Tax matter partners under criminal investigation cannot bind partnership

Article Abstract:

The Second Circuit held in the case involving Transpac Drilling Venture that tax matters partners (TMP) cannot bind a partnership that the IRS is investigating for criminal activities. According to the court, a conflict of interest deterred the TMPs from fulfilling the fiduciary duty they owed to the partnership and its partners. In this case, 71 limited partnerships having one or more of the same TMPs were set up for oil and gas exploration ventures but were actually developed as illegal tax shelters to accrue tax losses. Because the limitations period neared expiration during the investigation, the IRS tried to get the agreement of the limited partners for an extension of the period but not all consented. When the IRS approached the TMPs, they allowed for the extensions. The Second Circuit found that the TMPs did not have the authority to bind the partnerships when they decided to agree to the extensions.

Limited partnership, Limited partnerships, Criminal investigation

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Reliance on agent to file extension does not abate penalty

Article Abstract:

The Second Circuit found in the 'McMahan' case that the dependence of a taxpayer on an agent to submit a request for extension was not an acceptable justification for reducing the failure-to-file penalty. The case involved a taxpayer who is a general partner in a limited partnership and who relied on one of the limited partners knowledgeable about tax law. Upon realizing that the agent failed to file a second extension request, he asked an outside accounting firm to complete and submit his tax return. Despite the filing, the IRS still assessed added taxes and a failure-to-file penalty. The court explained that the IRS should not suffer the consequences of the mistake and misrepresentation of the original tax preparer. The court held that holding a taxpayer responsible for a deadline that can be easily determined is fair.

Tax consultants, Tax penalties

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