UNITED STATES TAX COURT

ALS

T.C. Memo. 2017-194

UNITED STATES TAX COURT

CAMBRIDGE PARTNERS, L.P., KENNETH I. NOWAK, STATE OF NEW

JERSEY APPOINTED RECEIVER, ET AL.,¹, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 5831-03, 5833-03,

2626-04, 2627-04.

Filed October 2, 2017.

CP and CPII are limited partnerships. Their sole general

partner and tax matters partner ceased to be a general partner on Mar.

3, 2000, because of a consent decree appointing a receiver that

stemmed from the partner's guilty plea on three felony counts. KN,

in his capacity as the State-court-appointed receiver, filed AARs and

thereafter a petition for adjustment of each partnership's partnership

items under I.R.C. sec. 6228 for the 1997, 1998, and 1999 taxable

years. R moved to dismiss the cases for lack ofjurisdiction on the

¹The following cases are consolidated herewith: Cambridge Partners II,

L.P., Kenneth I. Nowak, State of New Jersey Appointed Receiver, docket Nos.

5833-03; Cambridge Partners II, L.P., Kenneth I. Nowak, State of New Jersey

Appointed Receiver, docket No. 2626-04; and Cambridge Partners, L.P., Kenneth

I. Nowak, State of New Jersey Appointed Receiver, docket No. 2627-04.

SERVED Oct 02 2017

-2[*2] basis that the petitions and the underlying AARs were not filed by the

tax matters partner.

I]eld: R's motions to dismiss for lack ofjurisdiction will be

granted because the receivership has been terminated by the State of

New Jersey and there remains no party with legal standing to pursue

this litigation.

Flavio L. Komuves, for petitioners.2

Joseph J. Boylan and Lydia A. Branche, for respondent.

MEMORANDUM OPINION

WHERRY, Judge: These cases concern four petitions for adjustment of

partnership items under section 6228.3 The cases are now before the Court on

respondent's motions to dismiss for lack ofjurisdiction and are consolidated solely

for purposes of this opinion. The issue for decision is whether this Court has

jurisdiction to decide these cases. The problem is that with the termination of the

receivership there remains no representative of the limited partnerships to maintain

and prosecute these cases. Further, neither the Tax Court petitions nor the

2Prior to September 29, 2016, and the termination of the receiverships by the

State of New Jersey petitioners were represented by George F. Nagel.

3Unless otherwise indicated, section references are to the Internal Revenue

Code in effect for the years in issue, and Rule references are to the Tax Court

Rules of Practice and Procedure.

-3[*3] underlying refund claims, Forms 8082, Notice of Inconsistent Treatment or

Administrative Adjustment Request (AAR), were filed by the tax matters partner

(TMP) as required by section 6228 and Rules 240 and 241.

Background

The information below is based upon an examination of the pleadings,

moving papers, responses, and attachments submitted in connection with these

cases. Factual recitations are meant to provide context for our analysis of

respondent's motions and to set forth matters that appear undisputed. They do not,

however, constitute findings of fact in the event of a subsequent trial or trials.

The partnerships are two New Jersey limited partnerships--Cambridge

Partners, L.P., and Cambridge Partners II, L.P. (Cambridge I and Cambridge II or,

collectively, the partnerships). Petitioner is a receiver appointed for them by the

New Jersey Superior Court (superior court). Their primary place of business when

the petitions were filed was in New Jersey.

New Jersey resident John C. Natale formed Cambridge I as the sole general

partner during or about 1992 and subsequently created Cambridge II during or

about January 1995. These entities were advertised as investment partnerships

(hedge funds), and each promptly solicited investors to purchase whole and

fractional interests in each entity. During their time in operation, the partnerships

-4[*4] amassed a total of approximately 90 and 140 investors, respectively. Mr.

Natale was general partner and TMP of both and purportedly used the partnerships

to manage investments on behalf of the partnerships' limited partners.

Unfortunately, Mr. Natale's management led to immediate and sustained losses for

both the partnerships and the partners. Rather than report the losses, however, Mr.

Natale reported fictitious profits. In substance the partnerships quickly became, if

they were not from the beginning, Ponzi schemes.

To that end, Mr. Natale fabricated the partners' monthly statements, sent

fictitious information to trade and industry publications, cashed out redeeming

investors with other investors' money and--as is most important in these cases-provided false tax information to the limited partners and the Internal Revenue

Service (IRS). Specifically, for at least the 1997, 1998, and 1999 tax years he

reported fictitious information on the Schedules K-1, Partner's Share of Income,

Deductions, Credits, etc., that he provided to the partners and the Forms 1065,

U.S. Return of Partnership Income, that he provided to the IRS. As a result, at

least some of the partners, when they filed their Federal income tax returns,

presumptively relying on the Schedules K-1, appear to have reported more income

than they actually earned; and many suffered significant loses although they

-5[*5] thought they had income. Consequently, in many if not all cases these

partners may have paid more Federal income tax than they actually owed.4

Mr. Natale was not caught by law enforcement authorities and continued to

provide false information to the limited partners and the IRS until he voluntarily

surrendered to the New Jersey Attorney General's Office and acknowledged his

fraudulent activities in 2000. His confession and surrender to authorities was

brought on in material part by the partnerships' inability to acquire sufficient new

investors to meet their ongoing redemption obligations to old investors, resulting

in the scheme's collapse. By then, the divergence between Mr. Natale's

misrepresentations and economic reality was dramatic.

Mr. Natale and his investment activities through the partnerships and a

related entity, CAJ Trading, Inc., thereafter became the target of various criminal

and civil proceedings in the State of New Jersey. Mr. Natale was alleged by

prosecutors and plaintiffs to have defrauded investors, communicated inflated

4Some partners apparently used tax-advantaged sec. 401(K) or individual

retirement account funds for their investment(s) in the partnerships and therefore

would have had no taxable income to report even if the Schedules K-1 had been

accurate. Other partners who withdrew their investments and fabricated profits

may have actually made money at the expense of other investors and may have

been subject to voidable preference "clawback" provisions.

-6[*6] asset and profitability figures for the partnerships, and misapplied new

investor funds to cover redemptions of existing investors' partnership accounts.

In the resulting criminal case Mr. Natale pleaded guilty to felony counts of

securities fraud, theft by deception, and misappropriation and was sentenced to 4

to 10 years in prison. In the civil case he consented to a finding that he had

committed fraud in violation of New Jersey's securities laws. In a March 3, 2000,

civil consent judgment, the superior court: (1) permanently enjoined Mr. Natale

and the partnerships from engaging in the securities business, (2) ordered Mr.

Natale and the partnerships to disgorge any money they had obtained in

connection with the misconduct and to make restitution to the partners, and (3)

appointed James R. Zazzali to serve as receiver for Mr. Natale and the partnerships

pursuant to N.J. Stat. Ann. sec. 49:3-69 (West 2001).

In the consent judgment, the superior court specified the powers and

responsibilities that Mr. Zazzali would have as receiver, ordering that he would:

(i) immediately take into possession all of defendants' assets,

including but not limited to holdings in all bank, brokerage, and

trading accounts, and undertake all actions necessary or appropriate

to maintain optimal value of those assets, including the power to

liquidate any such assets;

(ii) review all the books and records of and pertaining to defendants

and report to the court within 90 days of this Order:

-7[*7] (a) the identities of all of defendants' investors and creditors, past and

present, and the status of their accounts;

(b) the financial conditions of defendants; and

(c) a preliminary plan to distribute monies to investors and creditors;

*

*

*

*

*

*

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(vii) have the full statutory powers to perform his duties, including

the powers delineated in N.J.S.A. 49:3-69(c) and (d).

In May 2000, Mr. Zazzali was appointed to the New Jersey Supreme Court, and,

on June 2, 2000, the superior court appointed Kenneth I. Nowak to replace him as

receiver for the partnerships. In that capacity, Mr. Nowak reviewed the

partnerships' books and records and identified the inaccurate tax information that

Mr. Natale had reported to the partners and the IRS. This work required a

considerable period.

In April of 2001 (as to 1997) and February or March of 2002 (as to 1998

and 1999) Mr. Nowak, in his capacity as receiver, filed on behalf of the

partnerships amended returns, Forms 1065, and AARs for purposes of revising the

amounts reported on the original partnership tax returns, Forms 1065, submitted

by Mr. Natale. Explanatory statements included with the AARs represented that

deception on the part of Mr. Natale had resulted in the reporting of fictitious

profits and amounts on the original Federal tax returns and that a comprehensive

-8[*8] and time-consuming reconstruction of books and records had been

undertaken to ascertain the correct figures.

During the course of the ensuing review of the AARs, the IRS attempted to

find a limited partner for each of the partnerships willing to serve as TMP and in

that capacity to ratify the AARs. However, none of the limited partners contacted

by the IRS was willing to agree to serve as a TMP. After consideration, the IRS

declined to treat the changes shown on the AARs as corrections of errors on the

partnership returns, on the grounds that they were not signed by the TMP of either

of the partnerships.

On April 17, 2003, petitions signed by Mr. Nowak were filed with this

Court on behalf of the partnerships as to their respective 1997 taxable years.

These petitions were followed on January 2, 2004, by respondent's abovedescribed motions to dismiss the 1997 cases for lack ofjurisdiction.

Thereafter, on January 30, 2004, the superior court issued the following

order entitled "ORDER CONFIRMING THE AUTHORITY OF THE RECEIVER

TO ACT AS TAX MATTERS PARTNER, NUNC PRO TUNC":

[T]he Receiver is, and has been, authorized to act as, and take

all actions required of, the Tax Matters Partner, on behalf of the

Cambridge Entities, including, but not limited to the filing of

documents, returns, amended returns, K-1s, Administrative

Adjustment Requests and any and all other filings and petitions

-9[*9] necessary or appropriate to carryout [sic] and fulfill the obligations of

the Receiver, with and to the Internal Revenue Service, the United

States Tax Court, any and all appeals, motions, or any related matter

before or from the Internal Revenue Service and/or the United States

Tax Court, including any other agency, court, or appellate tribunal

(this shall include, but not be limited to, the filing of Administrative

Adjustment Requests with the Internal Revenue Service, and all

actions in connection with any state and federal agencies, all

administrative matters and proceedings, administrative agencies,

administrative courts, tax courts, and/or appellate review), nunc pro

t_unc, as of the date of the Receiver's initial appointment.

On February 10, 2004, a hearing was held on respondent's motions to

dismiss the 1997 cases, and the motions were taken under advisement. Three days

later, on February 13, 2004, Mr. Nowak filed a separate petition with the Court for

each partnership with respect to the 1998 and 1999 AARs. On August 2, 2004,

respondent moved to dismiss the cases concerning those AARs.

Thereafter, it appears the parties worked cooperatively to informally work

out a procedure, agreeable to both sides, to resolve any inequities, although no

formal written settlement agreement has been found by either party or filed with

the Court. The receiver's report to the investors and his motion to the New Jersey

Superior Court to close the receivership, respectively, stated that

through litigation with the IRS, we were able to allow all of you to

file amended tax returns to recoup the taxes you paid on fictitious

profits in prior years * * *[A]t the time we sought to obtain this

benefit for you several years ago, the [G]overnment had adamantly

- 10 [*10] opposed it and we pursued the matter successfully in the [T]ax

[C]ourt.

and

as a result of the litigation, the IRS ultimately agreed to allow the

Receiver to coordinate the filing of returns and to allow the limited

partners' prior returns to be amended. We believe, and the IRS also

noted, that this was breaking new ground at the time, and was an

enormous benefit for many investors who had paid taxes on the false

profits. * * * As a result, we believe that the limited partners were

able to obtain refunds on certain of their taxes for the false profits

upon which they had previously reported and paid taxes. * * *

None of the limited partners has ratified the petition, agreed to serve as TMP, or

agreed to participate in any of these cases. Respondent on June 6, 2016, filed a

status report in an effort to bring these cases to a conclusion. Mr. Nowak, the

putative TMP for the partnerships through counsel, Flavio Komuves, also filed

status reports on August 10 and November 1, 2016.

Discussion

I. General Rules

A. Partnership Taxation and AARs

A partnership is not a tax-paying entity. Sec. 701; see Garcia v.

Commissioner, 96 T.C. 792, 793 (1991). Although a partnership reports its

income, gains, losses, deductions, and credits to the IRS on a Form 1065

information return, those partnership items pass through the partnership to its

- 11 [*11] partners, who are responsible for paying any Federal income tax resulting

from them.5 Sees. 701, 702, 6031; see Garcia v. Commissioner, 96 T.C. at 793794. To facilitate this process, the partnership issues each partner a Schedule K-1

indicating that partner's share of the partnership items. Each partner must then

report that information to the IRS on a Form 1040, U.S. Individual Income Tax

Return, or other equivalent form.

If any partner objects to how the partnership reported a partnership item--for

example, if the partner believes that the partnership overstated its income

ultimately resulting in an increased tax liability for the partner--the partner can

seek an administrative adjustment of that partnership item by filing an AAR with

the Secretary. Sec. 6227(a). The Secretary may act on the request in one of four

ways:

(1) process the request in the same manner as a claim for credit

or refund with respect to items which are not partnership items,

(2) assess any additional tax that would result from the

requested adjustments,

(3) mail to the partner * * * a notice that all partnership items

of the partner for the partnership taxable year to which such request

relates shall be treated as nonpartnership items, or

5Partnership items are defined in sec. 6231(a)(3). See sec. 301.6231(a)(3)-

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

- 12 [*12] (4) conduct a partnership proceeding.

Sec. 6227(d). If the Secretary ultimately disallows an AAR filed pursuant to

section 6227(d), depending on the action taken by the Secretary, the partner may

file a refund claim or initiate a civil action for refund pursuant to section 7422.

Sec. 6228(b).

In addition, the partnership's TMP can file an AAR on behalf of the

partnership. Sec. 6227(c). When, as here, such an AAR is not treated by the

Secretary as a substituted return, the Secretary may act on the AAR in one of three

ways:

(i) without conducting any proceeding, allow or make to all

partners the credits or refunds arising from the requested adjustments,

(ii) conduct a partnership proceeding under this subchapter, or

(iii) take no action on the request.

Sec. 6227(c)(2)(A). If the Secretary does not allow any part of the TMP's AAR,

the TMP may file a petition for adjustment of those partnership items with the Tax

Court, the U.S. Court of Federal Claims, or the appropriate U.S. District Court.

Sec. 6228(a).

- 13 [*13] B. Tax Matters Partner

The TMP role was introduced by the Tax Equity and Fiscal Responsibility

Act of 1982 (TEFRA), Pub. L. No. 97-248, secs. 402-406, 96 Stat. at 648, codified

as amended at sections 6221 to 6233.6 See sec. 6231(a)(7). TEFRA's primary

purpose was to enhance the efficiency of partnership taxation. Randell v. United

States, 64 F.3d 101, 103 (2d Cir. 1995) (noting that the intended effect of TEFRA

was to avoid "duplication of administrative and judicial resources and inconsistent

results between partners"). To do so, it provided that--whenever possible--issues

involving partnership items would be litigated and resolved in a central,

partnership-level proceeding rather than in separate, partner-level proceedings.

S_e_e Kligfeld Holdings v. Commissioner, 128 T.C. 192, 200 (2007) (stating that the

purpose behind TEFRA was "to have a single point of adjustment for the IRS

rather than having to make separate partnership item adjustments on each partner's

individual return).

The creation of the TMP's role was one of many means by which Congress

sought to enhance the efficiency of partnership taxation. In a TEFRA partnership

the TMP serves as the partnership's central representative before the IRS and the

6A partnership is subject to TEFRA if it has more than 10 partners or if

certain other conditions not relevant here apply. Sec. 6231(a)(1).

- 14 [*14] courts. See Phillips v. Commissioner, 114 T.C. 115, 120-121 (2000) ("The

TMP is the central figure of partnership proceedings, and, consequently, the

TMP's status is of critical importance to the proper functioning of the partnership

audit and litigation procedures."), afCd, 272 F.3d 1172 (9th Cir. 2001). As a

TEFRA partnership's central representative, the TMP possesses important powers

and responsibilities, such as: (1) keeping all partners informed of the status of the

administrative or judicial proceedings involving the adjustment of partnership

items, (2) having priority in choosing the forum in which the partnership will seek

judicial review, and (3) binding other partners to the terms of a settlement the

partnership reaches with the IRS. See, e.g., secs. 6223(g), 6224(c)(3), 6226(a).

Given the importance of the TMP, the law provides a precise procedure for

determining who a partnership's TMP is:

SEC. 6231(a)(7). Tax matters partner.--The tax matters partner

of any partnership is--

(A) the general partner designated as the tax matters

partner as provided in regulations, or

(B) if there is no general partner who has been so

designated, the general partner having the largest profits

interest in the partnership at the close of the taxable year

involved (or, where there is more than 1 such partner, the 1 of

such partners whose name would appear first in an alphabetical

listing).

- 15 [*15] If there is no general partner designated under subparagraph (A) and

the Secretary determines that it is impracticable to apply

subparagraph (B), the partner selected by the Secretary shall be

treated as the tax matters partner. * * *

Section 301.6231(a)(7)-1(1)(1), Proced. & Admin. Regs., provides that "a

designation of a tax matters partner for a taxable year under this section shall

remain in effect until" one of five specified events occurs. As relevant here, a

TMP designation terminates if "[t]he partnership items of the tax matters partner

become nonpartnership items under section 6231(c)". Id. subdiv. (iv).

The regulations promulgated under section 6231(c) state the following with

respect to the appointment of a receiver:

The treatment of items as partnership items with respect to a partner

for whom a receiver has been appointed in any receivership

proceeding before any court of the United States or of any State or the

District of Columbia will interfere with the effective and efficient

enforcement of the internal revenue laws. Accordingly, partnership

items * * * arising in any partnership taxable year ending on or before

the last day of the latest taxable year of the partner with respect to

which the United States could file a claim for income tax due in the

receivership proceeding shall be treated as nonpartnership items as of

the date a receiver is appointed in any receivership proceeding before

any court of the United States or of any State or the District of

Columbia.

Sec. 301.6231(c)-7T(b), Temporary Proced. & Admin. Regs., 52 Fed. Reg.

6779, 6793 (Mar. 5, 1987). Accordingly, as of March 3, 2000, the day on which a

receiver was appointed, Mr. Natale ceased to be the TMP of the partnerships for

- 16 [*16] any partnership taxable year for which respondent could file a claim for

income tax due in Mr. Natale's receivership proceedings.

New Jersey law requires a receiver to, within 30 days following the date of

his appointment, give notice requiring all creditors to present their claims in

writing. N.J. Stat. Ann. see 14A:14-15 (West 2001); see also sec. 6036; sec.

301.6036-1, Proceed. & Admin. Regs. (requiring receivers to give notice of their

designation to the IRS within 10 days of appointment). The receiver in this case

was appointed on March 3, 2000. As is relevant here, respondent could have filed

a claim with the receiver for income tax due from Mr. Natale for the partnership

taxable years 1997, 1998, and 1999, which are at issue in this case. See secs.

6501(a) and (b)(1), 6502(a) and (b); Internal Revenue Manual pt. 5.17.13.10.2

(July 9, 2012). Accordingly, pursuant to the regulations, Mr. Natale ceased to be

the TMP for the partnerships for those tax years on March 3, 2000.

Detailed regulations promulgated in accordance with section 6231(a)(7)

provide further guidance and requirements for selection of a TMP by the IRS but

do not permit the designation of a limited partner as TMP except by the IRS under

limited circumstances.7 Sec. 301.6231(a)(7)-1(p)(3)(ii), (q), Proced. & Admin.

7Those circumstances include where no general partner can be selected to

serve as TMP. Sec. 301.6231(a)(7)-1(p)(3)(ii), Proced. & Admin. Regs. The

(continued...)

- 17 [*17] Regs. The statute does not permit the designation of a nonpartner as TMP

under any circumstances. See 1983 W. Reserve Oil & Gas Co. v. Commissioner,

95 T.C. 51, 62 (1990) (holding that a partnership's court-appointed receiver could

not qualify as its TMP under the statute because he was never a partner in the

partnership), aff'd without published opinion, 995 F.2d 235 (9th Cir. 1993); see

a_lso Mont. Sapphire Assocs., Ltd. v. Commissioner, 95 T.C. 477, 482 (1990)

("McAuliffe could not be selected by respondent as tax matters partner of

Montana Sapphire for the same reason that he could not qualify under section

6231(a)(7)(A) or (B): he is not and never was a partner in the partnership.")

Under limited circumstances, Federal courts may appoint a TMP. See

Comput. Programs Lambda, Ltd. v. Commissioner (Lambda), 90 T.C. 1124, 1127-

1128 (1988); see also Transpac Drilling Venture 1983-63 v. United States, 16 F.3d

383, 389 (Fed. Cir. 1994). That authority is rooted not in section 6231(a)(7) but in

the extrastatutory notion that a court possesses certain inherent powers to protect

parties to the litigation before it and to effectively manage its docket. See

Comput. Programs Lambda, Ltd. v. Commissioner, 90 T.C. at 1127 (stating that

7(...continued)

regulations lay out a set of rules regarding the disqualification of a partner as

TMP. The regulations are controlling here. Mayo Found. for Med. Educ. &

Research v. United States, 562 U.S. 44, 55-56 (2011).

- 18 [*18] the Court's authority to appoint a TMP stems from its "inherent powers as a

Court"); see also Link v. Wabash R. Co., 370 U.S. 626, 630-631 (1962) ("The

authority of a court to dismiss sua sponte for lack of prosecution has generally

been considered an 'inherent power,' governed not by rule or statute but by the

control necessarily vested in courts to manage their own affairs so as to achieve

the orderly and expeditious disposition of cases.").8

In Lambda, after a petition for readjustment had been properly filed, we

appointed a limited partner TMP to fill the void left after the general partners were

disqualified. See Comput. Programs Lambda, Ltd. v. Commissioner, 90 T.C. at

1125, 1128. In so doing, we invoked our inherent power to manage our docket

and stressed the importance of a TMP in "protect[ing] the rights of partners

interested in the partnership proceeding before us" and "assur[ing] the fair,

8The person appointed receiver and who filed the AARs in this case was not

a partner in either partnership and could not qualify as a TMP under sec.

6231(a)(7). See Mont. Sapphire Assocs., Ltd. v. Commissioner, 95 T.C. 477, 482

(1990); 1983 W. Reserve Oil & Gas Co. v. Commissioner, 95 T.C. 51, 62 (1990),

aff'd without published opinion, 995 F.2d 235 (9th Cir. 1983). There was no

general partner other than Mr. Natale, who was no longer eligible to serve as

TMP. Had a limited partner been appointed receiver or appointed in some

assisting capacity to file or ratify the AARs, the Internal Revenue Service might

have accepted and processed the AARs and the problem could have resolved

itself.

- 19 [*19] efficient, and consistent disposition of partnership litigation pursuant to

section 6621, et seq." R at 1127.

The Court's inherent power to manage its docket, however, is subject to two

limitations. First, a court cannot use its inherent power to manage its docket for

any other purpose. Our appointment of a TMP in Lambda was clearly aimed at

docket management because we limited the TMP to "acting in an administrative

capacity solely for the litigation of this case." R at 1128.

Second, a court cannot use its inherent power if doing so would violate or

circumvent a statutory provision. See generally Degen v. United States, 517 U.S.

820, 823 (1996) ("The extent of * * * [inherent] powers must be delimited with

care, for there is a danger of overreaching when one branch of the Government,

without benefit of cooperation or correction from the others, undertakes to define

its own authority."). Although section 6231(a)(7) does not explicitly authorize a

court to appoint a TMP, we did not circumvent that section in Lambda because of

the limited nature of the court-appointed TMP's role. Specifically, the courtappointed TMP was merely a conduit for information from the Court to other

interested partners, enabling the Court to effectively manage and resolve the

TEFRA litigation before it--nothing more. See Comput. Programs Lambda, Ltd.

v. Commissioner, 90 T.C. at 1128. The Court in Lambda recognized that it could

- 20 [*20] not empower that TMP to act concerning a matter other than the particular

litigation with respect to which that TMP was appointed. See Degen, 517 U.S. at

823 ("In many instances the inherent powers of the courts may be controlled or

overridden by statute or rule.").

In the wake of Lambda, we amended our Rules by adding Rule 250, which

provides for the appointment and removal of a TMP by the Court.9 Rule 250. Our

stated purpose in adding Rule 250 was "so that there will always be a tax matters

partner who is responsible for keeping each partner fully informed of the

partnership action." Rule 250 note, 90 T.C. 1379. Accordingly, as in Lambda, we

stressed the limited authority of a court-appointed TMP: "Any action that the

Court might take in either appointing a tax matters partner or removing a tax

matters partner is for the limited purpose of the pending partnership action only."

Id.¹°

°In adding Rule 250(a), which permits us to appoint a TMP, we did not

specifically address a situation involving a petition filed by a nonpartner. See

Rule 250 note, 90 T.C. 1378 ("Rule 250(a) deals with the situation where a

petition is filed by a partner other than the tax matters partner and the petition fails

to allege the name and current address of the tax matters partner[.]").

¹°Our authority to appoint a TMP derives from our inherent authority as a

court--and not from sec. 6231(a)(7). It is disputable and as yet undecided, by this

Court, whether in exercising our inherent authority we are constrained to appoint

as TMP an individual or entity that is qualified to serve as TMP under sec.

(continued...)

- 21 [*21] II. Analysis

Under section 6228(a) and Rule 240, our jurisdiction over these cases is

conditioned on: (1) an AAR filed by the TMP that was not allowed in full and (2)

a proper petition for adjustment filed by the TMP. At issue is whether those

jurisdictional prerequisites have been satisfied in this case, which depends upon

whether Mr. Nowak was the TMP of the partnerships when he filed the AARs and

the petitions in these cases.

At the outset we reiterate that section 6231(a)(7) does not permit a

nonpartner, such as Mr. Nowak, to serve as TMP. See supra pp. 16-17. We also

note that Mr. Nowak is not--and was never-- a partner in either partnership

involved in these cases. Nor does he contend otherwise.

Instead, in his responses to respondent's motions to dismiss, Mr. Nowak

asserts that the Tax Court has the inherent nonstatutory authority to appoint a

nonpartner as TMP and that the superior court enjoyed the similar authority to

control its docket and empower its receiver to act as TMP on the partnerships'

behalf. Thus, the question now before us is whether any action that the superior

court has taken or that we can now take permits Mr. Nowak to serve as TMP of

¹°(...continued)

6231(a)(7).

- 22 [*22] Cambridge I and Cambridge II so as to permit us to continue to hear these

cases on their merits.

A. This Court Cannot Appoint a TMP in These Cases.

We must have jurisdiction over a case in order to use our inherent power to

appoint a TMP. See Transpac Drilling Venture, 16 F. 3d at 389 ("We agree with

the Court of Federal Claims that the court does not have inherent power to appoint

anyone as TMP where the cases are not properly before the Court because the

petitions were not properly filed."). Stated another way, we cannot invoke our

inherent power to appoint a TMP in order to bootstrap invoking our jurisdiction

over these cases. To use our inherent power for that purpose would be to abolish

by judicial flat the jurisdictional limitations of section 6228." Moreover, as

discussed earlier, our inherent power to appoint a TMP and/or powers under Rule

250 do not permit us to give that TMP the powers that would be necessary to

invoke our jurisdiction, namely the powers to file AARs and petition the Court.

S_e_e supra pp. 16-18.

" Petitioner alternatively asks us to appoint him "representative" of the

partnerships with the power to file AARs and petitions even if he is not qualified

to serve as TMP of the partnerships. Whether we refer to a court-appointed TMP

as a "representative" rather than a "TMP" is merely a matter of semantics. No

matter what we now decide to call Mr. Nowak, we cannot retroactively give

ourselves jurisdiction over these cases.

- 23 [*23] B. Mr. Nowak Is Not Now a TMP of Either Partnership Who May

Pursue These Cases.

Whether Mr. Nowak was TMP of the Cambridge partnerships when he filed

the AARs and Tax Court petitions in these cases turns on the effect of the superior

court's consent judgment and nunc pro tune order purporting to empower him to

act as TMP of the Cambridge partnerships for the purpose of filing the AARs and

followup Tax Court petitions.¹²

Whether Mr. Nowak qualified as TMP of the partnerships when he filed the

AARs and the Tax Court petitions is unquestionably a matter of Federal tax law.

As such, that issue is not governed by a State court's orders and judgments. See

Miller v. Commissioner, 114 T.C. 184, 196 (2000) (noting that "a State court

cannot determine issues of Federal tax law"); Grober v. Commissioner, T.C.

Memo. 1972-240, 31 T.C.M. (CCH) 1179, 1191 (1972) ("[T]he question of

¹²It is also critical whether at the time the respective AARs were filed Mr.

Nowak was the TMP of each partnership by virtue of inherent authority properly

used by the New Jersey Superior Court. For that to be true the January 2004 nunc

pro tune order must be treated as if it were a valid order issued in March 2000

when a receiver was initially appointed. See Johnson v. Commissioner, 45 T.C.

530 (1966). This Court is generally unwilling to give effect to such orders when,

as here, they reflect "an intention or design originating subsequent to" the date of

the original order. Newman v. Commissioner, 68 T.C. 494, 501 (1977). While the

New Jersey Superior Court from the start sought to wind up the partnerships in an

orderly fashion, it appears to have been unaware of the need to appoint a TMP

until shortly before the nunc p_ro tune order doing so was issued.

- 24 [*24] whether or not a joint venture exists for Federal tax purposes must be

decided under standards prescribed in the Internal Revenue Code and is not

controlled by the determinations of a State court."), aff'd sub nom. Estate of Kahn

v. Commissioner, 499 F.2d 1186 (2d Cir. 1974); see also Nieto v. Commissioner,

T.C. Memo. 1992-296, 63 T.C.M. (CCH) 3050, 3051-3052 (1992) ("Therefore,

even assuming arguendo that petitioner is correct in his contention, the n_unc p_ro

t_une order issued by the Superior Court avails him nothing because he did not

comply with the requirements set down in the Internal Revenue Code.").

Moreover, the superior court purported to give Mr. Nowak the general

powers of a TMP appointed under section 6231(a)(7)--e.g., the power to file

AARs and Tax Court petitions. Section 6231(a)(7) does not authorize any State

court (or for that matter, any court) to do so; and any court's inherent authority to

appoint a TMP, if it exists at all, should be narrowly delineated to harmonize with

Federal tax law to the extent reasonably possible.

As was the case in 1983 W. Reserve Oil & Gas Co. v. Commissioner, 95

T.C. 51, we need not decide whether New Jersey courts have the inherent power to

appoint a TMP because the New Jersey court that established the receivership and

purported to authorize Mr. Nowak to act as TMP has at his request terminated the

receivership. Consequently, there is no longer any party even purporting to act as

- 25 [*25] TMP under statutory or inherent court power to pursue this litigation. Rule

60(c); Mont. Sapphire Assocs., Ltd. v. Commissioner, 95 T.C. at 483; Tempest

Assocs., Ltd. v. Commissioner, 94 T.C. 794, 801-802 (1990); Universal Tr. 06-1590 v. Commissioner, T.C. Memo. 2000-390.

III. Conclusion

Mr. Nowak now lacks the requisite authority to act as TMP on behalf of the

partnerships regardless of whether he had that power when he filed the underlying

AARs and petitions. As a consequence, no party properly before the Court

continues to argue that we have jurisdiction over these cases. Further, the parties

and those taxpayers affected by this litigation appear to now be satisfied with the

status quo and the informal resolution of the tax matters disputes rendering these

cases moot. Consequently, we will grant respondent's motions to dismiss for lack

ofjurisdiction.¹³

To reflect the foregoing,

Appropriate orders of dismissal

for lack of jurisdiction will be

entered.

¹³We note that any remaining inequity in these cases is mitigated to some

degree by the fact that all of the limited partners were permitted to file their own

AARs relating to partnership items.