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Partnership Challenges Income Adjustments in Tax Court

JUL. 23, 2021

Hunter & Renfro LLP et al. v. Commissioner

DATED JUL. 23, 2021
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Hunter & Renfro LLP et al. v. Commissioner

[Editor's Note:

The exhibits can be viewed in the PDF version of the document.

]

Hunter & Renfro, LLP, The Law Office of Randy C. Renfro, Tax Matters Partner,
Petitioner
v.
Commissioner of Internal Revenue
Respondent

UNITED STATES TAX COURT

PETITION FOR READJUSTMENT OF PARTNERSHIP ITEMS UNDER CODE SECTION 6226

Petitioner hereby petitions for Readjustment of Partnership Items set forth by the Commissioner of Internal Revenue in the Commissioner's Final Partnership Administrative Adjustment dated May 5, 2021 for tax year 2017, and as the basis for Petitioner's case allege as follows:

1. Petitioner, the Law Office of Randy C. Renfro with a mailing address of 455 Capitol Mall, Suite 230, Sacramento, California 95814, is the Tax Matters Partner for Hunter & Renfro, LLP, for tax year 2017 ("Petitioner").

2. Hunter & Renfro, LLP is a California Limited Liability Partnership with a principal place of business address of 455 Capitol Mall, Suite 235, Sacramento, California 95814. The State of legal residence is California. The return for the period here involved was filed with the Office of the Internal Revenue Service in Ogden, Utah 84201-0002.

3. The Notice of Final Partnership Administrative Adjustment for tax year 2017 (FPAA) was mailed to the Petitioner on May 5, 2021, and was issued by the Small Business and Self-Employed, Department of the Treasury, Office of the Internal Revenue Service at 4330 Watt Avenue, Sacramento, California 95821. A copy of the notice of deficiency (or liability), including any relevant material, statements, and schedules accompanying the Notice is attached to this Petition as Exhibit A.

4. The Adjustments to Ordinary Income as described in the FPAA consist of the following:

A) Adjustments (increase) to Ordinary Income of $74 149 due to the following:

a. Denial of Rent Deduction — $41,500

b. Denial of Depreciation Deduction — $32,649

B) Increase to Net Earnings from Self-Employment of $37,075.

C) Increase to Distributions of $41,500.

D) Removal of Buildings and Other Depreciable Assets of $879,000.

E) Imposition of an Accuracy Related Penalty of 20% under IRS Section 6662 due to negligence or disregard of rules and regulations.

5. The entire amount of each adjustment is in dispute.

6. The Commissioner erred in increasing the ordinary, distributable net, or taxable income of Petitioner by disallowing $41,500.00 of "Rent" paid by Petitioner based on the Commissioner's opinion that it was not established that the expenses were ordinary or necessary to the Petitioners business.

a. Petitioner properly accounted for the Rent deduction of $41,500 and properly recorded it in the originally filed tax return and is entitled to the deduction as taken on the originally filed tax return as an ordinary and necessary expense to Petitioners business and is not subject to an increase in the ordinary, distributable net, or taxable income.

7. The Commissioner erred in increasing the ordinary, distributable net, or taxable income of Petitioner by disallowing $32,649.00 of "Depreciation" taken by Petitioner based on the Commissioner's opinion that it was not established that the expenses were ordinary or necessary to the Petitioners business.

a. Petitioner properly accounted for the Depreciation deduction of $32,649 and properly recorded it in the originally filed tax return and is entitled to the deduction as taken on the originally filed tax return as an ordinary and necessary expense to Petitioners business and is not subject to an increase in the ordinary, distributable net, or taxable income.

8. The Commissioner erred in increasing the "Net Earnings from Self-Employment" by $37,075.00.

a. Petitioner properly accounted for all deductions recorded in the originally filed tax return and is entitled to all other deductions as taken on the originally filed tax return as ordinary and necessary expenses to Petitioners business and is not subject to an increase in the ordinary, distributable net, or taxable income.

9. The Commissioner erred in increasing the distributions of Petitioner by $41,500.00.

a. Commissioner increased the distributions of Petitioner by $41,500.00 for the disallowance of the rent deduction mentioned in paragraph 6 above. Petitioner properly accounted for all distributions recorded in the originally filed tax return and is not subject to an increase in distributions.

10. The Commissioner erred in disallowing $879,000.00 of "Buildings and Other Depreciable Assets" claimed on the balance sheet of the return.

a. Petitioner is the sole user of the asset makes payments on the loan for the asset, and records the liability for the asset on the balance sheet of the return. Petitioner properly accounted for the asset in the originally filed tax return and is not subject to a decrease in buildings and other depreciable assets.

11. The Commissioner erred in adding the accuracy related penalty under IRC Section 6662 which the Commissioner has attributed to negligence or disregard to rules and regulations, or a failure to make a reasonable attempt to comply with the provisions of the Code pursuant to Code Section 6662.

a. Petitioner properly accounted for all deductions recorded in the originally filed tax return and taking them does not rise to negligence or disregard to rules and regulations or a failure to make a reasonable attempt to comply with the provisions of the Code pursuant to Code Section 6662.

WHEREFORE, Petitioners pray that:

1. The Notice of Final Partnership Administrative Adjustment dated May 5, 2021 be rescinded and rendered void;

2. That Respondent bears the burden of proof as to all issues; and

3. That the Court provide Petitioners with such other and further relief as is appropriate.

Dated:

Randy C. Renfro
Tax Court Bar No. RR0785
Tax Matters Partner, Petitioner
455 Capitol Mall, Suite 235
Sacramento, California 95814
Telephone: (916) 443-5893
Facsimile: (916) 443-6215
Email: taxlawyr@winfirst.cow

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