In Uncategorized on 08/29/2019 at 14:28

The Cross Colliers adopted the role of the mythical dress manufacturer who lost a nickel on each dress sold, but made it up on the volume. And that Obliging Jurist, Judge David Gustafson, will tell you the whole story in an off-the bencher, Cross Refined Coal, LLC,  USA Refined Coal, LLC,  Tax Matters Partner, Docket No. 19502-17, filed 8/29/19.

The Cross Colliers were a partnership (they claimed, but IRS said they weren’t) that got some coal-washing technology that supposedly batted clean-up at the coal-fired powerplants, paid to install it in situ, and took the risk that the powerplant operators, the regulators or the courts could shut them down.

The Cross Colliers bought the coal from the operators at list, and sold it back to them at a discount, losing money on every sale. But they made it up on the Section 45 clean coal credit, which let them cash out in year one. “One best-case-scenario… which assumed uninterrupted high volume sales of refined coal over the entire 10-year period during which the tax credits would be available, projected an investment of $7 million being paid off before the end of the first year, an internal rate of return (“IRR”) of 197%, and total 10-year benefits of almost $140 million.” Order, Transcript, at p. 16.

Treasury allowed the Cross Colliers a fixed-dollar tax credit for each ton of refined coal sold. The deal was a dead loser without.

Our tax dollars at work.

IRS claims this wasn’t a partnership, but a sale of tax credits. Remember our old pal Historic Boardwalk Hall? No? See my blogpost “Take a Walk on the Boardwalk,” 6/5/13.

No, says Judge Gustafson. In Boardwalk, the supposed “partner” walked into a deal already in place, that needed no management, with no risk. The Cross Colliers had real risks and real benefits. While one partner could be bought out, there was neither interest payable on the partner’s capital nor was the buyout noncontingent.

Besides, there was “…Notice 2010-54, 2010 I.R.B. 403, sec. 5. 01, which provides that ‘[t] he refined coal credit is allowed . . . without regard to whether the taxpayer owns the refined coal production facility in which the refined coal is produced. Accordingly, a taxpayer that leases… a facility owned by another person may claim the credit for refined coal that the taxpayer produces in the facility.’ It would seem that such a lessee might be in a circumstance equivalent to Cross’ s members, stepping into a facility thought ready to commence operations.” Order, Transcript, at p. 46.

And the credit was for production of coal, not investment. There had to be coal produced and sold, and the members of the Cross Colliers got credits in proportion to their capital. In Boardwalk, the investor needed to do nothing and got 99% of the credit.

And there were shutdowns and pollution problems. Finally, their big customer shut down the plant altogether.

It’s a rare case, where millions are involved, and more than a dozen attorneys for the parties, that goes off on an all-or-nothing 56-page Section 7459(b) off-the-bencher.

“Small court,” indeed.

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