Gaughf Properties, L.P., Balazs Ventures, LLC, a Partner Other Than the Tax Matters Partner v. Commissioner , 139 T.C. 219 ( 2012 )

GAUGHF PROPERTIES, L.P., BALAZS VENTURES, LLC, A
PARTNER OTHER THAN THE TAX MATTERS PARTNER,
PETITIONER v. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT
Docket No. 18298–07. Filed September 10, 2012.
A partnership entered a complicated series of transactions
involving currency options and stock trades. Two LLCs and an
S corporation also took part in the transactions. All four enti-
ties were formed in 1999 and were owned either directly or
indirectly by H and/or W. The transactions were intended to
yield losses that would offset substantial unrealized gains in
stock owned by H by inflating outside basis in the partner-
ship. H and W were indirect partners of the partnership but
did not list certain information identifying themselves as part-
ners on the partnership’s 1999 tax return. R was in possession
of certain information identifying H and W as partners which
R had obtained when certain forms were filed with him on
behalf of the four entities in 1999. R possessed additional
identifying information which he had obtained as a result of
a summons issued to the law firm which had helped H and
W complete the transactions. However, the identifying
information was not furnished to R in accordance with certain
requirements of sec. 301.6223(c)–1T, Temporary Proced. &
Admin. Regs., 52 Fed. Reg. 6784 (Mar. 5, 1987). A notice of
final partnership administrative adjustment (FPAA) was
issued in March 2007. P claimed that the statutory period for
assessment was closed at the time the FPAA was issued,
while R made various arguments that the statutory period for
assessment remained open. This issue was separated from the
remaining issues for trial. Held: The statutory period for
assessing tax attributable to partnership items was still open
under I.R.C. sec. 6229(e) with respect to H and W at the time
the FPAA was issued. Held, further, the doctrine of estoppel
does not preclude R’s asserting that the statutory period for
assessment was open with respect to H and W.
David De Coursey Aughtry and William E. Buchanan, for
petitioner.
John Aletta, William Franklin Castor, and Edsel Ford Hol-
man, Jr., for respondent.
OPINION
GOEKE, Judge: On March 30, 2007, respondent mailed a
notice of final partnership administrative adjustment (FPAA)
to the tax matters partner (TMP) for Gaughf Properties, L.P.
219
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220 139 UNITED STATES TAX COURT REPORTS (219)
(Gaughf Properties), concerning the tax year ended (TYE)
December 27, 1999. The FPAA reflected respondent’s deter-
mination that Gaughf Properties failed to recognize
$4,455,000 in gross income resulting from the expiration of
a currency option (described further infra). Some issues in
the case have been separated for purposes of trial and
opinion. The issues for decision are: 1
(1) whether, on March 30, 2007, the statutory period for
assessing tax attributable to partnership items was open
under section 6229(e) 2 with respect to the Gaughfs. We hold
that it was; and
(2) whether, under the doctrine of estoppel, respondent
should be precluded from asserting the statutory period for
assessing tax attributable to partnership items was open on
March 30, 2007, with respect to the Gaughfs. We hold the
doctrine of estoppel does not preclude respondent’s assertion.
Background
Gaughf Properties was a limited partnership formed under
South Carolina law on September 29, 1999, and was termi-
nated before the timely filing of the petition on August 15,
2007. At all relevant times the Gaughfs have been married
and have resided in South Carolina.
1. Formation of the Entities Involved
During 1999 KPMG persuaded the Gaughfs that they
should participate in a series of complicated stock and option
transactions (plan) through the Chicago office of a national
law firm, Jenkens & Gilchrist (J&G). On the advice of J&G
and KPMG, the Gaughfs asked their attorney, Maurice
Holloway, to form four entities the Gaughfs were told they
needed to complete the plan.
Gaughf Enterprises, LLC (Gaughf Enterprises), was a
single-member limited liability company formed under South
Carolina law on September 22, 1999, and was wholly owned
1 At trial and on brief respondent asserted that the statutory period for assessment is open
under I.R.C. sec. 6501(e)(1)(A) because Andrew and Nan Gaughf (Gaughfs) omitted substantial
gross income from their tax return. In the light of the recent U.S. Supreme Court decision in
United States v. Home Concrete & Supply, LLC, 566 U.S. ll, 132 S. Ct. 1836 (2012), respond-
ent now concedes this argument.
2 Unless otherwise indicated, all section references are to the Internal Revenue Code (Code)
in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 221
by Mr. Gaughf. As such, during 1999 Gaughf Enterprises
was a disregarded entity for Federal income tax purposes. On
September 27, 1999, Mr. Holloway filed a Form SS–4,
Application for Employer Identification Number, on behalf of
Gaughf Enterprises with the Entity Control unit at respond-
ent’s Service Center in Atlanta, Georgia. This Form SS–4
identified Gaughf Enterprises as a disregarded entity.
Balazs Ventures, LLC (Balazs Ventures), was a single-
member limited liability company formed under South Caro-
lina law on September 22, 1999, and was wholly owned by
Mrs. Gaughf. As such, during 1999 Balazs Ventures was a
disregarded entity for Federal income tax purposes. As with
Gaughf Enterprises, on September 27, 1999, Mr. Holloway
filed a Form SS–4 on behalf of Balazs Ventures with the
Entity Control unit at respondent’s Service Center in
Atlanta, Georgia. This Form SS–4 identified Balazs Ventures
as a disregarded entity.
On September 29, 1999, Mr. Gaughf, acting on behalf of
Gaughf Enterprises, and Mrs. Gaughf, acting on behalf of
Balazs Ventures, executed a limited partnership agreement
for Gaughf Properties. The limited partnership agreement
listed Gaughf Enterprises and Balazs Ventures as the only
partners in Gaughf Properties. Also on September 29, 1999,
a Certificate of Limited Partnership for Gaughf Properties
was filed with the secretary of state’s office for the State of
South Carolina and a ‘‘Certificate of Existence, Limited Part-
nership’’ was issued. On October 1, 1999, Mr. Holloway filed
a Form SS–4 on behalf of Gaughf Properties with the Entity
Control unit at respondent’s Service Center in Atlanta,
Georgia.
On September 30, 1999, Bodacious, Inc. (Bodacious), was
organized as a corporation under South Carolina law. Mr.
Gaughf owned 100% of Bodacious and was its president. For
tax year 1999 Bodacious filed an election to be classified as
a subchapter S corporation. On October 1, 1999, Mr.
Holloway filed a Form SS–4 on behalf of Bodacious with the
Entity Control unit at respondent’s Service Center in
Atlanta, Georgia.
Each Form SS–4 filed by Mr. Holloway stated that it was
filed on account of the start of a new business. Each entity
listed the Gaughfs’ personal address in South Carolina as the
entity’s mailing address on its Form SS–4. The Forms SS–
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222 139 UNITED STATES TAX COURT REPORTS (219)
4 for Gaughf Properties, Gaughf Enterprises, and Bodacious
also: (1) listed Mr. Gaughf as the ‘‘principal officer, general
partner, grantor, owner, or trustor’’; (2) provided Mr.
Gaughf ’s Social Security number; and (3) were signed by Mr.
Gaughf. 3 The Form SS–4 for Balazs Ventures listed the
same information for Mrs. Gaughf.
The filing of the Forms SS–4 to obtain employer identifica-
tion numbers was part of Mr. Holloway’s standard procedure
in forming entities for his clients. Other than the Forms SS–
4, Mr. Holloway did not file any other documents with the
Internal Revenue Service (IRS) on behalf of the Gaughfs or
entities related to them.
2. Laying the Groundwork To Offset Gains in Stock Owned
by Mr. Gaughf
Per an investor profile prepared by J&G for Mr. Gaughf,
J&G contemplated increasing the basis in Gaughf Properties
through a ‘‘Section 754 step up in the partnership’’ in order
to offset unrealized gains Mr. Gaughf had in stock he owned
in Quanta Services, Inc. (Quanta). 4 J&G charged the
Gaughfs $180,000 for its assistance with the plan.
Investment accounts with Deutsche Bank BT Alex. Brown,
LLC (a division of Deutsche Bank Subsidiaries, Inc., and BT
Alex. Brown, LLC, which are indirect subsidiaries of Deutsche
Bank), were set up for Gaughf Enterprises, Gaughf Prop-
erties, and Bodacious to complete the plan. On November 24,
1999, $90,000 was deposited into Gaughf Enterprises’
account. On November 29, 1999, Gaughf Enterprises entered
into two currency option transactions with Deutsche Bank
regarding the Japanese yen, consisting of a long and a short
currency option. The termination date for these options was
December 20, 1999. The stated premium for the long cur-
3 Above his signature on the Form SS–4 for Gaughf Properties, Mr. Gaughf was identified as
‘‘Andrew Jackson Gaughf, Jr., Member of Gaughf Enterprises, LLC General Partner of Gaughf
Properties, L.P.’’
4 The investor profile prepared by J&G stated that Mr. Gaughf—
has gain in Quanta stock that has not yet been sold so it is likely that we will be doing the
Section 754 step up in the partnership, however, it is possible that stock price will rise quickly
and client will need to sell suddenly. We concluded that client would keep the stock out of the
partnership for the first 20 days, and if not sold during that period it would be contributed to
the partnership for the 754 step up. If the stock must be sold in the first 20 day period it will
quickly be put into the S-corp and be sold from there.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 223
rency option was $4.5 million, and the stated premium for
the short currency option was $4.455 million.
On November 30, 1999, Gaughf Enterprises transferred
the currency options to Gaughf Properties as a contribution
to capital. On the same date, $45,000 (representing the net
premium for entering into the currency options) was trans-
ferred from the Gaughf Enterprises account to Deutsche
Bank to pay for the options. The $45,000 remaining in
Gaughf Enterprises’ account was then transferred on
November 30, 1999, to Gaughf Properties’ account as a con-
tribution to capital. On the same date, Mr. Gaughf executed
an agreement between Gaughf Enterprises and Bodacious
under which $900 of the $45,000 contributed to Gaughf Prop-
erties from Gaughf Enterprises would instead be deemed to
be a contribution from Bodacious to Gaughf Properties.
On December 20, 1999, the currency options held by
Gaughf Properties terminated according to their terms.
According to a legal opinion issued to Mr. Gaughf by J&G,
Mr. Gaughf ’s 5 basis in Gaughf Properties ‘‘after the con-
tribution of the [currency] Options should include the cost of
the Long Option contributed, without adjustment for the
Short Option’’.
On December 27, 1999, Gaughf Enterprises assigned its
general and limited partnership interests in Gaughf Prop-
erties to Bodacious, and Balazs Ventures assigned its general
partnership interest in Gaughf Properties to Bodacious,
retaining its limited partnership interest. According to the
written assignments of the interests, the assignments were
made to Bodacious as a substitute general partner of Gaughf
Properties, not as an assignee. On the same date, the
Gaughfs executed a Liquidation Agreement on behalf of
Bodacious and Balazs Ventures terminating Gaughf Prop-
erties. The Liquidation Agreement provided that ‘‘Any and
all assets of the Partnership held by the Partnership as of
the date of dissolution shall be distributed to the Partners
prorata in accordance with the Schedule attached hereto.’’
The attached schedule stated that Bodacious was entitled to
99.6% of partnership assets, while Balazs Ventures was enti-
tled to the remaining 0.4% of partnership assets. On
5 The legal opinion discussed Mr. Gaughf ’s basis in Gaughf Properties even though he only
indirectly owned partnership interests.
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224 139 UNITED STATES TAX COURT REPORTS (219)
December 29, 1999, Bodacious received $45,066.46 6 from
Gaughf Properties as a result of the liquidation. 7
3. The Quanta Stock Transactions
In addition to the investment accounts through Deutsche
Bank BT Alex. Brown, LLC, brokerage accounts for both
Gaughf Properties and Bodacious were established with
Edward D. Jones & Co., L.P. (Edward Jones). Mr. Gaughf
also had a brokerage account with Edward Jones. On
November 19, 1999, Mr. Gaughf transferred 142,783 shares
of Quanta stock from his Edward Jones account to the Boda-
cious Edward Jones account. On December 9, 1999, Boda-
cious sold the 142,783 shares of Quanta stock for prices
ranging from $311⁄8 to $31. 8 After commissions and expenses
were deducted, the stock sale generated net proceeds of
$4,418,243.
On December 14, 1999, Mr. Gaughf transferred an addi-
tional 2,575 shares of Quanta stock from his Edward Jones
account to the Bodacious Edward Jones account. On
December 20, 1999, Bodacious then transferred these shares
to the Gaughf Properties Edward Jones account. Also on
December 20, 1999, Mr. Gaughf transferred an additional
4,925 shares of Quanta stock from his Edward Jones account
directly to the Gaughf Properties Edward Jones account. On
December 30, 1999, Gaughf Properties then transferred, in
liquidation, the 7,500 shares of Quanta it then owned to the
Bodacious Edward Jones account. 9 The next day Bodacious
sold the 7,500 shares for net proceeds of $207,003 after
commissions and expenses.
6 The additional $66.46 was nontaxable dividend income from ‘‘Deutsche Bank Alex. Brown
Cash Reserve Fund, Inc.—Tax Free Ser’’ paid to Gaughf Properties.
7 Despite the fact that the Liquidation Agreement provides that the assets of Gaughf Prop-
erties would be distributed to its partners pro rata in accordance with each partner’s percentage
ownership in Gaughf Properties, Balazs Ventures did not receive any assets upon liquidation
of Gaughf Properties. It is unclear why.
8 Respondent argued that the stock sale was actually three separate stock sales of 133,783
shares at $31, 7,000 shares at $311⁄16, and 2,000 shares at $311⁄8. Given that each sale block
had the same order number, we believe it more likely that the shares were actually part of one
trade, which, because of a lack of sufficient shares for sale at one particular price, extended over
three different prices.
9 The shares were transferred to Bodacious in liquidation of Gaughf Properties because
Gaughf Enterprises assigned its general and limited partnership interests in Gaughf Properties
to Bodacious, and Balazs Ventures assigned its general partnership interest in Gaughf Prop-
erties to Bodacious, on December 27, 1999, as previously described.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 225
According to a legal opinion issued to Mr. Gaughf by J&G,
the 7,500 Quanta shares transferred to Bodacious in liquida-
tion of Gaughf Properties had an increased basis as a result
of the inflated outside partnership basis in Gaughf Properties
held by Mr. Gaughf resulting from the currency options
transactions. As a result, the legal opinion stated that Boda-
cious recognized a significant long-term capital loss upon its
sale of the 7,500 shares on December 31, 1999. Petitioner has
stipulated that the basis in the Quanta stock was ‘‘incorrectly
overstated’’ for purposes of the period of limitation issue
considered in this Opinion.
4. Tax Returns of the Gaughfs, Gaughf Properties, and
Bodacious
The Gaughfs (jointly), Bodacious, and Gaughf Properties
timely filed their 1999 tax returns on or before April 17,
2000. Each of these three returns was prepared by Kathy
Nall of KPMG and was filed with the IRS Service Center in
Atlanta, Georgia. The legal opinion issued by J&G was used
to help prepare the returns.
Ms. Nall was a manager in KPMG’s tax department at the
time she prepared the returns for the Gaughfs, Gaughf Prop-
erties, and Bodacious. However, she left KPMG in 2001, and
all her client files (including those relating to the Gaughfs,
Gaughf Properties, and Bodacious) remained with KPMG. At
trial she was unable to recall most of the work she had com-
pleted on behalf of the Gaughfs, Gaughf Properties, and
Bodacious. The parties stipulated that respondent issued
summonses to KPMG at some unestablished time, but the
point was not well developed, as discussed further infra.
Before filing the tax returns for the Gaughfs, Gaughf Prop-
erties, and Bodacious, Ms. Nall sent an email to her boss,
seeking clarification on certain items. Ms. Nall noted that of
the $45,000 contribution made to Gaughf Properties from
Gaughf Enterprises, $900 was a deemed contribution from
Bodacious. Ms. Nall stated in the email that this transaction
made it look as though Bodacious was a 2% partner in
Gaughf Properties, yet it was not listed as a partner on any
Gaughf Properties Schedule K–1, Partner’s Share of Income,
Deductions, Credits, etc. Ms. Nall also stated that the agree-
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226 139 UNITED STATES TAX COURT REPORTS (219)
ments relating to the cash contributions did not indicate that
Balazs Ventures was a partner in Gaughf Properties.
On its 1999 partnership return Gaughf Properties listed
Gaughf Enterprises as its TMP. Gaughf Properties reported
no taxable income, tax-exempt interest income of $66, and an
ordinary loss of $45,000. The Schedule M–2, Analysis of Part-
ners’ Capital Accounts, attached to Gaughf Properties’ part-
nership return, reported total capital contributions of
$300,000 and total distributions of $255,066. The $255,066
distribution was specifically identified as a cash distribution.
Three Schedules K–1 were attached to the Gaughf Prop-
erties partnership return. Two of these were for Gaughf
Enterprises, as Gaughf Properties identified Gaughf Enter-
prises as holding two separate partnership interests (of 99%
and 0.6%) in Gaughf Properties. The third Schedule K–1 was
for Balazs Ventures. On the Schedules K–1 Gaughf Prop-
erties reported contributions of $1,800 and $297,000 from
Gaughf Enterprises, as well as a $1,200 contribution from
Balazs Ventures. Gaughf Properties also reported distribu-
tions of $1,530 and $252,516 to Gaughf Enterprises, as well
as a $1,020 distribution to Balazs Ventures. Gaughf Prop-
erties’ 1999 partnership return did not mention Bodacious.
The Gaughf Properties tax return did not make clear how
the partnership calculated the total of $300,000 in capital
contributions received in the light of the transactions
described supra. The return made no mention of the 7,500
Quanta shares contributed by Bodacious and Mr. Gaughf, the
$44,100 contribution from Gaughf Enterprises, the deemed
$900 contribution from Bodacious, or the currency options
contributed by Gaughf Enterprises. However, considering
these transactions it appears that the $300,000 was reached
by adding: (1) $44,100 and $900 in cash contributions; (2) the
net stated currency option premiums (which equaled
$45,000); and (3) an additional $210,000 representing the
7,500 Quanta shares contributed. 10
The 1999 Bodacious return was signed by Mr. Gaughf and
did not mention Gaughf Properties by name. The Bodacious
return included a statement entitled ‘‘Bodacious, Inc. Section
351 Disclosure Statement’’ which indicated that on December
10 The market value of the 7,500 Quanta shares on December 20, 1999 (the date the shares
were contributed to Gaughf Properties), was $208,125 ($27.75 per share).
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 227
27, 1999, Bodacious received from Mr. Gaughf an interest in
an unnamed partnership having a basis of $4,513,528, that
Mr. Gaughf received no property, money, or securities in
exchange, and that Bodacious assumed no liabilities as a
result of the transfer. The Bodacious return also reported
that Bodacious sold 150,283 shares of Quanta stock on
December 14, 1999. The return reported the sale price of
these 150,283 shares was $4,625,266, and the reported cost
basis in the shares was $4,745,185. 11 The Bodacious return
did not explain how this cost basis in the Quanta shares sold
was calculated.
On Statement 9 of their joint tax return, the Gaughfs
reported a long-term capital loss flowing from Bodacious of
$119,919, equal to Bodacious’ reported cost basis in the
Quanta shares minus the sale proceeds. Had the Gaughfs
sold the Quanta stock without going through the previous
transactions in an attempt to inflate its basis, the result
would have instead been a capital gain of approximately $4.3
million. The Gaughfs’ return also included a section 351
statement claiming that Mr. Gaughf had a ‘‘tax basis’’ in
Gaughf Properties 12 of $4,513,528 which was transferred to
Bodacious on December 28, 1999.
5. J&G Summons and Information Provided by J&G
On June 19, 2003, respondent issued a John Doe sum-
mons 13 to J&G in connection with an audit to determine
whether the firm was liable for penalties as a promoter of a
tax shelter. The summons requested that J&G produce the
names, addresses, and taxpayer identification numbers (TINs)
for taxpayers who from January 1, 1998, through June 15,
2003, participated in any transaction which was or later
became a listed transaction or other potentially abusive tax
shelter, organized or sold by J&G’s Chicago office. J&G did
not comply with the John Doe summons, asserting on
11 This reported $4,745,185 cost basis is the result of the inflated outside basis in Gaughf
Properties purportedly attaching to the block of 7,500 Quanta shares which was distributed to
Bodacious upon the liquidation of Gaughf Properties.
12 Unlike the sec. 351 statement included with the Bodacious return, the sec. 351 statement
included with the Gaughfs’ return did identify Gaughf Properties by name.
13 ‘‘A John Doe summons is any summons where the name of the taxpayer under investigation
is unknown and therefore not specifically identified.’’ Internal Revenue Manual pt. 25.5.7.2
(Nov. 22, 2011).
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228 139 UNITED STATES TAX COURT REPORTS (219)
attorney-client privilege grounds that it could not disclose the
information.
On August 14, 2003, the Department of Justice, as counsel
for the IRS, filed a petition in the U.S. District Court for the
Northern District of Illinois seeking to enforce the summons.
By order dated May 14, 2004, the District Court granted the
petition and enforced the summons. On May 17, 2004, J&G
provided a list of existing and/or former clients of J&G to the
Department of Justice in compliance with the summons. This
list included Mr. Gaughf ’s name, address, and TIN, as well
as a reference to his being involved in a transaction with
J&G for tax year 1999. 14 The revenue agent who had been
investigating J&G received the list shortly after it was pro-
duced by J&G. On June 16, 2004, respondent’s Office of
Professional Responsibility used the information supplied to
write Mr. Gaughf a letter advising him of the investigation
of J&G.
On or about July 7, 2004, J&G provided the revenue agent
investigating it with a set of approximately 1,300 compact
disks (CDs) containing documents relating to various existing
or former clients of J&G, a list of such J&G clients, and an
index of the documents which were stored on the CDs. The
CDs included approximately 480 pages of documents per-
taining to the transactions involving the Gaughfs, Gaughf
Properties, Bodacious, Balazs Ventures, and Gaughf Enter-
prises. The names, addresses, and TINs of the Gaughfs,
Gaughf Properties, Bodacious, Balazs Ventures, and Gaughf
Enterprises were also provided on some of the documents on
the CDs. The CDs contained copies of the Forms SS–4 filed
with respondent for Gaughf Properties, Gaughf Enterprises,
and Balazs Ventures. The CDs contained a company profile
of Gaughf Enterprises which included Mr. Gaughf ’s name,
address, and Social Security number and identified him as
owning 100% of Gaughf Enterprises. The company profile
also contained the employee identification number for
Gaughf Enterprises. A similar company profile for Balazs
Ventures with the same information pertaining to that LLC
and Mrs. Gaughf was also provided on the CDs. In addition,
the CDs contained the articles of organization for both
14 It appears that no information pertaining to Mrs. Gaughf was provided on this list, but in-
sufficient evidence was introduced to definitively reach this conclusion. Information pertaining
to Mrs. Gaughf was certainly provided by J&G at a later time, as discussed infra.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 229
Gaughf Enterprises and Balazs Ventures, both of which pro-
vided information about the Gaughfs similar to the informa-
tion found in the company profiles.
The revenue agent who received the CDs did not conduct
examinations of the J&G clients. He stored the CDs in his
office in Illinois 15 and also downloaded them onto a com-
puter in his office but did not disseminate the information
they contained throughout the IRS or advertise the fact that
he had such information. 16 However, as word got around,
other IRS personnel began to call the revenue agent to
request documents for particular J&G clients, which the rev-
enue agent would then supply.
6. Audits of Returns of the Gaughfs, Gaughf Properties, and
Bodacious
On January 10, 2006, a revenue agent different from the
one investigating J&G was assigned to audit returns of the
Gaughfs and their related entities for tax year 1999. 17 This
revenue agent was initially provided with the Gaughfs’ tax
return and on January 19, 2006, was also provided with the
J&G documents pertaining to the Gaughfs. 18 On January 25,
2006, the revenue agent used information on the Gaughfs’
1999 tax return to send them a letter notifying them that
their 1999 tax return had been selected for examination. On
January 31, 2006, the revenue agent sent a letter to the
Gaughfs enclosing written requests for information and docu-
ments noted on Forms 4564, Information Document
Requests. The Gaughfs provided no information or docu-
ments in response to the requests.
On February 23, 2006, the same revenue agent auditing
the Gaughfs’ return sent a letter to Gaughf Enterprises, as
the TMP of Gaughf Properties, notifying it that Gaughf Prop-
erties’ tax return for 1999 had been selected for examination.
On the same date, the revenue agent sent written requests
15 During the relevant years, the revenue agent did not work at any IRS Service Center. For
all relevant years the revenue agent worked in either Chicago or Downers Grove Park, Illinois.
16 The revenue agent testified that he ‘‘was very protective of ’’ the information and that other
IRS employees would have to learn of the fact that he had the CDs ‘‘through some of these Son
of Boss coordinators that were around.’’
17 This revenue agent worked out of San Jose, California, at the time he was auditing returns
of the Gaughfs and their entities.
18 The revenue agent received tax returns for Gaughf Properties and Bodacious approximately
one month after he was provided with the J&G documents.
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230 139 UNITED STATES TAX COURT REPORTS (219)
for information and documents noted on Forms 4564 to
Gaughf Enterprises, as the TMP for Gaughf Properties. No
information or documents were provided in response to the
requests.
On April 12, 2006, the Gaughfs and their certified public
accountant, Porter Thompkins, executed Form 872–I, Con-
sent to Extend the Time to Assess Tax As Well As Tax
Attributable to Items of a Partnership, regarding tax year
1999. On May 10, 2006, an IRS group manager executed the
Form 872–I agreement on behalf of respondent. The Form
872–I extended the limitations period for respondent to
assess tax liabilities against the Gaughfs for tax year 1999,
including liabilities attributable to any partnership items,
affected items, computational adjustments, and partnership
items converted to nonpartnership items until April 16, 2007.
However, the Form 872–I agreement had no effect unless a
limitations period applicable for respondent to timely assess
any of the tax liabilities covered by the Form 872–I was open
on May 10, 2006, the day the agreement was executed on
behalf of respondent.
On May 18, 2006, respondent issued a notice of beginning
of administrative proceeding (NBAP) to both Gaughf Enter-
prises and Balazs Ventures. On March 30, 2007, respondent
issued the FPAA which is the basis of this case for Gaughf
Properties’ TYE December 27, 1999. The FPAA was issued to
Gaughf Enterprises, as TMP for Gaughf Properties. On
August 15, 2007, Balazs Ventures, a partner other than the
TMP, timely filed a Petition for Readjustment of Partnership
Items Under Code Section 6226, on behalf of Gaughf Prop-
erties contesting the FPAA. Petitioner claimed in the petition
that on March 30, 2007, the statutory period for assessment
for Gaughf Properties’ TYE December 27, 1999, was no longer
open. This issue was separated from other issues in the case
for purposes of trial and opinion.
7. Additional Information Relevant to Petitioner’s Estoppel
Argument
At the time the FPAA was issued respondent argued that
there was omitted income resulting from the expiration of
the short currency option. The Commissioner advanced
similar justification for extending the statutory period for
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 231
assessment in another case, Highwood Partners v. Commis-
sioner, docket No. 24463–06. The Commissioner withdrew
this argument in Highwood Partners on April 18, 2008, but
presented alternative arguments why the statutory period for
assessment was properly extended in that case. However, the
Commissioner later withdrew his alternative arguments and
conceded that case in its entirety on March 15, 2010.
Trial for this case was set for February 4, 2010, but on
January 19, 2010, was continued to February 25, 2010, at
respondent’s request. At a February 3, 2010, hearing
respondent stated that he was still contemplating whether to
assert that there was omitted income resulting from the
expiration of the short currency option. In addition,
respondent stated that three other grounds supported the
extension of the statutory period for assessment: (1) the sec-
tion 6229(e) issue being considered in this Opinion; (2) the
section 6501(e)(1)(A) issue that respondent conceded after
trial as a result of the recent Supreme Court decision in
United States v. Home Concrete & Supply, LLC, 566 U.S.
ll, 132 S. Ct. 1836 (2012); and (3) that it was Gaughf
Properties (rather than Bodacious) that sold 7,500 shares of
Quanta stock and failed to report a gain on the sale of
approximately $207,000. On February 3, 2010, we continued
the trial of this case to May 17, 2010.
On February 25, 2010, respondent conceded his original
short option income position regarding the statutory period
for assessment in this case. On March 3, 2010, we allowed
respondent to amend his answer to the petition to assert his
three other alternative statutory-period-for-assessment argu-
ments. Less than a month later respondent conceded that his
argument that it was Gaughf Properties that sold 7,500
shares of Quanta stock and failed to report a gain on the sale
was incorrect. The parties then proceeded to trial on the
remaining two issues.
Discussion
I. Burden of Proof
Generally, taxpayers bear the burden of proving, by a
preponderance of the evidence, that the determinations of the
Commissioner are incorrect. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Taxpayers raising affirmative
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232 139 UNITED STATES TAX COURT REPORTS (219)
defenses such as the expiration of the period of limitations
also typically bear the burden of proving those defenses
apply. Hoffman v. Commissioner, 119 T.C. 140, 146 (2002).
Petitioner argues that respondent should bear the burden of
proof because: (1) respondent’s argument that the statutory
period for assessing tax attributable to partnership items
remains open with respect to the Gaughfs under section
6229(e) constitutes a ‘‘new matter’’ under Rule 142(a)(1); and
(2) respondent bears the burden of proving the factual
foundation for any exception to the normal three-year limita-
tions period once petitioner demonstrates that respondent
issued the notice beyond that period. However, because we
decide this case on the basis of the preponderance of the evi-
dence, we need not decide upon which party the burden of
proof rests. See Knudsen v. Commissioner, 131 T.C. 185(2008).
II. Whether the Statutory Period for Assessing Tax Attributa-
ble to Partnership Items Was Open on March 30, 2007,
Under Section 6229(e) With Respect to the Gaughfs
Section 6229(e) provides:
SEC. 6229(e). UNIDENTIFIED PARTNER. If—
(1) the name, address, and taxpayer identification number of a partner
are not furnished on the partnership return for a partnership taxable
year, and
(2)(A) the Secretary, before the expiration of the period otherwise pro-
vided under this section with respect to such partner, mails to the tax
matters partner the notice specified in paragraph (2) of section 6223(a)
with respect to such taxable year, or
(B) the partner has failed to comply with subsection (b) of section
6222 (relating to notification of inconsistent treatment) with respect to
any partnership item for such taxable year,
the period for assessing any tax imposed by subtitle A which is attrib-
utable to any partnership item (or affected item) for such taxable year
shall not expire with respect to such partner before the date which is 1
year after the date on which the name, address, and taxpayer identifica-
tion number of such partner are furnished to the Secretary.
Respondent argues that the statutory period for assessing
tax attributable to partnership items against the Gaughfs
was open under section 6229(e) 19 at the time the FPAA was
issued because: (1) Gaughf Properties’ partnership return for
19 Respondent has not argued that sec. 6229(e)(2)(A) applies in this case.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 233
TYE December 27, 1999 (Gaughf Properties 1999 return),
failed to furnish certain information identifying the Gaughfs
as partners in Gaughf Properties; (2) the Gaughfs failed to
comply with section 6222(b); and (3) the Gaughfs’ taxpayer
information was never ‘‘furnished’’ to respondent in accord-
ance with the requirements of regulations applicable under
section 6229(e). Petitioner makes various counterarguments
why the statutory period for assessment is not open under
section 6229(e). We address each of respondent’s statutory-
period-for-assessment arguments below, as well as the argu-
ments made by petitioner.
A. Whether the Gaughf Properties 1999 Return Furnished
the Gaughfs’ Names, Addresses, and TINs
Respondent claims that the Gaughf Properties 1999 return
failed to furnish the Gaughfs’ names, addresses, and TINs as
required by section 6229(e)(1). Petitioner does not dispute
this fact but states that ‘‘The Gaughfs are not listed because,
under Respondent’s applicable regulations and filing instruc-
tions for 1999, U.S. partnership returns were required to
include Schedules K–1 for their direct partners, not those
holding an interest in those [direct] partners.’’
The court in Costello v. United States Gov’t, 765 F. Supp.
1003 (C.D. Cal. 1991), addressed a similar situation in which
information regarding an indirect partner required to satisfy
section 6229(e)(1) was not included on the partnership
return. The court held that although indirect partners were
not required to be listed on a partnership return, 20 section
6229(e) nonetheless applied to indirect partners. Costello, 765
F. Supp. at 1008. In support of its holding, the court cited
section 301.6229(e)–1T, Temporary Proced. & Admin. Regs.,
52 Fed. Reg. 6789 (Mar. 5, 1987), which provides, in perti-
nent part, that ‘‘A partner who is not properly identified on
the partnership return (including an indirect partner)
remains an unidentified partner for purposes of section
6229(e) until identifying information is furnished’’ 21
(emphasis supplied) to the Commissioner.
20 The court noted that sec. 1.6031–1, Income Tax Regs., required that only immediate part-
ners be listed on a partnership return. While this regulation was later removed, it was effective
for tax years ending during 1999. See 64 Fed. Reg. 61498 (Nov. 12, 1999).
21 Petitioner has argued that sec. 301.6229(e)–1T, Temporary Proced. & Admin. Regs., 52 Fed.
Continued
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234 139 UNITED STATES TAX COURT REPORTS (219)
We agree with the U.S. District Court for the Central Dis-
trict of California that section 6229(e) applies to indirect
partners. 22 See sec. 301.6229(e)–1T, Temporary Proced. &
Admin. Regs., supra. Therefore, because the Gaughf Prop-
erties 1999 return failed to furnish the Gaughfs’ names,
addresses, and TINs, the first of respondent’s statutory-
period-for-assessment arguments is satisfied.
B. Whether the Gaughfs Failed To Comply With Section
6222(b)
One of the requirements for extending the statutory period
for assessment under section 6229(e) is that ‘‘the partner has
failed to comply with subsection (b) of section 6222 (relating
to notification of inconsistent treatment) with respect to any
partnership item for such taxable year.’’ Sec. 6229(e)(2)(B).
Section 6222(b)(1) provides that if ‘‘the partnership has filed
a return but the partner’s treatment on his return is (or may
be) inconsistent with the treatment of the item on the part-
nership return’’ then the partner may file ‘‘with the Secretary
a statement identifying the inconsistency’’ in order to satisfy
section 6222(b) (and therefore cause section 6229(e)(2)(B) to
be inapplicable). 23
Respondent argues that the Gaughfs failed to comply with
section 6222(b), claiming that the Gaughfs: (1) treated part-
nership items of Gaughf Properties on their personal return
in a manner inconsistent with how Gaughf Properties treated
those items on the Gaughf Properties 1999 return; and (2)
did not notify respondent of this inconsistent treatment. Peti-
tioner claims that ‘‘Respondent points to (i) no inconsistent
treatment (ii) of a partnership item (iii) by a partnership and
a partner—as required by Section 6222(b).’’
Reg. 6789 (Mar. 5, 1987), is invalid under Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837(1984). As discussed further infra, we find the regulation is valid.
22 This conclusion is consistent with sec. 6223(c)(3), which requires the Commissioner to send
NBAPs and FPAAs to indirect partners rather than direct partners if the Commissioner is fur-
nished with sufficient information identifying indirect partners.
23 Sec. 6222(b)(2) provides that in the case of a partner receiving incorrect information from
the partnership, the partner is treated as having filed a statement identifying an inconsistency
with the Secretary if the partner: ‘‘(A) demonstrates to the satisfaction of the Secretary that the
treatment of the partnership item on the partner’s return is consistent with the treatment of
the item on the schedule furnished to the partner by the partnership, and (B) elects to have
* * * [sec. 6222(b)(2)] apply with respect to that item.’’ Neither party has argued the applica-
bility of sec. 6222(b)(2) in this case.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 235
1. Whether the Gaughfs Treated Partnership Items of
Gaughf Properties on Their Personal Tax Return in
a Manner Inconsistent With How Gaughf Properties
Treated Those Items on the Gaughf Properties 1999
Return
Partnership items are defined to include not only ‘‘Items of
income, gain, loss, deduction, or credit of the partnership’’,
but also ‘‘the accounting practices and the legal and factual
determinations that underlie the determination of the
amount, timing, and characterization of items of income,
credit, gain, loss, deduction, etc.’’ of the partnership. Sec.
301.6231(a)(3)–1(a)(1)(i), (b), Proced. & Admin. Regs. Part-
nership items also include contributions to and distributions
from the partnership
to the extent that a determination of such items can be made from deter-
minations that the partnership is required to make with respect to an
amount, the character of an amount, or the percentage interest of a
partner in the partnership, for purposes of the partnership books and
records or for purposes of furnishing information to a partner. [Id. para.
(a)(4).]
Given these definitions for the term ‘‘partnership item’’, we
find that the contributions of the currency options and the
7,500 shares of Quanta stock to Gaughf Properties, as well
as the distribution of the 7,500 Quanta shares to Bodacious
upon Gaughf Properties’ liquidation, were partnership items.
The contribution and distribution of the Quanta shares were
determinations that Gaughf Properties was required to make
for purposes of furnishing information to its partners. 24 The
currency options contributed likewise affected amounts
required to be reported to the partners on their Schedules K–
1. The currency options also affected the income reported by
Gaughf Properties, which reported an ordinary loss of
$45,000 when the options terminated according to their
terms.
We find that on their 1999 return the Gaughfs treated
these partnership items inconsistently from the way they
were treated on the Gaughf Properties 1999 return. Although
much of the property contributed to Gaughf Properties came
from either Gaughf Enterprises or Bodacious, and the 7,500
24 Schedule K–1 requires a partnership to state capital contributions received from a partner
in a given year as well as ‘‘Withdrawals and distributions’’ made to the partner.
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236 139 UNITED STATES TAX COURT REPORTS (219)
shares were distributed to Bodacious (from Gaughf Prop-
erties), we find that any inconsistent treatment of these part-
nership items by Gaughf Enterprises and Bodacious should
also be considered as inconsistent treatment by the Gaughfs
because Gaughf Enterprises was a disregarded entity, and
Bodacious was an S corporation whose income and losses
flowed through to the Gaughfs’ personal return. See sec.
6231(a)(2)(B) (‘‘The term ‘partner’ means * * * any * * *
person whose income tax liability under subtitle A is deter-
mined in whole or in part by taking into account directly or
indirectly partnership items of the partnership.’’ (Emphasis
supplied.)).
Gaughf Properties netted the amounts of the stated pre-
miums for the two currency options in reporting the value of
the capital contributions on its return. However, Bodacious
(and hence, the Gaughfs) treated only the long option as a
capital contribution to Gaughf Properties for purposes of
determining the basis in the 7,500 Quanta shares distributed
to Bodacious upon the liquidation of Gaughf Properties. This
resulted in an incorrect overstatement of Bodacious’s basis in
the Quanta stock which was not accounted for on Gaughf
Properties’ 1999 return. When Bodacious subsequently sold
the stock, the result was a claimed capital loss of $119,919
instead of a capital gain of approximately $4.3 million which
would have resulted had the basis not been overstated.
In addition to the inconsistent treatment by Bodacious, the
Gaughfs also directly treated partnership items inconsist-
ently from the way they were reported on the Gaughf Prop-
erties 1999 return. A section 351 statement was included
with the Gaughfs’ 1999 tax return which claimed that Mr.
Gaughf had a tax basis in Gaughf Properties of $4,513,528.
This figure included Mr. Gaughf ’s accounting for the con-
tribution of the long option to Gaughf Properties (contributed
by Gaughf Enterprises, a disregarded entity) without
accounting for the contribution of the short option (also
contributed by Gaughf Enterprises). This was inconsistent
with the netting of the currency options used by Gaughf
Properties in determining and reporting the capital contribu-
tions it received from its partners.
For the foregoing reasons, we find that the Gaughfs
treated partnership items of Gaughf Properties on their per-
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 237
sonal return in a manner which was inconsistent with their
treatment on the Gaughf Properties 1999 return.
2. Whether the Gaughfs Notified Respondent of Inconsistent
Treatment of Partnership Items on Their Personal Tax
Return and the Gaughf Properties 1999 Return
As previously mentioned, if a partner’s treatment of a part-
nership item on the partner’s return is inconsistent with the
treatment of the item on the partnership return, then the
partner must file with the Secretary a statement identifying
the inconsistency in order to satisfy section 6222(b) (and
therefore cause section 6229(e)(2)(B) to be inapplicable). Sec-
tion 301.6222(b)–1T, Temporary Proced. & Admin. Regs., 52
Fed. Reg. 6782 (Mar. 5, 1987), provides this statement must
be filed through the Commissioner’s form prescribed for that
purpose. During the relevant period the required form was
Form 8082, Notice of Inconsistent Treatment or Administra-
tive Adjustment Request. Instructions for Form 8082 (Rev.
Jan. 2000); see also Blonien v. Commissioner, 118 T.C. 541,
555–556 (2002).
Petitioner has not argued that the Gaughfs filed a Form
8082. At trial the Gaughfs testified that they had no recollec-
tion of ever filing a Form 8082. The revenue agent assigned
to audit the returns of the Gaughfs and their related entities
testified that the administrative file he maintained in
connection with the audit contained no Form 8082. Ms. Nall,
who prepared the returns for the Gaughfs and their entities,
could not recall filing a Form 8082. Considering these facts,
we find that the Gaughfs did not notify respondent that they
treated partnership items of Gaughf Properties on their per-
sonal return in a manner which was inconsistent with their
treatment on the Gaughf Properties 1999 return.
Given our findings that the Gaughfs: (1) treated partner-
ship items of Gaughf Properties on their personal return in
a manner which was inconsistent with their treatment on
the Gaughf Properties 1999 return; and (2) did not notify
respondent of this inconsistent treatment, we conclude that
the Gaughfs failed to comply with section 6222(b). Thus, the
second of respondent’s statutory-period-for-assessment argu-
ments is satisfied.
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238 139 UNITED STATES TAX COURT REPORTS (219)
C. Whether Information Identifying the Gaughfs as Indirect
Partners in Gaughf Properties Was Furnished to Res-
pondent More Than One Year Before the FPAA Was
Issued
Section 6229(e) provides that if certain information identi-
fying a partner is not furnished on the partnership return for
a partnership taxable year and that partner fails to comply
with the requirements pertaining to inconsistent treatment
of partnership items for that taxable year, the period for
assessing any tax attributable to any partnership or affected
item for such taxable year remains open with respect to such
partner until ‘‘1 year after the date on which the name,
address, and taxpayer identification number of such partner
are furnished to the Secretary.’’ Regarding furnishing such
information, section 301.6229(e)–1T, Temporary Proced. &
Admin. Regs., supra, provides that ‘‘[a] partner who is not
properly identified on the partnership return (including an
indirect partner) remains an unidentified partner for pur-
poses of section 6229(e) until identifying information is fur-
nished as provided in § 301.6223(c)–1T.’’
Section 301.6223(c)–1T, Temporary Proced. & Admin.
Regs., 52 Fed. Reg. 6784 (Mar. 5, 1987), 25 provides in perti-
nent part—
(a) In general. In addition to the names, addresses, and profits interests
as shown on the partnership return, the Service will use additional
information as provided in this section for purposes of administering sub-
chapter C of chapter 63 of the Code.
(b) Procedure for furnishing additional information—(1) In general. Any
person may furnish additional information at any time by filing a written
statement with the Service. * * *
(2) Where statement must be filed. A statement furnished under this
section shall generally be filed with the service center with which the part-
nership return is filed. However, if the person filing the statement knows
that the notice described in section 6223(a)(1) (beginning of an administra-
tive proceeding) has already been mailed to the tax matters partner, the
statement shall be filed with the Internal Revenue Service office that
mailed such notice.
(3) Contents of statement. The statement shall—
25 Both sec. 301.6229(e)–1T, Temporary Proced. & Admin. Regs., supra, and sec. 301.6223(c)–
1T, Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6784 (Mar. 5, 1987), are effective for the
year in issue. Effective with partnership taxable years beginning on or after October 4, 2001,
the Commissioner has issued final regulations on the subject matter at hand. See secs.
301.6229(e)–1, 301.6223(c)–1, Proced. & Admin. Regs. The temporary regulations applicable
herein are similar to the final regulations.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 239
(i) Identify the partnership, each partner for whom information is sup-
plied, and the person supplying the information by name, address, and tax-
payer identification number;
(ii) Explain that the statement is furnished to correct or supplement ear-
lier information with respect to the partners in the partnership;
(iii) Specify the taxable year to which the information relates;
(iv) Set out the corrected or additional information, and
(v) Be signed by the person supplying the information.
(c) No incorporation by reference to previously furnished documents.
Incorporation by reference of information contained in another document
previously furnished to the Internal Revenue Service will not be given
effect for purposes of sections 6223(c) or 6229(e). For example, reference to
a return filed by a pass-thru partner which contains identifying informa-
tion with respect to the indirect partners of that pass-through partner is
not sufficient to identify the indirect partners unless a copy of the docu-
ment referred to is attached to the statement.
(d) Information supplied by a person other than the tax matters partner.
The Service may require appropriate verification in the case of information
furnished by a person other than the tax matters partner. The 30-day
period referred to in paragraph (b)(1) of this section shall not begin until
that verification is supplied
* * * * * * *
(f) Service may use other information. In addition to the information on
the partnership return and that supplied on statements filed under this
section, the Service may use other information in its possession (for
example, a change in address reflected on a partner’s return) in admin-
istering subchapter C of chapter 63 of the Code. However, the Service is
not obligated to search its records for information not expressly furnished
under this section.
Respondent argues that the identifying information
referred to in section 6229(e) was not furnished to him
because no documents he received satisfy the requirements of
section 301.6223(c)–1T, Temporary Proced. & Admin. Regs.,
supra. In addition to contesting respondent’s position, peti-
tioner argues that: (1) respondent failed to prove that he did
not receive the required information from KPMG; (2)
respondent actually used information in his possession which
identified the Gaughfs as indirect partners in Gaughf Prop-
erties and supplied their names, addresses, and TINs; and (3)
section 301.6229(e)–1T, Temporary Proced. & Admin. Regs.,
supra, which incorporates section 301.6223(c)–1T, Temporary
Proced. & Admin. Regs., supra, regarding the procedure for
furnishing identifying information for purposes of section
6229(e), is invalid.
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240 139 UNITED STATES TAX COURT REPORTS (219)
For the reasons stated below we reject each of petitioner’s
arguments and find that the information required pursuant
to section 6229(e) and the applicable regulations identifying
the Gaughfs as partners in Gaughf Properties was not fur-
nished to respondent. As a result, we find that the third of
respondent’s statutory-period-for-assessment arguments is
satisfied.
1. Whether Documents Received by Respondent Satisfy the
Requirements of Section 301.6223(c)–1T, Temporary
Proced. & Admin. Regs.
Respondent does not dispute that he received extensive
amounts of information regarding the Gaughfs from J&G
(including their names, joint address, TINs, and status as
indirect partners in Gaughf Properties), as well as Forms
SS–4 for each of Bodacious, Gaughf Properties, Gaughf
Enterprises, and Balazs Ventures (which contained various
pieces of identifying information regarding the Gaughfs and
their relationships to the various entities). However,
respondent argues that certain elements of section
301.6223(c)–1T, Temporary Proced. & Admin. Regs., supra,
were not satisfied by this information. We agree.
Section 301.6223(c)–1T(b)(2), Temporary Proced. & Admin.
Regs., supra, provides that a correcting statement ‘‘shall gen-
erally be filed with the [IRS] service center with which the
partnership return is filed.’’ An exception exists ‘‘if the per-
son filing the statement knows that the notice described in
section 6223(a)(1) (beginning of an administrative pro-
ceeding) has already been mailed to the tax matters partner.’’
Sec. 301.6223(c)–1T(b)(2), Temporary Proced. & Admin.
Regs., supra. In that case ‘‘the statement shall be filed with
the Internal Revenue Service office that mailed such notice.’’
Id. The information supplied by J&G in response to respond-
ent’s summons fails to meet this requirement, as it was sup-
plied to a revenue agent who worked in Illinois during the
relevant years as opposed to the IRS Service Center in
Atlanta, Georgia. 26
26 We need not consider whether any statements were filed with the IRS office which mailed
the NBAP because the Internal Revenue Service Center in Atlanta would have been the only
place where a statement identifying the Gaughfs as indirect partners in Gaughf Properties could
have been filed to cause the FPAA in this case to have been issued untimely. Sec. 301.6223(c)–
1T(b)(2), Temporary Proced. & Admin. Regs., supra, requires an identifying statement be filed
at the same service center where the partnership return was filed (Atlanta in Gaughf Properties’
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 241
The information supplied by J&G also fails to satisfy the
requirement of section 301.6223(c)–1T(b)(3)(ii), Temporary
Proced. & Admin. Regs., supra, that a statement ‘‘Explain
that * * * [it] is furnished to correct or supplement earlier
information with respect to the partners in the partnership’’.
No such statement is contained in the extensive number of
documents supplied by J&G.
With regard to the Forms SS–4, it is true that these docu-
ments were properly filed with the IRS Service Center in
Atlanta, Georgia. However, the Forms SS–4 do not state that
they were filed to ‘‘correct or supplement earlier information
with respect to the partners in the partnership’’. See sec.
301.6223(c)–1T(b)(3)(ii), Temporary Proced. & Admin. Regs.,
supra. Indeed, the Forms SS–4 were filed several months
before any of the relevant tax returns were filed. The Forms
SS–4 thus also fail to comply with section 301.6223(c)–1T,
Temporary Proced. & Admin. Regs., supra.
Petitioner points to, and we have found, no other docu-
ments in the record which might comply with the require-
ments of section 301.6223(c)–1T, Temporary Proced. &
Admin. Regs., supra. 27 Beyond speculation, no testimony
was given at trial that any party had filed any such docu-
ment which was not contained in the record. However, peti-
tioner has raised the possibility that KPMG filed a proper
identifying statement with respondent, a possibility which we
address separately below.
2. Whether Respondent Received an Identifying Statement
Conforming With Section 301.6223(c)–1T, Temporary
Proced. & Admin. Regs., From KPMG
The parties stipulated that respondent issued summonses
to KPMG at some unestablished time. The relevant stipula-
case) unless the person filing the statement knows that an NBAP has already been mailed to
the TMP. In such a case, the statement shall be filed with the IRS office that mailed the NBAP.
Id. However, the NBAP in this case was not mailed until May 18, 2006. Even if the identifying
statement had been filed with the IRS office which mailed the NBAP the same day it was
mailed (May 18, 2006), the statutory period for assessment under sec. 6229(e) would not have
closed for another year (May 18, 2007). In this case the FPAA was issued on March 30, 2007,
less than a year after the NBAP was mailed.
27 Certain Deutsche Bank documents provided to respondent in response to an IRS summons
list Mr. Gaughf, Gaughf Enterprises, Gaughf Properties, and Bodacious as potentially partici-
pating in transactions involving foreign exchange digital options. However, the list fails to sat-
isfy multiple elements of sec. 301.6223(c)–1T, Temporary Proced. & Admin. Regs., supra. Peti-
tioner has not argued that the list satisfies the required elements.
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242 139 UNITED STATES TAX COURT REPORTS (219)
tions state: ‘‘Attached * * * are a series of IRS summonses
Respondent issued to Deutsche Bank and its affiliates’’ and
‘‘Respondent also issued summonses to KPMG.’’ The Deutsche
Bank summonses requested information identifying clients
who had taken part in transactions involving foreign
exchange digital options. The KPMG summonses were not
included in evidence.
Multiple times during pretrial discovery petitioner
requested any information respondent had received from
KPMG concerning the Gaughfs or their entities. Respondent’s
answers to the requests were that he had received no tax-
payer identifying information relating to the Gaughfs from
KPMG and had already supplied petitioner with any informa-
tion KPMG had provided. 28 Neither respondent nor petitioner
chose to call a representative of KPMG at trial. 29
On brief petitioner claims that respondent bears the bur-
den of proof on this issue, a burden which he allegedly failed
to satisfy because he ‘‘utterly failed to prove what he received
from KPMG or when he received it.’’ Respondent did not
address the issue on brief but has previously argued that he
never received an identifying statement conforming with sec-
tion 301.6223(c)–1T, Temporary Proced. & Admin. Regs.,
supra, from any entity.
Petitioner’s argument regarding possible information
received by KPMG relies only on speculation and the fact that
respondent issued summonses to KPMG at some point. We
first note that even if respondent had received identifying
information from KPMG as a result of a summons, we believe
section 301.6223(c)–1T(b)(3)(ii), Temporary Proced. & Admin.
Regs., supra, bars information received as the result of a
generic, third-party summons from satisfying section
28 These answers were set out in a response to interrogatories and a response to a request
for production of documents. Petitioner also made a Freedom of Information Act request for
(among other items) all communications in connection with the liability of the Gaughfs for 1999.
In August 2007 petitioner received information from respondent as a result of the request; no
correspondence between respondent and KPMG was contained in the information supplied to
petitioner.
29 We will not infer from respondent’s failure to call a representative of KPMG that resulting
testimony would have been unfavorable to respondent, see Wichita Terminal Elevator Co. v.
Commissioner, 6 T.C. 1158 (1946), aff ’d, 162 F.2d 513 (10th Cir. 1947), because it appears that
petitioner had an equal opportunity to call a representative of KPMG but did not do so, see
United States v. Rollins, 862 F.2d 1282, 1297–1298 (7th Cir. 1988); Kean v. Commissioner, 469
F.2d 1183, 1187–1188 (9th Cir. 1972), aff ’g on this issue, rev’g on another issue 51 T.C. 337,
343–344 (1968); Grossman v. Commissioner, T.C. Memo. 1996–452, aff ’d, 182 F.3d 275 (4th Cir.
1999).
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 243
301.6223(c)–1T, Temporary Proced. & Admin. Regs., supra.
Section 301.6223(c)–1T(b)(3)(ii), Temporary Proced. & Admin.
Regs., supra, requires that an identifying statement
‘‘[e]xplain that * * * [it] is furnished to correct or supple-
ment earlier information with respect to the partners in the
partnership’’. Information provided in response to a generic,
third-party summons would not meet this requirement.
We also find that the testimony and the lack of any
substantiating evidence favor the proposition that KPMG
never filed a statement identifying the Gaughfs as indirect
partners in Gaughf Properties, in response to the summonses
or otherwise. Ms. Nall and the Gaughfs testified that they
did not know whether KPMG had ever filed an identifying
statement with respondent. While it is not exceptionally
strong evidence that Ms. Nall was unaware of any statement
(given the fact she left KPMG in 2001 and was unable at trial
to remember many of her dealings with the Gaughfs), we
find it is strong evidence that the Gaughfs were not aware
of any statement filed by KPMG. Although nothing in section
301.6223(c)–1T, Temporary Proced. & Admin. Regs., supra,
would have required KPMG to notify the Gaughfs had it filed
an identifying statement, we believe it to be highly unlikely
that KPMG would unilaterally file such a statement without
providing notification to the Gaughfs.
In addition to Ms. Nall and the Gaughfs, both the IRS rev-
enue agent involved in the J&G investigation and the rev-
enue agent assigned to audit returns of the Gaughfs and
their related entities for tax year 1999 were called to testify
at trial. The former testified that he was ‘‘pretty sure’’ a sum-
mons had been issued to KPMG but did not testify whether
KPMG had provided respondent with any documents, in
response to a summons or otherwise. The latter testified that
he had no knowledge of any contact between respondent and
KPMG 30 and that there were not any statements identifying
the Gaughfs as partners in Gaughf Properties in the docu-
ments he received or in the administrative file he main-
tained.
As previously discussed, information provided in response
to a generic, third-party summons would not satisfy section
301.6223(c)–1T, Temporary Proced. & Admin. Regs., supra.
30 This revenue agent was not aware that respondent had issued summonses to KPMG.
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244 139 UNITED STATES TAX COURT REPORTS (219)
Although petitioner argues that other information may have
been filed by KPMG (not in response to a summons), no evi-
dence or testimony supports this theory; it is entirely specu-
lative. Considering the above facts, we find that the prepon-
derance of the evidence favors respondent’s position that
KPMG never filed a statement identifying the Gaughfs as
indirect partners in Gaughf Properties. We therefore reject
petitioner’s argument on this point.
3. Whether the Requirements of Section 301.6223(c)–1T,
Temporary Proced. & Admin. Regs., Were Satisfied
Because Respondent Actually Used Information in His
Possession Which Identified the Gaughfs as Indirect
Partners in Gaughf Properties
Petitioner argues that although respondent is not required
to use identifying information not furnished within the
meaning of section 301.6223(c)–1T, Temporary Proced. &
Admin. Regs., supra, the fact that respondent did obtain and
actually use such information during his investigation satis-
fied the regulation and triggered the running of the one-year
period described in section 6229(e). Petitioner claims that
given the date on which respondent first obtained and used
information identifying the Gaughfs as indirect partners in
Gaughf Properties, the one-year period closed before
respondent issued the FPAA. In support of its argument, peti-
tioner cites section 301.6223(c)–1T(f), Temporary Proced. &
Admin. Regs., supra, which states that ‘‘the Service may use
* * * information in its possession’’ other than information
furnished within the meaning of section 301.6223(c)–1T,
Temporary Proced. & Admin. Regs., supra. We believe that
petitioner’s interpretation of section 301.6223(c)–1T(f), Tem-
porary Proced. & Admin. Regs., supra, as it relates to section
6229(e) is incorrect.
In its entirety, section 301.6223(c)–1T(f), Temporary
Proced. & Admin. Regs., supra, provides—
Service may use other information. In addition to the information on the
partnership return and that supplied on statements filed under this sec-
tion, the Service may use other information in its possession (for example,
a change in address reflected on a partner’s return) in administering sub-
chapter C of chapter 63 of the Code. However, the Service is not obligated
to search its records for information not expressly furnished under this
section.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 245
We believe that the permissive language of the regulation
does not impose any obligations upon the Commissioner, see
Murphy v. Commissioner, 129 T.C. 82, 86–87 (2007), and find
that the Commissioner’s use of identifying information does
not trigger the running of the one-year period described in
section 6229(e).
Before applying section 6229(e) to extend the statutory
period for assessing tax attributable to partnership items,
the Commissioner must often perform an extensive investiga-
tion of a partnership in order to determine whether the part-
nership properly reported profits and losses. 31 The Commis-
sioner must also engage in further investigation to discover
the identity of partners who were not identified on the part-
nership return. During such an investigation involving an
unidentified partner, we believe it quite common that the
Commissioner will at some point come into possession of and
use information identifying that partner, either to further
the investigation or else to contact the unidentified partner
(as occurred in this case after respondent received the J&G
documents). Ruling that use of such information triggers the
running of the one-year period described in section 6229(e)
would hamper investigations of partnerships and partners,
some of which go to great lengths to disguise their incomes,
losses, and identities. We do not believe such a trigger to be
the intended purpose of the permissive language of section
301.6223(c)–1T(f), Temporary Proced. & Admin. Regs., supra,
as it relates to section 6229(e).
Reading section 301.6223(c)–1T(f), Temporary Proced. &
Admin. Regs., supra, in conjunction with section 6229(e), we
find that even if the Commissioner has and uses identifying
information within his possession, such use does not trigger
the running of the one-year period described in section
6229(e), so long as that information was not ‘‘furnished’’
within the meaning of section 6229(e), as explained by sec-
tion 301.6223(c)–1T, Temporary Proced. & Admin. Regs.,
supra. As a result, we reject petitioner’s argument on this
point.
31 In the instant case, for example, respondent’s investigation spanned several years as a re-
sult of the complicated and inconsistently reported transactions which served to mask the prop-
er amounts of profits and loss which should have been reported on the various relevant returns.
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246 139 UNITED STATES TAX COURT REPORTS (219)
4. Whether Section 301.6229(e)–1T, Temporary Proced. &
Admin. Regs., Is Invalid
Petitioner’s final argument regarding section 6229(e) is
that section 301.6229(e)–1T, Temporary Proced. & Admin.
Regs., supra, which incorporates section 301.6223(c)–1T,
Temporary Proced. & Admin. Regs., supra, regarding the
procedure for furnishing additional information for purposes
of section 6229(e), is invalid. Petitioner argues that while sec-
tion 6229(e) merely requires information identifying a
partner to be ‘‘furnished’’ to the Commissioner, section
301.6223(c)–1T, Temporary Proced. & Admin. Regs., supra,
restricts the plain meaning of section 6229(e) by requiring
that identifying information be ‘‘filed’’ with the Commis-
sioner. Petitioner also points out that section 6229(e) con-
tains no ‘‘regulation-enabling language’’. We find that section
301.6229(e)–1T, Temporary Proced. & Admin. Regs., supra, is
a valid regulation.
We first address petitioner’s point regarding the lack of
‘‘regulation-enabling language’’ in section 6229(e). As the
Supreme Court has noted, section 7805(a) provides the
Commissioner with ‘‘explicit authorization to ‘prescribe all
needful rules and regulations for the enforcement’ of the
Internal Revenue Code.’’ Mayo Found. for Med. Educ. &
Research v. United States, 562 U.S. ll, ll, 131 S. Ct.
704, 714 (2011). Section 301.6229(e)–1T, Temporary Proced.
& Admin. Regs., supra, was issued pursuant to the authority
section 7805 provides to the Commissioner. 32 52 Fed. Reg.
6779, 6780 (Mar. 5, 1987). Secondary authority for issuance
of the regulation is found in section 6230(k), which provides:
‘‘The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subchapter’’; i.e.,
subchapter C of chapter 63, which contains sections 6221
through 6234. Id. We thus find petitioner’s argument on this
point has no merit.
We proceed to petitioner’s primary argument. We must fol-
low a regulation, unless we hold it to be invalid under the
32 While sec. 7805(e)(2) provides that ‘‘Any temporary regulation shall expire within 3 years
after the date of issuance of such regulation’’, that section applies only to regulations issued
after November 20, 1988. Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100–
647, sec. 6232(a), 102 Stat. at 3734. Thus, sec. 7805(e)(2) does not apply to sec. 301.6229(e)–
1T, Temporary Proced. & Admin. Regs., supra, because that regulation was issued in 1987. 52
Fed. Reg. 6779, 6780 (Mar. 5, 1987).
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 247
principles of Chevron, U.S.A., Inc. v. Natural Res. Def.
Council, Inc., 467 U.S. 837 (1984). Under Chevron, we first
ask whether Congress has addressed the precise question at
issue. Id. at 842. If the statute is ambiguous, we next ask
whether the agency’s chosen interpretation is a ‘‘reasonable
interpretation’’ of the statute. Id. at 844. We may not find a
regulation to be invalid unless it is ‘‘ ‘arbitrary or capricious
in substance, or manifestly contrary to the statute.’ ’’ Mayo
Found., 562 U.S. at ll, 131 S. Ct. at 711 (quoting House-
hold Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 242 (2004)).
The first issue is whether section 6229(e) is ‘‘silent or
ambiguous’’ on the issue in question such that the agency
has room to interpret the statute. Chevron, 467 U.S. at 843.
While we begin our analysis with the statute’s text, we ‘‘must
examine the meaning of certain words or phrases in context
and also ‘exhaust the traditional tools of statutory construc-
tion, including examining the statute’s legislative history to
shed new light on congressional intent, notwithstanding
statutory language that appears superficially clear.’ ’’ Sierra
Club v. EPA, 551 F.3d 1019, 1027 (D.C. Cir. 2008) (quoting
Am. Bankers Ass’n v. Nat’l Credit Union Admin., 271 F.3d
262, 267 (D.C. Cir. 2001)). Thus, the question we must
answer is whether Congress’ intent is clear with respect to
the use of the term ‘‘furnished to the Secretary’’. Petitioner
argues that the word ‘‘furnish’’ has a meaning distinct from
and broader than the word ‘‘file’’ and that Congress clearly
intended the broader meaning to apply to identifying
information supplied to the Commissioner. In support of its
argument, petitioner claims that ‘‘One may assume that Con-
gress knows how to use the word ‘file’ when it means the
word ‘file’.’’
We turn to the statute itself. Section 6229(e) alone uses the
word ‘‘furnish’’ 33 twice and does not use the word ‘‘file’’. 34
Aside from section 6229(e), section 6229 uses the word ‘‘file’’
four times and does not use the word ‘‘furnish’’. Although
those facts offer some slight support for petitioner’s position,
considering the definitions of the words ‘‘furnish’’ and ‘‘file’’,
we believe that the intent of Congress was not clear with
33 For the sake of simplicity, we count all variations on the same word.
34 However, sec. 6229(e) does reference sec. 6222(b), which uses the word ‘‘file’’ multiple times.
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248 139 UNITED STATES TAX COURT REPORTS (219)
respect to the use of the term ‘‘furnished to the Secretary’’ in
section 6229(e).
Merriam-Webster’s Collegiate Dictionary 473 (10th ed.
2002) includes the following definitions for ‘‘furnish’’: ‘‘1: to
provide with what is needed; esp: to equip with furniture
[and] 2: SUPPLY, GIVE’’. As this Court has previously noted:
‘‘[T]he longstanding definition of the word ‘filed’ as used in
Federal statutes is ‘delivered’.’’ Hotel Equities Corp. v.
Commissioner, 65 T.C. 528, 531 (1975), aff ’d, 546 F.2d 725(7th Cir. 1976). Considering these definitions, we find that
the words ‘‘furnish’’ and ‘‘file’’ are sufficiently similar that
(barring any further clarification provided in the language or
legislative history of a statute) the intent of Congress does
not clearly prohibit an agency from promulgating regulations
which require information to be filed where the relevant
statute provides that the information must be ‘‘furnished’’.
The legislative history is of no aid on this issue. The House,
Senate, and House conference reports pertaining to the Tax
Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97–
248, sec. 402(a), 96 Stat. at 648, which enacted section
6229(e), as well as the reports pertaining to the amendments
to section 6229, contain no discussion of section 6229(e). In
addition, section 6229(e) has not been amended since its
enactment. Following this logic, section 6229(e) does not
clearly bar the Secretary from promulgating section
301.6229(e)–1T, Temporary Proced. & Admin. Regs., supra,
which requires that identifying information be filed with the
Commissioner.
The second issue is whether the regulation is ‘‘based on a
permissible construction of the statute.’’ Chevron, 467 U.S. at
843. ‘‘If the Secretary’s construction is reasonable, Chevron
requires the Court to accept that construction, even if the
Secretary’s ‘reading differs from what the court believes is
the best statutory interpretation.’ ’’ Tigers Eye Trading, LLC
v. Commissioner, 138 T.C. 67, 124–125 (2012) (quoting Nat’l
Cable & Telecomms. Ass’n v. Brand X, 545 U.S. 967, 980
(2005)). Given the similarity between the definitions of the
words ‘‘furnish’’ and ‘‘file’’ previously discussed, we find that
section 301.6229(e)–1T, Temporary Proced. & Admin. Regs.,
supra, is based on a permissible construction of section
6229(e).
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 249
We find that section 301.6229(e)–1T, Temporary Proced. &
Admin. Regs., supra, satisfies both prongs of the Chevron
analysis. It is thus a valid regulation.
D. Conclusion Regarding the Section 6229(e) Issue
We find that the Gaughfs failed to satisfy the requirements
of section 6229(e). We thus hold that the statutory period for
assessing tax attributable to partnership items was still open
on March 30, 2007 (the day the FPAA was issued), with
respect to the Gaughfs.
III. Whether, Under Principles of Estoppel, Respondent
Should Be Prevented From Asserting the Statutory
Period for Assessment Was Open on March 30, 2007
Petitioner argues that respondent should be estopped from
extending the statutory period for assessment or raising the
statutory period for assessment issues considered in this case
because respondent: (1) effectively entrapped the Gaughfs by
delaying publication of materials stating that disregarding a
short option position when determining basis in a partner-
ship is improper; 35 (2) delayed in issuing the summons to
J&G; (3) withheld and destroyed evidence, including several
original Forms SS–4 filed on behalf of the four entities
involved in the transaction at issue in this case which were
destroyed; (4) delayed trial by asserting that Gaughf Prop-
erties omitted income resulting from the expiration of the
short currency option or sale of the 7,500 shares of Quanta
stock at one point owned by Gaughf Properties; (5) ‘‘Lur[ed]
the Court into an opinion’’ on the statutory period for assess-
ment issue but then asserted alternative issues as the
centerpiece of his argument; (6) discriminated against the
Gaughfs as evidenced by his not conceding this case after the
Highwood Partners case was conceded; (7) delayed in con-
ceding his original position in order to keep the case open
long enough to develop new issues; (8) raised new issues
even though evidence in his possession discredited those
positions and those positions were frivolous; (9) performed
other actions relating to now-conceded issues such as promul-
35 Petitioner points out that the Commissioner did not publish Notice 2000–44, 2000–2 C.B.
255, until September 5, 2000. Citing Helmer v. Commissioner, T.C. Memo. 1975–160, petitioner
claims that until Notice 2000–44, supra, was published, it appeared that short options did not
constitute a liability for purposes of determining partnership basis.
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250 139 UNITED STATES TAX COURT REPORTS (219)
gating regulations contrary to court precedent and with-
holding evidence regarding why those regulations were
promulgated; and (10) otherwise delayed trial in this case
and caused it to be more expensive than necessary. In addi-
tion, petitioner claims that estoppel should apply against
respondent with greater force than it applies against a pri-
vate citizen. Most of these arguments are undeveloped, but
we shall attempt to address them all.
Petitioner claims that estoppel should apply against
respondent with greater force than against ‘‘a private citizen
because governmental takings of private property like that
pursued here must comport with the Fifth Amendment
requirement of due process.’’ We disagree.
The parties have stipulated that the Court of Appeals for
the District of Columbia Circuit has appellate jurisdiction in
this case. That court has recognized that ‘‘The fundamental
principle of equitable estoppel applies to government agen-
cies, as well as private parties.’’ Invs. Research Corp. v. SEC,
628 F.2d 168, 174 n.34 (D.C. Cir. 1980). However, that court
has also recognized that ‘‘despite the doctrine’s flexibility in
disputes between private parties, its application to the
government must be rigid and sparing.’’ ATC Petroleum, Inc.
v. Sanders, 860 F.2d 1104, 1111 (D.C. Cir. 1988); see also
Bull S.A. v. Comer, 55 F.3d 678, 681 (D.C. Cir. 1995).
Application of the estoppel doctrine against the Government
‘‘generally requires that government agents engage—by
commission or omission—in conduct that can be character-
ized as misrepresentation or concealment, or, at least, behave
in ways that have or will cause an egregiously unfair result.’’
GAO v. GAO Personnel Appeals Bd., 698 F.2d 516, 526 (D.C.
Cir. 1983). In addition we have recognized that the doctrine
of estoppel ‘‘is to be applied against the Commissioner only
with utmost caution and restraint.’’ McCorkle v. Commis-
sioner, 124 T.C. 56, 68 (2005).
We proceed to addressing whether the elements necessary
to apply estoppel were satisfied. The essential elements of
estoppel are: (1) a false representation was made or a wrong-
ful misleading silence maintained; (2) the error must be in a
statement of fact and not in an opinion or a statement of law;
(3) the person claiming the benefits of estoppel must be
ignorant of the facts; (4) the person claiming the benefits
must be adversely affected by the acts or statements of the
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 251
person against whom estoppel is claimed; and (5) the person
claiming the benefits must have reasonably relied on the acts
or statements of the party against whom estoppel is claimed.
Id.; Wilkins v. Commissioner, 120 T.C. 109, 112–113 (2003);
see also ATC Petroleum, Inc., 860 F.2d at 1111.
Petitioner takes issue with respondent’s years of ‘‘mis-
leading silence’’ and false representations. Petitioner claims
that there is ‘‘no doubt that the Gaughfs’ advisors would not
have led the Gaughfs down this Helmer path in the Fall of
1999 or filed their returns in April of 2000 had Respondent
not delayed issuing Notice 2000–44’’. Petitioner also takes
issue with the amount of time it took respondent to notify
the Gaughfs and issue the FPAA after the Gaughf Properties
1999 return was filed. Finally, petitioner faults respondent
for the three-year period between the issuance of the FPAA
and the trial of this issue, stating that respondent placed
witnesses beyond petitioner’s reach and destroyed documents
during this time, 36 in addition to failing to timely concede
certain legal issues in order to gain additional time to
develop other arguments.
We first address petitioner’s claim that respondent
entrapped the Gaughfs by delaying issuance of Notice 2000–
44, supra. Even if we assumed this delay to be a wrongful
misleading silence, such silence would still pertain to an
issue of law (treatment of short options as they relate to
basis in a partnership) as opposed to an issue of fact.
Because the doctrine of estoppel is not applicable in a case
of misleading statements of law, McCorkle v. Commissioner,
124 T.C. at 68, we reject petitioner’s argument on this point.
We next address whether respondent’s actions taken in the
period between when the Gaughf Properties 1999 return was
filed and the FPAA was issued satisfy the elements of
estoppel. Again, even if we assumed that respondent’s failure
to issue the FPAA sooner was a wrongful misleading silence,
such silence would still pertain to an issue of law (whether
the statutory period for assessment was open) as opposed to
an issue of fact. We also note that respondent contacted the
Gaughfs several times during this period, including shortly
after receipt of the J&G documents, to advise the Gaughfs of
36 Petitioner also claims respondent drafted self-serving regulations pertaining to conceded
issues during this time.
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252 139 UNITED STATES TAX COURT REPORTS (219)
the investigation into J&G. We therefore reject petitioner’s
argument on this point.
We next address petitioner’s contention that respondent
withheld and destroyed evidence and placed witnesses
beyond the reach of petitioner. Respondent stipulated that he
destroyed original Forms SS–4 filed on behalf of the four
entities involved in the transaction at issue at some point
after April 17, 2003. However, there was no showing that
destroying those documents years after they were filed was
irregular, or that respondent was investigating any of the
entities at the time the Forms SS–4 were destroyed. In addi-
tion, the loss of the original Forms SS–4 did not prejudice
petitioner, as copies existed and were introduced into evi-
dence. No evidence that other relevant documents were with-
held or destroyed exists; petitioner merely speculates that
other documents may have been. 37 The argument that
respondent placed witnesses beyond the reach of petitioner is
not sufficient to invoke the doctrine of estoppel, as petitioner
has alleged no misstatement of fact in connection with the
unavailable witnesses. The witnesses petitioner complains of
were unavailable on account of criminal investigations,
health issues, or petitioner’s inability to find them. As a
result, we reject petitioner’s argument on this point. We note
that if petitioner later discovers evidence proving respondent
destroyed or withheld relevant documents, petitioner has
other avenues of recourse available.
We next address petitioner’s contentions that respondent
delayed trial by raising or not timely conceding a multitude
of issues and ‘‘lured’’ this Court into writing an opinion on
the statutory period for assessment issue but then changed
his arguments. Many of these arguments we have already
rejected when we allowed respondent to amend his answer to
raise additional issues. We note that respondent has shown
a willingness to concede issues in this case once having
received evidence sufficient to show that no possible issue
existed. Given the confusing and inconsistent positions taken
37 Petitioner states that other than the Forms SS–4 which were destroyed, ‘‘No one can say
what else has been lost.’’ The only specific argument petitioner makes with respect to this state-
ment regards information potentially provided to respondent by KPMG, an argument which we
have already found to be contrary to the evidence presented.
We also note that while respondent destroyed certain tax returns of entities related to the
Gaughfs but not discussed in this Opinion there was no showing that the destruction of these
returns prejudiced petitioner in any way.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 253
by Gaughf Properties, the Gaughfs, and related entities on
their tax returns, we do not blame respondent for his reluc-
tance to concede some issues until he received evidence suffi-
cient to confirm that his stated argument was incorrect. 38
We also believe that: (1) respondent’s decisions to raise or
concede certain issues are more analogous to opinions or
statements of law rather than statements of fact; and (2)
that respondent’s actions did not amount to false representa-
tion or misleading silence. We therefore reject petitioner’s
argument on this point.
We reject petitioner’s argument regarding promulgation of
regulations, on the ground that the issuance of a regulation
does not amount to a statement of fact; rather, the regulation
is a statement of law. With regard to the underlying reason
for issuing regulations, 39 we disregard this issue on the
ground that petitioner has shown no reliance on any under-
lying reasons for issuance. We also note that no new regula-
tions were promulgated after the FPAA with respect to section
6229(e), the section under which we have decided this case.
With regard to the new section 6501(e)(1)(A) regulation, sec-
tion 301.6501(e)–1, Proced. & Admin. Regs., we also note
that although the Supreme Court rejected the regulation (on
grounds that the statute it applied had already been inter-
preted by that Court and no different, consistent construction
was available for adoption by the Commissioner), we do not
believe it was promulgated in bad faith. See United States v.
Home Concrete & Supply, LLC, 566 U.S. ll, 132 S. Ct.
1836.
We finally address petitioner’s argument that respondent
discriminated against the Gaughfs by not conceding this case
38 Petitioner harps on the fact that respondent amended his answer (in part) to raise the issue
of whether Gaughf Properties omitted income resulting from the sale of the 7,500 shares of
Quanta stock at one point owned by Gaughf Properties. Petitioner states that respondent knew
this argument was entirely incorrect because the J&G documents in respondent’s possession con-
tained a trade confirmation that the 7,500 shares were sold by Bodacious rather than Gaughf
Properties. However, we recognize that Gaughf Properties did not file any information regarding
distribution of Quanta stock to a partner upon liquidation. In addition, respondent conceded this
issue less than a month after amending his answer (presumably upon receiving additional evi-
dence that his position was incorrect). Given the confusion resulting from Gaughf Properties’
tax return and respondent’s willingness to concede the issue before trial, we do not believe re-
spondent raised the issue in bad faith. Even if respondent did, petitioner has not shown that
it was prejudiced by the fact this issue was raised, that it was ignorant of the facts regarding
this issue, or that respondent’s raising this issue amounted to a statement of fact rather than
a statement of law.
39 Petitioner claims respondent will not reveal the reasons for issuing certain regulations.
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254 139 UNITED STATES TAX COURT REPORTS (219)
after the Highwood Partners case was conceded. We find this
argument inapplicable in an estoppel context because the
decision to concede a case is analogous to an opinion or legal
statement rather than a factual statement, that no false rep-
resentation or misleading silence resulted, and that there
was no showing that the Gaughfs reasonably relied on the
concession. 40 In addition, ‘‘It has long been the position of
this Court that our responsibility is to apply the law to the
facts of the case before us and determine the tax liability of
the parties before us; how the Commissioner may have
treated other taxpayers has generally been considered irrele-
vant in making that determination.’’ Davis v. Commissioner,
65 T.C. 1014, 1022 (1976). We therefore reject petitioner’s
argument on this point.
In sum, petitioner has alleged that respondent has caused
a multitude of delays, ‘‘lost documents, unavailable wit-
nesses, faded memories, [and] horrible expense[s]’’ among
other things. However, petitioner, Gaughf Properties, the
Gaughfs, and other relevant entities are responsible for
many of the delays and changed positions taken by
respondent through their implementation of a complex trans-
action to increase basis in a partnership, their inconsistent
and incomplete reporting of facts regarding the transaction,
and their failure to list the Gaughfs as indirect partners in
Gaughf Properties. 41 These facts provide additional support
for our decision to reject all of petitioner’s estoppel argu-
ments based on delay of the case.
Considering the facts and law previously discussed, we
reject all of petitioner’s arguments regarding the estoppel
40 Even addressing this issue in a constitutional context we do not believe petitioner would
prevail. To prevail on an allegation of discrimination a taxpayer must meet both requirements
of a two-pronged standard. The taxpayer must first demonstrate that others similarly situated
have not been singled out for adverse treatment, and second, that the Commissioner singled it
out for irrational or impermissible reasons such as race, religion, or the desire to prevent the
exercise of constitutional rights. Penn-Field Indus., Inc. v. Commissioner, 74 T.C. 720, 723
(1980); Slovacek v. United States, 40 Fed. Cl. 828, 832 (1998). Petitioner has not argued any
facts which would tend to satisfy the second prong and has produced insufficient evidence to
satisfy the first prong.
41 As previously discussed, the failure to list the Gaughfs as indirect partners on the Gaughf
Properties partnership return was not a violation of any Code section or regulation; however,
it did serve to keep the statutory period for assessment open under sec. 6229(e). While not a
violation of law, the failure to report the Gaughfs as indirect partners almost certainly delayed
any investigation by respondent. The fact that sec. 6229(e) holds the statutory period for assess-
ment open (potentially indefinitely) when an indirect partner is not reported on a partnership
return implicitly recognizes that failure to list an indirect partner may significantly delay any
investigation by the Commissioner.
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(219) GAUGHF PROPS., L.P. v. COMMISSIONER 255
issue and find that the doctrine of estoppel does not preclude
respondent’s assertion that the statutory period for assess-
ment remained open on the date the FPAA was issued.
IV. Conclusion
We find the statutory period for assessing tax attributable
to partnership items was open under section 6229(e) with
respect to the Gaughfs on March 30, 2007, the date the FPAA
was issued. We also find that the doctrine of estoppel does
not preclude respondent’s assertion that the statutory period
for assessment was open on that date.
In reaching our holdings herein, we have considered all
arguments made, and, to the extent not mentioned above, we
conclude they are moot, irrelevant, or without merit.
To reflect the foregoing,
An appropriate order will be issued as to
the period of limitations issue.
f
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