Third Dividend/Dardanos Associates v. Commissioner

The Commissioner appeals the tax court’s order dismissing for lack of jurisdiction a petition filed by indirect partners Richard Oliver and Douglas Watson (“petitioners”) challenging adjustments to the partnership return of Third Dividend/Dardanos Associates (“Third Dividend”), a California limited partnership. The Commissioner asserts that the tax court erred in concluding that the petitioners’ partnership items converted to nonpartnership items when Dividend Development Corporation (DDC), a “pass thru partner” under 26 U.S.C. § 6231 (a)(9), filed a petition for bankruptcy. We agree with the *822 Commissioner and accordingly reverse and remand.

SUMMARY OF FACTS

On February 20,1992, DDC filed for bankruptcy. DDC was a general partner holding a fifty-percent share in Third Dividend. On June 12, 1992, the IRS informed DDC that it was no longer a party to tax assessment administrative proceedings because its partnership items had converted to nonpartnership items under § 6231 and the corresponding temporary Treasury regulations. After the IRS informed DDC that it no longer qualified as Third Dividend’s Tax Management Partner (TMP), the IRS selected Morgan Pacific Realty Corporation…