Individuals Argue Tax Court Erred in Partnership Case

DAVID GREENBERG, ET AL.,
Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

On Appeal from a Final Decision
of the United States Tax Court

BRIEF FOR APPELLANTS

STEVEN R. MATHER
MATHER | ANDERSON
1801 Century Park East, Suite 1460
Los Angeles, California 90067

Attorneys for Appellants

CORPORATE DISCLOSURE STATEMENT AND CERTIFICATE OF INTERESTED PERSONS

Pursuant to Fed. R. App. P. 26.1 and 11th Cir. R. 26.1-1, counsel for the Appellants hereby certifies that no corporation has any ownership in Appellants. Counsel for Appellants further certifies that, to the best of our knowledge, information and belief, the following persons and entities have an interest in the outcome of this appeal:

Colleran, Paul, Associate Area Counsel, Internal Revenue Service

Commissioner of Internal Revenue Service, Appellee/Respondent

Desmond, Michael J., Chief Counsel, Internal Revenue Service

Goddard, William A., Appellant/Petitioner

Greenberg, David B., Appellant/Petitioner

Greenhouse, Robin, Division Counsel, Internal Revenue Service

Holmes, Mark V., Judge, United States Tax Court

Klimas, Geoffrey J., Attorney for Department of Justice

Mather, Steven R., Counsel for Appellants, Mather|Anderson

Patterson, Bradley A., Trial Counsel for Appellants

Poor, Benjamin R., Attorney for Internal Revenue Service

Ugolini, Francesca, Chief, Appellate Section, Department of Justice

Zuckerman, Richard E., Principal Deputy Assistant Attorney General, Department of Justice

STATEMENT REGARDING ARGUMENT

Pursuant to 11th Cir. R. 28-1(c) and Fed. R. App. P. 34(a), counsel for the Appellants submits that three items of specific importance warrant oral argument:

1. The jurisdictional issues in the appeal involve technical interpretations of the “TEFRA Partnership Audit Procedures” (26 U.S.C. §6221, et seq.) (such as whether GG Capital is a TEFRA partnership) that are applicable in every pending partnership case in every court in the country.

2. The issues concerning the consequences of the defects in the notices of deficiency (such as whether IRS can “determine” a deficiency by proposing adjustments to items that are not actually claimed on a return) affect the procedures in every case in the United States Tax Court.

3. The issues concerning Tax Court Rule 155 computations (such as the procedure for raising proper allocation of partnership income pursuant to 26 U.S.C. §704(b)) affect every tried case in the Tax Court.

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TABLE OF CONTENTS

CORPORATE DISCLOSURE STATEMENT

STATEMENT REGARDING ARGUMENT

GLOSSARY OF TERMS

STATEMENT OF JURISDICTION

STATEMENT OF THE ISSUES

STATEMENT OF THE CASE

PROCEEDINGS BELOW

STATEMENT OF THE FACTS

STANDARD OF REVIEW

SUMMARY OF THE ARGUMENT

ARGUMENT

CONCLUSION

CERTIFICATE OF COMPLIANCE WITH TYPE VOLUME LIMIT

ADDENDUM

TABLE OF AUTHORITIES

CASES

Alpha I L.P. v. United States, 682 F.3d 1009 (Fed. Cir 2012)

Bedrosian v. Commissioner, 940 F.3d 467 (9th Cir. 2019)

Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978)

Cambridge Research v. Commissioner, 97 T.C. 287 (1991)

Candyce Martin 1999 Irrevocable Trust v. United States, 739 F.3d 1204 (9th Cir. 2014)

Carson v. Commissioner, 560 F.2d 693 (5th Cir. 1977)

Coleman v. Commissioner, 94 T.C. 82, 91 (1990)

Couzens v. Commissioner, 11 B.T.A. 1040 (1928)

Cummings v. Commissioner, 437 F.2d 796 (5th Cir. 1971), citing Stivers v. Commissioner, 360 F.2d 35 (6th Cir. 1966)

Frazell v. Commissioner, 88 T.C. 1405 (1987)

G-5 Investment Partnership v. Commissioner, 128 T.C. 186 (2007)

Glock v. Glock, Inc., 797 F.3d 1002 (11th Cir. 2016)

Greenberg's Express v. Commissioner, 62 T.C. 324 (1974)

Harris v. Commissioner, 99 T.C. 121 (1992)

Hewlett-Packard Co. v. Commissioner, 67 T.C. 736 (1977)

Highpoint Power Technology, Inc. v. Commissioner, 931 F.3d 1050 (11th Cir. 2019)

Knight-Ridder Newpapers, Inc. v. United States, 743 F.2d 781 (11th Cir. 1984)

Kong v. Commissioner, T.C. Memo. 1990-480

Lizarazo v. Miami-Dade Corr. & Rehab Dep't., 878 F.3d 1008 (11th Cir. 2017)

Longiotti v. United States, 819 F.2d 65 (4th Cir. 1987)

Malat v. Commissioner, 302 F.2d 700 (9th Cir. 1962)

Mar Monte Corp. v. United States, 503 F.2d 254 (9th Cir. 1974)

Maxwell v. Commissioner, 87 T.C. 783 (1986)

McKenzie v. Dickenson, 43 Cal. 119 (1872)

Mishawaka Properties Co. v. Commissioner, 100 T.C. 353 (1993)

Muskrat v. United States, 219 U.S. 346 (1911)

NASUCA v. Federal Communications Commission, 457 F.3d 1238 (11th Cir. 2006) (citing Nat'l Cable Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005

Portillo v. Commissioner, 932 F.2d 1128 (5th Cir. 1991)

Roderick v. Commissioner, 57 T.C. 108 (1971)

Schockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012)

Shea v. Commissioner, 112 T.C. 183 (1999)

United Public Workers of America v. Mitchell, 330 U.S. 75 (1947)

United States v. Janis, 428 U.S. 433 (1976)

Vento v. Commissioner, 152 T.C. 1, 9 (2019)

TITLE 26, UNITED STATES CODE

§172(b)(3)

§6063

§6229

§6231(a)(1)(B)

§6231(a)(10)

§6231(a)(9)

§6501

§7442

§7482(a)(1)

§7482(b)(1)(A)

§7483

TREASURY REGULATIONS

§301.6222(a)-2

§301.6231(a)(1)-1T(b)(2)

§301.6231(a)(3)-1

FEDERAL RULES OF APPELLATE PROCEDURE

13(a)(1)

TAX COURT RULES

155

36(b)

41(a)

142

CALIFORNIA CORPORATIONS CODE

§16301(1)

§16401(b)

GLOSSARY OF TERMS

Term	Description
AD Global	AD Global Fund, LLC, a TEFRA partnership which IRS contends had items which impacted the returns of Greenberg and Goddard for the tax years 1999, 2000 and 2001
Advisory Opinion	Tax Court's opinion, T.C. Memo. 2018-74, that attempts to decide issues in our case but fails to determine actual adjustments
Appellants	Greenberg and Goddard, appellants in our case
FPAA	Notice of final partnership adjustment which must be issued to adjust partnership items under TEFRA
GG Capital	California general partnership in which Greenberg, Goddard and Lee were constituent general partners during all years in issue
Goddard	William A. Goddard, petitioner in the Tax Court case and appellant in our case
Greenberg	David B. Greenberg, petitioner in the Tax Court case and appellant in our case
IRS	Commissioner of Internal Revenue, respondent in the Tax Court case and appellee in our case
IRS Computations	Computations submitted by IRS after trial (Doc. #132) that determined IRS's actual adjustments for the first time
Lee	Raymond Lee, Goddard's law partner and a general partner in GG Capital during all years in issue
NODs	Notices of deficiency which must determine a deficiency in certain circumstances.
AD Global Losses	The “losses” IRS purported to adjust in the NODs from inflated basis attributable to AD Global partnership items. Appellants maintained no such losses were actually claimed. Tax Court did not determine that any such losses were actually claimed.
Tax Court	United States Tax Court, the trial court below
TEFRA	The partnership audit procedures in 26 U.S.C. §6221 et seq. (prior to their repeal) which applied during the tax years in our case
04 NODs	IRS notices of deficiency issued to Greenberg and Goddard during 2004 to adjust items for the tax year 2000
05 NODs	IRS notices of deficiency issued to Greenberg and Goddard during 2005 to adjust items for the tax year 2001
09 NODs	IRS notices of deficiency issued to Greenberg and Goddard during 2009 to adjust “converted” items relating to AD Global for the tax years 1999, 2000 and 2001

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STATEMENT OF JURISDICTION

(a) Introduction

This is an appeal of 10 consolidated cases originally pending before Tax Court filed by Greenberg and Goddard against IRS, Tax Court Docket Nos. 1143-05, 1145-05, 1335-06, 1504-06, 20673-09, 20674-09, 20675-09, 20676-09, 20677-09 and 20678-09.

(b) Jurisdiction of Tax Court.

Tax Court's jurisdiction was predicated on the provisions of Title 26, United States Code (“26 U.S.C.”) §7442 and §6213(a). The IRS issued the 04 NODs, 05 NODs and 09 NODs asserting deficiencies in taxes and penalties against Greenberg and Goddard for the tax years 1999, 2000 and 2001. Greenberg and Goddard filed a timely petition in Tax Court contesting each NOD.

(c) Appealable Order.

On April 17, 2020, Tax Court entered a Decision in each of the 10 consolidated cases. (Doc. #155) These Decisions were an appealable decision of Tax Court. Jurisdiction for appeal of these Decisions is predicated in 26 U.S.C. §7482(a)(1).

(d) Venue of Appeal.

Venue for the appeal lies in this Court pursuant to 26 U.S.C. §7482(b)(1)(A) because all 10 consolidated cases should remain consolidated for appeal and Greenberg resided in Florida at all relevant times.

(e) Appeal Timely.

The notice of appeal was filed on July 15, 2020. (Doc. #158) This notice of appeal was timely pursuant to Rule 13(a)(1) of the Federal Rules of Appellate Procedure and 26 U.S.C. §7483.

STATEMENT OF THE ISSUES

The issues on appeal are:

STATEMENT OF THE CASE

PROCEEDINGS BELOW

Greenberg and Goddard each filed five Tax Court petitions timely contesting the 04 NODs, 05 NODs and three 09 NODs. The NODs proposed multiple, largely duplicative, IRS adjustments for the tax years 1999, 2000 and 2001. The NODs did not determine a deficiency or apply TEFRA correctly, however.

All 10 cases were consolidated for trial. Before, during and after trial, Appellants contested Tax Court's jurisdiction due to the failure of the NODs to make a correct and lawful determination. Tax Court rejected Appellants' assertions, held a trial on the merits and issued an Opinion (the “Advisory Opinion”) which purported to address issues but did not determine actual adjustments. (Doc. #114) IRS determined specific adjustments after trial (Doc. #138), which Tax Court adopted in the Decisions. This timely appeal ensued.

STATEMENT OF THE FACTS

Appellants accept and adopt Tax Court's factual determinations for purposes of this appeal, as far as they go. The Advisory Opinion omits certain facts that appear in the record and are fundamentally uncontested. To reinforce Appellants' agreement with the factual determinations, Appellants incorporate relevant portions of Tax Court's factual findings at pages 4 to 32 of the Advisory Opinion verbatim. The supplemental facts are bolded with citations to the record.

I. ENTITIES AND BACKGROUND

A. GG Capital and Inflated Basis

In January 1997, Greenberg and Goddard formed a partnership called GG Capital. GG Capital was a California partnership and did not have a written partnership agreement. (Doc. #78, pp. 301-304) Goddard's law partner, Raymond Lee, became a GG Capital partner a short time later. A Panamanian investment company called Solatium was also briefly a partner, but it left the partnership in 1998. . . .

Greenberg and Goddard also claim that GG Capital took part in a strange series of complex transactions that created an abandonment loss. According to them, in October 1997 GG Capital acquired a 20% interest in a company called DBI Acquisitions II (DBI) and was credited with a $4 million capital account. . . . After [a] flurry of shuffled paper, out came a $34 million basis in DBI just waiting to be abandoned in exchange for a huge tax loss. Or so Goddard claimed at trial. There are no documents in the record showing that any of this actually happened. . . .

B. JPF III

In 1998 Greenberg and Goddard formed a partnership called JPF III, which did [Short Option Strategy (SOS)] transactions for GG Capital. On November 17, 1999, JPF III entered into an option spread with Lehman Brothers. The option spread had two legs: one European digital call option sold by Lehman Brothers to JPF III (the long leg) and one European digital call option sold by JPF III to Lehman Brothers (the short leg). The long leg cost $10 million and the short leg cost $9.8 million. But the only money that actually changed hands was the $200,000 net premium that JPF III paid Lehman Brothers. Lehman Brothers was the calculation agent for both legs of the option spread. . . .

If both the long and short legs paid out, Lehman Brothers would owe JPF III a net payment of $627,000. The option spread would pay out ¥5.3 billion if the exchange rate hit the sweet spot, which means only the long leg ended up in the money. As it turned out, both the long and short legs of JPF III's spread expired out of the money on November 16, 2000. . . .

C. AD Global Fund

In October 1999 the Diversified Group, Inc. (Diversified) and Alpha Consultants (Alpha) formed a partnership called AD Global Fund (AD Global). Initially Diversified and Alpha were the only members — although others soon joined — and both acted as managers. . . .

AD Global was designed to look like an investment company. The operating agreement said AD Global's purpose was to invest in foreign currencies, futures contracts, and options. Greenberg wrote an opinion letter that floated the same idea. In reality AD Global's members used it as a vehicle to conduct SOS deals.

[II.] Creating Tax Losses

A. 1999 Transaction

[Appellants] claimed at trial that JPF III bought the 1999 option spread (at least in part) on behalf of GG Capital. They say that GG Capital then realized a loss by the end of that year by selling 49% of the long leg to Greenberg and Goddard. [IRS], however, says the sale never happened. Although we would expect to find a paper trail for this kind of thing, there's nothing other than [Appellants'] testimony to suggest the sale actually happened. In fact, we find the opposite. Under the option-spread agreement JPF BI. was not allowed to transfer “any interest or obligation in or under this Agreement * * * without the prior written consent of the other party.” [Appellants] didn't produce any evidence that JPF III or GG Capital received prior written consent from Lehman Brothers to transfer the option spread. They did produce a purchase and sale agreement that says Greenberg and Goddard purchased all of GG Capital's “right, title and interest in and to [the long option leg] subject to all of [GG Capital's] duties, liabilities, and obligations.” But they didn't produce any bank records or other evidence showing any payments that would let us find the sale actually took place. . . . We do not find [Appellants'] testimony credible, and we find it more likely than not that the sale never took place.

B. September 2000 Option Spread

On September 27, 2000, JPF III entered into another digital-option spread, this time with Deutsche Bank. The terms of the option spread were very similar to those of the 1999 option spread. There were two legs. . . . The long leg required JPF III to pay Deutsche Bank a premium of $50 million while the short leg required Deutsche Bank to pay JPF III a premium of $49.25 million. Both payments. . . . were subject to a netting provision, and so the only money that actually changed hands was the $750,000 net premium JPF III paid Deutsche Bank. And as in the 1999 deal, the bank was the calculation agent.

Greenberg and Goddard claim that JPF III bought the September 2000 option spread on behalf of GG Capital. They also say GG Capital then sold 13% of the long leg to Greenberg and Goddard, generating part of GG Capital's loss for the 2000 tax year. As with their similar claim about the 1999 option spread, there is no evidence in the record showing a sale actually happened. Here again, we do not find [Appellants'] testimony credible and we find it more likely than not that the sale never took place.

C. November 2000 Option Spread

On November 27, 2000, JPF III entered into a third digital-option spread, again with Deutsche Bank. Like the other two option spreads, it had a long and a short leg and Deutsche Bank was the designated calculation agent. The long leg required JPF III to pay Deutsche Bank a $3 million premium and the short leg required Deutsche Bank to pay JPF III a $2.97 million premium. There was a netting provision, though, so the only money that changed hands was the $30,000 net premium, which JPF III paid. . . .

[Appellants] repeat their argument that JPF III also bought this option spread for GG Capital and that GG Capital then sold the long leg to Greenberg and Goddard. They say this generated a portion of the section 988 loss GG Capital claimed in 2000. For the same reasons we stated above, we don't find [Appellants'] testimony credible, and we find it more likely than not that the sale never took place.

D. November 2001 Option Spread

On November 30, 2001, an entity named PTC-A entered into a digital-option spread with Deutsche Bank. This option spread was just like the first three: There was a long leg and a short leg, Deutsche Bank was the calculation agent, and the option spread was subject to a netting provision. The long leg required PTC-A to pay Deutsche Bank a $17 million premium on December 4, 2001, and the short leg required Deutsche Bank to pay PTC-A a $16.83 million premium the same day. But because of the netting provision, PTC-A paid Deutsche Bank just the $170,000 net premium.

[Appellants] argue that this option spread too was bought on behalf of GG Capital, and that GG Capital sold the long leg to Greenberg and Goddard to realize a foreign-currency digital-option loss in 2001. But this argument suffers from the same problem we've already analyzed — there is no paper trail. We once again don't find [Appellants'] testimony credible, and we find it more than likely that not the sale never took place. . . .

[III.] What Was Reported

A. 1997 Return

Greenberg prepared GG Capital's 1997 partnership return and signed it on behalf of himself and other partners — Goddard, Lee, and Solatium. He attached a handwritten statement that said GG Capital was electing “to be subject to the provisions of 'Tefra' as defined in the IRC.” (Doc. #71, Ex. 68-P, p. 006781) The names of all four partners were on the purported TEFRA election, but Greenberg was the only partner who actually signed it. He did, however, write the other partners' initials above their names. At the bottom of the page a handwritten statement read: “The GGC partners have authorized Greenberg to sign on their behalf.” Goddard testified he authorized Greenberg to sign for him. (Doc. # 73, pp. 53-54) Lee was listed by IRS as a witness but not called. (Doc. #57, pp. 13-14) Greenberg had received authorization for Solatium by Tony Battilia, to whom Greenberg was directed by Tim Osborne, Greenberg's friend and Solatium's attorney. (Doc. # 80, pp. 613-615, 626) Greenberg did not, however, attach powers of attorney to the return to show that he was authorized to sign for Goddard, Lee, or Solatium. . . . IRS never informed Greenberg the TEFRA election was not accepted. (Doc. #80, p. 618)

Despite this handwritten statement that seemed to elect into TEFRA, Greenberg also checked the box on the same return that said GG Capital was not subject to TEFRA. On the 1997 partnership return there was a question that asked: “Is this partnership subject to the consolidated audit procedures of sections 6221 through 6233?” (i.e., TEFRA). Greenberg checked the “no” box. But in another confusing twist, Greenberg designated a tax matters partner (TMP) on the return, which is required under TEFRA but makes no sense for a non-TEFRA partnership. The same thing happened on GG Capital's 1999 through 2001 returns: The “no” box was checked on each return in response to the question “Is this partnership subject to the consolidated audit procedures of sections 6221 through 6233?” but each return also listed a TMP. An IRS expert testified that the question was “confusing and not very good” and was revised in later years. (Doc. #82, pp. 868-871) Greenberg thought the question asked if the partnership was then under audit. (Doc. #80, pp. 671-672)

B. 1999 Return

AD Global reported on its 1999 return an ordinary loss of $1.14 million related to the option contracts. The K-1 addressed to JPF III allocated it $334,000 of ordinary losses; $57,000 of distributions; and $97,000 of capital contributions. JPF III's 1999 return had no entries for income, expenses, assets, or liabilities. There were two K-1s attached to JPF III's return — one for Greenberg and one for Goddard. The K-1s didn't list any distributive shares of income or loss.

GG Capital's return (Doc. #68, Ex. 25-J) includes the ordinary income Greenberg, Goddard, and Lee assigned from their day jobs — $617,000 from Greenberg and $1.3 million from Goddard and Lee. The return also reported $1.2 million in “consulting income,” which [IRS] says came from promoting Son-of-BOSS tax shelters. GG Capital claimed a $2.7 million section 988 loss and an ordinary loss from AD Global of $334,000, which matched the ordinary loss reported on the K-1 that AD Global issued to JPF III. . . . The 1999 09 NOD did not specifically disallow the $334,000 ordinary loss. IRS admitted at trial that none of the other AD Global items could be traced to any returns of GG Capital, Greenberg or Goddard. (Doc. #81, pp. 816-822) The IRS workpaper that purports to show the GG Capital losses does not tie out either. (Doc. #73, Ex. 120-P)

On his 1999 return Greenberg reported $710,000 of income from Deloitte and $73,000 in income from GG Capital. The income from Deloitte was the “reversed” in two entries titled “Reverse Deloitte.” Goddard's 1999 return was similar. Goddard reported $634,000 in income from LGD. He included a statement that said he transferred his economic interest in LGD to GG Capital, so he reported a $634,000 loss from LGD to “reverse” the income. . . .

C. 2000 Return

On its 2000 return (Doc. #68, Ex. 26-J) GG Capital again included the ordinary income Greenberg and Goddard assigned to it from their day jobs — $898,000 from Greenberg and $743,000 from Goddard. It also reported the same type of losses as it had in 1999, except the losses were even larger. GG Capital reported a $15.85 million ordinary loss it again referred to as a section 988 loss and a suspended loss of $3.82 million . . .

There was also the claimed DBI loss. On its 2000 California return GG Capital claimed a $3.2 million loss for “DBI Acquisitions Prior Suspended Losses Allowed,” which [Appellants] say they are entitled to because GG Capital abandoned its interest in DBI — after its basis had been inflated through a series of convoluted maneuvers — in 2000. The loss isn't separately stated on AG. Capital's federal return. However, GG Capital's 1999 return showed its interest in DBI (Doc. #68, Ex. 25, p. 000008) and the 2000 return shows no interest in DBI. (Doc. #68, Ex. 26-J, p. 005562) Goddard testified that GG Capital claimed a $3.2 million abandonment loss on its return, but it's not clear where. [IRS] says [Appellants] camouflaged this loss by including it in the section 988 loss GG Capital reported.

D. 2001 Return

On their 2001 returns [Appellants] reported similar assignments of income and convoluted losses. On its return GG Capital once again claimed ordinary income that Greenberg and Goddard say they assigned from KPMG and LGD — $854,000 from Greenberg and over $1.1 million from Goddard. It reported $7.4 million of “royalties & other” income. . . .

GG Capital reported an “FX digital loss” of over $38 million plus a “prior suspended loss” of $600,000, less a suspended loss of $29 million. This all netted out to about a $9 million loss. [IRS] thinks this is just the 2001 version of the section 988 loss. GG Capital also reported a loss from JPF V, LLC (JPF V), of $95,000, but [Appellants] didn't introduce any evidence about JPF V at trial. [IV.] Audit and Notices of Deficiency

. . . . In 2003 [IRS] sent AD Global an FPAA for the 1999 tax year. [IRS] determined in the FPAA that AD Global was a sham, designed only to reduce its members' tax liabilities. [IRS] disregarded the option spread JPF III contributed and said that JPF III (and AD Global's other members) should not be treated as partners for tax purposes. [IRS] also determined that JPF III should have taken the short leg of the option into account when it calculated its basis. [IRS] disallowed $1.14 million of losses from the options and asserted penalties.

In 2004 [IRS] sent Greenberg and Goddard notices of deficiency for the 2000 tax year (the 2004 NODs). The 2004 NODs bore inconsistent internal dates, IRS admitted to incomplete Postal Service mailing lists, and no IRS witness with direct knowledge of mailing the 2004 NODs testified. (See Argument Section I.B.1, below) IRS asserts the 2004 NODs were mailed on the final date of the applicable period of limitations, but there is no credible evidence in the record to confirm timely mailing. [IRS] asserted a $4.7 million deficiency against Greenberg and a $4.5 million deficiency against Goddard. . . . [IRS] increased each one's share of GG Capital's ordinary income (both by about $11 million) by disallowing the DBI loss and the section 988 loss. [IRS] also reallocated the income Greenberg and Goddard tried to assign GG Capital from their day jobs and allocated all of GG Capital's “royalties & other” income back to them.

In 2005 [IRS] sent Greenberg and Goddard similar notices for the 2001 tax year (the 2005 NODs). The 2001 notices increased Greenberg's and Goddard's income from GG Capital by about $8.1 million each. [IRS] also disallowed the JPF V loss and the 2001 section 988 loss of $9.6 million. [IRS] reassigned the income Greenberg and Goddard tried to assign from KPMG and LGD, allocated to both Greenberg and Goddard all of GG Capital's “royalties & other” income for 2001. . . .

In 2008 [IRS] sent Greenberg and Goddard conversion letters saying that because they were under criminal investigation [IRS] would treat their AD Global partnership items as nonpartnership items under section 6231(c). The following year [IRS] sent Greenberg and Goddard another burst of notices, this time converted-item notices of deficiency (the 2009 NODs). Greenberg and Goddard each got one for the 1999, 2000, and 2001 tax years. [IRS's] reasoning was the same in each. [IRS] determined that AD Global was a sham, formed only to lower its members' tax liabilities. As a result [IRS] created the option spreads as never having been contributed and the losses purportedly realized by AD Global as realized directly by its members. [IRS] also determined that the AD Global members should not be treated as partners. The converted-item notices traced the effects up to Greenberg and Goddard — as partners in GG Capital and JPF III partners and purported indirect members of AD Global. The notices increase Greenberg's and Goddard's income by disallowing a total of $12.3 million in losses. [IRS]. . . .¹

V. Petitions and Trial

Greenberg and Goddard disagreed with [IRS] and filed petitions in Tax Court to dispute the notices. We consolidated all their cases . . .

Prior to trial, Appellants filed several motions based on the confused nature of the NODs and the changing IRS positions. These motions included:

• A motion to limit the issues at trial to the issues stated in the NODs. (Doc. #41 & 44)

• A motion to dismiss on the grounds that IRS had not followed TEFRA in adjusting GG Capital items. (Doc. #46)

• A motion for summary judgment that the NODs were inadequate. (Doc. #47)

By orders dated January 24, 2011 (Doc. #55) and February 3, 2011 (Doc. #62), Tax Court denied all of Appellants' motions.

Trial was held from February 7, 2011 through February 14, 2011. Ten witnesses testified, including Greenberg and Goddard. Even though many transaction documents were in IRS's possession and IRS specifically cross-examined Appellants about most of the documents, the documents themselves were not received in evidence.

VI. Post-trial Proceedings

On March 31, 2015, Greenberg filed a motion to amend the answer in Docket No. 1335-06 to carry back a net operating loss (“NOL”) that had been determined in another case after our trial. (Doc. #102 & 103, Docket No. 1335-06) Even though Greenberg's motion could not have been filed earlier, the motion was denied more than three years after it was filed as tardy. (Doc. #124, Docket No. 1335-06)

On May 31, 2018, Tax Court issued the Advisory Opinion (Doc. #114) which attempted to rule in favor of IRS's positions generally. Tax Court was unable to determine the actual adjustments that resulted from the Advisory Opinion, however, and expressed hope the parties could sort out the adjustments in post-trial negotiations. (Doc. #114, p. 29, n. 23)

Several filings were made after the Advisory Opinion was issued:

• Appellants' motion for reconsideration of opinion that TEFRA was applied incorrectly. (Doc. #116) The motion was denied. (Doc. #118)

• Appellants' motion to reopen the record to admit exhibits discussed at trial but inadvertently not admitted. (Doc. #117) The motion was denied. (Doc. #118)

• Appellants' motion to stay the proceedings so necessary determinations could be made in the AD Global case. (Doc #124) The motion was denied. (Doc. #143)

• IRS Computations for entry of decision (Doc. #138). Tax Court ultimately entered a Decision in each case adopting the IRS Computations. (Doc. #155)

• Appellants' motion to dismiss for lack of jurisdiction filed because the IRS Computations finally identified IRS's actual adjustments which established that Tax Court lacked jurisdiction over the specific adjustments. (Doc. #141) The motion was denied. (Doc. #144)

• Appellants' objection to the IRS Computations (Doc. #148) and submission of alternate computations. (Doc. #147) Tax Court adopted the IRS Computations. (Doc. #155)

• Appellants' motion to vacate the decision to consider issues previously refused. (Doc. #156) This motion was denied. (Doc. #157)

Having exhausted all avenues to get Tax Court to correct its prior rulings, Appellants filed a timely Notice of Appeal (Doc. #158) to this Court.

STANDARD OF REVIEW

The three main issues for review on appeal are all subject to de novo review.

Tax Court committed multiple errors in applying TEFRA to our facts. These issues determine Tax Court's jurisdiction over entire cases and over issues within a case. Tax Court also incorrectly determined its jurisdiction due to the failure of the NODs to make the determinations required by statute. This Court reviews determinations affecting the Tax Court's jurisdiction de novo. Highpoint Power Technology, Inc. v. Commissioner, 931 F.3d 1050 (11th Cir. 2019).

If Tax Court had jurisdiction over any of the issues in the cases, IRS made new determinations that formed the basis of the trial. IRS bears the burden of proof on the new determinations. Tax Court imposed the burden incorrectly. This Court reviews determinations concerning the burden of proof de novo because they are pure questions of law. Glock v. Glock, Inc., 797 F.3d 1002, 1005-06 (11th Cir. 2016).

Tax Court rejected all of Appellants' post-trial motions and objections to the IRS Computations. In doing so, Tax Court applied its own rules incorrectly. This Court reviews a trial court's application of rules of procedure de novo. See Lizarazo v. Miami-Dade Corr. & Rehab Dep't., 878 F.3d 1008, 1010 (11th Cir. 2017).

SUMMARY OF THE ARGUMENT

1. Tax Court failed to determine its jurisdiction and incorrectly applied the law and the Tax Court Rules to the undisputed facts in our case. As a result, the redetermination of the deficiencies are invalid in their entirety. Tax Court lacked jurisdiction over all ten cases. The 04 and 05 NODs only contained adjustments to GG Capital, which was a TEFRA partnership that could not be adjusted in an NOD. Even if GG Capital was not a TEFRA partnership, the items claimed through GG Capital were themselves partnership items of other TEFRA partnerships and Tax Court therefore lacked jurisdiction over these adjustments. Tax Court also lacked jurisdiction over the 09 NODs. The 09 NODs purport to adjust “converted items” from AD Global Losses. There were no AD Global partnership items to convert, however, so there were no items that could be adjusted in the 09 NODs.

2. Even if Tax Court had jurisdiction over the issues in our cases, Tax Court incorrectly applied its rules and improperly imposed the burden of proof on Appellants. The IRS positions at trial were dramatically different than the determinations in the NODs. This change is permitted only by an amended pleading. IRS did not amend its pleadings. Even if the new issues could be raised, IRS bears the burden of proof on the new matters. Tax Court erroneously imposed the burden of proof on Appellants on these new matters. In addition, because the NODs failed to determine deficiencies in an understandable fashion, Tax Court's Advisory Opinion could not properly redetermine the deficiencies. The Advisory Opinion failed to accomplish its purpose.

3. Tax Court failed to follow its own rules in the post-trial proceedings. Tax Court was finally presented with a comprehensible determination of deficiencies in the IRS Computations years after the trial. Tax Court again refused to recognize it lacked jurisdiction over the NODs. Appellants also objected to the way IRS allocated GG Capital's income among GG Capital's three partners. In its pre-trial memorandum, IRS represented that it would apply 26 U.S.C. §704(b) in allocating income, but IRS ignored §704(b) in the IRS Compuations. Tax Court erroneously failed to enforce IRS's prior representations.

ARGUMENT

I. TAX COURT LACKED JURISDICTION OVER ALL NODs

IRS issued the 04 and 05 NODs disallowing losses claimed by AG. Capital. Tax Court lacked jurisdiction over the NODs for two reasons. First, IRS treated GG Capital as a non-TEFRA partnership. GG Capital was a TEFRA partnership, however, so IRS had to issue FPAAs to propose those adjustments. Second, even if GG Capital was not a TEFRA partnership, all of the adjustments IRS ultimately asserted in those cases were partnership item adjustments from other TEFRA partnerships. Under either scenario, the 04 and 05 NODs were invalid.

IRS issued the 09 NOD to disallow AD Global Losses. Appellants did not claim any losses, let alone losses from AD Global. At trial, IRS argued the 09 NODs really disallowed AD Global Losses claimed by GG Capital. GG Capital is not referenced in the 09 NODs, GG Capital did not claim any AD Global Losses, and the losses that GG Capital did claim do not match the AD Global adjustments determined by IRS. Furthermore, the 09 NODs adjust converted AD Global partnership items, but there were no AD Global partnership items to convert. All of the 09 NODs are invalid.

IRS handed Tax Court a mess. In arguing that the 09 NODs really disallowed AD Global Losses, IRS implicitly conceded that most of the losses disallowed in the 04 and 05 NODs were really also disallowed by the 09 NODs, that is, that the 09 NODs disallowances were duplicate. Rather than cleaning up the mess or making any holdings in that regard, however, Tax Court at footnote 23 merely acknowledged the duplication and said it would be “sorted out in the computations.” Tax Court then devoted most of the rest of its opinion to AD Global, in the end holding AD Global should be disregarded for tax purposes. Tax Court never found that any AD Global Losses were actually claimed, however, so its opinion in that regard was really just an impermissible Advisory Opinion.

A. Tax Court Failed to Determine its Jurisdiction Over the NODs.

It is useful to understand the statutory requirement for IRS to “determine” deficiencies and for Tax Court's jurisdiction over those determinations to be established.

1. Tax Court Lacked Jurisdiction over All NODs Because They Disallow Losses Never Claimed and, Alternatively, Because There Were No AD Global Partnership Items to Convert.

a. IRS Must Examine the Return to See Whether Taxpayer Has Actually Claimed the Disallowed Losses; IRS Cannot Disallow Losses That Were Never Claimed.

In order for an NOD to be valid, IRS must first “determine” there is a deficiency. 26 U.S.C. §6212(a). If an NOD reveals “on its face” that no determination has been made, the NOD is invalid, and the Tax Court lacks jurisdiction over the NOD. Scar v. Commissioner, 814 F.2d 1363, 1370 (9th Cir. 1987). In Scar, the NOD disallowed tax shelter losses the taxpayers had never claimed. In invalidating the NOD, the Ninth Circuit acknowledged that courts should not “look behind” an NOD to determine whether it is valid, but held that a court does not “look behind” the NOD when “the deficiency is not based on a determination of tax reported on the taxpayers' return and refers to a tax shelter the Commissioner concedes has no connection to the taxpayers or their return.” Scar at 1368. The Court then observed that this interpretation of the determination requirement is a longstanding one, citing Couzens v. Commissioner, 11 B.T.A. 1040 (1928), in which the Board held:

“[A] determination . . . must mean a thoughtful and considered determination that the United States is entitled to an amount not yet paid. If the notice of deficiency were . . . say, a mere formal demand for an arbitrary amount as to which there were substantial doubt . . . a burden might be imposed on taxpayers of litigating issues and disproving allegations for which there had never been any substantial foundation.”

A few years after Scar, the Tax Court decided Kong v. Commissioner, T.C. Memo. 1990-480. In Kong, the taxpayers had invested in a partnership and received a Schedule K-1 reflecting a loss. IRS examined the partnership return and Schedule K-1 and then, without examining the taxpayer's return, disallowed the loss. IRS merely “PRESUMED” (Tax Court's emphasis) that the taxpayers' return had claimed the disallowed loss. Citing Scar, Tax Court found the NOD to be invalid because IRS “did not make the necessary determination.”

Scar and Kong stand for the notion that IRS cannot make “a thoughtful and considered determination” if IRS is not in possession of the return. Scar and Kong also stand for the notion that, even if IRS has the return, the NOD is invalid if IRS fails to examine the return to see whether the taxpayers in fact claimed the deduction the NOD purports to disallow. Scar was explicit in this regard, holding IRS “could not determine a deficiency for the Scars without examining their return to see whether they had claimed a deduction for such investment.” Scar at fn. 6. [emphasis added]

IRS must examine the taxpayers' return to see whether they actually claimed the disallowed deductions and cannot (in the words of Kong) just “presume” the deductions were claimed. Scar also made clear that, in deciding whether IRS has made the requisite examination of the return, Tax Court will consider evidence other than the NOD. In Scar, the other evidence was IRS' eventual concession that the NOD referenced tax shelter losses that had no connection to the return.

So, under Scar, if IRS does not examine the return to see whether the taxpayers actually claimed the disallowed deductions, Tax Court lacks jurisdiction over the NOD.

b. IRS Did Not Examine Appellants' Returns to See Whether They Actually Claimed the AD Global Losses Purportedly Disallowed.

In 2003, IRS completed its examination of AD Global's 1999 tax return, issued an FPAA and mailed a copy to JPF III, an AD Global partner. Greenberg and Goddard were the partners of JPF III. In 2004, IRS Technical Advisor Cheryl Kiger (“Kiger”) prepared a workpaper calculating the adjustment for JPF III's AD Global Losses. (Doc. #73, Ex. 120-P). Those amounts were $7,304,070 for 1999 and $2,306,188 for 2000. In 2008, IRS converted Appellants' AD Global partnership items to nonpartnership items.

The 09 NODs purport to convert item deficiencies resulting from former AD Global partnership items. The 1999 09 NOD disallowed “the $3,005,272 reported as a loss from AD Global.” The 2000 09 NOD disallowed “the $8,747,948 reported as a loss from AD Global.” And the 2001 09 NOD disallowed “losses of $599,541 reported as a loss from AD Global.”

It is clear on the face of the 09 NODs that the 09 NODs disallow losses that were never claimed. Neither Greenberg nor Goddard (through JPF III or otherwise) ever claimed any AD Global Losses. In fact, the returns filed by Appellants do not report any losses whatsoever. It is also clear on the face of the 09 NODs that the 09 NODs do not even disallow AD Global Losses because none of the losses disallowed by the 09 NODs match the AD Global Losses in Kiger's workpaper.

Furthermore, since the 09 NODs do not reference GG Capital or purport to disallow GG Capital losses, the losses claimed by GG Capital are not relevant to the validity of the 09 NODs. Even if the 09 NODs could be interpreted as referring to GG Capital, however, that would not save the 09 NODs because GG Capital did not report any losses “from AD Global” The losses reported by GG Capital arose from the sale of options to Appellants. GG Capital's losses had nothing to do with AD Global.

Appellants maintained throughout the Tax Court litigation that neither JPF III, GG Capital nor Appellants had ever claimed any of AD Global Losses. IRS never produced any evidence to the contrary. Our cases fall squarely within the holding of Scar because IRS never examined Appellants' returns to see whether they actually claimed those losses. IRS conceded as much at trial. IRS Revenue Agent Michelle Trader (“Trader”) was provided a copy of JPF III's AD Global closing binder and asked whether she could connect anything in that binder to any of the returns at issue in our cases. Trader replied, “I am not sure.” (Doc. #81, p. 817). Trader could not be sure because there was no connection, and Trader never attempted to make one. The 09 NODs were a “mere formal demand for an arbitrary amount” proscribed by Scar. The 09 NODs are invalid as a matter of law, and the Tax Court lacked jurisdiction to review them.

This same issue was actually conceded by IRS for the 04 NODs. The 04 NODs purport to disallow a “Section 988 loss.” In the IRS Computations, however, IRS effectively admits IRS did not determine Appellants actually claimed any such loss because the IRS Computations acknowledge no such items could be adjusted in the 04 NODs.

c. There Were No AD Global Partnership Items to Convert, So the 09 NODs Were Invalid.

The 09 NODs purportedly disallow losses based on increased basis from AD Global partnership items that were converted in 2008 to nonpartnership items. Neither Appellants nor JPF III reported these AD Global Losses, however. GG Capital's losses arose from sales of option spreads to Greenberg and Goddard. GG Capital's losses had nothing to do with AD Global.

This is a critical fact. Since none of the parties in the case reported increased basis in any partnership items as a the result of any transaction with AD Global, there were no AD Global partnership items to convert. Since there were no AD Global partnership items to convert, there were no adjustments that could be included in the 09 NODs.

The most compelling proof that there were no AD Global items to convert is IRS's own workpapers. IRS characterized Kiger's workpaper as a computation of the adjustments claimed by each AD Global partner. (Doc. #73, Ex. 120-P) Those adjustments do not appear anywhere in the 09 NODs, however. Further, IRS acknowledged, through Trader, that nothing in the AD Global closing binder could be reconciled with any of the returns at issue in this case. The obvious explanation for this failure to reconcile is the amounts claimed on the returns were not in fact the amounts that flowed through from AD Global. In fact, no other reasonable conclusion can be drawn.

Since none of the returns at issue in our case claimed losses attributable to AD Global partnership items, IRS cannot determine a deficiency based on any converted AD Global items. An attempt to adjust items that were not claimed renders the NOD invalid. That is exactly what the 09 NODs attempted to do.

d. IRS's Failure to Determine Deficiencies Made Tax Court's Ruling an Advisory Opinion

It is axiomatic that federal courts cannot issue advisory opinions. United Public Workers of America v. Mitchell, 330 U.S. 75 (1947). This arises from the “case or controversy” requirement in Article III, United States Constitution. The essence of the requirement is that there be adverse parties who present contentions which the court can decide. Muskrat v. United States, 219 U.S. 346, 352 (1911).

While Tax Court is an Article I court, cases discussing the differences between Tax Court and an Article III court indicate that questions of Tax Court jurisdiction are to be resolved in the same manner as for an Article III court. See Roderick v. Commissioner, 57 T.C. 108 (1971) (“Tax Court will not issue advisory opinions”). No U.S. Circuit Court of Appeals has found otherwise. See Malat v. Commissioner, 302 F.2d 700 (9th Cir. 1962) (“the objective of a proceeding before the Tax Court is not to expound legal theories or to make advisory findings or to render advisory opinions, but to arrive at a determination of how much tax, if any, the petitioner owes”).

IRS's failure to determine what appellants actually claimed on the relevant returns left Tax Court guessing what was in dispute and opining on presumed issues. This made Tax Court's ruling a hypothetical, inappropriate Advisory Opinion.

2. Tax Court Lacked Jurisdiction Over the 04 and 05 NODs Because GG Capital Was a TEFRA Partnership.

a. Tax Court Must Determine Its Jurisdiction Over the NOD by Determining if TEFRA Applies.

All of IRS's proposed adjustments in all of the NODs emanate from partnerships. TEFRA applied a special set of procedures to partnership tax years from 1983 through 2017. TEFRA arose from a desire to have more consistency in partnership determinations. The concept was that common partnership issues would be resolved in a partnership proceeding and the result of that partnership-level determination would be applied to the individual partners as a primarily computational matter. See Maxwell v. Commissioner, 87 T.C. 783 (1986). While the concept was sound, difficulties in applying the concept arose as soon as TEFRA became effective.

The primary problem IRS experienced in administering TEFRA is the TEFRA procedures and “non-TEFRA” procedures are mutually exclusive. If a partnership was subject to TEFRA, IRS must conduct the audit and issue the notices that are required by TEFRA. The notice that proposes changes to a TEFRA partnership's partnership items is the FPAA. 26 U.S.C. §6225(a). If the partnership is not subject to TEFRA, however, IRS needs to use the audit procedures and issue NODs consistent with the non-TEFRA deficiency procedures. 26 U.S.C. §6212. The failure to issue the correct notices typically means IRS is barred from making any assessments of the changes at all. See Frazell v. Commissioner, 88 T.C. 1405, 1411 (1987). It is therefore critical for IRS to correctly determine if the partnership being audited is a “TEFRA partnership” so the correct notice can be issued.

If all proposed adjustments emanate from one partnership, Tax Court must first ascertain whether that partnership is a TEFRA partnership. If the partnership is a TEFRA partnership, the adjustments to the partnership items may only be made by means of an FPAA. If all of the NOD adjustments are made to a TEFRA partnership, the NOD is invalid, Tax Court lacks jurisdiction, and the case must be dismissed. Maxwell v. Commissioner, 87 T.C. 783 (1986).

b. GG Capital Elected TEFRA and Its Items Could Not Be Adjusted in the 04 and 05 NODs.

All of the adjustments in the 04 and 05 NODs flow through GG Capital. Under the TEFRA procedures, all partnerships are TEFRA unless the partnership qualifies as a small partnership under 26 U.S.C. §6231(a)(1)(B). Any partnership can elect to have the TEFRA procedures apply, however.

GG Capital elected to be subject to the TEFRA procedures for 1997 and later years. GG Capital was already a TEFRA partnership for 1997 because Solatium had been a partner during 1997. To avoid any confusion in future years, GG Capital filed an election to be covered by TEFRA with its 1997 return. This election was signed by Greenberg with the authorization of all 1997 GG Capital partners. There is no dispute that this written election was attached to the 1997 GG Capital return.

IRS incorrectly ignored the election attached to GG Capital's 1997 return. GG Capital made a valid election to be covered by TEFRA for 1997 and that TEFRA election remained in effect for all years in issue in our cases. GG Capital was therefore subject to the TEFRA procedures for all periods and IRS had to issue the TEFRA notices. IRS failed to issue the correct notices, depriving Tax Court of jurisdiction.

c. Since GG Capital was TEFRA, Tax Court Lacked Jurisdiction over the 04 and 05 NODs.

Tax Court determined that the written election should be disregarded for any of three reasons. First, Tax Court determined that, for 1997, GG Capital could not elect to be subject to TEFRA because it was already a TEFRA partnership. During 1997, Solatium was a GG Capital partner. Having some entities as a partner causes a partnership to automatically be a TEFRA partnership. 26 U.S.C. §6231(a)(1)(B)(i). Tax Court reasoned that having Solatium as a partner caused GG Capital to already be a TEFRA partnership and therefore it could not elect to be a TEFRA partnership.

There is no authority cited for Tax Court's conclusion that a partnership that is already a TEFRA partnership cannot file a valid TEFRA election, however. Quite literally, 26 U.S.C. §6231(a)(1)(B)(ii) allows any partnership that files a partnership return to make an election to be covered by TEFRA. GG Capital met all statutory requirements to elect to be covered by TEFRA and did so.

Tax Court alternatively suggested that the express written election attached to GG Capital's 1997 return was ineffective because it was not signed by all partners. Greenberg had express authorization from all partners to sign the election. In addition, under applicable California law, Greenberg was authorized to sign GG Capital's return on behalf of all partners and had actual authority to make the election. Cal. Corp. Code §16301(1) (“each partner is an agent of the partnership for the purpose of its business”); McKenzie v. Dickenson, 43 Cal. 119 (1872) (“Each partner is the agent of his copartners in all transactions relating to partnership business”). Nothing more is required. Greenberg's actual authority was clear.

There is no statutory requirement that all partners sign an election. In fact the statute states the election is by the “partnership.” 26 U.S.C. §6231(a)(1)(B)(ii). The election is to be attached to the partnership return. The partnership return can be signed by any partner and the signature “shall be prima facie evidence that such partner is authorized to sign the return on behalf of the partnership.” 26 U.S.C. §6063.

Tax Court determined, however, that a temporary administrative regulation which purports to require the signature of all partners invalidated the express written election in our case. 26 C.F.R. §301.6231(a)(1)-1T(b)(2). This regulation by its own terms, however, only applies to a partnership that is not already a TEFRA partnership. That is not our situation. In addition, the regulation's requirement is contrary to the plain meaning of the statute. A temporary administrative regulation cannot subvert a plainly worded statute. See NASUCA v. Federal Communications Commission, 457 F.3d 1238 (11th Cir. 2006) (citing Nat'l Cable Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005) in invalidating an agency interpretation inconsistent with a statute).

Tax Court precedent does not rigidly enforce temporary administrative regulations. Tax Court has characterized similar regulations as permissive not mandatory when addressing the authority of a partner to bind all partners. Mishawaka Properties Co. v. Commissioner, 100 T.C. 353 (1993) (implied ratification of partner's act); Cambridge Research v. Commissioner, 97 T.C. 287 (1991) (partnership's authorization not negated by regulation). Tax Court's ruling in our case impermissibly applies the regulation beyond its express scope and is contrary to Tax Court precedent concerning the effect of the temporary administrative regulations.

Even if the regulation applies and GG Capital's election did not meet all requirements of the temporary regulation, the election satisfied all statutory requirements and substantially complied with the regulation. Substantial compliance with the procedural directions of administrative regulations is all that is needed when the purpose of the election is fulfilled. Hewlett-Packard Co. v. Commissioner, 67 T.C. 736 (1977). The primary purpose when an election is involved is that the taxpayer's election provides clear notification to the IRS that the election has been unequivocally made. Knight-Ridder Newpapers, Inc. v. United States, 743 F.2d 781 (11th Cir. 1984). Our election clearly meets this fundamental purpose. The election was valid in all respects.

Once a TEFRA election is made, the election affects not only the year of the election but all subsequent years unless revoked. 26 U.S.C. §6231(a)(1)(B)(ii). No revocation was alleged. Accordingly, there was an express written election to apply TEFRA to GG Capital in the 1997 return and it continued to apply to the 1999, 2000 and 2001 returns in our cases.

Tax Court finally contended Appellants were bound to the statements on GG Capital's 2000 and 2001 returns. Even if this is a rule, Tax Court misapplies it to the facts found by Tax Court. Tax Court acknowledged the “confusing twist” that GG Capital checked a box suggesting it was not then “subject to the consolidated audit procedures” but designated a “tax matters partner” that is only applicable to TEFRA partnerships. Advisory Opinion at pp. 22-23. Two diametrically contradictory statements on the same page of a tax return cannot be a clear statement on which IRS can rely. Greenberg testified that he thought the question was asking if GG Capital was currently under audit and an IRS employee testified that the question “was confusing” and was revised later. There is no basis for any estoppel-like determination in our case. Nothing in the GG Capital returns overcomes the clear statement of intent in the written election in the 1997 return to apply TEFRA.

Since all adjustments in the 04 and 05 NODs derive from GG Capital and GG Capital was a TEFRA partnership in 2000 and 2001, none of the adjustments could lawfully be included in the 04 NODs and 05 NODs. As such, Tax Court lacked jurisdiction over the 04 NODs and 05 NODs and these cases had to be dismissed.

B. Tax Court Erroneously Determined Certain NODs Were Timely.

Tax Court also must determine if the applicable notice was issued by IRS within the period of limitations. If the notice was issued after expiration of the period of limitations, the case is subject to dismissal. See Schockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012).

1. The 04 NODs Were Mailed Late.

The 04 NODs were dated on the last day of the period of limitations. There is no credible evidence the 04 NODs were actually mailed on that date, however. Tax Court incorrectly imposed the burden on Appellants to prove tardy mailing and erroneously determined the 04 NODs were timely as a result.

The 04 NODs themselves are internally inconsistent. IRS is required to state in the NOD the last day upon which a Tax Court petition can be filed. 26 U.S.C. §6213(a). The 04 NODs in our case compute a last day to file of January 14, 2005, a Friday. (Doc. #69, Exs. 33-J & 38-J) Since this is an automated process, the inclusion of this date suggests a preparation date for the 04 NODs of October 16, 2004, one day after the expiration of the period of limitations. IRS offered no explanation for this discrepancy. (Doc. #81, pp. 747-749)

IRS could have resolved the internal inconsistency with compelling proof of actual timely mailing. In the IRS answers, however, IRS incorporated purported mailing confirmations that were themselves incomplete and unsigned. (Doc. #81, pp. 733-734) This is an IRS admission that this version “certified” mailing, even though it failed to follow established IRS procedures. IRS attempted to cure the defect in the mailing certificate by producing another copy at trial that had the necessary signatures. (Doc. #72, Ex. 100-R) There should be only one version of this certificate. The very existence of multiple versions casts doubt on all versions. The IRS proof of mailing was therefore no proof.

IRS also had IRS employees testify about IRS mailing procedures. None of these employees had any direct involvement in mailing the 04 NODs, however. This testimony, therefore, was essentially irrelevant.

Furthermore, the testimony IRS did provide highlighted the chaos surrounding the mailing of the 04 NODs. Jacqueline Brooks (“Brooks”), manager of the group that prepared the 04 NODs, testified her group did not follow “typical” procedures with the 04 NODs because the 'statute was going that day.” (Doc. #81, p. 728) Brooks also seemed confused as to who prepared the 04 NODs. Brooks first claimed that the 04 NODs were “assigned to” Ms. Schupmann. The IRS Answering Brief also claimed that Schupmann had “prepared” the 04 NODs. Schupmann's name does not appear in the 04 NODs, however. Her name appears in the 05 NODs as the “Person to Contact.” Carol Dailing is the “Person to Contact” in the 04 NODs. Brooks ultimately conceded that Dailing had “probably” prepared the 04 NODs. Brooks' confusion likely arose as a result of not following “typical” procedures.

In spite of all the chaos surrounding the mailing of the 04 NODs, Tax Court applied the presumption of official regularity to determine that the 04 NODs were in fact mailed on the last possible date. The presumption of official regularity does not apply if a taxpayer makes an affirmative showing that IRS did not follow established procedures. Coleman v. Commissioner, 94 T.C. 82, 91 (1990). IRS admits procedures were not followed. Tax Court erroneously applied the presumption. The internal and Postal Service irregularities and the chaos surrounding the mailing of the NODs preclude IRS from meeting its burden of proof for establishing a timely mailing. Tax Court erred in applying the burden and reaching an incorrect conclusion.

2. The 1999 09 NODs Were Late Because the 1999 AD Global Statute of Limitations Had Expired Before the Attempted Conversion.

The 1999 AD Global partnership proceeding is still pending in the Court of Federal Claims, Case No. 04-336T. In that AD Global proceeding, a motion for summary judgment was filed concerning one aspect of the partnership item statute of limitations. IRS prevailed on that motion, but it left other statute of limitation issues undecided.

The claims court has been unwilling to reach a complete determination of the statute of limitations issues because of the pending cases in Tax Court. That left it to Tax Court to decide the issue in the context of the 1999 09 NODs.

Under TEFRA a two-part statute of limitations exists. There is a “Minimum Period” of limitations which applies to all partners based on the filing date of the partnership return and the suspension events in 26 U.S.C. §6229. There is also a “Maximum Period” based on the filing date of the partner's return and the suspension events in 26 U.S.C. §6501.

In our case, the Maximum Period for 1999 expired on October 15, 2003. IRS alleged no circumstance under which this Maximum Period could have been suspended until the AD Global items were ostensibly converted on May 30, 2008. This means the statute of limitations for assessment of any deficiency related to the 1999 09 NODs could only be open if the Minimum Period for AD Global partnership items remained open until the conversion.

As with many other issues in this complicated case, Tax Court ignored its responsibility to make the statute of limitations determination. At no place in the Advisory Opinion does this issue appear. Because the 1999 09 NODs would have been untimely if the AD Global Minimum Period had expired, it was a necessary determination for Tax Court to make in our case. Tax Court failed.

C. Even if the NODs Were Valid, Tax Court Lacked Jurisdiction Over Specific Adjustments in the NODs.

Individual items reported on a partnership return can emanate from another “source” partnership. In this instance, the partnership (i.e., GG Capital) is a “pass-thru partner” and the “indirect partner” reports the partnership items of the source partnership. 26 U.S.C. §§6231(a)(9) & (a)(10); 26 C.F.R. §301.6222(a)-2.

If an NOD issued to an indirect partner adjusts items traceable to a source partnership, Tax Court must determine whether the source partnership was a TEFRA partnership. If the source partnership was a TEFRA partnership, the source partnership's partnership issues must be determined in a partnership proceeding and any source partnership item adjustments included in an NOD are jurisdictionally deficient. See, Candyce Martin 1999 Irrevocable Trust v. United States, 739 F.3d 1204 (9th Cir. 2014).

1. DBI and JPF III Were TEFRA and Could Not Be Adjusted in the 04 NODs.

When IRS finally determined the adjustments that could arguably be included in the 04 NODs in the IRS Computations, only the DBI abandonment loss remained. There is no circumstance under which this adjustment was properly included in the 04 NODs.

IRS was aware that the DBI abandonment loss formed a major portion of the GG Capital losses claimed for 2000. DBI had to be subject to the TEFRA procedure, however, for the simple reason that GG Capital was a partner in DBI. All partnerships that have a partnership as one of its partners are TEFRA. 26 U.S.C. §6231(a)(1)(B)(i). TEFRA partnership item adjustments cannot be made in NODs.

Since DBI was a TEFRA partnership, the only question that remains is whether the loss on abandonment of GG Capital's partnership interest in DBI is a partnership item. Because the abandonment of a partnership interest by one partner affects the share of partnership items for all the remaining partners, the validity and effect of the abandonment loss by the one partner is a TEFRA partnership item that must be determined in a partnership proceeding. Treas. Reg. §301.6231(a)(3)-1; Alpha I L.P. v. United States, 682 F.3d 1009 (Fed. Cir 2012).

The Advisory Opinion repeatedly acknowledges that the DBI abandonment loss was claimed on the 2000 GG Capital return. DBI was subject to TEFRA and any loss (including an abandonment loss) could only be adjusted in an FPAA. Under any circumstance imaginable, the adjustments to the DBI loss were jurisdictionally deficient and had to be stricken from the cases contesting the 04 NODs. Tax Court refused to even consider this jurisdictional issue.

A similar issue exists for JPF III. IRS determined GG Capital reported items of JPF III. That makes JPF III a TEFRA partnership as a matter of law. No JPF III partnership items could be adjusted through an NOD. IRS recognized this error for JPF III and deleted that adjustment in the IRS Computations for the 04 NODs. Even though the TEFRA issue is the same for DBI as it is for JPF III, IRS did not make the corresponding correction for DBI.

2. The 05 NODs Erroneously Include TEFRA Partnership Items.

As with the 04 NODs, even if GG Capital was not a TEFRA partnership, items reported on the 2001 GG Capital return were flow-through items from other TEFRA partnerships. More specifically, there are two additional items that IRS purports to adjust in the 05 NODs. First, IRS attempts to disallow a “prior suspended loss.” According to IRS's own characterization, however, the prior suspended loss was attributable to AD Global converted items. If this is true, the prior suspended loss itself had to be a converted item. See, G-5 Investment Partnership v. Commissioner, 128 T.C. 186 (2007) (items retain their character when carried over to another year). Since the conversion occurred in 2008, there can be no jurisdiction over this item in the 05 NODs issued in 2005.

IRS also purports to adjust the JPF V flow-through loss claimed on GG Capital's 2001 return. As was the case with DBI, however, since GG Capital was a partner and claimed a distributive share of the loss of JPF V, JPF V was a TEFRA partnership by definition. The partnership items of a TEFRA partnership cannot be adjusted in a normal NOD such as the 05 NODs.

There is no possible way the Tax Court could have jurisdiction over the prior suspended loss and the JPF V items in a case contesting the 05 NODs. These issues had to be dismissed and stricken. As with DBI, Tax Court failed to analyze its jurisdiction on these issues before issuing the Advisory Opinion.

II. TAX COURT ERRONEOUSLY ADDRESSED THE FAILURES OF THE NODS.

A. The Issues In a Tax Court Case

In a very real sense, the issues in a Tax Court case are established before the case is filed. Pursuant to 26 U.S.C. §6212(a), an NOD is only authorized if IRS “determines” a deficiency. The NOD therefore determines the issues in the Tax Court case before the case is filed. As set forth above, this rule is so strict Tax Court lacks jurisdiction if it is clear from the NOD itself that the IRS failed to “determine” a deficiency. Scar v. Commissioner, 814 F.2d 136 1370 (9th Cir. 1987).

Tax Court reviews the determination in the NOD de novo. The reasons for the IRS determination are beyond the scope of Tax Court's review. Greenberg's Express v. Commissioner, 62 T.C. 324 (1974). Courts will not “go behind” the NOD to determine the reasons the notice was issued even if IRS issued multiple self-contradictory notices. Bedrosian v. Commissioner, 940 F.3d 467, 473 (9th Cir. 2019).

The typical “reward” IRS receives for clearly determining a deficiency is the burden of proof in the Tax Court proceeding is generally imposed on the taxpayer. Tax Court Rule 142. The concept is that the taxpayer possesses the facts concerning specific IRS adjustments and should therefore be required to produce the supporting information.

This rule is modified in “negative proof” cases, however. If the NOD fails to adequately explain the basis of IRS's income determination, IRS bears the initial burden on the theory the taxpayer can't prove a negative (e.g., the absence of unspecified additional income). See United States v. Janis, 428 U.S. 433, 441-442 (1976); Portillo v. Commissioner, 932 F.2d 1128 (5th Cir. 1991); Carson v. Commissioner, 560 F.2d 693, 695-696 (5th Cir. 1977). The notion is therefore established that IRS determination in an NOD is entitled to the presumption of correctness so long as it explains the adjustments in a manner that notifies the taxpayer of the basis of the determination.

B. IRS Can Only Change the Determination by Amending the Answer and Assuming the Burden of Proof

Even if the burden of proof is on the taxpayer for the determination in an NOD, the issues in a Tax Court case can change after the case is filed. In general, once Tax Court jurisdiction is properly invoked for a tax year, Tax Court acquires jurisdiction over all issues for that tax year.

Under the Tax Court Rules, when IRS wants to increase the deficiency or raise a new issue that requires different evidence, however, the new issue is considered to be a “new matter.” Shea v. Commissioner, 112 T.C. 183, 191 (1999). IRS assumes the burden of proof on any new matter IRS raises. Tax Court Rule 142. For all new matters on which IRS has the burden of proof, IRS must seek leave to file an amended answer and affirmatively plead “a clear and concise statement of every ground, together with the facts in support thereof on which [IRS] relies.” Tax Court Rule 36(b), 41(a).

In sum, the NOD determines the issues in the case very precisely. If the IRS seeks to raise a new issue that requires different evidence, IRS must affirmatively plead the issue before or after trial and bear the burden of proof on the new matter.

C. Tax Court Failed to Impose Burden of Proof on IRS as Required by Tax Court's Rules.

Tax Court incorrectly determined the burden of proof. The NODs in our cases are essentially negative proof NODs. By failing to adjust amounts actually claimed on Appellants' returns, our NODs essentially forced Appellants to guess at what IRS's actual adjustments were. This is not how it is supposed to work. The NODs in our case fail to identify the IRS determination in a manner that entitles IRS to place the initial burden of proof on Appellants.

Even if the IRS determination in the NODs is sufficient, it is clear that the positions IRS took at trial were dramatically different. Tax Court, however, did not follow its own rules in allowing these changes of position by IRS in two respects.

First, as set forth above, position changes which require different evidence constitute a “new matter” which requires affirmative pleading with Tax Court's permission. IRS made no such affirmative pleadings. Without affirmative pleadings, these issues should not have even been considered.

Second, even if it was appropriate for Tax Court to consider these new IRS positions, there is no circumstance under the Tax Court Rules where IRS should not have been required to bear the burden of proof. The trade off under the Tax Court rules for being allowed to raise a new position is the party gaining that permission must bear the burden of proof on that new issue. It is clear in the Advisory Opinion, however, the Tax Court did not apply its own rules correctly. These errors are evidenced in the following matters.

1. Identifying GG Capital's Actual Losses Claimed

All of the NODs in our case were effectively gibberish. IRS did not identify losses actually claimed and make actual adjustments to those items. Instead, IRS simply recomputed what IRS wanted Appellants' income to be and provided boilerplate explanations that had little or nothing to do with amounts actually reported on GG Capital's returns. When IRS finally identified the actual adjustments in the IRS Computations, the burden of proof had to be on IRS to prove the correctness of those determinations.

2. Single Option

Nothing in any of the NODs suggests an IRS position that the long leg and the short leg were in fact a single option. Nevertheless, the Advisory Opinion at p. 60 adopts this rationale in support of its ultimate determination. Along the way, Tax Court excluded the testimony of Deutsche Bank in other proceedings which would have contradicted that the two legs were in fact a single option. (Doc. #99)

Tax Court allowed IRS to raise a new matter without affirmative pleading, did not impose the burden of proof on IRS for this new matter, excluded evidence that could have allowed Appellants to contradict IRS's burden, and then ruled in IRS's favor on this surprise issue. This completely violates the Tax Court Rules and erroneously applies the burden of proof on this new determination.

3. Disregarding JPF III

Appellants were not placed on notice at any point prior to the trial that the viability of JPF III was an issue in the case. Nevertheless, Tax Court allowed IRS to raise this assertion without an affirmative pleading, did not impose the burden of proof on IRS on this new issue, and ultimately ruled against Appellants on the issue without giving Appellants any opportunity to submit evidence.

4. Failing to Reopen the Record

In the end, the Advisory Opinion repeatedly suggests that Appellants' testimony was not credible and documents were not admitted into evidence to support that testimony. In most instances, however, Appellants testified during the trial concerning the supporting documents typically on IRS cross-examination. Appellants, however, failed to offer these documents into evidence, thereby allowing Tax Court to act as if the documents did not exist.

After the Advisory Opinion was issued, Appellants discovered their oversight. Appellants sought to introduce the documents so the record could be complete. (Doc. #117) Tax Court denied this motion for the stated reason that it would not change the Advisory Opinion. (Doc. #118) This cannot be true. In view of Tax Court's repeated findings that determinations were made based on lack of documents, the existence of the documents must change the Advisory Opinion.

Tax Court misapplied rules of procedure in refusing to grant the motion to reopen. The omitted documents were in IRS's possession and subject to cross-examination during the trial. In these situations Tax Court commits error in refusing to admit available substantiating documentation when the content of the documents was not questioned during the trial. Cummings v. Commissioner, 437 F.2d 796 (5th Cir. 1971), citing Stivers v. Commissioner, 360 F.2d 35 (6th Cir. 1966).

Tax Court's denial of the motion to reopen the record is all the more troubling when the repeated errors in assigning the burden of proof are considered. Overall, the Advisory Opinion could be characterized as Tax Court inappropriately imposing the burden of proof on Appellants and then ensuring Appellants did not meet this burden by artificially excluding the documentation to support Appellants' positions. This may be an easy way out of a long-running case, but it is a gross misapplication of the Tax Court Rules and the applicable burden of proof.

D. Tax Court Failed to Redetermine Deficiencies.

Tax Court had to identify adjustments to amounts actually claimed and redetermine those items in specific findings in an opinion. Tax Court failed to do so. Instead, the actual adjustments which should have been the subject of the trial were not determined until years after the trial was over. This led to the chaotic post-trial proceedings which attempted to determine what the actual adjustments in the case were.

Perhaps the best example of Tax Court's failure to redetermine deficiencies is in the analysis of whether appellants actually claimed any AD Global Losses. Confronted with Appellants' contention throughout the trial that no AD Global Losses were actually claimed in any year, Tax Court concluded Appellants “effectively transferred” AD Global Losses to Appellants via the option sales. Advisory Opinion, p. 17, n. 15. This is a bizarre characterization which was central to redetermining a deficiency yet Tax Court provided no explanation of how this “effective transfer” occurred. This failure to properly redetermine the deficiencies is part of Tax Court's overall effort to shoehorn our cases into other Son-of-BOSS cases without regard to what was actually claimed on the return. Advisory Opinion, p. 56. Analogizing to other cases does not redetermine deficiencies in our cases which involve different losses actually claimed.

III. TAX COURT ERRONEOUSLY LIMITED ISSUES AFTER THE TRIAL.

The failure of IRS to determine a deficiency based on adjustments to items actually claimed on GG Capital's returns created a mess. The Advisory Opinion (at footnote 23) implored the parties to clean up the mess post trial. Every time Appellants attempted to clean up the mess, however, Tax Court refused to properly consider Appellants' attempts.

A. Tax Court Erroneously Accepted the IRS Computations.

A Tax Court opinion redetermines the adjustments in the NOD. Unless one party wins in its entirety, however, it is typically necessary for computations to be made to implement the redeterminations in the Tax Court opinion.

The process for submitting proposed computations is set forth in Tax Court Rule 155. The parties either agree to the computation of the deficiencies that result from the redetermination in the Tax Court opinion or each party submits its own computation. Tax Court typically allows each party to object to the other's computation.

Once the competing Rule 155 computations are submitted, Tax Court reviews the computations and determines the final deficiency. These computations are then incorporated into a decision which can then be appealed or becomes final.

The process was done “backwards” in our cases. IRS needed to make determinations of what was actually claimed and propose specific adjustments to the reported items. Tax Court needed to determine its jurisdiction over the notices and specific adjustments, issue an opinion that redetermined the adjustments, and then determine the applicable computations in the Rule 155 proceeding. Instead, IRS waited until the Rule 155 stage of the proceedings to finally identify the items actually reported on Appellant's returns and the specific adjustments to those items. This led to the mess that is now before this Court.

1. IRS Finally Determined Actual Deficiencies in the IRS Computations.

Once the Advisory Opinion was issued, IRS could delay making actual determinations no longer. The only thing left for Tax Court to decide was the computation of the deficiency from the NODs. When IRS finally made the actual determination of the adjustments in the IRS Computations, it became apparent that the NODs contained adjustments that were jurisdictionally deficient.

2. Tax Court Refused to Acknowledge Its Lack of Jurisdiction.

On August 29, 2019, Appellants filed a motion to dismiss for lack of jurisdiction and to strike for all of our cases. (Doc. #141) The IRS Computations were the first identification of the actual determinations in the NODs. Those computations made it clear that the Court lacked jurisdiction to make any determinations for the identified adjustments. Jurisdictional motions can be made at any time. Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978).

Undoubtedly loathe to think all of its efforts were in vain, Tax Court simply refused to acknowledge that it lacked jurisdiction to redetermine the actual adjustments finally identified by IRS. Tax Court lacked jurisdiction over all of the adjustments in the NODs. All of these cases should have been dismissed.

In the IRS Computations, IRS conceded all of the adjustments in the 04 NODs except the adjustments to DBI and JPF III. As set forth above, DBI and JPF III were TEFRA partnerships and their partnership items could not be adjusted in the 04 NODs. Accordingly, these adjustments (once identified) had to be stricken from the 04 NODs leaving Tax Court with jurisdiction over nothing.

The issue is even more stark for the 2001 tax year. The IRS Computations for the 2001 09 NODs actually acknowledge Tax Court never had jurisdiction over these NODs. The IRS Computations propose no adjustments in the 2001 09 NOD cases. Tax Court wanted to believe that was because these issues were conceded. (Doc. #144) In fact, it is because IRS determined there were never any converted items to include in the 2001 09 NODs.

The IRS concession highlights the inappropriateness of the Tax Court's jurisdictional analysis in our case. IRS conceded there were never any appropriate converted item adjustments to include in the 2001 09 NODs. Notwithstanding IRS's tardy candor, Tax Court simply treated it as a concession of an issue. This is entirely erroneous. There was never a converted item. Tax Court had to dismiss the cases involving the 2001 09 NODs for lack of jurisdiction. Appellants' motion emphasized the inappropriateness of entering a decision in a case in which Tax Court lacked jurisdiction. (Doc. #141, pp. 19-21) Tax Court still did not “get it.”

B. Tax Court Erroneously Refused to Consider CUPA/§704(b) Allocations Conceded by IRS Before Trial.

IRS acknowledged that IRS would ultimately apply 26 U.S.C. §704(b) in allocating adjustments among GG Capital's partners. (Doc. #57, pp. 67-69) The IRS Computations did not do this, however.

The regulations under §704(b) base allocations on the partnership's applicable state law. GG Capital's partnership allocations are therefore dictated by the California Uniform Partnership Act (“CUPA”). CUPA requires pro rata allocations unless a contrary allocation is established. Cal. Corp. Code §16401(b). GG Capital had no written partnership agreement so the CUPA allocation controlled.

IRS ignored CUPA. Appellants responded to IRS's misapplication of the partnership allocation rules by objecting to the IRS Computations and providing proper allocations. (Doc. #147 148) After Tax Court rejected these attempts to enforce IRS's prior representations on the grounds that Appellants' challenge to this was too late in the proceedings, Appellants sought to vacate the decision based on the self-evident proposition that Appellants could not know IRS would allocate adjustments incorrectly until the IRS Computations were actually received (Doc. #156). True to form, Tax Court faulted Appellants for failing to anticipate IRS's change of position and create a trial record on an issue Appellants did not even know was at issue for trial. (Doc. #157)

Tax Court ultimately justified the refusal to consider Appellants' contentions based on the limited scope of a Rule 155 proceeding. This incorrectly applies the rule. Rule 155 proceedings can consider a number of substantive issues which the parties are not on notice to address at trial. Vento v. Commissioner, 152 T.C. 1, 9 (2019). This is exactly our situation. Tax Court misapplied Rule 155 and erroneously excluded Appellants' arguments on the allocation of the GG Capital partnership adjustments.

C. Tax Court Erroneously Refused to Consider §6404(g) Interest Suspension Conceded by IRS in the NODs.

Tax Court's inappropriate failure to consider the interest suspension issue under 26 U.S.C. §6404(g) is even more troubling. The 04 and 05 NODs themselves indicate Appellants are eligible for interest suspension. (Doc. #69, Ex. 33-J, p. 000378; Ex. 38-J, p. 000370; Ex. 35-J, p. 000920; Ex. 40-J, p. 000871) Since the NODs are supposed to represent IRS's determination, Appellants had no reason to suspect the §6404(g) interest suspension issue would be eliminated until receipt of the IRS Computations. Appellants raised their objections to the elimination of this issue at the first available opportunity. Tax Court wrongly relied on Rule 155 to exclude Appellants arguments on an issue that Appellants thought the NODs had conceded.

D. Tax Court Wrongly Refused to Consider Greenberg's NOL After it Was Determined by IRS.

Greenberg had a separate issue in Docket No. 1335-06. In an unrelated proceeding with IRS involving a subsequent year, IRS agreed to allow Greenberg a net operating loss (“NOL”). By law, unless the taxpayer elects to forego the carryback of an NOL, the NOL must be carried back. 26 U.S.C. §172(b)(3). That meant the NOL had to be applied to Greenberg's 2001 tax year, which was at issue in Docket No. 1335-06.

Greenberg sought to raise this issue by seeking to amend the petition in Docket No. 1335-06. (#1335-06, Doc. #102) Even though this NOL had only been established after the conclusion of the trial in our case, Tax Court denied Greenberg's motion as tardy. (#1335-06, Doc. #124) It is unclear if Greenberg has another forum in which to raise this NOL. It may be that the NOL must be raised in our case. See Longiotti v. United States, 819 F.2d 65 (4th Cir. 1987); Mar Monte Corp. v. United States, 503 F.2d 254 (9th Cir. 1974). Tax Court nevertheless refused to allow Greenberg's NOL to be raised in the Rule 155 computations even though Tax Court precedent allows it. Harris v. Commissioner, 99 T.C. 121 (1992). This is a clear violation of established law and Tax Court Rule 155 under the circumstances of our case.

CONCLUSION

IRS did not do what the statute requires in our cases. IRS did not determine a deficiency by making adjustments to amounts actually claimed on tax returns in any of the NODs. Tax Court did not correct the situation by forcing IRS to identify its actual adjustments prior to trial so Tax Court could determine if Tax Court had jurisdiction over the adjustments. Tax Court in fact lacked jurisdiction. The IRS's failure to make determinations also left Appellants guessing at IRS positions on which Tax Court erroneously imposed the burden of proof on Appellants. In the end, these IRS failures left Tax Court no choice but to issue an Advisory Opinion and hope the parties could sort things out later when IRS finally determined real deficiencies in the IRS Computations. Tax Court then erroneously rejected Appellants' efforts to clarify Tax Court's lack of jurisdiction and correct the computations on matters that could not have previously been raised. For all of the reasons set forth above, Tax Court must be reversed and decisions be entered for Appellants in all cases.

DATED: September 21, 2020

Respectfully submitted,

STEVEN R. MATHER
MATHER | ANDERSON

Attorney for Appellants