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the examining agent should not be asserted against the Blue Gem
investors. His supporting statement stated, in pertinent part:
This case is being forwarded for the issuance of
an FPAA. This case involves a protest filed by one of
the partnership investors. No protest was filed by the
TMP who has not been cooperative.
* * * * * * *
II. Proposals For Settlement:
No settlement of the issues was possible. It is
therefore recommended that a FPAA be issued sustaining
the Government’s position in full with respect to all
issues with the exception of the Section 6661 penalty
issue. It is recommended that this penalty be
conceded.
* * * * * * *
Issue 3 - Section 6661
At issue is whether the individual partners should
be subject to the substantial understatement of tax
liability penalty pursuant to IRC Section 6661.
Although the Government’s position with respect to the
partnership was strong where no cash offer was deemed
appropriate, the tax shelter was not deemed egregious
from the point of view of the individual partners. A
review of the correspondence between the partnership
and its investors give the appearance that the venture
had much greater economic viability than it actually
had. It is therefore recommended that the issue be
conceded.
On January 16, 1996, respondent issued FPAA’s to the Blue
Gem TMP and all notice partners with respect to Blue Gem’s 1982
and 1983 taxable years. Neither the Blue Gem TMP nor any notice
partner filed a petition contesting the FPAA’s in this Court or
any other appropriate court. As a result, on June 16, 1996, the
period for filing such a petition expired, and the Blue Gem case
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