Tenth Circuit Affirms Tax Court in Anschutz

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December 27, 2011

As we have previously reported (see herehere, and here), in Anschutz the Tax Court collapsed two transactions and held that they amounted to a taxable sale of stock.  The Tenth Circuit was unmoved by the taxpayer’s appeal and has now affirmed, barely five weeks after hearing oral argument.  In its decision, the court of appeals analyzes the transaction through the lens of the eight factors for determining a sale listed in Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C. 1221, 1237 (1981).  With respect to the factor that assesses whether an equity interest was acquired in the property, the court quotes at length from the IRS’s Feb. 6, 2008, Coordinated Issues Paper on the topic, finding its analysis “compelling and applicable to the case before us.”

The court also rejects the taxpayer’s efforts to analogize its transactions to other approved transactions.  The court explains that the transaction addressed in Rev. Rul. 2003-7 is distinguishable, in part because there was no borrowing of pledged shares.  And the court holds that the taxpayers’ transactions in this case did not fall within the “safe harbor” of Code section 1058 because they “effectively eliminated [the] risk of loss and substantially reduced [the] opportunity for gain.”

Anschutz – Tenth Circuit opinion