BMC Software Inc. v. Commissioner, 141 T.C. No. 5

R determined that petitioner’s royalty payments to its CFC were not arm's length under I.R.C. § 482.
Petitioner and respondent entered a closing agreement under I.R.C. § 7121 imposing primary adjustments increasing petitioner’s income and requiring secondary adjustments.
Petitioner elected Rev. Proc. 99-32 to establish accounts receivable instead of treating secondary adjustments as deemed capital contributions.
Petitioner repatriated $721 million from the CFC and claimed a one-time dividends received deduction under § 965, limited by increased related party indebtedness during the testing period.
Respondent disallowed part of the deduction, asserting the accounts receivable deemed established during the testing period increased related party indebtedness.
Key issues include whether Rev. Proc. 99-32 accounts receivable constitute indebtedness and whether the closing agreement precludes additional tax consequences.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Do Rev. Proc. 99-32 accounts receivable constitute indebtedness under §965(b)(3)?	BMC contends no intent required; accounts receivable not indebtedness.	Commissioner treats accounts receivable as indebtedness under general tax principles.	Yes; accounts receivable may constitute indebtedness.
Does the accounts receivable closing agreement preclude tax consequences from secondary adjustments?	Election prevents any further tax consequences from secondary adjustments.	Closing agreement only alters treatment for certain consequences, not all.	No; closing agreement does not preclude all collateral tax consequences; treatment aligns with secondary adjustments.
Were the accounts receivable deemed established during the testing period for §965 purposes?	Accounts receivable were established post-testing period, so should not affect the deduction.	The closing agreement deemed two accounts receivable established during the testing period.	Accounts receivable were deemed established during the testing period and reduce the deduction.

United States v. Am. Trucking Ass'ns, 310 U.S. 534 (1940) (statutory interpretation and plain language presumptions)
United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989) (absurd result principle in statutory construction)
Wadlow v. Commissioner, 112 T.C. 247 (1999) (contextual statutory interpretation guidance)
Burlington No. R.R. Co. v. Okla. Tax Comm'n, 481 U.S. 454 (1987) ( legislative intent and statutory purpose)
Miss. Poultry Ass'n, Inc. v. Madigan, 992 F.2d 1359 (5th Cir. 1993) (legislative history can illuminate intent)
Schering Corp. v. Commissioner, 69 T.C. 579 (1978) (closing agreements and collateral tax consequences)
Dixon v. Commissioner, 132 T.C. 55 (2009) (dictionary definitions in tax meaning of terms)