Saturday, December 18, 2010


The U.S. Tax Court recently decided on remand whether the Court had jurisdiction under TEFRA over individual partner penalty determinations under Section 6662.  In Petaluma v. Commissioner, 135 T.C., No 29 (December 15, 2010), the Tax Court held that the 6662 penalty was not a partnership level computational adjustment item that would meet section 6226(f)'s requirement that it relate to a partnership item.  Instead, the Tax Court held that since it was an ad valorem penalty determination at the partner level resulting from an outside basis adjustment to assets received from a partnership, no jurisdiction could exist because partner level outside basis adjustments and their related penalties, do not related to partnership item adjustments. 

The Tax Court's decision is consistent with the rulings issued in the earlier related case decided by the D.C. Circuit Court of Appeals in Petaluma FX Partners, LLC v. Commissioner, 591 F.3d 649 (D.C. Cir. 2010), affg. in part, part, and vacating in part 131 T.C. 84 (2008).  The outside partnership interest basis jurisdictional issue is an item the IRS may need to take to Congress for further help in these cases.