IRS v. Hildebrand

Opinion

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21  ,QUH%URZQHWDO 1R 3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

(/(&7521,& &,7$7,21  )(' $SS 3 WK &LU

FDVHV PDNH FOHDU WR XV WKDW WKH DSSURDFK XVHG LQ ,Q UH )LOH 1DPH DS

*DUGQHUZDVOLPLWHGWRWKDWFDVHDQGWKLV&LUFXLWKDVUHIXVHG WRH[WHQGWKDWDSSURDFKIXUWKHU7KXVWKHTXHVWLRQRIILQDOLW\ RI D SDUWLDO MXGJPHQW WXUQV RQO\ RQ )HG 5 &LY 3 E 81,7('67$7(6&28572)$33($/6 FHUWLILFDWLRQ7KLV&LUFXLWKDVmHVWDEOLVKH>G@DPXFKQHHGHG )257+(6,;7+&,5&8,7 EULJKWOLQH WHVW IRU GHWHUPLQLQJ ILQDOLW\l XQGHU † G BBBBBBBBBBBBBBBBB WKURXJK m>W@KH DSSOLFDWLRQ RI 5XOH E WR EDQNUXSWF\ SURFHHGLQJVl,QUH)UHGHULFN3HWUROHXP)GDW 8QOLNHWKHSUHYLRXVFDVHVXVLQJ5XOHEWKLVFDVHLVD ,QUH721<$ 0$( %52:1 ; FRQWHVWHGPDWWHUUDWKHUWKDQDQDGYHUVDU\SURFHHGLQJ6HH (8*(1(DQG$1,7$  :,//,$0 / 125721 125721 %$1.5 / 35$&† 72,921(1DQG'25,6 $11  G HG  VWDWLQJ WKDW %DQNUXSWF\ 5XOH  YLHZV  1R REMHFWLRQVWRSURRIRIFODLPVDVmFRQWHVWHGPDWWHU>V@XQGHU %(55<  %DQNUXSWF\ 5XOH  XQOHVV WKH REMHFWLRQ WR WKH FODLP LV 'HEWRUV !  MRLQHG ZLWK D GHPDQG IRU UHOLHI RI WKH NLQG GHVFULEHG LQ BBBBBBBBBBBBBBBBBBBBBB  %DQNUXSWF\5XOH1HYHUWKHOHVV5XOHEDSSOLHV  ZLWKHTXDOIRUFHEHFDXVH)HG5%DQNU3LQFRUSRUDWHV ,17(51$/ 5(9(18( 6(59,&(  5XOHZKLFKLQWXUQLQFRUSRUDWHV)HG5&LY3E 6HH)HG5%DQNU3VHHDOVR,QUH

  ,QUH%URZQHWDO 1R 1R ,QUH%URZQHWDO 

%HIRUH.(11('<DQG68+5+(,15,&+&LUFXLW ZHZHUHIUHHWRFRQVLGHUGLIIHUHQWDSSURDFKHVWRUHVROYLQJWKH sXGJHV*$8*+$1'LVWULFWsXGJH LVVXH,QUH)UHGHULFN3HWUROHXPLQYROYHGDQDSSHDOIURPWKH GLVWULFWFRXUWjVUHYHUVDORIDEDQNUXSWF\FRXUWGHFLVLRQILQGLQJ BBBBBBBBBBBBBBBBB WKDW VHYHUDO RLO DQG JDV OHDVHV ZHUH QRW mOHDVHV RI QRQUHVLGHQWLDOUHDOSURSHUW\IRUWKHSXUSRVHVRI†G l &2816(/ DQGWKHUHIRUHQRWSDUWRIWKHEDQNUXSWF\HVWDWH)GDW :HUHDGWKH,QUH*DUGQHUGHFLVLRQDVm>O@LPLWLQJ>LWV@ $5*8('  +HQU\ (GZDUG +LOGHEUDQG ,,, &+$37(5  KROGLQJWRWKHVSHFLILFFLUFXPVWDQFHVSUHVHQWHGLQWKDWFDVHl 67$1',1*75867((1DVKYLOOH7HQQHVVHHIRU$SSHOODQW ,GDW,QUH*DUGQHUPRUHRYHUGLGmQRWUDLVHRUGHFLGH $OLFH / 5RQN 81,7(' 67$7(6 '(3$570(17 2) WKH 5XOH E FHUWLILFDWLRQ LVVXHl ZH REVHUYHG  ,G s867,&( $33(//$7( 6(&7,21 7$; ',9,6,21 7KHUHIRUHZHUHDVRQHGZHZHUHIUHHWRHPEDUNRQDQRWKHU :DVKLQJWRQ'&IRU$SSHOOHH21%5,()+HQU\(GZDUG SDWK  :H FRQFOXGHG WKDW D EHWWHU DSSURDFK ZDV WR GHHP +LOGHEUDQG ,,, &+$37(5  67$1',1* 75867(( GLVWULFW FRXUW GHFLVLRQV UHPDQGLQJ IRU IXUWKHU SURFHHGLQJV 1DVKYLOOH7HQQHVVHHIRU$SSHOODQW$OLFH/5RQN%UXFH5 ILQDORQO\LIWKH\ZHUHFHUWLILHGSXUVXDQWWR)HG5&LY3 (OOLVHQ81,7('67$7(6'(3$570(172)s867,&( E$VLQ,QUH*DUGQHULWDSSHDUVWKDWKDGZHUHYHUVHG $33(//$7(6(&7,217$;',9,6,21:DVKLQJWRQ'& WKH GLVWULFW FRXUWjV UXOLQJ WKH FDVH ZRXOG KDYH HQGHG IRU$SSHOOHH &RQVHTXHQWO\ WKH 7UXVWHHjV DUJXPHQW WKDW ,Q UH *DUGQHU GHDOV ZLWK D GLIIHUHQW W\SH RI FLUFXPVWDQFH WKDQ RXU PRUH BBBBBBBBBBBBBBBBB UHFHQWGHFLVLRQVLVQRWWHQDEOH 23,1,21 :HDJDLQUHIXVHGWRDGRSWWKH*DUGQHUDSSURDFKLQ,QUH BBBBBBBBBBBBBBBBB 0LOOHUV &RYH  )ROORZLQJ WKH DSSURDFK DGRSWHG LQ ,Q UH .(11('< &LUFXLW sXGJH  7KH %DQNUXSWF\ 7UXVWHH )UHGHULFN3HWUROHXPZHLQVWUXFWHGWKDW,QUH*DUGQHUZDV EURXJKW WKLV DSSHDO IURP WKH GLVWULFW FRXUWjV MXGJPHQW QRWELQGLQJEHFDXVHLWZDVOLPLWHGWRmWKHSDUWLFXODUIDFWVRI UHYHUVLQJWKHGHFLVLRQRIWKHEDQNUXSWF\FRXUWDQGUHPDQGLQJ WKDWFDVHlDQGmWKHFRYHUDJHLVVXHZDVDSXUHTXHVWLRQRIODZ IRU IXUWKHU SURFHHGLQJV FRQVLVWHQW ZLWK WKH GLVWULFW FRXUWjV DQG >WKH@ &RXUWjV UHVROXWLRQ RI WKH LVVXHG HQGHG ZKDW KDG RSLQLRQ7KHFUHGLWRUWKH,QWHUQDO5HYHQXH6HUYLFH,56RU EHHQ SURWUDFWHG OLWLJDWLRQl WZHOYH \HDUV  ,Q UH 0LOOHUV 6HUYLFHXUJHVXVWRGLVPLVVWKLVDSSHDOIRUODFNRIVXEMHFW &RYH)GDW,Q,QUH

7KH +RQRUDEOH 3DWULFLD $ *DXJKDQ 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU EHFDXVH 5XOH E DSSOLHG RQO\ WR ILQDO MXGJPHQWV &RQVHTXHQWO\ sXGJH WKH 1RUWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ 0RRUH DUJXHG XVLQJ E MXVW EHJJHG WKH TXHVWLRQ  ,QUH%URZQHWDO 1R 1R ,QUH%URZQHWDO 

%DQNUXSWF\&RXUWRUWKH'LVWULFW&RXUWDVRQHSURFHHGLQJLQ SXUVXDQW WR )HG 5 &LY 3 E  1R FHUWLILFDWLRQ ZDV EDQNUXSWF\l,QUH)UHGHULFN3HWUROHXP&RUS)GDW UHTXHVWHG RU LVVXHG  $FFRUGLQJO\ ZH GLVPLVV IRU ODFN RI VHHDOVR,QUH

7KH7UXVWHHjVVHFRQGDUJXPHQWIDUHVQREHWWHUWKDQLWVILUVW 3XUVXDQWWR†E WKH7UXVWHHPRYHGWRGLVDOORZWKH 7KH 7UXVWHH RYHUVWDWHV WKH SUHFHGHQWLDO YDOXH RI ,Q UH 6HUYLFHjV FODLPV DV XQWLPHO\  7KH ,56 FRXQWHUHG WKDW WKH *DUGQHU  ,Q ,Q UH *DUGQHU WKH GLVWULFW FRXUW UHYHUVHG WKH WLPHSHULRGZDVHTXLWDEO\WROOHGXQWLOLWUHFHLYHGQRWLFHRIWKH EDQNUXSWF\FRXUWRQWZRLVVXHV7KHILUVWLVVXHZDVDSXUH SURFHHGLQJV  7KH EDQNUXSWF\ FRXUW UHMHFWHG WKH ,56jV TXHVWLRQRIODZWKDWUHTXLUHGQRIXUWKHUIDFWXDOGHYHORSPHQW SRVLWLRQFRQFOXGLQJWKDWWKHSODLQODQJXDJHRI†E  WKHVHFRQGZDVUHPDQGHGIRUIXUWKHUIDFWXDOILQGLQJV7KH GLGQRWSURYLGHIRUHTXLWDEOHWROOLQJDQGWKHUHIRUHGLVPLVVHG GHEWRUDSSHDOHG5HFRJQL]LQJWKHVSOLWDPRQJWKHFLUFXLWVRQ WKHFODLPV6HH,QUH0F4XHHQ%5%DQNU WKHLVVXHRIZKHWKHUDSDUWLDOMXGJPHQWZDVFRQVLGHUHGILQDO 0' 7HQQ   7KH 6HUYLFH DSSHDOHG WKH UXOLQJ LQ LWV DQG WKHUHIRUH YHVWHG DSSHOODWH FRXUWV ZLWK MXULVGLFWLRQ ZH WKUHH FDVHV WR WKH 'LVWULFW &RXUW IRU WKH 0LGGOH 'LVWULFW RI IRXQGSHUVXDVLYHWKHUHDVRQLQJRIWKRVHFLUFXLWVWKDWIRXQG 7HQQHVVHH([HUFLVLQJMXULVGLFWLRQSXUVXDQWWR†D  MXULVGLFWLRQ  /LPLWLQJ RXU KROGLQJ WR WKH mSDUWLFXODU WKHGLVWULFWFRXUWUHYHUVHGWKHEDQNUXSWF\FRXUWUXOLQJWKDW FLUFXPVWDQFHVRI>WKH@FDVHlZHUHDVRQHGWKDWEHFDXVHWKH mZKHUHDJRYHUQPHQWXQLWUHFHLYHVQRQRWLFHRIHQWU\RIDQ ILUVWLVVXHZDVRXWFRPHGHWHUPLQDWLYHWKDWLVUHYHUVLQJWKH RUGHU IRU &KDSWHU  UHOLHI XQWLO DIWHU WKH SHULRG IRU ILOLQJ GLVWULFWFRXUWRQWKHILUVWLVVXHZRXOGHQGWKHFDVHDQGWKH FODLPV KDV SDVVHG WKDW XQLWjV FODLP LV QRW DXWRPDWLFDOO\ ILUVW LVVXH ZDV SXUHO\ OHJDO DQG UHTXLUHG QR IXUWKHU IDFWXDO EDUUHGE\86&†E l,QWHUQDO5HYHQXH6HUYLFH ILQGLQJVWKHRUGHUFRXOGEHFRQVLGHUHGILQDO,QUH*DUGQHU Y +LOGHEUDQG  %5   0' 7HQQ  )GDW,IWKDWZHUHWKHODVWRIRXUFDVHVRQWKHPDWWHU &RQVHTXHQWO\ LW UHPDQGHG WKH FDVH IRU mSURFHHGLQJV RIILQDOLW\WKH7UXVWHHjVSRVLWLRQPD\KDYHVRPHPHULW%XW FRQVLVWHQWZLWKWKH&RXUWjVUXOLQJl,G LWLVQRW 7KH7UXVWHHDSSHDOHGWKHGHFLVLRQ $VRXUPRUHUHFHQWRSLQLRQVRQWKHVXEMHFWRIILQDOLW\KDYH REVHUYHGLQ,QUH*DUGQHUZHOLPLWHGRXUKROGLQJWRWKH IDFWVEHIRUHXV7KHQH[WSXEOLVKHGRSLQLRQWRDGGUHVVWKH TXHVWLRQRIILQDOLW\,QUH)UHGHULFN3HWUROHXPLPSOLHGWKDW  7KH EDQNUXSWF\ RUGHU GHDOW ZLWK ILIWHHQ FDVHV  ,QUH%URZQHWDO 1R 1R ,QUH%URZQHWDO 

,, WK&LUDQG,QUH)UHGHULFN3HWUROHXP&RUS )GDW 7KH6HUYLFHFRQWHQGVWKDWZHQHHGQRWUHDFKWKHPHULWVRI WKHFDVHEHFDXVHZH ODFNVXEMHFWPDWWHUMXULVGLFWLRQDVWKH 7KH7UXVWHHFRXQWHUVZLWKWZRDUJXPHQWV)LUVWLWDUJXHV GLVWULFW FRXUWjV GHFLVLRQ ZDV QRW D ILQDO GHFLVLRQ XQGHU IRUWKHILUVWWLPHDWRUDODUJXPHQWWKDWRXUMXULVSUXGHQFHKDV †G ORRNHGDWEDQNUXSWF\DSSHDOVLQWKHZURQJSRVWXUH5HO\LQJ RQRXUVWDWHPHQWLQ,QUH:DWHUPDQ $VVRFLDWHV,QF :H UHYLHZ GH QRYR MXULVGLFWLRQDO TXHVWLRQV  %HFDXVH )GWK&LUWKDWmZHGLUHFWO\UHYLHZWKH EDQNUXSWF\FRXUWVRSHUDWHDVDGMXQFWVWRGLVWULFWFRXUWVZH EDQNUXSWF\ FRXUWjV GHFLVLRQ UDWKHU WKDQ WKH GLVWULFW FRXUWjV mYLHZ DOO SURFHHGLQJV LQ WKLV DFWLRQ ZKHWKHU LQ WKH UHYLHZRIWKHEDQNUXSWF\FRXUWjVGHFLVLRQlLGWKH7UXVWHH %DQNUXSWF\&RXUWRUWKH'LVWULFW&RXUWDVRQHSURFHHGLQJLQ LQVLVWVWKDWZHPXVWYLHZWKHILQDOLW\TXHVWLRQ LQWKHVDPH EDQNUXSWF\l,QUH)UHGHULFN3HWUROHXP&RUS)G PDQQHU7KDWLVWKH7UXVWHHDUJXHV†GjVUHIHUHQFHWR WK&LUVHHDOVR,QUHEDQNUXSWF\@ DFWLRQ>V@ ZKHWKHU LQ WKH )HG 5 &LY 3 E