Government Argues Tax Court Decision Is Correct in Shelter Case

DAVID B. GREENBERG,
Petitioner-Appellant
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

ON APPEAL FROM THE DECISIONS
OF THE UNITED STATES TAX COURT

BRIEF FOR THE APPELLEE

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

BRUCE R. ELLISEN
(202) 514-2929
ANTHONY T. SHEEHAN
(202) 514-4339
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

C-1 of 4

CERTIFICATE OF INTERESTED PERSONS AND CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1 and Eleventh Circuit Rule 26.1-1, counsel for the Commissioner of Internal Revenue hereby certify that, to the best of their knowledge, information, and belief, the following persons and entities have an interest in the outcome of this appeal:

Barral, Roland, former Area Counsel, Office of Chief Counsel Burnett, Charles B., former senior attorney, Office of Chief Counsel Colleran, Paul, senior attorney, Office of Chief Counsel Commissioner of Internal Revenue, Respondent-Appellee Corrado, Michael P., Area Counsel, Office of Chief Counsel Desmond, Michael J., Chief Counsel, Internal Revenue Service Ellisen, Bruce R., attorney, Appellate Section, U.S. Department of

Justice, Tax Division

Evans, Morgan R., attorney for Petitioners-Appellants

Fee, Jr., James C., Associate Area Counsel, Office of Chief Counsel

Friberg, Ellen T., former Area Counsel, Office of Chief Counsel

C-2 of 4

Goddard, Michelle E., (now Michelle Delponte) Petitioner in related Tax Court cases

Goddard, William A., Petitioner-Appellant (venue over Mr. Goddard's appeal has been transferred to the Ninth Circuit)

Greenberg, David B., Petitioner-Appellant

Greenhouse, Robin, Division Counsel, Office of Chief Counsel

Hochman, Kenneth A., Associate Area Counsel, Office of Chief Counsel

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

Kanrek, Victoria J., senior attorney, Office of Chief Counsel

Karsh, Nancy L., former senior attorney, Office of Chief Counsel

Klimas, Geoffrey J., attorney, Appellate Section, U.S. Department of Justice, Tax Division

Knospe, Marvis A., former Associate Area Counsel, Office of Chief Counsel

Kroening, Linda M., former Division Counsel, Office of Chief Counsel

Labelle, Peter J., former Acting Division Counsel, Office of Chief Counsel

C-3 of 4

Lee, David A., attorney, Office of Chief Counsel

Maselli, Joseph F., former Area Counsel, Office of Chief Counsel

Mather, Steven R., (Mather|Anderson) attorney for Petitioners-Appellants

Nelson, Bernard B., former Area Counsel, Office of Chief Counsel

O'Leary, Mark E., former Associate Area Counsel, Office of Chief Counsel

Patterson, Bradley A., attorney for Petitioners-Appellants

Poor, Benjamin R., attorney for Respondent-Appellee

Rettig, Charles P., Commissioner of Internal Revenue

Sheehan, Anthony T., attorney, Appellate Section, U.S. Department of Justice, Tax Division

Spadaro, Ruth M., Acting Area Counsel, Office of Chief Counsel

Thomas, Thomas R., Division Counsel, Office of Chief Counsel

Ugolini, Francesca, Chief, Appellate Section, U.S. Department of Justice, Tax Division

Zuckerman, Richard E., Principal Deputy Assistant Attorney General, U.S. Department of Justice, Tax Division

C-4 of 4

Counsel for the appellants reports that no corporation is involved in this appeal. We have no reason to dispute that statement.

STATEMENT REGARDING ORAL ARGUMENT

Pursuant to 11th Cir. R. 28-1(c) and Fed. R. App. P. 34(a), counsel for the Commissioner respectfully inform this Court that they believe that oral argument would be helpful to the Court in navigating this appeal involving five Tax Court cases.

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TABLE OF CONTENTS

Certificate of Interested Persons and Corporate Disclosure Statement

Statement regarding oral argument

Table of contents

Table of citations

Glossary

Statement of jurisdiction

Statement of the issues

Statement of the case

Summary of argument

Argument

Conclusion

Certificate of compliance

Certificate of service

Addendum of pre-2018 partnership provisions

TABLE OF CITATIONS

Cases:

^*AD Global Fund v. United States, 481 F.3d 1351 (Fed. Cir. 2007), aff'g 67 Fed. Cl. 657 (2005)

Badaracco v. Commissioner, 464 U.S. 386 (1984)

Bourekis v. Commissioner, 110 T.C. 20 (1998)

Bufferd v. Commissioner, 506 U.S. 523 (1993)

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

Cambridge Univ. Press v. Albert, 906 F.3d 1290 (11th Cir. 2018)

^*Clapp v. Commissioner, 875 F.2d 1396 (9th Cir. 1989)

Clough v. Commissioner, 119 T.C. 183 (2002)

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

Commissioner v. McCoy, 484 U.S. 3 (1987)

Corbalis v. Commissioner, 142 T.C. 46 (2014)

Cropper v. Commissioner, 826 F.3d 1280 (10th Cir. 2016)

Cummings v. Commissioner, 437 F.2d 796 (5th Cir. 1971)

E. Norman Peterson Marital Tr. v. Commissioner, 78 F.3d 795 (2d Cir. 1996)

Erhard v. Commissioner, 46 F.3d 1470 (9th Cir. 1995)

Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141 (1982)

Hall, Estate of, v. Commissioner, 92 T.C. 312 (1989)

Hamilton v. Southland Christian Sch., Inc., 680 F.3d 1316 (11th Cir. 2012)

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

Haynes v. McCalla Raymer, LLC, 793 F.3d 1246 (11th Cir. 2015)

Highpoint Tower Tech. Inc. v. Commissioner, 931 F.3d 1050 (11th Cir.), cert. denied sub nom. Bocilla Island Seaport, Inc. v. Commissioner, 140 S. Ct. 606 (2019)

Houston v. Marod Supermarkets, Inc., 733 F.3d 1323 (11th Cir. 2013)

Hurst v. Commissioner, 124 T.C. 16 (2005)

INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992)

J.P. Morgan Chase & Co. v. Commissioner, 530 F.3d 634 (7th Cir. 2008)

Karahalios v. Nat'l Fed'n of Fed. Employees, 489 U.S. 527 (1989)

Kim v. Commissioner, 679 F.3d 623 (7th Cir. 2012)

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

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

Long v. Commissioner, 772 F.3d 670 (11th Cir. 2014)

McKnight v. Commissioner, 99 T.C. 180 (1992), aff'd, 7 F.3d 447 (5th Cir.1993)

Med James, Inc. v. Commissioner, 121 T.C. 147 (2003)

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

NASUCA v. FCC, 457 F.3d 1238, modified on denial of reh'g, 468 F.3d 1272 (11th Cir. 2006)

Nat'l Archives & Records Admin. v. Favish, 541 U.S. 157 (2004)

New Colonial Ice Co. v. Helvering, 292 U.S. 435 (1934)

Omega Forex Grp. v. United States, 906 F.3d 1196 (10th Cir. 2018)

Paccar, Inc. v. Commissioner, 849 F.2d 393 (9th Cir.1988)

Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d 982 (11th Cir. 2016)

Rose v. Commissioner, 311 Fed. Appx. 196 (11th Cir. 2008)

Russian Recovery Fund Ltd. v. United States, 851 F.3d 1253 (Fed. Cir. 2017)

Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987)

SEC v. Quiros, 966 F.3d 1195 (11th Cir. 2020)

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

Stewart v. Commissioner, 714 F.2d 977 (9th Cir. 1983)

Stivers v. Commissioner, 360 F.2d 35 (6th Cir. 1966)

UnionBanCal Corp. v. Commissioner, 305 F.3d 976 (9th Cir. 2002)

United States v. Beane, 841 F.3d 1273 (11th Cir. 2016)

United States v. Chem. Found., 272 U.S. 1 (1926)

United States v. Goldston, 324 Fed. Appx. 835 (11th Cir. 2009)

United States v. Melot, 562 Fed. Appx. 646 (10th Cir. 2014)

Venezuela v. Helmerich & Payne Int'l Drilling Co., 137 S. Ct. 1312 (2017)

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

Welch v. Helvering, 290 U.S. 111 (1933)

White v. Commissioner, 172 F.2d 629 (5th Cir. 1949)

Young v. Commissioner, 926 F.2d 1083 (11th Cir. 1991)

Statutes:

California Corporate Code § 16401

Internal Revenue Code of 1986 (26 U.S.C.):

Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3463, 112 Stat. 685

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401-407, 96 Stat. 324 (formerly codified at I.R.C. §§ 6221-6234)

Miscellaneous:

H.R. Conf. Rep. No. 97-760 (1982), 1982-2 C.B. 600

H.R. Rep. No. 105-364 (Part 1) (1998), 1998-3 C.B. 373

Hearings on H.R. 6300, H.R. Comm. on Ways and Means, 97th Cong., 2d Sess. (1982)

S. Rep. No. 105-174 (1998), 1998-3 C.B. 537

Tax Court Rules of Practice and Procedure:

Treasury Regulations (26 C.F.R.):

GLOSSARY

Br.	Opening brief of the appellant
DBI	DBI Acquisitions II
Commissioner	Commissioner of Internal Revenue (the Respondent-Appellee)
FPAA	Final Partnership Administrative Adjustment. See I.R.C. §§ 6223(a), (d), 6226.
Goddard	William A. Goddard (the taxpayer whose appeal from five Tax Court decisions has been transferred to the Ninth Circuit)
Greenberg	David B. Greenberg (the taxpayer whose appeal from five Tax Court decisions remains in this Court)
I.R.C.	Internal Revenue Code of 1986 (26 U.S.C.)
IRS	Internal Revenue Service
Lee	Raymond Lee (Goddard's law partner)
ROA	Record on Appeal consisting of 37 volumes as numbered by this Court. Page references are to the CM/ECF page numbers assigned to the pages of each volume.
	Tax Court Docket	Record Volumes
	1143-05 (lead) (2000 individual notice of deficiency)	ROA-DS (docket sheet) and ROA-1 to ROA-18
	1335-06 (2001 individual notice of deficiency)	ROA-B-DS and ROA-B-1
	20676-09 (2001 converted-item notice of deficiency)	ROA-G-DS and ROA-G-1
	20677-09 (1999 converted-item notice of deficiency)	ROA-H-DS and ROA-H-1
	20678-09 (2000 converted-item notice of deficiency)	ROA-I-DS and ROA-I-1
	We have also included in the Supplemental Appendix the Tax Ct. Rule 155 computations that the Commissioner filed in the Tax Court in Nos. 1335-06, 20676-09, 20677-09, and 20678-09. Although the computation documents are part of the Tax Court's record, they were omitted from the electronic record transmitted to this Court. Those documents are cited as SA-[tab] and the page within the document.
Tax Court	United States Tax Court
TEFRA	Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, §§ 401-407, 96 Stat. 324.
TMP	Tax Matters Partner. See I.R.C. § 6231(a)(7).
Treas. Reg.	Treasury Regulation (26 C.F.R.)

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STATEMENT OF JURISDICTION

1. Jurisdiction in the Tax Court

On various dates in 2004, 2005, and 2009, as authorized by I.R.C. § 6212(a), the IRS sent David Greenberg five notices of deficiency regarding his 1999-2001 income taxes. Pursuant to I.R.C. §§ 6213(a), 6214(a), and 7442, the Tax Court acquires jurisdiction over a case if the taxpayer files a petition within 90 days after the mailing of the notice of deficiency. A petition is treated as timely filed if it is sent to the Tax Court on or before the last day for filing in accordance with the timely mailing provisions of I.R.C. § 7502. See Treas. Reg. § 301.7502-1. All five of Greenberg's petitions were timely. (ROA-1 1, 19; ROA-B-1 1, 20; ROA-G-1 1, 9; ROA-H-1 1, 9; ROA-I-1 1, 8.) Greenberg argues that the Tax Court lacked jurisdiction over his cases for various reasons. We will address those arguments in the Argument section of this brief.

2. Jurisdiction in the Court of Appeals

On April 17, 2020, the Tax Court disposed of all the parties' claims by entering a final decision in each case. (ROA-18 314-315; ROA-B-1 307-308; ROA-G-1 184; ROA-H-1 186-187; ROA-I-1 190-191.) On July 15, 2020, Greenberg timely filed a notice of appeal within 90 days after the entry of the decisions. (ROA-18 324-325.) I.R.C. § 7483. This Court has jurisdiction pursuant to I.R.C. § 7482(a)(1).

STATEMENT OF THE ISSUES

1. Whether the IRS timely mailed valid notices of deficiency to Greenberg.

2. Whether the IRS made valid adjustments to the tax items at issue and properly allocated those adjustments.

3. Whether Greenberg's challenges to the Tax Court's procedural rulings lack merit.

STATEMENT OF THE CASE

(i) Course of proceedings and disposition below

The IRS sent David Greenberg and William Goddard five notices of deficiency each, determining deficiencies and penalties in their 1999-2001 income taxes. (ROA-17 150, 174-176.) The Tax Court consolidated the resulting ten cases for trial, briefing, and opinion.¹ (ROA-17 148 n.1.) After a trial, the Tax Court (Judge Holmes) issued an opinion (T.C. Memo. 2018-74) upholding the adjustments underlying the deficiencies but declining to uphold the penalties because the IRS had not timely obtained supervisory approval thereof. (ROA-17 148-211.) Because the notices of deficiency had duplicative adjustments to prevent the IRS from being whipsawed, computations under Tax Court Rule 155 were necessary to allocate the adjustments. (ROA-17 176 n.23, 211-212.) The Tax Court entered a decision in each case, and Greenberg and Goddard appealed. (ROA-18 325.) This Court transferred venue over Goddard's appeal to the Ninth Circuit, thereby limiting this appeal to Greenberg's cases.

(ii) Statement of the facts

1. Introduction to partnership taxation

This appeal involves complex tax shelters and the substantive and procedural rules of partnership taxation. See generally Highpoint Tower Tech. Inc. v. Commissioner, 931 F.3d 1050, 1052-54 (11th Cir.) (discussing the Son-of-BOSS tax shelter and partnership taxation), cert. denied sub nom. Bocilla Island Seaport, Inc. v. Commissioner, 140 S. Ct. 606 (2019). For conciseness, we will omit terms like “purported” and use terms like “loss” without conceding that such usage reflects reality for tax purposes. Given the complexity of the tax reporting of the transactions, amounts are not always consistent across different documents.

Partnerships are not taxable entities for purposes of federal income taxation. I.R.C. § 701. Instead, they annually file a Form 1065 information return and issue to each partner a Schedule K-1 showing that partner's distributive share of the partnership's tax items. I.R.C. § 6031. Each partner must then report his share of the partnership's items on his individual return and treat them consistently with their treatment on the partnership's return. I.R.C. §§ 702, 6222(a).

During the years at issue, partnership audits and litigation were governed by the provisions formerly found in I.R.C. §§ 6221-6234, which Congress enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401-407, 96 Stat. 324, 648-71. TEFRA established comprehensive procedures for determining all “partnership items” of income, loss, deduction, or credit uniformly at the partnership level in a single audit and judicial proceeding. See H.R. Conf. Rep. No. 97-760, at 599-600 (1982), 1982-2 C.B. 600, 662-63. A “partnership item” was any item required by regulation to be accounted for at the partnership level. I.R.C. § 6231(a)(3).

Under TEFRA, each partnership designated a “tax matters partner” (TMP) to act on its behalf in dealings with the IRS. See I.R.C. § 6231(a)(7). If the IRS adjusted partnership items during a partnership audit, it issued a Final Partnership Administrative Adjustment (FPAA) that allowed the TMP (and certain other partners) to challenge the adjustments to the partnership items in court. I.R.C. §§ 6223(a), (d), 6226. Upon the completion of the partnership-level proceedings, the IRS made computational adjustments to the partners' returns to reflect the resolution of the partnership items, and then assessed and collected the resulting taxes owed by the partners. I.R.C. §§ 6230(a)(1), 6231(a)(6).

TEFRA contained exceptions under which the affected partners' taxes would be determined as if they had personally engaged in the partnership's transactions. In certain circumstances (e.g., when a partner was under a criminal investigation), the IRS could send a partner a conversion notice informing him that his partnership items shall be treated as nonpartnership items. I.R.C. § 6231(b)(1)(D), (c); Temp. Treas. Reg. § 301.6231(c)-5T. Another exception made the TEFRA procedures inapplicable to “small partnerships” unless they elected to have TEFRA apply. I.R.C. § 6231(a)(1)(B). Small partnerships had ten or fewer partners, each of whom was an individual (other than a nonresident alien), a C corporation, or the estate of a deceased partner. Id.

2. Greenberg, Goddard, and GG Capital

Greenberg was a certified public accountant with a master's degree in accounting. (ROA-17 150.) Over the years, he worked at Arthur Andersen, KPMG, and Deloitte as a tax accountant. (ROA-17 150.) In 1999, Greenberg became a partner at KPMG and a member of Stratecon, a group that designed and sold corporate tax shelters. (ROA-17 155.)

Goddard was an attorney doing tax analysis for corporate and international transactions at Arthur Andersen, where he met Greenberg. (ROA-17 151.) In 1998, after leaving Arthur Andersen and working for several law firms, Goddard started his own firm, Lee Goddard and Duffy. (ROA-17 151.)

GG Capital was a partnership formed in January 1997 by Greenberg and Goddard. (ROA-17 151.) The other partners in 1997 were Raymond Lee (Goddard's law partner) and a Panamanian investment company called Solatium, which withdrew from GG Capital by 1998. (ROA-17 151.) GG Capital served as a financial hub for Greenberg and Goddard, aggregating their income from their day jobs with losses from tax shelters before disbursing the significantly reduced net income back to them. (See ROA-17 152.) For 2000 and 2001, the IRS determined that GG Capital was a small partnership not subject to the TEFRA procedures. (ROA-17 180.)

3. The tax-shelter transactions in this case

In 1997, GG Capital acquired a 20% interest in a company called DBI Acquisitions II (DBI). (ROA-17 152-153.) There followed a series of transactions that generated for GG Capital a large abandonment loss in 1998. (ROA-17 152-155.) GG Capital claimed a carryover deduction for that loss in 2000. (ROA-17 189-190.)

There were four transactions involving pairs of offsetting foreign-currency options during 1999-2000. (ROA-17 155-167.) In each one, a partnership created by Greenberg and Goddard (e.g., JPF or PTC-A) established with a bank long and short European digital call options in Japanese yen.² The premiums for the options were in the millions of dollars, but the partnership would pay the much smaller net premium to the bank. The strike prices were set so that the bank's strike price would be one or two pips above the partnership's. The payout amounts favored the partnership, eliminating its risk at maturity and creating the illusion of a profit potential. If the yen exceeded both strike prices, the bank would owe the partnership a net payout in excess of the net premium. If the price fell between the strike prices, the bank would owe the partnership much more. Hitting that “sweet spot” was exceedingly difficult because it was miniscule and because the bank was the calculation agent responsible for determining the yen's spot price at maturity. All the options here expired without payout.

In November 1999, JPF conducted an option-pair transaction on behalf of GG Capital. (ROA-17 156-160.) That transaction generated loss in two ways.

The first was through executing the SOS (Short Option Strategy) variant of the Son-of-BOSS (Bond and Options Sales Strategy) transaction. Son-of-BOSS was a discredited tax shelter that used the complicated tax-basis rules for partnerships to create artificial tax losses. (ROA-3 245; ROA-17 149.) KPMG marketed the SOS variant to its high-net-worth clients. (ROA-17 155-156.) SOS transactions used a partnership called AD Global Fund, which was created in October 1999 by Alpha Consultants and the Diversified Group to conduct SOS transactions while looking like an investment company. (ROA-17 158.)

In exchange for a membership interest, JPF transferred the option pair to AD Global, which assumed JPF's liability under the short option. (ROA-17 158-160.) As the Tax Court explained, JPF's basis in its membership interest (i.e., its “outside basis”) should have been its $10 million premium for the long option minus the $9.8 million that the bank had nominally paid it for the short option. (ROA-17 156, 158 n.11.) I.R.C. §§ 722, 752. Son-of-BOSS participants, however, claimed under then existing law that they were not required to reduce their outside basis for the short-option premium because their liability under the short option was contingent. (ROA-17 149 n.2; 194.)

JPF soon withdrew from AD Global and received a liquidating distribution in Canadian dollars to be sold or exchanged into U.S. dollars. (ROA-17 160-161.) The economic loss was small (the value of the Canadian dollars minus the net premium), but the apparent tax loss was millions of dollars larger (the value of the Canadian dollars minus the claimed outside basis). Foreign currency was used for the withdrawal payout in the hopes of generating an ordinary loss under I.R.C. § 988 and Treas. Reg. § 1.988-3(a). JPF controlled the timing of the tax loss by deciding when to withdraw. (ROA-17 160.) Because JPF sat between AD Global and Greenberg and Goddard, it could hold the Canadian dollars and convert some of them whenever Greenberg or Goddard needed a tax loss. (ROA-17 160.) The Canadian dollars were converted in 1999 and 2000. (ROA-3 245; ROA-17 160.) The Commissioner estimated that the SOS transaction generated approximately $12.3 million in tax losses during the years at issue. (ROA-17 193.)

The second way that the 1999 option-pair transaction generated loss was by GG Capital (on whose behalf JPF had conducted the transaction) selling part of the long option to Greenberg and Goddard. (ROA-17 160-162.)

In September and November 2000, JPF executed two more option-pair transactions on behalf of GG Capital. (ROA-17 163-165.) The losses were generated by GG Capital selling portions of the long options to Greenberg and Goddard. (ROA-17 164-165.) In November 2001, PTC-A executed an option-pair transaction on behalf of GG Capital, with the loss being generated by GG Capital selling the long option to Greenberg and Goddard. (ROA-17 166-167.)

4. The criminal investigation, the notices of deficiency, and the Tax Court proceedings

In 2004, the IRS sent Greenberg and Goddard notices of deficiency determining deficiencies in their 2000 income taxes based on tax items reported by GG Capital. It did the same in 2005 for their 2001 taxes, resulting in four Tax Court petitions. (ROA-17 150, 174-175.)

In the meantime, the Government began a criminal investigation of KPMG for marketing tax shelters. (ROA-17 167.) The investigation led to Greenberg's indictment for his role in the design and marketing of the SOS shelter and to Goddard fleeing to Portugal, presumably to avoid indictment. (ROA-17 167.)

In 2008 the IRS sent conversion letters informing Greenberg and Godard that, because of the criminal investigation, it would treat their AD Global partnership items and all other partnership items as nonpartnership items. (ROA-4 180-196; ROA-17 175.) In 2009, the IRS sent Greenberg and Goddard converted-item notices of deficiency for 1999, 2000, and 2001, resulting in six more Tax Court petitions. (ROA-17 175-176.)

Greenberg was eventually acquitted, and Goddard returned to the United States. (ROA-17 167-168.) The ten consolidated Tax Court cases then went to trial in February 2011. (ROA-DS 4.)

In May 2018, the Tax Court issued an opinion upholding the adjustments underlying the deficiencies.³ (ROA-17 148-211.) The court held that the losses from the 1997-1998 DBI transactions were not allowable due to a lack of credible evidence that the transactions had occurred. (ROA-17 155, 189-192.) It then disallowed the losses generated by the four option-pair transactions. (ROA-17 192-208.)

First, the Tax Court disallowed the Son-of-BOSS currency losses by disregarding AD Global and JPF as valid partnerships. (ROA-17 194-206.) Both partnerships failed a multifactor validity analysis. (ROA-17 195-200.) Moreover, they did not conduct any genuine business activity because the option pairs were structured to expire together and unexercised while generating tax losses using the partnership basis rules. (ROA-17 200-203.) The court then found that the instant facts “fall squarely within those of other [Son-of-BOSS] cases.” (ROA-17 203-205.) It concluded that the options had been done through the partnerships “only to further a tax-avoidance scheme” by generating losses of a desired character. (ROA-17 205-206.)

The Tax Court explained that the consequence of disregarding the partnerships was that the option pairs would be treated as having been owned directly by Greenberg and Goddard, who could no longer generate losses using the partnership basis rules. (ROA-17 206-207.) The court held that Greenberg and Goddard should have treated the options as a single-option spread (i.e., as parts of a single, inseparable contract), and it upheld the disallowance of their option losses. (ROA-17 207.)

Next, the Tax Court disallowed any losses generated by GG Capital's sales of the long options to Greenberg and Goddard. Although the option pairs had genuinely been issued by a bank, the court found no credible evidence that the subsequent loss-generating transactions had occurred. (ROA-17 162-167, 207-208.)

Because the notices of deficiency contained duplicative adjustments to prevent a whipsaw, Tax Court Rule 155 computations were necessary to allocate the adjustments. (ROA-17 176 n.23, 211-212.) Cf. United States v. Melot, 562 Fed. Appx. 646, 649 n.2 (10th Cir. 2014) (discussing whipsaws). The Tax Court entered a decision in each case, and Greenberg and Goddard appealed. (ROA-18 325.)

(iii) Statement of the standard or scope of review

This Court reviews the Tax Court's legal conclusions de novo and its factual findings for clear error. Highpoint, 931 F.3d at 1056. Questions of subject-matter jurisdiction and statutory interpretation are legal issues. Id. Contrary to Greenberg's argument (Br. 25), the Tax Court's procedural rulings primarily involved exercises of its discretion and are reviewed for abuse of discretion. Cambridge Univ. Press v. Albert, 906 F.3d 1290, 1298 (11th Cir. 2018); Haynes v. McCalla Raymer, LLC, 793 F.3d 1246, 1249 (11th Cir. 2015). The Tax Court's adoption of computations submitted by one of the parties pursuant to Tax Court Rule 155 is also reviewed for abuse of discretion. J.P. Morgan Chase & Co. v. Commissioner, 530 F.3d 634, 638 (7th Cir. 2008).

This Court can affirm a lower court's decisions on any ground supported by the record. Haynes, 793 F.3d at 1249; Hamilton v. Southland Christian Sch., Inc., 680 F.3d 1316, 1318 (11th Cir. 2012). Issues mentioned without a well-developed argument for reversal can be treated as abandoned. See Hamilton, 680 F.3d at 1318-19.

SUMMARY OF ARGUMENT

Greenberg appeals from the Tax Court's decisions determining deficiencies in his 1999-2001 income taxes. Greenberg used a partnership called GG Capital as a financial hub that took his income, offset it with tax-shelter losses, and distributed the significantly reduced net income back to him. Because GG Capital was a “small partnership,” the IRS adjusted its 2000 and 2001 tax items by sending Greenberg two individual notices of deficiency. The IRS also converted Greenberg's items from another partnership into nonpartnership items and sent him three converted-item deficiency notices for 1999-2001. In all instances, the items at issue were adjusted and adjudicated as if they were Greenberg's personal items.

1. Greenberg's first set of arguments challenges the notices of deficiency themselves as invalid or untimely. The notices were valid. In 2000 and 2001, GG Capital was a “small partnership” whose items were properly adjusted by sending deficiency notices to its partners. Greenberg's attempt to elect TEFRA status in 1997 failed because AG. Capital was then ineligible to make an election and because the attempted election did not comply with the controlling regulation. Also, the Tax Court had jurisdiction over all the items on the notices.

The notices were timely. Greenberg filed his 1999 return on October 18, 2000. The IRS sent a timely FPAA to the relevant partnership on October 9, 2003. The partnership's lawsuit challenging the FPAA kept the limitations period open through May 30, 2009, when the IRS sent Greenberg a converted-item deficiency notice. Greenberg filed his 2000 return on October 15, 2001. The IRS timely mailed an individual deficiency notice on October 15, 2004, as shown by a properly completed and timely postmarked Postal Service Form 3877.

2. Greenberg's second set of arguments relates to the adjustments on the deficiency notices. Contrary to Greenberg's argument, the converted-item notices contained multiple entries showing that the IRS had examined the relevant returns. The IRS properly sent notices with duplicate adjustments to prevent a whipsaw. Before the Tax Court's decisions, the Commissioner eliminated the duplication by allocating the items consistent with court's findings and the financial information in the record. Because this case involves disallowed deductions, Greenberg always had the burden of proving his entitlement to each deduction by identifying an applicable statute, showing how the deduction fit within its terms, and substantiating the correct amount.

3. Greenberg's third set of arguments concerns procedural rulings by the Tax Court. The court did not abuse its discretion when it denied Greenberg's motion to reopen. The documents in question were in the exhibit binder at trial; Greenberg realized during post-trial briefing that they had not been offered; but he waited several years, until after the court's opinion, to move to reopen. Next, the court lacked jurisdiction in this deficiency case to decide whether Greenberg was entitled to a suspension of interest. Finally, the court did not abuse its discretion when it denied Greenberg's motion to amend his petition to claim in 2001 a net-operating-loss carryback deduction. Greenberg filed his motion during the post-opinion computations; it required additional fact-finding not allowed at that stage; and it likely was futile because 2001 was beyond the carryback period for the loss.

ARGUMENT

I The IRS timely mailed valid notices of deficiency to Greenberg

Greenberg makes three sets of argument. The first set challenges the notices of deficiency themselves as invalid or untimely.

A. The individual notices of deficiency for 2000 and 2001 were valid because GG Capital was a small partnership

1. Introduction

Greenberg argues that the Tax Court lacked jurisdiction over the individual notices of deficiency for 2000 and 2001 because the IRS should have sent FPAAs instead. (Br. 28, 38-46, 51-55.) As the Tax Court explained, if the IRS erroneously classified an entity and sent deficiency notices instead of an FPAA (or vice-versa): the erroneous documents were invalid; the Tax Court lacked jurisdiction; and the taxpayer could avoid a tax adjustment if the time had expired for the IRS to send the correct document. (ROA-17 182 n.25.)

The Code did not subject all entities that operated as partnerships (see I.R.C. § 761(a)) to the TEFRA procedures. There was an automatic exception for “small partnerships,” viz., partnerships having ten or fewer partners, each of whom was an individual (other than a nonresident alien), a C corporation, or the estate of a deceased partner. I.R.C. § 6231(a)(1)(B)(i). The status of a partnership as a small partnership could change from year to year. Temp. Treas. Reg. § 301.6231(a)(1)-1T(a)(4). A small partnership could elect back into TEFRA, and the election would be effective for all subsequent years unless revoked with the IRS's consent. I.R.C. § 6231(a)(1)(B)(ii).

2. Greenberg's attempt in 1997 to elect TEFRA treatment for GG Capital was ineffective

a. Greenberg introduced at trial GG Capital's 1997 partnership return, to which was attached a handwritten statement by Greenberg purporting to make a TEFRA election. (ROA-6 15.) In 1997, Temp. Treas. Reg. § 301.6231(a)(1)-1T(b) governed TEFRA elections.⁴ The electing partnership had to be a small partnership. It also had to attach to its return a statement identified as an election under § 6231(a)(1)(B)(ii) and signed by all persons who were partners during that tax year. The Tax Court concluded that the 1997 statement failed both requirements. (ROA-17 168-170, 181-185.)

Because GG Capital was not a small partnership in 1997, it could not make a TEFRA election. In 1997, Solatium was a GG Capital partner. (ROA-17 183.) Greenberg described Solatium as a “Foreign PTNR with Beneficial Interest by David Greenberg.” (ROA-6 15.) As the Tax Court explained: Solatium held an indirect interest through Greenberg, making him a pass-through partner, meaning that GG Capital was not a small partnership, and rendering it ineligible to make a TEFRA election. (ROA-17 184.) Temp. Treas. Reg. § 301.6231(a)(1)-1T(a)(2) (partnership not “small” if any partner a pass-through partner).

Second, the Tax Court observed that only Greenberg had signed the statement (and had printed the other partners' initials above their names). (ROA-6 15; ROA-17 168, 184-185.) Greenberg wrote, “The GGC partners have authorized Greenberg to sign on their behalf,” but there were no powers of attorney in support. (ROA-6 15; ROA-17 168-169.) Goddard testified that he had authorized Greenberg to sign for him. (ROA-9 136-137.) Greenberg testified that he had orally received permission to sign for Lee and for Solatium from “a guy named Tommy Battilia.” (ROA-11 88-89, 100.) But Greenberg knew neither Battilia's position at Solatium nor the identity of its principals, and neither Lee nor an officer of Solatium testified. (ROA-11 99-101; ROA-17 169, 185.) The court noted that Greenberg had checked the “No” box in response to the question, “Is this partnership subject to the consolidated audit procedures of sections 6221 through 6233?” (i.e., TEFRA) on GG Capital's 1997 and later returns. (ROA-3 410, 424, 451; ROA-6 5; ROA-17 169-170, 186.)

b. Greenberg admits that GG Capital was a TEFRA partnership in 1997 because of Solatium (Br. 40-41), but he erroneously argues that the statute allowed any partnership to make an election (Br. 40, 42). Subparagraph (A) of I.R.C. § 6231(a)(1) made all partnerships TEFRA partnerships, “[e]xcept as provided in subparagraph (B).” Clause (B)(i) carved out small partnerships, and clause (B)(ii) provided an exception to the exception. It stated that a partnership within the meaning of subparagraph (A) (which included the exception for small partnerships) “may for any taxable year elect to have clause (i) not apply.” Thus, clause (i) had to apply to a partnership — the partnership had to be a small partnership — before it could elect to have clause (i) not apply. The regulation makes that explicit by requiring small-partnership status before a partnership may elect back into TEFRA. Temp. Treas. Reg. § 301.6231(a)(1)-1T(b)(1). For this reason alone, the 1997 statement was not a valid election.

Greenberg argues that he had express authorization to sign for all the partners.⁵ (Br. 12-13, 42.) But there was no contemporaneous evidence of any authorization beyond Greenberg's claim on the statement, and there is no independent evidence of any authorization from Lee and Solatium. He cites California law under which a partner can conduct partnership business (Br. 42), but state law does not allow Greenberg to ignore the requirements of a Treasury Regulation. Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153-54 (1982); NASUCA v. FCC, 457 F.3d 1238, 1251, modified on denial of reh'g, 468 F.3d 1272 (11th Cir. 2006).

Greenberg contends that I.R.C. § 6231(a)(1)(B)(ii) did not require all partners to sign an election and that I.R.C. § 6063 allowed any partner to sign a partnership return. (Br. 43.) However, § 6231(a)(1)(B)(ii) was silent regarding the contents of an election, and § 6063 (in a different part of the Code concerning the signing of returns) did not govern TEFRA elections. Thus, a regulation that provided the requirements for an election was necessary under I.R.C. § 6230(k) (authorizing regulations to carry out the TEFRA's purposes). See UnionBanCal Corp. v. Commissioner, 305 F.3d 976, 985 & n.52 (9th Cir. 2002) (temporary regulations given same deference as final ones); E. Norman Peterson Marital Tr. v. Commissioner, 78 F.3d 795, 798 (2d Cir. 1996) (same). The requirement in Temp. Treas. Reg. § 301.6231(a)(1)-1T(b)(2) that every partner sign was consistent with Congress's expectation that small partnerships would have partners who saw themselves as co-owners, each resolving his tax liability separately as an individual with the IRS. McKnight v. Commissioner, 99 T.C. 180, 185 (1992), aff'd, 7 F.3d 447 (5th Cir.1993) (quoting Hearings on H.R. 6300, H.R. Comm. on Ways and Means, 97th Cong., 2d Sess. 259–261 (1982)). Hence the need for each partner to personally sign an election back into TEFRA.

Greenberg argues that the Tax Court does not rigidly enforce temporary regulations and that he substantially complied. (Br. 44-45.) His cases, however, are irrelevant to TEFRA elections. Mishawaka Properties Co. v. Commissioner, 100 T.C. 353, 354, 361-63, 367 (1993) (partners impliedly ratified improper Tax Court petition and could not repudiate it when such became advantageous); Cambridge Research & Dev. Grp. v. Commissioner, 97 T.C. 287, 292, 294-302 (1991) (written partnership agreement gave partner authority to extend partnership limitations period for assessment). Substantial compliance with regulatory requirements can be sufficient when a taxpayer's election, despite its flaws, comports with the essence of the statutory and regulatory scheme. Knight-Ridder Newspapers v. United States, 743 F.2d 781, 794-96 (11th Cir. 1984). Here, the purpose of the signature requirement was to ensure that each partner of a small partnership personally consents to TEFRA treatment. Greenberg's attempt to sign for other partners without any independent evidence of their consent was the opposite of substantial compliance.

Greenberg argues that no inference should be drawn from his checking “No” on GG Capital's returns when asked whether GG Capital was a TEFRA partnership because he thought the question asked whether it was under audit. (Br. 13-14, 45-46.) Noting that Greenberg “was a sophisticated tax accountant with a master's degree in accounting,” the Tax Court rejected his testimony as not credible. (ROA-11 145-147; ROA-17 186.) The instructions for the question do not support Greenberg's interpretation (ROA-8 25, 53, 86, 121-122), and the IRS employee that Greenberg cites (Br. 13-14, 46) testified that preparers would name a TMP simply to complete the form (ROA-12 23). The court did not err by treating Greenberg's answer as evidence of GG Capital's status. See White v. Commissioner, 172 F.2d 629, 630 (5th Cir. 1949); Estate of Hall v. Commissioner, 92 T.C. 312, 337-38 (1989).

3. GG Capital was a small partnership not subject to the TEFRA procedures in 2000 and 2001

Having held Greenberg's attempted 1997 election to be invalid, the Tax Court correctly found that GG Capital was a small partnership in 2000 and 2001. (ROA-17 186-187.) In 2000 and 2001 (unlike in 1997) GG Capital satisfied the definition of small partnership by having only three citizen partners (Greenberg, Goddard, and Lee). (ROA-3 430-435, 457-463.) Greenberg does not allege any attempted TEFRA elections after the failed 1997 election attempt, and he checked the “No” box when asked on GG Capital's 2000 and 2001 returns whether GG Capital was subject to TEFRA. (ROA-3 424, 451; ROA-17 186.) Greenberg's argument that the IRS needed to send FPAAs to GG Capital fails, and the individual notices of deficiency are valid.

The Tax Court declined to rule on the Commissioner's alternative argument under I.R.C. § 6231(g), which allowed reasonable IRS errors in classifying a partnership. (ROA-14 246-252; ROA-17 185 n.26.) If this Court rejects the Tax Court's finding that GG Capital was a small partnership in 2000 and 2001, then the case should be remanded for the Tax Court to consider I.R.C. § 6231(g).

4. The DBI and JPF items

Greenberg argues that, even if GG Capital was a small partnership, three items on its returns were the partnership items of other partnerships that had to be adjusted by issuing FPAAs to those other partnerships. (Br. 51-55.) See I.R.C. §§ 6222(a), 6231(a)(9), (10). Greenberg raised these issues in a dismissal motion filed after the Commissioner's Rule 155 computations. (ROA-18 96-155.) The Tax Court denied the motion. (ROA-18 164-165.)

On its 2000 return, GG Capital claimed a carryover loss from its earlier abandonment of its partnership interest in DBI.⁶ Greenberg argues that DBI was a TEFRA partnership and that the abandonment loss had to be determined in a TEFRA proceeding involving DBI.⁷ (Br. 52-53.) In its opinion, the Tax Court: (i) stated that claiming an abandonment loss for a partnership interest required the taxpayer to prove that it owned the interest; and (ii) found that Greenberg had “failed to prove that GG Capital owned a partnership interest in DBI.” (ROA-17 191-192; see also ROA-18 165.) Thus, jurisdiction and the merits both asked whether GG Capital was a DBI partner, and the court's finding answered both questions. GG Capital did not own the partnership interest necessary to trigger TEFRA or to create an abandonment loss. When jurisdiction and the merits are intertwined, a court can decide merits issues that affect jurisdiction. Venezuela v. Helmerich & Payne Int'l Drilling Co., 137 S. Ct. 1312, 1319 (2017).

On its 2001 return, GG Capital claimed a deduction of $599,541 for a “prior suspended loss.” (ROA-3 456.) The IRS disallowed that loss in both the individual and the converted-item notices of deficiency. (ROA-4 155, 236.) Greenberg speculates that if the loss had been a converted item, the Tax Court would have lacked jurisdiction over the adjustment in the individual notice. (Br. 53.) The IRS can prevent a whipsaw by making duplicate adjustments. See Clapp v. Commissioner, 875 F.2d 1396, 1401 (9th Cir. 1989). As it turns out, the $599,541 belonged in the individual case. In the Rule 155 computations for 2001, the Commissioner placed all adjustments in the individual case because the AD Global losses had been exhausted in 2000. (ROA-18 291-292; SA-B144 7, 9; SA-G114 6-7, 9.)

On its 2001 return, GG Capital reported a “JPF V, LLC” loss of $94,885. (ROA-3 456.) Greenberg argues that JPF V was a TEFRA partnership of which GG Capital was a partner. (Br. 54-55.) The IRS disallowed the JPF V loss in the individual deficiency notice. (ROA-4 155.) However, Greenberg did not introduce any evidence about JPF V (ROA-17 173), and statements by counsel in briefs are not evidence. SEC v. Quiros, 966 F.3d 1195, 1201 (11th Cir. 2020). This factual attack on jurisdiction, unsupported by any evidence, is no basis for reversing the Tax Court. See Houston v. Marod Supermarkets, Inc., 733 F.3d 1323, 1335-36 (11th Cir. 2013).

B. The IRS timely mailed the notices of deficiency

1. The individual notice for 2000

Greenberg argues that the IRS failed to timely mail the individual notice of deficiency for 2000. (Br. 18, 46-49.) The IRS generally must assess a taxpayer's taxes within three years after he files his return, but the mailing of a deficiency notice suspends the running of that period during the time within which the taxpayer can petition the Tax Court, during any litigation, and for 60 days thereafter. I.R.C. §§ 6501(a), 6503(a)(1). Thus, practically, the IRS must mail the deficiency notice within three years after the taxpayer files his return.

After the IRS mails a deficiency notice, the taxpayer has 90 days to petition the Tax Court. I.R.C. § 6213(a). As part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3463, 112 Stat. 685, 767, Congress required the IRS to state on a deficiency notice the last day on which the taxpayer could petition the Tax Court. Congress also added the last sentence of § 6213(a), providing that any Tax Court petition filed on or before that last day shall be treated as timely. The legislative history states Congress's belief that “taxpayers should receive assistance in determining” the filing deadline and that they “should be able to rely on the computation of that period by the IRS.” S. Rep. No. 105-174, at 90 (1998), 1998-3 C.B. 537, 626; H.R. Rep. No. 105-364 (Part 1), at 71 (1998), 1998-3 C.B. 373, 443.

Greenberg timely filed his income-tax return for 2000 on extension on October 15, 2001. (ROA-2 408; ROA-4 96-97.) See I.R.C. § 7502(a) (timely mailing is timely filing). Thus, the IRS had until October 15, 2004, within which to mail Greenberg a notice of deficiency for 2000. The deficiency notice at issue was stamped with a timely date of October 15, 2004. (ROA-4 112.) Ninety days later is January 13, 2005, but the notice bore a stamped date of January 14, 2005, as the last date for a Tax Court petition. (ROA-4 112.) That discrepancy led to Greenberg's challenge. (Br. 47.)

The Tax Court correctly found that the IRS had carried its burden of proving that it had timely mailed the notice of deficiency. (ROA-17 187-189.) As the court explained, when the existence of the notice is undisputed, a properly completed Postal Service Form 3877 certified mailing list is sufficient, absent contrary evidence, to show proper mailing, and exact compliance with the certified-mail procedures raises a presumption of official regularity. (ROA-17 188.) Clough v. Commissioner, 119 T.C. 183, 187-88 (2002); Coleman v. Commissioner, 94 T.C. 82, 90-91 (1990); see Cropper v. Commissioner, 826 F.3d 1280, 1286 (10th Cir. 2016). Rebutting the presumption of regularity requires clear evidence to the contrary. Nat'l Archives & Records Admin. v. Favish, 541 U.S. 157, 174 (2004); United States v. Chem. Found., 272 U.S. 1, 14-15 (1926).

The Tax Court reviewed the Form 3877 in evidence, noting that it: (i) was stamped with the date “OCT 15 2004” by the IRS; (ii) showed five notices of deficiency for 2000 (including one for Greenberg) listed by the IRS and received by the Post Office; and (iii) bore the signature of a Post Office employee and an official “OCT 15 2004” postmark. (ROA-7 364; ROA-17 188-189.) The court also found to be credible the testimony of Group Manager Jacqueline Brooks regarding the mailing procedures used for the notice. (ROA-11 198-199; ROA-17 189.) Brooks testified that, when the limitations period was about to expire, IRS employees physically took deficiency notices to the Post Office and that the IRS employee responsible for the mailing — Penny Schupmann, who died before trial — was the “type of person that would do whatever needed to be done when it came to her work performance. If she had to personally take a notice to the Post Office, she would do that.” (ROA-11 203-205.) The court found that the preponderance of the evidence supported the timely mailing of the deficiency notice. (ROA-17 189.)

In response, Greenberg offers nothing but red herrings. He argues that an “automated process” at the IRS generated the petition date stated on the deficiency notice and that Brooks could not explain the error. (Br. 47; ROA-11 222-224.) But the dates on the notice were stamped by a person (ROA-4 112), and the Commissioner “is not required to produce employees who personally recall each of the many notices of deficiency which are mailed annually.” Clough, 119 T.C. at 187. Moreover, there is no authority for determining the mailing date of a deficiency notice by counting backwards from the last petition date stated in the notice. Instead, Congress anticipated calculation and transcription errors and provided the remedy of giving the taxpayer at least until the stated last date for his petition. A statutory remedy is a strong indication that Congress provided what it thought appropriate; courts must be especially reluctant to create additional remedies. Karahalios v. Nat'l Fed'n of Fed. Employees, 489 U.S. 527, 533 (1989).

Greenberg complains that the Commissioner provided an incomplete Form 3877 with his answer and a completed Form 3877 at trial. (Br. 47-48; ROA-1 26; ROA-7 364.) However, both Forms 3877 are dated October 15, 2004, and Brooks explained at trial that the form with the answer was a draft placed in Greenberg's administrative file (routinely given to IRS counsel at the start of a case), whereas the completed form was the official form retained by her unit as proof of proper mailing. (ROA-11 206-209, 217-221.) Greenberg thrice alleges “chaos” surrounding the mailing of the deficiency notice and argues that the IRS did not follow “typical” procedures. (Br. 48-49.) Brooks, however, testified that Schupmann had worked with Carol Dailing to prepare the notice, that it was “not unusual” to issue notices near the deadline, and that the only atypical procedure was that the notice was not left at the internal mailroom but instead was taken to the Post Office to ensure timely mailing. (ROA-11 202-205, 209-217.) Cf. United States v. Goldston, 324 Fed. Appx. 835, 837 (11th Cir. 2009) (IRS agent's testimony regarding agency's regular practice, in addition to government records showing notice was mailed, were “sufficient to show the notice of deficiency was mailed”).

Greenberg contends that Brooks did not have any direct involvement in the mailing of the notice (Br. 48), but she testified that, although she could not state the time the notice went to the Post Office, “I know that it was done on that date, and I am aware that it was done on that date.” (ROA-11 217.) The Tax Court correctly found that the IRS timely mailed the individual notice for 2000.

2. The converted-item notice for 1999

Greenberg argues that the converted-item notice of deficiency for 1999, mailed on May 30, 2009, was untimely. (Br. 49-51.) That argument implicates the interaction between I.R.C. § 6501(a) and I.R.C. §6229. Limitations statutes applied against the Government (including ones that restrict the collection of taxes) are strictly construed in the Government's favor. Bufferd v. Commissioner, 506 U.S. 523, 527 n.6 (1993); Badaracco v. Commissioner, 464 U.S. 386, 391-92 (1984).

In general, the IRS shall assess a taxpayer's taxes within three years after he files his return, but other statutes can extend or toll that period. I.R.C. § 6501(a). For assessments attributable to a partner's partnership and affected items, I.R.C. § 6229(a) states that “the period for assessing any tax imposed by subtitle A” (i.e., “Income Taxes”) “shall not expire before the date which is 3 years after the later of ” the filing date of the partnership return or its original due date. I.R.C. § 6229(a). Section 6229(a) is not itself a limitations statute, but instead provides a minimum period for partnership-related assessments. AD Global Fund v. United States, 481 F.3d 1351, 1353-55 (Fed. Cir. 2007), aff'g 67 Fed. Cl. 657 (2005); see also Omega Forex Grp. v. United States, 906 F.3d 1196, 1205-09 (10th Cir. 2018) (collecting cases).

Section 6229(d) states that if the IRS sends an FPAA to the partnership's tax-matters partner, “the running of the period specified in subsection (a)” shall be suspended: (i) for the period during which the partnership can challenge the FPAA in court; (ii) for the duration of any litigation; and (iii) for one year thereafter. The “period specified in subsection (a)” is “the period for assessing any [income tax],” i.e., the three-year period of I.R.C. § 6501(a) that began with the filing of the partner's individual return. AD Global, 67 Fed. Cl. at 694; see also Russian Recovery Fund Ltd. v. United States, 851 F.3d 1253, 1258-63 (Fed. Cir. 2017). Therefore, if the IRS sends the FPAA within three years after the date on which the partner filed his individual return, the running of the three-year period for assessment in I.R.C. § 6501(a) is suspended.

Moreover, if the limitations period for assessing a partnership item is open when the item becomes a nonpartnership item, I.R.C. §6229(f)(1) gives the IRS at least one year to send the partner a notice of deficiency. One of the events that will cause a partnership item to become a nonpartnership item is the IRS's sending the partner a notice to that effect. I.R.C. § 6231(b)(1)(D), (c); Temp Treas. Reg. § 301.6231(c)-5T. The timely mailing of a converted-item notice of deficiency will continue the suspension of the limitations period for assessing that item while the taxpayer pursues Tax Court litigation. I.R.C. § 6503(a)(1).

In this case, Greenberg filed his individual income-tax return for 1999 on October 18, 2000. (ROA-2 408; ROA-4 84.) The IRS sent AD Global an FPAA less than three years later, on October 9, 2003. (ROA-2 401; ROA-3 23.) On Monday, March 8, 2004, a partner other than AD Global's tax-matters partner timely sought review of the FPAA in the Court of Federal Claims (No. 1:04-cv-336-MBH). (ROA-2 401-402.) I.R.C. § 6226(b). As Greenberg admits, that case remains pending. (Br. 49-50.) Thus, the limitations period for the assessment of AD Global items against Greenberg was open on May 30, 2008, when the IRS sent him the notice that converted his AD Global items to nonpartnership items (ROA-4 180-185), and also on May 30, 2009 when the IRS sent him the converted-item notice of deficiency for 1999. (ROA-4 197.) Consequently, the Tax Court correctly found that the converted-item deficiency notice for 1999 was timely. (ROA-18 161-162.)

II The IRS made valid adjustments to the tax items at issue and properly allocated those adjustments

A. Introduction

Greenberg's second set of arguments relates to the adjustments to the tax items in the deficiency notices. GG Capital was a financial hub for Greenberg and Goddard, aggregating their income from their day jobs with losses from tax shelters before disbursing the significantly reduced net income back to them. (See ROA-17 152.) That is why Greenberg did not report any losses on his individual returns. (Br. 28, 33.)

Because GG Capital was a small partnership, the tax items that it reported on its partnership returns had to be adjusted in the individual notices of deficiency. See I.R.C. § 6231(a)(1)(B). Moreover, in the 2008 conversion letters, the IRS informed Greenberg that it would treat his AD Global partnership items and “all other partnership items” as nonpartnership items. (ROA-4 180-185.) The consequence of that conversion, as explained in the converted-item notices of deficiency, was that all assets acquired and transactions executed by AD Global were treated as having been directly acquired and executed by Greenberg, with their tax consequences being dictated by Greenberg's status as an individual. (ROA-4 206-207.) Treas. Reg. § 1.701-2(b). Consequently, the deficiency notices (i) adjusted tax items that were reported on partnership returns and (ii) treated those items as Greenberg's personal items.

To provide context for our discussion of Greenberg's arguments, we will trace the items at issue from the returns through the computations under Tax Court Rule 155. This tracing also refutes Greenberg's repeated argument (e.g., Br. 58-60) that the IRS failed to adjust amounts appearing on the tax returns and did not disclose its actual adjustments until the Rule 155 computations. Rule 155 sets out procedures for determining the correct computation of the amount to be included in the Tax Court's decision based on its findings and conclusions. See Paccar, Inc. v. Commissioner, 849 F.2d 393, 399 (9th Cir.1988).

B. Tracing the items at issue from the returns through the Rule 155 computations

1. 1999

On its partnership return for 1999, GG Capital reported $763,636 of ordinary income. (ROA-3 409.) That net figure included $1,889,417 in income assigned by Greenberg, Goddard, and Lee from their day jobs and $1,152,064 in “consulting income.”⁸ (ROA-3 415; ROA-17 152.) The offsetting losses included an “AD Global Fund” loss of $333,777 and a “988 loss” of $2,671,495. (ROA-3 415.) AD Global had distributed $333,777 of its ordinary losses to JPF (ROA-3 15), and the SOS transaction generated the I.R.C. § 988 loss (ROA-17 164 n.15, 170-171). JPF did not report any items on its return (ROA-3 389-398); GG Capital reported them instead (ROA-3 415).

On his personal return for 1999, Greenberg reported and reversed the $616,691 in accounting-firm income that he had assigned to GG Capital. (ROA-3 415; ROA-4 92.) His income included $72,525 from GG Capital, and he reported a total tax of $24,898. (ROA-4 84-85, 92; see ROA-3 417-418.)

In 2009, the IRS sent Greenberg a converted-item notice of deficiency determining a deficiency of $1,255,544. (ROA-4 197.) The IRS disallowed a loss of $3,005,272 (the sum of the AD Global loss of $333,777 and the § 988 loss of $2,671,495) “because all contributions, distributions, and any other transactions you purportedly engaged in with [AD Global] are disregarded for Federal income tax purposes.” (ROA-4 204, 207.) The notice explained that AD Global was a sham that lacked economic substance and was being used for tax evasion. (ROA-4 206.) Consequently, the notice disregarded AD Global; disregarded all contributions to and distributions from AD Global; and treated the option transactions as having been directly conducted by the partners. (ROA-4 206-207.)

Because GG Capital was a small partnership and because the Tax Court had disregarded AD Global and JPF, the Rule 155 computations had to reconstruct Greenberg's income as if he had personally engaged in all relevant transactions. The Commissioner allocated to Greenberg: (i) all his accounting-firm income; (ii) a share of the disallowance of the § 988 loss proportionate to the amount of the loss that GG Capital had allocated to him; (iii) one-half of the disallowance of the $333,777 AD Global loss because it had come through JPF in which only Greenberg and Goddard were partners; (iv) one-half of the consulting income because only Greenberg and Goddard had engaged in that activity; and (v) one-third of all other items. (ROA-18 283-286; SA-H114 8.) The Commissioner attached a spreadsheet showing that the only disallowances were of the AD Global losses and reconciling the allocations back to the figures on GG Capital's return. (SA-H114 8.)

The Commissioner computed a deficiency of $467,742 (SA-H114 6-7), and the Tax Court entered a decision in that amount (ROA-H-1 186-187.)

2. 2000

As the Tax Court noted, the IRS could not locate GG Capital's federal partnership return for its audit, so it examined an electronic transcript of the federal return and a copy of GG Capital's California partnership return. (ROA-17 172 n.20; ROA-11 242, 282-283.) Both returns are now in evidence and report the same total income of $823,449, using different amounts of income and loss to arrive at that figure. (ROA-3 423, 429, 436, 441.) Greenberg, Goddard, and Lee assigned their income from their day jobs to GG Capital, and GG Capital also reported $10,401,779 in royalties. (ROA-3 429, 441; ROA-17 152.) The California return reported a carryover loss from the 1997-1998 DBI transactions of $3,231,831 and a “988 loss” of $9,347,399 of which $599,451 was suspended. (ROA-3 441.) The federal return reported a “988 loss” of $15,847,523, of which $3,820,744 was suspended. (ROA-3 429.)

On his personal return for 2000, Greenberg reported and reversed the $898,062 in accounting-firm income that he had assigned to GG Capital.⁹ (ROA-3 429; ROA-4 110-111.) His income included $97,579 from GG Capital, and he reported a total tax of $31,347. (ROA-4 96-97, 111; see ROA-3 430-431.)

In 2004, the IRS sent Greenberg an individual notice of deficiency determining a deficiency of $4,686,702. (ROA-4 112.) The notice, which was based on the audit of GG Capital's California partnership return, increased Greenberg's ordinary income from GG Capital by $11,155,089. (ROA-4 118.) The IRS calculated that figure by: (i) allocating to Greenberg all his accounting-firm income and AG. Capital's reported $10,401,779 in royalties and (ii) disallowing the DBI and § 988 losses. (ROA-4 120.) The notice explained that the IRS had disallowed the losses because, inter alia, the existence of the losses, profit motive, and basis had not been established, and it stated that the full royalty income had been included because GG Capital had not allocated it. (ROA-4 121-122.)

In 2009, the IRS sent Greenberg a converted-item notice of deficiency determining a deficiency of $3,681,581. (ROA-4 214.) The notice disallowed a loss of $8,747,948 “because all contributions, distributions, and any other transactions you purportedly engaged in with [AD Global] are disregarded for Federal income tax purposes.” (ROA-4 222.) The notice repeated the explanations regarding the conversion of AD Global items. (ROA-4 221-222.)

In the Rule 155 computations, the Commissioner first allocated the adjustments to GG Capital's ordinary income among the partners. (ROA-18 78; SA-I114 8.) It allocated to Greenberg: (i) all his accounting-firm income; (ii) a share of the disallowance of the § 988 loss proportionate to the amount of the loss that GG Capital had allocated to him; and (iii) one-half of the consulting income because only Greenberg and Goddard had engaged in that activity. (ROA-18 78, 286-289; SA-I114 8.) The allocation spreadsheet reconciled the allocations among GG Capital's partners back to the figures on its federal return. (ROA-3 429; ROA-18 78; SA-I114 8.)

Next, the Commissioner allocated the portion of Greenberg's adjustment attributable to the 1999 Son-of-BOSS transaction to the converted-item case and the rest of the adjustment to the other case.¹⁰ (ROA-18 79; SA-I114 9.) That allocation was necessary because some of the Canadian dollars from the 1999 Son-of-BOSS transaction had been converted to dollars in 2000 to generate a loss in 2000. (ROA-3 245; ROA-18 288-289.)

The Commissioner computed an individual deficiency of $903,988 and a converted-item deficiency of $1,630,755 ($2,534,743 in total), and the Tax Court entered decisions in those amounts. (ROA-18 77, 315; ROA-I-1 191; SA-I114 7.)

3. 2001

On its partnership return for 2001, GG Capital reported $749,468 of ordinary income. (ROA-3 450.) That net figure included $3,105,279 in income assigned by Greenberg, Goddard, and Lee from their day jobs and $7,349,000 in royalties. (ROA-3 456 (see SA-B144 8 for legible transcription); ROA-17 152.) The offsetting losses were a “JPF V” loss of $94,885 and an “FX Digital” loss of $38,355,971 to which was added a prior-year suspended loss of $599,541 and of which $29,345,586 was suspended. (ROA-3 456; SA-B144 8.)

On his personal return for 2001, Greenberg reported and reversed the $854,451 in accounting-firm income that he had assigned to AG. Capital. (ROA-3 456; ROA-4 143.) His income included $102,764 from GG Capital, and he reported a total tax of $20,042. (ROA-4 132-133, 143; see ROA-3 457-458.)

In 2005, the IRS sent Greenberg an individual notice of deficiency determining a deficiency of $3,336,076. (ROA-4 146.) The notice increased Greenberg's ordinary income from GG Capital by $8,100,687. (ROA-4 149.) The IRS calculated that figure by: (i) allocating to Greenberg all his accounting-firm income and GG Capital's reported $7,349,000 in royalties and (ii) disallowing the above-listed losses. (ROA-4 155.) The notice explained that the IRS had disallowed the losses because, inter alia, the existence of the losses, profit motive, and basis had not been established, and it stated that the full royalty income had been included because GG Capital had not allocated it. (ROA-4 156-157.)

In 2009, the IRS sent Greenberg a converted-item notice of deficiency determining a deficiency of $241,511. (ROA-4 229.) The notice disallowed a loss of $599,541 from AD Global “because all contributions, distributions, and any other transactions you purportedly engaged in with [AD Global] are disregarded for Federal income tax purposes.” (ROA-4 236, 239.) The notice repeated the explanations regarding the conversion of AD Global items. (ROA-4 238-239.)

In the Rule 155 computations, the Commissioner first allocated the adjustments to GG Capital's ordinary income among the partners. (SA-B144 8; SA-G114 8.) It allocated to Greenberg: (i) all his accounting-firm income; (ii) a share of the disallowance of the JPF and FX Digital losses proportionate to the amount of the losses that AG. Capital had allocated to him; and (iii) one-half of the consulting income because only Greenberg and Goddard had engaged in that activity. (ROA-18 289-292; SA-B144 8; SA-G114 8.) The allocation spreadsheet reconciled the allocations among GG Capital's partners back to the figures on its federal return. (SA-B144 8; SA-G114 8.) For 2001, the Commissioner placed all the adjustments in the individual case because the Canadian dollars being used to generate Son-of-BOSS losses had been exhausted in 2000. (ROA-18 289, 291-292; SA-B144 7, 9; SA-G114 6-7, 9.)

The Commissioner computed an individual deficiency of $1,816,197 and a converted-item deficiency of $0, and the Tax Court entered decisions in those amounts. (ROA-B-1 308; ROA-G-1 184; SA-B144 7; SA-G114 6.)

C. Greenberg's arguments lack merit

1. The converted-item notices of deficiency made determinations and are valid

Greenberg argues that he never claimed AD Global losses and that the converted-item notices of deficiency sent in 2009 are invalid for disallowing nonexistent tax items. (Br. 28-38.) He cites Scar v Commissioner, 814 F.2d 1363 (9th Cir. 1987), in which the notice of deficiency: (i) stated on its face that the IRS did not have the Scars' return; (ii) disallowed a deduction far in excess of any deduction claimed on the return for losses from a tax shelter in which they had not invested; and (iii) computed the deficiency without regard to taxable income (left blank) by using the maximum tax rate multiplied by the nonexistent disallowed deduction. Id. at 1364-65. The Ninth Circuit held the notice invalid (and that the Tax Court therefore lacked jurisdiction) because the notice revealed on its face that the IRS had not made a determination based on the Scars' return. Id. at 1368-70; see also Kong v. Commissioner, T.C. Memo. 1990-480 (applying Scar). That is not the situation here, where each notice contains multiple entries showing that its determinations came from an examination of the relevant return.

To recap, in 1999, JPF (whose partners were Greenberg and Goddard) engaged in an SOS transaction with AD Global involving foreign currency options. Upon withdrawing from AD Global, JPF received Canadian dollars that it held for conversion whenever its partners needed a tax loss. Taxpayers in SOS transactions sought to claim their foreign-currency losses as ordinary losses under I.R.C. § 988. There were also option-pair transactions in 2000 and 2001 that generated loss when GG Capital sold portions of the long options Greenberg and Goddard. (See ROA-17 155-167.)

On its partnership return for 1999, GG Capital reported an “AD Global Fund” loss of $333,777 and a “988 loss” of $2,671,495. (ROA-3 415.) In the converted-item notice for 1999, the IRS disallowed those exact deductions when it disallowed a loss of $3,005,272, which is the sum of the AD Global and the § 988 losses. (ROA-4 204, 207.) The notice correctly stated Greenberg's reported taxable income of $72,368 and tax of $24,898, and it calculated the tax due using the corrected taxable income. (ROA-4 85, 204.)

On its federal and California partnership returns for 2000, GG Capital reported “988 loss[es]” in different amounts but in excess of $9.3 million. (ROA-3 429, 441.) The converted-item notice for 2000 contained a loss disallowance in the amount of $8,747,948, which was less than the § 988-loss amount on either return.¹¹ (ROA-4 222.) The notice disallowed an interest loss of $41,287 and a capital loss of $111,190, which had been listed on GG Capital's returns as offsets to Greenberg's income from KPMG. (ROA-3 429, 441; ROA-4 222.) The notice correctly stated Greenberg's reported taxable income of $79,303 and tax of $31,347, and it calculated the tax due using the corrected taxable income. (ROA-4 97; see ROA-18 79.)

On its partnership return for 2001, GG Capital reported a “JPF V” loss of $94,885 and an “FX Digital” loss of that netted to $9,609,926. (ROA-3 456; SA-B144 8.) The converted-item notice for 2001 contained a loss disallowance in the amount of $599,541, which was less than the sum of the above-noted items. (ROA-4 236.) On his personal return, Greenberg reported taxable income of $51,945 and a total tax of $20,042. (ROA-4 133.) The converted-item notice listed taxable income of $111,328 and a total tax of $35,873, which were due to prior adjustments. (ROA-4 236; ROA-B-1 101-102.) The converted-item notice calculated the tax due using the corrected taxable income. (ROA-4 236.)

In sum, the converted-item notices disallowed, in full or in part, deductions on the returns consistent with an AD Global transaction in which Greenberg participated. Other amounts on the notices match entries on the underlying returns. And the deficiencies were computed using the corrected taxable income. The issue is whether the IRS made determinations ab initio, not what happened to those determinations later in the litigation. The notices made determinations and, therefore, are valid under Scar.

Greenberg argues that neither he nor GG Capital claimed any losses from AD Global (Br. 28-29) because GG Capital's losses came from the sales of the long options to himself and Goddard (Br. 33-37).¹² He attempts to bolster his argument by pointing out that the amounts disallowed with respect to the AG Global transactions do not match the amounts on GG Capital's returns.¹³ (Br. 28-29.) This contention that none of GG Capital's losses came from AD Global goes to the merits of the disallowances, not their validity.

In Clapp v. Commissioner, 875 F.2d 1396 (9th Cir. 1989), the IRS sent individuals and trusts duplicative deficiency notices drafted so that the IRS could proceed whether or not the trusts were legitimate. Id. at 1397. The taxpayers challenged the notices under Scar. Id. at 1399-1400. The Ninth Circuit rejected that challenge, describing the duplicative notices as “a reasonable response to a tax evasion scheme for which there is not as yet a settled legal interpretation.” Id. at 1401. Otherwise, a “tax evader” could prevail against the IRS using a “novel scheme” if the IRS chose the wrong theory to attack the scheme. Id.

As applied here, the IRS could validly disallow the disputed losses under multiple theories as to where they might have come from. The converted-item notices were sufficient to hail Greenberg into court where the sources and merits of the deductions could be adjudicated. Clapp, 875 F.2d at 1403. Any duplication among the notices of deficiency (Br. 29) was resolved in the Rule 155 computations — as instructed by the Tax Court and explained at pp. 39-47, supra. In that vein, the lack of a converted-item deficiency for 2001 (see Br. 67-68) comes from the ultimate merits determination that no more Canadian dollars were available to convert and does not affect the validity of the original converted-item notice for 2001.

Greenberg acknowledges that Scar does not allow taxpayers to look behind the notice of deficiency (Br. 30), but he also claims that Scar allowed evidence beyond the notice (Br. 32). He argues that the workpapers of one IRS employee admitted into evidence and the trial testimony of another are inconsistent with the converted-item notices. (Br. 15, 33-34, 36.)

The Ninth Circuit in Scar noted the Commissioner's concession (in a telephone call soon after the Scars had filed their Tax Court petition) that the tax shelter in the notices had no connection to the Scars' return. 814 F.2d at 1365, 1368. It stated, however, that “courts should avoid oversight of the Commissioner's internal operations,” allowing only decisions on “the validity of a notice that can be determined solely by references to applicable statutes and review of the notice itself.” Id. at 1368. The court did not look behind the Scars' notice to determine its invalidity because the notice “revealed on its face that no determination of tax deficiency had been made.” Id. at 1368, 1370. The Ninth Circuit in Clapp similarly limited consideration to whether “the notice of deficiency reveals on its face that the Commissioner failed to make a determination,” warning that “[t]oo detailed a substantive review” of the notice “undertaken solely for purposes of exercising subject matter jurisdiction would be duplicative and burdensome on the courts and the Commissioner.” 875 F.2d at 1402-03.

Accordingly, the Tax Court correctly denied Greenberg's motion to dismiss for lack of jurisdiction, concluding that the converted-item notices were valid and that his attack on the determinations in the notices was “not an argument about jurisdiction, but rather an argument about the size of the adjustment or (more precisely) whether an adjustment is needed.” (ROA-18 164-165.)

2. Greenberg at all times had the burden of proving his entitlement to the claimed deductions

In a deficiency proceeding, the determinations in the notice of deficiency are entitled to a presumption of correctness, and the taxpayer has the burden of proving otherwise by a preponderance of the evidence. Welch v. Helvering, 290 U.S. 111, 115 (1933); Tax Ct. R. 142(a)(1). Greenberg discusses omitted-income cases where the Commissioner has the initial burden of producing some evidence connecting the taxpayer to the income at issue. (Br. 55-57.) But this case involves deductions. They are matters of legislative grace, and Greenberg had to clearly show his entitlement to each deduction by identifying an applicable statute and proving that the deduction fit within the statutory terms. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Long v. Commissioner, 772 F.3d 670, 678 (11th Cir. 2014). Moreover, the ultimate burden of persuasion remained on him at all times. Palmer Ranch Holdings Ltd v. Commissioner, 812 F.3d 982, 1002 (11th Cir. 2016).

As shown by the tracing analysis at pp. 39-47, supra, the notices of deficiency identified the deductions being disallowed by name and amount and explained that they were being disallowed because Greenberg had not established, inter alia: (i) the existence of the losses; (ii) the profit motive of the transactions generating them; (iii) the statutes allowing them; (iv) the non-applicability of a non-exclusive list of statutes that could negate them; (v) the basis of the property involved; and (vi) the economic bona fides of AD Global. (E.g., ROA-4 156, 206-207.) Thus, Greenberg (a tax accountant) and Goddard (a tax attorney) had the burden of identifying: (i) each transaction generating a disallowed loss; (ii) the statute allowing the loss; (iii) how the transaction fit within the terms of the statute; (iv) how the transaction avoided the statutes that could disallow the loss; (v) how the transaction could be profitable; (vi) the basis of the property involved; and (vii) the amount of the deductible loss generated by the transaction.

Greenberg argues that the Tax Court should have shifted the burden of proof because the Commissioner raised new matters. (Br. 26-27, 57-59.) Tax Court Rule 142(a)(1) places the burden of proof on the Commissioner for new matters, increases in the deficiency, and affirmative defenses. The Tax Court distinguishes between “new matters” that shift the burden of proof and “new theories” that do not. Hurst v. Commissioner, 124 T.C. 16, 30 (2005). A new matter alters the original deficiency or requires different evidence. Id. But “the assertion of a new theory that merely clarifies the original determination, without requiring the presentation of different evidence, does not shift the burden of proof.” Stewart v. Commissioner, 714 F.2d 977, 990-91 (9th Cir. 1983); see Shea v. Commissioner, 112 T.C. 183, 191 (1999). The Commissioner did not raise any new matters here.

Greenberg argues that the IRS took “dramatically different” positions at trial (Br. 58), but his brief is short on examples and especially short on explanations of how different evidence was required. He points (Br. 60) to the Tax Court's finding, as part of disallowing the AD Global losses, that the option pairs were a single-option spread (ROA-17 207), and he cites his motion to reopen the record to admit testimony from an anticipated deposition in another case (ROA-16 86-90 (denied ROA-16 120 (proffered evidence would not change outcome)). That motion concerned whether the “option spreads” could hit the “sweet spot,” which goes to Greenberg's burden of showing that the options could be profitable and were not merely for tax avoidance. Likewise, Greenberg had to show that JPF was a valid partnership (Br. 61) because, as the court explained, for a Son-of-BOSS transaction to work, “it's essential that AD Global and JPF III be valid partnerships, because it is only the partnership-basis rules that seem to lend themselves to this kind of chicanery.” (ROA-17 194-195.)

Greenberg argues (Br. 63-64) that the Tax Court did not adequately explain its finding that the losses reported by GG Capital from the option-pair transactions included losses from the AD Global transactions (ROA-17 164 n.15; see ROA-17 193 (Commissioner's estimate of losses)). But it was Greenberg's burden show how the losses generated by the sales of the long options to himself and Goddard added up to the losses that GG Capital deducted on its returns. In any event, the Tax Court also disallowed the option-sales losses. (ROA-17 161-167, 207-208.) That disallowance makes Greenberg's argument academic. Wherever the losses might have originated, the Tax Court disallowed them.

3. The Commissioner correctly allocated the items among GG Capital's partners

Greenberg argues that GG Capital's items should have been allocated pro rata among its three partners under Cal. Corp. Code § 16401(b). (Br. 27, 68-70.) As the Commissioner explained in his pretrial memorandum (ROA-2 301-303), and as Greenberg recognizes on appeal (Br. 68-69), I.R.C. § 704(b) controls the allocation here because GG Capital lacked a written partnership agreement. Section 704(b) provides that a partner's distributive share of a partnership's items shall be determined consistent with his interest in the partnership, taking into account all facts and circumstances. Treasury Regulation § 1.704-1(b) contains detailed rules for making that allocation. Contrary to Greenberg's argument, the regulation does not “base allocations” on state law (Br. 69), but it considers state law in the facts-and-circumstances analysis. Thus, the Commissioner's citation of that regulation in his pretrial memorandum did not obligate him to allocate GG Capital's items pro rata under Cal. Corp. Code § 16401(b).

Instead, as explained above, for each year the Commissioner properly allocated to Greenberg: (i) all his accounting-firm income; (ii) a share of the disallowance of the option-pair loss proportionate to the loss that GG Capital had allocated to him; (iii) one-half of the consulting income because only Greenberg and Goddard had engaged in that activity; (iv) one-half of the 1999 JPF items because only Greenberg and Goddard were partners in JPF; and (v) one-third of all other items. Greenberg has shown no error in the Commissioner's allocation, or in any other aspect of the Commissioner's Rule 155 computations. The Tax Court did not abuse its discretion in adopting the Commissioner's computations in its decisions. (ROA-18 314-315; ROA-B-1 307-308; ROA-G-1 184; ROA-H-1 186-187; ROA-I-1 190-191.)

4. The Tax Court did not issue an advisory opinion

Greenberg argues that the Tax Court's opinion was an improper advisory opinion. (Br. 29, 37-38.) As shown above, the Commissioner disallowed deductions claimed by Greenberg (albeit through AG. Capital's return), and the Tax Court upheld those same disallowances. Greenberg's argument is meritless.

III Greenberg's challenges to the Tax Court's procedural rulings lack merit

Greenberg's third set of arguments concerns procedural rulings by the Tax Court not directly related to the notices of deficiency or to the adjustments of individual items.

A. The Tax Court did not abuse its discretion when it declined to reopen the record to admit certain documents into evidence

Greenberg argues that the Tax Court erred by denying his post-opinion motion to reopen the record for documents related to the legitimacy of his tax-shelter transactions. (Br. 21, 61-63; see ROA-17 261-357.) The Tax Court denied that motion because the documents were all available at trial, and Greenberg should have sought admission then. (ROA-17 359-360.)

This case was tried over five days in 2011. (ROA-DS 4-5.) Greenberg admitted in his motion and admits in his brief that the documents in question were in the exhibit binder at trial, were discussed in testimony, and could have been offered for admission into evidence. (ROA-17 263; Br. 61-62.) Post-trial briefing was completed in May 2012 when Greenberg filed a reply to the Commissioner's answering brief. (ROA-DS 5-6.) Contrary to his statement in his appellate brief (Br. 61), Greenberg admitted in his motion to reopen that he became aware during post-trial briefing of his failure to offer the documents for admission (ROA-17 263; see ROA-17 190). He decided in 2012, however, not to move to reopen. (ROA-17 263.) He even filed a motion to reopen in 2014 (seeking to add other evidence to the record) without mentioning the documents now at issue. (ROA-16 86-90.) It was only after the Tax Court's 2018 opinion that Greenberg moved to reopen the record to admit the instant documents. (ROA-DS 7-8.) His delay should not be rewarded.

Greenberg's cases (Br. 62) are distinguishable. In Cummings v. Commissioner, 437 F.2d 796, 799-800 (5th Cir. 1971), the court declined to remand to reopen for the Commissioner's bank-deposit figures because the taxpayer had adopted them. And in Stivers v. Commissioner, 360 F.2d 35, 40-41 (6th Cir. 1966), the documents were cancelled checks deposited to the credit of a college that would likely substantiate the payments at issue. Here, Greenberg does not attempt to defend his complex tax-shelter transactions, except for a cursory statement that “the existence of the documents must change” the Tax Court's opinion. (Br. 62 (emphasis in original).)

Greenberg could have moved to admit the documents at trial, or at least before the Tax Court began its consideration of this case. He chose not to do so. The Tax Court did not abuse its discretion in declining to relieve Greenberg from his choice.

B. The Tax Court lacked jurisdiction to consider interest suspension under I.R.C. § 6404(g)

Greenberg argues that the Tax Court erred by not ruling on the suspension of interest under I.R.C. § 6404(g) (interest suspended when IRS does not timely notify taxpayer of adjustments). (Br. 70-71.) It is well established, however, that the Tax Court lacks jurisdiction to determine interest in a deficiency case. Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Bourekis v. Commissioner, 110 T.C. 20, 24-27 (1998); see United States v. Beane, 841 F.3d 1273, 1283-84 (11th Cir. 2016).

If Greenberg is dissatisfied with the amount of interest ultimately assessed by the IRS, he can follow the interest-abatement procedures in I.R.C. § 6404(h), which provides for judicial review of abatement denials. Corbalis v. Commissioner, 142 T.C. 46, 54-57 (2014); see Kim v. Commissioner, 679 F.3d 623, 627 (7th Cir. 2012). Alternatively, he can wait for the Tax Court's decision to become final under I.R.C. § 7481(a), pay the deficiency and the interest, and file a motion in the Tax Court to reopen under I.R.C. § 7481(c). See Med James, Inc. v. Commissioner, 121 T.C. 147, 151-52 (2003).

C. The Tax Court did not abuse its discretion when it denied Greenberg's motion to amend his petition to claim in 2001 a deduction for a net-operating-loss carryback

Greenberg argues that the Tax Court erred by denying his motion for leave to file an amended petition to claim in 2001 a deduction for a net-operating-loss (NOL) carryback. (Br. 21-22, 71-72; ROA-B-1 95-96.) In the motion, Greenberg relied on a May 2014 stipulation of settled issues in another Tax Court case. In the stipulation, the Commissioner agreed that Greenberg had substantiated deductions for legal expenses for the years 2004-2008 that would create carryback losses sufficient to eliminate his regular taxes for 2003 and 2004. (ROA-B-1 95-96, 98-100.) The Tax Court denied the motion for lack of due diligence, citing Tax Court Rule 41 (ROA-17 359), and it rebuffed Greenberg's attempt to raise the carryback issue in the Rule 155 computations because it would require additional fact-finding (ROA-B-1 307-308).

Rule 41(a) states that a pleading may be amended by leave of court “and leave shall be given freely when justice so requires.” The determination whether justice requires an amendment is within the discretion of the Tax Court, considering such factors as undue delay, bad faith or dilatory motive, repeated failures to cure deficiencies, undue prejudice to the opponent, and futility of amendment. Young v. Commissioner, 926 F.2d 1083, 1087 (11th Cir. 1991); Rose v. Commissioner, 311 Fed. Appx. 196, 200-01 (11th Cir. 2008). Under Rule 155(c), computations are confined strictly to calculating the correct amounts for the decision based on the court's opinion and without considering new issues (i.e., matters outside the opinion that would require court consideration). Vento v. Commissioner, 152 T.C. 1, 7-9 (2019) (appeals pending); see Erhard v. Commissioner, 46 F.3d 1470, 1479-80 (9th Cir. 1995) (“A computation under Rule 155 . . . cannot be used to reopen the evidence or raise a new issue.”).

I.R.C. § 172 allows a deduction for an NOL carried over from another tax year. Under I.R.C. § 172(b)(1)(A) during the years at issue, an NOL had to be carried back two years, with any remaining loss being carried forward. Thus, 2003 is the latest taxable year from which Greenberg could carry an NOL back to 2001, and the legal expenses stipulated for 2004 to 2008 did not create an NOL that could be carried back to 2001. He argues that the stipulation allowed him an NOL (Br. 71), but he ignores that the stipulation allowed carrybacks to 2003 and 2004 and did not mention a carryback to 2001 (ROA-B-1 at 99-100). Moreover, Greenberg should have been aware of the facts needed to claim an NOL carryback deduction for 2001 when he filed his 2003 return that was due in 2004, or when he filed his petition for 2001 in 2006 (ROA-B-1 1), and certainly by the trial in 2011 (ROA-DS 4). Yet he waited over four years after trial — until 2015 — to file his motion to amend. (ROA-B-1 94.) Greenberg attempts to excuse his lack of diligence by asserting that “this NOL had only been established after the conclusion of the trial.” (Br. 71.) But the question is not when an NOL was “established.” The question is when Greenberg had the facts necessary to attempt to claim it.

Greenberg's reliance (Br. 72) on Harris v. Commissioner, 99 T.C. 121 (1992), is misplaced. In Harris, the Tax Court relied on the TEFRA partnership provisions to conclude that a taxpayer-partner's NOL carrybacks arising out of the settlement of a TEFRA partnership proceeding could be taken into account in the Rule 155 computation of the taxpayer's individual income tax liabilities. Id. at 125-27, 131. The settlement that Greenberg invokes here was not in a TEFRA partnership proceeding but, rather, in a case concerning his individual income tax liabilities. Therefore, the TEFRA provisions at issue in Harris do not apply here. Moreover, the taxpayer's motion to amend the pleadings in Harris (unlike Greenberg's motion) was not dilatory, did not require additional fact-finding, and was not futile. The Tax Court did not abuse its discretion in rejecting Greenberg's belated attempt to raise a new issue here.

CONCLUSION

The decisions of the Tax Court are correct and should be affirmed.

Respectfully submitted,

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

BRUCE R. ELLISEN
(202) 514-2929
ANTHONY T. SHEEHAN
(202) 514-4339
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Appellate.TaxCivil@usdoj.gov
Anthony.T.Sheehan@usdoj.gov

NOVEMBER 20, 2020