Ralph Tashjian - Page 15

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               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                





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