In Uncategorized on 02/27/2015 at 14:30

The “rarefied heights” were there, sure enough, in Judge Morrison’s opinion in Estate of Natale B. Giustina, Laraway Michael Giustina, Ex’r (as to which see my blogpost “Such Rarefied Heights of Pure Mathematics”, 6/25/11), but Ninth Circuit found that mathematics wasn’t enough.

As I said back in 2011, “Judge Morrison finds a sale would yield more present value dollars than continuing lumbering operations, finding the probability of the sale sufficiently high to justify a valuation taking that probability into account.”

Ninth Circuit was less than overwhelmed by Judge Morrison’s oddsmaking.

“The Tax Court concluded that there was a 25% likelihood of liquidation of the partnership. It therefore gave a 25% weight to an asset-based valuation and a 75% weight to the valuation of the partnership as a going concern. Although the Tax Court recognized that the owner of the limited interest could not unilaterally force liquidation, it concluded that the owner of that interest could form a two-thirds voting bloc with other limited partners to do so, and assigned a 25% probability to this occurrence. This conclusion is contrary to the evidence in the record. In order for liquidation to occur, we must assume that (1) a hypothetical buyer would somehow obtain admission as a limited partner from the general partners, who have repeatedly emphasized the importance that they place upon continued operation of the partnership; (2) the buyer would then turn around and seek dissolution of the partnership or removal of the general partners who just approved his admission to the partnership; and (3) the buyer would manage to convince at least two (or possibly more) other limited partners to go along, despite the fact that ‘no limited partner ever asked or ever discussed the sale of an interest.’ Alternatively, we must assume that the existing limited partners, or their heirs or assigns, owning two-thirds of the partnership, would seek dissolution. We conclude that it was clear error to assign a 25% likelihood to these hypothetical events. As in Estate of Simplot v. Commissioner, 249 F.3d 1191, 1195 (9th Cir. 2001), the Tax Court engaged in ‘imaginary scenarios as to who a purchaser might be, how long the purchaser would be willing to wait without any return on his investment, and what combinations the purchaser might be able to effect’ with the existing partners.” Estate of Giustina v. Com’r, No. 12-71747, 9th Cir., decided 12/5/14, at pp.2-3.

So Judge Morrison’s scenario is tossed, and back to Tax Court and Judge Morrison goes Laraway for a replay.

But Judge Morrison is looking for a punt on the rarefied pure mathematics.

“Because the remand by the Ninth Circuit contemplates further explanation from the Tax Court of an aspect of its prior opinion, the Court will issue a supplemental opinion. In the meantime, the parties are free-as always-to negotiate a settlement. The parties are to advise the Tax Court of any settlement by filing status reports on or before 60 days after the issuance of the mandate.” Estate Of Natale B. Giustina, Deceased, Laraway Michael Giustina, Executor, Docket No. 10983-09, filed 2/27/15, at p. 2.

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