Court Opinion

ID: 9929949
Source: CourtListenerOpinion
Date Created: 2024-02-05 20:01:57.861905+00
Date Added: 2024-06-11T10:58:07.478872
License: Public Domain

United States Tax Court

                          T.C. Memo. 2024-15

              CHRISTOPHER MEYER, TRANSFEREE,
                         Petitioner

                                   v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

                              __________

Docket No. 1077-22.                             Filed February 5, 2024.

                              __________

Allen Duane Webber, Sonya C. Bishop, and Phillip J. Taylor, for
petitioner.

Kristina L. Rico, Philip M. Schreiber, Angela J. Ganase, Amanda K.
Krugler, Laurel B. Stout, Daniel C. Chavez, Nathaniel C. Smith, and
Deborah Aloof, for respondent.

                      MEMORANDUM OPINION

       BUCH, Judge: Branch Brook, Inc. (Branch Brook), is a Delaware
corporation. In 2000 it engaged in a MidCo transaction through which
Branch Brook’s shareholders sold all their stock in Branch Brook to
BB Acquisition, LLC (BB Acquisition), making BB Acquisition its only
shareholder. Shortly after, Branch Brook sold its securities to a
brokerage firm. Thereafter, Branch Brook entered into a Son-of-BOSS
transaction through which it purchased an option spread and
contributed it to a partnership for an interest in the partnership. A few
months later, Branch Brook resigned from the partnership and received
cash and securities in exchange for its interest.

       The Commissioner determined a deficiency and an accuracy-
related penalty against Branch Brook for its 2000 tax year. He also
determined that Christopher Meyer (petitioner), a former shareholder

                           Served 02/05/24
                                            2

[*2] of Branch Brook, was a transferee of Branch Brook for the 2000 tax
year pursuant to section 6901 1 by recasting the MidCo transaction as an
asset sale followed by a liquidating distribution.

       Pending before the Court is petitioner’s Motion for Summary
Judgment in which he asks that we conclude that he is not a transferee
of Branch Brook pursuant to section 6901 because (1) as a
nonpartnership item, the period of limitation to recast the MidCo
transaction has expired; (2) the Commissioner is collaterally estopped
from asserting that the MidCo transaction was an asset sale followed by
a liquidating distribution; and (3) the Commissioner is judicially
estopped from taking the position that the MidCo transaction was an
asset sale followed by a liquidating distribution.

       Any transferor liability may be assessed against an initial
transferee within one year after the period of limitation to assess the
transferor’s liability expires. I.R.C. § 6901(c)(1). Because the
Commissioner issued a Notice of Transferee Liability to petitioner
before the period of limitation ended, he is not precluded from recasting
the MidCo transaction. Furthermore, the Commissioner is neither
collaterally nor judicially estopped from recasting the MidCo
transaction. For either doctrine to apply, all conditions of the doctrine
must be met. Petitioner failed to meet this requirement for either
doctrine to apply.

                                     Background

       The facts below are derived from the parties’ pleadings and
Motion papers. See Rule 121(c)(1). They are stated solely for the purpose
of deciding the pending Motion and are not findings of fact for this case.
See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d,
17 F.3d 965 (7th Cir. 1994).

      Branch Brook was incorporated in Delaware in 1925 and was in
the business of buying and selling marketable securities. Petitioner and
his brother James Meyer each inherited 25% of Branch Brook’s stock
when their father passed away in 1982. The other 50% of Branch Brook’s
stock passed to petitioner’s cousins, Maurice Meyer III and Dorothy
Purcell, when their father passed away in 1997. At the end of 1997,

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, and Rule references are to
the Tax Court Rules of Practice and Procedure. All monetary amounts are shown in
U.S. dollars and rounded to the nearest dollar.
                                    3

[*3] Branch Brook’s shareholders included petitioner, James Meyer,
Maurice Meyer III, and Dorothy Purcell (shareholders).

       In early 2000, the shareholders decided to sell their shares of
Branch Brook stock. On April 3, 2000, Branch Brook, through its
president, Maurice Meyer III, hired TranStar Capital Corp. (TranStar)
to assist in identifying potential purchasers of Branch Brook stock. The
agreement required Branch Brook to advance TranStar $150,000 for
expenses.

I.    The MidCo Transaction

       James Haber, president of the Diversified Group, Inc. (DGI),
offered to purchase all of Branch Brook’s outstanding stock for a price
equal to 100% of cash on hand plus 93% of the fair market value of the
securities owned by Branch Brook at the time of closing. Closing was to
occur sometime during the first week of May 2000. The shareholders
agreed to a stock purchase. To facilitate this stock purchase, DGI
created BB Acquisition, which was formed in Wyoming with DGI as its
manager and tax matters partner.

      After the shareholders accepted Mr. Haber’s offer, Branch Brook
terminated its agreement with TranStar, and TranStar agreed to refund
the $150,000 advance it had received.

       On May 4, 2000, the shareholders entered into a Stock Purchase
Agreement (SPA) with BB Acquisition. As required by the SPA,
BB Acquisition purchased from the shareholders all of Branch Brook’s
outstanding stock for $49,290,000 and wired the funds to an account
held by Maurice Meyer III, who in turn transferred $12,322,500 each to
petitioner, James Meyer, and Dorothy Purcell.

       On that same date, the shareholders entered into a separate
agreement with BB Acquisition regarding the receivables they were due
pursuant to the SPA. This separate agreement required BB Acquisition
to remit to the shareholders amounts received in connection with those
receivables, specifically: (1) the $150,000 refund from TranStar and (2) a
federal tax refund claim of $22,314 plus interest. Both amounts were to
be split four ways and later remitted to each shareholder.

       BB Acquisition financed the stock purchase by obtaining a $55
million loan from Rabobank. To receive this loan, BB Acquisition was
required (1) to enter into an agreement with Paine Webber, a brokerage
firm, for Paine Webber to buy certain securities from Branch Brook and
                                       4

[*4] (2) to agree to pay back the loan with interest by a specified time.
To satisfy these requirements, the following series of transactions took
place.

      To facilitate the purchase of Branch Brook’s stock, BB Acquisition
opened a Rabobank account. Rabobank deposited $55 million into BB
Acquisition’s account. Then through its Rabobank account,
BB Acquisition transferred $49,290,000 to Maurice Meyer III’s account
as required by the SPA.

       To facilitate the sale of Branch Brook’s securities, Branch Brook
opened a Paine Webber account and a Rabobank account. On May 1,
2000, Branch Brook transferred its securities portfolio to its Paine
Webber account. Then on May 4, 2000, Paine Webber and Branch Brook
entered into an agreement for Paine Webber to purchase the securities
portfolio from Branch Brook. The agreement provided that Paine
Webber would purchase the securities at prices equal to their closing
prices as of May 4, 2000, net its commission and other applicable fees.
On May 5, 2000, Paine Webber transferred $52,053,920 to Branch
Brook’s Rabobank account. It later sold the securities it purchased from
Branch Brook.

       To pay back the loan to Rabobank, Mr. Haber 2 instructed
Rabobank to transfer $50 million from Branch Brook’s Rabobank
account to BB Acquisition’s Rabobank account. He then instructed
Rabobank to debit BB Acquisition’s Rabobank account $55 million plus
interest to pay back the loan Rabobank had made to BB Acquisition.

       After the stock purchase, BB Acquisition owned Branch Brook,
and Branch Brook’s assets consisted primarily of cash. The sale of its
securities to Paine Webber resulted in gain of $47,548,583. This entire
transaction structure has been described as a “MidCo” transaction. See
I.R.S. Notice 2001-16, 2001-1 C.B. 730, clarified by I.R.S. Notice 2008-
111, 2008-51 I.R.B. 1299; see also Diebold Found., Inc. v. Commissioner,
736 F.3d 172, 175–76 (2d Cir. 2013), vacating and remanding Salus
Mundi Found. v. Commissioner, T.C. Memo. 2012-61.

       2 Mr. Haber was the president of DGI; DGI was the manager and tax matters

partner of BB Acquisition; and BB Acquisition was the sole shareholder of Branch
Brook. Mr. Haber made all relevant decisions for all three entities.
                                           5

[*5] II.     Son-of-BOSS Transaction

       Following the MidCo transaction, Branch Brook undertook a
series of transactions intending to generate a loss. On July 3, 2000,
Branch Brook entered into an option spread with Lehman Brothers.
Specifically, Branch Brook purchased a 91-day long option on Japanese
yen with a premium of $50 million and wrote a 91-day short option of
Japanese yen with a premium of $49,750,000. Then on July 13, 2000,
Branch Brook contributed the option spread to AD Investment 2000
Fund LLC (AD Investment) for a membership interest. In determining
its basis in AD Investment, Branch Brook disregarded the short option.
See Helmer v. Commissioner, T.C. Memo. 1975-160, 34 T.C.M. (CCH)
727, 731.

        On October 12, 2000, Branch Brook resigned from
AD Investment, receiving cash of $270,769 and securities in exchange
for its interest in AD Investment. Branch Brook then sold the securities
for $78,168, resulting in a purported short-term capital loss of
$49,773,953 for the sale of those securities. This transaction structure
has been described as a Son-of-BOSS transaction. See I.R.S. Notice
2000-44, 2000-2 C.B. 255.

       By offsetting the loss from this transaction against the gain on
the sale of the Branch Brook securities portfolio, Branch Brook reported
a net loss of $2,208,156 on its 2000 tax return. 3

III.    The Commissioner’s Adjustments

      Through several notices, the Commissioner made adjustments to
the reporting of AD Investment and Branch Brook.

       The Commissioner issued a notice of final partnership
administrative adjustment (FPAA) with respect to AD Investment’s
2000 tax year on November 27, 2007. In short, the FPAA determined
that AD Investment was a sham and should be disregarded. The FPAA
also determined that various accuracy-related penalties would apply to
the partnership-level adjustments. A petition would later be filed
challenging the adjustments made in the FPAA.

       On December 28, 2007, the Commissioner issued a notice of
deficiency to Branch Brook for its 2000 tax year determining a deficiency

        3 This net amount also includes items that are unrelated to the issues discussed

in this Opinion.
                                    6

[*6] of $75,530 and an accuracy-related penalty of $15,106. Those
adjustments related to consulting fees and legal and professional fees.
Because Branch Brook owned an interest in AD Investment, which was
the subject of the FPAA, the December 28, 2007, notice of deficiency
explicitly disregarded AD Investment, stating that “all partnership
items, whether income, loss, deductions or credits, have been
disregarded for purposes of computing a deficiency attributable to the
adjustments in this notice.” Branch Brook did not petition the Tax Court
for a redetermination of the December 28, 2007, deficiency.

       The November 27, 2007, FPAA was the subject of a Tax Court
proceeding at docket No. 9177-08. In that proceeding, we upheld the
Commissioner’s determination to disregard AD Investment. AD Inv.
2000 Fund LLC v. Commissioner, T.C. Memo. 2015-223, supplemented
by T.C. Memo. 2016-226. We found that AD Investment was engaging
in a tax avoidance strategy that was marketed as a foreign currency
investment strategy. Id. at *5. That “strategy involve[d] the purchase
and subsequent contribution of one or more option spreads to an entity
purportedly classified as a partnership for Federal tax purposes.” Id.
The strategy was marketed to investors “as a permanent taxable loss in
excess of its gain or loss for accounting purposes.” Id. We held that
AD Investment should not be recognized as an entity for federal tax
purposes. Id. at *29–30.

       Following the conclusions of the partnership-level proceeding, the
Commissioner issued Branch Brook a second notice of deficiency for the
2000 tax year on October 13, 2017. Predicated on the adjustments from
the partnership-level proceeding, the October 13, 2017, notice of
deficiency determined a deficiency of $16,637,018 and an accuracy-
related penalty of $6,654,807. The October 13, 2017, notice also included
an attachment describing the consequences of the partnership-level
proceeding, specifically, that (1) AD Investment is disregarded;
(2) transactions in which AD Investment engaged are deemed to have
been engaged in directly by its partners; (3) contributions made by the
partners to AD Investment are disregarded; (4) each partner is
responsible for recognizing gains or losses associated with its respective
contributed options and any subsequent trades entered into to close out
the options; (5) a 40% gross valuation misstatement penalty applies; and
(6) a 20% accuracy-related penalty applies to any other adjustments that
are not subject to the 40% penalty. Because Branch Brook was a partner
of AD Investment, these consequences applied to it. Id. at *6. In short,
the Commissioner based the deficiency and accuracy-related penalties
on the Tax Court’s ruling in AD Investment 2000 Fund LLC. Branch
                                    7

[*7] Brook did not file a petition for redetermination of the October 13,
2017, deficiency.

IV.   Notice of Transferee Liability

        On November 9, 2021, the Commissioner issued to petitioner a
Notice of Transferee Liability for Branch Brook’s 2000 tax year,
determining him to be liable for a portion of the liability of Branch
Brook. The November 9, 2021, Notice sets forth Branch Brook’s liability
of $16,637,018 of tax plus a penalty of $6,654,238 and determines that
petitioner is liable for $13,017,216 of that amount. In this Notice, the
Commissioner informed petitioner that a portion of Branch Brook’s
liability is being assessed against him because it was determined that
Branch Brook transferred assets to petitioner, or alternatively, that
Branch Brook made transfers from which petitioner benefited, with
either determination making him a transferee of Branch Brook. The
notice goes on to state:

      The transfers to you are voidable under state law. The
      transferor made the transfers with actual intent to hinder,
      delay or defraud a creditor. They were also constructively
      fraudulent. Branch Brook, Inc. did not receive reasonably
      equivalent value or fair consideration in exchange for the
      transfers. Branch Brook, Inc. was engaged or about to
      engage in a transaction for which its remaining assets were
      unreasonably small. Branch Brook, Inc. intended or
      believed or reasonably should have believed it would incur
      liabilities beyond its ability to pay as they became due.
      These and related transfers rendered Branch Brook, Inc.
      insolvent.

The Commissioner’s determination that petitioner is a transferee is
premised on his position that the MidCo transaction should be recast as
an asset sale followed by a liquidating distribution from Branch Brook
to the shareholders.

       While residing in California, petitioner filed a Petition
challenging the Commissioner’s transferee liability determination. In
his Petition, he alleges that he is not a transferee of Branch Brook or BB
Acquisition and that the period of limitation for the Commissioner to
make either determination expired before he was issued the Notice of
Transferee Liability.
                                     8

[*8] On February 27, 2023, petitioner filed a Motion for Summary
Judgment asking the Court to find as a matter of law that he is not a
transferee of Branch Brook because (1) the period of limitation to recast
the MidCo transaction expired before the Notice of Transferee Liability
was issued; (2) the Commissioner is collaterally estopped from
relitigating facts that this Court has already decided in AD Investment
2000 Fund LLC; and (3) the Commissioner is judicially estopped from
taking a position in this case that is contrary to a position advanced in
AD Investment 2000 Fund LLC. The Commissioner objects.

                                Discussion

       Before the Court is petitioner’s Motion for Summary Judgment.
Although framed as three separate arguments, the question underlying
each argument is whether the Commissioner is precluded from recasting
the MidCo transaction for purposes of determining that petitioner is
liable as a transferee of Branch Brook pursuant to section 6901 for the
2000 tax year.

I.    Summary Judgment Standard

       We may grant summary judgment when there is no genuine
dispute as to any material fact and a decision may be rendered as a
matter of law. Rule 121(a)(2); Sundstrand Corp. v. Commissioner,
98 T.C. at 520. The moving party bears the burden of showing that there
is no genuine dispute as to any material fact. Sundstrand Corp., 98 T.C.
at 520. When a motion for summary judgment is properly made and
supported, an opposing party may not rest on mere allegations or
denials. Rule 121(d). Rather, the party’s response, by affidavits or
declarations, or as otherwise provided in Rule 121, must set forth
specific facts showing there is a genuine factual dispute for trial. Rule
121(c) and (d). In deciding whether to grant summary judgment, we view
the facts and make inferences in the light most favorable to the
nonmoving party. Sundstrand Corp., 98 T.C. at 520.

II.   Section 6901 Transferee

       Section 6901 provides that the Commissioner may assess tax
against the transferee of property of a taxpayer that owes income tax.
I.R.C. § 6901(a)(1)(A)(i); Diebold Found., Inc. v. Commissioner, 736 F.3d
at 183–84. It specifically provides that the “liability, at law or in equity,
of a transferee of property” shall be “assessed, paid, and collected in the
same manner and subject to the same provisions and limitations as in
                                   9

[*9] the case of the taxes with respect to which the liabilities were
incurred.” I.R.C. § 6901(a)(1)(A).

      But for the Commissioner to assess transferee liability, two
requirements must be met. A court must determine first whether “the
party [is] a ‘transferee’ under § 6901 and federal tax law” and second
whether “the party [is] substantively liable for the transferor’s unpaid
taxes under state law.” Salus Mundi Found. v. Commissioner, 776 F.3d
1010, 1018 (9th Cir. 2014), rev’g and remanding T.C. Memo. 2012-61;
see also Slone v. Commissioner, T.C. Memo. 2022-6, at *6–7,
supplementing T.C. Memo. 2016-115. However, petitioner addresses
only the first prong; namely, whether the Commissioner is precluded
from characterizing petitioner as a transferee pursuant to section 6901.
For purposes of deciding this Motion, we will address only petitioner’s
arguments related to that specific issue. We make no determination as
to whether petitioner is a transferee under section 6901.

III.   Parties’ Arguments

       Petitioner asserts that the Commissioner cannot recast the
MidCo transaction as an asset sale followed by a liquidating distribution
of the proceeds to its shareholders for the purpose of deeming petitioner
to be a transferee under section 6901. He puts forth three arguments to
support this assertion. First, he argues that the period of limitation to
recast the transaction expired no later than May 29, 2008 (or May 29,
2009, in relation to an alleged transferee), because the recast is a
nonpartnership item. Next, he argues that the Commissioner is
collaterally estopped from recasting the transaction. And lastly, he
argues that the Commissioner should be judicially estopped from
recasting the transaction.

       The Commissioner disagrees. He argues that petitioner’s Motion
should be denied because (1) there is an issue of material fact as to
whether petitioner is a transferee under section 6901; (2) the Notice of
Transferee Liability was issued to petitioner before the period of
limitation expired; and (3) neither collateral estoppel nor judicial
estoppel bars his recasting the MidCo transaction.

IV.    Whether the Period of Limitation Has Expired

       A.    Burden of Proof

      “The expiration of the period of limitation on assessment is an
affirmative defense, and the party raising it must specifically plead it
                                    10

[*10] and carry the burden of proving its applicability.” Amesbury
Apartments, Ltd. v. Commissioner, 95 T.C. 227, 240 (1990); see also
Rule 39. This general rule applies to a taxpayer advancing a limitations
defense in a transferee liability case. Tr. u/w/o Namm v. Commissioner,
T.C. Memo. 2018-182, at *11.

      To establish a limitations defense,

      the taxpayer must make a prima facie case establishing the
      filing of the . . . return, the expiration of the statutory
      period, and receipt or mailing of the notice after the
      running of the period. Where the party pleading the
      defense makes such a showing, the burden going forward
      with the evidence shifts to [the Commissioner] who must
      then introduce evidence to show that the bar of the statute
      is not applicable. Where [the Commissioner] makes such a
      showing, the burden of going forward then shifts back to
      the party pleading the affirmative defense to show that the
      alleged exception to the expiration of the period is invalid
      or otherwise inapplicable.

Amesbury Apartments, Ltd., 95 T.C. at 240–41 (citations omitted).
However, “the burden of proof, i.e., the burden of ultimate persuasion
. . . never shifts from the party who pleads the bar of the statute of
limitations.” Id. at 241.

      B.     Applicable Statutes of Limitations

       Section 6501(a) provides that the Commissioner must generally
assess tax within three years after a return is filed. However, section
6501 points us to section 6229 for periods of limitation related to
partnership items. I.R.C. § 6501(n)(2). Section 6229(a) addresses “the
period for assessing any tax imposed by subtitle A with respect to any
person which is attributable to any partnership item (or affected item)
for a partnership taxable year.” It provides that the assessment period
generally “shall not expire before the date which is 3 years after the later
of—(1) the date on which the partnership return for such taxable year
was filed, or (2) the last day for filing such return for such year
(determined without regard to extensions).” I.R.C. § 6229(a). Thus,
section 6229 provides a minimum period within which the
Commissioner may adjust partnership items. See Rhone-Poulenc
Surfactants & Specialties, L.P. v. Commissioner, 114 T.C. 533, 542
(2000). In effect, in situations where sections 6501(a) and 6229(a) both
                                     11

[*11] apply, the longer of the two periods controls. Rhone-Poulenc, 114
T.C. at 540–41.

       Section 6901(c) specifies the period of limitation for assessing the
tax of a transferor against a transferee. It provides that “[t]he period of
limitation[] for assessment of any such liability of a transferee . . . shall
be as follows:” for an initial transferee, the tax generally must be
assessed “within 1 year after the expiration of the period of limitation
for assessment against the transferor,” and for a transferee of a
transferee, the tax must generally be assessed “within 1 year after the
expiration of the period of limitation for assessment against the
preceding transferee, but not more than 3 years after the expiration of
the period of limitation for assessment against the initial transferor.”
I.R.C. § 6901(c)(1) and (2). Section 6901(c) does not include an explicit
reference to either section 6501 or section 6229.

      C.     Analysis

       We must decide whether the period of limitation for the
Commissioner to assess transferee liability against petitioner expired
before the Commissioner issued the Notice of Transferee Liability.
Petitioner argues that the period of limitation to assert that he is a
transferee of Branch Brook on account of the recast of the MidCo
transaction expired before the Commissioner issued the Notice of
Transferee Liability. Specifically, he argues that the recast is governed
by the statute of limitations in section 6501, without regard to section
6229. Starting from this premise, petitioner contends that the period of
limitation to assess the liability of Branch Brook on account of the recast
expired no later than May 29, 2008, and the period of limitation to assess
any transferee liability on account of the recast expired no later than
May 29, 2009. Because the Commissioner issued the Notice of
Transferee Liability on November 9, 2021, petitioner argues that the
Notice is untimely.

       To resolve petitioner’s argument, we must address two
preliminary issues. First, we must determine the proper construction of
the statute of limitations for transferees under section 6901(c),
specifically, whether there are separate periods of limitation for
assessing liabilities related to partnership items and nonpartnership
items. Then we must determine the actual period of limitation for
assessing transferee liability against petitioner.
                                            12

[*12]           1.       Whether There Are Separate Limitation Periods for
                         Partnership and Nonpartnership Items

       To determine the proper reading of the statute of limitations
under section 6901(c), we begin with the text of the statute. See Ross v.
Blake, 578 U.S. 632, 638 (2016). And “[u]nless the statute is ambiguous,
our inquiry begins and ends with the statute’s plain language.” Shockley
v. Commissioner, 686 F.3d 1228, 1235 (11th Cir. 2012), rev’g and
remanding T.C. Memo. 2011-96. We are also mindful of the Supreme
Court’s well-established rule that “[s]tatutes of limitation sought to be
applied to bar rights of the Government, must receive a strict
construction in favor of the Government.” Badaracco v. Commissioner,
464 U.S. 386, 391–92 (1984) (quoting E.I. Dupont de Nemours & Co. v.
Davis, 264 U.S. 456, 462 (1924)); see also Shockley v. Commissioner, 686
F.3d at 1235.

       Section 6901(c)(1) provides that in the case of an initial transferee
“[t]he period of limitations for assessment of any such liability of a
transferee . . . shall be . . . within 1 year after the expiration of the period
of limitation for assessment against the transferor.” (Emphasis added.) 4
The plain terms of this statute make it clear that there is only one period
of limitation for assessment of transferee liability.

       Petitioner would have us read into the statute separate periods
for different underlying tax adjustments. But under the omitted-case
cannon, “nothing is to be added to what the text states or reasonably
implies.” Antonin Scalia & Byran A. Garner, Reading Law: The
Interpretation of Legal Texts 93 (2012) (describing the omitted-case
canon); see also United States v. Mississippi, 82 F.4th 387, 392–93 (5th
Cir. 2023). The statute focuses on whether the liability sought to be
assessed against the transferee is assessed within one year of the period
of limitation on assessment for that liability against the transferor. It
does not distinguish between the type of item upon which the
transferor’s liability is premised when determining the period of
limitation under section 6901(c). Therefore, there are no separate
periods of limitation for partnership items and nonpartnership items
when determining whether a period of limitation to assess a transferee

        4 Section 6901(c) provides a period of limitation to assess a transferor’s tax

against an initial transferee. I.R.C. § 6901(c)(1). It also provides a separate rule further
extending the period of limitation for a transferee of a transferee. I.R.C. § 6109(c)(2).
Because we conclude that the period of limitation is open under the initial transferee
rule, we need not consider whether petitioner is a transferee of a transferee.
                                    13

[*13] liability has expired under section 6901(c). We simply look to when
the period of limitation against the transferor expires.

        Petitioner points to section 6901(a) as support for his argument.
Section 6901(a) provides that transferee liability “shall . . . be assessed,
paid, and collected in the same manner and subject to the same
provisions and limitations as in the case of the taxes with respect to
which the liabilities were incurred.” (Emphasis added.) Petitioner
argues that, if the Commissioner cannot revisit and recast the MidCo
transaction with respect to Branch Brook at this time because it is a
nonpartnership item, then neither can he recast the transaction to deem
petitioner a transferee. Petitioner is mistaken. The Commissioner is not
prohibited from recasting the stock sale because he is not seeking to
recast the transaction for the purpose of determining a new liability. The
liability has already been determined and assessed. The recast is solely
for the purpose of determining whether petitioner was a transferee.
Therefore, allowing the Commissioner to recast the transaction to assert
transferee liability is not contrary to section 6901(a).

       Accordingly, section 6901(c) does not provide separate periods of
limitation for partnership items and nonpartnership items.

             2.     Section 6901(c) Limitation Period

       Next, we must determine whether the period of limitation for
assessing transferee liability against petitioner expired before the
Notice of Transferee Liability was issued. Petitioner has not established
that the Notice of Transferee Liability was issued after the period of
limitation expired. Interpreting facts in a light most favorable to the
nonmoving party shows that the period of limitation on assessment of
tax attributable to items of AD Investment remained open from the time
of the filing of the AD Investment 2000 partnership return until the
Commissioner issued the Notice of Transferee Liability to petitioner.

      AD Investment filed a Form 1065, U.S. Return of Partnership
Income, for 2000 on December 14, 2001. Under section 6229(a), the
period of limitation for assessing tax attributable to adjustments to
partnership items would have expired no earlier than December 14,
2004. See Rhone-Poulenc, 114 T.C. at 542. However, through a series of
Forms 872–P, Consent to Extend the Time to Assess Tax Attributable
to Partnership Items, the tax matters partner of AD Investment agreed
to extend the period of limitation to December 31, 2007. See I.R.C.
§ 6229(b).
                                   14

[*14] The Commissioner issued an FPAA with respect to
AD Investment on November 27, 2007. When the FPAA was issued,
34 days remained in the period of limitation. That FPAA suspended the
running of the period of limitation for assessing tax attributable to
adjustments to partnership items for at least 150 days. See I.R.C.
§§ 6226(a) and (b), 6229(d). Because a petition was filed with respect to
that FPAA, the period remained suspended until a decision was entered
and became final. See I.R.C. § 6229(d)(1). We entered a decision with
respect to the November 27, 2007, FPAA on December 16, 2016, and that
decision became final on March 16, 2017. See Rule 190. Under section
6229(d)(2), the period of limitation on assessment would remain
suspended for a year after the decision became final. As of March 16,
2018, the period of limitation would resume running with 34 days
remaining. See I.R.C. § 6229(d). Accordingly, the Commissioner had
until April 19, 2018, to assess tax attributable to adjustments to
partnership items on Branch Brook.

       But on October 13, 2017, with at least 188 days remaining in the
period of limitation, the Commissioner issued a notice of deficiency to
Branch Brook. The notice suspended the period of limitation for 150
days. See I.R.C. §§ 6213(a), 6503(a)(1). Because Branch Brook did not
file a petition with respect to that notice of deficiency, the period of
limitation resumed running on March 12, 2018, with 188 days
remaining. Thus, the period of limitation on assessment against Branch
Brook for tax attributable to adjustments to partnership items would
have lapsed no earlier than September 16, 2018.

       For initial transferees, however, the Commissioner has an
additional year within which to make an assessment. I.R.C. § 6901(c)(1).
For petitioner, that would make the assessment deadline no earlier than
September 16, 2019, which is one year after the period of limitation on
assessment against Branch Brook for tax attributable to adjustments to
partnership items expires. Long before that date, petitioner entered into
a series of written agreements to extend the period of limitation. See
I.R.C. § 6901(d). That series of written agreements extended the
deadline for assessment to December 31, 2021. The Commissioner
issued the Notice of Transferee Liability to petitioner on November 9,
2021, which is within the period of limitation.

V.    Whether Collateral Estoppel Applies

       Collateral estoppel precludes parties (and their privies) from
relitigating in subsequent suits issues that were actually and
                                   15

[*15] necessarily decided by a court of competent jurisdiction. Montana
v. United States, 440 U.S. 147, 153 (1979); Peck v. Commissioner, 90 T.C.
162, 166 (1988), aff’d, 904 F.2d 525 (9th Cir. 1990). It “has the dual
purpose of protecting litigants from the burden of relitigating an
identical issue with the same party or his privy and of promoting judicial
economy by preventing needless litigation.” Senyszyn v. Commissioner,
T.C. Memo. 2016-137, at *5 (quoting Parkland Hosiery Co. v. Shore, 439
U.S. 322, 326 (1979)), supplementing 146 T.C. 136 (2016). It also “fosters
reliance on judicial action by minimizing the possibility of inconsistent
decisions.” Montana, 440 U.S. at 154.

       For collateral estoppel to apply, the following conditions must be
met:

              (1) The issue in the second suit must be identical in
       all respects with the one decided in the first suit.

              (2) There must be a final judgment rendered by a
       court of competent jurisdiction.

             (3) Collateral estoppel may be invoked against
       parties and their privies to the prior judgment.

             (4) The parties must actually have litigated the
       issues and the resolution of these issues must have been
       essential to the prior decision.

             (5) The controlling facts and applicable legal rules
       must remain unchanged from those in the prior litigation.

Peck, 90 T.C. at 166–67 (citations omitted). Petitioner argues that the
Commissioner is collaterally estopped from disregarding and recasting
the MidCo transaction as an asset sale followed by a liquidating
distribution of proceeds to the shareholders. He contends that in
AD Investment 2000 Fund LLC, we found that for federal tax purposes
the shareholders sold their Branch Brook stock, BB Acquisition acquired
control of Branch Brook, that Branch Brook retained assets long after
May 4, 2000, and that Branch Brook continued to exist as a corporation
for many months after May 4, 2000. Therefore, petitioner argues, by
attempting to recast the MidCo transaction, the Commissioner is
relitigating facts already established by this Court in AD Investment
2000 Fund LLC. We disagree.
                                   16

[*16] For collateral estoppel to apply, all five conditions must be met,
and they are not. First, the contested issues in this case and
AD Investment 2000 Fund LLC are not identical in all respects. Issues
are not identical “[i]f the legal matters determined in the earlier case
differ from those raised in the second case.” Commissioner v. Sunnen,
333 U.S. 591, 599–600 (1948). In AD Investment 2000 Fund LLC, T.C.
Memo. 2015-223, at *3, the issue was whether certain limited liability
companies should be respected for federal tax purposes when they were
involved in transactions that allow taxpayers to use offsetting options to
artificially inflate their bases in their partnership interests. Here, the
issue is whether the Branch Brook shareholders’ sale of stock should be
disregarded and recast to deem them transferees of the corporation.
Although the cases involve related entities, they involve separate facts
and separate issues.

       Secondly, the issue of whether the MidCo transaction should be
disregarded was not actually litigated in AD Investment 2000 Fund
LLC. Petitioner points to the findings of fact in AD Investment 2000
Fund LLC as support for concluding that we previously decided for
federal tax purposes that BB Acquisition acquired the Branch Brook
stock from its shareholders pursuant to a stock sale. But in
AD Investment 2000 Fund LLC we merely discussed the mechanics of
the stock sale, not whether it was a stock sale in substance for federal
tax purposes. We were not presented with that question. Here, the
Commissioner does not dispute the form of the transaction, meaning
that there was a sale of Branch Brook stock; rather, the Commissioner
is challenging the substance of the shareholders’ sale of Branch Brook
stock. This was not litigated in AD Investment 2000 Fund LLC, and the
Commissioner is not precluded from litigating this issue here.

      Because we have found that two conditions of collateral estoppel
were not met, we need not address the others. Accordingly, collateral
estoppel does not apply to prevent the Commissioner from recasting the
MidCo transaction.

VI.   Whether Judicial Estoppel Applies

       “Judicial estoppel is an equitable doctrine that prevents parties
in subsequent judicial proceedings from asserting positions
contradictory to those they previously have affirmatively persuaded a
court to accept.” Huddleston v. Commissioner, 100 T.C. 17, 26 (1993). It
                                   17

[*17] focuses on the relationship between a party and the courts,
      and it seeks to protect the integrity of the judicial process
      by preventing a party from successfully asserting one
      position before a court and thereafter asserting a
      completely contradictory position before the same or
      another court merely because it is now in that party’s
      interest to do so.

Id.

     Courts typically look at the following factors in determining
whether the doctrine of judicial estoppel applies:

      (1) A party’s later position must be clearly inconsistent with its
          earlier position;

      (2) The party has succeeded in persuading a court to accept its
          earlier position, so that judicial acceptance of an inconsistent
          position in a later proceeding would create the perception that
          either the first or the second court was misled; and

      (3) The party seeking to assert an inconsistent position would
          derive an unfair advantage or impose an unfair detriment on
          the opposing party if not estopped.

New Hampshire v. Maine, 532 U.S. 742, 750–51 (2001). Petitioner
argues that the Commissioner should be judicially estopped from
disregarding and recasting the MidCo transaction as an asset sale by
Branch Brook followed by a liquidating distribution of proceeds to the
shareholders. He contends that in AD Investment 2000 Fund LLC, the
Commissioner took the position that the shareholders of Branch Brook
sold their Branch Brook stock to BB Acquisition. And by attempting to
recast the transaction, the Commissioner is taking a position here that
is inconsistent with the position taken in AD Investment 2000 Fund
LLC. Petitioner further argues that if we allow the Commissioner to
take this position now, the Commissioner will have an unfair advantage
over, and impose an enormous detriment on, petitioner. We disagree.

      The Commissioner is not taking a position in this case that is
inconsistent with the position taken in AD Investment 2000 Fund LLC.
As previously stated, the Commissioner is not disputing the mechanics
and the form of the stock sale, but he is disputing the actual economic
substance of the transaction. The substance of the shareholders’ sale of
Branch Brook stock to BB Acquisition was not disputed or litigated in
                                   18

[*18] the prior case. That case considered the substance of the Son-of-
BOSS transaction involving Branch Brook and AD Investment. See AD
Inv. 2000 Fund LLC, T.C. Memo. 2015-223. The Commissioner took a
position on the substance of the Son-of-BOSS transaction in
AD Investment 2000 Fund LLC, not the MidCo transaction. Therefore,
we decline to apply the doctrine of judicial estoppel to this case.

VII.   Conclusion

       Petitioner failed to establish that the Commissioner is precluded
from recasting the MidCo transaction as an asset sale followed by a
liquidating distribution. Accordingly, we will deny petitioner’s Motion
for Summary Judgment.

       To reflect the foregoing,

       An appropriate order will be issued.