Burnett Ranches, Ltd. Ex Rel. Tax Matters Partner v. United States, 2014 U.S. App. LEXIS 9545

Burnett Ranches (a limited partnership) filed suit after the IRS determined it was a "farming syndicate" under I.R.C. § 464 and therefore required to use the accrual method for 2005–2007 instead of the cash method.
Anne Burnett Windfohr Marion (Ms. Marion) was the long‑time operations manager who materially participated in ranch management for more than five years; she owned her partnership interest indirectly through her wholly owned S corporation, Burnett Ranches, Inc. (B.R., Inc.).
The government originally challenged Burnett Ranches’ cash‑basis treatment as abusive under § 464; Burnett Ranches invoked the Active Participation Exception in § 464(c)(2)(A).
After discovery the government stipulated that (1) Ms. Marion actively participated in management for at least five years and (2) her partnership interest was attributable to that participation, leaving only the legal question whether holding the interest via her S corp. defeats the exception.
The district court ruled for Burnett Ranches; the government appealed solely on the ground that the S corp. interposition prevents the Active Participation Exception from applying.
The Fifth Circuit affirmed, holding that § 464(c)(2)(A) covers any interest attributable to an individual’s active participation—even if legal title is held by a wholly owned S corporation.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether an individual's interest held through a wholly owned S corp. can qualify under § 464(c)(2)(A) Active Participation Exception	Burnett Ranches: the exception applies to "any interest" attributable to the individual's five years of active management, regardless of whether legal title is in the individual or her wholly owned S corp.	Government: "interest" means legal title or direct ownership; interposition of B.R., Inc. blocks the exception, making Burnett Ranches a farming syndicate required to use accrual accounting.	The court held the exception applies: "any interest" includes interests held through a wholly owned pass‑through S corporation when attributable to the individual's active participation; affirming district court.

Duval v. N. Assurance Co. of Am., 722 F.3d 300 (5th Cir. 2013) (summary judgment standard)
DePree v. Saunders, 588 F.3d 282 (5th Cir. 2009) (summary judgment standard)
Ford Motor Co. v. Tex. Dep’t of Transp., 264 F.3d 493 (5th Cir. 2001) (cross‑motions for summary judgment review)
Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (statutory‑text first principle in interpretation)
Kaltenbach v. Richards, 464 F.3d 524 (5th Cir. 2006) (avoid rendering statutory language superfluous)
In re Rogers, 513 F.3d 212 (5th Cir. 2008) (ambiguity requires multiple reasonable interpretations)
Kashanchi v. Tex. Commerce Med. Bank, N.A., 703 F.2d 936 (5th Cir. 1983) (presumption about congressional inclusion/omission of language)
United States v. Wong Kim Bo, 472 F.2d 720 (5th Cir. 1972) (statutory construction canon cited)
Sw. Life Ins. Co. v. United States, 560 F.2d 627 (5th Cir. 1977) (burden on taxpayer to prove exception applies)