In a complaint for readjustment of partnership items under the Internal Revenue Code, Claston LLC, through Sunset Holdings, said it submitted correct reports and are not liable to pay additional taxes.
The plaintiff, through attorney Gregory J. Koebel, is asking relief and judgment against the federal government, saying the company properly reported its 2002 transactions.
The plaintiff said the adjustments made by the defendant, including penalties to be determined without basis, is incorrect.
The plaintiff is seeking relief as there are no adjustments to be made to its 2002 tax return. It said it is entitled to recover costs and attorney’s fees, and other relief the court may deem proper.
Prior to the filing of the petition, Sunset deposited with the IRS a total amount of $1,500 representing an estimate in excess of tax liability.
The complaint stated that the U.S. through its IRS Florida office mailed a notice of the Final Partnership Administrative Adjustment with Hatteras Capital Management LLC which is the former tax matters partner of Claston on June 17, 2008.
The FPAA stated various erroneous partnership administrative adjustments for Claston’s taxable year ending Dec. 31, 2002, the complaint stated.
The plaintiff said the defendant employed erroneous rationales of the FPAA to reach such adjustments.
The IRS, which has disallowed a claimed loss of $6,003,974 relating to distressed assets, justified its adjustment and claims for penalties.
The IRS said the partnership was a sham and it was only formed to reduce the partner’s tax liabilities.
The plaintiff stated that there were errors in the FPAA conclusions.
It said the IRS erred in its primary position that there was no economic substance to Claston’s acquisition of assets or its sale.
The plaintiff said the IRS also erred in its claim that the partnership and the transactions entered into were shams devoid of economic substance.
The plaintiff stated that in the FPAA, the IRS erroneously asserted that four types of penalties should be assessed including a gross valuation misstatement penalty, a negligence penalty, a substantial understatement penalty, and a substantial valuation misstatement penalty.
The plaintiff said Claston’s acquisition of assets and the subsequent sale was supported by a bona fide business purpose independent of any tax considerations.
According to the plaintiff, each contributing partner had a basis in such assets, and that the assets had value. It said the partnership properly allocated its claimed losses for the 2002 tax year.
The plaintiff added that Claston or its transactions were not a sham and both should be recognized for federal income tax purposes for the taxable year 2002.
It said the partnership was formed for legitimate purposes and not for the purpose of reducing its partner’s tax liabilities.
The plaintiff added that Claston’s positions were correctly reported in its income tax return for 2002 tax year in a legitimate and proper manner.
According to the plaintiff, the determination of the IRS in the FPAA is “arbitrary and capricious”; and the IRS failed to issue a timely FPAA to Claston.
The plaintiff is demanding a jury trial on all issues triable under the law.
