T.C. M em o . 2 0 2 0 -1 2 6

UNITED STATES TAX COURT

SEAN L. DAICHM A

N AND LINDA E. DAICHM A N , Pet i t i o ners v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 4 3 68 -1 5
. Fi l edAu gu s t 3 1 , 2 0 2 0
.

Geo rg e W . Co nn el l y , J r., Ren es h a N. Fo u n t ai n, an dJ am es P. Sh eet s , fo r p et i t i o n ers . M . Kath ry

n Bel l i s an dYv et t e Nu n ez, fo r res p o nd en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION PARIS, J u d g e: Res p on d en td et erm i n ed a d efi ci en cy o f $ 1 , 1 6 3 ,7 5 1 i n p et i t i o n ers ’ 2 0 09 Fed eral i n co m e t ax , al o n g wi th a s ect io n 6 66 2 (a) 1 accu racy 1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al (co n ti n u ed ...)- 2
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[* 2 ] rel at edp en al ty

o f $ 2 3 1,9 9 0 .2 0 . Duri ng 2 0 0 9 p et i ti o n ers tran s ferred p ers o n al
as s et s o f cas h an dm ark et ab l e s ecu ri t i es t o a wh o l l y o wn edS co rp o rat i o n, wh i ch i n tu rn i m m ed i at el y tran s ferred th o s e as s et s t o a fam i l y l i m i t edp art n ers h i p. A few week s l at er, p et i t i o n ers d i ss o l v edth e S co rp o rat i o n an drecei v edth e p artn ers h i p i n t eres tas a l i qu i d at i ng d is tri b u t i o n . Inco n nect i o n wi th t h e l i qu i d at i o n , p et i t i o n ers cl ai m eda n o npas s i v e l o s s d edu ct i o n o n Sch edu l e E, Sup p l em en t al In co m e an d Lo s s . Th e cl ai m edn o np as s iv e l o s s d edu ct i o n refl ect eda s ub st an t i al l y d i s co u n tedv al u e fo r t h e p art ners h i p i n t eres tv ers u s th e v al u e o f t h e u n d erl y i n g
as s et s recen t l y

tran s ferred t o the p art n ers h ip
. 2 Aft er co n ces si o ns , th e i s s u es fo r co n si d erat io n are wh et h er p et i t i o n ers are (1 ) en t i t l edt o a s h o rt -t erm cap i t al l o s s d edu ct i o n o f $ 2,0 9 9 ,0 9 0 i n co n n ect i o n wi t h th e d i s s o l u t i o n o f t h ei r S co rp o rat i o n an d(2 ) l i ab l e fo r t h e accu racy -rel at ed p en al ty .

1 (...co n t in u ed ) Rev enu e Co de (Co d e) i n effect fo r t h e y ear i n i s s ue, an dal l Ru le referen ces are t o th e Tax Co u rt Ru l es o f Pract ice an dPro cedu re.

2 Pet i t i on ers h av e co n ced edth at , t o th e ex t en tth atth ey are en t i t l edt o a l o s s d educt i o n fo r 2 0 0 9 , th atd edu ct i o n s h o u ldb e ch aract eri zedas a s h o rt -t erm cap i t al l o s s , an dn o t as an o rd i n ary l o s s . Th e p art ies h av e al s o s ti p ul at edth atth ere are n o recei p t s o r co s to f g o o d s s o l das p rev i o u s ly rep o rt edo n th e u n d erl y in g tran s act i o n s an d ad ju st edi n th e n o ti ce o f d efi ci en cy .- 3
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[* 3 ] Pet i t i o ners b ear t h e b u rd en o f p ro of. 3 FINDINGS OF FACT I. Back g ro u n d Pet i t i o ners , h u s b an d an dwi fe, res i d edi n Tex as atth e t i m e t he p et i t i o n was fi led
. M rs . Dai ch m an h o ld s a b ach el o r’ s d eg ree i n p s y ch o l o g y an dd o es n o two rk
o u t s i d e t h e h o m e. M r. Dai ch m an h o l d s a b ach el o r’ s d eg ree i n en g i n eeri n g fro m Ri ce Un i vers i ty an da m as t er’ s d eg ree fro m Harv ard Un i v ers i ty . He h as p rev i o u s l y wo rk ed fo r a ch em i cal co m p an y , an o i l co m

p an y , an o il fi el ds erv i ces
co m p an y , an i n v es t m en t m an ag em en tco m p an y , an da p o wer p l an tequ ip m en t
co m p an y . Duri n g 2 0 0 9 h e was em p l o y ed as v ice p res i d en to f BTEC Tu rb i n es LP (BTEC LP). BTEC LP i s a l i m i t edp art n ers h i p fo rm ed u n d er Del aware l aw an d reg i s tered i n Tex as as a fo rei gn l i m it edp art n ers h i p . Iti s an o p erat i n g co m p an y th atb u y s o l dp o wer p l an t equi pm en t , th en refu rb i s h es o r rel o cat es i td om es t i cal ly
o r i n t ern at i o n al l y . Befo re th e t ran sact i o n s ati s s ue, M r. Dai ch m an o wn ed1 1 6 A
u n i t s an d1 ,1 6 6 C u n i t s i n BTEC LP. It s g en eral p art n er du ri n g 2 0 09 was BTEC

3 Pet i t i on ers h av e n o trai s ed th e i s s u e o f s ec. 7 4 9 1 (a), wh i ch s h ift s th e b u rd eno f p ro of t o th e Co m m i ss i o n er i n cert ai n s i tuat i o n s . Th e Co u rtco n cl u d es th ats ec. 7 4 9 1 (a) d o es n o tap p l y h ere b ecau s e p et i t i o n ers h av e n otp ro duced ev i d en ce t h atth ey

h av e s at i s fi edth e p reco n d i t i o ns fo r i t s ap pl i cat io n . See Ru l e 1 4 2 (a).- 4
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[* 4 ] LLC, a l i m it edl iab i l i ty co m p an y fo rm edu n der Del aware l aw. Du ri n g 2 0 0 9 M r. Dai ch m an was v i ce p res i d en to f BTEC LLC. In 2 0 0 9 M r. Dai ch m an recei v eds al ary an dwag es fro m

BTEC LP o f $ 6 9 9 ,3 7 3 an drep o rt edn o np as s i v e p art n ers h i p i n co m e o f $ 1 ,4 0 0,1 3 6 fro m BTEC LP. II. Tax St rat eg y A. Fo rm at i o n o f En t it i es Onth e reco m

m en d at i o n o f t h ei r i n v es t m en tb ro k er, p et i t i o ners s o u g h tes t at e p l an n i n g ad v i ce i n 2 0 0 9 fro m Ri ch ardSh an ks , an at to rn ey an d cert i fi edp ub l i c
acco u n t an to f t h e Sh an k s Law Fi rm i n Ho u s to n . Pet i t i on ers i n it i al l y m etwi th M r. Sh an k s i n Ap ri l 2 00 9 , an d , p u rs u an tt o th atm eet i n g , M r. Sh an k s p rep aredwi l l s , m ed i cal an dfi n an ci al p o wers o f at t o rn ey , m ed i cal d i rect i v es , an d rel at ed d o cu m en t s o n b eh al f o f p et it io n ers . In No v em

b er 2 0 0 9 p et it i o n ers an dM r. Sh an k s d eci dedupo n a t ax -p lan n i n g
s trat eg y d es i g n ed wi th a g o al o f el i m i n at i n g i n co m e t ax l i ab i l it y o n th e s ubs t an t i al i n co m e th atM r. Dai ch m an was s l at edt o recei ve t h aty ear. Th e t ax s tru ctu re, wh i ch M r. Sh an k s m ark et edt o a n u m b er o f h i s cl ien t s , i nv o l v edo rg an i zi n g
m u lt i p l e n ew en t i ti es o wn ed o r co n tro l l edb y p et it i on ers t o i n cl u d e an S co rp o rat i o n, a fam i l y

l i m i t ed p art n ers h i p , an da fam i l y m an ag em en ttru s t . Un d er- 5
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[* 5 ] th e s tru ctu re, p et i t i o n ers wo u l dco nt ri bu t e cas h an dm ark et ab l e s ecu ri t i es t o th e S co rp o rat io n. Th e S co rp o rat i o n , o n ce fu n d ed , wo u ldth en tran s fer t h o s e s am e
as s et s t o th e l i m it edp art n ers h i p i n ex ch an g e fo r 9 8 % o wn ers h i p as a l i m it ed p art n er. Th e fam i l y

m an ag em en ttru s two u l db e t h e g en eral p art n er an dh o l dth e
rem ai n i n g 2 % o f t h e p art n ers h i p i n t eres t . Un d er M r. Sh an k s ’ p ro p os edt ax
s trat eg y , p et i t i o n ers wo u l dth en d i s s o lv e t h e S co rp o rat i o n an dd i s tri b u t e t h e l i m i ted p artn ers h i p i n t eres tt o i t s s hareh o l d ers , p et it i o n ers . Up o n th e d i s s o l u t i o n
o f t h e S co rp orat i on , atth e en do f t h e y ear p et i t i o n ers wo u ldo wnth e 9 8 % i n t eres t i n the l i m i t edp art n ers hi p an dth e p art n ers h i p wo u l d o wnth e as s et s th at p et i t i o n ers h ad co n tri b u t edt o th e S co rp o rat i o n . M r. Sh an k s ’ p ro p o s al s u gg es t edthatth e
s tru ctu re wo ul d o ffer as setp ro t ect io n an d th atth e v al u e o f t h e d i s tri b u t ed p art n ers hi p i n t eres t s fo r t ax p u rp o s es wo u l d refl ecta redu cedv al u e b ecau s e o f l arg e d i s co u n t s fo r l acko f m ark et ab i l i ty an dco n tro l
. Th e s tru ctu re an dthe d i s s o l u t i on o f t h e S co rp o rat io n wo u l dg en erat e a t ax l o s s fo r p et i t i o n ers t o rep o rt
o n th ei r i n di v i dual retu rn . Pet i t i o ners ex ecu tedan en g ag em en tl et t er d es cri b i n g th e en t i ti es , an d M r. Sh an k s p rep aredan dfi l edd o cu m en t s o n b eh al f o f p et i t i on ers t o i m p l em en tth e t ax
s trat eg y . On No v em

b er 2 3 , 2 0 0 9 , p et i t i o n ers o rg an i zed Sean Dai ch m anLLC (Dai ch m an LLC), a Tex as l i m i t edl i ab il i ty co m p an y ; St an d i s h Trad in g , In c.- 6
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[* 6 ] (Trad i n g S Co rp ), a Tex as fo r-p ro fi tco rp o rat i o n th atel ect edtreat m en tas an S co rp o rat i o n p u rs u an t t o s ect i o n 1 3 6 2 ; St an di s h In ves t m en t s , Lt d . (In v es t m en t LP), a Tex as l i m i t edp art n ers h i p ; an dth e Dai ch m anM an ag em en tTru s t(Dai ch m an Tru s t ), o f wh ich p et i t i o ners were co tru s t ees an dthei r t h ree s o n s were b en efi ci ari es . 4 M r. Dai ch m an was th e s ol e m em ber o f Dai ch m anLLC. Pet i t i o n ers each o wn ed5 0 % o f Trad i n g S Co rp , wi th M r. Dai ch m an as i t s p res i d en tan dM rs . Dai ch m an as i ts s ecret ary . In i t i al ly , each p et i t i o n er h el da 1 % g en eral p art n ers h i p i n t eres ti n In v es t m en tLP, an dTrad i n g S Co rp h el d a 9 8 % l i m i t edp art n ers h i p i n t eres t . 5 Pet i ti o n ers tran s ferred th ei r g en eral p art n ers h i p i n t eres t s i n In v es t m en t LP t o th e Dai ch m anTru s t . As co tru s t ees o f t h e Dai ch m anTru s t , p et i ti o n ers were g en eral p art n ers o f In v es tm en tLP.

4 Th e Co urt wi l l refer t o th es e en t i t i es , co l l ect i vel y , as th e St an d i s h en t i t i es . 5 Th e p art i es h av e s t i pu l at edth at , i n it i al ly , each p et i t i o n er h el d a 4 9 % l i m i ted p artn ers h i p i n t eres ti n In v es t m en t LP. Th i s s t i p u l at i o n i s i n co n s i st en twi t h th e fo rm at io n d o cu m en t s fo r In v es t m en tLP, wh i ch i n d i cat e t h at Trad i n g S Co rp was th e s o l e l i m it edp art n er atth e p art n ers h i p ’ s fo rm at i o n . Wh et h er Trad i n g S Co rp acq u i redth e l i m i t edp art n ers h i p i nt eres tth ro u g h p urch as e fro m p et i t i o n ers o r d i rect ly

fro m the p art n ers h i p o n i ts fo rm at i o n d o es n o tal t er t h e Co u rt ’ s an al y s i s i n thi s cas e.- 7
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[* 7 ] B. As s etTran s fers Fo l l owi n g th e fo rm at i o n o f t h e en t i t i es , p et i t i o n ers tran s ferred M r. Dai ch m an ’ s 1 , 2 8 2 BTEC LP u n i t s t o Dai ch m an LLC. Th ro u g h m u l t i p l e tran s act io n s o n No vem

b er 2 5 an dDecem

b er 1 , 2 0 0 9 , p et i t i o ners al so tran sferred
cas h an dm ark et ab l e s ecu ri t i es t o t al i n g $ 1 ,7 5 0 ,6 1 8 fro m p ers o n al acco u n t s t o
n ewl y o pen edacco u nt s o f Trad i n g S Co rp . Th ree d ay s l at er, o n Decem b er 4 , Trad in g S Co rp tran s ferred $ 1 ,6 5 0 ,4 6 5 o f th o s e s am e as s et s t o n ewl y o pen edacco u nt s o f In v es tm en t LP. Fo l lo wi n g th e Decem b er 4 tran s fers , Trad i n g S Co rp was l eftwi th ap p ro x im at el y $ 10 0 ,0 0 0 i n
cas h an dm ark et ab l e s ecu ri t i es . C. Trad in g Act i vi ty M r. Dai ch m an d es cri b edh i s p ers on al i n ves t i n g b efo re No v em b er 2 0 0 9 as
s m al l an dn o ti n vo l v i n g s ig n i fi can tam o u n t s o f t rad in g ex p eri en ce. He h add o n e l i tt l e t o no res earch i n t o th e req u i rem en ts o f d ay trad i n g , an dh i s cl ai m ed
m o ti v at i o n t o b eg i n d ay

trad i n g was h i s o b s erv at i o n s o f o th ers wh o ap p eared
s u cces s fu l , i n cl u d i n g h i s cu rren tBTEC b u s i n es s p art n er, wh o was al s o a cl i en to f- 8
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[* 8 ] M r. Sh an k s . 6 M r. Dai ch m an d i dn o td o an y ad d i ti o nal res earch reg ard i n g d ay trad i ng req u i rem en ts aft er h e en g ag edM r. Sh an k s t o fo rm Trad i n g S Co rp . Aft er fo rm at i o n o n No v em b er 2 3 , 2 0 0 9 , an d s ub s equ en tfu n d in g , Trad i n g S Co rp ex ecu t edi t s fi rs ttrad i n g act i v i ty o n Decem b er 9 , 2 0 0 9
. Its o l d 1 9 .1 6 5
s h ares o f Fi d el i ty

Cap i t al & In co m e fo r p ro ceed s o f $ 1 6 . Trad i n g S Co rp ex ecu t ed i t s fi rs t d ay

trad e o n Decem

b er 1 0 , wh en i tp u rch as edan d s ol d2 5 0 s hares o f Co n t in en t al Ai rl i n es o n t h e s am e d ay . Trad i n g S Co rp ex ecu t edo n l y 1 0 ad d i t i o n al d ay trad es du ri n g the rem ai n d er o f i t s ex i s t en ce. In t o t al , Trad i n g S Co rp b o u g h t $ 1 5 9 ,6 7 3 i n s ecu ri t i es an d s o l d$ 1 5 8 ,2 0 4
. D. Di s s ol ut i o n an dAd d i t i o n al Tran s fers Ono r b efo re Decem

ber 1 0 , 2 0 09 , p et i t io n ers m etag ai n wi th M r. Sh an k s an d b eg ant ak i n g s t ep s t o d i s s o l v e Trad i n g S Co rp an dd is tri b u t e i t s as s et s . Pet i t i o n ers fi led th e req u i redd o cu m en t s wi th th e Tex as s ecret ary o f s t at e t o t erm i n at e Trad i n g S Co rp , effect i v e Decem

b er 3 1 , 2 0 0 9 . OnDecem b er 1 4 , M r. Dai ch m an s i gn eda tran s fer an das s i g n m en to f h i s i n t eres ti n Dai ch m an LLC t o Trad i n g S Co rp , ret ro act i v el y

effect iv e Decem

b er 2 . Th ats am e d ay , act i n g i n h i s cap aci ty as p res i den to f Trad in g S Co rp , h e s i g n edan o th er Tran s fer an dAs s i g nm en to f

6 Pet i t i on ers d i dn otcal l th e BTEC b u s i n es s p art n er t o t es t i fy as t o h i s n o wd i s s o l v edd ay

trad i n g co rp o rat i o n .- 9
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[* 9 ] Trad i n g S Co rp ’ s i n t eres ti n Dai ch m an LLC t o In ves t m en tLP, ret ro act i v el y effect i v e Decem

b er 3 . Trad in g S Co rp th en tran s ferred i t s rem ai ni n g cas h an d
m ark et ab l e s ecu ri t i es , t o t al i n g $ 1 0 0 ,0 5 2 , t o In v es t m en tLP o n Decem ber 2 1 . On Decem b er 2 4 , Trad i n g S Co rp tran s ferred i t s o nl y rem ai n i ng as s et , th e 9 8 % l i m i t ed p art n ers hi p i n t eres ti n In v es t m en tLP, i n equ al p art s t o p et i t i o n ers , wi th each p et i t i o n er recei v i n g a 4 9 % l i m it edp artn ers hi p i n t eres t . Inad d i t i o n , p et it i on ers tran s ferred a 1 % l i m it edp art n ers h i p i n teres ti n In v es t m en tLP t o each o f t h ree tru s t s es t ab l i s h ed fo r t h e b en efi to f thei r t hree s o n s , effect i v e Decem b er 3 1 , 2 0 0 9
. E. Leg al Fees M r. Sh an k s b i l l edp et i t i o n ers a fl atfee o f $ 2 0 ,0 0 0 fo r l eg al s erv i ces rel at ed t o the fo rm at i o n o f t h e St an d is h en t i t ies . Pet i t i o ners p ai dth e fee i n t wo i n s t al l m en t s o f $ 1 0 , 0 0 0 atthei r i n i t i al m eet i n g i n No v em b er an dthei r s eco n d
m eet i n g i n Decem

b er. M r. Sh an k s d i dn o tch arg e p et i ti o n ers an ad d i t io n al fee fo r th e Decem

ber m eet i ng o r t h e d i s s o l u t i o n o f Trad i n g S Co rp i n Decem b er 2 0 0 9
. III. Prep arat i o n o f Ret u rn s Fo r t h e 2 0 0 9 t ax y ear, p et i t i on ers ’ i n d i v i du al i nco m e t ax return , as wel l as th e t ax retu rn s fo r Trad i n g S Co rp an dIn v es t m en tLP, were p rep aredb y J o h n Hern e, a l i cen s edcert i fi edp ub l i c acco u n tan twh o h adb een p rep ari ng p et i t i o n ers ’ retu rn s s i n ce 2 0 0 6 . M r. Hern e b eg an d i s cu s s i n g the p rep arat io n o f p et it i on ers ’- 1 0 -

[* 1 0 ] 2 0 0 9 retu rni n J u l y

2 0 1 0
. Inth e co urs e o f t h o s e d is cu s s i o n s , M r. Dai ch m an
ex p lai n edt o M r. Hern e t h e m ech an i cs o f t he t ran sact i o n s i n vo l vi n g the St an d i s h
en t i t i es , p ro v id i n g g rap h s an di l l u s trat i o n s d ep i ct i n g h o w th e t ax s trat eg y wo rk ed
. Pet i t i o ners t i m el y

fi l edth ei r 2 0 0 9 jo i n t i n d i v idu al i n co m e t ax retu rn o n Oct o b er 1 5 , 2 0 1 0
. Onth atretu rn th ey rep o rt ed , am o n g o th er i t em s , wag es o f $ 6 9 9 ,3 7 3 an dn o np as s i v e p art n ers h i p i n co m e o f $ 1,4 0 0 ,1 3 6 fro m BTEC LP. Th ey al s o cl ai m edan o rd in ary

l o ss d edu ct i o n o n Sch edu l e E o f $ 2 ,0 99 ,0 9 0 fro m Trad i n g S Co rp , rep o rt i ng ad ju s t edg ro s s i n co m e o f

! $2 0 ,1 0 6 an dt ax l i ab il i ty o f
zero . Trad i n g S Co rp fi l edi t s i n i t i al an dfi n al i n co m e t ax retu rn o n Fo rm 1 1 2 0 S, U.S. In co m e Tax Retu rn fo r an S Co rp o rat io n , fo r t h e 2 0 0 9 t ax y ear o n Sep t em b er 1 3 , 2 0 1 0 . Oni t s retu rn , Trad i n g S Co rp rep o rt edg ro s s recei p t s o f $ 2 ,0 3 4 , 4 7 9 an d
co s to f g o o d s s o l do f $ 3 , 4 6 0 , 1 0 1 , res u l t i n g i n an o rd i naryl o s s o f $ 1 ,4 2 5 , 6 22 . It rep o rt edth e v al u es o f th e 4 9% l i m i t edp art n ers h i p i n teres ts i n In ves t m en t LP d i s tri b u t edt o p et i t io ners as g ro s s recei p t s . To cal cu l at e t h e v al u es o f t h e d i s tri b u t edp art n ers h i p i nt eres ts , M r. Hern e u s edth e cas h , th e v al u e o f t h e
s ecu ri t i es , an dth e v al u e o f t h e u n i t s o f BTEC LP (h el d b y Dai ch m an LLC) th at p et i t i o n ers h adtran s ferred t o In v es t m en tLP th ro u g h Trad i n g S Co rp , th en ap p li ed- 1 1 -

[* 1 1 ] a d i s co u n t o f 4 0 % fo r l acko f co n tro l an dm ark et ab i l i ty . Trad i n g S Co rp ’ s g ro s s recei p ts fo r 2 0 09 were co m p u t edas fo l l o ws : 7 Cas h an d m ark et ab l e s ecu ri t i es $ 1 ,7 50 ,5 1 6 BTEC LP u ni t s 1 ,7 09 ,4 8 3 To t al as s etv al u e 3 ,4 59 ,9 9 9 Own ers hi p i n t eres t acq ui red --9 8 % 3 ,3 90 ,7 9 9 Di s co u n tfo r l acko f co nt ro l an d m ark et ab i l i ty --4 0 % 2 ,0 34 ,4 7 9 Co m p u t ed g ro s s recei p t s 2 ,0 34 ,4 7 9 Trad i n g S Co rp rep o rt edas co sto f g o o ds s o l d i t s al leg edt o t al b as i s i n In v es t m en tLP, wh i ch M r. Hern e cal cu l at edas fo l l o ws : 8 Cas h tran s ferred fro m

Trad i n g S Co rp t o In v es t m en t LP $ 8 38 ,7 6 5 M ark et ab l e s ecu ri t i es tran sferred fro m Trad in g S Co rp t o In v es t m en tLP 9 1 1 ,8 5 3 Val u e o f 1 ,2 8 2 u n i t s o f BTEC LP 1 ,7 09 ,4 8 3

7 Th es e am o u nt s rep res en tth e v al u e p et i t i o ners cl ai m edi n p rep arat i on o f t h e retu rn s . Th e Co u rtm ak es n o fi n d i n g as t o th e actu al v al ue o f t he as set s d i s tri b u t ed
.

8 In co m p u t i n g th e co s to f g o o d s s o ldfo r Trad i n g S Co rp , M r. Hern e rel i ed o n th e v al u e o f t h e s ecu ri t i es o n th e d at e t he s ecu ri t i es were t ran s ferred t o In v es t m en tLP, rat h er t h an Trad i n g S Co rp ’ s b as is i n th o s e s ecu ri ti es . Inad d i t i o n , M r. Hern e rel iedo n M r. Dai ch m an ’ s co m p ut at i o n o f h is b as i s i n th e BTEC LP u n i t s . Th e Co u rtm ak es n o fi n d i n g as t o M r. Dai ch m an ’ s actu al b as i s i n th o s e u n i t s .- 1 2 -

[* 12 ] Co m

p u tedco s to f g o od s s o l d 3 ,4 6 0 , 1 01 Trad i n g S Co rp ad d i t i o n al l y rep o rt edi n teres ti nco m e o f $ 13 , o rd in ary d i v i d en d s o f $ 1 ,0 19 , an da n et s h o rt -t erm cap it al l o ss o f $ 5 4 0 fro m i ts trad es o f
m ark et ab l e s ecu ri t i es b et ween Decem b er 4 an d2 3 , 2 0 0 9
. M r. Hern e p rep aredTrad i n g S Co rp ’ s retu rn wi th th e as s is tan ce o f M r. Sh an k s . M r. Sh an k s ad v i s edM r. Hern e t o rep o rtth e t ran s act i o ns as g ro s s recei p t s
an d co s to f g o o d s s o l d an d p ro v i d edM r. Hern e wi th d is co u nt s an d o th er i n fo rm at i o n u s edt o co m

p ut e t ho s e am o u nt s . Inacco rd an ce wi th th e i n st ru ct i o n s
o f M r. Sh an k s , Trad i n g S Co rp rep o rt ed th e d i s tri b u t i o n o f t h e p art n ers h ip i n t eres t s as g ro s s recei p ts an dco s to f g o o d s s o l di n o rd er t o p ro duce an o rd i n ary l o s s , rat her t han a cap i t al l o s s, an dth u s o ffs etM r. Dai ch m an ’ s i nco m e fro m BTEC LP. OnOct o b er 1 4 , 2 01 0 , Trad i n g S Co rp s ub m i t t ed , an dres p o n den t ’ s Og d en Serv i ce Cen t er s ubs equen t l y recei v edb u td i dn o tp ro ces s , a s eco n d i n co m e t ax retu rn fo r i ts 2 00 9 t ax y ear (s eco n dretu rn ). Onth e s eco n dretu rn , Trad i ng S Co rp i n creas edi t s cl ai m edl os s d edu ct i o n t o $ 2 ,0 9 9,0 9 0 , m ai nt ai ni n g t h e s am e cl ai m ed
co s to f g o o d s s o l do f $ 3 , 4 6 0 , 1 0 1 b u td ecreas i n g i t s cl ai m edg ro ss recei p t s t o $ 1 ,3 6 1 ,0 1 1 . Onth e s eco n dretu rn , Trad i n g S Co rp cal cu lat ed i ts cl ai m edg ro s s recei p t s as fo l l o ws :- 1 3 -

[* 13 ] Cas h an dm ark et ab l e s ecu ri t i es $ 1 ,7 50 ,5 1 6 Own ers hi p i n t eres t acq ui red --9 8 % 1 ,7 15 ,5 0 6 Di s s o l u t i o n d i sco un t --4 0 % 1 ,0 29 ,3 0 3 Sub to t al cas h an dm ark et ab le s ecu ri t i es 1 ,0 29 ,3 0 3 BTEC LP u ni t s 1 ,7 09 ,4 8 3 Own ers hi p i n t eres t acq ui red --9 8 % 1 ,6 75 ,2 9 3 Di s s o l u t i o n d i sco u n t--4 0 % 1 ,0 05 ,1 7 6 M in o ri ty i n t eres td i sco un t --4 5% 5 5 2 ,8 4 7 Li ti g at i o n d is co u n t --4 0 % 3 3 1 ,7 0 8 Sub to t al BTEC LP u n it s 3 3 1 ,7 0 8 To t al co m

p u t edg ro s s recei pt s 1 ,3 61 ,0 1 1 As wi th th e fi rs t retu rn , M r. Hern e p rep ared th e s eco n dretu rn wi th th e
as s i s tan ce o f M r. Sh an k s , wh o p ro v i d edh i m wi th th e ad

ju s t edd is co u nt s . M r. Hern e al so p rep aredFo rm 1 0 6 5 , U.S. Retu rn o f Part n ers h i p In co m e, fo r In v es t m en tLP. Oni ts retu rn , In v es t m en tLP rep o rt edn o g ro s s recei p t s o r s al es , n o d edu ct i o n s , an dn o b us i nes s i n co m e o r l o s s. IV. Ex am in at i o n, Pen al ty Ap p ro v al , an dAp peal Res p o n d en ts el ect ed p et i t i o n ers ’ 2 0 0 9 retu rn fo r ex am i n at i o n . Th e rev en u e ag en t ex am i n i n g th e ret u rn co ncl u d edth atp et i t i o n ers were n oten t i t l edt o th e cl ai m edl o s s d edu ct i on an d th atth ey were l iab l e fo r an accu racy -rel at edp en al ty- 1 4 -

[* 1 4 ] u n d er s ect i o n 6 6 6 2(a). On J an u ary 2 7 , 2 0 14 , th e i m

m ed iat e s uperv i s o r o f th e rev en u e ag en tap pro vedthe rev en u e ag en t ’ s co ncl u s io n t o i m p o s e t h e
accu racy -rel at edp en al ty

o n th e b as i s o f a s ub s tan t i al u n d ers tat em en to f i n co m e t ax . See s ec. 6 6 6 2(b )(2 ). OnFeb ru ary 1 4 , 2 01 4 , th e rev en u e ag en t i s su ed t o p et i t i o n ers Let ter 9 5 0 an dan acco m p an y i n g ex am i n at i o n rep o rt(RAR). Th e RAR p ro p os edad d i ti o n al i n co m e t ax o f $ 4 4 7 ,9 6 6 an dan accu racy -rel at edp en al ty u n d er
s ect i on 6 6 6 2 (a) o f $ 9 0 ,3 5 3 .2 0 . Th e l et t er o ffered p et i t i o ners th e o p t io n s o f accep t i n g th e p ro p o s edad ju s t m en t s o r ap p eal i n g th em t o th e In t ern al Rev en u e Serv i ce (IRS) Ap p eal s Offi ce. Pet i t i o ners req ues tedan ap p eal o f t h e p ro p o sedad ju s t m en twi th th e IRS Ap p eal s Offi ce. Th e ap p eal was u n s u cces s fu l , an d res p on d en t , th ro u gh h i s Ap p eal s Offi ce, i s s uedthe n ot ice o f d efi ci en cy o n M arch 1 2 , 2 0 15 . Inth e n o t i ce,
res p o n d en t d et erm i neda d efi ci en cy o f $ 1 ,1 6 3,7 5 1 an d a s ect i o n 6 6 6 2 (a) accu racy rel at ed p en al ty

o f $ 2 3 1,9 9 0 .2 0 . Befo re th e i s s u an ce o f t h e n o ti ce o f d efi ci en cy , th e Ap p eal s o ffi cer as si g nedt o p et i t i o n ers ’ cas e co ncl u d edth atth e p ro po s ed d efi ci en cy

s h o u l db e i ncreas edab o v e t h atd et erm i n edb y th e rev en u e ag en t , an d th ati m p o s i t i o n o f t h e p en al ty

was ap p ro pri at e o n the p ro p o s edd efi ci en cy an dth e i n creas e t h eret o . Th e i m

m ed i at e s up erv i s o r o f th e Ap p eal s o ffi cer ap p ro vedth at
co n cl u s i o n o n M arch 1 0 , 2 01 5
.- 1 5 -

[* 1 5 ] OPINION I. In tro du ct io n Pet i t i o ners cl ai m ed a l os s d edu ct i o n o f $ 2 ,0 9 9 ,0 9 0 i n co n n ect io n wi th th e d i s s o l u t i on o f Trad in g S Co rp . Res p o n d en tco n t en d s th at th e d edu ct i o n s h o u l db e d i s al lo wedo n th e g ro u n d s th atth e t ran sact io ns g en erat i n g th e rep o rt ed l o s s l ack ed
eco n om i c s ub s t an ce; th atTrad i n g S Co rp was n o t a t rad e o r b u s i nes s an dthatth e tran s act io n was n o t en t ered i n t o fo r p ro fi t , as req u i redb y s ect i o n 1 6 5 (c); th at p et i t i o n ers h av e fai l ed t o s h o w th atth ey i ncu rreda l o s s u n d er s ect io n s 3 3 1 an d 3 3 6 ; an dth at p et i ti o n ers u n d ers t at edth e v al u e o f t h e d i s tri bu t ed as s et s . 9 Res po n d en tad d i t io n al l y

d et erm i n edth atp et i t i on ers are l i ab le fo r an accu racy 9 In th e n o ti ce o f d efi ci en cy , res p o nd en td i s al l o wedthe co s to f g oo d s s o l d cl ai m edb y

Trad in g S Co rp b u t m ad e n o ad ju s t m en t t o g ro s s recei pt s , res ul t i n g i n an i n creas e i n i n co m e o f $ 3 ,4 6 0,1 0 1 . Th e p art i es n ow ag ree t hatTrad i n g S Co rp h ad n ei th er g ro s s recei p t s n o r co s t o f g o o d s s o l dan d d is p u t e o n l y wh et h er t h e cl ai m edl o s s d edu ct i on o f $ 2 , 0 9 9 ,0 9 0 s h o ul db e d i sal l o wed
.- 1 6 -

[* 1 6 ] rel at edp en al ty u n d er s ect i o n 6 6 6 2 (a). 1 0 Fo r t h e reas o n s d i scu s s edb el o w, th e Co u rtwi l l d en y

p et i t i o ners ’ cl ai m edl o s s d edu ct io n an ds u st ai n t h e p en al ty . 1 1 II. Eco n o m i c Sub s tan ce A t ax p ay er i s g en eral l y

free t o s tru ctu re h i s b u s i nes s tran s act i o n s as h e wi s h es , ev en i f m ot i v at edi n p artb y a d es i re t o reduce t ax es . Greg o ry v . Hel v eri n g , 2 9 3 U.S. 4 6 5 , 4 69 (1 9 35 ); s ee al s o Sm i th v
. Co m m i s s i o ner, T.C. M em o. 2 0 1 7 -2 1 8 , at * 1 5 . Tran s act i o n s wh i ch d o n otv ary co n tro l o r ch an g e t h e fl ow o f eco n o m i c b en efi t s, h o wev er, are t o b e d i s m i s s edfro m co ns i d erat i o n . See Hi g gi n s v . Sm i th, 3 08 U.S. 4 7 3 , 4 76 (1 9 4 0). Th e eco no m i c s ub s t an ce d oct ri n e al l o ws co u rt s t o en fo rce t h e l eg i s l at i v e p u rp o s e o f th e Co d e b y p rev en t i n g t ax p ay ers fro m

reap i n g t ax b en efi t s fro m tran s act i o n s l ack i n g eco n o m i c real i ty . Kl am at h St rat eg i c In v. Fu n d v . Un i t edSt at es , 5 68 F.3 d 5 3 7 , 5 4 3 (5 th Ci r. 2 0 0 9 ).

1 0 In th e n o t ice, res p o nd en td et erm i n edth atp et i t i o n ers are l i ab l e fo r t h e u n d erp aym en t p en al ty

o n the b as i s o f n eg l i g en ce an da s ub st an t i al u n ders t at em en t o f i n co m e t ax . OnM ay

2 1 , 2 0 1 8 , th e Co u rtreo p en edth e reco rdt o ad m i tev i d en ce o f res po n d en t ’ s co m

pl i an ce wi th th e p en al ty -ap p ro v al req u i rem en t s o f s ec. 6 7 5 1 (b ). Res p o n d en t ack no wl ed g edth atap p ro v al was n o t o b t ai n edwi th res p ect t o the p en al ty

fo r n eg l i g en ce o r d i sreg ard o f ru l es o r reg u lat i o n s an dco n ced es th at p o i n t . Res p on den tn o w arg u es o n l y th atp et i ti o n ers are l i ab l e fo r t he p en al ty o n th e g ro u n d s o f a s ub s t an t ial u n d ers t at em en t o f i n co m e t ax .

1 1 Th e p art i es b ri efed a n um b er o f ev i d en t i ary

o b j ect i o n s th atthe Co urth ad res erv eddu ri n g t ri al . Th o s e o b ject i o n s n o tad dres s ed i n th i s o p i n i o n h av e b een res o l vedb y

o rd er d at edAu g u s t3 1 , 2 0 2 0
.- 1 7 -

[* 1 7 ] A co u rtm ay

d i s reg arda t ran s act i o n fo r Fed eral i n co m e t ax p u rp o s es , ev en
o n e t h atfo rm al l y

co m p l i es wi th th e Co d e, i f t h e t ran s act i o n h as n o effect o th er th an g en erat in g an i n co m e t ax l o s s . See Kn et s ch v . Un i t edSt at es , 3 6 4 U.S. 3 6 1 (1 9 6 0); Sm i th v . Co m

m i s s i o n er, at* 1 6 . Wh et h er a t ran s act i o n h as eco n o m i c
s ub s t an ce i s a fact u al d et erm i n at i o n fo r wh i ch th e t ax pay er b ears th e b urd en o f p ro o f. Un i t edSt at es v . Cu m berl an dPub . Serv . Co ., 3 3 8 U.S. 4 5 1 , 4 5 6 (1 9 5 0 ); Sm it h v . Co m

m i s si o ner, at * 1 6
. Anap p eal i n th i s cas e wo u l dl i e wi th t h e U.S. Co u rto f Ap p eal s fo r t h e Fi ft h Ci rcu i t . See s ec. 7 4 8 2 (b )(1 )(A). Acco rd i n g l y , the Co u rt fo ll o ws th e l aw o f t h at ci rcu i twi th res p ect t o i t s i n t erp ret at i o n o f t h e eco n om i c s ub st an ce d o ct ri n e. 1 2 See Go l sen v . Co m

m i s s i on er, 5 4 T.C. 7 4 2 (1 9 7 0 ), aff’ d , 4 4 5 F.2 d9 8 5 (1 0 th Ci r. 1 9 7 1 ). Th e Co u rto f Ap peal s fo r t h e Fi ft h Ci rcu i th as i n t erp ret edth e eco n o m i c
s ub s t an ce d o ct ri n e as a co n jun ct i v e m

u l t i fact o r t es t . Kl am at h St rat eg i c In v . Fu n d , 5 6 8 F.3 dat5 4 4 . W i th i n th e Fi ft h Ci rcu i t, a t ran s act io n wi l l b e res p ect edfo r t ax p u rp os es o n l y

i f: (1 ) i th as eco n o m i c s ub s tan ce co m p el l edb y b u s i n es s o r reg u l at o ry

real i t ies ; (2 ) i ti s i m

b u edwi th t ax -i n d ep en d en t co n s i d erat i o n s ; an d(3 ) i t

1 2 Sec. 7 7 01 (o ), wh i ch co d i fi ed th e eco n o m i c s ub st an ce d o ct ri n e, ap p l i es o n l y t o t ran s act i o n s en t eredi nt o aft er M arch 3 0 , 2 0 1 0 , an di s therefo re n o t ap p li cab l e i n th e p res en t cas e. See Heal th Care an dEdu cat io n Reco n ci l i at i o n Act o f 2 0 10 , Pub . L. No . 1 11 -1 5 2 , s ec. 1 4 0 9 (e)(1 ), 1 2 4 St at . at1 0 7 0
.- 1 8 -

[* 1 8 ] i s n o ts h ap edt o t al l y b y t ax av o i d an ce feat u res . Id .; s ee al s o Fran kLy o n Co
. v . Un i t edSt at es , 4 3 5 U.S. 5 6 1, 5 8 3 -5 8 4 (1 9 7 8 ). Th e t ran s act i o n m u s tth erefo re
ex h ib i tan o b

j ect i v e eco n o m ic real i ty , a s ub ject i v el y g en u i n e b u s i n es s p u rp o s e,
an d s om e m o t i v at i on o th er t h an t ax av o i dan ce. So u th g at e M as ter Fu nd , L.L.C. v
. Un i ted St at es , 6 5 9 F.3 d4 66 , 4 8 0 (5 th Ci r. 2 0 1 1); Sm i th v . Co m m is s i o n er, at* 1 6-
* 1 7 . Th e Co u rto f Ap p eal s h as reco g n i zed , h o w ev er, t h atth ere i s “ n ear-t o t al
o v erl ap b et ween th e l at t er two fact o rs ”, reas o ni n g t h at“ [t ] o s ay thata t ran s act i o n i s s hap edt o t al l y

b y t ax -av o i d an ce feat u res i s , i n es s en ce, t o s ay th atth e tran s act io n i s i m

b u eds o l el y

wi th t ax -d ep en d en tco ns i d erat i o n s .” So u th g at e M as t er Fu n d , L.L.C., 6 5 9 F.3 dat4 8 0 & n
. 4 0. Pet i t i o ners co n t en dth atth ey o rg an i zedTrad i n g S Co rp as a v eh i cl e fo r M r. Dai ch m an t o en g ag e i n d ay trad i n g wh il e s t i l l wo rk i n g atBTEC LP. Th ey cl ai m th atth ey tran s ferred th e cas h an ds ecu ri t i es t o Trad i n g S Co rp i n o rd er t o fi n an ce th e d ay trad i n g act i vi t i es an d th atth e t ran s fers o f as s et s t o In v es t m en tLP th ro u g h Trad i n g S Co rp were fo r as s etp ro t ect i o n p u rp o s es . Iti s cl ear fro m th e reco rd , h o wev er, t h atTrad in g S Co rp ex i s t edo n l y t o g en erat e a t ax l o s s . Des p i t e t h e t i m e, effo rt , an dco s to f es t ab l i s h i n g th e co m pan y , wi th i n 1 7 d ay s o f o rg an izat i o n M r. Dai ch m an h adb eg u n t ak i n g s t ep s t o d i s s o l v e Trad i ng S Co rp b y Decem b er 1 0 , b efo re an y

actu al s ig n i fi can t trad i n g h ado ccu rred . Pet i t i o n ers cl ai m th atM r.- 1 9 -

[* 1 9 ] Dai ch m an qu i ck l y

real i zedth atth e d em an d s o f h i s b u s i n es s d i dn o tal l o w fo r a s u cces s fu l d ay

trad in g o p erat i o n , an d h e p ro m p tl y ab an d o n edth e act i v i ty

fo r th atreas on . As d i s cu s s edi n g reat er d et ai l b el o w, th e Co u rtd o es n o tfi n d p et i t i o n ers ’ cl ai m s wi th res p ectt o th ei r p u rp o s e fo r o rg an i zi n g an d d i s s o l v i n g Trad i n g S Co rp t o b e cred i b l e an d , m o reo v er, co n cl u d es th atth e t ran s act i o n s i n v o l v i n g th e St an d i s h en ti t i es fai l t o s at i s fy th e eco n o m i c s ub s t an ce d oct ri n e as art i cu l at edb y

th e Co u rto f Ap p eal s fo r t he Fi ft h Ci rcu i t . A. Ob ject i v e Eco n o m i c Real i ty Th e fi rs tp ro n g o f t he eco n o m i c s ub s t an ce i n qu i ry req u i res thatth e tran s act io n h av e eco n o m i c s ub s t an ce co m p el l ed b y b u s i nes s o r reg u l at o ry

real i t i es , o ft en referred t o as “ ob

ject i v e eco no m i c real i ty ”. A tran s act i o n l ack s eco n o m i c
s ub s t an ce i f i td o es n o t “ v ary co n tro l o r ch an ge t he fl ow o f eco n o m i c b en efi t [s ] ”. Kl am at h St rat eg i c In v. Fu n d, 5 6 8 F.3 dat5 43 (qu ot i n g Hi gg i n s v . Sm i th , 3 0 8 U.S. at4 7 6 ). Un d er t h e o bject i v e eco n o m ic i n qu i ry , th e Co u rtex am i n es wh et h er t h e tran s act io n affect edth e t ax p ay er’ s fi n an ci al p o s i ti o n i n an y way , s u ch as wh et h er th e t ran s act i o n “ ei th er cau s edreal d ol l ars t o m ean i n g fu l l y ch an g e h an d s o r creat ed a real is t i c p o ss i b i l i ty

th atth ey wo u l dd o s o.” So u th g at e M as ter Fu n d , L.L.C., 6 5 9 F.3 dat 4 81 (fn . ref. o m i t t ed ). A ci rcu l ar fl o w o f fu n d s am o ng rel at eden t i t i es d o es
n o ti n d i cat e a s ub s t an t i v e eco n o m i c t ran s act i on fo r t ax p u rp o s es . M errym an v .- 2 0 -

[* 2 0 ] Co m

m i s si o n er, 8 7 3 F.2 d8 7 9 , 8 8 2 (5 th Ci r. 1 9 8 9 ), aff’ g T.C. M em o . 1 9 8 8
- 7 2 ; s ee al s o Sm it h v . Co m m i ss i o n er, at* 1 6 -* 1 7. Onth i s l ev el , th e tran sact i o n s p et i t i o n ers ex ecu t edt o g en erat e t h e cl ai m ed l o s s d edu ct i o n fai l edt o al t er t h ei r eco n om i c p o s it i on i n an y way th ataffect ed
o b ject i ve eco n o m i c real i ty . Th e t ran s fers o f as s et s were effect i v el y a ci rcu l ar fl ow
o f fu n d s am on g rel at eden t i t i es u sedt o g en erat e an art i fi ci al t ax l o s s t o o ffs et p et i t i o n ers ’ 2 0 09 i n co m e. Pet i t i o n ers tran s ferred s ub s tan t i al as set s t o Trad i n g S Co rp , thei r wh o l l y

o wn edS co rp o rat i o n , wh i ch th en tran s ferredth o se as set s t o In v es t m en tLP. Trad i ng S Co rp o wn eda 9 8 % l i m it edp art ners h i p i nt eres t i n In v es t m en tLP, wh i l e p et i t i o n ers , as co tru s t ees o f t h e Dai ch m an Tru s t, o wn edth e
rem ai n i n g 2 % as g en eral p art n ers . W i th in d ay s o f t h e t ran s fers t o In v es t m en tLP, Trad i n g S Co rp d i s s o l v ed , d i s tri b u t i n g i t s 9 8 % i nt eres ti n In v es t m en tLP (i ncl ud i ng th e as s et s p et i t io n ers h adco n tri b u t edt o Trad i n g S Co rp ) t o p et i t i o n ers . Pet i t io n ers cl ai m ed a l os s d edu ct i o n o n th ei r 2 0 0 9 t ax retu rn b y cal cu l at i ng th e
v al u es o f t he d i s tri b u t edp art n ers hi p i nt eres t s b as edo n s ub st an t i al d i s co u n t s . Pet i t io n ers h adco n s t an tco n tro l o v er t h e as s et s an d en ti t ies atal l rel ev an tt i m es , h o wev er, an dn ei th er t h e co n tri b u t i o n t o Trad i n g S Co rp n o r i t s d i s s o l u t i on affect edp et i ti o n ers ’ p o si t i o n o r cau s ed “ real d o l l ars t o m ean i n g fu l ly ch an g e h an ds ”. Th e fo rm

o f p et i ti o n ers ’ o wn ers h i p o f t h e as s et s m ay h av e ch an g ed , b u t- 2 1 -

[* 2 1 ] th e s ub s t an ce d i dn o t . Th ere was n o real i s t i c ri s k o r p o s s i b i l i ty th atth e fu n d s o r as s et s wo ul d ch an g e h an d s atan y p o i n t . Acco rd i ng l y , the Co urth o l d s th atth e tran s act i o n s i n v o l v i n g t h e St an d i s h en t it i es l ack edo b ject i v e eco n o m i c real it y an dth erefo re fai l t o s at i s fy the fi rs t p ro n g o f t h e eco no m ic s ub s t an ce d o ct ri n e, as d efi n edb y

th e Co u rto f Ap p eal s fo r t h e Fi ft h Ci rcu i t . Al th ou g h fai l u re t o s at i s fy an y o n e p ro n g o f t h e eco no m i c s ubs t an ce d o ct ri n e i s s u ffi ci en tfo r a fi n d i n g th atthe t ran s act i on l ack edeco n o m i c s ub s t an ce, th e Co u rtwi l l ad dres s th e rem ai n i n g two p ro n g s b el o w. B. Sub

ject iv e Pu rp o s e Th e s eco n dan d t h i rdp ro n g s o f t h e eco n o m i c s ub s t an ce d o ct ri n e o v erl ap
an d d eri v e fro m

an i n qu i ry

i n t o th e t ax p ay er’ s p u rp o s e, i .e., wh et h er t h e t ax p ay er h ad a s ub ject i v el y g en ui n e b u s i n es s p u rp o s e o r s o m e m o t iv at i o n o th er t han t ax
av o id an ce. See So u thg at e M as t er Fu n d , 6 5 9 F.3 dat4 8 1
. Acco rd i n gl y , th e Co u rt ad dres s es th e t wo fact ors t og eth er. Tax p ay ers are n o tp ro h i b i t edfro m s eek i n g t ax b en efi t s i n co n jun ct i o n wi t h
s eek i n g p ro fi t s fo r t h ei r b us i nes s es , an d a t ax p ay er wh o act s wi th m i x edm o t i v es
o f p ro fi tan dt ax b en efi t s m ay no n et hel es s s at is fy th e s ub ject i v e t es t . Id . at4 8 1
- 4 8 2 . Tax -av o i d an ce co ns i derat i o n s m ay n o tb e th e t ax p ay er’ s s o l e p u rp o s e fo r
en t eri n g i n t o a t ran s act i o n , h o w ev er. Sal ty Bri n e I, Lt d . v . Un i t edSt at es , 7 6 1 F.3 d- 2 2 -

[* 2 2 ] 4 8 4 , 4 95 (5 th Ci r. 2 0 1 4 ). Th e fact th ata t ax p ay er en t ers i nt o a t ran s act i o n p ri m ari l y t o o b t ai n t ax b en efi t s d o es n o tn eces s ari l y i nv al i d at e t h e t ran s act i o n
u n d er t h e s ub

ject i v e p u rp o s e i n qu i ry . Co m paq Co m p ut . Co rp . & Sub s . v . Co m m i s s i o n er, 2 7 7 F.3 d7 7 8 , 7 8 6 (5 th Ci r. 2 0 0 1 ), rev ’ g 1 1 3 T.C. 2 1 4 (1 9 9 9 ). Pet i t i o ners cl ai m

th atth ey o rg an i zedTrad i n g S Co rp fo r t h e p u rp o s e o f d ay trad i ng . Pet it i o n ers ’ act i o n s , h o wev er, are n o tco n si s t en twi th a p ro fi tm o t i v e, p art i cu l arl y

fro m a wel l -edu cat edan dex peri en cedb u s i n es s p ers o n s u ch as M r. Dai ch m an . M r. Dai ch m an h adn o p as tex p eri en ce i n d ay trad i n g , y eth e co n du ct ed
n o p ri o r res earch i n t o th e act i v it y , d i dn o t co ns u ltan y referen ces , an dd i d n o t
o th erwi s e s eekad v ice b efo re ex p en d i n g the t i m e an d res ou rces t o es t ab li s h Trad i n g S Co rp . Fu rt herm o re, aft er s et t in g up Trad i n g S Co rp , M r. Dai ch m an d i ss o l vedi t al m o s ti m m ed i at el y . Pet i t i on ers cl ai m th atM r. Dai ch m an tri edh i s h an d atd ay trad i ng fo r a b itb u t, fi n d i ng th ath e was n o tm ak in g an y m o ney an dd i dn o th av e
s u ffi ci en tt i m e, d eci d edn o t t o co n t i n ue. Th i s cl ai m i s co n trad i ct edb y

th e reco rd
. Co rres p on den ce d at edDecem b er 1 0 , 2 0 0 9, fro m

M r. Sh an k s t o p et i t i o n ers i n d i cat es th atp et i t i o n ers an d M r. Sh an ks h adm ett o d i s cu s s th e d i s s o l ut i o n o f Trad i n g S Co rp n o l at er t han thatd at e. Decem b er 1 0 i s al s o the d at e o n wh i ch Trad i n g S Co rp ex ecu t ed i t s fi rs ts t o ckp u rch as e. In o th er wo rd s, M r. Dai ch m an- 2 3 -

[* 2 3 ] b eg an t ak i n g s tep s t o d i s s o l ve Trad i n g S Co rp , at the l at es t , aft er co m p l et i n g
a s i n g l e d ay

trad e, an dl ik el y

b efo re an y

d ay trad i n g atal l . Th e o v erwh el m i n g
m ajo ri ty o f t h e d ay

trad es th at Trad i n g S Co rp d i dtran s actwere ex ecu t edaft er M r. Dai ch m an h adb eg u n the p ro ces s o f d i s s ol v i n g the co m p an y . Befo re Trad i n g S Co rp en g ag edi n an y trad i n g , M r. Dai ch m an cau s edth e
co m p an y t o tran s fer n earl y al l o f i t s as s et s t o In v es t m en tLP, a n ewl y fo rm ed
co m p an y th atn ev er en g ag ed i n an y b u s i n es s act i v i ty

an do th erwi s e h el d n o as s et s . Th e t ran s fers t o In v es t m en tLP s erv edn o b u s i n es s p u rp o se an do fferedn o p o t en t i al fo r p ro fi t . Ev en i f t h e Co u rtwere t o accep tp et i t i o n ers ’ co nt en t i o n th at th e t ran s fer o f as s et s t o In v es t m en tLP was fo r as set -p ro tect i o n p urp o ses , wh i ch i t d o es no t , s u ch a g o al was u n rel at edt o Trad i n g S Co rp ’ s p u rp o rt edb u s in es s act i vi ty , an dp et it io n ers i d en ti fy n o b u s i n es s m o t i v e o r p ro fi tp o t en t i al fo r u s i n g Trad i n g S Co rp as a co n dui tfo r t h at tran sfer. No r d o p et i t i o ners i d en t i fy an y b u s i n es s p u rp o s e o r p o t en t i al fo r p ro fi ti n tran s ferri n g the BTEC LP u n it s (o wn ed b y Dai ch m an LLC) t o In v es t m en tLP th ro u gh Trad i n g S Co rp . Th es e t ran s fers
s erv edo nl y

t o i ncreas e th e cl ai m edl o s s wh en Trad i ng S Co rp d i s s o l v ed l at er t h at
m o nt h
. Th e Co u rtco n cl u d es th atp et i t i o ners i n t en d edfro m th e b eg i n ni n g thatth ey
wo u l do rg an i ze an dd is s ol v e Trad i n g S Co rp wi th i n th e s am e y ear t o g en erat e a- 2 4 -

[* 2 4 ] t ax l os s i n an effo rtt o redu ce t h ei r 2 0 0 9 i n co m e t ax l i ab il i ty . Pet it i on ers d i d
n o th av e a g enu i n e b u si n es s p urp o se fo r es t ab li s h i n g t h e St an d i sh en t i t i es , an dth e act i on s were t ak en s o l el y fo r t ax -m o t iv at ed reas o n s . M r. Dai ch m an knew h e
wo u l db e recei v i n g s ub s tan t i al i n co m e fro m BTEC LP i n 2 0 0 9 an d s o u g h tt o g en erat e a t ax l o s s t o o ffs et i t . M r. Sh an k s ch arg edp et it i o n ers a fl atfee o f $ 2 0 ,0 0 0 t o creat e t h e en ti t i es atth ei r i n cep t i o n b u t d i dn otch arg e an ad d it i o n al fee t o p rep are an dfi l e t h e d is s o l u t io n d ocu m en t s . Th e Co u rti s l eftwi th t h e
co n cl u s i o n th atM r. Sh an ks o ffered p et i t i o n ers a p rep ack ag edt ax s trat eg y , o n e t h at h e o ffered t o n u m ero u s cl i en t s i n 2 0 0 9 , d es i g n edt o creat e an art i fi ci al l o s s t h ro u g h a ci rcu l ar fl o w o f as s et s , th e ap p l i cat i o n o f s ub s t an t i al d i s co u n ts , an dth e
m i s rep o rt i n g o f t h e res u l t i n g l o s s as an o rd i naryl o s s , rat h er than a s h o rt -t erm cap i t al l o s s . Wh en th e i ni t i al l os s cal cu l at io n fai l edt o el i m i n at e fu l l y p et i t i o n ers ’ i n co m e, p et i t i o n ers h ada s eco n dretu rn p rep aredfo r Trad in g S Co rp , i ncreas i n g th e d i s co u n t s an dth ereb y th e l os s , an do ffs et t i n g al l o f p et i t i o n ers ’ i n co m e. Th e Co u rth o l ds thatthe t ran sact i o n s ati s s ue d i dn o th av e eco no m i c
s ub s t an ce an d th atp et i t io ners are n o t en t i t l edt o th e cl ai m ed l os s d educt i o n th erefro m fo r 2 00 9. Acco rd i n g l y , th e Co u rt d o es n o tfi n di tn eces s ary t o ad dres s
res p o n d en t’ s al tern at iv e arg u m en t s .- 2 5 -

[* 2 5 ] III. Accu racy -Rel at edPen al ty Res p o n d en td et erm i n edth at p et i t i o n ers are l i ab l e fo r an accu racy -rel at ed p en al ty p u rs uan tt o s ect i o n 6 6 6 2 (a) fo r 2 0 0 9. Sect i o n 6 6 6 2 (a) an d(b )(1 ) an d(2 ) i m p o s es an accu racy -rel at ed p en al ty equ al t o 2 0 % o f t h e p o rt i o n o f an
u n d erp aym en t o f t ax req u i red to b e s h o wno n a t ax retu rn th ati s at tri bu t ab le t o

“ [n ] eg li g en ce o r d i s reg ardo f ru l es o r reg u l at i o ns ” o r a “ s ub s t an t i al u n d ers t at em en t
o f i n co m e t ax .” Neg li gen ce i n cl u d es “ an y fai l u re t o m ak e a reas o n ab l e at tem p t t o
co m p l y wi th th e p ro v i s i o n s o f t h i s t i t l e”. Sec. 6 6 6 2(c). An u n ders t at em en to f i n co m e t ax i s a “ s ub s t an t i al u n d ers t at em en t” i f i tex ceed s th e g reat er o f 1 0% o f t h e t ax req u i red t o b e s ho wno n th e ret u rn o r $ 5 ,0 0 0 . Sec. 6 6 6 2(d )(1 )(A). Th e Co m m is s i o n er b ears th e b u rd en o f p ro du ct i o n wi th res p ectt o an i n d i v i du al t ax pay er’ s l i ab il i ty fo r an y p en al ty , ad d it i o n t o t ax , o r ad d i ti o n al
am ou n t , requi ri n g the Co m m is s i o n er t o co m e fo rwardwi th s u ffi ci en tev i d en ce i n d i cat i n g t h at i m

p o s i t i o n o f t h e p en al ty

i s ap p ro pri at e. See s ec. 7 4 9 1(c); Hi g b ee
v . Co m m i s s i o n er, 1 1 6 T.C. 4 38 , 4 4 6 -4 4 7 (2 00 1 ). Th e Co urth as p rev i o u s l y h el d th at , as p arto f t hatb u rd en , th e Co m m i s s io n er m

u s tp ro du ce ev i d en ce t h ath e
co m p l iedwi th t h e p ro cedural req u i rem en t s o f s ect i on 6 7 5 1(b )(1 ). See Graev v . Co m m i s s i o n er, 1 4 9 T.C. 4 8 5 , 4 9 2 -4 9 3 (2 0 1 7), s up p l em en t i n g an d o v erru li n g i n p art1 4 7 T.C. 4 6 0 (2 0 1 6 ). Sect i o n 6 7 5 1 (b )(1 ) req u i res th e i n it i al d et erm i n at i o n o f- 2 6 -

[* 2 6 ] cert ai n p en al t i es t o b e “ p ers o n al l y ap p ro v ed(i n wri t i n g) b y th e i m m ed i at e
s up erv i s o r o f t h e i n d iv i du al m ak i n g s uch d et erm i n at i o n ”. 1 3 See Graev v . Co m m i s s i o n er, 1 4 9 T.C. at4 9 2-4 9 3 ; s ee al s o Cl ay v . Co m m i s s io n er, 1 5 2 T.C. 2 2 3 , 2 4 8 (2 0 1 9) (q uo t i n g s ect i o n 6 7 5 1 (b )(1 )). Wh ere t h e t ax pay er h as ch al l en g edthe Co m m i ss i o n er’ s p en al ty d et erm i n at i o n , th e Co m

m i s s i o n er m

u stco m e fo rwardwi th ev id en ce o f p ro p er p en al ty ap p ro v al as p arto f h i s i n i t ial b u rd en o f p ro du ct i o n u n d er s ect i o n 7 4 9 1 (c). Fro s tv . Co m

m i s s io n er, 1 5 4 T.C. _

_ , _ _ (s l i p o p. at2 0) (J an . 7 , 2 0 2 0). On ce t h e Co m m i s s i o n er m ak es th at s ho wi n g , th e t ax p ay er m u s tco m e fo rwardwi th co n t rary
ev i d en ce. Id
. Th e Co u rth as p rev i o u s l y co n cl u d edth atth e s up erv i s o ry ap pro v al
m u stb e s ecu redn o l at er t h an (1 ) t h e d at e o n wh ich th e IRS i s s u es the n o ti ce o f d efi ci en cy

o r (2 ) t h e d at e, i f earl i er, o n wh i ch th e IRS fo rm al l y co m m u n icat es t o th e t ax p ay er t h e Ex am i n at i on Di v i s i o n ’ s d et erm i n at i o n t o as s erta p en al ty an d
n o t i fi es th e t ax p ay er o f h i s ri g h tt o ap p eal th atd et erm i n at i o n . Cl ay v . Co m m i s s i o n er, 1 5 2 T.C. at2 4 9. Res p o n d en tp ro du ceda co p y o f t h e Ci v i l Pen al ty

Ap pro v al Fo rm , s i g n edo n J an u ary 2 7 , 2 0 1 4, b y

th e i m m ed i at e s up erv i s o r o f t h e rev en u e ag en twh o ex am i n ed

1 3 Res p o nd en tco n ced es th at ap p ro v al was n o to b t ai n edwi th res p ectt o th e accu racy -rel at edp en al ty

fo r n eg l i g en ce o r d is reg ardo f ru l es o r reg ul at i o n s.- 2 7 -

[* 2 7 ] p et i t i o n ers ’ retu rnan dap p ro v i ng th e i m p o s i t i o n o f t he u n derp aym en t p en al ty fo r a s ub s t an t i al u n d ers t at em en t o f i n co m e t ax , b u tn otfo r n eg l i g en ce. 1 4 Res po n d en tfo rm al ly

co m m u n i cat edh i s d et erm i nat i o n t o as s erta p en al ty ag ai n s t p et i t i o n ers i n th e RAR an d t h e acco m p an y in g Let t er 9 5 0 , wh i ch th e rev en u e ag en t i s su edt o p et i t i o n ers o n Feb ru ary 1 4 , 2 01 4 . Pet i ti o n ers d o n o tcl ai m , an dth e
reco rdd o es n o ts up p o rta co n cl u s i o n , th atres po n d en t co m m un i cat ed h i s i ni t i al p en al ty d et erm i n at i on t o p et i ti on ers b efo re t h e d at e t hatth e ex am i n i n g ag en t ’ s
m an ag er s i g n ed th e Ci v i l Pen al ty Ap p ro v al Fo rm . M o reo v er, fo l l o w i n g p et i t i o n ers ’ u n su cces sfu l ap p eal , th e Ap peal s o ffi cer as s i g n edt o p et i t i o n ers ’ cas e recei v edap p ro v al fo r t h e i m p o s i t i on o f t h e p en al ty

o n the i n creas edd efi ci en cy
am ou n tb efo re co m

m u n i cat i n g th at d et erm i n at i o n t o p et i t i o n ers . Acco rd in g l y , res p o n d en t h as s at i sfi edh i s b u rd en wi th res p ectt o s ect i o n 6 7 51 (b )(1 ) fo r t h e
s ub s t an t i al u n ders t at em en tp en al t y .

1 4 Tri al o f t h i s cas e was h el d , an d t h e reco rdwas cl os ed , b efo re t h e i s s u an ce o f t h e Co u rt ’ s l at es tOp in io n i n Graev . Aft er t hatOp i n i o n was rel eas ed , the Co u rt o rd eredres p on d en tt o fi l e a res p o n s e ad dres s in g th e effect o f s ec. 6 7 5 1 (b ) o n th i s cas e an d d i rect i n g t h e Co u rtt o an y ev i d en ce o f s ec. 6 7 51 (b ) s uperv i s o ry ap p ro v al i n the reco rd , an dp et i t i o n ers t o res p o nd . Res p o n d en twas u nab l e t o d irect th e Co u rtt o an y

s u ch ev id en ce an dm o v edt o reo p en th e reco rdt o i n tro du ce ad d i t i o n al ev i d en ce. Th e Co u rtg ran t edthe m o t i o n an dad d i ti o n al l y al lo wed p et it io n ers t o en g ag e i n d i s co veryreg ard i n g th e ci v i l p en al ty ap p ro v al
.- 2 8 -

[* 2 8 ] Becau s e res p o n den th as s at i s fi edth e requ irem en ts o f s ect i o n 6 7 5 1 (b )(1 ), th e Co u rtn o w tu rn s t o t h e rem ai n d er o f res p o n den t ’ s i n it ial b u rd en . Th e Co urth as h el dth atp et i ti o n ers are n oten ti t l edt o th e cl ai m ed l o s s d edu ct i o n o f $ 2 ,0 9 9 ,0 9 0
. By i n ap pro p ri at el y cl ai m i ng a l o s s d edu ct i o n o f $ 2 ,0 9 9 , 0 9 0 , p et i ti o ners
u n d ers t at edth e t ax req u i redt o b e s h o wno n thei r retu rn b y m o re th an 1 0 %, wh i ch i s g reat er t han $ 5 ,0 00 . See s ec. 6 6 6 2 (b )(2 ). Th erefo re, th e u n d ers t at em en twas
s ub s t an t i al , an dp et i t i o n ers are l i ab l e fo r t h e s ect i o n 6 6 6 2(a) p en al ty u n l es s , as th ey cl ai m , th ere was reas o n ab le cau s e fo r th e u nd erp aym en t . Sect io n 6 6 6 4 (c)(1 ) p ro v i d es an ex cep t i on t o the s ect io n 6 66 2 (a) p en al ty wi th res p ect t o an y p o rt i o n o f an u n d erp aym en t i f t h e t ax p ay er act edwi th
reas on ab l e cau s e an di n g oo dfai th . Th e Co u rtd et erm in es wh et h er a t ax p ay er act edwi th reas o n ab l e cau s e an di n g o o dfai th o n a cas e-b y -cas e b as is , t ak i ng i n t o
acco u n t al l p ert i nen tfact s an dci rcu m s t an ces , i n cl u d i n g th e t ax pay er’ s effo rt s t o
as s es s th e p ro p er t ax l iab i l i ty , th e kno wl ed g e an d ex p eri en ce o f t h e t ax p ay er, an d th e rel ian ce o n th e ad v i ce o f a p ro fes s i o n al t ax ad vi s er. Sec. 1 .6 6 6 4 -4 (b )(1 ), In co m e Tax Reg s .; s ee al s o Un i t edSt at es v . Bo y l e, 4 6 9 U.S. 2 4 1 , 2 5 0 (1 9 8 5 ). To s h o w rel i an ce o n an ad v i s er, a t ax p ay er m u s ts h o w th at(1 ) t h e ad v i s er
was a co m

p et en tp ro fes s i on al wh o h ads u ffi ci en t ex pert i s e t o ju s ti fy rel i an ce; (2 ) t h e t ax p ay er g av e t h e ad v is er t h e n eces s ary an daccu rat e i n fo rm at i o n ; an d- 2 9 -

[* 2 9 ] (3 ) t h e t ax p ay er act u al l y rel i edi n g o o dfai th o n th e ad vi s er’ s ju d gm en t . Neo nat ol o gy

As so cs ., P.A. v . Co m

m i ss i on er, 1 1 5 T.C. 4 3 , 9 8 -9 9 (2 0 00 ), aff’ d , 2 9 9 F.3 d2 2 1 (3 d Ci r. 2 0 02 ); s ee al s o Pru dh o m m e v . Co m

m i s s i o ner, 3 4 5 F. Ap p ’ x 6 , 1 0-1 1 (5 th Ci r. 2 0 0 9 ), aff’ g T.C. M em o. 2 0 08 -8 3 . Th e ad v i ce m u s tb e b as ed
up o n al l p ert i n en tfact s an dci rcu m s t an ces , t ak i n g i n t o acco u n tth e t ax p ay er’ s p u rp os es fo r en t eri ng i n to a t ran s act i o n an d fo r s tru ctu ri ng a t ran s act i on i n a p art i cu l ar m an n er. Sec. 1
. 6 6 6 4-4 (c)(1 )(i ), In co m e Tax Reg s. M o reo ver, t h e ad v ice “ m

u s tn o tb e b as edo n u n reas o n ab le fact u al o r l eg al as s u m p t i o n s * * * an d
m u stn o t u n reas o nab l y

rel y o n th e rep res en t at i o n s , s t at em en t s , fi n d i n gs , o r ag reem en t s o f t h e t ax p ay er o r an y o th er p ers o n .” Sec. 1 .6 66 4 -4 (c)(1 )(i i), In co m e Tax Reg s .; s ee al s o Bri n k ley v . Co m m is s i o n er, 8 0 8 F.3 d6 5 7 , 6 6 9 (5 th Ci r. 2 0 1 5 ), aff’ g T.C. M em o . 2 0 1 4 -2 2 7 . A t ax p ay er’ s edu cat i o n an db us i n es s ex p eri en ce are rel ev an t t o th e d et erm i n at io n o f wh et h er t h e t ax p ay er act edwi th reas o n ab le rel i an ce o n an ad v i s er an di n g o o dfai th . Pru dho m m e v . Co m

m i s s i o ner, 3 4 5 F. Ap p ’ x at 1 1 ; s ec. 1
. 6 6 6 4 -4 (c)(1 ), In co m e Tax Reg s . Du e care d o es n otreq u i re th atth e t ax p ay er ch al l en g e h i s o r h er at t o rn ey ’ s ad v i ce o r i n d ep en d en t l y i n v es t i g at e i t s p ro p ri ety . Streb er v . Co m m i ss i o n er, 1 3 8 F.3 d2 1 6, 2 1 9 (5 th Ci r. 1 9 9 8 ), rev ’ g T.C. M em o. 1 9 9 5 -6 0 1
.- 3 0 -

[* 3 0 ] Pet i t i o ners co n t en dth atth ey h adreas o n ab l e cau s e fo r an y u nd erp aym en t b ecau s e th ey

rel i edo n th e co m

p et en tad v i ce o f M r. Sh an ks an d M r. Hern e i n d et erm i n i n g h o w th e t ran s act i o n s s h o ul db e rep o rt edan dh o wth e d i s co u n t s s h o u l d b e ap pl i ed . Th ey

arg u e thatth e Co d e, p art i cu l arl y i t s p ro v i si on s i n v o l vi n g S co rp o rat i o ns , i s i nh eren t l y co m p l ex an d th ati two ul d b e n ei th er fai r n o r
reas on ab l e t o ex p ectth em t o s eco n d -g u es s th ei r ad v i sers . Reg ard l es s o f wh et h er p et i t i o n ers ’ ad vi s ers were s u ffi ci en t ly co m p et en t o r wh et h er p et i t i o n ers p ro v i d ed th em wi th n eces s ary

an daccu rat e i n fo rm at i o n , h o wev er, th e Co u rt h o l d s th at p et i t i o n ers are l iab l e fo r t he p en al ty b ecau s e t h ey

were n o tact i n g i n g o o dfai th
. As d i scu s s edab ov e, t h e ev i d en ce s h o ws thatM r. Dai ch m an , a s o ph i s t i cat edan d
ex p eri en cedb u si n es s m an , creat edan d d is s o l v edTrad in g S Co rp as p arto f a p rearran g edp l an t o g en erat e an art i fi ci al t ax l o s s . Pet i t i on ers n ev er i n t en d edt o
co n du ct b u s i n es s th ro u g h Trad i n g S Co rp an db eg ant ak i n g s t ep s t o d is so l v e t h e
co m p an y al m o s ti m

m ed iat el y . Rat h er, p et i t i o ners o rg an i zed th e en t i ty wi th th e g o al o f m i n i m i zi n g th ei r 2 0 09 i n co m e t ax l i ab i l i ty . Pet i t i o n ers m ai n t ai n edco n t ro l
o v er t h e as set s atal l rel ev an tt i m es , y etcl ai m eda l o s s d educt i o n i n ex ces s o f $ 2
m i l l io n . Th ey

kn ew fro m

th e s t artth at Trad i n g S Co rp was n o ta b o n a fi d e b u s i n es s an dth atth e t ran s fers d i d n o tm ean i n g fu l l y ch an g e t h e o wn ers h i p o f t h ei r- 3 1 -

[* 3 1 ] as s et s . Pet i t i o n ers ’ kno wl ed g e al o n e i s s u ffi ci en t t o n eg at e a rel i an ce d efen s e. See, e.g ., Sm i th v . Co m m i s s i o n er, at* 28 -* 2 9
. Acco rd i ng l y , th e Co u rth o l d s th atp et i t i o n ers are l i ab le fo r t h e s ect i o n 6 6 6 2 (a) an d (b )(2 ) p en al ty fo r a s ub s t an t ial u n d ers t at em en to f i n co m e t ax an dth at p et i t i o n ers d i d n o tactreas o n ab l y o r i n g o odfai th
. IV. Co n cl u si o n Th e Co u rth o l ds thatp et i t i o n ers are n o t en ti tl edt o th e cl ai m edl o s s d educt i o n o f $ 2 , 0 9 9 ,0 9 0 . Inad d i ti o n, p et i t i o n ers are l iab l e fo r t h e s ect i o n 6 6 6 2 (a)
an d (b )(2 ) accu racy -rel at ed p en al ty . Inreach i n g thi s h o l d i n g , th e Co urth as
co n si d eredal l arg u m en t s m ad e an d , t o th e ex t en tn o td i s cu s s ed h erei n , h as
co n cl u d ed th at s uch arg um en t s are m oo t , i rrel ev an t , o r wi th o utm eri t. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t ered
u n der Ru l e 1 5 5
.