NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT JAN 14 2014
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
JEFFREY K. BERGMANN; KRISTINE No. 12-70259
K. BERGMANN,
Tax Ct. No. 20894-05
Petitioners - Appellants,
v. MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
Appeal from a Decision of the United States Tax Court
Argued and Submitted December 3, 2013
San Francisco, California
Before: GOULD and PAEZ, Circuit Judges, and HUFF, District Judge.**
Petitioners-Appellants Jeffrey and Kristine Bergmann appeal a decision by
the United States Tax Court holding that their amended return for 2001 was not a
qualified amended return (“QAR”) under Treasury Regulation § 1.6664-2(c)(3)(ii),
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Marilyn L. Huff, District Judge for the U.S. District
Court for the Southern District of California, sitting by designation.
making the Bergmanns liable for an accuracy-related penalty of $41,196 for their
2001 tax return. We have jurisdiction under 26 U.S.C. § 7482(a)(1). We review
de novo the Tax Court’s interpretation of a Treasury Regulation, Metro Leasing
Development Corp. v. CIR, 376 F.3d 1015, 1021 (9th Cir. 2004), and we affirm.
Jeffrey Bergmann, a tax partner at KPMG, LLP, and his wife Kristine
Bergmann used a tax strategy known as the “Short Option Strategy” (“SOS”) that
KPMG developed and promoted to clients. These SOS transactions artificially
inflated the taxpayer’s basis in foreign currency, allowing the taxpayer to claim
falsely high losses or low profits on sales of that currency. The Bergmanns
engaged in SOS transactions in 2000 and 2001. They timely filed their original
2001 joint tax return, claiming ordinary and long-term capital losses for the two
transactions. The IRS served two summonses on KPMG on March 19, 2002 for its
role in promoting SOS transactions. In March 2004, shortly after KPMG gave the
IRS a list of SOS participants including the Bergmanns, they filed an amended
return for 2001 removing all the previously-claimed losses and reporting and
paying an additional $205,979 in taxes. At no point did the Bergmanns concede
that the losses were improperly reported or foreclose themselves from taking
another position on a later amended return.
2
The Tax Court held that under Treasury Regulation § 1.6664-2(c)(3)(ii), the
IRS summonses to KPMG in 2002 was an event terminating the Bergmanns’
ability to file a 2001 QAR under Treasury Regulation § 1.6664-2(c)(3). We agree.
The Bergmanns argue that the Tax Court applied the updated, incorrect version of
the relevant Treasury Regulation in its decision. We conclude, however, that there
is no indication that the Tax Court applied the incorrect regulation. The Tax Court
consistently cited Treasury Regulation § 1.6664-2(c)(3)(ii), the correct regulation,
and gave a fair paraphrase of that regulation in its decision. For these reasons we
reject the Bergmanns’ assertion that the Tax Court erroneously applied the current
regulation to their case.
The Bergmanns also argue that the Tax Court incorrectly interpreted
Treasury Regulation § 1.6664-2(c)(3)(ii) when it concluded that the IRS
summonses to KPMG was an event terminating their ability to file a QAR and thus
avoid accuracy-related penalties for their 2001 tax return. The Bergmanns assert
that the regulation’s reference to 26 U.S.C. § 6700(a) in defining “person” requires
that the Commissioner show that KPMG met the requirements of both § 6700(a)(1)
and (a)(2)—that is, KPMG was promoting an abusive tax shelter.
3
However, the principles of statutory interpretation apply equally to
regulatory interpretation, Boeing Co. v. United States, 258 F.3d 958, 967 (9th Cir.
2001), aff’d, 537 U.S. 437 (2003), and do not support that conclusion. The
Bergmanns’ interpretation of Treasury Regulation § 1.6664-2(c)(3)(ii) would
impermissibly render its text and purpose nonsensical, and so we reject that
argument. Section 6700(a) describes both the potentially liable persons and the
fines those persons will pay for promoting abusive tax shelters. The statute lays
out the offense in its entirety. However, Treasury Regulation § 1.6664-2(c)(3)(ii)
applies when a qualifying person is “first contacted by the Internal Revenue
Service concerning an examination of an activity described in section 6700(a).”
The regulation explicitly limits the terminating event to when a person under §
6700 is “first contacted.” The Bergmanns’ interpretation of the regulation would
have the contradictory result of denying KPMG’s status as a “person” until it was
clearly liable under § 6700(a), and yet the regulation only applies to the first
contact by the IRS pursuant to an investigation of liability under that section.
We agree with the Tax Court that the terminating event described in
Treasury Regulation § 1.6664-2(c)(3)(ii) is completed when the IRS first contacts a
person concerning liability under § 6700 for an activity with respect to which the
taxpayer claimed a tax benefit. This interpretation is supported by the purpose of
4
QARs: encouraging and rewarding taxpayers who voluntarily disclose abusive tax
practices, thereby saving IRS resources. See T.D. 9186, 2005-1 C.B. 790. In this
case, once KPMG had been told of an investigation and given the Bergmanns’
names to the IRS, the record fails to demonstrate that their amended return was
voluntary or saved IRS resources. For these reasons, we affirm the decision by the
Tax Court.
AFFIRMED.
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