149 T.C. 5
T.C.2017Background
- Petitioner Crestek, Inc. is the U.S. parent of a group including five CFCs (Malaysian and European); petitioner was the 100% ultimate U.S. shareholder.
- Several CFCs held intercompany loans (cash advances) outstanding to the domestic intermediate holding company (CGI) throughout FYE 2008–2009 (multi‑million dollar balances unchanged across quarters).
- CUM (Malaysian CFC) guaranteed an $11M debenture that CGI borrowed from Bank of Islam in 2001; ~$10.7M remained outstanding during FYE 2008–2009.
- CUM held a $7.92M legacy trade receivable from the U.S. operating subsidiary (Ultrasonics) that was old (outstanding since before 2006) and interest‑free; ACTM (another CFC) held growing trade receivables from Ultrasonics that increased from ~$8.9M to ~$18.4M across 2007–2009.
- IRS determined the CFCs had invested untaxed E&P in "United States property" under I.R.C. §956, issued a notice of deficiency, and moved for partial summary judgment that petitioner must include amounts under I.R.C. §951(a)(1)(B).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether intercompany loans from CFCs to CGI constitute "United States property" under §956(c)(1)(C) | Loans were longstanding; any inclusion should have been made in earlier years or loans may have been discharged | Loans are obligations of a U.S. person and remained outstanding during FYE 2008–2009, so they are §956 property | Held for Respondent: outstanding intercompany loan balances are §956(c)(1)(C) U.S. property and includible under §951(a)(1)(B) (subject to E&P limits) |
| Whether CUM's guaranty/pledge for CGI's Bank of Islam loan is §956 property under §956(c)/(d) | Guaranty had little or no value; guaranty collateral was secondary or CUM was insolvent | §956(d) treats pledgor/guarantor as holding the obligation; regulations make no solvency/value exception | Held for Respondent: CUM's guaranty (and apparent pledge) constitutes §956 U.S. property and triggers inclusion (subject to E&P limits) |
| Whether CUM's $7.92M trade receivable from Ultrasonics is excluded from §956 as an ordinary-and-necessary trade receivable under §956(c)(2)(C) | The receivable arose from sales/processing and thus fits the trade‑receivable exception | The receivable was legacy, bore no interest, and no ongoing trade existed between CUM and Ultrasonics during the years at issue | Held for Respondent: CUM's receivable does not qualify for the §956(c)(2)(C) exception and is §956 U.S. property (includible, minus PTI) |
| Whether ACTM's growing trade receivables from Ultrasonics qualify for the §956(c)(2)(C) exception | Receivables arose in ongoing trade; factual dispute whether amounts were ordinary and necessary | Respondent argues the balances exceed what would be ordinary and necessary between unrelated parties | Held: Genuine disputes of material fact exist as to ACTM receivables; summary judgment denied on that portion |
Key Cases Cited
- FPL Group, Inc. & Subs. v. Commissioner, 116 T.C. 73 (2001) (summary judgment intended to expedite litigation and avoid unnecessary trials)
- Elec. Arts, Inc. v. Commissioner, 118 T.C. 226 (2002) (summary judgment standard and allocation of burdens)
- Dahlstrom v. Commissioner, 85 T.C. 812 (1985) (nonmoving party must show specific facts creating genuine dispute; court construes facts in favor of nonmovant)
- Sundstrand Corp. v. Commissioner, 98 T.C. 518 (1992) (opposition to summary judgment cannot rest on mere allegations)
- Ludwig v. Commissioner, 68 T.C. 979 (1977) (elements of a valid guaranty)
- Perry v. Commissioner, 47 T.C. 159 (1966) (definition of guaranty as undertaking collateral to primary obligation)