1014-1015 (1961), affd. 313 F.2d 461 (4th Cir. 1963). In construing a treaty, the Court gives the language its ordinary meaning in the context of the treaty, unless a more restricted sense is clearly intended. See De Geofroy v. Riggs, 133 U.S. 258, 271 (1890). When a treaty and a statute relate to the same subject, courts attempt to construe them so as to give effect to both, see Whitney v. Robertson, 124 U.S. 190, 194 (1888), because "the intention to abrogate or modify a treaty is not to be lightly imputed to the Congress", Menominee Tribe v. United States, 391 U.S. 404, 413 (1968) (quoting Pigeon River Co. v. Cox Co., 291 U.S. 138, 160 (1934)); see also Estate of Burghardt v. Commissioner, 80 T.C. 705, 713 (1983), affd. without published opinion 734 F.2d 3 (3d Cir. 1984). Petitioner argues that the characterization of royalty income under section 904 must be identical for royalties received by a U.S. subsidiary from a foreign parent corporation and royalties received by a domestic corporation from a controlled foreign corporation. Petitioner argues that to not characterize its royalty income from L'Air as section 904(d)(1)(I) general limitation income would violate Article 24(3) of the U.S.-France Treaty. Petitioner cites the deficiency itself as evidence of the detriment it suffers because respondent treats the royalty income as passive income rather than general limitation income. We disagree with petitioner's analysis. Petitioner's analysis ignores the differences in the tax treatment, imposed by subpart F, sections 951 to 964, of the Code, and consequently the circumstances of the respective taxpayers mentioned. Article 24(3), which corresponds to Article 24(5) of the current OECD model convention, is a means "to ensure equal treatment for taxpayers residing in the same State." I Model Tax Convention On Income and On Capital, Article 24, par. 5, 57 (OECD Nov. 1977). Petitioner is a domestic corporation, and the tax treatment of its foreign source royalty income is determined in exactly the same manner as for any other domestic corporation receiving royalty income from a noncontrolled foreign corporation. Petitioner has received equal treatment with all other similarly situated taxpayers residing in the United States. The fact that petitioner's ultimate parent is a French corporation plays no part in determining the characterization of petitioner's royalty income. Con sequently, we do not find any basis for petitioner's assertion that respondent's alleged failure to characterize petitioner's royalty income as section 904(d)(1)(I) general limitation income contravenes Article 24(3) of the U.S.-France Treaty. 2. The “Reserved" Paragraph and Treasury Representations For convenience, we will examine petitioner's second and third arguments together. Petitioner's reliance on the "reserved" paragraph in section 1.904-5(i)(3), Income Tax Regs., is also misplaced. In Connecticut Gen. Life Ins. Co. v. Commissioner, 109 T.C. 100, 110 (1997), affd. 177 F.3d 136 (3d Cir. 1999), we held in similar circumstances that a reserved paragraph in a regulation "simply reserves a space for regulations that may be promulgated at a later date and that may provide a special rule". (Emphasis added.) The Court of Appeals for the Third Circuit when discussing the same reserved provision stated: the Office of the Federal Register, Document Drafting Handbook (1991), *** describes "reserved" as "a term used to maintain the continuity of codification in the CFR" or "to indicate where future text will be added." Id. at 27. We find nothing in the precedent that *** [the taxpayer] cites to preclude the Commissioner from using the term "reserved" in accordance with the Document Drafting Handbook, rather than to connote the absence of a substantive rule. [Connecticut Gen. Life Ins. Co. v. Commissioner, 177 F.3d at 145.] We see no reason to take a different view in this case. The reserved paragraph as a general rule only indicates a place mark in the regulation that is reserved to preserve continuity of codification where the Department of the Treasury is considering its position. Petitioner, in its memorandum of law in support, seeks to distinguish Connecticut Gen. Life Ins. Co. v. Commissioner, supra, on the basis that unlike the facts in that case, in the instant case, "the meaning ascribed to the Reserved Paragraph by the Petitioner is unambiguously supported by numerous public written statements of similarly affected taxpayers, and is not contradicted in any of numerous public statements made by senior Treasury Department and other governmental officials addressing the issue". Petitioner attached to its response to respondent's motion for judgment on the pleadings Exhibits A through H. These exhibits con tain correspondence on Department of the Treasury letterhead, and correspondence to the Department of the Treasury. Taken together, and viewed in the light most favorable to petitioner, we are unable to conclude that they represent anything more than confirmation that the Department of the Treasury was considering whether to extend look-through treatment to domestic subsidiaries with foreign parents. Accordingly, An appropriate order will be entered granting respondent's motion for summary judgment and denying petitioner's motion for summary judgment. Decision will be entered for respondent. RIDGE L. HARLAN AND MARJORY C. HARLAN, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT THEODORE S. OCKELS AND ROSEMARIE G. OCKELS, Docket Nos. 21214-92, 24609–92. Filed January 17, 2001. Ps are partners in partnerships (the first-tier partnerships); some of the first-tier partnerships are partners in other partnerships (the second-tier partnerships). R maintains that the 6-year period of limitations under sec. 6501(e)(1)(A), I.R.C. 1986, applies to notices of deficiency sent in 1992 with respect to Ps' 1985 tax year. In determining the applicability of sec. 6501(e)(1)(A), I.R.C. 1986, R includes in Ps' "gross income stated in the return" Ps' distributive shares of the gross incomes of the first-tier partnerships, but does not take account of the first-tier partnerships' distributive shares of the gross incomes of the second-tier partnerships. Ps contend to the contrary. Held, in determining the amount of "gross income stated in the return" (the denominator in the 25-percent test of sec. 6501(e)(1)(A), I.R.C. 1986) for petitioners, the second-tier partnerships' information returns are treated as adjuncts to, and parts of, the first-tier partnerships' information returns, which in turn are treated as adjuncts to, and parts of, petitioner's tax returns. Craig A. Etter, Timothy J. Jessell, and Michael I. Sanders, for petitioners. Carol E. Schultze, for respondent. OPINION CHABOT, Judge: This matter is before us for determination as to whether, in applying the 6-year period of limitations (sec. 6501(e)(1)(A)),1 when a petitioner's tax return reflects income from a partnership (hereinafter sometimes referred to as the first-tier partnership) that is itself a partner in another partnership (hereinafter sometimes referred to as the second-tier partnership), the statutory phrase "gross income stated in the return" (the denominator in the 25-percent test) requires a tracing of the flow of gross income from not only the first-tier partnership's information return but also from the second-tier partnership's information return in order to determine the petitioner's appropriate distributive share of partnership gross income from the first-tier partnership's tax return.2 Respondent determined deficiencies in individual income tax and additions to tax under sections 6653(a) (negligence, etc.) and 6661 (substantial understatement) against (1) petitioners Ridge L. Harlan (hereinafter sometimes referred to as Ridge) and Marjory C. Harlan (hereinafter sometimes referred to as Marjory) (Ridge and Marjory are hereinafter sometimes referred to collectively as the Harlans) and (2) petitioners Theodore S. Ockels (hereinafter sometimes referred to as Theodore) and Rosemarie G. Ockels (Theodore and Rosemarie G. Ockels are hereinafter sometimes referred to collectively as the Ockelses) for 1985 as follows: 1 Unless otherwise indicated, all subtitle, chapter, subchapter, and section references are to subtitles, chapters, subchapters, and sections of the Internal Revenue Code of 1954 as in effect for 1985; except that references to sec. 6501 are to sec. 6501 of the Internal Revenue Code of 1986 as in effect for notices of deficiency mailed in 1992. 2 On brief, petitioners state that this is a jurisdictional issue. However, the instant cases are deficiency cases; thus, the statute of limitations is an affirmative defense and not a jurisdictional issue. See sec. 7459(e); Rule 39; Davenport Recycling Associates v. Commissioner, 220 F.3d 1255, 1259-1260 (11th Cir. 2000), affg. T.C. Memo. 1998-347 (in deficiency cases, assertion of the bar of the statute of limitations is an affirmative defense, not a jurisdictional question); Columbia Bldg., Ltd. v. Commissioner, 98 T.C. 607, 611 (1992) (same); cf. Commissioner v. Lundy, 516 U.S. 235 (1996) (in refund cases in the Tax Court, the statute of limitations is a jurisdictional question). Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure. 150 percent of the interest due on $548,186. 250 percent of the interest due on $62,490. The instant cases have been severed from docket Nos. 15653-92 and 15654-923 for briefing and opinion on the second-tier partnership issue. The second-tier partnership issue has been submitted fully stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference. Background When the respective petitions in the instant cases were filed, the Harlans resided in Hillsborough, California, and the Ockelses resided in Lafayette, California. A. The Harlans The Harlans filed their joint 1985 tax return on or about August 12, 1986. On June 26, 1992, respondent issued a notice of deficiency to the Harlans for 1985. The 3-year period of limitations for assessment of tax under section 6501(a) with respect to the Harlans for 1985 expired before the notice of deficiency was mailed. The Harlans did not execute any requests for extensions of the period of limitations on assessment with respect to 1985. The Harlans' 1985 tax return has attached to the Form 1040 the following: Schedules A, B, C, D, E, and SE; Forms 3468, 3800, 4136, 4797, 4868, 6251, 1116, 2210, 4562, 4835, 4952; 27 numbered "statements"; and a Treasury Department Form TD F 90-22.1. 3 Cases of the following petitioners had originally been consolidated: (1) Alan B. Steiner and Barbara W. Steiner, docket No. 28182-92; (2) Estate of James Beaton, deceased, Shirley Beaton, Executrix, and Shirley Beaton, docket No. 28181-92; (3) James F. Ottinger and Bonnie J. Ottinger, docket No. 15654-92; (4) Theodore S. Ockels and Rosemarie G. Ockels, docket No. 2460992; (5) Ridge L. Harlan and Marjory C. Harlan, docket No. 21214-92; and (6) Estate of William H. Abildgaard, deceased, William Abildgaard, Jr., Executor, and Marlene Abildgaard, docket No. 15653-92. See Steiner v. Commissioner, T.C. Memo. 1995-122. The Beaton, docket No. 2818192, and Steiner, docket No. 28182-92, cases were severed from the group and were disposed of on another issue. See Beaton v. Commissioner, T.C. Memo. 1997-140. |