- 15 -
before the last day of the latest taxable year of the
partner to which the criminal investigation relates
shall be treated as nonpartnership items as of the date
on which the partner is notified that he or she is the
subject of a criminal investigation and receives
written notification from the Service that his or her
partnership items shall be treated as nonpartnership
items. The partnership items of a partner who is
notified that he or she is the subject of a criminal
investigation shall not be treated as nonpartnership
items under this section unless and until such partner
receives written notification from the Service of such
treatment.
In Phillips v. Commissioner, 272 F.3d 1172, 1176 (9th Cir.
2001), affg. 114 T.C. 115 (2000), the Court of Appeals for the
Ninth Circuit (the circuit to which our decision in this case is
appealable) found that the mere existence of past criminal
investigations does not prove a disabling conflict of interest.
Additionally, the court stated that the regulation, read as a
whole, vests discretion in the IRS to notify a partner that he or
she is under criminal investigation and that, until such notice
is given, partnership items remain partnership items. Id. The
Court of Appeals distinguished Phillips in River City Ranches #1
Ltd. v. Commissioner, 401 F.3d 1136, 1142 (9th Cir. 2005), affg.
in part and revg. on this issue T.C. Memo. 2003-150, stating:
The lesson of Phillips is that the sole fact of past
criminal investigations does not establish a disabling
conflict of interest. But there is more to the
partnerships’ assertion of a disabling conflict than
past criminal investigations, and the record before us
in this case is not a bare skeleton.
The Court of Appeals for the Ninth Circuit remanded the case for
further discovery on whether the TMP in that situation had a
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011