Integration of multiple payments or events into a single transaction can favor a taxpayer or the fisc, depending on the circumstances. In GSS Holdings (Liberty) Inc. v. United States, 128 AFTR 2d 2021-5333, the Court of Federal Claims recently integrated multiple events into a single transaction and then disallowed the resulting loss, because it viewed the integrated transaction as a sale by a partnership to a related party. A corporate partner in that partnership that sought a better tax result through reporting the events in a different manner on an amended tax return of its own failed to persuade the court that a loss should be allowed. More helpfully, however, at least as precedent for other taxpayers, the court rejected the argument of the government that the doctrine of Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967) bound each partner to follow the characterization of the events reflected by the partnership on its original tax return.

Facts in 'GSS Holdings'

The description in the opinion of the underlying facts is less than entirely clear, but it appears that Liberty Street Funding LLC (Liberty), an entity classified as a partnership for tax purposes, had been established as a "commercial paper conduit" that would borrow through the issuance of short-term notes and use the proceeds to acquire longer-term investments. The partners in Liberty included, at various times: the corporation which was the plaintiff before the Court of Federal Claims (GSS); a subsidiary of the Bank of Nova Scotia (BNS); and an otherwise unrelated third party, Reconnaissance Investors, LLC (Reconnaissance), which ultimately sold its positions relating to Liberty to the BNS subsidiary. BNS was the administrator of Liberty and the entity with the bulk of the potential benefits and risks with respect to Liberty.