Ninth Circuit rules on Tax Court jurisdiction in partnership cases.

• Author: Nevius, Alistair M.

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The Ninth Circuit has held in a group of consolidated cases that the Tax Court has jurisdiction to decide in partner-level proceedings whether a partnership's transactions were tax motivated (Keller, No. 0675466 (9th Cir. 6/3/09)).

The case concerns the outstanding tax liabilities of 16 partners who invested in cattle partnerships that were sold to investors as the "1,000 lb Tax Shelter." These partnerships were part of a large series of cattle- and sheep-breeding partnerships that were organized, promoted, and operated by Walter J. Hoyt III from the 1970s through the 1990s and that have been the subject of extensive litigation over the years.

The IRS had offered a variety of settlement offers to the partners in the partnerships at issue. When the Service sent notices of intent to levy, the partners requested collection due process hearings and submitted offers in compromise to settle their outstanding tax liabilities. The IRS rejected the partners' offers in compromise and, in the collection due process hearings, imposed interest under former Sec. 6621(c) (which imposed a higher interest rate for substantial underpayments that resulted from tax-motivated transactions).

In the ensuing litigation, the Tax Court held that the IRS did not abuse its discretion in rejecting the offers in compromise. The court also held that it did not itself have jurisdiction to determine whether the partnership's transactions were tax motivated for purposes of former Sec. 6621(c) (Keller, T.C. Memo. 2006-166).

The Tax Court based its jurisdiction decision on the fact that the question of whether the transactions were tax motivated is a partnership item that must be determined in partnership-level proceedings. Here the individual partners...