Opinion ID: 179535
Heading Depth: 2
Heading Rank: 1

Heading: introduction

Text: Appellee, Carlos Sala, participated in an investment program that included an initial phase designed primarily to generate a tax loss so as to offset over $60 million in income he earned during the 2000 tax year. Sala’s wholly owned S Corporation, Solid Currencies, Inc. (“Solid”), acquired a combination of long and short foreign currency options and contributed them to a partnership. Under a pre-determined plan, the partnership existed for only a few weeks and was liquidated before year’s end. Relying on the rule from Helmer v. Comm’r, 34 T.C.M. (CCH) 727 (1975), Sala calculated Solid’s basis in its partnership interest to be $69 million by disregarding the short options and considering only the value of the long options plus Solid’s $8 million cash contribution. Using these figures, Solid’s basis in the property it received from the partnership upon liquidation was calculated as approximately $61 million. Solid sold this property for less than $1 million and Sala claimed a tax loss of over $60 million for the 2000 tax year. As a result, Sala initially reported owing no federal income taxes. 1 In reality, however, Sala’s participation in the investment program did not result in an economic loss, but rather entitled him to a share in the partnership’s profits. 1 Because Carlos Sala and his wife, Tina Zanolini-Sala, jointly filed their tax return and refund claims, Zanolini-Sala is also a party to this lawsuit. For ease of reference, this opinion refers only to Carlos Sala. -2- Sala later amended his 2000 tax return and did not include the loss. Instead, he paid approximately $26 million in taxes, interest, and penalties. In September 2004, Sala filed a form 1040X reclaiming the loss for the 2000 tax year and seeking a refund of nearly $24 million. The Internal Revenue Service disallowed the refund, and Sala filed the instant action. After an eight-day trial, the district court ruled in favor of Sala on all issues and entered judgment. The Government now appeals. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we REVERSE the district court’s decision.