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Thompson v. Commissioner of Internal Revenue

United States Court of Appeals, Eighth Circuit

May 3, 2016

Randall J. Thompson, &; Karen G. Thompson Appellants
v.
Commissioner of Internal Revenue Appellee

Submitted: January 12, 2016

Appeal from the United States Tax Court

Before WOLLMAN, MELLOY, and COLLOTON, Circuit Judges.

WOLLMAN, Circuit Judge.

Randall and Karen Thompson appeal from an order of the United States Tax Court[1] that dismissed for lack of jurisdiction their petition challenging the Internal Revenue Service's (IRS) assessment of a penalty with respect to their 2001 joint tax return. We affirm.

This is the third appeal brought to challenge adjustments made by the IRS to 2001 tax returns filed by the Thompsons and a related partnership. See RJT Invs. X v. Comm'r, 491 F.3d 732 (8th Cir. 2007) (partnership-level proceeding); Thompson v. Comm'r, 729 F.3d 869 (8th Cir. 2013) (partner-level proceeding). We relate only those general facts necessary to resolution of the jurisdictional issue presented here.

In 2001, Randall Thompson (Thompson) formed a partnership, RJT Investments X, LLC (RJT), which he then used in an illegal tax-shelter transaction to offset capital gains of approximately $21.5 million that otherwise would have been taxable on his 2001 joint tax return. The IRS conducted an audit of RJT's 2001 partnership tax return and determined that RJT was a sham, that it lacked economic substance, and that it was formed so that Thompson could use the overstated basis he claimed in his RJT partnership interest to offset the $21 million in capital gains. RJT Invs. X, 491 F.3d at 735; Thompson, 729 F.3d at 871. The IRS disallowed all deductions and losses reported by RJT on its 2001 partnership return. It also determined that a 40-percent accuracy-related penalty for gross misstatement of partnership basis would be applied to any underpayment of tax by RJT partners resulting from the adjustments made to the RJT partnership return. RJT and Thompson challenged these adjustments in a partnership-level proceeding before the Tax Court, but the adjustments, including imposition of the penalty, were affirmed by the Tax Court and by this court on appeal. RJT Invs. X, 491 F.3d at 738.

After the RJT partnership-level proceeding became final, the IRS initiated a partner-level proceeding to determine the resulting effects of the partnership adjustments on the Thompsons' 2001 joint tax return. Because the IRS had previously determined that RJT was a sham and must be disregarded for tax purposes, it further determined that Thompson's basis in his RJT partnership interest was zero and that he could not use his basis in that interest to offset the $21 million capital gain reported on his 2001 joint tax return. In addition to the tax assessed on this capital gain, the IRS imposed the 40-percent accuracy-related penalty it had previously determined was applicable in the RJT partnership-level proceeding.

The Thompsons filed a petition in the Tax Court to challenge both the tax deficiency and the penalty. The IRS moved to dismiss the petition for lack of jurisdiction, arguing that the Thompsons were not entitled to a prepayment hearing before the Tax Court but were instead required to pay both the tax deficiency and the penalty in full before they could challenge the adjustments in a tax-refund proceeding.

The Tax Court granted the IRS's motion to dismiss the petition for lack of jurisdiction. The Thompsons appealed to this court, and we reversed as to the Tax Court's jurisdiction over the tax deficiency. We observed that, although RJT was a sham partnership, it did "not necessarily follow . . . that Thompson's entire purported basis" in RJT was overstated. Thompson, 729 F.3d at 873. Because the determination of Thompson's basis in his RJT partnership interest "must be determined at the partner level, " we concluded that the Tax Court had jurisdiction in a partner-level proceeding to determine Thompson's basis and to consider his challenge to any tax deficiency resulting from that determination. Id.

With respect to the Tax Court's jurisdiction over the penalty issue, however, we affirmed the Tax Court's dismissal for lack of jurisdiction based on an express abandonment of the issue by the Thompsons. In their brief, the Thompsons stated:

[T]he taxpayers are too late with this argument. The taxpayers agree that they cannot here collaterally attack the jurisdiction of the Tax Court over penalties in this case [i.e., the partner-level proceeding to adjust the tax and penalty applicable to the Thompsons' 2001 joint tax return]. The earlier Tax Court Decision in [the] RJT [partnership-level proceeding] is res judicata on the applicability of penalties here. . . . The decision of the Tax Court dismissing this [partner-level proceeding] for lack of jurisdiction should be reversed as to jurisdiction over the deficiency determination.

J.A. 212. In addition to this direct concession, the Thompsons' request for relief on appeal was limited to a "revers[al] as to jurisdiction over the [tax-]deficiency determination." Id.

Relying on this express abandonment of any challenge to the penalty, we concluded that the question of the Tax Court's ...


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