Nevada Partners Fund, L.L.C. Ex Rel. Sapphire II, Inc. v. United States , 556 F. App'x 371 ( 2014 )

Case: 10-60559 Document: 00512543283 Page: 1 Date Filed: 02/25/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 25, 2014
No. 10-60559
Lyle W. Cayce
Clerk
NEVADA PARTNERS FUND, L.L.C., by and through Sapphire II,
Incorporated. Tax Matters Partner
Plaintiff - Appellant Cross-Appellee
v.
UNITED STATES OF AMERICA, by and through its agent, the Internal
Revenue Service
Defendant - Appellee Cross-Appellant
--------------------------------------------------------------------------------------------------
CARSON PARTNERS FUND, L.L.C., by and through Sapphire II,
Incorporated, Tax Matters Partner
Plaintiff - Appellant Cross-Appellee
v.
UNITED STATES OF AMERICA, by and through its agent, the Internal
Revenue Service
Defendant - Appellee Cross-Appellant
--------------------------------------------------------------------------------------------------
RENO PARTNERS FUND, L.L.C., by and through Carson Partners Fund,
L.L.C., Tax Matters Partner,
Plaintiff - Appellant Cross-Appellee
v.
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No. 10-60559
UNITED STATES OF AMERICA, by and through its agent, the Internal
Revenue Service,
Defendant - Appellee Cross-Appellant
--------------------------------------------------------------------------------------------------
CARSON PARTNERS FUND, L.L.C., by and through Nevada Partners Fund,
L.L.C., Tax Matters Partner
Plaintiff - Appellant Cross-Appellee
v.
UNITED STATES OF AMERICA, by and through its agent, the Internal
Revenue Service
Defendant - Appellee Cross-Appellant
--------------------------------------------------------------------------------------------------
RENO PARTNERS FUND, L.L.C., by and through Delta Currency
Management Company, Tax Matters Partner
Plaintiff - Appellant Cross-Appellee
v.
UNITED STATES OF AMERICA, by and through its agent, the Internal
Revenue Service
Defendant - Appellee Cross-Appellant
--------------------------------------------------------------------------------------------------
CARSON PARTNERS FUND, L.L.C., by and through Bricolage Capital
Management Company, Tax Matters Partner
Plaintiff - Appellant Cross-Appellee
v.
UNITED STATES OF AMERICA, by and through its agent, the Internal
Revenue Service
Defendant - Appellee Cross-Appellant
--------------------------------------------------------------------------------------------------
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Case: 10-60559 Document: 00512543283 Page: 3 Date Filed: 02/25/2014
No. 10-60559
NEVADA PARTNERS FUND, L.L.C., by and through Bricolage Capital
Management Company, Tax Matter Partner
Plaintiff - Appellant Cross-Appellee
v.
UNITED STATES OF AMERICA, by and through its agent, the Internal
Revenue Service
Defendant - Appellee Cross-Appellant
Appeals from the United States District Court
for the Southern District of Mississippi
USDC No. 3:06-CV-379
ON REMAND FROM THE SUPREME COURT OF THE UNITED STATES
Before KING, BENAVIDES, and DENNIS, Circuit Judges.
PER CURIAM:*
The facts and proceedings are set forth in this panel’s initial opinion,
Nevada Partners Fund, L.L.C. ex rel. Sapphire II, Inc. v. United States ex rel.
I.R.S., 720 F.3d 594, 619 (5th Cir. 2013), vacated, No. 13-343, 2014 WL 102360(2014). The remand was for further consideration in light of Woods v. United
States, 134 S. Ct. 557 (2013).
Briefly stated, the plaintiffs challenge eleven notices of final partnership
administrative adjustment (FPAAs) issued by the IRS, which disregarded
approximately $18 million of claimed tax losses and imposed substantial
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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No. 10-60559
penalties on the ground that the partnerships’ transactions lacked economic
substance and therefore constituted an illegal tax shelter. After a bench trial,
the district court upheld the IRS’s disallowance of the claimed losses and upheld
two of the asserted penalties (a 20% negligence penalty and a 20% substantial
understatement penalty, imposed in the alternative), but disallowed the third
penalty (a 40% gross valuation-misstatement penalty) pursuant to existing
circuit precedent that the gross valuation-misstatement penalty did not apply
under the circumstances. Nevada Partners Fund, LLC ex rel. Sapphire II, Inc.
v. United States, 714 F. Supp. 2d 598 (S.D. Miss. 2010).
We affirmed in part and vacated in part. We affirmed the district court’s
judgment: (1) that the transactions in question lacked economic substance and
were properly disregarded for tax purposes; (2) that the negligence penalty was
applicable and the partnerships were not entitled to the “reasonable cause”
defense they urged; and (3) that the gross valuation-misstatement penalty was
inapplicable. We vacated the district court’s judgment in part and rendered
judgment for the plaintiffs (1) to the extent that the district court affirmed
certain of the FPAAs reflecting the IRS’ alternative theory of liability; and (2)
with respect to the district court’s approval of the substantial understatement
penalty because we found it unnecessary to reach the applicability of that
penalty in light of our approval of the 20% negligence penalty. Nevada Partners,
720 F.3d at 614, 619. The government petitioned for certiorari with respect to
the application of the valuation-misstatement penalty, and the Supreme Court
granted certiorari, vacated, and remanded the case to this court for further
consideration in light of its opinion in Woods v. United States, which held that
the valuation-misstatement penalty does apply in cases in which the
transactions in question are found to lack economic substance. United States v.
Nevada Partners Fund, LLC ex rel. Sapphire II, Inc., No. 13-343, 2014 WL
102360 (2014).
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The Supreme Court’s opinions in Woods and in the present case calls into
question the applicability of the gross valuation-misstatement penalty in this
case, which in turn may affect the applicability of the lesser penalties and their
corresponding defenses. We remand the case to the district court for a
determination of these issues in the first instance, along with any other
proceedings the district court deems appropriate in light of Woods v. United
States. This is a limited remand, and should either party seek appellate review
following disposition of this case by the district court, such appeal will be
assigned to this panel.1
REMANDED.
1
See, e.g., Ballard v. Comm’r, 429 F.3d 1026, 1027 & n.1 (11th Cir. 2005); Petition of
Geisser, 627 F.2d 745, 749 (5th Cir. 1980); see also, e.g., United States v. Casper, 332 F. App’x
222, 223 & n.1 (5th Cir. 2009).
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