MK Hillside Partners v. Commissioner, No. 14-71504 (9th Cir. 2016)
Annotate this CaseMarcus Katz contributed stock to MK Hillside, a partnership between him and his wholly owned corporation. After the IRS issued a Final Partnership Administrative Adjustment (FPAA) to MK Hillside on January 2, 2008, finding that MK Hillside was a sham, lacked economic substance, and was formed and used principally to avoid taxes, Katz petitioned the tax court contesting the finding and asserting the statute of limitations. The IRS determined that 26 U.S.C. 6501(e)(1)'s six-year statute of limitations applied because Katz’s omission of the $198,000 credit from a collar termination on his 1999 return constituted more than 25% of the gross income reported on the return. The tax court denied summary judgment, holding that a trial would be necessary to determine whether Katz in fact omitted substantial income from his 1999 return. To avoid a trial, the parties agreed to a Stipulation of Facts and a Second Stipulation of Settled Issues. Based on those stipulations, the tax court held that the period for assessing tax on the 1999 MK Hillside partnership items was open as to Katz. The court concluded that, because the tax court had jurisdiction to consider Katz's argument, it necessarily had jurisdiction to reject it, at least for purposes of the partnership proceeding. Accordingly, the court affirmed the judgment.
Court Description: Tax. In an action brought by a partner seeking judicial review of the IRS’s adjustment of a partnership’s tax return, the panel held that the tax court had jurisdiction to reject the partner’s assertion of the statute of limitations, and affirmed. Marcus Katz, a partner in MK Hillside Partners, filed a petition for review in tax court contesting the IRS’s finding that MK Hillside was a sham, lacked economic substance, and was formed and used principally to avoid taxes; and asserting the statute of limitations. The tax court rejected the partner’s assertion of the statute of limitations. The panel held that because the tax court had jurisdiction to consider Katz’s argument regarding the statute of limitations, it necessarily had jurisdiction to reject it, at least for the purposes of the partnership proceeding. The panel affirmed the tax court’s determination that the limitations period remained open as to Katz.
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