [1993] Reset Note. A decision as
     to Wilmington’s 1999-1 basis in the [1993] Reset Note
     would not affect the disposition of this case. * * *
                               - 6 -

     In the May 28, 2010 Order and Decision, the Court:

          ORDERED AND DECIDED that the adjustments set forth
     in the Notice of Final Partnership Administrative
     Adjustment mailed May 12, 2006 [1999-1 and 1999-2
     FPAA], regarding the tax year ending December 25, 1999
     (1999-2), are barred as a result of the expiration of
     the applicable limitations period. * * * [and]

          ORDERED AND DECIDED that respondent’s 1999-1
     adjustment to Wilmington’s basis in the [1993] Reset
     Note leads to no adjustment in the income, gain, loss,
     deduction, or credit of Wilmington for the tax year
     ending June 4, 1999 (1999-1).

     On July 1, 2010, respondent issued to petitioner a notice of

deficiency with respect to its taxable year 2005 (2005 notice),

the year at issue in this case.   In that notice, respondent

determined, inter alia, to disallow a long-term capital loss that

is attributable to a carryforward of the capital loss that

petitioner had claimed in its 1999 consolidated return (discussed

above) as the result of BLIHC’s sale of its partnership interest

in Wilmington.   In the 2005 notice, respondent also determined a

deficiency in, and an accuracy-related penalty under section

6662(a) on, petitioner’s tax for its taxable year 2005 of

$5,659,905 and $2,263,962, respectively.

     On September 16, 2010, petitioner filed a petition with the

Court, thereby commencing the instant case with respect to the

2005 notice.   In the petition, petitioner alleged that respondent

made, inter alia, the following errors in the 2005 notice:
                          - 7 -

(a)   Adjustments to Income.

     (i) The Commissioner erred in continuing to rely
on erroneous determinations made in Notices of Defi-
ciency issued to Petitioner for its 1998-2001 tax years
(the “1998-2001 Notice”) and its 2002-2004 tax years
(the “2000-2004 Notice”).

     (ii) The Commissioner erred in determining that
the capital loss resulting from the 1999 sale by B&L
International Holdings Corp. (“BLIHC”) of its Class A
limited partnership interest in Wilmington Partners
L.P. (“Wilmington”) was not properly determined.

     (iii) The Commissioner further erred in determin-
ing, in Petitioner’s 1999 tax year, that a note in the
amount of $550,000,000 contributed by BLIHC to
Wilmington in 1993 (the “1993 Reset Note”) had a basis
of zero at the time of its contribution.

  *       *       *       *       *       *       *

     (vi) As a result of the errors described * * *
above, the Commissioner erroneously reduced, in Peti-
tioner’s 1999 tax year, BLIHC’s 1993 basis in its
partnership interest in Wilmington from $550,000,025 to
$25 and correspondingly reduced BLIHC’s basis in the
Class A limited partnership interest it sold in 1999 to
$59,828,384.

     (vii) As a result of the errors described * * *
above, the Commissioner erroneously determined that the
long-term capital loss of $347,910,187 reported by
Petitioner on the 1999 sale of BLIHC’s Class A limited
partnership interest in Wilmington was a long-term
capital gain of $139,309,253.

     (viii) As a result of the errors described * * *
above, the Commissioner erroneously determined that
Petitioner is not entitled to carryover a capital loss
from its 2000 tax year to its 2005 tax year.

In the petition, petitioner also alleged the following:

(d)   Affirmative Defenses.

     (i) All of the Commissioner’s determinations in
the 2005 Notice relate to partnership items of
                         - 8 -

Wilmington or affected items of Petitioner related to
such partnership items. The Commissioner’s determina-
tions relating to BLIHC’s basis in the Class A limited
partnership interest it sold in 1999 are attributable
to a partnership item for Wilmington’s 1993 tax year.

     (ii) The Commissioner is barred from assessing
for 2005 any tax attributable to partnership items of
Wilmington in Wilmington’s tax years ended December 30,
1993 (“1993”), June 4, 1999 (“1999-1”), and December
25, 1999 (“1999-2”) because the applicable periods of
limitations for assessing any tax attributable to any
such partnership items, including any additions to tax,
expired with respect to 2005 before the Commissioner
issued the 2005 Notice.

     (iii) The Commissioner has issued no Notice of
Final Partnership Administrative Adjustments [sic]
(“FPAA”) to Wilmington with respect to its 1993 tax
year adjusting the basis of the 1993 Reset Note at the
time of its contribution in 1993. Accordingly, the tax
treatment of all partnership items for Wilmington’s
1993 tax year is final and binding and no adjustment
can be made to BLIHC’s basis in the Class A limited
partnership interest it sold in 1999.

     (iv) The Commissioner issued a “No Adjustments
Letter” to Wilmington stating that no adjustments would
be made to Wilmington’s 1993 Form 1065, U.S. Partner-
ship Return of Income. Accordingly, the tax treatment
of all partnership items for Wilmington’s 1993 tax year
is final and binding and no adjustment can be made to
BLIHC’s basis in the Class A limited partnership inter-
est it sold in 1999.

     (v) The Commissioner is estopped from making the
adjustments in the 2005 Notice because he previously
examined the taxable year 1993 for Wilmington and
Petitioner and made representations that he agreed that
the basis of the 1993 Reset Note was $550 million at
the time of its contribution, Wilmington and Petitioner
relied on the Commissioner’s representations, and the
Commissioner has now attempted to change his original
position.

     (vi) The Commissioner is precluded from adjusting
BLIHC’s basis in the Class A limited partnership inter-
est it sold in 1999 based on his litigating position in
                                - 9 -

     other cases and his duty of consistency to similarly
     situated taxpayers.

     On October 5, 2010, the Commissioner filed an appeal in the

Court of Appeals for the Second Circuit with respect to the May

28, 2010 Order and Decision entered in the Wilmington Partners

case.   That appeal is currently pending.

     On November 19, 2010, respondent filed respondent’s motion

in this case.    In that motion, respondent asks the Court to

dismiss this case on one of the following two alternative

grounds:    (1) Under the Court’s precedent, the Court does not

have jurisdiction over this case because the notice of deficiency

that respondent issued to petitioner for its taxable year 2005 is

invalid, and (2) this case is “not ripe for adjudication”.

     On December 20, 2010, the Court of Appeals for the Second

Circuit dismissed Bausch & Lomb’s respective appeals in Bausch &

Lomb I and Bausch & Lomb II in an unpublished opinion, in which

it held that Bausch & Lomb had not suffered any “concrete and

particularized” harm from the respective dismissals of those

cases for lack of jurisdiction.    Bausch & Lomb Inc. v. Commis-

sioner, 410 Fed. Appx. 367, 369-371 (2d Cir. 2010).

                             Discussion

     The Court’s jurisdiction to redetermine a deficiency in tax

depends upon a valid notice of deficiency and a timely filed

petition.    Sec. 6213; GAF Corp. & Subs. v. Commissioner, 114 T.C.

519, 521 (2000).    In order to determine whether the Court has
                             - 10 -

jurisdiction to redetermine the partner-level deficiency and the

accuracy-related penalty in this case, the Court will address the

parties’ disagreement over whether the 2005 notice is valid.

     It is respondent’s position that, under the Court’s prece-

dent, see, e.g., GAF Corp. & Subs. v. Commissioner, supra, the

Court does not have jurisdiction over the instant case.2   In

support of that position, respondent argues that the May 28, 2010

Order and Decision in the Wilmington Partners case is currently

on appeal in the Court of Appeals for the Second Circuit, the

2005 notice is invalid, and this case should be dismissed for

lack of jurisdiction under the Court’s precedent.

     It is petitioner’s position that the 2005 notice is valid

because “the Court has now determined [in the May 28, 2010 Order

and Decision in the Wilmington Partners case] that Wilmington

Partners is not the ‘related partnership proceeding.’”3    Peti-


     2
      In contrast to the Commissioner’s position before the Court
in Bausch & Lomb I and Bausch & Lomb II that the Court did not
have jurisdiction over those cases, respondent argues here that,
under the Court’s precedent, it does not have jurisdiction over
the instant case. In the appeals by Bausch & Lomb of the Court’s
respective Orders of dismissal for lack of jurisdiction in Bausch
& Lomb I and Bausch & Lomb II, the Commissioner argued that the
“Tax Court had jurisdiction over [those] actions pursuant to
I.R.C. §§ 6213, 6214, and 7442, and it erred in concluding
otherwise.” In those appeals, it was the Commissioner’s position
that “the cases [Bausch & Lomb I and Bausch & Lomb II] were
[nonetheless] properly dismissed because the claims for relief
therein were not ripe for adjudication.”
     3
      Petitioner mischaracterizes what the Court decided in the
Wilmington Partners case. In its May 28, 2010 Order and Decision
                                                   (continued...)
                             - 11 -

tioner appears to be restating in this case the argument that it

advanced in Bausch & Lomb I and Bausch & Lomb II that respondent

adjusted its basis in the 1993 reset note for the wrong year.4

The Court rejected that argument in Bausch & Lomb I and Bausch &

Lomb II, and the Court rejects it here.

     In the April 30, 2008 Order of dismissal for lack of juris-

diction in Bausch & Lomb I, the Court addressed Bausch & Lomb’s

argument that the Commissioner adjusted its basis in the 1993

reset note for the wrong year.   It stated:




     3
      (...continued)
in that case, the Court:

          ORDERED AND DECIDED that the adjustments set forth
     in the Notice of Final Partnership Administrative
     Adjustment mailed May 12, 2006 [1999-1 and 1999-2
     FPAA], regarding the tax year ending December 25, 1999
     (1999-2), are barred as a result of the expiration of
     the applicable limitations period. * * * [and]

          ORDERED AND DECIDED that respondent’s 1999-1
     adjustment to Wilmington’s basis in the [1993] Reset
     Note leads to no adjustment in the income, gain, loss,
     deduction, or credit of Wilmington for the tax year
     ending June 4, 1999 (1999-1).
     4
      In Bausch & Lomb I and Bausch & Lomb II, Bausch & Lomb
argued that the Wilmington Partners case was not the related
partnership proceeding because: “BLIHC’s basis in the 1993 Reset
Note was a partnership item only in the year of contribution,
1993, and, therefore, respondent adjusted the basis in the wrong
years; i.e. 1999-1 and 1999-2.” Bausch & Lomb Inc. v. Commis-
sioner, T.C. Memo. 2009-112. Therefore, according to Bausch &
Lomb in Bausch & Lomb I and Bausch & Lomb II, the 1998-2001
notice and the 2002-2004 notice involved in those respective
cases were valid and the Court had “jurisdiction because no FPAA
was issued for the year of contribution.” Id.
                             - 12 -

          Petitioner’s argument is misplaced. The [1999-1
     and 1999-2] FPAA issued to Wilmington contains adjust-
     ments relating to the determination that the 1993 Reset
     Note had a zero basis at the time BLIHC contributed it
     to Wilmington. The adjustments in the deficiency
     notice all flow from this determination in the [1999-1
     and 1999-2] FPAA. Accordingly, respondent’s determina-
     tion concerning the note’s basis is a partnership item
     and cannot be litigated in this proceeding. The af-
     fected items in the deficiency notice that depend on
     the resolution of this partnership item also cannot be
     litigated now but must wait until the conclusion of the
     partnership-level proceeding. Any argument that a
     partnership item was adjusted in an improper year must
     be made in the partnership-level proceeding, not at the
     partner level. Such an argument does not give us
     jurisdiction to determine a partnership item in a
     partner-level case. [Citations omitted.]

     In the April 30, 2008 Order of dismissal for lack of juris-

diction in Bausch & Lomb I, the Court concluded “that the defi-

ciency notice issued to petitioner is invalid because the

partnership-level proceeding at docket no. 15098-06 [the

Wilmington Partners case] has not concluded.”   Implicit in that

conclusion is that the Wilmington Partners case was the related

partnership proceeding.

     In Bausch & Lomb II, Bausch & Lomb Inc. v. Commissioner,

T.C. Memo. 2009-112, the Court also addressed Bausch & Lomb’s

argument that the Commissioner adjusted its basis in the 1993

reset note for the wrong year.   It stated:

          Petitioner acknowledges that the Wilmington part-
     nership proceeding is pending and that the deficiency
     notice contains adjustments to partnership items and
     affected items related to BLIHC’s basis in the 1993
     Reset Note. Petitioner argues, however, that BLIHC’s
     basis in the 1993 Reset Note was a partnership item
     only in the year of contribution, 1993, and, therefore,
                        - 13 -

respondent adjusted the basis in the wrong years; i.e.
1999-1 and 1999-2. Petitioner further argues that the
deficiency notice is valid and we have jurisdiction
because no FPAA was issued for the year of contribu-
tion. Petitioner attempts to make a back-door argument
that the Court, in determining the validity of the
deficiency notice, is required at the partner level to
answer the substantive question of whether respondent
adjusted BLIHC’s basis in the 1993 Reset Note in the
wrong year or years. We disagree.

  *       *       *       *       *       *       *

     A partner’s basis in contributed property is a
partnership item when the partnership needs to make a
determination with respect to the partner’s basis for
purposes of its books and records, or for purposes of
furnishing information to a partner. The critical
element is that the partnership needs to make a deter-
mination with respect to the partner’s basis for the
purposes stated, and the partnership’s failure to
actually make a determination does not prevent an item
from being a partnership item.

     Petitioner provides no authority for the argument
that a partner’s basis in contributed property is a
partnership item only in the year of contribution, and
we find none. Partnership items are defined to include
a partner’s basis in contributed property when a part-
nership must account for the partnership’s basis in the
contributed property for purposes of its books and
records, or for purposes of furnishing information to a
partner. Accordingly, the necessary facts are avail-
able only at the partnership level to determine whether
the partnership was required to make a determination
with respect to BLIHC’s basis in the 1993 Reset Note
for these purposes.

* * * Here, the related Wilmington partnership proceed-
ing is ongoing, and there Wilmington’s TMP [tax matters
partner] is making the argument that the Commissioner
adjusted BLIHC’s basis in the 1993 Reset Note in the
wrong years.

  *       *       *       *       *       *       *

     Petitioner’s substantive argument that BLIHC’s
basis in the 1993 Reset Note was adjusted in an im-
                             - 14 -

     proper year does not provide jurisdiction, where none
     exists, to determine a partnership item in a partner-
     level case. This Court may exercise jurisdiction only
     to the extent expressly provided by statute, and it may
     not enlarge upon that statutory jurisdiction.

          Further, the remaining determinations in the
     deficiency notice depend on the resolution of BLIHC’s
     basis in the 1993 Reset Note. These determinations are
     affected items that cannot be litigated now but must
     wait until the Wilmington partnership proceeding is
     finalized. [Citations omitted; fn. ref. omitted.]

Bausch & Lomb Inc. v. Commissioner, T.C. Memo. 2009-112.

     In Bausch & Lomb Inc. v. Commissioner, supra, the Court

concluded that

     respondent improperly issued the deficiency notice
     determining petitioner’s deficiencies and penalties
     related to BLIHC’s basis in the 1993 Reset Note before
     the decision of this Court has become final in the
     ongoing Wilmington partnership proceeding. * * *

Implicit in that conclusion is that the Wilmington Partners case

was the related partnership proceeding.

     In addition to taking the position that the Wilmington

Partners case is not the related partnership proceeding, peti-

tioner appears to be arguing here that the following statements

in the Court’s May 28, 2010 Order and Decision in the Wilmington

Partners case are in effect a holding that petitioner’s basis in

its partnership interest in Wilmington is not an affected item:

     Respondent’s only position regarding 1999-1 is that we
     should determine Wilmington’s 1999-1 basis in the
     [1993] Reset Note because respondent could then deter-
     mine the tax consequences of BLIHC’s sale of its part-
     nership interest in Wilmington whenever that even
     should occur. We find this argument unconvincing.
     First, respondent reverses the construct of Subchapter
                               - 15 -

     K by asserting that BLIHC’s basis in the partnership
     interest ‘flows from’ Wilmington’s basis in the [1993]
     Reset Note. See sec. 6229(a). No provision in
     Subchapter K or TEFRA provides that a partner’s basis
     in its partnership interest is to be adjusted based on
     changes in a partnership’s basis in contributed prop-
     erty. Respondent’s logic is circular and patently
     absurd. Wilmington’s basis in the [1993] Reset Note is
     derived from and dependent on BLIHC’s adjusted basis in
     the [1993] Reset Note at the time of contribution, not
     vice-versa.

     First, the Court notes that the above-quoted statements are

dicta.   In addition, the Court’s May 28, 2010 Order and Decision

in the Wilmington Partners case was not final when respondent

issued the 2005 notice; it is currently on appeal in the Court of

Appeals for the Second Circuit.   Finally, petitioner acknowledged

in the petition filed in this case that the determinations in the

2005 notice on which this case is based “relate to partnership

items of Wilmington or affected items of Petitioner related to

such partnership items”, and respondent agrees.

     The Court has held that “respondent has no authority to

assess a deficiency attributable to a partnership item until

after the close of a partnership proceeding.”     Dubin v. Commis-

sioner, 99 T.C. 325, 328 (1992) (citing section 6225(a)).    Since

the tax treatment of affected items depends on partnership level

determinations, affected items may not be tried as part of a

partner’s personal tax case until the completion of the partner-

ship level proceeding.   N.C.F. Energy Partners v. Commissioner,

89 T.C. 741, 743-744 (1987).   Accordingly,
                              - 16 -

     if the items at issue in this [partner-level] case are
     partnership items (or affected items), respondent lacks
     the authority to assess a deficiency with regard
     thereto. If that is that case, we must dismiss for
     lack of jurisdiction on the ground that respondent’s
     deficiency notice is invalid. * * *

Gillian v. Commissioner, T.C. Memo. 1993-366.

     At the time respondent issued the 2005 notice to petitioner,

the decision in the Wilmington Partners case was not final.     See

secs. 6225(a), 7481(a)(2).   The Court holds that the 2005 notice

is invalid.   See, e.g., GAF Corp. & Subs. v. Commissioner, 114

T.C. 519 (2000); N.C.F. Energy Partners v. Commissioner, supra.

As a result, the Court holds that it does not have jurisdiction

over the instant case.5   The Court will grant respondent’s motion

and will dismiss this case for lack of jurisdiction.

     The Court has considered all of the parties’ respective

contentions and arguments that are not discussed herein, and the

Court finds them to be without merit, irrelevant, and/or moot.

     To reflect the foregoing,


                                       An order of dismissal for

                                 lack of jurisdiction will be

                                 entered.




     5
      Because the Court holds that it does not have jurisdiction
over the instant case, the Court need not, and will not, address
respondent’s alternative argument in support of respondent’s
motion that the Court should dismiss this case because it is not
“ripe for adjudication”.
