Tax Court Disregards Partnership As Sham: New Millennium Trading LLC et al. v. Commissioner, T.C. Memo. 2017-9

The Tax Court, in New Millennium Trading, disregarded a partnership as a sham transaction. The abstract is as follows:

Respondent issued a notice of final partnership administrative adjustment (FPAA) with respect to New Millennium Trading, LLC [*2] (NMT), for NMT’s 1999 tax year. In the FPAA respondent determined, among other things, n1 that NMT was a sham and should be disregarded for Federal income tax purposes. Accordingly, respondent made adjustments to the loss, deduction, contribution, and distribution items NMT reported on its 1999 Form 1065, U.S. Return of Partnership Income (NMT 1999 return), and imposed an accuracy-related penalty under section 6662. n2 A petition for readjustment of partnership items was timely filed by AJF-1, LLC (AJF-1), on behalf of NMT.

The case at hand is one of many involving a particular tax shelter variant promoted by Sentinel Advisors, LLC (Sentinel), n3 where a taxpayer (here, Andrew [*3] Filipowski) contributes offsetting options to a limited liability company (treated as a partnership for income tax purposes) to get an artificially high basis in a partnership interest, receives euro and stock in disposition of that interest, and then claims a significant tax loss from the disposition of the euro and stock, offsetting millions of dollars of gain realized on the sale of an unrelated business interest. Deductions for such losses have consistently been disallowed, and nothing about this case warrants a different result.

See full case at New Millennium Trading, LLC, AJF-1, LLC, Tax Matters Partner.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.


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