In Uncategorized on 05/11/2016 at 16:15

It’s spring cleaning time here at Taishofflaw. I was checking today’s orders out of Tax Court for blogfodder, as the one T. C. Memo. today features an executive compensation case that is extremely fact-bound, and STJ Daniel A. (“Yuda”) Guy’s designated hitter is again rebuking IRS’ counsel for putting in documents in a summary J motion with no declaration or affidavit, but also not handing out the “unprofessional and unethical” slam, either.

So for want of a better, I found an old-timer that I had blogged back in March of 2012, apparently headed for trial.

Taking my cue from Wagner’s classic “song in praise of song,” I said “Mein! Was ist das?”

Judge Haines had given an outright win to the petitioners. See my blogpost “Substance Matters,” 3/1/12, the story of Norma L. Slone, Transferee.

Well, you guessed it. IRS appealed, and won.

Here’s the story of Norma L. Slone, Nos. 12–72464, 12–72495, 12–72496, 12–72497, decided 6/8/15.

Ninth Circuit finds the first issue is how to analyze whether the alleged transferees are transferees for Section 6901 purposes.

“Although we have not previously considered how a court should analyze a transaction for purposes of transferee liability under § 6901, both the Supreme Court cases, and our own precedent, require us to look through the form of a transaction to consider its substance. The Supreme Court has long recognized ‘the importance of regarding matters of substance and disregarding forms,’ United States v. Phellis, 257 U.S. 156, 168 (1921), because ‘[t]he incidence of taxation depends upon the substance of a transaction,’ Comm’r v. Court Holding Co., 324 U.S. 331, 334 (1945). In explaining the factors that should guide a court’s analysis regarding when it is appropriate to disregard the form of a transaction, the Supreme Court framed the inquiry as whether ‘there is a genuine multiple-party transaction with economic substance which is compelled or encouraged by business or regulatory realities, is imbued with tax-independent considerations, and is not shaped solely by tax-avoidance features that have meaningless labels attached.’ Frank Lyon Co. v. United States, 435 U.S. 561, 583–84 (1978).” Slone, at pp. 12-13.

But Tax Court didn’t look at that. See my abovecited blog for more. Tax Court said there were two separate transactions, separated in time and space.

But that doesn’t go in the Ninth Circuit.

“We cannot resolve this dispute because the tax court failed to apply the correct legal standard for characterizing the stock sale transaction for the purposes of federal transferee liability. The court did not address either the subjective or objective factors we apply in characterizing a transaction for tax purposes, as it failed to make any finding on whether the shareholders had a business purpose for entering into the stock purchase transaction other than tax avoidance, or whether the stock purchase transaction had economic substance other than shielding the Slone Broadcasting shareholders from tax liability. Instead, the tax court focused its factual inquiry and analysis on factors that might be relevant to the second prong of the Stern test for assessing transferee liability, whether a party is substantively liable for the transferor’s unpaid taxes as a matter of state law. For instance, the tax court’s findings that the shareholders had not orchestrated the asset sale and the stock sale as a single scheme for tax evasion purposes, that [Mid-Coast shill] and its third-party service provider were legitimate players in the debt collection industry, and that the shareholders had no reason to believe that [Mid-Coast shill] was using illegitimate tax evasion methods and had no duty to inquire further all relate to the question whether the shareholders lacked actual or constructive knowledge of the entire tax evasion scheme that rendered their transaction with [Mid-Coast shill] fraudulent under state law. See Salus Mundi, 776 F.3d at 1020. But the tax court did not use these factual findings to analyze the shareholders’ liability under the applicable state law; it instead concluded, based on these findings, that the form of the stock sale should be respected for the shareholders’ transferee status under the first prong of the Stern test. This was an error.” Slone, at p. 17.

So the Slones are going back to Tax Court.


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