Opinion ID: 2647663
Heading Depth: 2
Heading Rank: 2

Heading: The Pay-Offs

Text: On November 19, 1999, Jack Gaughf transferred 142,783 of his 150,283 shares of Quanta stock from his investment account with Edward D. Jones & Co., L.P. (Edward Jones) to an Edward Jones account in Bodacious, Inc.’s name, which sold the shares on December 9, 1999 for net proceeds of $4,418,243.7 On December 14, 1999, Jack Gaughf transferred from his account to Bodacious, Inc.’s account an additional 2,575 shares of Quanta stock, which Bodacious, Inc. transferred to Gaughf Properties, L.P.’s Edward Jones account on December 20, 1999. Also on December 20, 1999, Jack Gaughf transferred the last 4,925 Quanta shares in his Edward Jones account directly to Gaughf Properties, L.P.’s Edward Jones account. After the December 27, 1999 liquidation of Gaughf Properties, L.P., the 7,500 Quanta shares then held by Gaughf Properties, L.P.—the 2,575 from Bodacious, Inc. plus the 4,925 directly from Jack Gaughf— were transferred to Bodacious, Inc.’s Edward Jones account on December 30, 1999 and sold the next day for net proceeds of $207,003. 6 Notwithstanding the terms of the liquidation agreement, Balazs Ventures, LLC apparently did not receive its pro rata .4% share of the partnership assets upon the dissolution. 7 Sometime in “late [19]99,” Jack Gaughf transferred all of his Quanta stock from his Smith Barney account to an Edward Jones brokerage account and authorized the latter to sell the stock. Trial Tr. 224 (5/17/2010 testimony of Jack Gaughf). 8 On January 31, 2000, J&G gave Jack Gaughf a written opinion that the “basis in [his] interest in the Partnership after the contribution of the Options should include the cost of the Long Option contributed, without adjustment for the Short Option,” that “[t]he liquidation of the Partnership should result in an allocation of the Partnership’s ‘outside’ basis to the properties distributed by it in liquidation”8—that is, to the $45,000 distribution and the 7,500 Quanta shares—and “disposition by [Bodacious, Inc.] of all of the Shares received in liquidation of the Partnership should result in a long term capital loss.” JA 878 (emphasis added). Armed with J&G’s letter, KPMG’s tax department filed separate income tax returns for tax year 1999 on behalf of the Gaughfs (filing jointly), Bodacious, Inc. (filing as an S corporation) and Gaughf Properties, L.P. The Gaughfs reported a long-term capital loss of $119,919 attributable to “Bodacious, Inc.,” JA 591, which was reported on Bodacious, Inc.’s 1999 return as the loss attributable to the difference between the Quanta stock sale price of $4,625,266 and its reported “cost” of $4,745,185.