Unpublished Disposition, 899 F.2d 1225 (9th Cir. 1987)

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US Court of Appeals for the Ninth Circuit - 899 F.2d 1225 (9th Cir. 1987)

SENECA, LTD.; Quintin H. Foster, Jr.; Dorothy L. Foster,partners other than the tax matters partner, Petitioners,v.COMMISSIONER INTERNAL REVENUE SERVICE, Respondent.SENECA, LTD.; Franklin G. Klock; Elaine H. Klock, Partnersother than the tax matters partner, Petitioners-Appellants,v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Nos. 89-70216, 89-70228.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 11, 1990.Decided April 4, 1990.

Before JAMES R. BROWNING, BEEZER and RYMER, Circuit Judges.


Taxpayers H. Quintin Foster, Jr., Dorothy L. Foster, Franklin G. Klock and Elaine H. Klock appeal the orders of the United States Tax Court dismissing their petitions to that court for lack of jurisdiction. The Tax Court held that the taxpayers failed to file timely petitions for readjustment of partnership items. The taxpayers argue that the final notice of partnership administrative adjustment was invalid, and therefore the statutory period for filing a petition never commenced. We affirm.

* Seneca Ltd. was organized in May 1984 as a limited partnership. The partnership was formed to acquire, reconstruct, operate and maintain a hydroelectric generating and transmission facility in New York. Seneca comprised thirty-two limited partners and Richard E. Donovan, the sole general partner and the partnership's tax matters partner ("TMP"). During the month of December 1986 two events occurred. First, the Commissioner began an examination of Seneca's partnership tax return filed for the tax year 1984. On December 3, 1986, the Internal Revenue Service mailed a notice of the beginning of an administrative proceeding to the Fosters.1  Second, on December 5, 1986, an involuntary bankruptcy petition pursuant to Chapter 7 of the United States Bankruptcy Code was brought against Donovan. This event automatically terminated Donovan's designation as Seneca's TMP. Consequently, Seneca was without a TMP.

The Commissioner's examination resulted in the disallowance of Seneca's claimed deductions, credits and losses for the 1984 tax year. On June 18, 1987, the Commissioner mailed a notice of final partnership administrative adjustment ("FPAA") to "Seneca, Ltd., Tax Matters Partner" at the partnership's address. On July 6, 1987, the Commissioner also mailed a copy of the FPAA to each notice partner. Both the Fosters and Klocks received a copy of the FPAA. The notice of FPAA was a standard form notice that contained information the Seneca partners needed to protect their interests. First, it stated that the Commissioner had determined adjustments to Seneca's partnership return for the 1984 tax year and the date the FPAA was mailed to the TMP. Second, it listed the name and phone number of an IRS representative in the event of questions. Finally, it provided instructions for partners who wished to challenge the Commissioner's proposed adjustments. These instructions stated the same time limitations for judicial review of FPAAs as contained in the Internal Revenue Code.

The 90-day period during which only the TMP could file a petition expired on September 16, 1987. Since Seneca was without a TMP no petition was filed within this deadline. The subsequent 60-day period within which a notice partner could file a petition for redetermination expired on November 16, 1987. The Fosters' petition for readjustment was mailed on November 17, 1987, and filed with the Tax Court on November 20, 1987. The Klocks' petition was mailed on November 23, 1987, and filed on November 27, 1987. Neither petition met the statutory deadline. Thereafter, the Commissioner filed motions to dismiss for lack of jurisdiction on the grounds that both petitions were not timely filed. The Fosters filed objections to the Commissioner's motion to dismiss. They argued that the FPAA mailed to the TMP on June 18, 1987 was invalid because Seneca was without a TMP at the time the FPAA was issued. This, they argued, was due to the fact that the Commissioner had failed to appoint a TMP for Seneca pursuant to Sec. 6231(a) (7) of the Internal Revenue Code.2  Since the FPAA was null and void the statutory time period provided to a notice partner for filing a petition never began to run.

A hearing was commenced, and the Tax Court granted the Commissioner's motion to dismiss the Fosters' petition for lack of jurisdiction. The Tax Court held that the existence of Seneca's TMP was not a necessary condition for a valid FPAA because the absence of a TMP had no adverse effect on the Fosters' right to notice and hearing. Subsequently, the Tax Court also granted the Commissioner's motion to dismiss for lack of jurisdiction in the Klocks' case pursuant to the opinion entered in the Fosters' case.


This court reviews de novo the Tax Court's interpretation of federal statutes and regulations. Scar v. Commissioner, 814 F.2d 1363, 1366 (9th Cir. 1987).


Tax Courts are article I courts that possess jurisdiction to adjudicate controversies only as Congress has expressly provided in the Internal Revenue Code. Section 7442; Commissioner v. Gooch Milling & Elevator Co., 320 U.S. 418, 422 (1943). The Tax Court's jurisdictional power to review a FPAA is principally found in Sec. 6226:

Judicial Review of Final Partnership Administrative Adjustments.

(a) Petition by tax matters partner.

Within 90 days after the day on which a notice of a final partnership administrative adjustment is mailed to the tax matters partner, the tax matters partner may file a petition for a readjustment of the partnership items for such taxable year with:

(1) the Tax Court,

(2) the district court of the United States for the district in which the partnership's principal place of business is located, or

(3) the Claims court.

(b) Petition by partner other than tax matters partner.

(1) In General. If the tax matters partner does not file a readjustment petition under subsection (a) with respect to any final partnership administrative adjustment, any notice partner (and any 5-percent group) may, within 60 days after the close of the 90-day period set forth in subsection (a), file a petition for a readjustment of the partnership items for the taxable year involved with any of the courts described in subsection (a).

The term "notice partner" means a partner who, at the time in question, would be entitled to notice under subsection (a) of Sec. 6223. See section 6231. A partner with less than one-percent interest in the profits of a partnership with more than 100 partners is not entitled to notice under Sec. 6223(b). Since there are less than 100 partners in the Seneca partnership, all of the Seneca partners, including both the Fosters and Klocks, qualify as notice partners.

The Commissioner sent the notice of FPAA to the TMP of Seneca on June 18, 1987. Pursuant to Sec. 6226, this mailing started the statutory period for judicial review. The Commissioner also sent the FPAA notices to Seneca's notice partners, including the Fosters and Klocks. The 90-day period for the TMP to file a petition expired on September 16, 1987 without a petition filed. The subsequent 60-day period for a notice partner to file a petition expired on November 15, 1987, a Sunday, and thus was extended one day to November 16, 1987. Neither the Fosters nor the Klocks filed their petitions within the Sec. 6226(b) time limits. Therefore, the Tax Court dismissed their petitions for lack of jurisdiction.

The taxpayers first argue that the existence of a TMP is a necessary prerequisite before a valid FPAA can issue and the Commissioner has a mandatory duty to appoint a TMP in the absence of any general partner to serve as such. Donovan, Seneca's sole general partner, was ineligible to remain TMP upon being named a debtor in a bankruptcy proceeding. See section 6231(c); Computer Programs Lambda, Ltd. v. Commissioner, 89 T.C. 198 (1987). Since the Commissioner failed to select a TMP, the taxpayers argue, the FPAA was invalid and therefore, the statutory time period for a notice partner petition never began to run.

Congress created the position, or concept, of tax matters partner when the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, Sec. 402, 96 Stat. 324, 648-69 (1982) ("TEFRA"), was enacted to streamline the tax adjustment process. TEFRA requires that the tax treatment of items of partnership income, loss, deductions and credits be determined at the partnership level in a unified proceeding rather than in separate proceedings with each partner. To protect the rights of partners in this unified process, a partnership designates a general partner as TMP to represent the partnership before the IRS in all tax matters for a specific taxable year. See Temp.Treas.Reg. Sec. 301.6231(a) (7)-1T.

TEFRA, much like the old rules for partner level audits, contemplates that every partner who wants to participate in an administrative proceeding has the right to do so. See section 6224. Consequently, the TEFRA procedures assure that each partner has adequate notice and hearing of any potential tax liability flowing from the partnership. See Temp.Treas.Reg. Sec. 301.6223(g)-1T. First, the Commissioner is required to send notice of 1) the beginning of an administrative proceeding, and 2) the FPAA resulting from such proceedings to each partner entitled to notice. Section 6223. Second, for those partners not entitled to notice from the Commissioner, the regulations require that the TMP send notice. Temp.Treas.Reg. Sec. 301.6223(g)-1T. The existence of a TMP is critical to protect the interests of non-notice partners. Since the TMP is the only source of partnership tax information to non-notice partners, the non-existence of a TMP means that non-notice partners will likely not have notice of any potential tax liability arising from the partnership. Non-notice partners, unlike notice partners, would not know that an administrative proceeding had begun, nor be aware of any FPAA, and thus the statutory time period for judicial review of a FPAA, that resulted from the administrative process. Therefore, in the absence of a TMP, non-notice partners would lose their right to participate in the administrative and judicial partnership tax adjustment process.

This case, however, does not present that issue. The Seneca partnership, consisting of only 32 limited partners and one general partner, does not have any non-notice partners. Consequently, even though Seneca did not have a TMP at the time the FPAA issued, the lack of a TMP did not prejudice the rights of the taxpayers, or any other Seneca partner. The Seneca partners had adequate notice of the beginning of the administrative proceeding, and the FPAA resulting from that proceeding. These notices allowed any Seneca partner, including both the Fosters and Klocks, a meaningful opportunity to participate in both the administrative and judicial review of Seneca's partnership adjustments. The existence of a TMP was not critical to protect their rights. Consequently, in this situation, the Commissioner did not have a mandatory duty to appoint a TMP.

The Fosters and Klocks next argue that the FPAA must be declared null and void because Sec. 6223(a) (2) requires that an FPAA result from an administrative proceeding and the Commissioner never conducted an administrative proceeding. To support their argument the taxpayers cite Scar v. Commissioner, 814 F.2d 1369 (9th Cir. 1987). First, the taxpayers were given notice, pursuant to Sec. 6223, of the beginning of an administrative proceeding. Therefore, as noted above, they had the opportunity to participate in the administrative review of Seneca's partnership return that resulted in the FPAA.

Second, if the taxpayers' argument is construed as presenting a Scar issue, this argument is raised for the first time on appeal. This court usually does not consider issues raised for the first time on appeal, unless review is necessary because the case is "exceptional." Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir. 1985). This court has recognized an exception where the issue is purely one of law and does not depend on either the factual record developed below or the record below has been fully developed. Id. This case does not merit such an exception.

The taxpayers' Scar argument turns on the factual record developed below.3  The record in this case shows that the partnership adjustments were based on a review of the Seneca partnership tax return and that the specific amount of disallowed partnership loss and the reasons for disallowance were disclosed to the Seneca partners. Thus, the taxpayers' Scar argument fails based on the record as it now stands. The taxpayers cannot successfully assert this argument without further development of the record. Consequently, we do not consider this issue on appeal.


We affirm the Tax Court's decision. The Commissioner's duty to appoint, or assure that the partnership appoints, a TMP does not arise unless the partners' rights are not adequately protected. In this case, the Seneca partners received adequate notice and opportunity to protect their interests in the administrative and judicial partnership tax review process. The absence of a TMP did not impair their ability to protect their rights. We do not consider the appellants Scar argument because it is raised for the first time on appeal.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3


There is no indication, in the record or at oral argument, that the Klocks did not receive this notice


All section references are to the Internal Revenue Code of 1954, Title 26 U.S.C., as amended and in effect for the years in issue


In Scar, "the deficiency notice mailed to the taxpayers contained an explanation of a tax shelter completely unrelated to their return [and] contained no adjustments to tax passed on their return as filed." 814 F.2d at 1366. The deficiency notice also wrongly computed the amount of tax due. Id. at 1365. This court held the deficiency notice invalid because the IRS admittedly failed to determine the actual tax deficiency. " [T]he Commissioner must consider information that relates to a particular taxpayer before it can be said that the Commissioner has 'determined' a 'deficiency' in respect to that taxpayer." Id. at 1368