                        T.C. Memo. 2000-265



                      UNITED STATES TAX COURT



   JACO L.C., JAY A. ODOM, TAX MATTERS PARTNER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18412-99.                     Filed August 21, 2000.


     David D. Aughtry, for petitioner.

     David R. MacKusick and Francis C. Mucciolo, for respondent.


                        MEMORANDUM OPINION

     PAJAK, Special Trial Judge:   This matter is before the Court

on respondent’s Motion To Dismiss For Lack Of Jurisdiction And To

Strike with respect to refunds of overpayments to shareholders of

Jaco, L.C.

     On September 30, 1999, respondent issued a notice of final

partnership administrative adjustment (FPAA) to the tax matters

partner for Jaco L.C., (the partnership), pertaining to the 1995

taxable year.   Jaco L.C. is a limited liability corporation under
                                  -2-

Florida law, which is treated as a partnership for Federal tax

purposes.

     Jay A. Odom, the partnership’s tax matters partner, filed a

timely petition for readjustment with the Court.      The petition,

inter alia, contests the disallowance of a casualty loss

deduction in the amount of $1,803,603, claims a greater casualty

loss with a resulting overpayment, and prays that the Court

redetermine that the shareholders of the partnership are entitled

to refunds of the overpayment.

     Respondent filed a motion to dismiss for lack of

jurisdiction and to strike.   Respondent contends that the Court

lacks jurisdiction to determine that refunds of any overpayments

are due to shareholders of the partnership.     Respondent agrees

that the Court may determine the casualty loss is greater than

deducted on the partnership return and has jurisdiction over all

partnership items.   Respondent further states that a tax matters

partner may bring a refund action with respect to partnership

items only after an administrative adjustment is filed under

section 6227 and not allowed by the Secretary.      Sec. 6228(a).

(Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year in issue.)

Respondent’s position is that actions by partners for refunds

attributable to partnership items are barred except as provided

in sections 6228(b) or 6230(c).     Sec. 7422(h).   Respondent asks
                                -3-

that all references to claims for refund of overpayments to

shareholders of the partnership be stricken.

     Petitioner filed an objection to respondent’s motion arguing

that the motion should be denied on the grounds that respondent’s

motion was not timely filed and that the Tax Court has

jurisdiction to determine the amount of any deficiency and to

determine the amount of any overpayment in a TEFRA partnership

proceeding under sections 6512(b)(1) and 6226(f).

     This matter was called for hearing in Atlanta, Georgia.

Counsel for both parties appeared at the hearing and presented

oral argument with respect to the pending motion.

     The Tax Court is a court of limited jurisdiction, and we may

exercise our jurisdiction only to the extent authorized by

Congress.   Naftel v. Commissioner, 85 T.C. 527, 529 (1985).    The

Court’s jurisdiction may be challenged by either party, or by the

Court sua sponte, at any stage of the proceedings.   Smith v.

Commissioner, 96 T.C. 10, 13-14 (1991), and cases cited therein.

Consistent with this principle, we reject petitioner’s assertion

that respondent’s motion to dismiss and to strike should be

denied on the ground that it was not timely filed.

     The Court’s jurisdiction to review adjustments to a

partnership return is governed by the unified partnership audit

and litigation procedures set forth in sections 6221 through

6233.   Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
                                -4-

Pub. L. 97-248, sec. 402(a), 96 Stat. 648.   Pursuant to the TEFRA

provisions, which apply with respect to all taxable years of a

partnership beginning after September 3, 1982, the tax treatment

of any partnership item generally is determined in a single

proceeding at the partnership level.   Sec. 6226(f); Sparks v.

Commissioner, 87 T.C. 1279, 1284 (1986); Maxwell v.

Commissioner, 87 T.C. 783, 789 (1986).    Partnership items include

each partner’s proportionate share of the partnership’s aggregate

items of income, gain, loss, deduction, or credit.    Sec.

6231(a)(3); sec. 301.6231(a)(3)-1(a)(1)(i), Proced. & Admin.

Regs.

     We must stress that our role in a TEFRA proceeding is

limited by section 6226(f) to the determination and allocation of

partnership items.   Section 6226(f) provides:

          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 * * *

We have no authority under section 6226(f) to determine any

affected item or the tax liability of any partner.    Crop

Associates-1986 v. Commissioner, 113 T.C. 198, 202 (1999); Crop

Associates-1986 v. Commissioner, T.C. Memo. 2000-216.

     An “affected item” means any item to the extent that such

item is affected by a partnership item.   Sec. 6231(a)(5); White

v. Commissioner, 95 T.C. 209, 211 (1990).    Section 6230(a)(2)
                                -5-

describes situations in which the deficiency procedures provided

for in subchapter B, chapter 63, subtitle F of the Code will

apply to deficiencies attributable to affected items.

     This Court has held that in a partnership level proceeding

we lack jurisdiction over issues relating to affected items.     We

further held that those issues are to be resolved in separate

proceedings involving the partners after the partnership level

proceeding has been completed either as a matter of computational

adjustment or as the subject of subsequent notices of

deficiencies to the partners pursuant to section 6230(a).    N.C.F.

Energy Partners v. Commissioner, 89 T.C. 741, 746 (1987).

Petitioner in its Notice of Objection has conceded that

correction of partnership items generates overpayments that are

affected items within the meaning of section 6231(a)(5).    We

agree.   For the foregoing reasons, we conclude that this Court

does not have jurisdiction in this partnership level proceeding

over affected items such as the alleged overpayments in question

and the refund of such alleged overpayments.

     We note that after the Tax Court enters its decision in this

case and if it decides there is a casualty loss greater than that

claimed on the partnership return and the allocation thereof, the

statute contemplates that the individual partners should not have

to file claims for refund.   That is, in the case of any

overpayments by a partner attributable to a partnership item or
                                -6-

an affected item, to the extent practicable credit or refund of

such overpayment shall be allowed without any requirement that

the partner file a claim therefor.    Sec. 6230(d)(5).   An

individual partner may file a claim for refund under section

6230(c) if the Secretary fails to make a credit or refund in the

amount of any overpayment attributable to the application to the

partner of the decision of the Court.

     Accordingly, we shall grant respondent’s Motion To Dismiss

For Lack Of Jurisdiction And To Strike with respect to refunds of

overpayments to shareholders.

     On the Court’s own motion, we find that there are other

portions of petitioner’s petition which must be stricken because

of a lack of jurisdiction.   The FPAA was accompanied by an

explanation of examination changes which includes a statement

that “Penalties or additions to tax under IRC 6662, which may be

applicable at the investor level, are being recommended in the

examination of the flow-through entity” and by an “Explanation of

Affected Items” which states that “an addition to the tax is

charged as provided by Section 6662(a).”    The petition includes

allegations contesting the imposition of the accuracy-related

penalty.

     This Court previously has ruled that for 1995 (and 1996)

this Court lacks jurisdiction over the accuracy-related penalty

in a partnership-level proceeding and that the penalty may be
                                -7-

contested at the individual partner level following the

completion of partnership-level proceedings.     Crystal Beach Dev.

of Destin, Ltd. v. Commissioner, T.C. Memo. 2000-170.     We there

explained that the part of the Taxpayer Relief Act of 1997, Pub.

L. 105-34, section 1238(a), 111 Stat. 1026, which provides that

penalties for negligence will be determined in partnership-level

proceedings applies only prospectively for taxable years ending

after August 5, 1997.   Because of our lack of jurisdiction we

shall strike from the petition all references to

penalties/additions to tax.

     To the extent that we have not addressed any of petitioner’s

arguments, we have considered them and find them to be without

merit.



                                      An order will be issued

                               granting respondent’s motion and

                               dismissing those parts of the case

                               pertaining to claims for refund of

                               overpayments to shareholders of the

                               partnership and pertaining to the

                               accuracy-related penalty under

                               section 6662(a).
