Court Opinion

ID: 4485189
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:14.200034+00
Date Added: 2024-06-11T15:03:43.260400
License: Public Domain

Nims, J., dissenting: The majority’s holding has the potential for opening a substantial loophole. It is undisputed that petitioner would be prohibited by section 465 from aggregating direct holdings in five separaté partnerships. However, under the majority’s ruling, a taxpayer similarly situated may now aggregate such holdings by the simple expedient of conveying them to a holding company partnership like Dallas Associates. The "flush” language at the end of section 465(c)(2) provides that "a partner’s interest in a partnership * * * shall be treated as a single activity to the extent that the partnership * * * is engaged in activities described in [section 465(c)(2)].” Dallas Associates is unquestionably a "partner,” and if any one of the partnerships, such as ICL 001, in which Dallas Associates is a partner, were engaged in multiple activities, Dallas could aggregate those activities as a "single activity.” But Dallas Associates, qua partner, should no more be able to aggregate the activities of the five separate partnerships than petitioner could do if he were a partner directly in such partnerships. Section 465 may be initially puzzling because it disallows the aggregation of like-kind section 465 activities directly engaged in by a taxpayer while the "flush” language concurrently allows the aggregation of such activities if they are carried on together in a partnership. The purpose for permitting this apparent peculiarity, however, becomes quite obvious when one considers the application of the at-risk rules of section 465 to an operating partnership without the existence of the "flush” language. If aggregation were not permitted when activities were carried on in partnership form, the partnership would then be required to specify on each partner’s Schedule K-l the at-risk amount for each activity engaged in by the partnership. For example, if a partnership invested in 50 separate leasing transactions, it would have to provide a breakdown of the at-risk amounts for each separaté leasing transaction on each Schedule K-l for each partner. The obvious intent of the "flush” language was to save operating partnerships from the unreasonable accounting and administrative burdens of providing such information.1  This rationale does not justify the majority’s extension of the "flush” language of section 465(c)(2) to a holding company partnership like Dallas Associates. No conservation of accounting effort is achieved in the instant case by permitting aggregation because each of the second-tier partnerships must, in any event, issue a separate Schedule K-l. Because neither the language nor the obvious intent of section 465 permits aggregation in the case before us, we should not sanction it. Parker, J., agrees with this dissent.   See generally A. Willis, J. Pennell & P. Postlewaite, Partnership Taxation, par. 57.02 (1982).