SCOTUS Reports

Tag: 2023

  • Charles G. Berwind Trust for David M. Berwind v. Commissioner, T.C. Memo. 2023-146: Application of Section 483 to Settlement Payments in Corporate Mergers

    Charles G. Berwind Trust for David M. Berwind et al. v. Commissioner of Internal Revenue, T. C. Memo. 2023-146 (U. S. Tax Court 2023)

    In a significant ruling, the U. S. Tax Court determined that a $191,257,353 payment received by the Charles G. Berwind Trust in a 2002 settlement was subject to imputed interest under Section 483, dating back to a 1999 merger. The decision hinges on the timing of a corporate merger and its tax implications, resolving a complex dispute over whether the payment was for shares exchanged in 1999 or a settlement in 2002. This case sets a precedent for how settlement payments are treated in relation to corporate mergers under federal tax law.

    Parties

    The petitioners were the Charles G. Berwind Trust for David M. Berwind, David M. Berwind, D. Michael Berwind, Jr. , Gail B. Warden, Linda B. Shappy, and Valerie L. Pawson, as trustees, collectively referred to as the “David Berwind Trust” or “the Trust,” and the individual beneficiaries, including David M. Berwind and Jeanne M. Berwind, D. Michael Berwind, Jr. and Carol R. Berwind, Duncan Warden and Gail Berwind Warden, and Russell Shappy, Jr. and Linda Berwind Shappy. The respondent was the Commissioner of Internal Revenue.

    Facts

    In 1963, Charles G. Berwind, Sr. , established trusts for his four children, including the David Berwind Trust, which held stock in Berwind Corporation. Over the years, the Berwind Corporation underwent various corporate restructurings, including the creation of Berwind Pharmaceutical Services, Inc. (BPSI) and the redemption of shares from some of the trusts. By 1999, BPSI, under the control of Charles G. Berwind, Jr. (Graham Berwind), initiated a short-form merger with BPSI Acquisition Corporation, which resulted in the David Berwind Trust’s shares being cancelled and converted into a right to receive payment. The Trust challenged this merger and sought fair value for its shares, leading to a consolidated legal action known as the Warden litigation and an appraisal proceeding. A settlement was reached in 2002, with BPSI agreeing to pay the Trust $191,000,000, which was placed in an escrow account and later released with accrued interest totaling $191,257,353. The IRS asserted that the payment was subject to imputed interest under Section 483, dating back to the 1999 merger date.

    Procedural History

    The David Berwind Trust filed a petition with the U. S. Tax Court contesting a notice of deficiency issued by the IRS, which claimed that $31,096,783 of the settlement payment was imputed interest and should be taxed accordingly. The case was consolidated with related petitions filed by the Trust’s beneficiaries. The IRS argued that the payment was a deferred payment for the 1999 merger, whereas the Trust contended that the payment was for a 2002 sale of stock. The case involved extensive litigation and settlement negotiations, culminating in the Tax Court’s decision to apply Section 483 to the payment.

    Issue(s)

    Whether the sale or exchange of the David Berwind Trust’s BPSI common stock occurred on December 16, 1999, as part of the merger, or on November 25, 2002, as part of the settlement agreement, for the purposes of applying Section 483 of the Internal Revenue Code?

    Rule(s) of Law

    Section 483 of the Internal Revenue Code applies to payments made on account of the sale or exchange of property, requiring that a portion of the total unstated interest under such a contract be treated as interest. Under the Pennsylvania Business Corporation Law (BCL), a short-form merger between a parent and its 80%-owned subsidiary results in the subsidiary’s shares being cancelled and converted into a right to receive payment, subject to dissenters’ rights under BCL §§ 1571-1580.

    Holding

    The Tax Court held that the sale or exchange of the David Berwind Trust’s BPSI common stock occurred on December 16, 1999, the date of the merger, and that the payment made by BPSI to the Trust was subject to Section 483 as of that date. The payment, including interest earned while in escrow, was deemed made on December 31, 2002, when it was released from the escrow account to the Trust.

    Reasoning

    The Court’s reasoning was based on the legal effect of the short-form merger under Pennsylvania law, which resulted in the immediate cancellation of the Trust’s shares and the establishment of a right to payment. The Court rejected the Trust’s arguments that the merger was void or that the payment was for a 2002 sale, emphasizing that the merger’s validity was not successfully challenged in court and that the settlement agreement did not rescind the merger. The Court also distinguished previous cases relied upon by the Trust, finding them inapplicable to the specific issue of applying Section 483 to a payment resulting from a corporate merger. The Court applied the mechanistic rules of Section 483, determining that the payment was a deferred payment for the 1999 merger, and therefore subject to imputed interest.

    Disposition

    The Tax Court’s decision affirmed the IRS’s position that the payment was subject to imputed interest under Section 483, with the total unstated interest calculated at $31,140,364 based on the payment being made on December 31, 2002, and the sale or exchange occurring on December 16, 1999.

    Significance/Impact

    This case clarifies the application of Section 483 to payments resulting from corporate mergers and settlements, particularly in the context of dissenters’ rights under state corporate law. It establishes that a payment made in settlement of a merger challenge can be treated as a deferred payment for the original merger transaction, subject to imputed interest. The decision impacts how corporate mergers and related litigation settlements are structured and taxed, potentially affecting corporate governance and shareholder rights in similar situations.

  • Madiodio Sall v. Commissioner of Internal Revenue, 161 T.C. No. 13 (2023): Application of I.R.C. § 7451(b) to Extend Filing Deadlines

    Madiodio Sall v. Commissioner of Internal Revenue, 161 T. C. No. 13 (U. S. Tax Ct. 2023)

    In a landmark ruling, the U. S. Tax Court applied I. R. C. § 7451(b) for the first time, extending the deadline for filing a tax petition when the court was closed on the due date. The decision affirmed that if a filing location is inaccessible, the filing period is tolled, ensuring taxpayers’ rights to contest deficiencies even when court closures occur on filing deadlines.

    Parties

    Madiodio Sall, as Petitioner, filed a petition against the Commissioner of Internal Revenue, as Respondent, in the United States Tax Court. The case was designated as Docket No. 26815-22.

    Facts

    The Commissioner issued a notice of deficiency to Madiodio Sall and Ramatoulaye Fall for the tax years 2017 and 2018, dated August 25, 2022, and mailed on August 26, 2022. The 90th day after mailing fell on November 24, 2022, Thanksgiving Day, a federal holiday. The notice specified November 25, 2022, as the last day to file a petition with the U. S. Tax Court, which was a Friday. However, the Tax Court was administratively closed on that day. Madiodio Sall, residing in Colorado, mailed his petition on November 28, 2022, and it was received and filed by the Court on December 1, 2022. The Commissioner moved to dismiss the case for lack of jurisdiction, arguing that the petition was untimely filed.

    Procedural History

    The Commissioner issued a notice of deficiency, and Madiodio Sall filed a petition challenging the deficiency within the extended deadline as per I. R. C. § 7451(b). The Commissioner then moved to dismiss the case for lack of jurisdiction due to an allegedly untimely filing. The Tax Court, in its first application of I. R. C. § 7451(b), determined that the filing deadline was extended due to the inaccessibility of the court on November 25, 2022, and denied the Commissioner’s motion to dismiss.

    Issue(s)

    Whether I. R. C. § 7451(b) extends the deadline for filing a petition with the U. S. Tax Court when the court is closed on the due date, specifically when the closure is due to an administrative decision?

    Rule(s) of Law

    I. R. C. § 7451(b) provides that if a filing location is inaccessible or otherwise unavailable to the general public on the date a petition is due, the period for filing the petition is tolled for the number of days within the period of inaccessibility plus an additional 14 days. I. R. C. § 7503 extends the deadline to the next day that is not a Saturday, Sunday, or legal holiday if the deadline falls on such a day.

    Holding

    The U. S. Tax Court held that I. R. C. § 7451(b) applies to extend the deadline for filing a petition when the court is closed on the due date. Consequently, Madiodio Sall’s petition, filed within 14 days after the period of inaccessibility, was timely, and the Commissioner’s motion to dismiss for lack of jurisdiction was denied.

    Reasoning

    The court reasoned that I. R. C. § 7451(b) was designed to ensure that taxpayers are not disadvantaged by the inaccessibility of filing locations. The court noted that the closure of the Tax Court’s Washington, D. C. office on November 25, 2022, constituted a full-day closure, triggering the application of § 7451(b). The court rejected the Commissioner’s argument that the availability of the electronic filing system negated the inaccessibility of the physical office, emphasizing the statutory language’s focus on the filing location’s availability to the general public. The court calculated the extension by adding one day of inaccessibility to the 14-day tolling period, resulting in a new deadline of December 12, 2022. Since Sall’s petition was filed on December 1, 2022, it was deemed timely. The court also underscored its responsibility to determine jurisdiction independently of the parties’ agreements, citing precedent that the court’s jurisdiction is not subject to the parties’ concessions.

    Disposition

    The U. S. Tax Court denied the Commissioner’s motion to dismiss for lack of jurisdiction, finding Madiodio Sall’s petition to be timely filed under the extended deadline provided by I. R. C. § 7451(b).

    Significance/Impact

    This decision marks the first application of I. R. C. § 7451(b) by the U. S. Tax Court, clarifying its scope and effect. It establishes a precedent that administrative closures of the Tax Court extend the filing deadline, protecting taxpayers’ rights to contest deficiencies even when court closures coincide with filing deadlines. The ruling emphasizes the importance of physical access to filing locations and may influence future interpretations of statutory deadlines in other federal courts. The case also reinforces the principle that courts must independently determine jurisdiction, unaffected by the parties’ agreements or concessions.

  • Soroban Capital Partners LP v. Commissioner, 161 T.C. No. 12 (2023): Application of Limited Partner Exception in Self-Employment Tax

    Soroban Capital Partners LP v. Commissioner, 161 T. C. No. 12 (2023)

    The U. S. Tax Court ruled that determining whether limited partners in a state law limited partnership are ‘limited partners, as such,’ under I. R. C. § 1402(a)(13) requires a functional analysis. This ruling impacts the application of the self-employment tax exclusion for limited partners, affecting how partnerships report net earnings from self-employment and potentially altering tax strategies for limited partnerships.

    Parties

    Soroban Capital Partners LP and Soroban Capital Partners GP LLC, as the tax matters partner (Petitioner), filed against the Commissioner of Internal Revenue (Respondent). The case was adjudicated in the U. S. Tax Court, with docket numbers 16217-22 and 16218-22.

    Facts

    Soroban Capital Partners LP (Soroban) is a Delaware limited partnership subject to the TEFRA audit and litigation procedures for the tax years 2016 and 2017. Soroban reported its net earnings from self-employment by including guaranteed payments to its limited partners and the general partner’s share of ordinary business income. However, it excluded the distributive shares of ordinary business income allocated to its limited partners, Eric Mandelblatt, Gaurav Kapadia, and Scott Friedman, from its computation of net earnings from self-employment. The Commissioner challenged this exclusion, asserting that these limited partners were not limited partners ‘as such’ under I. R. C. § 1402(a)(13) and thus their shares of ordinary business income should be included in Soroban’s net earnings from self-employment.

    Procedural History

    The Commissioner issued Notices of Final Partnership Administrative Adjustment on April 25, 2022, adjusting Soroban’s net earnings from self-employment for the years in issue. Soroban, through its tax matters partner, timely filed a Petition challenging these adjustments. Both parties filed Motions for Summary Judgment. Soroban sought a ruling that the limited partners’ distributive shares of income were excluded from net earnings from self-employment under I. R. C. § 1402(a)(13) or, alternatively, that the issue of limited partners’ roles was not a partnership item subject to TEFRA proceedings. The Commissioner moved for a ruling that the inquiry into the limited partners’ roles was a partnership item that could be determined in these proceedings.

    Issue(s)

    Whether the distributive shares of ordinary business income allocated to limited partners in a state law limited partnership are excluded from the partnership’s net earnings from self-employment under the limited partner exception of I. R. C. § 1402(a)(13)?

    Whether the determination of whether a partner is a ‘limited partner, as such’ under I. R. C. § 1402(a)(13) is a partnership item that can be addressed in a TEFRA partnership-level proceeding?

    Rule(s) of Law

    I. R. C. § 1402(a)(13) provides an exception to net earnings from self-employment for ‘the distributive share of any item of income or loss of a limited partner, as such. ‘ The court must interpret this provision to determine the scope of the limited partner exception.

    I. R. C. § 6221 and related TEFRA provisions mandate that partnership items be determined at the partnership level. Treasury Regulation § 301. 6231(a)(3)-1(b) includes legal and factual determinations underlying partnership items as partnership items themselves.

    Holding

    The court held that the limited partner exception under I. R. C. § 1402(a)(13) does not apply to a partner who is limited in name only. A functional analysis test must be applied to determine if a partner is a ‘limited partner, as such. ‘ Furthermore, the court determined that this inquiry into the functions and roles of limited partners is a partnership item, properly addressed in a TEFRA partnership-level proceeding.

    Reasoning

    The court reasoned that the phrase ‘limited partner, as such’ in I. R. C. § 1402(a)(13) indicates that Congress intended the exception to apply only to partners functioning as passive investors, not those who are limited partners in name only. This interpretation is supported by the legislative history, which aimed to exclude earnings of an investment nature from self-employment tax. The court rejected the argument that the status of limited partner under state law automatically qualifies a partner for the exception, emphasizing the need for a functional analysis to determine whether the partner’s income is derived from passive investment or active participation in the partnership’s business.

    The court further reasoned that the determination of whether a partner is a ‘limited partner, as such’ is a partnership item because it involves factual determinations underlying the calculation of the partnership’s net earnings from self-employment. This aligns with Treasury Regulation § 301. 6231(a)(3)-1(b), which includes such determinations as partnership items. Therefore, the court has jurisdiction to address this issue in a TEFRA partnership-level proceeding.

    The court analyzed the proposed regulations and subsequent moratorium, noting that Congress’s concern was with Treasury’s criteria potentially excluding passive investors from the exception. The court distinguished this from the plain text of the statute, which requires a functional analysis of the partner’s role. The court also considered the TEFRA procedures, affirming that adjustments to partnership items, including the determination of net earnings from self-employment, must be made at the partnership level.

    Disposition

    The court denied Soroban’s Motion for Summary Judgment and granted the Commissioner’s Motion for Partial Summary Judgment, affirming that a functional analysis of the limited partners’ roles is required and is a partnership item subject to TEFRA proceedings.

    Significance/Impact

    This decision clarifies the application of the limited partner exception under I. R. C. § 1402(a)(13), requiring partnerships to conduct a functional analysis to determine if their limited partners qualify for the exclusion from self-employment tax. It impacts how partnerships report net earnings from self-employment and may influence tax planning for limited partnerships. The ruling also reinforces the scope of TEFRA partnership-level proceedings, confirming that inquiries into the roles of limited partners are partnership items that can be resolved at this level. Subsequent courts may rely on this decision when addressing similar issues, and it may prompt further guidance from the IRS on the application of the limited partner exception.

  • YA Global Investments, LP v. Commissioner of Internal Revenue, 161 T.C. No. 11 (2023): U.S. Trade or Business and Withholding Tax Obligations

    YA Global Investments, LP v. Commissioner of Internal Revenue, 161 T. C. No. 11 (U. S. Tax Court 2023)

    In a significant ruling, the U. S. Tax Court determined that YA Global Investments, LP, was engaged in a U. S. trade or business during the years 2006-2008 due to its financing activities, necessitating the payment of withholding tax under IRC Section 1446. The court rejected the partnership’s arguments that its activities were merely investment-related, thus establishing a precedent for similar hedge funds and clarifying the scope of U. S. trade or business activities.

    Parties

    YA Global Investments, LP (Petitioner) and Commissioner of Internal Revenue (Respondent) at the U. S. Tax Court. The Petitioner included YA Global Investments, LP, and its tax matters partners, Yorkville Advisors, GP LLC, and Yorkville Advisors, LLC, during the relevant years.

    Facts

    YA Global Investments, LP, was a Delaware limited partnership that provided funding to portfolio companies through convertible debentures, SEDAs, and other securities. The partnership did not have employees and instead relied on Yorkville Advisors to manage its assets. The portfolio companies paid fees to both YA Global and Yorkville Advisors. For the years 2006, 2007, and 2008, YA Global filed Form 1065 but did not file Form 8804, asserting it was not engaged in a U. S. trade or business based on advice from its accounting firm. The IRS issued notices of final partnership administrative adjustment (FPAAs) for 2006-2008, determining YA Global was engaged in a U. S. trade or business and liable for withholding tax under IRC Section 1446.

    Procedural History

    YA Global and the Commissioner agreed to extend the time to assess tax until March 31, 2015. The IRS issued FPAAs on March 6, 2015, for the taxable years 2006-2008, determining YA Global was engaged in a U. S. trade or business and liable for withholding tax. YA Global filed petitions challenging these determinations. The Tax Court reviewed the case, considering the partnership’s activities, the applicable law, and the statute of limitations.

    Issue(s)

    Whether YA Global Investments, LP, was engaged in a U. S. trade or business during the taxable years 2006-2008, and thus required to withhold tax under IRC Section 1446? Whether the statute of limitations barred the assessment of the withholding tax for 2006 and 2007? Whether YA Global was liable for additions to tax for failure to file Form 8804 and pay the withholding tax?

    Rule(s) of Law

    IRC Section 864(b) defines a “trade or business within the United States” and excludes trading in securities or commodities from this definition. IRC Section 1446 requires a partnership to withhold tax on the portion of its effectively connected taxable income allocable to foreign partners. Treasury Regulation Section 1. 864-2(c)(2) provides a safe harbor for trading in stocks or securities. IRC Section 6501(a) sets a three-year statute of limitations for tax assessments, starting from the filing of the required return.

    Holding

    The Tax Court held that YA Global was engaged in a U. S. trade or business during 2006-2008, as its activities through Yorkville Advisors were continuous, regular, and directed at income or profit beyond mere investment management. The court further held that the statute of limitations did not bar the assessment of withholding tax for 2006 and 2007, as YA Global did not file the required Form 8804, and the extensions agreed upon covered the assessment of the withholding tax. YA Global was liable for additions to tax under IRC Section 6651(a)(1) and (2) for failing to file Form 8804 and pay the withholding tax.

    Reasoning

    The court reasoned that YA Global’s activities, including negotiating, structuring transactions, and receiving fees from portfolio companies, went beyond mere investment management and were akin to a lending and underwriting business. The court rejected YA Global’s argument that it was merely an investor, emphasizing that the fees paid by portfolio companies were not solely for the use of capital but for services provided by Yorkville Advisors. The court also determined that YA Global’s failure to file Form 8804 did not start the statute of limitations under IRC Section 6501(a), as Form 1065 did not disclose the partnership’s liability for withholding tax. The court found that YA Global’s reliance on its advisors’ advice was not reasonable due to the partnership’s later filing of a negligence claim against the advisors. The court concluded that the lack of clear guidance on whether YA Global’s activities constituted a U. S. trade or business did not excuse its failure to file and pay the withholding tax, given the partnership’s consultation with advisors.

    Disposition

    The court entered decisions for the Commissioner for the taxable years 2006 and 2007, and under Rule 155 for the taxable year 2008, holding YA Global liable for the withholding tax and additions to tax. Additional issues for the taxable year 2009 were to be addressed in a subsequent opinion.

    Significance/Impact

    This case significantly impacts hedge funds and similar entities engaged in financing activities, clarifying that such activities can constitute a U. S. trade or business subject to withholding tax obligations under IRC Section 1446. The decision underscores the importance of properly identifying and reporting such activities and the consequences of failing to do so, including liability for withholding tax and additions to tax. The case also provides guidance on the statute of limitations for withholding tax assessments and the relevance of professional advice in determining reasonable cause defenses.

  • Estate of James E. Caan v. Commissioner, 161 T.C. No. 6 (2023): IRA Distributions and Rollover Contributions

    Estate of James E. Caan v. Commissioner, 161 T. C. No. 6 (United States Tax Court 2023)

    The U. S. Tax Court ruled that a partnership interest held in an IRA was distributed to the late actor James Caan in 2015, triggering taxable income. The court determined that Caan failed to roll over the interest within the required 60-day period, and his subsequent liquidation of the interest into cash did not qualify for tax-free treatment. This decision underscores the strict rules governing IRA distributions and the necessity of adhering to the “same property” rule for rollovers.

    Parties

    Estate of James E. Caan, deceased, represented by the Jacaan Administrative Trust, with Scott Caan as Trustee and Special Administrator, was the Petitioner. The Commissioner of Internal Revenue was the Respondent.

    Facts

    James E. Caan, a successful actor, maintained two Individual Retirement Accounts (IRAs) at Union Bank of Switzerland (UBS). One of the IRAs held a partnership interest in the P&A Multi-Sector Fund, L. P. , a hedge fund (P&A Interest). Under the custodial agreement with UBS, Caan was responsible for providing UBS with the P&A Interest’s yearend fair market value (FMV) annually. In 2015, Caan failed to provide the 2014 yearend FMV, leading UBS to distribute the P&A Interest to Caan and issue a Form 1099-R, valuing the interest at its 2013 FMV of $1,910,903. More than a year later, Caan’s financial advisor liquidated the P&A Interest and transferred the cash proceeds to a new IRA at Merrill Lynch. Caan reported the distribution on his 2015 tax return but claimed it as a nontaxable rollover contribution. The IRS disagreed, asserting that the distribution was taxable.

    Procedural History

    The Commissioner issued a notice of deficiency determining a tax deficiency and an accuracy-related penalty for tax year 2015. Caan filed a petition with the U. S. Tax Court for redetermination of the deficiency. During the pendency of the case, Caan requested a private letter ruling to waive the 60-day rollover period, which was denied by the IRS. The Tax Court reviewed the case, considering whether a distribution occurred, whether it qualified as a nontaxable rollover, the FMV of the P&A Interest at the time of distribution, and the IRS’s denial of the waiver request.

    Issue(s)

    1. Whether the P&A Interest was distributed to James E. Caan in tax year 2015 within the meaning of I. R. C. § 408(d)(1)?
    2. Whether the P&A Interest was contributed to Merrill Lynch in a manner that would qualify as a rollover contribution under I. R. C. § 408(d)(3)?
    3. What was the value of the P&A Interest at the time of the distribution?
    4. Does the Tax Court have jurisdiction to review the IRS’s denial of a request for a waiver of the 60-day period for rollover contributions under I. R. C. § 408(d)(3)(I)? If so, what is the standard of review, and did the IRS abuse its discretion in denying the waiver?

    Rule(s) of Law

    1. I. R. C. § 408(d)(1): Distributions from an IRA are taxable to the distributee in the year received.
    2. I. R. C. § 408(d)(3)(A)(i): A distribution from an IRA is not taxable if the entire amount received, including money and any other property, is paid into another IRA within 60 days of receipt.
    3. I. R. C. § 408(d)(3)(D): A partial distribution can be rolled over, but only the portion contributed within 60 days is nontaxable.
    4. I. R. C. § 408(d)(3)(B): Only one rollover contribution is allowed per one-year period.
    5. I. R. C. § 408(d)(3)(I): The IRS may waive the 60-day rollover requirement if failure to do so would be against equity or good conscience.
    6. Treas. Reg. § 1. 408-4(b)(1): A distribution is nontaxable only if the entire amount received, including the same amount of money and any other property, is paid into an IRA.

    Holding

    1. The P&A Interest was distributed to James E. Caan in tax year 2015 within the meaning of I. R. C. § 408(d)(1).
    2. The P&A Interest was not contributed to Merrill Lynch in a manner that would qualify as a rollover contribution under I. R. C. § 408(d)(3), as the interest was liquidated into cash, violating the “same property” rule.
    3. The value of the P&A Interest at the time of distribution was $1,548,010.
    4. The Tax Court has jurisdiction to review the IRS’s denial of a waiver under I. R. C. § 408(d)(3)(I), and the standard of review is abuse of discretion. The IRS did not abuse its discretion in denying the waiver.

    Reasoning

    The court determined that Caan’s failure to provide the P&A Interest’s 2014 yearend FMV triggered UBS’s right to distribute the interest under the custodial agreement. The court found that UBS’s letters and subsequent actions placed Caan in constructive receipt of the P&A Interest, satisfying the requirements for a distribution under I. R. C. § 408(d)(1). The court rejected the Estate’s argument that no distribution occurred, finding the testimony of Caan’s financial advisors not credible. Regarding the rollover, the court applied the “same property” rule, holding that Caan’s liquidation of the P&A Interest into cash disqualified it from being a nontaxable rollover contribution under I. R. C. § 408(d)(3)(A)(i). The court noted that the legislative history and regulations support this interpretation, and there is no statutory exception for IRAs similar to the one for qualified plans under I. R. C. § 402(c)(6). The court valued the P&A Interest at $1,548,010, the ending capital account balance reported by the P&A Fund for tax year 2015, as the Estate did not propose a different value. Finally, the court extended its holding in Trimmer v. Commissioner to find jurisdiction over the IRS’s denial of a waiver under I. R. C. § 408(d)(3)(I) and upheld the denial as not an abuse of discretion, given that granting the waiver would not have changed the outcome due to the “same property” rule violation.

    Disposition

    The court’s decision was to enter a decision under Rule 155, reflecting that the P&A Interest was distributed and taxable, and the IRS did not abuse its discretion in denying the waiver request.

    Significance/Impact

    This case reinforces the strict application of the “same property” rule for IRA rollovers and the importance of adhering to custodial agreement terms regarding non-publicly traded assets. It highlights the potential tax consequences of failing to provide required valuations and the limitations on the IRS’s ability to waive rollover deadlines. The decision may prompt increased scrutiny by taxpayers and their advisors when dealing with nontraditional IRA assets and the necessity of timely compliance with IRA rules to maintain tax advantages.

  • Liberty Global, Inc. v. Commissioner, 161 T.C. No. 10 (2023): Application of Overall Foreign Loss Recapture Rules

    Liberty Global, Inc. v. Commissioner, 161 T. C. No. 10 (2023)

    In a landmark decision, the U. S. Tax Court clarified the scope of I. R. C. § 904(f)(3), ruling that the provision only recaptures the amount necessary to offset an overall foreign loss (OFL) and does not limit or exempt the taxation of any additional gain from the disposition of controlled foreign corporation (CFC) stock. This ruling impacts how multinational corporations calculate their foreign tax credits and underscores the limited applicability of OFL recapture rules.

    Parties

    Liberty Global, Inc. (Petitioner) v. Commissioner of Internal Revenue (Respondent). Liberty Global, Inc. was the petitioner at the trial level before the United States Tax Court.

    Facts

    At the beginning of 2010, Liberty Global, Inc. had an overall foreign loss (OFL) account balance of approximately $474 million. In February 2010, Liberty Global sold all its stock in Jupiter Telecommunications Co. Ltd. (J:COM), a controlled foreign corporation (CFC), realizing a gain of more than $3. 25 billion. On its 2010 tax return, Liberty Global reported $438 million of this gain as dividend income under I. R. C. § 1248 and the remaining $2. 8 billion as foreign-source income, claiming foreign tax credits of over $240 million based on their interpretation of Treas. Reg. § 1. 904(f)-2(d)(1). The Commissioner of Internal Revenue issued a Notice of Deficiency, asserting that Liberty Global overstated its foreign-source income and, consequently, its foreign tax credit.

    Procedural History

    Following the Notice of Deficiency, Liberty Global timely petitioned the United States Tax Court for a redetermination of the deficiency. The case was submitted fully stipulated under Tax Court Rule 122, and the parties agreed that I. R. C. § 904(f)(3) applied to the sale of J:COM stock. The central issue before the court was the interpretation of I. R. C. § 904(f)(3) concerning the treatment of gain beyond the amount necessary to recapture the OFL.

    Issue(s)

    Whether I. R. C. § 904(f)(3)(A) limits the gain recognized from the disposition of CFC stock to the amount necessary to recapture the taxpayer’s OFL, thus exempting any remaining gain from taxation?

    Whether I. R. C. § 904(f)(3)(A) is ambiguous and whether Treas. Reg. § 1. 904(f)-2(d)(1) requires treating the entire gain from the disposition of CFC stock as foreign-source income?

    Rule(s) of Law

    I. R. C. § 904(f)(3)(A) states that upon the disposition of certain property, “the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)), shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year. “

    Holding

    The court held that I. R. C. § 904(f)(3)(A) only applies to the gain necessary to recapture the OFL and does not override any other recognition provisions under chapter 1 of the Internal Revenue Code. The court further held that I. R. C. § 904(f)(3)(A) is not ambiguous and does not recharacterize as foreign-source gain any amount in excess of that necessary to recapture the OFL. Additionally, the court ruled that Treas. Reg. § 1. 904(f)-2(d)(1) does not recharacterize as foreign-source gain any amount in excess of that necessary to recapture the OFL.

    Reasoning

    The court’s reasoning focused on the plain language of I. R. C. § 904(f)(3)(A), which specifies that the provision only mandates recognition of foreign-source income to the extent necessary to offset the remaining OFL. The court rejected Liberty Global’s argument that the provision limited the total gain recognized to the OFL amount, noting that the statute does not address the treatment of gain beyond the OFL recapture amount. The court found that the silence of the statute on this matter meant that other applicable Code sections, such as I. R. C. §§ 865, 1001, and 1248, continued to govern the treatment of the excess gain. The court also dismissed Liberty Global’s contention that the statute was ambiguous and that the regulation required all gain to be treated as foreign-source income, emphasizing that the regulation’s text and context only address the gain necessary for OFL recapture.

    The court considered the broader statutory scheme, noting that I. R. C. § 904(f)(3) was designed to limit foreign tax credits and not to exempt significant portions of gain from taxation. The court also pointed out that Liberty Global’s interpretation would lead to inconsistent and illogical results compared to taxpayers without OFLs, which the statute did not support.

    Disposition

    The court ruled in favor of the Commissioner regarding the interpretation of I. R. C. § 904(f)(3) and its application to Liberty Global’s gain from the sale of J:COM stock. The court upheld the Commissioner’s position that the statute does not limit or exempt the taxation of gain beyond the amount necessary for OFL recapture. The court allowed Liberty Global to deduct its foreign taxes for 2010 under I. R. C. § 164(a)(3), as conceded by the Commissioner.

    Significance/Impact

    This decision has significant implications for multinational corporations involved in the disposition of CFC stock, clarifying that I. R. C. § 904(f)(3) is narrowly focused on recapturing OFLs and does not provide a mechanism for limiting or exempting taxation of additional gain. The ruling reinforces the principle that statutory provisions must be read in the context of the entire Code and not interpreted to create unintended tax benefits. It also emphasizes the importance of clear statutory language and the limited scope of regulatory authority in interpreting tax statutes. Subsequent courts and practitioners will likely reference this decision when addressing similar issues related to foreign tax credits and OFL recapture.

  • Estate of Andrew J. McKelvey v. Commissioner of Internal Revenue, 161 T.C. No. 9 (2023): Taxation of Variable Prepaid Forward Contracts and the Application of Section 1234A

    Estate of Andrew J. McKelvey v. Commissioner of Internal Revenue, 161 T. C. No. 9 (2023)

    The U. S. Tax Court ruled that Andrew J. McKelvey’s estate realized $71. 6 million in short-term capital gains in 2008 from the termination of variable prepaid forward contracts (VPFCs). The court held that the exchange of original VPFCs for new ones constituted a taxable termination under Section 1234A, impacting how similar financial instruments are taxed and clarifying the tax treatment of derivative obligations.

    Parties

    Estate of Andrew J. McKelvey, Deceased, with Bradford G. Peters as Executor (Petitioner) v. Commissioner of Internal Revenue (Respondent). The case was heard in the U. S. Tax Court and later appealed to the U. S. Court of Appeals for the Second Circuit, with subsequent remand to the Tax Court.

    Facts

    In 2007, Andrew J. McKelvey, the founder of Monster Worldwide, Inc. , entered into two variable prepaid forward contracts (VPFCs) with Bank of America (BofA) and Morgan Stanley & Co. International plc (MSI). Under these contracts, McKelvey received cash prepayments in exchange for agreeing to deliver a variable quantity of Monster shares or their cash equivalent on specific future dates in 2008. In 2008, before the original settlement dates, McKelvey paid additional consideration to extend the settlement dates of these contracts to 2010. He passed away later that year. The IRS determined that the exchanges of the original VPFCs for the amended ones resulted in taxable gains for the year 2008.

    Procedural History

    The case was initially decided by the U. S. Tax Court in Estate of McKelvey v. Commissioner, 148 T. C. 312 (2017), where the court held that the exchanges did not result in taxable gains under Sections 1001 and 1259. The Commissioner appealed to the U. S. Court of Appeals for the Second Circuit, which reversed the Tax Court’s decision in Estate of McKelvey v. Commissioner, 906 F. 3d 26 (2d Cir. 2018), determining that the exchanges resulted in constructive sales under Section 1259 and remanded the case for further proceedings on the application of Section 1234A. On remand, the Tax Court found that the exchanges constituted a taxable termination under Section 1234A, resulting in short-term capital gains.

    Issue(s)

    Whether the exchange of the original VPFCs for amended VPFCs in 2008 constituted a taxable termination of obligations under Section 1234A, resulting in short-term capital gains?

    Rule(s) of Law

    Section 1234A of the Internal Revenue Code provides that gain or loss attributable to the termination of a right or obligation with respect to property, which is a capital asset, shall be treated as gain or loss from the sale of a capital asset. The Second Circuit’s decision established that the exchanges of the VPFCs were treated as if the original contracts were exchanged for new ones, invoking Revenue Ruling 90-109’s concept of a “fundamental or material change” in contractual terms.

    Holding

    The Tax Court held that the exchange of the original VPFCs for the amended VPFCs in 2008 constituted a taxable termination of obligations under Section 1234A, resulting in $71,668,034 of short-term capital gain for the estate in the tax year 2008.

    Reasoning

    The Tax Court reasoned that the exchanges of the original VPFCs for the amended ones were treated as if the original contracts were actually exchanged for new ones, following the Second Circuit’s application of Revenue Ruling 90-109. This treatment was akin to an option repurchase, resulting in the termination of McKelvey’s obligations under the original VPFCs. The court applied Section 1234A, which governs the tax treatment of the termination of obligations with respect to capital assets, and found that the Monster shares, to which the VPFCs related, were capital assets. The court rejected the application of the open transaction doctrine, as the values of the assets exchanged were ascertainable at the time of the exchange. The court calculated the gain using the Black-Scholes option pricing formula, which was stipulated by both parties, to determine the value of McKelvey’s ongoing obligations under the new VPFCs immediately following the exchange.

    Disposition

    The Tax Court’s decision resulted in a finding of $71,668,034 in short-term capital gains for the estate for the tax year 2008, and the case was to be entered under Rule 155 for the computation of the tax liability.

    Significance/Impact

    The decision clarifies the tax treatment of VPFCs and similar financial instruments, establishing that the exchange of such contracts, when resulting in a fundamental change, can be treated as a taxable termination under Section 1234A. This ruling may impact how taxpayers and financial institutions structure and report gains or losses from derivative contracts. It also underscores the importance of the underlying property in determining the tax treatment of derivatives, even when the taxpayer’s position is not classified as property. The decision has implications for tax planning and compliance in the realm of financial derivatives, particularly in the context of variable prepaid forward contracts.

  • Sanders v. Commissioner, 161 T.C. No. 8 (2023): Jurisdictional Nature of the 90-Day Deadline for Filing Petitions in Deficiency Cases

    Sanders v. Commissioner, 161 T. C. No. 8 (2023)

    In Sanders v. Commissioner, the U. S. Tax Court reaffirmed that the 90-day deadline for filing petitions in deficiency cases is jurisdictional. The ruling, which has significant implications for taxpayers, came despite a contrary decision from the Third Circuit and in the absence of clear guidance from the Fourth Circuit, to which this case is appealable. The court’s decision underscores the importance of timely filing and the jurisdictional limitations on challenging tax deficiencies.

    Parties

    Tiffany Lashun Sanders, the Petitioner, filed a pro se petition against the Respondent, Commissioner of Internal Revenue, in the U. S. Tax Court. The case was docketed under No. 15143-22 and is appealable to the U. S. Court of Appeals for the Fourth Circuit.

    Facts

    On March 21, 2022, the Commissioner issued a notice of deficiency to Tiffany Lashun Sanders for tax year 2018. The notice specified June 21, 2022, as the last day to file a petition with the Tax Court. Sanders, however, mailed her petition via U. S. Postal Service Priority Mail on June 23, 2022, which was delivered to the court on June 24, 2022, three days after the deadline. At the time of filing, Sanders resided in Maryland.

    Procedural History

    The Commissioner moved to dismiss the case for lack of jurisdiction, arguing that Sanders’ petition was filed beyond the 90-day period stipulated in I. R. C. § 6213(a). Sanders did not object to the motion. The Tax Court, adhering to its precedent established in Hallmark Research Collective v. Commissioner, 159 T. C. 126 (2022), and considering the absence of a contrary published opinion from the Fourth Circuit, maintained that the 90-day filing deadline was jurisdictional. Consequently, the court granted the Commissioner’s motion and dismissed the case for lack of jurisdiction.

    Issue(s)

    Whether the 90-day deadline for filing a petition with the U. S. Tax Court in deficiency cases, as set forth in I. R. C. § 6213(a), is jurisdictional?

    Rule(s) of Law

    The court applied I. R. C. § 6213(a), which states that “Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency . . . is mailed . . . the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. ” The court also considered § 7459(d), which provides that a nonjurisdictional dismissal of a deficiency case by the Tax Court will generally have preclusive effect in subsequent refund suits. The court further relied on the Supreme Court’s clear statement rule from Boechler, P. C. v. Commissioner, 142 S. Ct. 1493 (2022), which requires a clear statement from Congress for a filing deadline to be considered jurisdictional.

    Holding

    The U. S. Tax Court held that the 90-day deadline for filing petitions with the Tax Court in deficiency cases, as stipulated in I. R. C. § 6213(a), is jurisdictional. Consequently, Sanders’ untimely filing of the petition resulted in the court’s dismissal of the case for lack of jurisdiction.

    Reasoning

    The court’s reasoning was grounded in the statutory text, context, and historical treatment of § 6213(a). The court noted that the prior construction canon supported the jurisdictional nature of the deadline, as Congress had repeatedly reenacted and amended the statute without changing the text that courts had consistently interpreted as jurisdictional. The court also emphasized the contextual interplay between § 6213(a) and § 7459(d), which affects the preclusive effect of Tax Court decisions. The court distinguished its decision from the Third Circuit’s ruling in Culp v. Commissioner, 75 F. 4th 196 (2023), asserting that the Third Circuit’s decision did not address the prior construction canon and underrepresented the frequency with which § 7459(d)’s preclusive effect is implicated. The court reaffirmed its commitment to stare decisis and its obligation to ensure uniformity in tax law, noting that the absence of a contrary published opinion from the Fourth Circuit did not compel it to deviate from its precedent.

    Disposition

    The U. S. Tax Court dismissed the case for lack of jurisdiction due to the untimely filing of the petition by Sanders.

    Significance/Impact

    Sanders v. Commissioner reinforces the jurisdictional nature of the 90-day filing deadline in deficiency cases, impacting taxpayers’ ability to challenge tax assessments in the U. S. Tax Court. The decision highlights the importance of adhering to statutory deadlines and underscores the court’s commitment to its precedents and the principles of stare decisis. The case also illustrates the broader implications of jurisdictional dismissals, such as the availability of alternative avenues like audit reconsideration and refund claims, which remain open to taxpayers when a petition is dismissed for lack of jurisdiction. The ruling sets a clear precedent for future cases and underscores the need for taxpayers to be vigilant about filing deadlines to avoid jurisdictional dismissals.

  • Kraske v. Commissioner, 161 T.C. No. 7 (2023): Timeliness of Supervisory Approval for Penalties under I.R.C. § 6751(b)

    Kraske v. Commissioner, 161 T. C. No. 7 (2023)

    In Kraske v. Commissioner, the U. S. Tax Court ruled that supervisory approval for penalties under I. R. C. § 6751(b) is timely if given before the supervisor loses discretion, following the Ninth Circuit’s precedent in Laidlaw’s Harley Davidson. This decision impacts how and when the IRS must approve penalties, ensuring discretion remains with the supervisor until the case is transferred to Appeals.

    Parties

    Wolfgang Frederick Kraske, the petitioner, proceeded pro se. The respondent was the Commissioner of Internal Revenue, represented by Alexander D. DeVitis and Christine A. Fukushima.

    Facts

    The IRS examined Wolfgang Frederick Kraske’s federal income tax returns for 2011 and 2012. On June 2, 2014, a tax compliance officer (TCO) issued Kraske a 15-day letter proposing deficiencies and penalties under I. R. C. § 6662(a) and (b)(2). Kraske was given 15 days to request a conference with the IRS Office of Appeals. On July 16, 2014, Kraske mailed a request for Appeals consideration, which was received by the TCO on July 24, 2014. On July 21, 2014, the TCO’s immediate supervisor approved the penalties. The case was forwarded to Appeals on August 12, 2014, after which Kraske was unable to reach a settlement, leading to a notice of deficiency issued on July 28, 2015.

    Procedural History

    Kraske timely filed a petition with the U. S. Tax Court, challenging the penalties under I. R. C. § 6662(a) and (b)(2). The court previously sustained the tax deficiencies for 2011 and 2012 in a separate opinion, T. C. Memo. 2023-128. The current opinion focuses on the timeliness of the supervisory approval of the penalties under I. R. C. § 6751(b). The court applied the Golsen doctrine, following the Ninth Circuit’s precedent in Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F. 4th 1066 (9th Cir. 2022), which reversed and remanded 154 T. C. 68 (2020).

    Issue(s)

    Whether the written supervisory approval of the penalties under I. R. C. § 6751(b) was timely, given that it occurred after the issuance of the 15-day letter but before the case was transferred to the IRS Office of Appeals.

    Rule(s) of Law

    I. R. C. § 6751(b)(1) requires that no penalty shall be assessed unless the initial determination of such assessment is personally approved in writing by the immediate supervisor of the individual making such determination. The Ninth Circuit in Laidlaw’s Harley Davidson held that supervisory approval must be obtained before the assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment.

    Holding

    The U. S. Tax Court held that the written supervisory approval for the penalties was timely under the standard set by the Ninth Circuit in Laidlaw’s Harley Davidson, as the supervisor retained discretion to approve or withhold approval when she did so on July 21, 2014, before the case was transferred to Appeals.

    Reasoning

    The court applied the Golsen doctrine, following the Ninth Circuit’s decision in Laidlaw’s Harley Davidson, which held that supervisory approval under § 6751(b) is timely if given before the supervisor loses discretion. The court rejected its prior position in Clay v. Commissioner, which required approval before formal communication of the penalty to the taxpayer. The Ninth Circuit’s rationale was deemed to extend to penalties subject to deficiency procedures, and the court found that the supervisor retained discretion when approving the penalties on July 21, 2014, as the case had not yet been transferred to Appeals. The court noted that this timeline was consistent with the Ninth Circuit’s findings in Laidlaw’s Harley Davidson. The court also considered the broader implications of the Ninth Circuit’s holding, which emphasized the importance of supervisory discretion over formal communication deadlines.

    Disposition

    The court entered a decision for the respondent, affirming the imposition of the penalties under I. R. C. § 6662(a) and (b)(2).

    Significance/Impact

    Kraske v. Commissioner clarifies the timing requirements for supervisory approval under I. R. C. § 6751(b), aligning with the Ninth Circuit’s precedent. This ruling ensures that supervisory approval is considered timely if given before the supervisor loses discretion, which may occur upon transfer to Appeals. The decision impacts IRS procedures and taxpayer rights, emphasizing the importance of maintaining supervisory discretion throughout the penalty assessment process. It also highlights the application of the Golsen doctrine, where the Tax Court follows the precedent of the Court of Appeals with jurisdiction over the appeal, ensuring consistency and judicial efficiency. Subsequent courts may refer to this case when addressing similar issues regarding the timeliness of penalty approvals.

  • Estate of James E. Caan v. Commissioner, 161 T.C. No. 6 (2023): IRA Distribution and Rollover Rules Under I.R.C. § 408(d)

    Estate of James E. Caan v. Commissioner, 161 T. C. No. 6 (2023)

    The U. S. Tax Court ruled that James E. Caan’s partnership interest in a hedge fund, held in an IRA, was distributed to him when UBS resigned as custodian due to Caan’s failure to provide a required valuation. The court held that the subsequent liquidation of the interest and contribution of cash proceeds to another IRA did not qualify as a tax-free rollover, as it violated the “same property” rule under I. R. C. § 408(d)(3). This decision underscores the strict application of IRA distribution and rollover rules, impacting how non-traditional assets are managed within IRAs.

    Parties

    Estate of James E. Caan, Deceased, Jacaan Administrative Trust, Scott Caan, Trustee, Special Administrator, as Petitioner, v. Commissioner of Internal Revenue, as Respondent.

    Facts

    James E. Caan held two Individual Retirement Accounts (IRAs) with Union Bank of Switzerland (UBS), one of which contained a partnership interest in the P&A Multi-Sector Fund, L. P. (P&A Interest). The custodial agreement between Caan and UBS required Caan to provide UBS with the P&A Interest’s year-end fair market value (FMV) annually. In 2015, Caan failed to provide the 2014 year-end FMV, prompting UBS to notify him of the distribution of the P&A Interest and issue a Form 1099-R reporting a distribution valued at $1,910,903, which was the last known FMV from 2013. More than a year later, Caan’s financial advisor liquidated the P&A Interest and contributed the cash proceeds to an IRA at Merrill Lynch.

    Procedural History

    Caan reported an IRA distribution on his 2015 income tax return, claiming it was nontaxable as a rollover contribution under I. R. C. § 408(d)(3). The Commissioner disagreed and issued a notice of deficiency. Caan requested a private letter ruling to waive the 60-day period for rollover contributions, which was denied. Caan then filed a petition with the U. S. Tax Court for redetermination of his 2015 income tax deficiency under I. R. C. § 6213(a).

    Issue(s)

    Whether the P&A Interest was distributed to Caan in tax year 2015 within the meaning of I. R. C. § 408(d)(1)? Whether the P&A Interest was contributed to Merrill Lynch in a manner that would qualify as a rollover contribution under I. R. C. § 408(d)(3)? What was the value of the P&A Interest at the time of the distribution? Whether the Tax Court has jurisdiction under I. R. C. § 6213(a) to review the Commissioner’s denial of Caan’s request for a waiver of the 60-day period for rollover contributions under I. R. C. § 408(d)(3)(I)? What is the standard of review for such a denial, and did the Commissioner abuse his discretion in denying the waiver?

    Rule(s) of Law

    I. R. C. § 408(d)(1) governs the taxability of IRA distributions. I. R. C. § 408(d)(3) allows for tax-free rollovers if the entire amount received is contributed to another IRA within 60 days, and the same property rule requires the exact same property to be contributed. I. R. C. § 408(d)(3)(I) permits the IRS to waive the 60-day requirement under certain conditions. The Tax Court has jurisdiction to review denials of waivers under I. R. C. § 408(d)(3)(I) and reviews such denials for abuse of discretion.

    Holding

    The P&A Interest was distributed to Caan in tax year 2015 within the meaning of I. R. C. § 408(d)(1). The subsequent contribution of the P&A Interest to Merrill Lynch did not qualify as a tax-free rollover under I. R. C. § 408(d)(3) because Caan changed the character of the property by liquidating it and contributing cash. The value of the P&A Interest at the time of distribution was $1,548,010. The Tax Court has jurisdiction to review the Commissioner’s denial of a waiver under I. R. C. § 408(d)(3)(I), and the standard of review is abuse of discretion. The Commissioner did not abuse his discretion in denying the waiver because granting it would not have helped Caan due to the violation of the same property rule.

    Reasoning

    The court found that UBS distributed the P&A Interest to Caan in 2015 when it resigned as custodian due to Caan’s failure to provide the required valuation. This action placed Caan in constructive receipt of the P&A Interest. The court applied the same property rule established in Lemishow v. Commissioner, holding that Caan’s liquidation of the P&A Interest and contribution of cash to another IRA did not qualify as a tax-free rollover. The court also considered the legislative history and regulations supporting the strict application of the same property rule. Regarding the value of the P&A Interest, the court accepted the Commissioner’s proposed value of $1,548,010, as it closely matched the liquidation proceeds. Finally, the court extended its holding in Trimmer v. Commissioner to find jurisdiction to review the Commissioner’s denial of a waiver under I. R. C. § 408(d)(3)(I) and upheld the denial as not an abuse of discretion because the waiver would not have changed the outcome due to the violation of the same property rule.

    Disposition

    The Tax Court affirmed the Commissioner’s determination that the P&A Interest was distributed and taxable, and upheld the denial of the waiver request.

    Significance/Impact

    This case reaffirms the strict application of the same property rule in IRA rollovers and the consequences of failing to adhere to custodial agreement requirements for non-traditional assets in IRAs. It highlights the importance of timely providing valuations for such assets and the potential tax implications of failing to do so. The decision also clarifies the Tax Court’s jurisdiction and standard of review for denials of waivers under I. R. C. § 408(d)(3)(I), which may impact future cases involving IRA distribution issues.