Anschutz Co. v. Commissioner
664 F.3d 313
10th Cir.2011Background
- Petitioners Anschutz Company and Philip and Nancy Anschutz challenge Tax Court findings that they must recognize substantial gain from related stock transactions in 2000–2001.
- TAC, as sole shareholder of TAC, elected to treat TAC as an S-subchapter subsidiary, making TAC's assets and stock effects flow through to the Anschutz returns.
- TAC engaged in a series of variable prepaid forward contracts (VPFCs) and share-lending agreements with DLJ, with TAC pledging stock to a collateral agent and DLJ borrowing shares to hedge short sales, funded by upfront payments to TAC.
- Master Stock Purchase Agreement and related schedules created 3 transactions, each divided into multiple tranches with pricing schedules and collateral arrangements.
- DLJ’s use of the pledged shares to settle its short positions and the transfer of most incidents of ownership to DLJ led the Tax Court to treat the arrangements as current sales rather than open, nonrecognition contracts.
- IRS notices of deficiency for 2000 and 2001 sought built-in gains tax on Tac’s stock pledges; Tax Court held the VPFCs and related agreements produced current sales, which the Tax Court affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the VPFCs and related agreements caused a current sale of TAC’s pledged stock | Anschutz contends the transactions were open, not sales | Commissioner treats the arrangements as current sales due to transfer of ownership/incidents | Yes, they constitute current sales |
| Whether Rev. Rul. 2003-7 controls the analysis | Anschutz relies on similarity to Rev. Rul. 2003-7 to argue nonrecognition | Commissioner distinguishes facts; ruling not controlling | No; transactions are distinguishable from Rev. Rul. 2003-7 |
| Whether IRC §1058 safe harbor applies | Petitioners argue the safe harbor may apply | Taxpayer’s arrangement does not satisfy §1058(b)(2)–(3) | No; safe harbor does not apply |
Key Cases Cited
- Commissioner v. Brown, 380 U.S. 563 (1965) (definition of sale in tax context)
- Dunn v. Commodity Futures Trading Comm., 519 U.S. 465 (1997) (forward contracts and risk transfer concepts)
- Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C. 1221 (1981) (tax sale factors—ownership transfer considerations)
- H.J. Heinz Co. and Subsidiaries v. United States, 76 Fed. Cl. 570 (Fed. Cir. 2007) (stock transaction factors for sale characterization)
- Samueli v. C.I.R., 661 F.3d 399 (9th Cir. 2011) (sale vs open transaction determination in similar context)
- Frank Lyon Co. v. United States, 435 U.S. 561 (1978) (economic substance of sale and risk transfer analysis)