We rarely send out Legal Alerts about the so-called “TEFRA” rules that govern partnership audits and litigation because so few people would read them. In Tigers Eye, however, the Tax Court took a noteworthy step around the Golsen rule which requires the Tax Court to follow the precedent in the circuit to which the case is appealable. This is something to bear in mind in deciding whether to litigate in the Tax Court. Moreover, the case involves issues that the Tax Court obviously feels quite strongly about, as the decision is 211 pages long with many concurrences and dissents, and was decided by a majority vote of 8 to 5 with two of the majority votes concurring in result only.
Sutherland Observation: The Tax Equity and Fiscal Responsibility Act (TEFRA) rules are an extraordinarily complex set of procedural rules applicable to many partnership audits and litigation. The rules are full of pitfalls for both the Internal Revenue Service (IRS) and taxpayers, and they can often require multiple proceedings. Tigers Eye is just one of several recent decisions in which the Tax Court has shown its frustration with these rules. The substantive result of the Tigers Eye holding may be that many items previously thought to be partner-level issues will now be controlled in partnership-level proceedings, instead of the partner-level proceedings commenced after the partnership case is over. If so, then this may make it necessary for partners to participate in partnership-level cases because items previously thought to be partner-level issues will now effectively be res judicata if, or when, a partner-level proceeding is commenced.
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