14 6 T.C. No . 1

UNITED STAT ES TAX COURT
GERD TOPSNIK, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 24 82 -1 4. Fi le d J anuary 20 , 20 16
.
In20 04 P, a Germ ancit iz en , m ad e anin st al lm en t s al e o f hi s st oc k i n aU.S. cor

po rat io n, an d i n 2 01 0, the y ear i n i ss ue , he r ecei ve d equa l m on th ly paym en ts pu rs uantto a pr om is so ry no te ex ecu te d i n co nn ect io n wi th th e sa le . He fil eda la te Fo rm 10 40 NR, U.S. Non res id en t Al ie n In co m e Tax Return, fo r 20 10 cla im in g tha t the in st al lm en t s al e p ro ceed s wer e ex em ptfro m tax at io n b y

vi rtu e o f th e U.S.-Germ an y

Tax Tre aty . On Nov . 20 , 20 10 , P co m pl et ed pape rwo rkto form al ly aban do n h is lawf ul pe rm an en t re si de nt(LPR) st atus . R d et erm in edth atP is li ab le foranin co m e ta x d efi ci en cy for 20 10 att rib ut ab le to th e g ai n o n h is in st al lm en t s al e o f st oc k. R al so de te rm in edth atP was a“ co ve redex pa tri at e” wh o e xp atria te d i n 2 01 0 an d m us t re co gn iz e g ai n o n the de em edsal e o f hi s i ns ta ll m en t ob li ga ti on on th e d ay

be fo re h is ex pa tri at io n u nd er I.R.C . sec . 87 7A. R fu rth er d et erm in edth atP is li ab le foranaccu racy-rela te d p en al ty an d afai lu re t o fi le ad di ti on to tax . P all eg es th athe is no t l iabl e fo r th e in st al lm en t s al e p ro ceed s b ecau se he was aGerm anres id en t wh o- 2 -

ex pa tri at edon Dec. 31 , 20 09 . P has m ov edforsu m m ary jud gm en t, an d R ha s cr os s- m ov edforpa rti al su m m ary jud gm en t. Held : P ex pa tri at edon Nov . 20 , 20 10 , when he form al ly ab an do ne d h is st atus as a n LPR
. Held , furth er, P i s l iabl e fo r ta x o n g ai ns att rib ut ab le to th e 1 1 m on th ly ins ta ll m en t p aym en ts th atwere m ad e dur in g 2 01 0 b efo re h is ex pa tri at io n d at e. Held , furth er, P i s l iabl e fo r ta x o n g ai n fr om th e d eem edsal e of hi s ri gh t t o i ns ta ll m en t s al e p ro ceed s o n the da y be fo re h is ex pa tri at io n d at e p ur su an t t o I.R .C. se c. 87 7A.

Ch arl es Herb ertMag nu so n, fo r pe ti ti on er. Mi ch ael K. Parkan d Najah J. Sh ari ff, fo r res po nd en t.

OPINION KERRIGAN, Ju dg e: Thi s ca se is be fo re the Co urt o n p et it io ne r’s m ot io n fo r su m m ary jud gm en t an d re sp on de nt ’s cro ss -m ot io n fo r pa rti al su m m ary jud ge m en t. Pet it io ne r was is su eda no ti ce o f de fic ie nc y fortax y ear 2 01 0. Inhi s
m ot io n p et it io ne r co nt en ds th at : (1 ) he was aGerm anres id en t i n 2 01 0; (2) sec ti on 87 7A d oe s n otap pl y ; an d (3 ) th e se ct io n 6 66 2 p en al ty andth e se ct io n 6 55 1- 3 -

ad di ti on to tax do no t ap pl y . In re sp on de nt ’s cro ss -m ot io n fo r pa rti al su m m ary jud gm en t re sp on de ntco nt en ds th atpe ti ti on er (1 ) was no t a Germ anres id en t an d (2 ) was a “ co ve redex pa tri at e” wh o e xp atria te d i n 2 01 0 a ndm us t re co gn iz e g ai n on th e d eem edsal e o f hi s i ns ta ll m en t o bl ig at io n o n the da y be fo re h is ex pa tri at io n da te un de r se ct io n 8 77 A. Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o the Int ern al Rev enue Co de (Co de ) in effe ctforth e ta x year in is su e, an d a ll Ru le refe ren ces are to th e Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. W e ro un d a ll m on et ary
am ount s t o the ne ares t d ol lar. Bac kg ro un d Pet it io ne r was bo rninGerm an y . He has a Germ anpa ss po rt a nda Germ an dr iv er’s l ic en se . Res po nd en t co nt en ds th atpe ti ti on er o wne d the Sch wart ze Pf üt ze in n (i nn ) an d h ada ro om

th ere. Pe ti ti on er d idno t p res en t ev id en ce o f own ers hi p of th e in n, an d h e cl ai m s tha t h e an d h is bro th er m an ag editan d tha t h e h adacce ss to a ro om th ere. Pet it io ne r’s Green Card On Fe brua ry

3, 1 97 7, p et it io ne r rece iv eda Fo rm I-5 51 , Perm an en t Re si de nt Cardor Al ie n R eg is tra ti on Card(gr eencard ), an d b ecame a lawfu l p erm an en t
res id en t (LPR ) of

th e Uni te d S ta te s. Pet it io ne r ren ewedhi s g reencardev ery 10- 4 -

y ears . On March 3, 2 00 3, p et it io ne r reque st edren ewal of h is gre encardby fili ng a U.S. Im m ig rat io n a ndNatu ral iz at io n S erv ic e (INS) Fo rm I-9 0, Ap pl ic at io n t o Rep la ce Pe rm an en t Re si de ntCard . On h is Fo rm I-9 0 p et it io ne r ch arac te riz ed hi m se lf a s a p erm an en t re si de ntan d l is te d h is U.S. m ai li ng ad dr es s i n Hawa ii
. Pet it io ne r’s Fo rm

I-9 0 was ap pr ov edon Marc h 1 , 20 04 , andhi s LPR st atus was ren ewedth ro ug h M arch 1, 2 01 4. Pet it io ne r’s Jo in t Ven tu re, Set tl em en t, an d S to ck Sal e In19 86 pe ti ti on er s tarte d ajoi ntve ntur e n am edGou rm etFo od s, In c. (Go urm etFo od s) , with i ts pri nc ip al pl ace o f bu si ne ss inCal ifo rn ia . In 2 00 0 pe ti ti on er s ue d anu m

be r of in di vi du al s an d e nt it ie s i nv ol ve d wi thGou rm etFo od s’ bu si ne ss . The s ui t en de d i n s et tl em en t wi th pe ti ti on er ag reei ng to sel l, o n J ul y 30 , 20 04 , hi s s to ckinGou rm etFo od s fo r $5 ,42 7,0 00 inanin st al lm en t s al e. Pet it io ne r was en ti tl edto rece iv e anin it ia l d ownpa ym en t o f $1 ,60 0,0 00 an d the n m on th ly in st al lm en ts of $ 42 ,50 0 u nt il th e rem ai ni ng $3 ,82 7,0 00 was p ai d. Atth e ti m e o f
sa le pe ti ti on er’s t ax ba si s i n the Gou rm etFo od s s to ckwas $ 74 8,4 18 an d h is gro ss pr of itfro m th e in st al lm en t s al e was $4 ,67 8,5 82 . His g ro ss pro fitpe rcen ta ge was 86 .21 %. Pet it io ne r rec ei ve d the do wnp aym en t an d m on th ly ins ta ll m en t p aym en ts as pl an ne d. Th e fi na l m on th ly ins ta ll m en t p aym en t was m ad e o n S ep te m be r 3, 2 01 3.- 5 -

In20 10 pe ti ti on er re cei ve d 1 2 m on th ly ins ta ll m en t p aym en ts of $ 42 ,50 0 fo r a t ot al of $5 10 ,00 0. As o f Nov em

be r 19 , 20 10 , th e am ou ntof unp ai d p rin ci pa l an d a ccru ed in te res t o n the rem ai nd er o f th e in st al lm en t ag reem en t h ada fai r m ark etva lu e o f $1 ,37 3,3 74
. Fo rm al Aban do nm en t o f Pet it io ne r’s Green Card On No ve m

be r 20 , 20 10 , pet it io ne r co m pl et eda U.S. Cit iz en sh ip an d Im m ig rat io n S erv ic es (USCIS ) Fo rm I-4 07 , Aban do nm en t o f Lawfu l Pe rm an en t Res id en t St atus , to form al ly aban do n h is gre encardan d LPR st atus . USCIS
acce pt edhi s s urren de redgre encard . On h is Fo rm I-4 07 pe ti ti on er p ro vi de d a n

“ in te nd edor a ctua l p erm an en t re si de nc e ab ro ad ” inth e Ph il ip pi ne s. Pet it io ne r’s Po st ab an do nm en t No nc om pl ianc e Si nc e fi li ng hi s Fo rm

I-4 07 pe ti ti on er h as fai le d t o fi le th e requi redFo rm 88 54 , Ini ti al an d An nu al Exp atria ti onSta te m en t, an d h as fai le d t o c ert ify, und er pe na lt ie s o f pe rjury, tha t h e h as co m pl ie d wi th all of h is U.S. Fed eral tax ob li ga ti on s fo r th e fi ve tax ab le y ears pre ced in g the tax ab le y ear t ha t i nc lu de s the
ex pa tri at io n d at e, in cl ud in g h is ob li ga ti on s t o fi le in co m e ta x re tu rn s an d ob li ga ti on s t o p ay

all rel ev an t t ax li ab il it ie s, i nt eres t, an d p en al ti es . Peti ti on er d id- 6 -

no t fi le all hi s U.S. i nc om e ta x re tu rn s an d was no t i n p aym en t co m pl ianc e o n the ta x o wedforth e fi ve y ears be fo re h is ex pa tri at io n. Pet it io ne r’s 20 10 Tax R eturn Pet it io ne r di d n otfil e a Fo rm 10 40 , U.S. Ind iv idua l In co m e Tax Return, fo r ta x year 20 10 . On Aug us t 2 , 20 11 , he d id , ho wev er, fi le a de li nque ntFo rm 10 40 NR, U.S. Non res id en t Al ie n In co m e Tax Return. Onhi s Fo rm 10 40 NR pe ti ti on er re po rte d $ 43 9,6 71 ($5 10 ,00 0 × 86 .21 % gro ss pro fitpe rcen ta ge ) as be in g e xe m

ptun de r Arti cl e 1 3 (Ga in s) of t he U.S.-Germ any Tax Tre aty . Je op ardy Ass es sm en t, Lev y

an d No ti ce o f Defi ci en cy On J ul y 18 , 20 13 , res po nd en t m ad e a jeo pa rdy ass es sm en t o f anin crea se in ta x d efi ci en cy

of $ 13 8,9 03 , an a ccu racy-rela te d p en al ty of $2 7,7 81 , anda fai lu re to ti m el y fil e ad di ti on to tax of $ 13 ,89 0 fo r th e ta xabl e p eri odin20 10 . On Aug us t 7 a ndSep te m

be r 3, 2 01 3, re sp on de ntlev ie d o n $ 49 ,31 0 o f pe ti ti on er’s rem ai ni ng in st al lm en t s al e p ro ceed s i n p art ia l s at is fact io n o f hi s 2 01 0 i nc om e ta x l iabi li ty. On Se pt em

be r 11 , 20 13 , res po nd en t i ss ue d p et it io ne r a n ot ic e o f de fic ie nc y fo r ta xabl e y ear 2 01 0 d et erm in in g the same defi ci en cy , accu racy-rela te d p en al ty
un de r se ct io n 6 66 2, an d a dd it io n t o t ax forfai lure t o t im el y fil e und er s ect io n 66 51 (a)( 1) as i n the jeop ardy ass es sm en t. The de fic ie nc y in cl ud edth e fi rs t 1 1 o f- 7 -

th e m on th ly ins ta ll m en t p aym en ts m ad e dur in g the 20 10 tax y ear a s wel l as th e se ct io n 8 77 A dee m edsal e p ro ceed s. Pri orDis tri ctCo urt Li ti ga ti on On M arch 16 , 20 11 , res po nd en t m ad e a jeo pa rdy ass es sm en t o f pe ti ti on er’s li ab il it ie s fo r ta x, p en al ti es , andin te res t fo r th e y ears 20 04 -0 9 a nd , th erea fte r, le vi edon th e Gou rm etFo od s i ns ta ll m en t p aym en ts inpa rti al sat is fact io n o f th os e li ab il it ie s. On Au gu st23 , 20 11 , pet it io ne r fi le d aco m pl ai ntan d, the reaf

te r, an
am en de d c om

pl ai ntag ai ns t the Uni te d S ta te s i n the U.S. Dist ric t Co urt fo r th e Cen tra l Di st ric t o f Cal ifo rn iareque st in g arev ie w of re sp on de nt ’s jeop ardy as se ss m en ts an d l ev ie s, i nc lu di ng th e fo reg oi ng jeop ardy ass es sm en t an d l ev ie s,
an d re qu es ti ng refund s fo r 20 04 an d 2 00 5 a ndda m ag es forun auth or iz ed
co ll ect io n a ct io ns . The d efen da ntUni te d S ta te s m ov edto di sm is s the cas e o n se ve ral gro un ds , in cl ud in g i m pr op er v enue . After n ot in g tha t p et it io ne r “ do es no t
res id e inan y

jud ic ia l d is tri ctsi nc e h e cu rren tl y res id es inGerm an y ”, th e Dis tri ct Co urt h el d tha t, u nd er the ve nu e p ro vi si on s o f 28 U.S.C. sec . 14 02 (a)( 1) , pe ti ti on er “ m ay

no t fi le hi s cl ai m

ina di st ric t co urt” an d tha t h is “ on ly recou rs e is to pro se cu te hi s cl ai m

inth e Uni te d S ta te s C la im s C ou rt, wh ic h h as co nc urren t juri sd ic ti on ov er t ax refu ndact io ns .” Top sn ikv. Un it edSta te s, No
.- 8 -

2: 11 -cv -0 69 58 -J HN-MRW, 20 12 W L 10 63 75 70 , at * 1 (C .D. Cal. J an . 17 , 20 12 ), aff’d, 5 54 F. App ’x 63 0 (9 th Cir . 20 14 ) (To ps ni k I) . On th atba si s the Dis tri ct Co urt g ran te d the de fen da nt ’s m ot io n t o d is m is s. Id
. 1 In fo rm at io n Ex ch an ge s B etweenth e Uni te d S tate s an d Germ an y On Au gu st23 , 20 13 , th e U.S. Co m pe te ntAutho rit y

m ad e a reque st , pu rs ua ntto Arti cl e 2 6, Ex ch an ge of I nf orm at io n a ndAdm in is tra ti ve Ass is tanc e o f th e U.S.-Germ any

Tax Tre aty , to th e Germ anCo m pe te ntAutho rit y

for in fo rm at io n p ert ai ni ng to pe ti ti on er’s res id en cy st atus inGerm an y

an d h is tax return fi li ng hi st ory

inGerm an y . On No ve m

be r 21 , 20 13 , th e U.S. Co m pe te ntAutho rit y

rece iv eda le tt er fro m th e Germ anCo m

pe te ntAutho rit y

whi chpro vi de d the fol lo win g i nf orm at io n: (1 ) fo r ta x year 20 10 pe ti ti on er was reg is te redinGerm an y as ape rs on subjec t t o ta xa ti on as ano nr es id en t; (2) pe ti ti on er d idno t fi le a Germ antax return fo r 20 10 ;
Fo ll owi ng th e Dis tri ctCo urt’s d is m is sa l o f pe ti ti on er’s s ui t due to im pr op er 1 ve nu e an d wh il e p et it io ne r’s ap pe al of t ha t ru li ng was p en di ng be fo re the Co urt o f App eal s fo r th e Nin th Cir cu it , pet it io ne r br ou gh t s ui t fo r refu ndinth e Co urt o f Fed eral Cla im s. Th e d efen dantUni te d S ta te s m ov edto co nt in ue a te m po rary stay of th e cas e p en di ng th e o ut co m e o f pe ti ti on er’s ap pe al of t he Dis tri ctCo urt ru li ng . The Co urt o f Fed eral Cla im s d en ie d the m ot io n o n the gro un d tha t the re was no ve nu e is su e b efo re i t, an d tha t, wh at ev er d is po si ti on th e Co urt o f App eal s wer e to m ak e o f pe ti ti on er’s ap pe al , itwou ldret ai n s ub ject m atte r juri sd ic ti on ov er pe ti ti on er’s ref

un d c la im an d, the refo re, co ul d p ro ceedto ad dr es s the m eri ts of t ha t cl ai m . See To ps ni k v . Uni te d S ta te s, 1 14 Fed . Cl. 1 (20 13 ) (To ps ni k II ).- 9 -

(3 ) pe ti ti on er was no t re gi st eredinth e Germ anto wns hi p o f Oerl enba chin20 10 , no r di d h e h av e a reg is te redres id en ce o r habi tu al ab od e in Germ an y in20 10 ; (4 ) th e in n was so ldon Decem be r 1, 2 01 0; an d (5 ) fro m Jan ua ry 1 t o Ap ril 30 , 20 10 , th e in n was va can t an d fr om May 1 th ro ug h No ve m

be r 31 , 20 10 , th e in n was run by a lan dl or d. On Dec em

be r 9, 2 01 3, the U.S. Com pe te ntAutho rit y

sen t the Germ an Co m pe te ntAutho rit y

a le tt er s tati ng th atth e Germ anCo m pe te ntAutho rit y ’s
res po ns e in di cat es th atitis “no t ap pa ren t” pe ti ti on er d oe s n otha ve a res id en ce o r habi tu al ab od e in Germ an y an d re qu es te d c on firm at io n. Th e le tt er al so reque st ed
res id en cy in fo rm at io n fo r two ad di ti on al Germ ancit ie s: Frei burg an d B ru ch sa l. On J un e 2 4, 2 01 4, the U.S. Com pe te ntAutho rit y

rece iv eda le tt er fro m

th e Germ anCo m

pe te ntAutho rit y

whi chpro vi de d the fol lo win g i nf orm at io n: (1 ) pe ti ti on er i s n otli st edwith the tax au th or ity inFrei bu rg Cit y ; (2 ) pe ti ti on er i s no t l is te d wi th th e ta x aut ho rit y inBru ch sa l; an d (3 ) si nc e 2 00 0, p et it io ne r ha s, o n oc cas io n, re si de d i n aroo m at Han s an d In ge nb or g To ps ni k’s h ou se inFrei bu rg free of c ha rg e.- 10 - Dis cu ss io n I. Su m

m ary Ju dg m en t Fu ll or p art ia l s umm ary jud gm en t m ay be gra nt edwher e th e p le ad in gs an d ot he r m at eri al s s ho w th atth ere i s n o g enui ne di sp ut e as to an y m at eri al factan d th ata de ci si on m ay

be ren de redas am at te r of law. Ru le 12 1( b) ; Su nd st ran d C or p. v. Co m m is si on er, 9 8 T.C. 5 18 , 52 0 (1 99 2) , aff’d, 1 7 F .3d96 5 (7 thCir . 19 94 ). The burd enis on th e m ov in g p arty to de m on st rat e th atth ere i s n o g enui ne di sp ut e as to an y m at eri al factan d tha t h e o r sh e is en ti tl edto jud gm en t as a m at te r of law. FPL Grp ., Inc . & Subs . v. Co m m is si on er, 1 16 T.C. 73 , 74 -7 5 (2 00 1) . In
co ns id eri ng a m ot io n fo r su m m ary jud gm en t, ev id en ce i s v ie wedinth e li gh t m os t fav or ab le to th e n on m ov in g p arty . Bon d v . Comm is si on er, 1 00 T.C. 32 , 36 (1 99 3) . The n on m ov in g p arty m ay no t re stup on th e m ere a ll eg at io ns or d en ia ls of hi s o r he r pl ead in g b utm us t s etforth sp eci fic fact s s ho win g the re i s a g enui ne di sp ut e fo r tr ia l. Su nd st ran d C or p. v . Comm is si on er, 9 8 T.C. at52 0. Pet it io ne r m ov edforsu m m ary jud gm en t, an d re sp on de ntcro ss -m ov edfor pa rti al su m

m ary jud gm en t. Each pa rty has th e b ur de n t o d em on strat e th atth ere i s no ge nu in e d is pu te as t o a ny m at eri al fact . After r ev ie win g the pl ead in gs we co nc lu de th ata de ci si on m ay be ren de redas am at te r of law.- 11 -

II. Whe th er Pe ti ti on er Was a Germ anRes id en t Du rin g 2 01 0 Pet it io ne r cl ai m s tha t h e was a Germ anres id en t dur in g 2 01 0 a ndth eref or e th e m on th ly ins ta ll m en t p aym en ts du rin g 2 01 0 wer e ex em ptfro m U.S. tax at io n un de r th e U.S.-Germ an y

Tax Tre aty . Res po nd en t co nt en ds th atpe ti ti on er was no t a Germ anres id en t dur in g 2 01 0. To d et erm in e whe th er p et it io ne r was a Germ anres id en t i n 2 01 0, we m us t lo okto th e U.S.-Germ an y Tax Tre aty . The U.S.-Germ an y Tax Tre aty , as ap pl ic ab le for

20 10 , con si st s o f th ree d oc um en ts : (1 ) th e o rig in al tre aty , whi ch
was si gn edin19 89 bu t wh ic h e nt eredin to for ce i n 1 99 1; (2) th e 1 98 9 p ro to co l
ex ecu te d i n 1 98 9 o n the same day th e tr eaty

was s ig ne d a ndwhi chen te redin to fo rce c on te m

po ran eo us ly w ith the tre aty ; an d (3 ) th e 2 00 6 p ro to co l, wh ic h e nt ered in to for ce o n Dec em

be r 28 , 20 07 , andis effe ct iv e fo r ta xe s o th er tha n wi th ho ld in g ta xe s (e .g., fo r in co m e ta x) as o f Ja nu ary 1, 2 00 8. Th eref or e, th e o rig in al tre aty , as
am en de d b y

th e 2 00 6 p ro to co l (s om et im es , po st -2 00 6 treat y ), is ap pl ic ab le for pe ti ti on er’s 2 01 0 t ax y ear. Arti cl e 4 of t he ori gi na l treat y de fin es th e te rm

“ res id en t” forpu rp os es th ereo f. Befo re i ts am en dm en t b y th e 2 00 6 p ro to co l, arti cl e 4 , par ag rap h 1 , pr ov id edas f

ol lo ws:- 12 -

Fo r th e p ur

po se s o f th is Co nv en ti on , th e te rm “ res id en t o f a Co nt ract in g S ta te ” m ean s an y pe rs on who , un de r th e la ws o f th at St at e, is li ab le to tax th erei n b y reas on of h is do m ic il e, res id en ce, pl ace o f m an ag em en t, p la ce o f in co rp or at io n, o r any othe r cri te rio n o f a si m il ar n atur e, pr ov id ed , ho wev er, tha t (a) thi s t erm

do es no t i nc lu de an y

pe rs on who is li ab le to tax in th atSta te inres pe cton ly of in co m e fro m so ur ces inth atSta te or cap it al si tu at edth erei n; an d (b ) in th e cas e o f in co m e d eri ve d o r pa idby a part ne rs hi p, es ta te , or tru st , th is term

ap pl ie s o nl y

to th e ex te ntth atth e in co m e de riv edby suc h p artne rs hi p, es ta te , or tru stis subjec t t o t ax inth at St at e as th e in co m e o f a res id en t, ei th er i n i ts hand s o r in th e h an ds of it s p artne rs or b en efi ci ari es . Co nv en ti onforth e Avo id an ce o f Doubl e Tax at io n andth e Prev en ti on of F is cal Evas io n With R es pe ctto Taxe s o n In co m e an d Cap it al an d t o C ert ai n Othe r Tax es , U.S.-Ger. Aug . 29 , 19 89 , 17 08 U.N.T.S. 3 (en te redin to for ce Au g. 2 1, 1 99 1)
. The 20 06 pro to co l m od ifi edart ic le 4, p arag rap h 1 , to readas f ol lo ws: Fo r th e p ur

po se s o f th is Co nv en ti on , th e te rm “ res id en t o f a Co nt ract in g S ta te ” m ean s an y pe rs on who , un de r th e la ws o f th at St at e, is li ab le to tax th erei n b y reas on of h is do m ic il e, res id en ce, pl ace o f m an ag em en t, p la ce o f in co rp or at io n, o r any othe r cri te rio n o f a si m il ar n atur e, an d a ls o i nc lu de s tha t St at e an d a ny po li ti cal subd iv is io n o r lo cal au th or ity th ereo f. The t erm , ho wev er, d oe s n ot in cl ud e an y

pe rs on who is li ab le to tax inth atSta te inres pe cton ly of in co m e fro m

so ur ces inth atSta te or o f pr of it s at tri bu tabl e to a pe rm an en t es tabl is hm en t i n tha t St at e o r cap it al si tu at edth erei n. [Pro to co l Am en di ng th e Co nv en ti on for th e Avo id an ce o f Doubl e Tax at io n andth e Pre ve nt io n o f Fi sc al Evas io n With R es pe ctto Taxe s on Inc om e an d C ap it al an d t o C ert ai n Othe r Tax es Sig ne d o n 2 9t h- 13 -

Aug us t 1 98 9, U.S.-Ger ., Ju ne 1, 2 00 6, 2 50 4 U.N.T.S. 90 , ava il ab le at ht tp s: // tre at ie s.u n.o rg /d oc /P ub li cat io n/UNTS/Vo lu m e%2 02 50 4/v2 50 4 .pd f.] Arti cl e 4 , par ag rap h 1 , of the ori gi na l treat y , th ro ug h s ub parag rap h (a ) (as ap pl ic ab le to in di vi du al s) is id en ti cal , insubs tanc e, to art ic le 4, p arag rap h 1 of t he po st -2 00 6 treat y . Bot h d efi ne a “ res id en t o f a Co ntract in g S ta te ” to in cl ud e an in di vi du al “ li ab le to tax th erei n b y reas on of h is * * * [d om ic il e o r res id en ce]”,
an d b ot h e xc lu de fro m

th e d efi ni ti on “ an y

pe rs on who is li ab le to tax inth atSta te in res pe cton ly of in co m e fro m so ur ces inth atSta te * * * o r cap it al si tu at ed th erei n.” Arti cl e 1 3, p arag rap h 1 (th e sa m e in bo th th e o rig in al an d p os t-2 00 6 tre at ie s) , pro vi de s: Gain s d eri ve d b y

a res id en t o f a Co nt ract in g S ta te fro m th e al ie na ti on of imm ov ab le pro pe rty * * * [i.e ., real pro pe rty] si tu at edinth e o th er Co nt ract in g S ta te m ay

be tax edinth atothe r St at e. Arti cl e 1 3, p arag rap h 2 (al so un ch an ge d b y th e 2 00 6 p ro to co l), p ro vi de s i n pe rti ne ntpa rt: Fo r th e p ur

po se s o f th is Arti cl e, th e te rm “ im m ov ab le ” p ro pe rty si tu at edinth e o th er Co nt ract in g S ta te sh al l i nc lu de

* * * * * * * (b ) sh ares * * * i n aco m

pa ny tha t i s * * * a res id en t o f th at ot he r Co nt ract in g S ta te , th e as se ts of wh ic h c om pa ny con si stor- 14 -

co ns is te d wh ol ly or pr in ci pa ll y of i m m ov ab le pro pe rty situa te d i n su chothe r Co nt ract in g S ta te * * * Arti cl e 1 3, p arag rap h 5 , of b ot h the ori gi na l an d p os t-2 00 6 treat ie s p ro vi de s, fo r rel ev an t p ur

po se s, tha t g ai ns fro m

th e al ie na ti on of i nt an gi bl e p ro pe rty (othe r th anth e sh ares refe rredto inart ic le 13 , par ag rap h 2 (b )) “ sh al l b e ta xabl e o nl y in th e Co nt ract in g S ta te of wh ic h the ali en at or is a res id en t.” Pet it io ne r’s cl ai m

of Ge rm anres id en cy

res ts on (a) es to pp el an d (b ) hi s co nt act s wi th Germ an y

du rin g the y ears inis su e. A. Est op pe l Pet it io ne r arg ue s tha t, b ecau se res po nd en t ar gu edbe fo re the Dis tri ctCo urt in Top sn ikI th atpe ti ti on er i s a Ge rm anres id en t, an d b ecau se th e co urt d is m is se d th e cas e fo r im

pr op er v enue on th atba si s, re sp on de ntis est op pe d, u nd er the do ctrin e o f jud ic ia l es to pp el , fro m ass ert in g aco nt rary pos it io n i n thi s ca se . This arg um en t an d the un de rlyin g fa ct s ar e id en ti cal to th e arg um en t h e p res en te d i n Top sn ikv. Co m

mis si on er, 1 43 T.C. 24 0 (2 01 4) (Top sn ikIV), wher e we h el d tha t 2
es to pp el di d n otap pl y

be cau se pe ti ti on er’s s ta tu s as a Germ anres id en t dur in g the

W e fo ll ow the same con ve nt io ns us edinTop sn ikIV, whi chrefe rredto 2 Top sn ikv. Un it edSta te s, No . 2: 11 -cv -0 69 58 -J HN-MRW, 20 12 WL 10 63 75 70 (C.D. Cal . Jan . 17 , 20 12 ), aff’d, 5 54 F. App ’x 63 0 (9 th Cir . 20 14 ), as Top sn ikI, to Top sn ikv. Un it edSta te s, 1 14 Fed . Cl. 1 (20 13 ), as Top sn ikII, an d t o To ps ni k v
. Uni te d S tate s, 1 2 F . Sup p. 3 d 1 (D.D.C. Dec. 2, 2 01 3) , as To ps ni k II I.- 15 -

y ears inis su e was no t ad dr es se d b y th e p art ie s an d was no t i n i ss ue . See i d. at 25 7- 25 8. Th e sa m e an al y si s ap pl ie s h ere wi th res pe ctto 20 10 . W e d o n otag ree with p et it io ne r. B. Germ anCo nt act s Pet it io ne r’s Germ anco nt act s i nc lu de a Germ andri ve r’s li cen se an d a Germ anpa ss po rt. He al so co nt en ds th athe own edth e in n. As n ot edsupr a, with re sp ectto in di vi du al s, b ot h the ori gi na l treat y an d the po st -2 00 6 treat y

li m itth e d efi ni ti on of a“ ‘resi de ntof aCo nt ract in g S ta te ’” to in di vi du al s “ li ab le to tax th erei n b y reas on of * * * [do m ic il e o r res id en ce]”, and bo th ex cl ud e fro m

th e d efi ni ti on “ an y

pe rs onwho is li ab le to tax inth atSta te in
res pe cton ly of in co m e fro m so ur ces inth atSta te * * * o r cap it al si tu at edth erei n.” The tre aty

tes t fo r res id en ce i n aco nt ract in g S ta te is th e in di vi du al ’s li ab il ity to pa y tax to th e St at e as a res id en t, wh ic h, i n the cas e o f Germ any , m ean s tha t the in di vi du al m

us t b e ta xabl e o n h is or h er wo rld wid e in co m e. See St aff o f J. Co m m . on Taxa ti on , Exp lana ti on of P ro po se d P ro to co l t o the Inc om e Tax Treaty Between th e Uni te d S ta te s an d Germ an y , at 9 (J. Co m m . Prin t 2 00 7) (“ In di vi du al s re si de nt in Germ an y

are s ub ject t o t ax on th ei r wor ldwid e in co m e.”); Tax Tre at ie s (C CH) pa ra. 3 22 9, p . 77 ,18 1. Th e te stforres id en cy un de r th e U.S.-Germ an y Tax Tre aty is co nf irmed by the co m

m en tary with re sp ectto art ic le 4 o f th e Org an iz at io n fo r- 16 -

Eco no m ic Co op erat io n a ndDeve lo pm en t (OECD) M od el Doubl e Tax Co nv en ti on on Inc om e an d C ap it al (19 77 ) (OECD Mo de l Trea ty), arti cl e 4 , par ag rap h 1 of whi chis , inall pe rti ne ntres pe ct s, i de nt ic al to art ic le 4, p arag rap h 1 , of the ori gi na l
an d p os t-2 00 6 treat ie s. The co m m en tary to art ic le 4, p arag rap h 1 st at es , in 3 pe rti ne ntpa rt: “ As fa r as in di vi du al s ar e co nc ern ed , th e d efi ni ti on aim s atco ve rin g th e v ari ou s fo rm s o f pe rs on al att ach m en t t o aSta te whi ch , inth e d om es ti c ta xa ti on laws, fo rm

th e b as is of aco m

pr eh en si ve tax at io n (f

ul l l iabi li ty to t ax ).” OECD Co m m it te e o n F is cal Affai rs , Mo de l Tax Co nv en ti on onInc om e an d o n C ap it al , at C(4 -9 ) (1 99 7) ; see Top sn ikIV, 14 3 T.C. at25 9- 26 0. 4 Pet it io ne r’s reci ta ti on of h is co nt act s wi th Germ any du rin g 2 01 0 i s n ot rel ev an t t o h is st atus as aGerm anres id en t dur in g tha t year ex cep t i ns of ar as th ey se rv edto subjec t h im

to Germ antax at io n o f hi s wo rld wid e in co m e. Pet it io ne r Whe re the parti es to a bi la te ral tax tre aty were b ot h OECD m em

be rs when 3 th e m od el tre aty

an d c omm en tary

were draft ed(whi chis th e cas e h erei n) an d the bi la te ral tre aty

word in g i s s ub st an ti al ly the same as th atof t he m od el tre aty (al so th e cas e h erei n) , we hav e u se d the m od el tre aty co m m en tary to in te rp retpro vi si on s of th e b il at eral tax tre aty . See Po ddv. Co m m is si on er, T.C. Mem o. 1 99 8- 41 8, s li p op . at 9 -1 0 (a ndth e cas es cit edth erea t). Subs eque ntup da te s o f th e OECD Mo de l Trea ty leftun ch an ge d, i n a ll 18 4 pe rti ne ntres pe ct s, the art ic le 4, p arag rap h 1 , def in it io n o f res id en t co nt ai ne d i n the 19 77 OECD Mod el Treaty as i t p ert ai ns to in di vi du al s. Th eref or e, th e ab ov equ ot edco m

m en tary with re sp ectto th atde fin it io n app li es to all of t he OECD Mo de l Trea ti es publ is he d s in ce 1 97 7. Se e, e.g ., Tax Trea ti es (CCH) p aras . 20 0.0 4, 2 00 A.04
.- 17 -

do es no t al le ge th athe is subjec t t o Germ antax at io n o n h is worl dwi de in co m e,
an d the ev id en ce i n the reco rdis un ifo rm ly to the co nt rary. The in fo rm at io n o bt ai ne d b y th e Germ anco m

pe te ntauth or ity

fro m th e Germ antax au th or ity

rev eal s tha t (1 ) fo r ta x year 20 10 pe ti ti on er was reg is te redin Germ any as ape rs onsubjec t t o t ax at io n a s a n on res id en t; (2) pe ti ti on er d idno t fi le a Germ antax return fo r 20 10 ; (3 ) pe ti ti on er was no t re gi st eredinth e Germ an to wns hi p o f Oerl enba ch , Frei bu rg City , or B ru ch sa l i n 2 01 0, n ordi d h e h av e a reg is te redres id en ce o r habi tu al ab od e in Germ an y in20 10 ; an d (4 ) si nc e 2 00 0 pe ti ti on er h as , onoc cas io n, re si de d i n aroo m at Han s an d In ge nb or g To ps ni k’s ho us e inFrei bu rg free of c ha rg e. Ther e is no ev id en ce i n the reco rdto refu te th e in fo rm at io n o bt ai ne d b y

th e Germ anco m

pe te ntauth or ity . W e fi ndth atpe ti ti on er was no t a “ res id en t” of Ge rm an y in20 10 as d efi ne d b y

art ic le 4, p arag rap h 1 , of th e U.S.-Germ any

Tax Tre aty . Accor di ng ly, pe ti ti on er’s m on th ly ins ta ll m en t pa ym en ts were t ax ab le by the Uni te d S ta te s. III. Whe th er Pe ti ti on er Is a “ Co ve redExp atria te ” A. Sect io n 8 77 A Gene ral ly The Hero es Earn in gs Ass is tanc e an d R el ie f Tax Act o f 20 08 , Pub . L. No. 11 0- 24 5, s ec. 3 01 , 12 2 S tat. at16 38 -1 64 4, wh ic h was si gn edin to law o n J un e 1 7, 20 08 , add edne w sec ti on87 7A ef fect iv e fo r in di vi du al s wh o e xp atria te on or a fte r- 18 -

Ju ne 17 , 20 08 . Sect io n 8 77 A(a) i m po se s a m ark -to -m ark etreg im e o n c ov ered
ex pa tri at es . Und er s ect io n 8 77 A(a)(1 ) al l p ro pe rty of a co ve redexpa tri at e is tre at edas b ei ng so ldonth e d ay be fo re h is or h er ex pa tri at io n d at e fo r it s fa ir
m ark etva lu e. Sect io n 8 77 A(a)(2 )(A) p ro vi de s tha t an y ga in ari si ng fro m

th e de em edsal e is tak enin to acco un t fo r th e ta xabl e y ear o f th e d eem edsal e no twi th st an di ng an y

othe r pr ov is io ns of t he Co de
. B. Exp atria te The term “ ex pa tri at e” i nc lu de s: “ (A) an y Uni te d S ta te s ci ti zenwho rel in qu is he s h is cit iz en sh ip , and(B) an y lo ng -te rm

res id en t o f th e Uni te d S ta te s who ceas es to be * * * [a n LPR ] of th e Uni te d S ta te s (wi th in th e m ean in g o f
se ct io n 7 70 1( b) (6 )).” Sec . 87 7A( g) (2 ). Und er the reg ul at io ns ass oc iate d wi th
se ct io n 7 70 1( b) (6 ), a p ers onge ne ral ly is an LPR if he ho ld s a g reen card . See s ec. 30 1.7 70 1( b) -1 (b )(1 ), Pro ced . & Adm in . Reg s. Sect io n 8 77 A(g )(5 ) de fin es a “ lo ng -te rm res id en t” of t he Uni te d S tate s b y cro ss -ref eren ce t o s ect io n 8 77 (e)( 2) , whi chpro vi de s tha t a l on g- te rm res id en t i s: [A]ny in di vi du al (ot he r th ana ci ti zenof t he Uni te d S ta te s) who is a lawfu l p erm an en t re si de ntof t he Uni te d S ta te s i n a t l eas t 8 tax ab le y ears du rin g the pe rio d o f 15 tax ab le y ears en di ng with the tax ab le y ear * * * [of

ex pa tri at io n]. For p ur

po se s o f th e p rece di ng sen te nc e, anin di vi du al sh al l n otbe tre at edas alawf ul pe rm an en t re si de ntfor an y tax ab le y ear i f su chin di vi du al is tre at edas ares id en t o f a fo rei gn co un try for the tax ab le y ear u nd er the pro vi si on s o f a t ax tre aty- 19 -

be twee n the Uni te d S ta te s an d the for ei gn co un try anddo es no t wai ve th e b en efi ts of s uc h treat y ap pl ic ab le to res id en ts of t he for ei gn co un try. Pet it io ne r was anLPR o f th e Uni te d S ta te s b eg in ni ng on Feb ru ary 3, 1 97 7, th e d at e h e rec ei ve d h is gre encard . If pe ti ti on er ex pa tri at edin20 10 , as we fi nd
an d d is cu ss be lo w, th ento be a lo ng -te rm res id en t h e wou ldha ve to be anLPR fo r 8 o f th e 1 5 t ax y ears be gi nn in g wi th tax y ear 1 99 6. InTop sn ikIV we he ldth at pe ti ti on er was anLPR o f th e Uni te d S ta te s dur in g t ax y ears 20 04 -0 9. We furt he r he ldth atpe ti ti on er was no t a r es id en t o f Germ an y du rin g t ax y ears 20 04 -0 9. Id . at 26 1. We hel d abo ve th atpe ti ti on er was no t a Germ anres id en t i n 2 01 0. Th os e y ears co ns ti tu te 7 o f th e 8 y ears ne ces sa ry forpe ti ti on er t o fi t und er the de fin it io n of lo ng -te rm

res id en t o f th e Uni te d S ta te s. Pet it io ne r arg ue s tha t h e h as be ena res id en t o f Germ an y

si nc e 1 99 9. Ev enif we a ccep t tha t h e is co rrec t fo r th e ta x y ears 19 99 -2 00 3, h e d oe s n otarg ue , andha s p res en te d n o e vi de nc e to su gg es t, tha t he was n otanLPR o f th e Uni te d S ta te s fo r th e th ree years f ro m 19 96 -9 8. Tak en to ge th er wi th ou r ho ld in g i n To ps ni k IV, thi s m ean s tha t p et it io ne r was anLPR fo r atlea st10 ou t o f th e 1 5 years b efo re fo rm al ly aban do ni ng hi s LPR st atus . The refo re, p et it io ne r is tre at edas a“ lo ng -te rm res id en t o f th e Uni te d S ta te s” for th e p ur po se s o f se ct io n 8 77 A.- 20 -

C. Co ve redExp atria te s W e m us t n ow d et erm in e whe th er p et it io ne r was a “ co ve redex pa tri at e”. Sect io n 8 77 A(g )(1 ) pr ov id es th ata “ co ve redex pa tri at e” m ean s an ex pa tri at e who
m eet s atlea ston e o f th e requi rem en ts setou t i n s ect io n 8 77 (a)( 2) (A)-(C ). Subp arag rap h (C ) pr ov id es th ata pe rs on is a co ve redex pa tri at e if “ su chin di vi du al fai ls to cert ify un de r pe na lty of p erjury

th athe ha s m etth e requi rem en ts of t hi s ti tl e fo r th e 5 pre ced in g t ax ab le y ears or f ai ls to subm itsu chev id en ce o f su ch
co m pl ianc e as th e Sec ret ary m ay requi re.” Sect io n 8 77 A(i) pro vi de s tha t the Secr et ary sh al l p res cri be reg ul at io ns as
m ay be ne ces sa ry

an d app ro pr ia te to carry ou t the pu rp os es of t he sec ti on . Suc h reg ul at io ns ha ve no t b eeny etbe enpro vi de d. In st ead , th e IRS ha s p ro m ul ga te d gu id an ce re ga rd in g thi s s ect io n i n No ti ce 2 00 9- 85 , 20 09 -4 5 I.R .B. 59 8. We are
no t b ou ndby N ot ic e 2 00 9- 85 , supr a, se e Co m pa q C om pu te r Co rp . v. Co m m is si on er, 1 13 T.C. 36 3, 3 72 (19 99 ), bu t i t i s anoff ic ia l s ta te m en t o f th e Co m m is si on er’s p os it io n a ndwe m ay letitpe rs ua de us , see Nati on al is t M ov em en t v. Co m m is si on er, 1 02 T.C. 55 8, 5 83 (19 94 ), aff’d, 3 7 F .3d21 6 (5 th Cir .19 94 ). Not ic e 2 00 9- 85 , sec . 8, 2 00 9- 45 I.R.B. at61 1, ex pl ai ns th atforpu rp os es of cert ifyin g t ax co m

pl ianc e fo r th e fi ve y ears be fo re ex pa tri at io n p ur su an t t o s ect io n 87 7( a)(2 )(C) :- 21 -

All U.S. cit iz en s wh o re li nqui sh th ei r U.S. cit iz en sh ip an d a ll lo ng te rm res id en ts who ceas e to be lawf ul pe rm an en t re si de nt s o f th e Uni te d S ta te s (wi th in th e m ean in g o f se ct io n 7 70 1( b) (6 )) m us t fi le Fo rm 88 54 inord er t o c ert ify, und er p en al ti es of p erjury , th atth ey ha ve be eninco m

pl ianc e wit h a ll fed eral tax laws du rin g the fiv e y ears pre ced in g the y ear o f ex pa tri at io n. In di vi du al s wh o fa il to m ak e su chcert ifi cat io n wi ll be tre at edas c ov eredex pa tri at es withi n the m ean in g o f se ct io n 8 77 A(g ) * * * Fo r th e y ear o f hi s ex pa tri at io n p et it io ne r fai le d t o c om pl et e an d fi le a Fo rm 88 54 cert ifyin g u nd er p en al ti es of p erjury th athe ha s co m

pl ie d wi th all of h is U.S. Fed eral tax ob li ga ti on s fo r th e fi ve tax ab le y ears pre ced in g the tax ab le y ear t ha t in cl ud es hi s ex pa tri at io n d at e. Res po nd en t h as pro vi de d e vi de nc e th atpe ti ti on er di d n otfil e al l o f hi s U.S. i nc om e ta x re tu rn s b efo re ex pa tri at in g a ndwas n otin pa ym en t co m

pl ianc e fo r ta xe s o wedforth e fi ve y ears be fo re ex pa tri at io n i n ta xabl e y ear 2 01 0. Thus pe ti ti on er co ul d n otha ve cert ifi edun de r pe na lt ie s o f pe rjury ona Fo rm

88 54 th athe ha d b eenintax co m pl ianc e fo r th e fi ve y ears be fo re ex pa tri at io n. Co ns eque nt ly, be cau se pe ti ti on er fa il edto cert ify tax
co m pl ianc e fo r th e fi ve y ears be fo re ex pa tri at io n, h e is a “ co ve redex pa tri at e” as de fin edby sect io n 8 77 A(g )(1 )(A). As a c ov eredex pa tri at e p et it io ne r is tre at edas h av in g s ol d a ll hi s p ro pe rty
on th e d ay

be fo re h is ex pa tri at io n d at e an d i s s ub ject t o i nc om e ta x o n the ne t- 22 -

un real iz edga in ari si ng fro m pro pe rty deem edso ldwhi le he was s ti ll a U.S. LPR. See s ec. 8 77 A(a)(2 )(A); see als o No ti ce 2 00 9- 85 , supr a. D. Exp atria ti on Date Si nc e p et it io ne r is a co ve redex pa tri at e subjec t t o t ax at io n u nd er s ect io n 87 7A, we m

us t d et erm in e h is ex pa tri at io n d at e. Sect io n 8 77 A(g )(3 ) de fin es th e te rm “ expa tri at io n d at e” as th e d at e anin di vi du al rel in qu is he s U.S. ci ti zen sh ip or, in th e cas e o f a l on g- te rm res id en t o f th e Uni te d S ta te s, the da te on whi chth e in di vi du al ceas es to be anLPR o f th e Uni te d S ta te s wi th in th e m ean in g o f se ct io n 77 01 (b )(6 ). Sect io n 7 70 1( b) (6 ) pr ov id es th atanin di vi du al is anLPR if : (A) s uc h i nd iv idua l h as th e st atus of h av in g b eenlawf ul ly acco rd edth e p riv il eg e o f res id in g p erm an en tl y inth e Uni te d S tate s as animm ig ran t i n a cco rd an ce wi th th e imm ig rat io n l aws , and (B) s uc h s ta tu s h as no t b eenrev ok ed(an d h as no t b een adm in is tra ti ve ly or jud ic ia ll y de te rm in edto ha ve be enab an do ne d)
. An i nd iv idua l s ha ll ceas e to be tre at edas * * * [anLPR] of th e Uni te d St at es if s uc h i nd iv idua l co m m en ces to be tre at edas ares id en t o f a fo rei gn co un try un de r th e p ro vi si on s o f a t ax tre aty be twee n the Uni te d S ta te s an d the for ei gn co un try, doe s n otwaiv e th e b en efi ts of su chtre aty

ap pl ic ab le to res id en ts of t he for ei gn co un try, andno ti fie s th e Sec ret ary of

th e co m m en cem en t o f su chtre atm en t. Sect io n 3 01 .77 01 (b )-1 (b )(3 ), Pro ced . & Adm in . Reg s., i nd ic at es th atwhen
anali enin it ia te s a d et erm in at io n, “ res id en t s ta tu s i s co ns id eredto be ab an do ne d- 23 -

whe n the in di vi du al ’s app li cat io n fo r ab an do nm en t (I NS Fo rm I-4 07 ) * * * i s fi le d with the INS”. Pet it io ne r arg ue s tha t h e was a Germ anres id en t i n 2 01 0 a ndth athe th eref or e cea se d t o b e anLPR o n Dec em be r 31 , 20 09 . Res po nd en t co nt en ds th at pe ti ti on er ce as edto be anLPR o n No ve m be r 20 , 20 10 , when he in it ia te d ab an do nm en t o f hi s LPR

st atus by com

pl et in g aFo rm

I-4 07 an d s urren de rin g h is gr eencard
. W e h el d abo ve th atpe ti ti on er was no t a Germ anres id en t dur in g 2 01 0. We fin d tha t h is da te of e xp atria ti on was No ve m be r 20 , 20 10 , when he fil edwith the INS a Fo rm

I-4 07 an d s urren de redhi s g reen card . See i d. IV. Sect io n 8 77 A Pet it io ne r arg ue s tha t s ect io n 8 77 A, ena ct edin20 08 , is in ap pl ic ab le to hi s 20 04 in st al lm en t s al e tr an sa ct io n b ecau se th e st atut e can no t b e ret ro act iv e. He al so arg ue s tha t i f se ct io n 8 77 A do es ap pl y , itwas app li edim pr op erl y . A. App li cab il ity

to Rig htto Ins ta ll m en t Sa le Paym en ts Not ic e 2 00 9- 85 , sec . 3, 2 00 9- 45 I.R.B. at59 9, s ta te s i n re le va ntpa rt t ha t, fo r pu rp os es of t he m ark -to -m ark etreg im e, a co ve redex pa tri at e is de em edto ha ve so ldan y in te res t i n p ro pe rty tha t h e o r sh e is co ns id eredto ha ve own edothe r th an pr op erty de sc rib edinsec ti on 87 7A( c) (d eferredco m pe ns at io n, s pe ci fie d t ax -- 24 -

de ferr edacco un ts , andin te res t i n ano ng ran to r trus t). Onth e d ay be fo re pe ti ti on er’s ex pa tri at io n d at e, pe ti ti on er h el d the rig htto m on th ly ins ta ll m en t pa ym en ts th athe rece iv edinex ch an ge forth e 2 00 4 s al e o f hi s s ha res of s to ckin Gou rm etFo od s. See sec . 87 7A( a)(1 ). An i ns ta ll m en t o bl ig at io n re cei ve d a s a r es ul t o f anin st al lm en t s al e is ge ne ral ly treat edas p ro pe rty for p ur po se s o f th e Co de . Sect io n 1 5A.4 53
- 1( d) (2 )(i ), Tem

po rary Inco m e Tax Reg s., 4 6 F ed . Reg . 10 71 7 (F eb . 4, 1 98 1) , st at es : “ An i ns ta ll m en t o bl ig at io n i s co ns id eredto be pro pe rty andis subjec t t o va lu at io n * * * witho utreg ardto whet he r th e o bl ig at io n i s embod ie d i n ano te , an ex ecu to ry co nt ract , or any oth er i ns tru m en t, o r is anora l p ro m is e en fo rceabl e un de r lo cal law.” To d et erm in e whi chpro pe rty woul d b e subjec t t o the m ark -to -m ark et reg im e o f se ct io n 8 77 A(a), No ti ce 2 00 9- 85 , supr a, advi se s tha t we l oo k t o s ee whe th er p ro pe rty is o f a ty pe who se va lu e wou ldbe in cl ud ib le inth e v al ue of a de ced en t’s g ro ss est at e fo r Fed eral est at e ta x p ur po se s i f th e co ve redexpa tri at e di edon th e d ay

be fo re h is ex pa tri at io n d at e. A cov eredex pa tri at e is co ns id eredto
own an y in te res t i n p ro pe rty tha t wo ul d b e ta xabl e as pa rt o f hi s g ro ss est at e fo r Fed eral est at e ta x p ur

po se s as if h e o r sh e h addi edon th e d ay be fo re the
ex pa tri at io n d at e as a ci ti zenor r es id en t o f th e Uni te d S ta te s. Id
.- 25 -

The va lu e o f anin st al lm en t o bl ig at io n h el d a t d eath i s i nc lu de d i n the va lu e of a de ced en t’s g ro ss est at e fo r Fed eral est at e ta x p ur po se s. Sec ti on 20 31 (a) sp eci fie s tha t the va lu e o f th e g ro ss est at e co m pr is es th e v al ue of “ al l p ro pe rty, real
orpe rs on al , tan gi bl e o r in tang ib le , wher ev er s itua te d” , to th e ex te ntpro vi de d i n se ct io ns 20 33 th ou gh20 46 . Sect io n 2 03 3 p ro vi de s tha t “ [t]he va lu e o f th e g ro ss es ta te sh al l i nc lu de th e v al ue of a ll pro pe rty to t he ex te ntof the in te res t the rei n o f th e d eced en t atth e ti m e o f hi s d eath.” Sect io n 2 0.2 03 3- 1( b) , Est at e Tax Reg s., li st s ex am

pl es of p ro pe rty inc lu di bl e in a de ced en t’s g ro ss est at e an d p ro vi de s, i n rel ev an t p art , th at“ [n ]ote s o r ot he r cl ai m s h el d b y th e d eced en t ar e li ke wis e in cl ud ed ”. InGum

p v . Comm is si on er, 1 24 F.2d54 0, 5 43 (9t h C ir. 1 94 2) , aff’g 4 2 B.T.A. 19 7 (1 94 0) , th e Co urt o f App eal s fo r th e Nin thCir cu ithe ldth atth e fai r
m ark etva lu e o f anin st al lm en t n ot e rec ei ve d i n e xc ha ng e fo r a s al e o f st oc k was in cl ud edina de ced en t’s g ro ss est at e. Inarg ui ng th atth e 2 00 8 s ta tu te is in ap pl ic ab le to hi s 2 00 4 tran sa ct io n, pe ti ti on er m is st at es th e law. An in st al lm en t o bl ig at io n i s treat edas p ro pe rty whic h is he ldat t he ti m e anex pa tri at e’s as se ts are m ark ed -to -m ark et . Peti ti on er’s as se ts
are m ark ed -to -m ark eton Nov em be r 19 , 20 10 , th e d ay

be fo re h is ex pa tri at io n.- 26 -

B. Mark- to -Ma rk etCal cu la ti on Bec au se pe ti ti on er’s ri gh t t o re cei ve m on th ly ins ta ll m en t p aym en ts is pr op erty who se va lu e wou ldbe in cl ud edinth e v al ue of h is gro ss est at e fo r Fed eral est at e ta x p ur

po se s i f he di edon th e d ay be fo re h e ex pa tri at ed , pet it io ne r is de em edto have so ldth e in st al lm en t o bl ig at io n fo r it s fa ir m ark etva lu e o n the da y be fo re h e ex pa tri at ed . See s ec. 8 77 A(a)(1 ); No ti ce 2 00 9- 85 , supr a. Pet it io ne r arg ue s tha t ev enif s ect io n 8 77 A do es ap pl y to hi s tran sa ct io n, i t
was ap pl ie d i m

pr op erl y . Res po nd en t co nt en ds th atsec ti on 87 7A was ap pl ie d pr op erl y . Inco m pu ti ng a ta x l iabi li ty und er the m ark -to -m ark etreg im e, a co ve red
ex pa tri at e m

us t u se th e fai r m ark etva lu e o f eac h i nt eres t i n p ro pe rty as o f th e d ay be fo re the ex pa tri at io n d at e in acco rd an ce wi th th e v al ua ti onpri nc ip le s ap pl ic ab le fo r pu rp os es of F ed eral est at e ta x, wi th ou t re ga rdto sec ti on s 2 03 2 a nd20 32 A (rel at in g t o a lt ern at e v al ua ti on da te s o r th e v al ua ti on of c ert ai n fa rm or r eal pr op erty ). Not ic e 2 00 9- 85 , supr a. Sect io n 2 0.2 03 1- 4, Es ta te Tax R eg s., p ro vi de s gu id an ce fo r va lu in g i ns ta ll m en t n ot es forpu rp os es of i nc lu di ng th e v al ue inth e va lu e o f a d eced en t’s g ro ss est at e. It s ta te s: “ The fai r m ark etva lu e o f no te s, se cu redor u ns ecu red , is pre su m edto be th e am ou ntof u np ai d p rin ci pa l, p lu s in te res t ac cru edto th e d at e o f de ath, u nl es s the ex ecu to r es tabl is he s tha t the va lu e- 27 -

is lo wer o r th atth e n ot es are wo rth le ss .” See Es ta te of R ob in so n v . Comm is si on er, 69 T.C. 22 2 (1 97 7) . On Nov em be r 19 , 20 10 , th e d ay

be fo re p et it io ne r ex pa tri at ed , pe ti ti on er’s ri gh t t o re cei ve m on th ly ins ta ll m en t p aym en ts is pre su m edto ha ve ha d a fai r m ark etva lu e o f $1 ,37 3,3 74 on th e b as is of t he am ou ntof u np ai d p rin ci pa l
an d a ccru edin te res t. Sect io n 4 53 B(b ) pr ov id es th ata ta xp ay er’s b as is inanin st al lm en t o bl ig at io n is th e ex ces s o f th e fac e v al ue of t he ob li ga ti on (th e rem ai ni ng pri nc ip al am ou nt )
ov er an am ou ntequa l t o the in co m e whi chwou ldbe returnabl e were the ob li ga ti on sat is fie d i n fu ll (th e p orti onof t he pa ym en ts whi chwou ldbe in cl ud ed in th e ta xp ay er’s i nc om e). Pet it io ne r’s ba si s i n h is rig htto rece iv e m on th ly in st al lm en t p aym en ts is $1 89 ,38 8, the ex ces s o f th e fac e am ou ntof t he rig ht , $1 ,37 3,3 74 , ov er an am ountequa l t o the in co m e whi chwou ldbe returnabl e were th e ri gh t s at is fie d i n fu ll , $1 ,18 3,9 86
. Res po nd en t co rrec tl y

ap pl ie d s ect io n 8 77 A to pe ti ti on er’s tran sa ct io n. Res po nd en t’s m ot io n fo r parti al su m m ary jud gm en t wi ll be grant ed , and pe ti ti on er’s m ot io n fo r su m m ary jud gm en t wi ll be de ni ed
. Any con te nt io ns we ha ve no t ad dr es se d a re i rrel ev an t, m oo t, o r m eri tl es s.- 28 -

To re fle ctth e fo reg oi ng , An ap pr op ria te ord er wil l b e is su ed
.