A liability stemming from a partnership’s failure to withhold tax on a foreign partner’s income was a partnership liability. Thus, the Tax Court had jurisdiction over the issue in a partnership-level proceeding.
Tax Court’s Jurisdiction Over Partnership Items
The partnership’s tax matters partner (TMP) argued that the issue of liability under IRC §1446 was not a partnership item and, therefore, was beyond the court’s jurisdiction. The court disagreed, however. The partnership was liable for the tax it was supposed to withhold from a foreign partner’s effectively connected income. Since that tax was a partnership liability, it was a partnership item.
The court also had jurisdiction over related penalties. The Tax Court’s jurisdiction expressly includes any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item.
Whether Taxpayer Was a Party Did Not Affect Jurisdiction
The Tax Court did not address the TMP’s argument that the taxpayer, an investor, was not a party to the proceedings for readjustment, and that the court therefore could not determine the taxpayer’s liability and related penalties. The court has explicit jurisdiction to make findings with respect to partnership liabilities and routinely does so in partnership-level proceedings.