United States District Court, D. Maryland
MYRON S. LEVIN, Plaintiff,
UNITED STATES OF AMERICA, Defendant.
MEMORANDUM OPINION AND ORDER
Xinis United States District Judge
in this federal income tax refund suit is Plaintiff Myron S.
Levin's (“Levin”) Motion to Alter/Amend
Judgment under Federal Rule of Civil Procedure 59(e). ECF No.
33. The issues are fully briefed, and the Court now rules
pursuant to Local Rule 105.6 because no hearing is necessary.
For the reasons stated below, Levin's motion is DENIED.
1994, Plaintiff Myron S. Levin (“Levin”) was a
limited partner in the Maryland limited partnership, PCC
Holdings Limited Partnership (“PCCH”). ECF No. 1
at 2. PCCH had only one other limited partner, Levin's
brother, Lawrence Levin.
itself was a limited partner of another partnership entitled
Presidential Corporate Center Associates, L.P.
(“Presidential”). ECF No. 1 at 2.
Presidential's only other partner was a company named
THREA Associates, LP (THREA). Presidential was in the
business of developing real property located in Prince
George's County, Maryland. ECF No. 23 at 1.
an economic downturn in the real estate market, Levin was
“no longer financially able to participate” in
PCCH. ECF No. 23 at 2. As a result, in May 1994, PCCH agreed
to exchange its entire interest in Presidential to THREA, and
THREA agreed to assume the entirety of PCCH's share of
Presidential's liabilities (the
“Transaction”). ECF No. 23 at 2. As part of the
abandonment of this partnership interest, Levin was
discharged from some unspecified “personal
guarantees.” ECF No. 25-6 at 4. THREA did not provide
PCCH or Levin any cash or other assets in exchange for this
transaction. ECF No. 23 at 2.
filed a joint federal income tax return for the tax year 1994
with the Internal Revenue Service (“IRS”). ECF
No. 23 at 2. In his tax return, Levin reported no tax
liability specifically attributable to “his exchange of
his partnership interest in PCC Holdings.” ECF No. 23
at 2. Levin reported a net operating loss of $5, 359, 579 on
his tax return. ECF No. 23 at 2. PCCH's return noted that
Levin made a “capital contribution” to the
partnership of $3, 330, 338. ECF No. 23 at 2. PCCH further
indicated on its tax return that Levin had a negative capital
account balance of $3, 330, 338 prior to the PCCH
transfer of its interest in Presidential to THREA. ECF No. 23
at 2-3. After the Transaction, Levin's capital account
balance in PCCH equaled zero. Id.
1998, the IRS conducted a partnership audit of PCCH pursuant
to the Tax Equity and Fiscal Responsibility Act of 1982, 26
U.S.C. §§ 6221 et
seq.(“TEFRA”). ECF No. 23 at 3. Levin's
brother served as the Tax Management Partner (TMP) of PCCH
for the audit. ECF No. 23 at 3; ECF No. 25-6 at 11. The IRS
and the TMP subsequently reached a settlement wherein the TMP
agreed that PCCH erred in treating the Transaction as a
cancellation of indebtedness rather than a capital gain
“equivalent to each partner's negative account
balance as of December 31, 1994.” ECF No. 23 at
about January 20, 1998, the IRS issued a Form 886-A
Explanation of Items to the partnership which stated that
PCCH should have reported the sale of its partnership
interest in Presidential as a “gain, ” and not as
a “capital contribution” from both of its
partners on its 1994 partnership tax return. ECF No. 23 at
¶¶ 16-21; see also Explanation of Items,
ECF No. 234 at 2. On August 25, 2000, the IRS assessed a
$916, 065 federal income tax against Levin as a result of the
audit, reasoning that Levin had realized a gain from
PCCH's sale of its interest to Presidential. ECF No. 23
at ¶ 24. The IRS did not issue a Statutory Notice of
2012 and 2014, Levin paid a total of $2, 585, 056.80 to the
United States for the tax debt he owed for the 1994 income
tax year. ECF No. 23 at 4. On March 21, 2014, Levin filed a
Form 1040X claim with the IRS seeking a refund of the federal
income tax and interest he paid for the tax year 1994.
Id. On June 10, 2014, the IRS confirmed the filing
but disallowed Levin's claim. Id.
25, 2015, Levin filed this suit against the United States,
asserting that the IRS's characterization of the income
from the 1994 transaction was erroneous. ECF No. 1. Had the
transaction been properly characterized, Levin argued, the
IRS would have been required to issue an “affected
items statutory notice of deficiency” and determine
Levin's solvency during the subject year on the
partner-level because the judicially created
“insolvency exception” allows an insolvent
taxpayer to avoid recognizing a discharge of debt as income.
ECF No. 25-6 at 4-5, 7, 13; see also ECF No. 25-1 at
7. Levin contends that because he was given no such notice,
he could challenge the IRS determination, ECF No. 25-6 at 13.
Levin consequently sought reimbursement of the federal income
tax he paid for the 1994 tax year in the amount of $2, 585,
056.00 and pre- and post-judgment statutory interests from
the initial date from which he first paid that amount. ECF
No. 1 at 5.
February 10, 2017, the United States moved to dismiss the
Complaint under Rule 12(b)(1) for lack of subject matter
jurisdiction, or alternatively for summary judgment pursuant
to Rule 56. The United States argued that this Court lacked
subject matter jurisdiction under 26 U.S.C. § 7422(h) to
revisit the characterization of income as to PCCH because it
was a partnership level determination and a product of the
IRS' settlement with the TMP. ECF No. 52 at 19.
response, Levin filed a cross-motion for summary judgment on
March 4, 2017. ECF No. 25. Levin acknowledged that his
brother, acting as TMP for PCCH, settled with the IRS, and
that settlement characterized the Transaction as capital
gain. ECF No. 23 at ¶ ¶19-21; see also ECF
No. 30 at 5-8. Levin nonetheless asserted that because he did
not participate in this audit, he is not bound by its
findings, ECF No. 23 at 3; see also ECF No. 30 at
5-8. Levin also contended that his brother “did not
adequately communicate to [him] the particulars of the case
and reached a settlement of it in a fashion that benefitted
[Levin's brother] most.” ECF No. 24-5 at 10.
Neither Levin nor the United States produced a copy of the
settlement agreement. See ECF No. 24-1 at 13.
Court issued its Memorandum Opinion and Order on September
13, 2017, granting the United States' motion to dismiss
for lack of subject matter jurisdiction. See ECF
Nos. 31 & 32. The Court found that as a matter of law,
the disputed income was a partnership item, not an
affected item as Levin argued, and the settlement agreement
bound Levin to the treatment determined by the IRS in the
partnership-level proceeding. See ECF No. 31 at
10-12; see also 26 U.S.C. § 7442(h). Levin then
timely moved to alter ...