An appropriate decision will be entered.
HOLMES,
The Commissioner aims to sink his shelter.
Robert "Bobby" Heitmeier left college after only one semester to work as a deckhand on a tugboat. He rose to become a captain and then a riverboat pilot. Riverboat pilots and captains ought2015 Tax Ct. Memo LEXIS 9">*10 not to be confused. A captain is almost always in command of the ship, except when it goes into a lock system or a drydock. Captaining is good work, but piloting--ah, "a pilot, in those days, was the only unfettered and entirely independent human being that lived in the earth."1*30 Pilots guide ships through congested harbors and ports using their intensely local knowledge of maritime conditions. This comes at a price, and even in antebellum America pilots earned a "princely salary."
*31 The City of New Orleans has been a major world port for nearly three centuries. The Louisiana legislature has controlled the activities and appointment of pilots since before the territory was admitted as a state. In 1991 the state approved fifteen new riverboat casinos. Heitmeier shrewdly saw that as2015 Tax Ct. Memo LEXIS 9">*12 a business opportunity--gambling people knew Vegas, but they weren't "going to know anything about a boat"--so he set up a business to provide maritime crews to the new casinos. Each riverboat needed about sixty of Heitmeier's employees, roughly four crews per ship, who could work 12-hour-long, 7-day-on, 7-day-off shifts. This work soon became less than arduous, as the boats quickly stopped actually cruising on the river and became attached as firmly as barnacles to the docks. (Though sometimes they docked on a ditch filled with river *32 water--"boats in moats" as they are called.)32015 Tax Ct. Memo LEXIS 9">*13 Heitmeier incorporated that business as Riverboat Services, Inc., in 1995 and was its sole shareholder.
Heitmeier also formed two other businesses around the same time for his riverboat-related activities--Westbank Riverboat Services, Inc., and BRK Consulting, LLC. Heitmeier used Westbank to supply2015 Tax Ct. Memo LEXIS 9">*14 workers to the riverboat casinos, and did his own consulting work through BRK Consulting. Heitmeier reported more than $230,000 of income from Westbank for 2001. He shared *33 ownership of BRK with his wife, and they each reported more than $70,000 of income from it for 2001. By October 2001 he had about $1 million invested in various Merrill Lynch accounts.
In 2001 Harrah's bought the Showboat Casino, one of Riverboat Services' clients. Harrah's wanted to take its piloting in-house and approached Heitmeier to buy out Riverboat Services' contract with Showboat. Heitmeier represented himself and dickered with Harrah's over the price for a while before calling in KPMG to settle things with a valuation. KPMG came up with a value, and the former deckhand sold his contract for a $4 million payday.
Joe Garza is an attorney from Dallas, Texas, who had a long-established practice in insurance defense, ERISA, and bond financing before he moved into tax planning--sometimes quite aggressive tax planning.
Around 1999 Garza first became aware of Son-of-BOSS transactions--a law firm named Jenkens & Gilchrist was doing a lot of them, and several of his clients wanted to do them too. Garza concluded that he could either refer his interested clients to Jenkens & Gilchrist or do the deals himself. He decided to learn how to do the deals himself.
First he consulted with Craig Brubaker--an ex-Arthur Andersen employee and at the time a director at Deutsche Bank Alex Brown. Brubaker had been working on a lot of these deals for Jenkens & Gilchrist, and Garza was confident of Brubaker's knowledge and abilities. Brubaker gave Garza2015 Tax Ct. Memo LEXIS 9">*16 some information on how these deals worked and how much Deutsche Bank charged for them. *35 Brubaker also suggested that Garza speak with another lawyer rumored to have done a $100 million transaction for a local billionaire who "seemed to know what he was doing," to learn more. Garza followed Brubaker's recommendation and paid the lawyer $50,000 for a dark-side CLE on the finer points of the deal. Included in the bargain was a turnkey opinion letter--one that Garza could use in his own practice. Part of Garza's promotional pitch was that if a taxpayer had a "good" tax opinion letter, he would not have to pay any penalties even if the tax benefits were disallowed.
Once Garza had his turnkey opinion letter and knew the transaction well enough, he began pitching. The purpose of all Son-of-BOSS tax shelters is to create "artificial tax losses designed to offset income from other transactions."
Garza used a six-step deal: • buy a foreign-currency call option (and sell an offsetting foreign-currency call option in the same currency to the same counterparty)6 and also Canadian dollars through a single-member LLC; • form a partnership with a third party or wholly owned LLC; • contribute the foreign-currency options and Canadian dollars to the partnership; *37 • recognize a gain or loss by the partnership when the options expired or were exercised; • terminate and liquidate the partnership; and • sell the Canadian2015 Tax Ct. Memo LEXIS 9">*18 dollars that the single-member LLC received from the partnership's liquidation.
Garza says he would always have his clients choose which currency to use but would make strong recommendations. He would also insist that each of his clients talk with Brubaker. Brubaker would explain what trades would be made, answer other questions, and help the client set up Deutsche Bank accounts. If the client asked Garza what he thought, he would say something2015 Tax Ct. Memo LEXIS 9">*19 encouraging like "I think the yen is going downhill" and proceed from there. We also note especially that Garza never negotiated any of the investment details for his clients. He let Brubaker and Deutsche Bank value the options.
Heitmeier was happy about his windfall, but worried about the possible tax bill. He was especially worried that the tax due would be at "regular" (i.e., ordinary) rates, so he called his tax adviser, Walter Jones. Heitmeier and Jones went way back--Heitmeier's longtime CPA, Hank LeVierre, was Jones' former *38 business partner, and Heitmeier and Jones had grown up together, their fathers had grown up together, and Heitmeier's brother had even dated Jones' sister. When LeVierre retired, Jones took over Heitmeier's accounting and prepared the returns for Heitmeier's three businesses. Jones wasn't involved in the day-to-day operations, but a week after Heitmeier told him about the sale proceeds, Jones proposed he meet with a colleague, Ellis Roussel, to discuss "something different, something going on right now." Roussel worked for the firm LeGlue & Company CPAs, which had its offices in the same building as Jones' in New Orleans, and2015 Tax Ct. Memo LEXIS 9">*20 Jones often handed off bigger jobs to them.
Roussel first learned about the Son-of-BOSS deal in September 2001 from one Edward Turner, a Texas CPA who did peer reviews of LeGlue & Company's work.7 Turner didn't go into great detail with Roussel at that point, but just gave
Roussel a brief description of the deal and said he'd done it with good results in *39 the past. Once Jones got wind of the deal, and told Roussel he had someone who might be interested, Heitmeier met with the two of them to discuss the opportunity. During the meeting, Heitmeier didn't understand the details of the contemplated transaction, but he was certainly intrigued by the potential for tax benefits. He later2015 Tax Ct. Memo LEXIS 9">*21 contacted Roussel to say he wanted to move forward.
At some point Roussel contacted Turner again, and Turner sent him an opinion letter written by Jenkens & Gilchrist for another client who had done a Son-of-BOSS deal and then put him in touch with Garza. Heitmeier first spoke with Garza in a conference call with Roussel and Garza. During the call Garza described each step of the deal. A few weeks later he came to New Orleans to eat étouffée and pitch Heitmeier at the LeGlue offices. At this meeting, Garza provided Heitmeier with written materials that outlined the deal. Garza "[s]poke a lot in generalities, [and] went through some items pretty fast." Roussel was getting more comfortable with the deal's mechanics but still "certainly didn't have a total grasp on it." But Heitmeier's big takeaway from this meeting was that the transaction might double his initial outlay of $40,000 if the Japanese yen moved one way, and in any event would gain for him a "significant write-off" for tax purposes. *40 Around the same time he was learning about the deal from Garza, Roussel also pulled in other people to do some independent research. Vince Giardina, another LeGlue partner, researched2015 Tax Ct. Memo LEXIS 9">*22 the tax aspects of the deal. Roussel also called Brian Leftwich, a New Orleans tax attorney who often acted as counsel for LeGlue. The more they learned, the more they fretted. Roussel, Giardina, and Leftwich were all concerned about the deal's lack of profit motive and gossamer economic substance. Roussel refused to make any recommendation regarding whether Heitmeier should participate in the transaction, and told Heitmeier, "Listen, we can't give you an opinion that you can do it; we can't--* * * there's some indications, you know, that may raise some questions." Giardina also refused to bless the arrangement and alerted Heitmeier that he might be exposed to an audit if he chose to proceed. And Leftwich ultimately decided that he didn't feel comfortable giving an opinion either way--he wasn't well-versed in foreign-currency options. Despite these warning signs, in late October 2001, Heitmeier decided to follow Garza and go forward with the Son-of-BOSS transaction.
Garza charged Heitmeier a flat fee of $135,000 for his services. The bill that Garza sent to Heitmeier was entitled "Statement for Services Rendered," and *41 said it covered "all services to be rendered2015 Tax Ct. Memo LEXIS 9">*23 in connection with your digital option transaction and the related legal opinion," including: • formation of LLC disregarded entity; • formation of limited partnership; • negotiations with investment bank and review of transactions; • legal opinion letter; and • tax return preparation and review.8
It also said that the $135,000 would cover "any and all services necessary in the event that either you or the above entities are selected for an audit by the IRS in the future." This meant that Garza would cover their legal fees if the transaction blew up.
Garza required Heitmeier to pay the first installment of $67,500 upon receipt of his "Statement for Services Rendered," and the remaining $67,500 when he delivered his legal opinion. Heitmeier paid the first installment on October 30, 2001 from a Hibernia Bank account opened in the name of Riverboat Services, Inc.
Heitmeier knew that the entities were created to capture the tax benefits of the digital option/Japanese yen transaction, and that the transaction had to be *42 completed by 2001 for him to capture the tax benefits. He relied entirely on Garza to prepare the paperwork and2015 Tax Ct. Memo LEXIS 9">*24 file the necessary documents with the different state authorities, and didn't bother to obtain any investment or financial advice about the transaction from his investment broker at the time. Garza moved quickly. He set up in Colorado and Georgia because those states processed filings quickly and cheaply. He named the entities with numbers because he wanted to avoid any snags that might have slowed the deal if someone else had an LLC or partnership with the same name. And Garza didn't draft any of the entity agreements from scratch, but adapted them from the sample he already had. The documents Heitmeier actually signed, he signed without reading. Other documents were signed on his behalf as Robert Heitmeier PA, even though Heitmeier had not designated or authorized anyone to act on his behalf.
Garza launched the Heitmeier transaction on October 29, 2001 and things took off: ● From October 29 to 30, 2001, Garza helped Heitmeier form three entities: 8252, LLC, 94 LLC, and 436, Ltd. *43 ○ 8252 is a disregarded entity for federal tax purposes, was formed under Georgia law, and Heitmeier is listed as its sole member.9 ○ 94 was formed as a Colorado limited liability company, Heitmeier was its sole2015 Tax Ct. Memo LEXIS 9">*25 member, and it never made an election on Form 8832 to be classified as an association for federal tax purposes. ○ 436 was formed as a Colorado limited partnership, and on its 2001 return it listed Heitmeier as a 99% limited partner, and 94 as a general partner with a 1% limited-partnership interest. ● On October 30, 2001, Heitmeier had Riverboat Services send $45,000 to 8252's Deutsche Bank account. This was the only capital contribution made to 8252. ● On October 30, 2001, Heitmeier also had Riverboat Services send $67,500 to Garza's account at Bank One--half his total fee. ● On November 1, 2001, 8252 bought and sold offsetting long and short foreign-currency options on Japanese yen from Deutsche Bank for a $40,000 net premium.10 Both options expired on December 12, 2001. *44 ● On December 3, 2001, 8252 transferred both the long and short options to 436 in exchange for $10 "and other good and valuable consideration." ● On December 4, 2001, 8252 paid $4,000 to buy Can $6,207.20. ● On December 10, 2001, the options were in the money with only two days left before2015 Tax Ct. Memo LEXIS 9">*26 their expiration. Heitmeier accepted Deutsche Bank's offer to cash him out for $50,000, which he deposited into the Deutsche Bank account for 436. ● On or about December 24, 2001, 8252 transferred the Can $6,207.20 to 436. ● On December 19, 2001, Heitmeier asked Deutsche Bank to transfer $50,000 from 436's account to an account for Garza & Staples--the second half of Garza's legal fees. Garza asked that the remaining $17,500 be wired to the account of Garza & Staples with Bank One, Texas. ● On December 26, 2001, Heitmeier assigned the Canadian dollars held by 436 to 8252. According to 436's and 8252's Deutsche Bank account statements, however, that assignment was never consummated. ● On January 4, 2002, 436 transferred the same Can $6,207.82 to Riverboat Services. ● On December 31, 2001, Riverboat Services sold Can $6,207.82 for $3,848.40, which was deposited into Riverboat Services' Deutsche Bank account. ● On December 31, 2001, a Cancellation of Domestic Certificate of Limited Partnership was filed in Colorado for 436.
As we've already noted, Heitmeier had by this time amassed a sizable Merrill Lynch brokerage account--about $1 million. But before November 2001 Heitmeier had never invested in foreign currency. His investment adviser, Lance Giambelluca, credibly said that Heitmeier2015 Tax Ct. Memo LEXIS 9">*28 had invested mostly in tech stocks and been burned by the stock market crash of early 2000. Heitmeier had at one time discussed another derivatives product called a "covered call" with Giambelluca, but he never bought in.
Garza sent an opinion letter to Heitmeier dated December 30, 2001. The letter had about four pages of facts supposedly describing the transaction and over *46 80 pages of boilerplate language on tax-law doctrines--running the gamut from partnership-basis rules to treatment of foreign-currency contracts, the step-transaction doctrine, economic substance, disguised-sale provisions, and partnership anti-abuse regulations. The letter also concluded that the tax treatment Garza proposed would "more likely than not" withstand IRS scrutiny.
Garza, however, relied on certain "facts" to reach his "more likely than not" conclusion, and these "facts" were just plain wrong. Here are some of the key mistakes he made in the factual recitation section--the first four pages of each opinion: • The opinion states that Heitmeier's transaction involved options on Canadian dollars, even though the options were on Japanese yen. • The opinion states2015 Tax Ct. Memo LEXIS 9">*29 that Heitmeier made the listed representations, but he didn't. Garza made up the representations on his own. • The opinion letter states that Heitmeier "believed there was [a] reasonable opportunity to earn a reasonable pre-tax profit from the transactions * * * (not including any tax benefits that may occur), in excess of all the associated fees and costs." But Garza's $135,000 fee was ignored in reaching that conclusion. The opinion doesn't mention Garza's fee at all.
And here are some of the key factual mistakes made in the opinion letter's discussion section, on which Garza based key legal conclusions: • The purchased (long) and sold (short) options had their own confirmations. *47 • The long and short options were the subject of the same confirmation. • The partnership had no obligation to deliver foreign currency. • When Garza sent out the opinion letters, the obligations under the option contracts were by that time certain. • The partners of each partnership were related--Heitmeier was the 99% limited partner, and his wholly owned and controlled 94 was the 1% general partner. • The Canadian dollars distributed were the same ones contributed by the partner.
If Garza was making up facts for his opinion letter, Heitmeier wouldn't have noticed because he never reviewed the facts in the opinion for accuracy, or even asked for any clarification. Garza credibly testified that he had several conversations with Heitmeier and Roussel but that they never brought up--let alone asked him to correct--any mistakes in the opinion. The letter, for all its *48 length, also lacks even a mention of one very important document--
Jones prepared the 2001 return for Riverboat Services, Inc., an S corporation,11 by filing Form 1120S, U.S. Income Tax Return for an S Corporation. Riverboat Services claimed2015 Tax Ct. Memo LEXIS 9">*31 a "
Giardina prepared 436's partnership return for Heitmeier to sign. The partnership reported no income or loss for 2001. On its partnership return for the year 436 reported partner capital contributions of $4,187,593, consisting of the $4 million notional amount of the long option; plus $3,990 for the purchase of the Canadian dollars; $50,000 capital contribution; $85,000 in attorney's fees; and about $49,000 in accounting fees. While 436 treated the notional amount of the *49 $4 million long-option premium as a capital contribution, it did not report the liability inherent in the notional $3,960,000 short-option premium. The partnership return also reported offsetting partnership distributions of property other than money of $4,187,593, which resulted from treating2015 Tax Ct. Memo LEXIS 9">*32 the notional amount of the $4 million long-option premium as a contribution that would be distributed upon the liquidation of 436. It did not, however, take into consideration the liability inherent in the $3,960,000 short-option premium. Both the capital contributions and partnership distributions were allocated $4,145,717 to Heitmeier and $41,876 to 94 LLC on the Schedules K-1.
But remember that by this time the options had long since been cashed out, so the supposed basis in the long option can theoretically be attached to the only noncash (i.e., non-American cash) asset 436 had left--the Can $6,207.82. By reporting this $4,187,593 as a "distribution of property," Giardina was effectively reporting it as 436's basis in that property.
The Commissioner audited 436's return under TEFRA and issued a notice of final partnership administrative adjustment (FPAA) to 436 in September 2005.122015 Tax Ct. Memo LEXIS 9">*33 *50 The FPAA adjusted 436's capital contributions and distributions to zero and determined accuracy-related penalties under
The FPAA Schedule of Adjustments did not adjust Heitmeier's or 94's outside bases, but in the "Exhibit A-Explanation2015 Tax Ct. Memo LEXIS 9">*34 of Items" sent to 436, the Commissioner did make
Instead, like
One distinction2015 Tax Ct. Memo LEXIS 9">*36 between inside-basis and outside-basis Son-of-BOSS deals is that there is a conflict among courts about whether outside basis is a partnership item. [A]ll of the underpayments of tax resulting from [the]
Partnerships do not pay income tax, but they do file information returns, and partners are supposed to use the numbers from those returns on their own individual returns.
So what are partnership items? [t]he term "partnership item" means,
But once we hold an item is a partnership item we have jurisdiction to determine that partnership item regardless of whether the Commissioner adjusted it in the FPAA.
A "nonpartnership item" is "an item which is (or is treated as) not a partnership item."2015 Tax Ct. Memo LEXIS 9">*40
One of the most important "partnership items" is whether a partnership is actually a partnership at all. The Commissioner says that 436 isn't a partnership—that we should disregard it because it wasn't an entity separate from *57 Heitmeier and failed to satisfy the regulatory requirements to be treated as a partnership. Under the check-the-box regulations, if it doesn't make an election otherwise, an entity with only one owner is disregarded for tax purposes, and if the single owner is an individual, the regulations2015 Tax Ct. Memo LEXIS 9">*41 tell the Commissioner to treat the entity as a sole proprietorship.
But 436's 2001 partnership return lists more than one owner: Heitmeier is the 99% limited partner and 94 is the 1% general partner. The Commissioner says this doesn't matter and argues that because 94 did not properly elect to be treated as a corporation, it is a disregarded entity.
Though these facts largely mimic those in
There is a second and separate obstacle to any finding that 436 was a partnership: A partnership does not come into existence for tax purposes until it begins its business activities.
The 436 partnership agreement says that its primary purpose is "to make a [p]rofit, increase wealth, and provide a means for each [p]artner's [f]amily to become knowledgeable of, manage, and preserve [f]amily[a]ssets." Even if we believe what the partnership agreement says (which we don't), courts have been reluctant2015 Tax Ct. Memo LEXIS 9">*45 to find that managing and preserving family assets is a legitimate and significant nontax reason for establishing a partnership where the property doesn't require active management.
As in
When we disregard a partnership for tax purposes, we are holding that the rules of
The Code tells us that TEFRA procedures will still apply in these cases as long as the purported partnership filed a partnership return--which 436 did for 2001.212015 Tax Ct. Memo LEXIS 9">*48
The Commissioner adjusted 436's reported capital contributions and distributions of property. Given that subchapter K doesn't apply to a simple agency relationship, there can be no contributions to or distributions from a partnership that does not exist.
With regard to the option contracts, we echo our holding in
The appropriate basis in the option pair is simply what 8252 paid for it.
All that is left is the penalties. We have jurisdiction over penalties at the partnership2015 Tax Ct. Memo LEXIS 9">*51 level because they "relate to" partnership-level adjustments: We can adjust the amounts of partnership contributions and distributions in light of our determination that the partnership doesn't exist.
The Commissioner meets any burden of production he may have on the penalty with simple arithmetic.
The only issue left in dispute is whether 436 had
The gross-valuation-misstatement penalty can be rebutted by a showing2015 Tax Ct. Memo LEXIS 9">*52 of reasonable cause and good faith, *67 • First, was the adviser a competent professional who had sufficient expertise to justify reliance? • Second, did the taxpayer provide necessary and accurate information to the adviser? • Third, did the taxpayer actually rely in good faith on the adviser's judgment?
Heitmeier--acting in his capacity as TMP and general manager of his partnership--claims reasonable reliance on the professional opinions of Jones, Roussel, Giardina, and Garza.
Garza was licensed and would have appeared competent even to a lawyer at the time the partnerships prepared their returns--at least to lawyers not versed in tax law.
We also find that the partnership provided Garza with all the relevant financial data needed to assess the2015 Tax Ct. Memo LEXIS 9">*53 correct level of income tax.
It's the third point--the issue of Heitmeier's actual good-faith reliance on Garza's professional advice--that's the major weakness in the partnership's defenses: The partnership can't rely on Garza if he was a promoter because promoters take the good-faith out of good-faith reliance.
We also decided in
This makes him a promoter. And Heitmeier could not have reasonably relied on his opinion.
Heitmeier's lack of good faith and reasonable reliance is even more obvious when we turn to the other three professionals involved: Jones, Roussel, and Giardina. All three refused to endorse the proposed Garza transaction or provide any encouragement to Heitmeier other than advising him how to report it on his tax returns. Jones made clear at the outset that the Son-of-BOSS transaction was "out of his realm" and that he had no interest in even trying to understand it. Roussel and Giardina spent months trying to decide if they could endorse the transaction, and ultimately they didn't. Heitmeier could not have reasonably relied on Roussel's or Giardina's opinions in moving forward with the transaction, because the only opinions Roussel and Giardina provided2015 Tax Ct. Memo LEXIS 9">*55 were warnings that this was the type of transaction the IRS would likely go after. And their clearly *70 expressed reluctance to endorse the deal to their longtime client only blows another hole in Heitmeier's supposed good faith in relying on Garza.
1. Mark Twain,
2. The Louisiana Code has a title devoted to navigation and shipping, and within that title, a section dedicated to pilots.
3. This practice of manning a full crew on boats that never leave the shore is the result of state-law technicalities restricting gambling (apart from American Indian casinos and one land-based casino) to "riverboats." Louisiana's statute says that "the division may issue up to fifteen licenses to conduct gaming activities on a
4. Garza wasn't really urging a speculative foray in foreign currency--he was promoting a type of Son-of-BOSS tax shelter (which is a variant of the Bond and Options Sales Strategy (BOSS) shelter) that uses European digital options on foreign currency. Unlike an "American" option, which can be exercised at any time before it expires, a "European" option can be exercised only at a particular date and time. An option is "digital" if it has the same payout no matter how far in the money it is. Digital options are also known as "all-or-nothing" options.
5. Inside basis is the basis a partnership has in its own assets,
6. We refer elsewhere in this opinion to such options as "long options" and "short options." "Long" can mean several things in finance-speak; here, it simply means to buy and hold a position. "Short" likewise has multiple meanings: Here, it means to sell a position. Because the long and short legs in the option transactions involved the same parties, the same periods, and the same counterparties, they economically zeroed each other out except for the narrow spread between the two strike prices: One party could buy the yen at $X from the second party, and the second party could turn around and buy the yen at $X minus the spread from the first party.↩
7. To be a member of the American Institute of CPAs (AICPA), public accounting firms must be enrolled in a practice-monitoring (or "peer review") program. The AICPA requires accounting firms to have an independent evaluator review their accounting and auditing practices generally every three years.
8. Garza would occasionally review returns, but he did not prepare them.↩
9. A U.S. business entity with only one member is either a corporation or a "disregarded entity." (When an entity is "disregarded", it means that its owner is treated under the Code as a sole proprietor.
10. The premiums on the long and short positions were $4 million and $3,960,000, respectively.↩
11. An S corporation is a corporation governed under the laws of subchapter S of the Internal Revenue Code. C corporations are governed by subchapter C, and partnerships by subchapter K.↩
12. TEFRA is the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
13. The usual rule is that an asset distributed by a partnership to one of its partners has a basis equal to the
14. They could have, but have not, argued that the imposition of penalties was somehow otherwise defective. While we must satisfy ourselves about our own jurisdiction, we deem 436 to have waived any other counterargument regarding the imposition of penalties apart from reasonable cause and good faith.
15. 436 was a defunct TEFRA partnership when the petitions were filed, so any appeal would likely head to the D.C. Circuit.
16. The attempt to continue the trial by video didn't work out, and the parties stipulated what happened during this part of the trial.↩
17. We are deciding this case on the preponderance of the evidence, so we do not have to decide which party has the burden of proof.
18. While individuals and entities may apply for an employer identification number (EIN) using Form SS-4, Application for Employer Identification Number, this form alone doesn't make a valid election to be taxed as a specific type of entity. For partnerships, only Form 8832 may be used to make an election.
19. Although the regulation's default rule for entities owned by an individual is to treat them as sole proprietorships, its default rule for entities owned by more than one individual is to treat them as partnerships.
20. In
21. TEFRA applies generally to any partnership, but there is an exception for "small partnerships"--meaning those having 10 or fewer partners.
22. The option legs were acquired on the same date, executed with the same counterparty, in the same foreign currency, contingent on identical facts, listed on a single transaction confirmation, and exercisable on the same date. The parties simply placed bets on one fact: the price movement of the yen over a stated price. Heitmeier paid a single net premium of $40,000 for the spread--the difference between the long and short positions. And the experts in these cases credibly testified that Deutsche Bank would not have entered into the options unless they were treated as linked. If the options were separable, Deutsche Bank's risk would be too great: Heitmeier lacked the financial capacity to pay the premium on the long option, and lacked the financial capacity to pay the bank the millions of dollars that would have been due if the short option, standing alone, expired in the money.
In