Tax Court Denies Late Participation in TEFRA Settlement, Upholds "Substantial Showing" Standard
In Blomquist Holdings, LLC, Crestlawn Investors, LLC, Tax Matters Partner v. Commissioner, 165 T.C. No. 6, filed September 17, 2025, the U.S. Tax Court addressed a critical procedural issue under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). The Court held that a nonparticipating partner’s statutory right to participate in a partnership-level proceeding under I.R.C. § 6226(c)(2) is not absolute and is subject to the Tax Court Rules of Practice and Procedure. Specifically, when nonparticipating partners seek to object to a settlement at the eleventh hour, they must make a "substantial showing" under Tax Court Rule 248(b)(4) to be granted leave to participate. The Court’s denial of the partners’ motion in this case provides a valuable lesson on the importance of timely action for partners wishing to protect their rights in TEFRA proceedings.
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