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On August 9, 1985, Revenue Agent Vassalo requested approval
to begin a TEFRA flowthrough examination with respect to Blue
Gem. His request was approved by the IRS District Director on
August 23, 1985. On September 4, 1985, the IRS sent a notice of
the beginning of an administrative proceeding (NBAP) to the Blue
Gem TMP. On November 20, 1985, NBAP’s were sent to all notice
partners of Blue Gem, including 7201 Associates.
Revenue Agent Vassalo held meetings, conducted interviews,
arranged for the preparation of an IRS engineering report, and
otherwise continued his examination of Blue Gem through November
1986.
On November 5, 1986, representatives of the IRS and the Blue
Gem TMP executed Forms 872-O, Special Consent to Extend the Time
to Assess Tax Attributable to Items of a Partnership (special
consents), which extended the period of limitations on assessment
for Blue Gem’s 1982 and 1983 years indefinitely. Although the
special consents could have been terminated if Blue Gem had
submitted to the IRS a Form 872-N, Notice of Termination of
Special Consent to Extend the Time to Assess Tax Attributable to
Items of a Partnership, none was ever submitted.4 The special
consents were still in effect when respondent issued notices of
4If a Form 872-N, Notice of Termination of Special Consent
to Extend the Time to Assess Tax Attributable to Items of a
Partnership, had been submitted, respondent would have had 90
days to issue a notice of final partnership administrative
adjustment.
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