A Taishoff “Good Job, First Class” goes to Nathan J. Hochman, Esq., and Andrew D. Allen, Esq., trusty attorneys for NCA Argyle LP, Newport Capital Advisors, LLC, A Partner Other Than The Tax Matters Partner, et al., 2020 T. C. Memo. 56, filed 5/13/20.

NCA and the als claim they were done wrong by their joint venturer Commonfund. So (surprise, surprise) they sued. There was a jury trial, an appeal, and the usual settlement back and forth, winding up with an agreement. Now we all know IRS and Tax Court treat settlement agreements as window dressing, when tax treatments are at issue.

See my blogpost “An Unsettling Settlement,” 10/3/11. Judge Buch refers to the Healthpoint case, which was the subject of that blogpost, 2020 T. C. Memo. 56, at p. 23.

Here the parties were adverse, not merely as to the amount of damages (as to which Judge Buch sustains the allocation to deemed sale of a joint venture interest, thus capital gain), but as to tax treatment theereof.

If NCA is right, they get capital gains, but Commonfund only gets a step-up in basis in the dubious now-unwound joint venture, with only a fractional write-off. If breach of contract, ordinary income to NCA and the als, and a potential Section 162 ordinary-and-necessary deduction for Commonfund. For $23 million, that’s quite adverse.

No question there was a joint venture, which a jury found on the trial but IRS claims was only a contract breach, damages for which are ordinary income. And the phrase “if any,” referring to the joint venture interests NCA was giving up, was a last-ditch attempt by Commonfund to deny it had repudiated; Commonfund’s then-CFO testified that it was the purchase of NCA and the als’ joint venture interests.

How Nat and Andy got the ex-CFO thus to testify must be quite a tale. One can only speculate that said CFO got tossed post-settlement but pre-Tax Court trial, and sought revenge. I’d love to know the real story.

NCA and the als win.

Who says tax cases are dull?

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