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PARTNERSHIPS-Continued

ers filed amended return for 1986 deleting investment credit and
reporting additional tax due, which Commissioner assessed on Apr.
9, 1992; amended return did not include Form 8082, Notice of
Inconsistent Treatment or Amended Return; on Dec. 18, 1992,
petitioners filed bankruptcy petition and received 11 U.S.C. sec. 505
discharge on May 17, 1993, without Commissioner's filing proof of
claim or bankruptcy court's determining tax liability; on Dec. 16,
1993, Commissioner issued deficiency notice for 1986 showing
petitioners' share of investment credit recapture liability from part-
nership; partnership litigation was settled on May 19, 1994; and
petitioners claimed they incurred no recapture liability because
Commissioner allowed them to revoke original claim and assessed
amount shown on amended return, Court determined (1) Commis-
sioner properly rejected 1985 amended return, since it did not con-
stitute request for administrative adjustment required under sec.
6227 to change treatment of partnership item; (2) 1986 amended
return was ineffective because carryover of unused portion of
investment credit was "affected item" to which sec. 6227 was inap-
plicable; and (3) bankruptcy filing's conversion of partnership items
to nonpartnership items did not affect petitioners' obligation to take
into account their distributive share of partnership investment
income nor preclude Comissioner's use of prospective partnership-
level settlement as basis for computing petitioners' personal tax
liability. Phillips v. Commissioner

UNITED STATES TAX COURT

Equitable Recoupment Doctrine-Limitation of Actions-
Income Tax Liability Offset by Barred Overpayment of
Estate Tax.-Where H and W filed joint income tax return for
1981, and H filed joint return for 1982 after W's death on Oct. 4,
1982; on May 16, 1989, H died; on Feb. 21, 1990, H's estate's tax
return was filed; on Mar. 28, 1990, Commissioner issued deficiency
notice for H and W's 1981-82 income tax to petitioners, H's and W's
estates; on Sept. 18, 1991, assessed deficiency plus interest on H's
estate tax was paid; on Sept. 14, 1993, H's estate's amended estate
tax return was filed showing overpayment resulting from newly
claimed deductions from taxable estate for 1981-82 State and Fed-
eral income taxes (which petitioners had conceded) and related
interest; and, under sec. 6511(a), Commissioner allowed claim for
refund only to extent of estate tax paid within 2 years before filing
of amended return, contending remainder of overpayment was
barred by statute of limitations, Court determined petitioners were
entitled to recoup barred estate tax overpayment against stipulated
Federal income tax deficiencies, since words "the tax" in sec.
6214(b) referred to income and gift taxes and did not preclude equi-
table recoupment of estate tax overpayment against income tax
deficiency; and Court granted petitioners' motion for summary judg-

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ment. Estate of Mueller v. Commissioner, 101 T.C. 551, applied.
Estate of Bartels v. Commissioner

Motion for Award of Reasonable Litigation Costs-
Commissioner's Project Challenging Reasonableness of
Actuarial Standards for Contributions to Defined Benefit
Plans-Substantially Justified in Awaiting Results of Lead
Case Before Conceding.-In one of many cases arising from
Commissioner's actuarial project involving
project involving reasonableness of
actuarial assumptions in connection with deductions for contribu-
tions to defined benefit pension plans, petitioner corporation moved
for award of litigation costs under sec. 7430; statutory deficiency
notice was issued on July 22, 1991; petition was filed on Sept. 30,
1991; multiple Courts of Appeals affirmed decisions adverse to
Commissioner's position in lead actuarial cases between 1993 and
1995; time for filing petition for writ of certiorari to Supreme Court
in one of lead cases expired on June 7, 1995; Commissioner con-
ceded underlying actuarial issues in full in June 14, 1995, letter to
petitioner; and Court filed parties' settlement stipulation on July
18, 1995, with decision of no deficiency in income tax and no addi-
tions to tax, Court determined Commissioner's position was
substantially justified, since Commissioner's decision to await out-
come of appeal of lead cases had merit and Commissioner moved
promptly afterwards in conceding petitioner's case; and Court
denied petitioner's motion for award of litigation costs. Paul Frehe
Enters., Inc. v. Commissioner

Motion for Award of Reasonable Litigation Costs-Net
Worth Measured by Asset Acquisition Costs-Effect of Fail-
ure To Request Appeals Office Conference.-Where petitioners
filed Rule 231 motion for award of sec. 7430 reasonable litigation
costs claiming Commissioner had not been substantially justified in
determining (1) sec. 4975 prohibited transactions had occurred with
respect to domestic international sales corporation, foreign sales
corporation, and two individual retirement accounts, and (2) sale of
petitioners' Illinois residence to closely held corporation was sham
transaction; and, although petitioners had agreed to extend period
of limitations until June 30, 1992, petitioners did not receive 30-day
letter before notice of deficiency dated June 29, 1992, determining
deficiencies and additions to tax for 1986 and 1988-90 taxable
years, Court determined Commissioner's litigation position, which
dated from filing of answer, was not substantially justified under
sec. 4975(c)(1)(E) as to prohibited transaction issue, and petitioners
were entitled to award under sec. 7430, but Commissioner was
justified as to sham sale transaction; each petitioner satisfied $2
million net worth limitation requirement of sec. 7430(c)(4)(a)(iii) as
of date of filing petition, since assets were valued according to
acquisition cost rather than fair market value; petitioners
exhausted administrative remedies for sec. 7430(a) purposes, since

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