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Carrino v Commissioner of Internal Revenue

Case No. 27376-09 (U.S. Tax Ct., Feb. 25, 2014)

Ann and Vince Carrino legally separated in June 2002. Shortly thereafter, Vince used community property to fund a partnership that operated a wildly successful hedge fund. That partnership’s original 2003 return didn’t name Ann as a partner or report any distributions to her. A few years later-- in November 2006--a state court approved the couple’s agreement that 72.5% of the then-current value of Vince’s investment in the partnership was community property. In response, Vince filed an amended 2003 partnership return that identified Ann as a partner. The Commissioner says that Ann owes tax on the income attributable to her share of the partnership in which she didn’t know she was a partner. Ann disagrees with this perplexing assertion.


In April 1990 Ann married Vince Carrino in California. He was, and remains, an exceptionally skilled financial manager who has operated a number of volatile hedge funds. Managing those funds between 1989 and 2003 was, according to Vince, “kind of like riding a roller coaster blindfolded and naked through a nuclear power plant; [it was] not a pleasant experience.” The stress built up, and the marriage deteriorated. In June 2002, Vince petitioned to dissolve the marriage. While he and Ann legally separated four days later, the divorce action dragged on for more than four years.

I. CR Traders

Vince started a new hedge fund the same year he separated from Ann. In January 2002, he had formed a limited liability company called CR Traders, LLC (CR LLC), and named himself the managing member. That entity served as general partner to a partnership that Vince (in his capacity as manager of CR LLC) created on June 6, 2002--CR Traders Partners, L.P. (CR LP). Although Vince made capital contributions to CR LLC (about $850,000) sometime in 2002--which CR LLC then contributed to CR LP--neither of those contributions occurred before he and Ann legally separated in June 2002. CR LP began operating as a hedge fund in September 2002, and Vince managed it through CR LLC. Even though they were still married (but legally separated) at the time, Vince apparently made this investment without notifying Ann--much less obtaining her consent.


Judge(s): Mark Holmes
Jurisdiction: U.S. Tax Court
Related Categories: Domestic Relations , Taxation
Circuit Court Judge(s)
Mark Holmes

Petitioner Lawyer(s) Petitioner Law Firm(s)
John Youngquist

Respondent Lawyer(s) Respondent Law Firm(s)
Rebecca Duewer-Grenville Internal Revenue Service
Jon Feldhammer Internal Revenue Service



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he had not sent vince a notice of deficiency for that year nor made any other 2011, after vince failed to file an objection, we granted the commissioner’s the husband’s interest in the partnership is still community property despite [cal. kenworthy--did not have broad discretion to divide assets, its description of the responded by filing a motion to dismiss for lack of jurisdiction on the ground that [the wife] did not divest herself of her community interest in that property in favor partnership he had begun during his marriage. the wife claimed a community interest in that property in favor of a money claim against him any more than the us that, far from being inchoate, each spouse’s interest “in community property and disagree with us. community property in cr lp, ann did not divest herself of her community in april 1990 ann married vince carrino in california. he was, and cr lp--which he held in the form of a membership interest in cr llc. the and when it was acquired.” id. thus it doesn’t matter that vince (through cr investment of community funds in cr lp did not give her a community-property acquiring the earnings or accumulations.” cal. fam. code sec. 772 (west 2004). or in part by taking into account directly or indirectly partnership items of the we think the situation here is very similar. when vince invested the commissioner’s determination in the notice of deficiency correct? or, in ann’s is no objection to an inexact description of wife’s interest as a general claim.” id. partnership property. id. at 171. the time for creditors to file claims against mr. exactly when--ann learned of vince’s investment in cr llc and cr lp. in the ann, a california resident, timely filed a petition contesting that notice. she other partners). it’s well-established under california community-property law that the return did not show any additional members, but did show a decrease of $758,841 board. [emphasis added.] and state marriage law is vulnerable to challenge: congress “can make [*21] 173, but it carefully distinguished many of the propositions rosenthal used includes “any * * * person whose income tax liability * * * is determined in whole california family law right” she had “until it was determined in november 2006 they didn’t need to present a creditor’s claim and so were not time-barred. id. at interest in half of the income from vince’s community property share of cr llc the community income--applies in her case to the income that cr llc earned. acquisition.” see v. see, 415 p.2d 776, 779 (cal. 1966). in other words, once present and existing community-property interest in 72.5% of vince’s interest in 2003 amended return, we take judicial notice that the irs disallowed it. vince iii. the fallout 11 supra, and the fpaa does determine that “a change in ownership” occurred in “california family law” “the marriage effectively ended on the date of legal marriage. see monroe v. superior court of los angeles county, 170 p.2d 473, mere expectancy. see id. - 12 - marriage ended. we’ve already found, however, that vince funded the partnership we must first resolve a threshold issue of whether ann and vince were even estate of lahey v. bianchi, 91 cal. rptr. 2d 30, 32 (ct. app. 1999) (noting legal cr lp, a claim in and against cr lp’s capital and income, but only with respect create that interest. therefore--regardless of whether ann was a partner in cr19 according to vince, “kind of like riding a roller coaster blindfolded and naked [*4] cr lp was successful from the start. cr llc’s own share in the fund black’s law dictionary, she notes that such a right is one that “has not fully of the income earned by cr lp that year? and in arguing the answer should be in case, does she owe income tax on half of the $759,196 that is equal to stipulated was a partner. ann disagrees with this perplexing assertion. agreement also provided that ann’s 50% community-property share in that interest the parties settled all of them. distributive share of the other partners. see blonien v. commissioner, 118 t.c. asserts that she was not a partner in cr lp--during 2003 or at any time. that case operated a wildly successful hedge fund. that partnership’s original 2003 return during the taxable year.” sec. 1.66-1, income tax regs.; see also united states14 we also note ann’s failure to argue for innocent-spouse relief. as we at some point after cr lp was up and running--the record is unclear property is community property, it is “‘stamped a community asset from then on’” invested remains community property. see mccall v. mccall, 37 p.2d 496, 497 abbreviated, is the tefra equivalent of a notice of deficiency, in that it triggers property portion of income vince earned as a member of cr llc in 2003. half of the total community income. see generally sec. 66; see also sec. 1.66-1(a), at times, ann appears to argue that since vince funded cr lp after their19 effect at the relevant time.) docket nos. 27376-09, 17711-10. filed february 25, 2014.1 their divorce. ann argues--without a corresponding citation--that under appeal agreed. id. at 387-88. its explanation is less than clear, however, at least 173-74. wife’s will, they were owners of that one-half interest. id. at 173. although their income tax regs. rptr. 169, 173 (ct. app. 1978) (evans, j., dissenting). partnership here was not funded--and thus was not in existence--until after the - 22 - individual return, and in october 2009 sent her a notice of deficiency for that tax the notice of deficiency made various other adjustments to income, but10 she says that vince filed the amended 2003 partnership return only so he could and vince. when the superior court granted the divorce, it also bifurcated the case partnership share in cr llc and, through cr llc’s own partnership interest in total community income. but these require proof of four conditions, see sec. [*25] either of these exceptions, we deem this issue waived. see, e.g., welle v. the commissioner asks a simpler question: must ann pay tax on $759,196 unless the parties agree otherwise or its character is changed in some other way caused needless fees and costs. while [this] court has no jurisdiction amended return reported for the first time that ann was a partner, and included a community-property law to a taxpayer with respect to any income if (1) the [*7] words, taking the position that ann was a partner only in cr lp--the hedge to defeat his wife’s community property rights.” id. ended upon legal separation, see supra opinion section ii.a, she contends that the but that it is wrong because ann’s interest in cr lp was not that of a partner, but - 2 - tax payments he had made with respect to community-property income for tax kenworthy’s devisees never filed a claim against his estate for their shares of the - 16 - cr lp for 2003, if that year is somehow open for any of them other than ann). separation.” jacquemart, 269 p.2d 951, 952 (cal. ct. app. 1954) (“a decree of separate representing a portion of her husband’s partnership interest without an (cr llc), and named himself the managing member. that entity served as2 [*13] (which itself received income from its partnership share in cr lp). 172. she never lost a present interest in the community-property funds. ann doesn’t seem to dispute that there was a community-property portion of years 2003 to 2005. ann contended that vince would be reimbursed as part of the app. 1966), for example, was a dispute over a husband’s law partnership--a (this statement, however, was from a dissent.) kenworthy v. hadden, 151 cal. (...continued)11 determined and subject her to tax that year. - 25 - - 9 - cr llc’s partnership interest in cr lp. kenworthy, 151 cal. rptr. at 172. we (...continued)15 determination might have consequences for later years (and for other partners of court-ordered marital division made her a partner in cr lp in 2003. she says that share of cr llc’s partnership interest in cr lp--was a present interest and not a we consolidated ann s. carrino, docket no. 27376-09; and cr traders1 - 10 - appeal agreed. the court first held that the wife’s interest in her husband’s “inchoate” one-half community-property interest in the value of what vince had both parties recognize that the commissioner issued this notice beyond the9 volatile hedge funds. managing those funds between 1989 and 2003 was, apparently made this investment without notifying ann--much less obtaining her carmichael did not in fact characterize one spouse’s community-property16 separation began, she somehow lost a present interest in the money until the [*2] memorandum findings of fact and opinion - 15 - id. at 172. “when [the] community property was transferred to the partnership - 8 - “notice partner.” see mann-howard v. commissioner, t.c. memo. 1992-537, determination that conferred jurisdiction on us. id. (sept. 6, 2011). in november [*12] payment to her from his share of those assets--they do not take her back in counsel for both vince and ann. during that conference, counsel signed a court- “generally must report half of the total community income earned by the spouses were both partners was an affected item because it doesn’t affect distributions to partnership was not merely an “expectant” one but a “present and existing” one. kenworthy began to pay them their shares of the profits from the partnership. id. [*15] we side with the commissioner. legal separation does not end the rights ann had in 2003. and following kenworthy, we conclude that ann had a18 fund--and not in cr llc, the general partner of the hedge fund--even though he commissioner of internal revenue, respondent which she asked us to determine that she was not a partner in cr lp. we13 no. 27376-09. [vince’s] actions with respect to their 2003 tax returns to be with her husband who is a partner in a tefra partnership can herself be community income, then her share is $759,196. partnership, and not just a claim to a share of its income. the california court of 541, 552 (2002). as with much of tefra, there is much subtlety here: a used community property to fund a partnership. mrs. kenworthy then died, and in another one of those exceptions lies within the discretion of the21 up, and the marriage deteriorated. in june 2002, vince petitioned to dissolve the - 5 - vince disagreed, and protracted litigation ensued. finally, in november [*9] year. that notice said that since a 2008 state court decision finalizing a9 we acknowledge that those principles from kenworthy may be in tension 85 t.c. 900, 904 (1985). section 6231(a)(8) generally defines a notice partner as income to vince. in november 2006--a state court approved the couple’s agreement that 72.5% of but does legal separation end the marriage? the commissioner contends the approved settlement agreement stating that 72.5% of vince’s current interest in vince were still legally married until late december 2006. and, because ann and of november cr lp distributed nearly $6.5 million to ann. about another5 remains, an exceptionally skilled financial manager who has operated a number of - 6 - to the part that was community property. from her perspective, the court- case. there is no caselaw on whether this lack of effect at the partner level means divorced and the community property is divided, the wife should be compensated asset for a community interest in another asset, i.e., vince’s membership share of to reach that result. it first reread california corporation code section 15025--the commissioner. section 66(b) authorizes him to disallow the benefits of any state-court dissolution proceedings, ann asserted that all of the funds vince used jon d. feldhammer and rebecca s. duewer-grenville, for respondent. 1963)). “to hold otherwise,” the court said, “would allow a husband to transfer16 we need to answer only the question posed in any income-tax case--is the partnership.” id. at 388 (emphasis added). in other words, when “parties are this means, ann says, that nothing in the code requires us to retroactively agree on the community-property portion of income vince’s share of cr llc t.c. memo. 2014-34 made capital contributions to cr llc (about $850,000) sometime in 2002--which - 14 - see sec. 1.66-1, income tax regs.20 community-property state file separate returns, and only one spouse is a member ann filed as head of household. even though she was still legally married4 failed to notify the taxpayer’s spouse of the nature and amount of such income shortly thereafter, vince used community property to fund a partnership that interest in the other spouse’s partnership interest as a general claim; rather, it held the tefra case is somehow moot. we do have jurisdiction to decide it, see note - 17 - only authority cited in rosenthal to support its statement that community property stream of income accrued.” id. at 435 (emphases added). and even if one spouse after their legal separation for that investment were community property because income attributable to her share of the partnership in which she didn’t know she 473 (cal. 1946) (“a separate maintenance decree does not end the marriage[.]”); decision will be entered because they didn’t elect to treat it as a corporation, it is classified as a partnership. equal proportions.” sec. 1.702-1(d), income tax regs. partners in a partnership is a partnership item, when, as here, it affects the income stated in that return. (the commissioner has conceded that if the income partnership interest.” id. and because the devisees took “a present existing the parties agree that if we decide ann is responsible for half of the7 with earlier california caselaw. rosenthal v. rosenthal, 50 cal. rptr. 385 (ct. lp (or a member in cr llc) in 2003--we conclude that the general rule of federal partnership interest of a partner as between a husband and his wife. as to them, we recognize that kenworthy appears to distinguish rosenthal on the17 we therefore find that this part of the commissioner’s determination is not moot, ann and vince legally separated on june 21, 2002. after spouses legally separate, “the earnings or accumulations of each party are the separate property of the party treat all partners alike when the irs adjusts partnership items. the identity of the in cr lp (through cr llc) didn’t divest ann of her interest in the community commissioner, however, didn’t invoke that subsection here to apply all of the explained, “the wife acquires a general claim in her husband’s share of the between the partners, it does not attempt to characterize the nature of the community-property income attributable to vince’s share in cr llc? 2675, 2690, 2692 (2013). - 21 - property disposition. vince argued that ann needed to reimburse him for income- vince filed his own amended 2003 individual return to reduce his taxable8 interest in the partnership itself is community property.” id. at 388-8915 a. ann and vince were legally married in 2003 we agree with the commissioner’s approach in ann’s individual case. in [*22] here, as in kenworthy, we must be extra precise in describing what property normal three-year assessment period. see sec. 6501. ann, however, concedes that v. mitchell, 403 u.s. 190, 196-97 (1971). with community income, like other derived from community property, should be reported by the husband and wife in motion. id. (t.c. nov. 21, 2011). sense--how could she be a partner when cr lp didn’t show her as a partner on its and liabilities attributable to community income and losses for 2004 and 2005. interest in that partnership, because the husband had funded it with community returns as ultimately determined by the irs and the franchise tax - 18 - now we turn to whether ann had a present interest in the community- claim. kenworthy explained that a “court of dissolution”--like the trial court in - 3 - partnership.” sec. 6231(a)(2). because ann’s income-tax liability is determined he shall pay when due and indemnify and hold [ann] free and 6501(e), which gives the irs six years after the filing of a return if a taxpayer see, e.g., efron v. commissioner, t.c. memo. 2012-338, at *9 n.6, *18 n. 9. opinion community character upon its transfer to a partnership * * *, the husband’s while ann contends that the commissioner--due to confidentiality rules-- additional $1.4 million plus interest. her will she left her community property to various devisees. id. at 170. mr. determinations that bear on marital rights and privileges” notwithstanding state are not saying that ann’s community-property interest made her part owner of cr whether a person not listed as a partner on the partnership return is a partner. see at 173 (emphasis added). but since a probate court--like the trial court in original 2003 partnership return, cr lp issued schedules k-1, partner’s share of property interest in her husband’s partnership. as in this case, mr. kenworthy had that amount was based on an estimate from vince’s counsel that cr lp’s5 had bought into cr lp in part with community property routed through cr llc.) value as of september 30, 2006 was about $17.5 million: $19 million, less an determine the income-tax liability of a partner for his distributive share of a docket no. 17711-10, for a decision without trial under rule 122. (unless we say 1963). - 13 - income-tax obligation of about $1.5 million. the following year, however, the an fpaa, as a notice of final partnership administrative adjustment is12 the fpaa. if the partnership’s tax matters partner (which ann wasn’t) doesn’t file consent. only that “a wife should be able to receive as community property a sum in a community-property state like california who don’t file joint tax returns california. ann argues that kenworthy also stood for the proposition that “specific15 amended the k-1 for cr llc--it showed a corresponding decrease of $758,841 in income by the same $758,841. the superior court was not pleased: developed, matured, or vested.” and she argues that this was “precisely the partner’s identity may not be a partnership item where there is a dispute as to and for these purposes, tefra provides an expanded definition of “partner”. it rosenthal--“has broad powers to divide assets; accordingly, in that context, there “present interest.” kenworthy v. hadden, 151 cal. rptr. 169, 170, 172 (ct. app. derived. see shea v. commissioner, 112 t.c. 183, 190 (1999). the otherwise, all references to rules are to the tax court rules of practice and he funded that interest with community property. and the fact that he invested it community assets to a partnership during the pendency of a divorce action in order community property to fund cr lp in 2002. and the use of those funds to invest to allow the family court to retain jurisdiction over the remainder of the marital- unnecessary and contrary to the fiduciary duties to [ann]. as a result, a “partner” who is “entitled to notice” under section 6223(a), which includes any for petitioner in docket vince started a new hedge fund the same year he separated from ann. in vince also had cr llc file its own amended return for 2003. this new mentioned earlier, see supra note 14, section 66 and its accompanying regulations procedure. all bare references to sections are to the internal revenue code in adjustment using the amounts shown on cr lp’s 2003 amended return, in12 commissioner, t.c. memo. 2002-202 (whether bankrupt’s estate and bankrupt - 23 - see infra opinion section ii.a for a discussion on legal separation in3 community property split indicated that she received over $750,000 of capital gain alone. (cr llc then contributed over $9 million more in capital during 2003 and dispute. these cases concern only ann’s 2003 tax year. an august 2008 state6 created on june 6, 2002--cr traders partners, l.p. (cr lp). although vince our analysis but that we don’t consider because the parties failed to make them. of a holder of a community-property interest in vince’s partnership. we thus rule [*11] consolidated the cases, and the parties submitted them for decision under 1992 wl 220108, at *4 n.6 (noting that under tefra, a wife filing a joint return though they were still married (but legally separated) at the time, vince3 - 19 - harmless of and from all penalties, interest, fees and costs incurred by dealings with each other. the court agrees with [ann] and finds because, according to the commissioner, in 2003 ann held at least a present section 66 deals with the treatment of community income. married couples [*23] income-tax law--that a married person filing separately must report half of we conclude by noting credible arguments that might’ve been relevant to as we discuss in more detail later, section 66 and its accompanying14 interest was not community property, they had a “claim to a present interest in the kenworthy’s estate then passed, but mrs. kenworthy’s devisees sued on a theory k-1 that allocated to her $759,196 in “other income” and $355 in “interest expense thus, it’s “irrelevant” when an individual actually receives the stream of income [*16] 2009) (quoting in re marriage of lehman, 955 p.2d, 451, 459 (cal. 1998)). property is divested of its community character upon its transfer to a partnership.” invested in cr lp after their separation. the distribution she received as a result sec. 2(b)(2)(b). we don’t think this particular disjunction between federal tax law she filed that petition approximately four months after the irs issued her13 filed a tax court petition in august 2011 seeking redetermination of the irs’s general partner to a partnership that vince (in his capacity as manager of cr llc) partnership return. ann did not report any income from either cr llc or cr lp on her 2003 form 1040.4 (ct. app. 1978)). kenworthy also limited rosenthal’s characterization of a wife’s holmes, judge: ann and vince carrino legally separated in june 2002. would be promptly liquidated and paid to her. vince acted quickly, and by the end property after 2002--she just traded her community interest in one asset for a [*8] in vince’s distributive share. ann didn’t file a 2003 amended individual8 “character of property as separate or community is determined at the time of its [*20] (emphasis added) (citing cal. corp. code sec. 15025). thus, the court taxpayer acted as if he were solely entitled to such income, and (2) the taxpayer distinction only to highlight the relative importance of the precision each of the community-property law and then address how the code determines whether traceable to vince’s performance fees--was vince’s separate property. the to nonspecialists. it said that “[a]lthough specific property is divested of its treatment and audit procedures for most partnerships. see tefra secs. 401-406, thus, ann contends, she had no right to cr lp income in 2003 that could be (...continued)17 accounting.” carmichael v. carmichael, 216 cal. app. 2d 674, 682 (ct. app. b. 2003 community income in cr lp items”--a term defined by section 6231(a)(3) and (4)--and its general goal is to first, we note the commissioner does not mention section 1.702-1(d) of the on investment debts” for a net distributive share of $758,841. cr lp also7 in a spouse’s partnership interest is “more than a mere money claim;” it’s a tefra is the tax equity and fiscal responsibility act of 198211 [*14] the federal statute determines when and how they shall be taxed.’” id. commissioner, t.c. dkt. no. 18029-11 (aug. 2, 2011). the commissioner the settlement agreement didn’t settle all the remaining issues between ann [*3] marriage. while he and ann legally separated four days later, the divorce decision to disallow his refund claim of $278,880 for 2003. carrino v. superior court of california granted their divorce. we disagree. her interest was not “inchoate” in 2003. california law tells because cr llc had two members (vince and william foley) and2 from that community asset; rather, the “critical question is when the right to that community income is in play here. she argues that under california community-property law vince’s amended 2003 partnership returns for cr lp and cr llc to the irs. cr lp’s [*6] ii. the amended returns regulations list some exceptions to the general rule that each spouse must report we note here that kenworthy agrees with rosenthal’s result--both cases higher and in september 2007 granted ann a judgment against vince for an - 7 - approved settlement agreement in 2006 determined what part of cr llc’s and we are left with the vexing question of what to do with ann’s tefra20 - 24 - community-property interest in her spouse’s partnership interest as only a general at 170-171. those payments ended when mr. kenworthy died, and mrs. - 11 - got put on hold when the commissioner began a tefra examination of cr lp.11 (tefra), pub. l. no. 97-248, 96 stat. 324, one part of which governs the tax in part by taking into account cr lp’s partnership items, she is considered a month later, on december 26, 2006, vince and ann’s marriage ended when the (continued...) [*10] the next year he sent ann a notice of final partnership administrative vince filed separately, the general rule that each spouse must report half of the during a marriage. since ann argues that her marriage with vince “effectively” vince made an investment in that partnership. see kenworthy, 151 cal. rptr. at protect a wife against her husband’s claim that she had no interest in partnership partners, lp, ann s. carrino, a partner other than the tax matters partner, cr llc then contributed to cr lp--neither of those contributions occurred overall “true up” for the property division.6 the commissioner took notice of that inconsistency, examined ann’s 2003 i. cr traders hang v. commissioner, 95 t.c. 74, 82 (1990) (in context of s corporation then decision will be entered the parties do not agree on the controlling question in these cases. income earned in 2003 from cr lp via vince’s interest in cr llc. however, someone is a partner in a partnership. under rule 155 in docket (continued...) the then-current value of vince’s investment in the partnership was community court-approved settlement agreement in 2006 recognized that interest; it didn’t interest in cr lp’s assets. it gave her instead only a claim in and against vince’s didn’t name ann as a partner or report any distributions to her. a few years later-- from her spouse at the end of a tax year is not considered married that year for - 4 - ended up with a year-end capital account of over $14 million.) according to its especially free to move for reconsideration if they care to direct their attention to it commissioner of internal revenue, respondent no. 17711-10. interest in one asset for a community interest in another asset, [the husband’s] findings of fact taxable income for that year the statute of limitations is open under section over the irs, it does have jurisdiction over the parties and their recognized by law. in re marriage of rossin, 91 cal. rptr. 3d 427, 432 (ct. app. in a partnership with a third party doesn’t change the characterization. purposes of the code in determining eligibility for head-of-household status; see time and make her a partner. to use the technical jargon of california community- married in 2003. remember, the general rule requiring each spouse to report half income, federal income-tax liability follows ownership. mitchell, 403 u.s. at 197. 66(c)(1)-(4), or arguments about all the facts and circumstances, see sec. 66(c)(4); (cal. ct. app. 1934). the “interest in a partnership is not a new kind of property, maintenance does not end the marriage[.]”). we therefore hold that ann and partner in a partnership with 100 or fewer partners (as is the case with cr lp). the affirmative, he takes a different approach. he argues that we don’t need to ann s. carrino, petitioner v. she received from her ex may have come from cr lp’s assets but were only a 96 stat. at 648-670. tefra requires the uniform treatment of all “partnership i. parties’ arguments the dispute in kenworthy was also over the nature of a wife’s community- united states tax court assets. id. at 387. the trial court adopted that theory, and the california court of which he determined that she was a partner. ann responded with a petition in [*19] wife did in kenworthy. she merely traded her community interest in one of the community income applies only to married couples who file separately. [*24] of a partnership, the part of his distributive share of income “which is added) (citing carmichael v. carmichael, 216 cal. app. 2d 674, 682 (ct. app. property lawyers, she argues that, before the 2006 settlement, she only had an partnership in place of her interest in specific community assets transferred to the llc) funded cr lp after he legally separated from ann; what’s important is that of the settlement merely cashed her out of that community-property interest. court decision showed that the carrinos had settled their dispute about the benefits answer the question of whether ann was a partner in cr lp in 2003. that’s partnership’s income.) that regulation states that if a husband and wife in a ann argues in her reply brief that both kenworthy and rosenthal are18 hedge fund in september 2002, and vince managed it through cr llc. even considered a constructive partner). himself file an amended return for 2003 to claim that he had overpaid his taxes by - 20 - for giving up her claim to the husband’s share of the partnership.” id. (emphasis rule 122. disabl[e]” the rights of a “class of persons” that the laws of various states “have but takes its character, as separate or community property, in accordance with how property that was traceable to community funds, see kenworthy, 151 cal. rptr. at founded and operated during their marriage--and that his investment in that earlier 90-day period. see sec. 6226(b)(1); see also barbados #6, ltd. v. commissioner, distinguishable because those cases involved viable partnerships that existed deciding that case, we need not figure out whether ann was a partner in cr lp-- cr lp’s capital and income she was entitled to. the subsequent distributions that kenworthy explained, only “clarifies the character of partnership property as omits from gross income an amount greater than 25% of the amount of gross before he and ann legally separated in june 2002. cr lp began operating as a vince took matters into his own hands. on april 15, 2007, he submitted has declined to reveal to her how the irs treated vince’s claim for a refund on his is divested of its character upon transfer to a partnership. that code section, see sec. 301.7701-3(b)(1)(i), proced. & admin. regs. [*5] they were traceable to money from another hedge fund that vince had fund consisted entirely of community property. two courts needed to do their jobs. commissioner, 140 t.c. ___, ___ (slip op. at 4 n.3) (june 27, 2013).21 sec. 1.66-4(b), income tax regs. because ann didn’t argue that she fell within (continued...) action dragged on for more than four years. not brief this possible consequence of their respective positions; they should feel separation formerly known as decree of special maintenance); jacquemart v. 2003 that made ann a partner that year. we think this means that that cr llc was traceable to community property, while the remaining 27.5%-- community interest in vince’s interest in cr lp (through cr llc) each time through a nuclear power plant; [it was] not a pleasant experience.” the stress built during continuance of the marriage relation” is “present, existing, and equal.” cal. 2006, a state family court judge presided over a settlement conference between in ann’s favor in the partnership case. we do note, however, that the parties did property settlement in 2006. that would ignore the fact that vince used return reflecting the amounts shown on the k-1 that cr lp issued to her. cr llc’s distributive share compared to its original k-1. (vince was, in other (quoting burnet v. harmel, 287 u.s. 103, 110 (1932)). while the parties seem to grounds that kenworthy was a probate case while rosenthal was a dissolution fam. code sec. 751 (west 2001). in other words, a community-property interest state court determined that cr lp’s september 30, 2006, value was significantly a petition for readjustment of partnership items within 90 days of the fpaa’s [*17] what amount of community property * * * was contributed to cr lp.” identified ann as a partner. the commissioner says that ann owes tax on the law to the contrary--so long as the effect of the federal law doesn’t “restrict[] and income, deductions, credits, etc., to 26 other partners; ann, however, was not under state law that year, see infra opinion section ii.a, a person legally separated of a general money claim against [the husband]; she merely traded her community earned about $4 million on an initial investment of about $850,000 during 2003 original 2003 return, and when she didn’t even know that the partnership existed? than the tax matters partner, petitioner v. earned in 2003, they dispute whether ann had a present interest in that portion during that year. we look to california community-property law to settle that she characterizes her right in this income in 2003 as an “inchoate right.” citing interest” to one-half of the husband’s partnership interest under the terms of the means we need to first analyze the nature of her interest under california her over and above the actual taxes (federal and state) due on her january 2002, he had formed a limited liability company called cr traders, llc ii. federal tax law treatment of community property ann frames it narrowly--she asserts that we must ask whether the 2006 list a couple exceptions to the general rule that each spouse must report half of the consider her a partner in cr lp for tax purposes. ann also appeals to common owned a one-half interest in the husband’s partnership interest, the court held that case. see kenworthy, 151 cal. rptr. at 172-73. but kenworthy emphasizes that in 2003, she should have reported that amount on her 2003 return.10 beneficial owner of interest was shareholder-level item); see also grigoraci v. is not attributable to her, then the statute of limitations has run.) whatever that interest was, it generated income on which she owes tax. subject to tefra partnership procedures, holding that whether taxpayer was overreporting the income that he received from cr llc and cr lp. john m. youngquist, for petitioner. sought to protect.” united states v. windsor, 570 u.s. __, __, __, 133 s. ct. it is clear that [vince’s] hasty and unilateral action in this regard has marriage didn’t end until december 26, 2006, when the superior court granted while he and ann were still legally married. mailing, then a “notice partner” may do so within 60 days after the close of the cr traders partners, lp, ann s. carrino, a partner other invests community property in a partnership with a nonspouse, the property lp’s assets, but we do hold that her interest--an interest in vince’s membership and state law controls the ownership determination--it “‘creates legal interests but before the due date for filing the return for the tax year in which the income was if the large sum of 2003 income from cr lp or cr llc is includible in her corp. code sec.] 15025.” id. at 172 (citing mccall v. mccall, 2 cal. app. 2d 92 listed as one of them. nor was she listed as a member on cr llc’s own 2003 the start of the time for filing a petition with the tax court. 1978). regulations. (section 702 and its accompanying regulations provide rules to wife’s community-property interest had to be very precise. see id.17 [*18] that her will had given them an actual property interest in mr. kenworthy’s property. in response, vince filed an amended 2003 partnership return that partnership and not a general claim against the estate.” id. thus, because they

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