- 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 aPage: 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