Saturday, January 18, 2014

Ninth Circuit Substantially Affirms Adjustments for Bullshit Tax Shelter (1/18/14)

In Candyce Martin 1999 Irrevocable Trust v. United States, 739 F.3d 1204 (9th Cir. 2014), here, the Ninth Circuit largely affirmed the IRS's partnership adjustments denying the benefits of a bullshit tax shelter.  For an earlier blog on another aspect of this case at the trial level, see The Role of the Taxpayer's Independent Lawyer in Tax Shelter Promotions with Promoter Opinions (10/8/11), here.

In the appeal case just decided, the Court (Judge Thomas) opens with
In this appeal, we examine some of the tax consequences arising from the sale of the Chronicle Publishing Company and, specifically, whether the Internal Revenue Service's proposed adjustment of certain partnership tax items was time barred. Although the ultimate issue is relatively straightforward, both the back story and the legal framework are somewhat complex, requiring us to delve deep in the heart of taxes.
I won't try to deleve deep in the heart of taxes, but will just state that the case, involving multi-tiered partnerships, ultimately turned on an interpretation of a restrictive consent to extend the statute of limitations.  The consent involved was the Form 872-I executed by the Martin Family Trusts, the ultimate partner.  The Form 872-I is titled:  Consent to Extend the Time to Assess Tax As Well As Tax Attributable to Items of a Partnership. An unrestricted version of that form is here.  The restriction in the Form in the case was:
The amount of any deficiency assessment is to be limited to that resulting from any adjustment directly or indirectly (through one or more intermediate entities) attributable to partnership flow-through items of First Ship LLC, and/or to any adjustment attributable to costs incurred with respect to any transaction engaged in by First Ship LLC, any penalties and additions to tax attributable to any such adjustments, any affected items, and any consequential changes to other items based on any such adjustments.
Essentially, the Court held that, because of the wording of the restrictions, the consent applied to the bulk of the adjustments (some $318 million) in issue but did not apply to others (some $4 million).  So, it appears to be a substantial win for the Government.

See also Reminder on Sweep of Form 872-I, Partner Level Consent to Extend Statute of Limitations (Federal Tax Procedure Blog 11/23/12), here.

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