Estate of Callaway v. Commissioner

T.C. Memo. 1998-99

UNITED STATES TAX COURT

ESTATE OF JAMES T. CALLAWAY, DECEASED, ELIZABETH N.

CALLAWAY, EXECUTRIX, and ELIZABETH N. CALLAWAY, Petitioners

v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20048-96. Filed March 10, 1998.

Frank Agostino, for petitioners.

Susan G. Lewis and Guy A. Bracuti, for respondent.

MEMORANDUM OPINION

PANUTHOS, Chief Special Trial Judge: This case is before

the Court on petitioners' Motion for Summary Judgment. In

addition, the Court, sua sponte, raised certain jurisdictional

issues concerning the validity of the notices of deficiency at

issue.1

1

Section references are to the Internal Revenue Code, as

(continued...)

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The primary issue for consideration is whether the affected

items notices of deficiency are valid. In this connection, we

must consider whether the partnership items of each petitioner

converted to nonpartnership items. If the partnership items of

either petitioner remain as partnership items, we must further

decide whether the period of limitations has expired for issuance

of that affected items notice of deficiency.

Background

Petitioners are the estate of James T. Callaway and

Elizabeth N. Callaway (Mrs. Callaway), James T. Callaway's

surviving spouse. James T. Callaway (decedent) died on December

8, 1990. Mrs. Callaway is the duly appointed executrix of

decedent's estate.

During the taxable years 1986, 1987, and 1988, decedent was

a limited partner in a partnership known as Mountain View Mall

Associates (Mountain View or the partnership). Decedent and Mrs.

Callaway filed joint Federal income tax returns reporting

decedent's distributive share of losses reported on Mountain

View's partnership returns for the taxable years 1986, 1987, and

1988.

On February 5, 1991, respondent mailed to decedent a notice

of the beginning of an administrative proceeding (NBAP)

1

(...continued)

amended. Rule references are to the Tax Court Rules of Practice

and Procedure.

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respecting the partnership's 1988 taxable year. Respondent has

been unable to provide the Court with copies of the NBAP's

purportedly mailed to decedent on the same date with respect to

the partnership's 1986 and 1987 taxable years.

On December 23, 1991, Mrs. Callaway forwarded several

letters to respondent, including a request for prompt assessment

of income tax submitted on behalf of decedent's estate for the

taxable years 1983 through 1990. See sec. 6501(d). In addition,

Mrs. Callaway remitted three checks to respondent in the amounts

of $90,635, $48,846, and $8,439 designated as deposits in the

nature of a cash bond respecting petitioners' tax liabilities for

1986, 1987, and 1988, respectively. At the same time, Mrs.

Callaway filed a Form 872-T with respondent, covering the taxable

years 1983 through 1990, along with a letter dated December 23,

1991, stating:

please accept this form as a statement disclaiming and

denying the Tax Matters Partners' settlement authority,

a statement denying the Tax Matters Partner's authority

to extend any statutes of limitation, and an election

to have any items which would be classified as

partnership items classified as non-partnership items

subject to the deficiency procedures of Internal

Revenue Code section 6213. * * *

There is no indication that respondent replied to Mrs. Callaway's

letters. However, the record indicates that respondent initially

concluded that Mrs. Callaway's request for prompt assessment of

income tax filed on behalf of decedent's estate was invalid.

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On October 5, 1992, respondent issued notices of final

partnership administrative adjustment (FPAA) to the tax matters

partner (TMP) for Mountain View determining adjustments to the

partnership's tax returns for 1986, 1987, and 1988. On the same

date, respondent mailed to petitioners copies of the above-

described FPAA's.

On or about March 17, 1993, a Mountain View partner, other

than the TMP, filed a petition for readjustment with the U.S.

Court of Federal Claims contesting the FPAA's described above.

In August and September 1993, respondent entered what

respondent terms "precautionary" assessments against petitioners

for additional taxes in the amounts of $77,384, $41,981, and

$6,541 for 1986, 1987, and 1988, respectively, reflecting the

disallowance of decedent's distributive share of Mountain View's

partnership items for those years. At the same time, respondent

posted to petitioners' accounts the amounts that Mrs. Callaway

remitted to respondent on December 23, 1991.2

On July 6, 1995, the U.S. Court of Federal Claims dismissed

the partnership level action pursuant to section 6226(h) based

upon a stipulation for dismissal in which the partnership

conceded the adjustments set forth in the FPAA's.

2

Respondent entered these assessments in an effort to

protect against the expiration of the period of limitations in

the event that Mrs. Callaway's request for prompt assessment

filed on behalf of the decedent's estate was deemed valid.

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On July 16, 1996 (presumably after abating the above-

described assessments entered in August and September 1993),

respondent entered identical assessments against petitioners

reflecting computational adjustments to account for the

disallowance of decedent's distributive share of Mountain View's

partnership items for the taxable years 1986, 1987, and 1988.

On August 5, 1996, respondent issued notices of deficiency

to petitioners determining various additions to tax, including

delinquent filing of returns, negligence, and valuation

overstatements for the taxable years 1986, 1987, and 1988. The

additions to tax are based upon adjustments to petitioners' tax

liability arising from the disallowance of decedent's

distributive share of Mountain View partnership items.

Petitioners invoked the Court's jurisdiction by filing a timely

petition for redetermination.

After filing their petition, petitioners filed a motion to

restrain collection asserting that respondent had failed to

timely assess and was improperly attempting to collect the

underlying tax deficiencies attributable to the disallowance of

decedent's distributive share of Mountain View's partnership

items. Respondent filed an objection to petitioners' motion to

restrain collection asserting that the Court lacks jurisdiction

to restrain respondent's collection efforts under the

circumstances presented. In further response, however,

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respondent conceded that all assessments entered against

decedent's estate were improper on the ground that Mrs.

Callaway's request for prompt assessment filed on behalf of

decedent's estate on December 23, 1991, was valid, thereby

resulting in the immediate conversion of decedent's Mountain View

partnership items to nonpartnership items under section

6231(c)(2) and section 301.6231(c)-8T, Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 6794 (Mar. 5, 1987).3 In contrast,

respondent maintained that the July 1996 assessments entered

against Mrs. Callaway were proper on the ground that,

notwithstanding the conversion of decedent's partnership items to

nonpartnership items, Mrs. Callaway continued to be treated as a

Mountain View partner pursuant to section 301.6231(a)(2)-1T(a),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6790 (Mar. 5,

1987).

Following a hearing on the matter, we denied petitioners'

motion to restrain collection on the ground that the Court's

jurisdiction in this case is limited to a redetermination of the

additions to tax determined in the notices of deficiency for

affected items at issue, and, therefore, the Court lacks the

3

As a result of respondent's concession respecting the

validity of the request for prompt assessment filed on behalf of

decedent's estate, respondent further concedes that respondent

was obliged to issue a notice of deficiency to decedent's estate

for (or assess) any deficiencies attributable to decedent's

distributive share of Mountain View's partnership items for 1986,

1987, and 1988 by June 23, 1992. See secs. 6501(d), 6229(f).

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authority under section 6213(a) to restrain the assessment or

collection of the underlying deficiencies. See Powell v.

Commissioner, 96 T.C. 707 (1991).

Petitioners subsequently filed a motion for summary judgment

asserting that the notices of deficiency for affected items were

issued beyond the period of limitations. Specifically, relying

on respondent's concession that decedent's partnership items

converted to nonpartnership items on December 23, 1991,

petitioners maintain that Mrs. Callaway's partnership items

likewise converted to nonpartnership items at the same time on

the ground that she is treated as a Mountain View partner only

due to her election to file joint returns with decedent for the

years in issue.

Following a preliminary review of petitioners' motion, and

considering respondent's concessions, the Court issued an order

in which the Court sua sponte raised issues respecting the

validity of the notices of deficiency for affected items and the

Court's jurisdiction in this case. As directed by the Court, the

parties subsequently filed status reports, and respondent filed a

response in opposition to petitioners' motion.

Discussion

The notices of deficiency at issue in this case, so-called

affected items notices of deficiency, were issued to petitioners

pursuant to the unified audit and litigation procedures set forth

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in sections 6221 through 6233. Tax Equity & Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),

96 Stat. 648. Pursuant to the TEFRA provisions, which apply with

respect to all taxable years of a partnership beginning after

September 3, 1982, the tax treatment of any partnership item

generally is determined in a single proceeding at the partnership

level. Sparks v. Commissioner, 87 T.C. 1279, 1284 (1986);

Maxwell v. Commissioner, 87 T.C. 783, 789 (1986).

Partnership items include each partner's proportionate share

of the partnership's aggregate items of income, gain, loss,

deduction, or credit. Sec. 6231(a)(3); sec. 301.6231(a)(3)-

1(a)(1)(i), Proced. & Admin. Regs.

Partnership items are distinguished from affected items

which are defined in section 6231(a)(5) as any item to the extent

such item is affected by a partnership item. White v.

Commissioner, 95 T.C. 209, 211 (1990). The first type of

affected item is a computational adjustment made to record the

change in a partner's tax liability resulting from the proper

treatment of partnership items. Sec. 6231(a)(6); White v.

Commissioner, supra. Once partnership level proceedings are

completed, the Commissioner is permitted to assess a

computational adjustment against a partner without issuing a

deficiency notice. Sec. 6230(a)(1); N.C.F. Energy Partners v.

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Commissioner, 89 T.C. 741, 744 (1987); Maxwell v. Commissioner,

supra at 792 n.9.

The second type of affected item is one that is dependent

upon factual determinations to be made at the individual partner

level. N.C.F. Energy Partners v. Commissioner, supra at 744.

Section 6230(a)(2)(A)(i) provides that the normal deficiency

procedures apply to those affected items that require partner

level determinations. For instance, additions to tax for

negligence are affected items requiring factual determinations at

the individual partner level. N.C.F. Energy Partners v.

Commissioner, supra at 745.

Congress has vested the Secretary with the authority to

prescribe exceptions to the unified partnership audit and

litigation procedures. In particular, section 6231(c)(2)

provides that, where the treatment of partnership items will

interfere with the effective and efficient enforcement of the

TEFRA provisions, the Secretary may promulgate regulations

whereby such partnership items will be treated as nonpartnership

items.4 One such special enforcement area is described in

section 301.6231(c)-8T, Temporary Proced. & Admin. Regs., 52 Fed.

Reg. 6794 (Mar. 5, 1987), which provides:

4

In those instances where partnership items are treated as

nonpartnership items, adjustments to the partner's tax liability

generally are determined at the individual partner level through

the normal deficiency procedures. Sec. 6230(a)(2)(A)(ii).

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Prompt assessment (Temporary).--The treatment of

items as partnership items with respect to a partner on

whose behalf a request for a prompt assessment of tax

under section 6501(d) is filed will interfere with the

effective and efficient enforcement of the internal

revenue laws. Accordingly, partnership items of such a

partner arising in any partnership taxable year ending

with or within any taxable year of the partner with

respect to which a request for a prompt assessment of

tax is filed shall be treated as nonpartnership items

as of the date that the request is filed.

In sum, the partnership items of a partner on whose behalf a

request for prompt assessment of income tax is filed under

section 6501(d) shall be treated as nonpartnership items as of

the date that the request for prompt assessment is filed.5

Petitioners contend that they are entitled to summary

judgment that the notices of deficiency for affected items were

issued beyond the period of limitations on the ground that both

decedent's and Mrs. Callaway's partnership items converted to

nonpartnership items upon the filing of a request for prompt

assessment on decedent's behalf on December 23, 1991. Although

5

The filing of a request for prompt assessment on behalf

of a deceased partner presents special enforcement problems with

respect to TEFRA partnership proceedings due to the abbreviated

period of limitations associated with such a request. In

particular, sec. 6501(d) establishes an exception to sec. 6501(a)

which sets forth the general rule that the amount of any income

tax shall be assessed within 3 years after a tax return is filed.

Sec. 6501(d) provides that a request for prompt assessment may be

filed with respect to any tax (except estate tax) for which a

return is required by a decedent, or by his estate during the

period of administration, or by a corporation, and that such tax

generally shall be assessed within 18 months after filing of such

request but not later than 3 years after the return was filed.

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petitioners' "conversion" theory and period of limitations

arguments seem logical at first glance, closer scrutiny reveals

that, if petitioners' conversion theory is correct with respect

to both decedent and Mrs. Callaway, it follows that the Court

lacks jurisdiction on the ground that the notices of deficiency

for affected items are invalid.

It is well settled that allegations concerning the period of

limitations constitute an affirmative defense, not a plea to the

jurisdiction of this Court. Saso v. Commissioner, 93 T.C. 730,

734-735 (1989); see Columbia Bldg., Ltd. v. Commissioner, 98 T.C.

607, 611-612 (1992). Further, the Court has long held that,

where the Court's jurisdiction and the period of limitations are

both disputed issues in a case, we are obliged to resolve first

whether the Court has jurisdiction. King v. Commissioner, 88

T.C. 1042, 1050 (1987), affd. on other grounds 857 F.2d 676 (9th

Cir. 1988). A jurisdictional issue can be raised by either party

or the Court sua sponte at any stage of the proceedings. Smith

v. Commissioner, 96 T.C. 10, 13-14 (1991).

As explained in greater detail below, if we agree with

petitioners' conversion theory, the notices of deficiency for

affected items are invalid thereby rendering petitioners' period

of limitations argument moot. On the other hand, if we reject

petitioners' conversion theory, the notices of deficiency for

affected items are valid, and petitioners' period of limitations

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argument fails. For clarity, we shall analyze the validity of

the notices of deficiency separately with respect to decedent and

Mrs. Callaway.

Jurisdiction: Estate of James T. Callaway

The Court's jurisdiction is dependent upon a valid notice of

deficiency and timely filed petition for redetermination. Rule

13(a), (c); Monge v. Commissioner, 93 T.C. 22, 27 (1989); Normac,

Inc. & Normac Intl. v. Commissioner, 90 T.C. 142, 147 (1988). In

Crowell v. Commissioner, 102 T.C. 683, 691-692 (1994), the Court

held that a taxpayer may contest the validity of a notice of

deficiency for affected items on the ground that the taxpayer's

partnership items converted to nonpartnership items by virtue of

the Commissioner's alleged failure to notify properly the

taxpayer of partnership level proceedings.

Consistent with Crowell, and considering respondent's

concession that Mrs. Callaway filed a valid request for prompt

assessment on behalf of decedent's estate, the Court sua sponte

raised the issue of the validity of the notices of deficiency for

affected items insofar as the notices were issued to decedent's

estate. In particular, because decedent's Mountain View

partnership items converted to nonpartnership items for the years

at issue in this case pursuant to section 301.6231(c)-8T,

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6794 (Mar. 5,

1987), it follows that the question of decedent's tax liability

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for such items was excepted from the unified partnership audit

and litigation procedures. See sec. 6230(a)(2)(A)(ii) (normal

deficiency procedures apply where partnership items converted to

nonpartnership items under secs. 6231(e)(1)(B)(i) and

6231(c)(2)). Under the circumstances, we hold that the notices

of deficiency for affected items are invalid insofar as they were

issued to decedent's estate. Consequently, we shall dismiss this

case for lack of jurisdiction with respect to decedent's estate

and deny petitioners' motion for summary judgment as moot insofar

as it pertains to decedent's estate.

Jurisdiction: Elizabeth N. Callaway

Petitioners maintain that, because Mrs. Callaway is treated

as a Mountain View partner solely by virtue of having filed a

joint return with decedent for the years in issue, her

partnership items converted to nonpartnership items at the same

time that decedent's partnership items were so converted. We

disagree.6

The controversy surrounding Mrs. Callaway's status as a

Mountain View partner involves the effect of section

301.6231(a)(2)-1T(a)(1), Temporary Proced. & Admin. Regs., 52

Fed. Reg. 6790 (Mar. 5, 1987), which provides in pertinent part:

Persons whose tax liability is determined

indirectly by partnership items (Temporary).--(a)

6

Again, petitioners' conversion theory raises the question

of the validity of the notices of deficiency.

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Spouse filing joint return with individual holding

separate interest--(1) In general. [With exceptions

not applicable here] * * *, a spouse who files a joint

return with an individual holding a separate interest

in the partnership shall be treated as a partner for

purposes of subchapter C of chapter 63 of the Code.

Thus, the spouse who files a joint return with a

partner will be permitted to participate in

administrative and judicial proceedings.

Respondent contends that, notwithstanding the conversion of

decedent's partnership items to nonpartnership items pursuant to

section 301.6231(c)-8T, Temporary Proced. & Admin. Regs., 52 Fed.

Reg. 6794 (Mar. 5, 1987), Mrs. Callaway was at all times treated

as a Mountain View partner who was fully entitled to participate

in partnership level proceedings pursuant to section

301.6231(a)(2)-1T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.

6790 (Mar. 5, 1987). In this regard, respondent asserts that the

notices of deficiency for affected items are valid as to Mrs.

Callaway and that such notices were timely issued following the

conclusion of the partnership level proceeding in the U.S. Court

of Federal Claims.

Based upon the plain language of the provisions in question,

we agree with respondent that Mrs. Callaway's partnership items

did not convert to nonpartnership items pursuant to section

301.6231(c)-8T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.

6794 (Mar. 5, 1987). We begin with section 301.6231(a)(2)-1T(a),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6790 (Mar. 5,

1987), which plainly states that a spouse who files a joint

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return with an individual holding a separate interest in a

partnership shall be treated as a partner for purposes of

subchapter C of chapter 63 of the Code and will be permitted to

participate in administrative and judicial proceedings. In

practical effect, section 301.6231(a)(2)-1T(a), Temporary Proced.

& Admin. Regs., 52 Fed. Reg. 6790 (Mar. 5, 1987), ensures that a

spouse, who may be jointly and severally liable under section

6013(d)(3) for any deficiency in tax arising with respect to a

joint return, will be permitted to protect his or her interests

by fully participating in any unified partnership level

administrative or judicial proceeding.7 By virtue of having

filed joint returns with decedent during the years in issue, Mrs.

Callaway clearly qualifies for treatment as a partner under this

temporary regulation.

In contrast, we find no support for petitioners' position

that Mrs. Callaway's partnership items converted to

nonpartnership items as a consequence of the request for prompt

assessment filed on decedent's behalf. Section 6501(d)

establishes a limited exception to the normal 3-year period of

7

Sec. 6013(d)(3) provides: "if a joint return is made,

the tax shall be computed on the aggregate income and the

liability with respect to the tax shall be joint and several."

One of the fundamental characteristics of joint and several

liability is that the obligee (respondent) may proceed against

the obligors (joint taxpayers) separately and may obtain a

separate judgment against each. Dolan v. Commissioner, 44 T.C.

420, 427 (1965).

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limitations set forth in section 6501(a) by providing that the

assessment procedure may be expedited where a request for prompt

assessment is filed on behalf of a decedent, the decedent's

estate, or a corporation. Section 6501(d) does not provide

prompt assessment relief to a surviving spouse. See Garfinkel v.

Commissioner, 67 T.C. 1028, 1032-1033 (1977); Estate of Severt v.

Commissioner, T.C. Memo. 1998-34. Similarly, we conclude that

section 301.6231(c)-8T, Temporary Proced. & Admin. Regs., 52 Fed.

Reg. 6794 (Mar. 5, 1987), which provides that partnership items

will be treated as nonpartnership items "with respect to a

partner on whose behalf a request for a prompt assessment of tax

under section 6501(d) is filed", does not apply to the surviving

spouse of a deceased partner.

We note that in Dubin v. Commissioner, 99 T.C. 325, 334

(1992), we rejected a similar argument under analogous

circumstances. In Dubin v. Commissioner, supra, the taxpayer and

her husband held a joint interest in a partnership. Because the

taxpayer's husband was named as a debtor in a bankruptcy

proceeding, his partnership items converted to nonpartnership

items pursuant to section 301.6231(c)-7T(a), Temporary Proced. &

Admin. Regs., 52 Fed. Reg. 6793 (Mar. 5, 1987). However, in a

reversal of the positions of the parties in the instant case, the

Commissioner argued in Dubin that the partnership items of the

taxpayer (wife) had converted to nonpartnership items at the time

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that her husband filed for bankruptcy.8 Specifically, the

Commissioner argued that the taxpayer's partnership items

converted to nonpartnership items by virtue of section

6231(a)(12), which provides that a husband and wife who have a

joint interest in a partnership generally shall be treated as one

person (or partner).

In rejecting the Commissioner's position, we noted that

section 301.6231(a)(12)-1T(a), Temporary Proced. & Admin. Regs.,

52 Fed. Reg. 6793 (Mar. 5, 1987), establishes an exception to the

general rule stated in section 6231(a)(12) by providing that

spouses holding a joint interest in a partnership are treated as

separate partners. Further, focusing on the bankruptcy rule set

forth in section 301.6231(c)-7T(a), Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 6793 (Mar. 5, 1987), we concluded that the

temporary regulation "concerns itself with the treatment of items

as partnership items with respect to a partner named as a debtor

in a bankruptcy proceeding; partnership items of such a partner

are treated as nonpartnership items." Dubin v. Commissioner,

supra at 334. We concluded our analysis as follows:

8

The Commissioner's position was born of the fact that the

Commissioner had not notified the taxpayer of the partnership

level proceedings but rather issued the taxpayer a notice of

deficiency. The case was before the Court on the parties' cross-

motions to dismiss for lack of jurisdiction. The Commissioner

argued that the case should be dismissed on the ground that the

petition was not timely filed, and the taxpayer moved to dismiss

on the ground that the notice of deficiency was invalid.

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Because the focus in the bankruptcy rule is limited to

the partner's status as a debtor in bankruptcy, we are

compelled here to look only to petitioner's status,

since she is the only partner before us, and, although

she is a partner, she is not in bankruptcy.

Accordingly, we find the bankruptcy rule to be

inapplicable.

Id. Consistent with our finding that the taxpayer's partnership

items had not converted to nonpartnership items in Dubin, we held

the notice of deficiency issued to the taxpayer to be invalid.

Although the Dubin case involved the status of a taxpayer

holding a joint partnership interest with her husband, whereas

the instant case concerns the status of a taxpayer who filed a

joint return with her husband, who held a separate partnership

interest, we see no meaningful distinction between the

controlling statutory and regulatory provisions. In short, just

as the bankruptcy provision at issue in Dubin was found to extend

only to the partner/spouse in bankruptcy, the prompt assessment

provision at issue in the instant case only extends to the

deceased partner on whose behalf the request for prompt

assessment is filed.

Based upon the preceding discussion, we hold that Mrs.

Callaway's Mountain View partnership items did not convert to

nonpartnership items at the time that decedent's partnership

items converted to nonpartnership items pursuant to section

301.6231(c)-8T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.

6794 (Mar. 5, 1987).

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Petitioners further contend that Mrs. Callaway's partnership

items converted to nonpartnership items as a consequence of

respondent's failure to notify properly petitioners of the

beginning of the Mountain View administrative proceedings.

Again, we find that the controlling statutory provisions do not

provide any support for petitioners' position.

Section 6223(a) provides in pertinent part that the

Commissioner shall notify the partners of a TEFRA partnership of

(1) the beginning of an administrative proceeding at the

partnership level and (2) the final administrative adjustment

arising from such proceeding.9 Section 6223(e) provides various

remedies where the Commissioner fails to provide timely notice

under section 6223(a). Section 6223(e) provides in pertinent

part:

(e) Effect of Secretary's Failure To Provide Notice.--

(1) Application of subsection.--

(A) In general.--This subsection applies

where the Secretary has failed to mail any

notice specified in subsection (a) to a

partner entitled to such notice within the

period specified in subsection (d).

* * * * * * *

(2) Proceedings finished.--In any case to which

this subsection applies, if at the time the Secretary

mails the partner notice of the proceeding--

9

Respondent concedes that decedent is a Mountain View

"notice partner" within the meaning of secs. 6223(a) and

6231(a)(8).

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(A) the period within which a petition

for review of a final partnership

administrative adjustment under section 6226

may be filed has expired and no such petition

has been filed, or

(B) the decision of a court in an action

begun by such a petition has become final,

the partner may elect to have such adjustment, such

decision, or a settlement agreement described in

paragraph (2) of section 6224(c) with respect to the

partnership taxable year to which the adjustment

relates apply to such partner. If the partner

does not make an election under the preceding

sentence, the partnership items of the partner for the

partnership taxable year to which the proceeding

relates shall be treated as nonpartnership items.

(3) Proceedings still going on.--In any case to

which this subsection applies, if paragraph (2) does

not apply, the partner shall be a party to the

proceeding unless such partner elects--

(A) to have a settlement agreement

described in paragraph (2) of section 6224(c)

with respect to the partnership taxable year

to which the proceeding relates apply to the

partner, or

(B) to have the partnership items of the

partner for the partnership taxable year to

which the proceeding relates treated as

nonpartnership items.

As previously mentioned, respondent was unable to provide

the Court with copies of the NBAP's purportedly issued to

petitioners respecting Mountain View's 1986 and 1987 taxable

years. However, respondent did mail to decedent on February 5,

1991, a NBAP respecting Mountain View's 1988 taxable year.

Further, on October 5, 1992, respondent mailed to petitioners

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copies of the FPAA's respecting Mountain View's taxable years

1986, 1987, and 1988.

Relying on Mrs. Callaway's December 23, 1991, letter and

respondent's failure to prove that NBAP's were mailed to

petitioners with respect to Mountain View's 1986 and 1987 taxable

years, petitioners contend that their partnership items converted

to nonpartnership items either at the time that respondent should

have mailed the NBAP's to petitioners or upon delivery of Mrs.

Callaway's December 23, 1991, letter requesting that her

partnership items be treated as nonpartnership items.

Even assuming that respondent failed to mail the NBAP's, the

record is clear that respondent mailed FPAA's to petitioners

respecting Mountain View's 1986, 1987, and 1988 taxable years on

October 5, 1992--prior to the date that a partner other than the

TMP filed a petition for readjustment of Mountain View

partnership items with the U.S. Court of Federal Claims. Under

the circumstances, Mrs. Callaway's remedy, upon receipt of the

FPAA's, was to make an election under section 6223(e)(3)(B) to

have her Mountain View partnership items treated as

nonpartnership items. Cf. Wind Energy Associates III v.

Commissioner, 94 T.C. 787, 791-792 (1990). In this regard,

section 301.6223(e)-2T(c)(2), Temporary Proced. & Admin. Regs.,

52 Fed. Reg. 6785 (Mar. 5, 1987), provides:

The election shall be made by filing a statement with

the Internal Revenue Service office mailing the notice

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regarding the proceeding within 45 days after the date

on which that notice was mailed.

Under the circumstances, we are not persuaded that Mrs.

Callaway's earlier letter to respondent dated December 23, 1991,

wherein Mrs. Callaway requested that her partnership items be

treated as nonpartnership items, constitutes a qualifying

election within the meaning of section 6223(e)(3)(B).

Finally, we are satisfied that Mrs. Callaway's letter dated

December 23, 1991, in which Mrs. Callaway unilaterally attempted

to terminate any extension of the period of limitations

concerning the partnership for the years in issue, was

ineffective to overcome the TMP's broad grant of authority under

section 6229(b)(1)(B) to execute agreements to extend the period

of limitations. Because Mrs. Callaway does not assert that the

notices of deficiency for affected items were issued beyond 1

year from the date that the U.S. Court of Federal Claims'

decision in the partnership level proceedings became final, see

sec. 6229(d), we deem the point conceded.

In sum, we conclude that Mrs. Callaway's partnership items

did not convert to nonpartnership items, and the notices of

deficiency for affected items are valid insofar as they were

issued to Mrs. Callaway. Petitioners have failed to prove that

the period of limitations expired prior to the issuance of the

notices of deficiency for affected items to Mrs. Callaway.

- 23 -

Consequently, we shall deny petitioners' motion for summary

judgment insofar as the motion pertains to Mrs. Callaway.

To reflect the foregoing,

An order will be issued

dismissing this case for lack

of jurisdiction as to the estate

of James T. Callaway, amending

the caption of the case as

appropriate, and denying

petitioners' motion for summary

judgment as moot insofar as the

motion pertains to decedent's

estate and denying petitioner's

motion for summary judgment

insofar as the motion pertains to

Mrs. Callaway.