Napoliello v. Commissioner of Internal Revenue

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Tax Law
  • Date Filed: 08-23-2011
  • Case #: 09-72389
  • Judge(s)/Court Below: Senior District Judge Noonan for the Court; Circuit Judges Wardlaw and Korman
  • Full Text Opinion

When deficiency requires a partner-level determination, an affected item notice of deficiency will be sufficient. And, “determination as to a partnership's validity...falls within the definition of a partnership item” as it pertains to the Tax Court's jurisdiction to review FPAA determinations.

An IRS investigation of his Son-of-BOSS tax shelter determined that Napoliello engaged in sham trading and “claimed losses [to mask] the offsetting effects of foreign currency options” investments through his tax shelter. The IRS “sent a notice of Final Partnership Administrative Adjustment” to Napoliello's sham trading company, adjusting the company's tax return. Upon subsequent review, “the IRS sent Napoliello a deficiency notice,” after receiving which, “Napoliello brought this action in Tax Court.” Following the Tax Court's grant of summary judgment for the IRS, Napoliello appeals on two jurisdictional challenges. Napoliello claims that under 26 U.S.C. § 6213(a), his challenge of “the validity of the notice in Tax Court... acts as a challenge to the court's jurisdiction.” He challenges the Tax Court's “jurisdiction to redetermine Napoliello's deficiency based on the notice he received.” The Court finds that because “partner-level determinations were necessary” given that “Napoloello did not disclose his Son-of Boss tax benefits,” the deficiency notice he received was valid as sent. Additionally, Napoliello challenges “whether the Tax Court had jurisdiction to redetermine affected items in a deficiency notice that relied on the FPAA determination” that Napoliello's trading company was a sham. The Court concludes that jurisdiction was valid because the “determination as to a partnership's validity... falls within the definition of a partnership idem” and “the Tax Court's jurisdiction to redetermine affected items in a deficiency notice” includes “those items that reflect FPAA adjustments of partnership items.” AFFIRMED.

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