For tax professionals handling partnership audits under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the role of the Tax Matters Partner (TMP) is paramount in negotiating settlements with the IRS. In the recent case of Walker Church Greene 819, LLC v. Commissioner, T.C. Memo. 2026-11, the United States Tax Court addressed a significant procedural conflict: whether partners holding a majority interest in a partnership may intervene to block a settlement negotiated by the TMP after the litigation has effectively concluded. The Court’s opinion reinforces the "high bar" required for partners to participate at the entry of decision stage, even when those partners collectively own a controlling interest in the entity.

Factual Background

Walker Church Greene 819, LLC (Walker) is a Georgia limited liability company treated as a partnership for federal tax purposes, subject to TEFRA audit procedures. The partnership’s TMP is 830 Oconee, LLC (Oconee).

The underlying tax dispute arose from a 2016 transaction in which Walker donated a conservation easement encumbering 754.79 acres of property in Greene County, Georgia. On its 2016 return, Walker claimed a charitable contribution deduction of $48,955,500, with the vast majority attributable to the easement. In the Notice of Final Partnership Administrative Adjustment (FPAA), the IRS wholly disallowed the deduction and asserted a 40% gross valuation misstatement penalty under section 6662(h), along with alternative penalties.

Oconee, acting as the TMP, timely petitioned the Tax Court in January 2022. After two years of litigation, in August 2024, Oconee accepted a settlement offer from the IRS. The terms included:

Disallowance of the entire charitable contribution deduction;
Imposition of a reduced 10% accuracy-related penalty under section 6662(h); and
Allowance of an additional "other deduction" of $11,268,651, which would not be subject to the 2% adjusted gross income floor under section 67.

On February 6, 2025, the Respondent filed a Motion for Entry of Decision reflecting this settlement pursuant to Rule 248(b). Subsequently, on April 7, 2025, 40 partners within Oconee (the Objecting Partners) filed Motions for Leave to File Notice of Election to Participate. Notably, these Objecting Partners collectively owned 64.27% of Oconee and, by extension, 62.27% of Walker.

The Taxpayers’ Request for Relief

The Objecting Partners sought to intervene under Tax Court Rule 248(b)(4) to reject the settlement and continue litigation. In their filings, they asserted that the proposed decision did "not adequately represent the position of [the Objecting Partners]" and that they "wished to continue with the Case apart from the Partnership". They further claimed they were "prepared to litigate these issues" and understood that "the Tax Court may render a decision that is worse for [them] than the settlement terms".

The Objecting Partners argued that their majority ownership interest distinguished their request from prior adverse rulings. They contended that the settlement should not be entered over the objection of partners holding nearly 63% of the partnership interests.

Court’s Analysis of the Law

The Court framed its analysis around the statutory purpose of TEFRA and the specific requirements of Tax Court Rule 248. The Court noted that TEFRA was enacted to resolve partnership items "without the necessity of separate proceedings for each partner". While partners have statutory rights to participate, those rights are time-sensitive. A partner may elect to participate as of right within 90 days of the petition service under Rule 245(b), or seek leave to participate out of time upon a showing of "sufficient cause" under Rule 245(c).

When a Motion for Entry of Decision is filed under Rule 248(b), a partner seeking to intervene at that late stage faces a rigorous standard. The partner "must make a substantial showing as to why the Court should grant the motion".

The Court relied heavily on recent precedents, specifically Blomquist Holdings, LLC v. Commissioner and Chimney Rock Holdings, LLC v. Commissioner, which established that conclusory statements do not satisfy the "high bar of the substantial showing required under Rule 248(b)".

Application of Law to the Facts

Judge Pugh dismantled the Objecting Partners’ motions by identifying three critical deficiencies in their "substantial showing."

First, the Court found the motions lacked substantive objections to the settlement terms. The Objecting Partners "have not alleged that the terms of the settlement are unreasonable or otherwise made any argument regarding the substantive facts of the case". The Court highlighted that the settlement secured a significant concession regarding the $11.2 million "other deduction" and a reduced penalty rate, similar to terms the Court had previously declined to disturb in Blomquist.

Second, the Court rejected the partners’ general assertion that they were "prepared to litigate." The Court noted the complexity of the case, which would require expert testimony and multiple days of trial. The motions failed to describe any actual preparations, such as retaining experts or developing valuation theories. The Court observed that a lack of demonstrated preparedness weighs against granting a motion that would permit partners to "’swoop in at the last minute and disrupt’ the proposed settlement".

Third, the Objecting Partners failed to allege that the TMP had breached its fiduciary duty. The Court cited Chimney Rock Holdings for the proposition that mere disagreement with a TMP’s strategy or an investigation into a TMP does not automatically indicate misconduct.

Finally, the Court addressed the unique fact of the Objecting Partners’ majority ownership (62.27%). The Court held: "This distinction does not change our conclusion". Judge Pugh emphasized that the partners had three years to participate as of right or by leave of the Court but failed to do so. The Court reasoned that it "will not infer a substantial showing simply because the Objecting Partners represent a majority of the partnership interests and disagree with the settlement terms. More is required beyond conclusory statements".

Conclusions

The Tax Court denied the Motions for Leave to File Notice of Election to Participate. The Court concluded that the Objecting Partners failed to meet the requirements of Rule 248(b)(4) because they offered "no explanation for why granting leave to participate is appropriate" beyond vague generalities.

The Court underscored that the Objecting Partners, despite being represented by the same counsel as partners in prior failed intervention attempts, did not supplement their motions to address the deficiencies identified in Chimney Rock and Blomquist. Consequently, the Court granted the Respondent’s Motion for Entry of Decision, binding the partnership to the settlement negotiated by the TMP.

Implications for Tax Professionals

This decision serves as a stark warning for partners in TEFRA proceedings and their advisors. Reliance on majority ownership is insufficient to overturn a TMP-negotiated settlement at the eleventh hour. If partners wish to influence the litigation strategy or reject a potential settlement, they must file a notice of election to participate within the initial 90-day window provided by Rule 245(b) or provide a detailed, substantive justification for late intervention that goes beyond mere dissatisfaction with the outcome.

Prepared with assistance from NotebookLM.