Seaview Trading v. CIR, No. 15-71330 (9th Cir. 2017)
Annotate this CaseAn entity's disregarded status did not preclude its classification as a pass-thru partner under the Tax Equity and Fiscal Responsibility Act (TEFRA), 26 U.S.C. 6231. In this case, Robert Kotick and his father formed Seaview Trading. Kotick filed a petition challenging a notice of Final Partnership Administrative Adjustment (FPAA). The Ninth Circuit affirmed the tax court's dismissal of the petition, holding that Seaview provided no compelling reason to contravene the consistent stance of the IRS and the tax courts, which have uniformly treated disregarded single-member LLCs as pass-thru partners. The panel also held that, because a party (Kotick) other than Seaview's tax matters partner filed a petition for readjustment of partnership items after AGK had done the same and within 90 days of the IRS's mailing of the FPAA, the tax court lacked jurisdiction under 26 U.S.C. 6226.
Court Description: Tax. The panel affirmed the Tax Court’s dismissal, for lack of jurisdiction, of a petition challenging a notice of Final Partnership Administrative Adjustment. Robert Kotick and his father formed Seaview Trading, LLC, a limited liability company, which federal tax regulations treat as a partnership. Seaview acquired an interest in a common trust fund which reported a loss that was allocated to its investors, including Seaview. After an audit of Seaview, the IRS issued a FPAA disallowing the loss from Seaview’s trust investment and imposed penalties. Because Kotick contended that Seaview was a small partnership not subject to the audit procedures under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the panel first held that entities that are disregarded for federal tax purposes may nevertheless constitute pass-thru partners under 26 U.S.C. § 6231(a)(9), such that the small- partnership exception under § 6231 does not apply and the partnership is therefore subject to the TEFRA audit procedures. The panel determined that resolution of this question was inextricably intertwined with the contention that Kotick had standing to file a petition for readjustment of partnership items on behalf of his purported small partnership.
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