United States Court of Appeals
for the Federal Circuit
______________________
RUSSIAN RECOVERY FUND LIMITED,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2016-1718, 2016-1719
______________________
Appeals from the United States Court of Federal
Claims in Nos. 1:06-cv-00030-EGB, 1:06-cv-00035-EGB,
Senior Judge Eric G. Bruggink.
______________________
Decided: March 14, 2017
______________________
DOUGLAS HALLWARD-DRIEMEIER, Ropes & Gray LLP,
Washington, DC, argued for plaintiff-appellant. Also
represented by COURTNEY M. COX, JUSTIN FLORENCE,
KATHLEEN SAUNDERS GREGOR, LORETTA R. RICHARD,
Boston, MA; BRITTANY CVETANOVICH, Chicago, IL.
ANDREW M. WEINER, Tax Division, United States De-
partment of Justice, Washington, DC, argued for defend-
ant-appellee. Also represented by RICHARD FARBER,
GILBERT STEVEN ROTHENBERG, CAROLINE D. CIRAOLO,
DIANA L. ERBSEN.
______________________
2 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
Before O’MALLEY, BRYSON, and WALLACH, Circuit Judges.
WALLACH, Circuit Judge.
Appellant Russian Recovery Fund Limited (“RRF”),
acting through its tax matters partners Russian Recovery
Advisers, L.L.C. (“RRA”) and Bracebridge Capital, L.L.C.
(“Bracebridge”), sued the United States (“the Govern-
ment”) in the U.S. Court of Federal Claims, seeking
readjustment of partnership items pursuant to the Tax
Equity and Fiscal Responsibility Act (“TEFRA”), I.R.C.
§§ 6221–6233 (2000). RRF alleges that the Internal
Revenue Service’s (“the IRS”) October 14, 2005 Notice of
Final Partnership Administrative Adjustment (“2005
FPAA”) improperly disallowed approximately $50 million
of losses that RRF had claimed for fiscal year 2000 and
imposed a 40% penalty on any underpayment. The par-
ties filed cross-motions for summary judgment on timeli-
ness grounds, and the Court of Federal Claims held that
the limitations period for assessing taxes against RRF’s
indirect partners had expired as to some, but not all,
indirect partners. See Russian Recovery Fund Ltd. v.
United States (RRF I), 101 Fed. Cl. 498, 510–11 (2011)
(granting-in-part and denying-in-part the parties’ motions
for summary judgment). Following trial on the claims not
resolved at summary judgment, the Court of Federal
Claims entered judgment for the Government, sustaining
the IRS’s disallowance of the losses and imposition of
penalties. See Russian Recovery Fund Ltd. v. United
States (RRF II), 122 Fed. Cl. 600, 601–02 (2015).
RRF appeals. We have jurisdiction pursuant to 28
U.S.C. § 1295(a)(3) (2012). We affirm.
BACKGROUND
The Court of Federal Claims’s factual findings are ex-
tensive and clearly presented. See RRF II, 122 Fed. Cl. at
602–14; RRF I, 101 Fed. Cl. at 500–01. Because these
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 3
factual findings are largely undisputed, we recite only
those facts necessary to resolve this appeal.
There are several players of interest. Nancy Zim-
merman co-founded Bracebridge, a management compa-
ny. RRF II, 122 Fed. Cl. at 602. Bracebridge created
RRF, a hedge fund. Id. Bracebridge also manages FFIP,
L.P. (“FFIP”), another fund. Id. All three—Bracebridge,
RRF, and FFIP—are partnerships. RRF I, 101 Fed. Cl. at
500. Relevant to this appeal, Ms. Zimmerman is a direct
partner of FFIP, and FFIP is a direct partner of RRF. Id.
In this context, Ms. Zimmerman is an indirect partner of
RRF and represents similarly situated indirect partners
of RRF (direct partners of FFIP). Id.
In 1998, Russian sovereign debt was traded exclusive-
ly on the Moscow Interbank Currency Exchange
(“MICEX”). RRF II, 122 Fed. Cl. at 603–04. Non-Russian
investors could not invest directly in Russian sovereign
debt on the MICEX; however, they could invest in deriva-
tive instruments known as credit-linked notes (“CLNs”)
sold by certain authorized banks. Id. at 603. When
Russia defaulted on its sovereign debt in August 1998, the
Russian ruble collapsed, and CLNs lost nearly all of their
value. Id. These assets also became extremely illiquid:
the Russian Central Bank imposed currency exchange
limitations that prevented the ruble from being freely
traded, and the Russian government only allowed the
authorized banks to access the debt and trade in rubles.
Id.
These events had serious consequences for Tiger
Management, LLC (“Tiger”), one of the world’s largest
managers of hedge funds. Id. at 604. Two of Tiger’s
funds, foreign partnerships that do not pay U.S. taxes,
had purchased CLNs through Deutsche Bank for more
than $230 million. Id. After the collapse, those CLNs
were worth less than 10% of their original value. Id. And
Tiger overall was in bad straits: in 1998, Tiger managed
4 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
$22 billion; but by 2000, that amount had dropped to $6
billion as a result of heavy losses in Russian debt, Asian
debt, and an investment in US Airways. Id. at 613.
During that period, Tiger needed cash to redeem the
shares of investors who wanted out, but the capital con-
trols on Russian debt hampered Tiger’s ability to sell its
devalued CLNs. Id.; see id. at 604 & n.9.
Ms. Zimmerman “believed that she could make money
for herself and investors by obtaining devalued Russian
debt at pennies on the dollar in anticipation of a recovery
of the ruble and hence something approaching face value
of debt instruments.” Id. at 603. As a result, Bracebridge
established RRF and sought holders of Russian securities
to contribute CLNs or cash in exchange for shares of RRF.
Id. at 603−04; see J.A. 1758. Bracebridge also established
RRA, a separate management company to advise RRF
and collect management fees. RRF II, 122 Fed. Cl. at 602.
Despite earnest marketing efforts by Bracebridge dur-
ing the first several months, RRF largely failed to obtain
investors and still had no assets in March 1999. Id. at
605. An internal Bracebridge email on March 9, 1999
discussed a potential contribution of CLNs from an entity
through Deutsche Bank. Id. Given concern that RRF
needed partners to attract the potential investor, the
email proposed having Bracebridge-controlled entities
become RRF partners. Id. A telephone list circulated the
next day contained the contact information of players
from Bracebridge, Deutsche Bank, and Tiger. Id.
In April 1999, FFIP “contribute[d] the first assets to
RRF.” Id.; see id. at 602. Then, on April 30, 1999, Brace-
bridge’s James DiBiase emailed Ms. Zimmerman about
the “need[]” to represent that a “high” percentage “of RRF
(i.e., FFIP) is owned by individuals” to attract Deutsche
Bank’s investors. Id. at 606 (internal quotation marks
and citation omitted). In a second email on May 14, 1999,
he advised Ms. Zimmerman that RRF should not allow
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 5
corporations to join because “it could possibly impair one
of our most valuable assets,” i.e., “the built-in losses in
Russian depreciated assets that might end up in RRF.”
Id. (internal quotation marks and citation omitted). As
explained in a later email by Mr. DiBiase, the presence of
corporations could preclude later resale “since people
interested in buying tax losses don’t want to transact with
corporations.” Id. (internal quotation marks and citation
omitted).
A series of transactions followed, each of which was
orchestrated by Deutsche Bank. Id. at 604, 620. First, in
late May 1999, RRF’s first two substantial outside inves-
tors—both funds operated by Tiger—transferred CLNs to
RRF in exchange for an ownership interest in RRF. Id. at
607. Prior to investing, however, Tiger requested certain
changes to the “standard RRF offering memorandum” and
refused to execute the standard subscription agreement
representing that “the Shares subscribed for hereby are
being acquired by the undersigned for investment purpos-
es only, for the account of the undersigned[,] and not with
a view to any sale or distribution thereof.” Id. (para-
phrasing J.A. 8178); see J.A. 5898–99. In response, RRF
reduced the three-year lock-up period to “allow[] Tiger to
redeem its shares on or after July 1, 1999, in exchange for
cash or assets ‘in kind,’” and excluded the representation
that Tiger was purchasing the shares “for investment
purposes only” from the subscription agreement. RRF II,
122 Fed. Cl. at 607; see J.A. 8853, 8900, 8945–48. Second,
on June 3, 1999 (i.e., approximately two weeks after the
first transaction between RRF and Tiger), “Tiger sold all
of its RRF partnership shares to FFIP” for approximately
$14.1 million, a discount of $800,000. RRF II, 122 Fed.
Cl. at 609; see J.A. 9069. Notably, during the two weeks
between Tiger’s acquisition of its ownership interest in
RRF and its sale of that interest to FFIP, the value of the
shares had in fact increased. RRF II, 122 Fed. Cl. at 609.
And a fax from Deutsche Bank to Mr. DiBiase during this
6 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
period makes clear that “it was RRF, not Tiger, that
would have had an interest in an entity like FFIP pur-
chasing [Tiger’s] shares” and acquiring the built-in losses.
Id. at 608. Third, on June 22, 1999, RRF sold 77.18% of
the Tiger CLNs to General Cigar Corporation (“General
Cigar”) for cash and shares. Id. at 609; see J.A. 4992–95.
Finally, in 2000, RRF sold the remaining 22.82% of the
Tiger CLNs on the open market. RRF II, 122 Fed. Cl. at
609–10.
Following these transactions, Mr. DiBiase began
working with Ernst & Young to “provide[] the documents
and facts that would collectively lay the foundation upon
which the accountants would prepare RRF’s [tax] re-
turns.” Id. at 622. On August 14, 2001, RRF filed its
2000 tax return, allocating a loss to FFIP, which included
a loss of $49,786,826 from the sale of the 22.82% of the
Tiger CLNs. Id. at 609−10; RRF I, 101 Fed. Cl. at 500; see
J.A. 1621–23, 9496. 1 FFIP then reported losses for the
2000 and 2001 tax years, much of which were attributable
to the loss claimed by RRF in 2000. RRF I, 101 Fed. Cl.
at 500. FFIP’s 2001 losses flowed through FFIP to Ms.
Zimmerman, who filed her 2001 individual tax return on
October 15, 2002. Id. On her 2001 individual tax return,
Ms. Zimmerman reported a “substantial amount” of RRF’s
loss. Id. “In other words, the bulk of the losses RRF
allocated to FFIP in 2000 were not passed through in
2000, but were retained by FFIP until 2001, at which
point the losses impacted Ms. Zimmerman’s 2001 return.”
Id.
In 2005, the IRS performed an audit of FFIP’s 2001
partnership return, which ultimately resulted in the
1 RRF claimed the balance of the Tiger built in loss-
es—approximately $171 million—on its 2004 return upon
redeeming its preferred stock in General Cigar in 2004.
RRF II, 122 Fed. Cl. at 610.
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 7
issuance of a “no adjustments letter” to FFIP. Id. at 501;
see J.A. 201. However, in October 2005, the IRS issued
the 2005 FPAA to RRF for its 2000 tax year, which disal-
lowed the loss RRF claimed for the sale of the Tiger CLNs
and imposed a 40% penalty. RRF I, 101 Fed. Cl. at 501;
RRF II, 122 Fed. Cl. at 621.
DISCUSSION
RRF argues that the Court of Federal Claims erred by
(1) denying its cross-motion for summary judgment in
RRF I because “the proposed assessments were time-
barred,” Appellant’s Br. 22 (capitalization omitted);
(2) “holding that Tiger’s contributions to RRF were not
valid partnership contributions,” id. at 33 (capitalization
modified); and (3) “upholding a massive penalty based on
its new partnership requirements,” id. at 55 (capitaliza-
tion omitted). After articulating the relevant standard of
review, we address these arguments in turn.
I. Standard of Review
The present appeal involves factual findings and legal
conclusions reached on summary judgment and following
trial. “We review the Court of Federal Claims’[s] grant of
summary judgment under a de novo standard of review,
with justifiable factual inferences being drawn in favor of
the party opposing summary judgment.” Winstar Corp. v.
United States, 64 F.3d 1531, 1539 (Fed. Cir. 1995) (en
banc) (citation omitted), aff’d, 518 U.S. 839 (1996). In
appeals following a trial, we review the Court of Federal
Claims’s legal conclusions de novo and its factual findings
for clear error. See John R. Sand & Gravel Co. v. United
States, 457 F.3d 1345, 1353 (Fed. Cir. 2006).
The present appeal also raises issues of statutory and
regulatory construction, the characterization of transac-
tions for tax purposes, and the reasonable cause exception
to tax penalties. “We . . . review questions of statutory
and regulatory construction without deference.” SRA
8 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
Int’l, Inc. v. United States, 766 F.3d 1409, 1412 (Fed. Cir.
2014). “We review the characterization of transactions for
tax purposes de novo, based on underlying findings of
fact, which we review for clear error.” Wells Fargo & Co.
v. United States, 641 F.3d 1319, 1325 (Fed. Cir. 2011)
(citation omitted). Finally, as to the reasonable cause
exception to tax penalties, “[w]hether the elements that
constitute reasonable cause are present in a given situa-
tion is a question of fact, but what elements must be
present to constitute reasonable cause is a question of
law.” United States v. Boyle, 469 U.S. 241, 249 n.8 (1985)
(internal quotation marks and citations omitted).
II. The Court of Federal Claims Did Not Err by Denying
RRF’s Cross-Motion for Summary Judgment in RRF I
In RRF I, the parties filed cross-motions for summary
judgment disputing whether the IRS timely issued the
2005 FPAA and whether it suspended the limitations
period for adjustment and assessment of RRF’s indirect
partners’ (FFIP’s direct partners’) individual tax returns.
101 Fed. Cl. at 499. With the agreement of the parties,
the Court of Federal Claims selected Ms. Zimmerman as
representative of the RRF indirect partners (who also are
FFIP direct partners) whose tax returns were filed less
than three years prior to the issuance of the 2005 FPAA.
Id. at 499, 504. The Court of Federal Claims determined
that “if it is demonstrated that the loss[] from RRF’s 2000
tax return can be traced to Ms. Zimmerman’s 2001 tax
return then [the IRS] may assess additional taxes.” Id. at
509. It then “h[e]ld that the [2005] FPAA . . . validly
suspended the limitation[s] period for assessing Ms.
Zimmerman’s 2001 individual tax return.” Id.
On appeal, RRF argues that “[a]ny attempt by the
IRS to collect tax from FFIP partners in 2001 and later
years based on FFIP partnership items is time-barred
because the IRS failed to issue an FPAA to FFIP for those
years.” Appellant’s Br. 22. According to RRF, the 2005
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 9
FPAA “toll[ed] the period for assessing tax ‘attributable
to’ RRF’s 2000 partnership items, not FFIP’s 2001 part-
nership items,” id. at 23 (capitalization modified), because
the 2005 FPAA cannot apply to either two partnerships
(i.e., RRF and FFIP) or two tax years (i.e., 2000 and
2001), see id. at 24–32. We hold the Court of Federal
Claims correctly determined that the losses claimed on
Ms. Zimmerman’s 2001 tax return are “attributable to”
the loss claimed in RRF’s 2000 tax return, the limitations
period for which was suspended by the 2005 FPAA.
A. Legal Framework
Pursuant to the TEFRA, the “[g]eneral rule” is that
“the period for assessing any tax imposed by subtitle A
[i.e., income tax] with respect to any person which is
attributable to any partnership item (or affected item) for
a partnership taxable year shall not expire before the date
which is [three] years after the later of” either filing of the
partnership’s return or the return’s due date. I.R.C.
§ 6229(a) (emphases added). If an FPAA “with respect to
any taxable year is mailed to the tax matters partner,”
the limitations period in § 6229(a) “shall be suspended—
(1) for the period during which an action may be brought
under [§] 6226 (and, if a petition is filed under [§] 6226
with respect to such administrative adjustment, until the
decision of the court becomes final), and (2) for [one] year
thereafter.” Id. § 6229(d). Taken together, I.R.C.
§ 6229(a) and (d) provide that the issuance of an FPAA for
a given year “suspend[s]” the limitations period for as-
sessing “any tax” of “any person” that is “attributable to”
“any partnership item” for that year.
B. “Attributable to” Means Due to, Caused by,
or Generated By
The central issue here is whether the losses that FFIP
allocated in 2001 to Ms. Zimmerman were “attributable
to” the loss reported by RRF in 2000 under § 6229(a).
This is a question of statutory interpretation and, thus,
10 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
“our inquiry begins with the statutory text.” BedRoc Ltd.,
LLC v. United States, 541 U.S. 176, 183 (2004) (citations
omitted). “The plain meaning of legislation should be
conclusive, except in the rare cases in which the literal
application of a statute will produce a result demonstra-
bly at odds with the intentions of its drafters.” United
States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989)
(internal quotation marks, brackets, and citation omit-
ted). When interpreting another provision of the Internal
Revenue Code, we explained that “attributable to” “is not
defined anywhere in the [Internal Revenue] Code and has
no special technical meaning under the tax laws.” Elec-
trolux Holdings, Inc. v. United States, 491 F.3d 1327,
1330 (Fed. Cir. 2007) (citation omitted). We noted that, in
tax cases, various other courts “have construed the phrase
according to its plain meaning, which is understood to be
‘due to, caused by, or generated by.’” Id. at 1330–31
(citations omitted) (collecting cases); see Keener v. United
States, 551 F.3d 1358, 1365 (Fed. Cir. 2009) (same).
Other principles of statutory construction reinforce
this interpretation. First, “term[s] should be construed, if
possible, to give [them] a consistent meaning throughout”
the relevant statutory scheme. Gustafson v. Alloyd Co.,
513 U.S. 561, 568 (1995). Interpreting “attributable to” in
§ 6229(a) differently from how it is interpreted in other
Internal Revenue Code provisions, i.e., “due to, caused by,
or generated by,” would violate this principle. Second,
“limitations statutes barring the collection of taxes other-
wise due and unpaid are strictly construed in favor of the
Government.” Badaracco v. Comm’r, 464 U.S. 386, 392
(1984) (internal quotation marks and citation omitted);
see Bufferd v. Comm’r, 506 U.S. 523, 527 n.6 (1993) (stat-
ing that, even where the statute of limitations for assess-
ments is ambiguous, if “the Commissioner’s
construction . . . is a reasonable one . . . [courts] should
accept it absent convincing grounds for rejecting it”). As
such, § 6229(a) should be interpreted broadly and the
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 11
IRS’s interpretation, if reasonable, should be given defer-
ence. Defining “attributable to” in § 6229(a) to mean “due
to, caused by, or generated by” preserves the phrase’s
plain meaning, maintains consistency with the phrase’s
interpretation elsewhere in the Internal Revenue Code,
and follows the Supreme Court’s precedent for affording
the IRS deference in interpreting the Internal Revenue
Code. Therefore, we see no reason why that same defini-
tion should not apply here.
C. The Court of Federal Claims Did Not Err in Determin-
ing that the Losses Claimed on Ms. Zimmerman’s 2001
Individual Tax Return Are “Attributable to” the Loss
Claimed on RRF’s 2000 Tax Return
Applying that definition of “attributable to” here, the
2005 FPAA suspended the limitations period for assessing
any tax against Ms. Zimmerman that was “due to, caused
by, or generated by” any partnership item on her 2001
individual tax return. The parties do not dispute that the
IRS issued the 2005 FPAA to RRF less than three years
after Ms. Zimmerman filed her 2001 individual tax re-
turn. RRF I, 101 Fed. Cl. at 500; see J.A. 151. And, as
explained above, RRF allocated the loss claimed in its
2000 tax return to FFIP, much of which FFIP passed
through in its 2000 and 2001 tax returns to Ms. Zimmer-
man, who claimed these losses in her 2001 individual tax
return. RRF I, 101 Fed. Cl. at 500. Thus, the losses Ms.
Zimmerman claimed on her 2001 tax return were “gener-
ated by” the loss claimed on RRF’s 2000 tax return, and
the 2005 FPAA suspended the limitations period for
assessing taxes on these losses.
This interpretation of “attributable to” also comports
with the Internal Revenue Code’s reasonable policy of
treating partnership items at their source. Generally,
“the tax treatment of any partnership item (and the
applicability of any penalty, addition to tax, or additional
amount which relates to an adjustment to a partnership
12 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
item) shall be determined at the partnership level.” I.R.C.
§ 6221. Pursuant to this principle, the tax liability of an
indirect partner 2 depends upon the partnership items,
and “[a]ll adjustments required to apply the results of a
proceeding with respect to a partnership . . . to an indirect
partner shall be treated as computational adjustments.”
I.R.C. § 6231(a)(6); see Sente Inv. Club P’ship v. Comm’r,
95 T.C. 243, 249 (1990) (applying § 6231(a)(6)). Computa-
tional adjustments are “change[s] in the tax liability of a
partner which properly reflects the treatment . . . of a
partnership item.” I.R.C. § 6231(a)(6) (emphasis added).
The IRS’s actions here fall squarely within the definition
of a computational adjustment because the IRS
“change[d] . . . the tax liability of one [indirect] partner,”
i.e., Ms. Zimmerman, “to properly reflect[] the treat-
ment . . . of a partnership item,” i.e., the loss claimed in
RRF’s 2000 tax return. Id. As a result, the IRS properly
adjusted the partnership item at its source. 3
2 An indirect partner is “a person holding an inter-
est in a partnership through [one] or more pass-thru
partners,” I.R.C. § 6231(a)(10), and a pass-thru partner is
“a partnership . . . or other similar person through whom
other persons hold an interest in [another] partnership,”
id. § 6231(a)(9). The Court of Federal Claims explained
that FFIP is a direct partner of RRF and that Ms. Zim-
merman is a direct partner of FFIP and an indirect part-
ner of RRF. RRF I, 101 Fed. Cl. at 500.
3 RRF concedes that if FFIP had simply passed
through all of RRF’s loss in 2000, the losses reported by
the indirect partners would be “attributable to” RRF’s
loss. Appellant’s Br. 28 n.7. RRF’s position founders on
the shoals of that concession. In Sente, the IRS issued an
FPAA to a pass-thru partner rather than to the partner-
ship that was the source of the reported losses. See 95
T.C. at 245. The Tax Court determined that it lacked
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 13
D. RRF’s Counterarguments Are Unpersuasive
RRF presents two counterarguments, neither of which
is persuasive. First, RRF argues that “an item can only
be a partnership item of a single partnership.” Appel-
lant’s Br. 25. According to RRF, “the [G]overnment
conceded that the assessment at issue was attributable to
‘a 2001 FFIP partnership item.’” Id. (quoting J.A. 973). 4
RRF contends that “the partnership item at issue is, and
can be, a partnership item of FFIP and only FFIP.” Id.
In support, RRF avers that permitting a “partnership
item” to be attributable to multiple partnerships would
disregard Congress’s intent “‘to simplify the procedures’
for partnership tax proceedings.” Id. (brackets omitted)
(quoting Transpac Drilling Venture v. United States, 16
jurisdiction, requiring that the flow-through losses be
addressed in proceedings directed at the source partner-
ships instead of the pass-thru partner. Id. at 248. Here,
the IRS issued the 2005 FPAA to RRF (the source part-
nership), not FFIP (the pass-thru partner), as required by
Sente. See RRF II, 122 Fed. Cl. at 621. The only evidence
that RRF has identified to demonstrate that FFIP’s role
was materially different from the pass-thru partner’s role
in Sente is that FFIP carried over some of the 2000 RRF
loss to 2001. However, that action changed the year of
the pass through, not the character of the losses, which
are still “attributable to” the 2000 RRF loss.
4 The Government, however, did not state that the
Tiger losses are a 2001 FFIP partnership item and, more
importantly, did not state that Ms. Zimmerman’s under-
payment was “attributable to” a 2001 FFIP partnership
item. See J.A. 973 (the Government clarifying that the
losses are a 2000 RRF partnership item and a 2001 “af-
fected partnership item”); compare I.R.C. § 6231(a)(3)
(defining “partnership item”), with id. § 6231(a)(5) (defin-
ing “affected item”).
14 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
F.3d 383, 387 (Fed. Cir. 1994)). Vague references to the
objective of simplifying partnership tax proceedings are
insufficient to demonstrate that the plain meaning of
“attributable to” “will produce a result demonstrably at
odds with the intentions of its drafters,” and, thus, the
plain language is “conclusive.” Ron Pair Enters., 489 U.S.
at 242.
Second, RRF contends that our interpretation of
§ 6229 would “violate[] the tax system’s bedrock annual
accounting principle,” i.e., that “taxes are to be deter-
mined on an annual basis.” Appellant’s Br. 29 (citing
Burnet v. Sanford & Brooks Co., 282 U.S. 359, 364–65
(1931)). Specifically, RRF alleges that our interpretation
ignores the Supreme Court’s instruction that, “[a]bsent
other specific directions from Congress, [Internal Reve-
nue] Code provisions must be interpreted so as to conform
to the basic premise of annual tax accounting.” Comm’r v.
Gordon, 391 U.S. 83, 96 (1968) (footnote omitted); see
Appellant’s Br. 30. The annual tax accounting principle
concerns the annual calculation of tax liabilities based on
receipts and deductions, not the limitations period to
assess a tax. See United States v. Skelly Oil Co., 394 U.S.
678, 680–81 (1969) (explaining the procedures for calcu-
lating annual tax liabilities under the annual accounting
principle). Indeed, “it is well settled that the IRS and the
courts may recompute taxable income in a closed year in
order to determine the tax liability in an open year.”
Barenholtz v. United States, 784 F.2d 375, 380–81 (Fed.
Cir. 1986) (footnote omitted). That is precisely what has
occurred here—the IRS’s disallowance of the loss claimed
on RRF’s 2000 tax return will result in Ms. Zimmerman
owing tax for losses claimed in her individual tax returns
for 2001 and any later years in which she claimed losses
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 15
attributable to the 2000 RRF loss, whether she or FFIP
carried them over. 5
III. The Court of Federal Claims Did Not Err in Deter-
mining that Tiger Was Never a Bona Fide Partner in RRF
In RRF II, the Court of Federal Claims concluded that
“Tiger had no real intention of becoming a partner in
RRF[] and that RRF had reason to know that.” 122 Fed.
Cl. at 617. Instead, the Court of Federal Claims found
“[a] review of the evidence demonstrates that . . . their
transaction was a sham, that the transaction lacked
economic substance, that the contribution can be ignored,
and that the transaction should be characterized as a
sale.” Id. RRF argues that the Court of Federal Claims
erred by dismissing the relevant provisions of the Internal
Revenue Code, focusing on Tiger’s subjective intent rather
than objective indicia, and ignoring precedent permitting
parties to structure transactions to achieve tax ad-
vantages. Appellant’s Br. 33; see id. at 33−55. Because
there was no bona fide partnership between RRF and
Tiger, we hold that the Court of Federal Claims did not
err.
5 RRF also contends that the Court of Federal
Claims improperly “traced” the losses “back through to
items from different partnerships,” contrary to “Electro-
lux’s instruction to focus on the direct cause, i.e., the
partnership item.” Appellant’s Br. 27. However, in
Electrolux, we found that the carryover to 1995 was
“attributable to” the 1994 capital loss, which was the
“original source,” 491 F.3d at 1331; it was not “attributa-
ble to” the 1993 carryback, which was an intermediate
step rather than the “direct[] cause” of the 1995 carryover,
id. at 1332. Similarly, Ms. Zimmerman’s 2001 losses are
“attributable to” the original 2000 RRF loss, not the
intermediate carryover by FFIP.
16 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
A. RRF and Tiger Did Not Intend to Form
a Bona Fide Partnership
1. The Legal Framework
When a party acquires an economic interest in a part-
nership, they are only treated as a partner for tax purpos-
es if the partnership “interest is acquired in a bona fide
transaction, not a mere sham for tax avoidance or evasion
purposes.” Treas. Reg. § 1.704-1(e)(1)(iii) (2015). In
determining whether a bona fide partnership exists, the
Supreme Court requires that courts evaluate “whether
the partners really and truly intended to join together for
the purpose of carrying on the business and sharing in the
profits and losses or both.” Comm’r v. Culbertson, 337
U.S. 733, 741 (1949) (internal quotation marks and cita-
tion omitted). More specifically, the Supreme Court
explained that
[t]he question is not whether the services or capi-
tal contributed by a partner are of sufficient im-
portance to meet some objective standard . . . , but
whether, considering all facts— . . . [including]
any . . . facts throwing light on their true intent—
the parties in good faith and acting with a busi-
ness purpose intended to join together in the pre-
sent conduct of the enterprise.
Id. at 742 (emphases added) (footnote omitted). Contrary
to RRF’s repeated assertions, the focus of the Culbertson
test is “not . . . objective”; it is the parties’ “true intent.”
Id. The parties’ “true intent” is evaluated by “considering
all facts,” id., and “[t]riers of fact [who] are constantly
called upon to determine the intent with which a person
acted” are best able to make these determinations, id. at
743 (footnote omitted).
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 17
2. The Court of Federal Claims Did Not Err in its Factual
Findings as to RRF’s and Tiger’s Intent
The Court of Federal Claims “consider[ed] all facts,”
id., and determined that it was “clear” that “Tiger had no
real intention of becoming a partner in RRF[] and that
RRF had reason to know that,” RRF II, 122 Fed. Cl. at
617 (emphasis added). But the court did not merely find
that RRF “had reason to know” that Tiger intended a sale,
not a partnership. The court also found that, as early as
April 1999, Tiger’s contribution was “part of a plan (of
which [RRF principals] were fully aware) to move highly
depreciated assets to RRF via Deutsche Bank in a way
that preserved their tax characteristics.” Id. at 621. In
other words, both players knew before the first transac-
tion that Tiger would sell its CLNs for cash and that RRF
would obtain CLNs with massive built-in losses. As the
court stated, “Tiger and RRF thus collaborated in a
scheme to use the tax laws to their advantage.” Id. We
discern no clear error in these findings by the Court of
Federal Claims.
Indeed, the Court of Federal Claims’s factual findings
are thorough, established by the record, and supportive of
its conclusion that RRF and Tiger did not form a bona fide
partnership. For example, both RRF and FFIP were
Bracebridge-managed funds, and Deutsche Bank worked
closely with both RRF and FFIP to orchestrate each of the
relevant transactions. As the Court of Federal Claims
found,
[t]he quickest means of seeing the events in focus
is to step back and look for the actions of the
common denominator, Deutsche Bank. It was the
broker who helped Tiger acquire its Russian as-
sets. It linked Tiger with the Bracebridge funds
[i.e., RRF and FFIP]. It helped arrange the trans-
fer of the Tiger assets to RRF. It brokered the
sale of Tiger’s partnership interest in RRF to
18 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
FFIP, in the process making certain that the form
of the sale did not jeopardize the subsequent
transfer of the built-in losses to a third party. It
then obtained an option to sell the [CLNs] from
RRF and finally arranged a sale to General Cigar.
The evidence clearly indicates that RRF was a
knowing and willing participant in these activi-
ties, at least as of April 1999.
Id. at 620 (emphasis added); see id. at 607–10 (explaining
the relevant transactions, including Deutsche Bank’s
involvement, and providing supporting citations).
This is particularly telling when Tiger (i.e., the only
party to the transactions that was not managed by Brace-
bridge) retained its interest in the partnership for approx-
imately two weeks. See id. at 608–09 (explaining that
Tiger retained its interest from either May 20 or 25, 1999
to June 3, 1999); see also J.A. 8792, 8949, 9069. The
Court of Federal Claims found that “the evidence is clear
that Tiger was interested in the spring of 1999 in selling
its position in [the CLNs].” RRF II, 122 Fed. Cl. at 618.
And at the time of Tiger’s contribution to RRF, Tiger
employees were already emailing about the next step:
sale. Id. Tiger was at all times interested in liquidity
(i.e., a sale), not a partnership. Because Culbertson
requires that the parties “act[] with a business purpose
[and] intend[] to join together in the present conduct of
the enterprise,” 337 U.S. at 742, it is highly significant
that Tiger refused to sign the standard subscription
agreement stating that “the Shares subscribed for hereby
are being acquired . . . for investment purposes on-
ly, . . . and not with the view that any resale or distribu-
tion thereof . . . .,” RRF II, 122 Fed. Cl. at 607 (emphases
added) (citing J.A. 8178); see J.A. 8853, 8900, 8945–48.
Moreover, relying on the Government’s experts, the
Court of Federal Claims found “that Tiger’s entry into
RRF made no sense as an investment, and its exit made
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 19
no sense in terms of timing.” RRF II, 122 Fed. Cl. at 618–
19. The transaction neither diversified Tiger’s investment
portfolio (RRF II, 122 Fed. Cl. at 611; see J.A. 3680–81,
5725–26) nor provided Tiger with any additional expertise
(RRF II, 122 Fed. Cl. at 614, 619; see J.A. 3678–80, 5724–
26). As one of the world’s largest management compa-
nies, Tiger was already paying its own experts and would
have been better off managing its own CLNs rather than
“paying for nothing”—i.e., paying management fees to
RRA—and committing to any kind of lockup period. Id. at
619. In addition, Tiger did not perform basic due dili-
gence prior to the acquisition (RRF II, 122 Fed. Cl. at 619;
see J.A. 3655–56, 3741–43, 5541, 5637), and it sold the
CLNs to FFIP two weeks later at a discount even though
the value had increased during that short period. Id. at
609.
As for RRF, the Court of Federal Claims found that
“there is a massive amount of circumstantial evidence
that RRF was aware early on that Tiger had no real
interest in becoming a partner,” and it concluded that
RRF “was a willing participant at some point [at least as
of April 1999] in facilitating the transfer of assets through
the sham partnership.” Id. at 620. For example, emails
between RRF principals in April and May 1999, before the
first transaction, revealed RRF’s knowledge that Tiger
intended to engage in a sale and that it would be im-
portant to preserve the tax basis of Tiger’s contribution
for that future sale. Id. at 606, 621.
These factual findings are sufficient to demonstrate
that neither RRF nor Tiger intended to form a bona fide
partnership under the Culbertson standard.
3. The Court of Federal Claims Did Not Err in Its Legal
Conclusion that RRF and Tiger Did Not Form a
Bona Fide Partnership
Lacking any basis to challenge the Court of Federal
Claims’s factual findings, RRF argues that the Court of
20 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
Federal Claims erred in its selection of the appropriate
legal standard and the legal conclusions it drew from its
underlying factual findings. See Appellant’s Br. 33–55.
RRF’s primary argument is that the Court of Federal
Claims improperly ignored sections of the Internal Reve-
nue Code that dictate that “Tiger was a partner[] and
[that] the built-in losses on the property contributed by
Tiger properly transferred to the partnership.” Appel-
lant’s Br. 34; see id. 34–40 (citing to I.R.C.
§§ 704(c), (e)(1), 721(a), 761(b)). By ignoring these provi-
sions, RRF alleges that the Court of Federal Claims
“eschewed the time-tested and congressionally mandated
standard for determining partnership formation in favor
of its own test, under which objective indicia of partner-
ship intent are disregarded as mere ‘formalities’ and one
party’s unilateral intent can invalidate the partnership.”
Id. at 40; see id. at 40–50.
The Court of Federal Claims did not apply “its own
test,” id. at 40; it applied the Supreme Court’s. Under
Culbertson, the focus of the inquiry is the parties’ “true
intent,” 337 U.S. at 742, which is determined by “consid-
ering all the facts,” id. Contrary to RRF’s assertions, the
Court of Federal Claims considered the totality of the
circumstances, see, e.g., RRF II, 122 Fed. Cl. at 607–08
(discussing the revisions to the subscription agreement
mandated by Tiger), 612 (discussing RRF’s expert’s esti-
mate that RRF’s rate of return was 225% for 1999 and
105% for 2000), 614 (discussing Tiger’s “ability to do its
own market and asset analysis”), and determined that
RRF’s and Tiger’s actions were mere “formalities,” id. at
619. The Court of Federal Claims weighed all of the
relevant factors, i.e., made underlying factual findings,
and applied the appropriate legal standard to these
findings to determine that RRF and Tiger did not enter
into a bona fide partnership, i.e., reached a legal conclu-
sion. This is exactly what is required by both Culbertson
and our precedent. See 733 U.S. at 742 (requiring courts
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 21
to “consider[] all facts” to determine the parties’ “true
intent,” i.e., that “the parties in good faith and acting with
a business purpose intended to join together in the pre-
sent conduct of the enterprise”); Wells Fargo, 641 F.3d at
1325 (stating that “the characterization of transactions
for tax purposes” is a legal issue that is “based on under-
lying findings of fact” (citation omitted)). We find no error
in the Court of Federal Claims’s factual findings and
agree with its legal conclusion.
RRF’s arguments to the contrary are unpersuasive.
First, RRF contends that Culbertson does not apply here
because Congress has provided the standard governing
partnership formation. Appellant’s Br. 40–46. In sup-
port, RRF cites to a general statement from the D.C.
Circuit that Culbertson does not supersede clear Congres-
sional intent. Id. at 41 (citing Horn v. Comm’r, 968 F.2d
1229, 1231 (D.C. Cir. 1992) (“Although useful in determin-
ing congressional intent and in avoiding results unintend-
ed by tax code provisions, the [Culbertson] doctrine cannot
trump the plainly expressed intent of the legislature.”)).
However, Culbertson clearly articulates the standard for
determining whether a partnership is bona fide, and we
are bound by Culbertson until either the Supreme Court
or Congress overrules it. Accord Hohn v. United States,
524 U.S. 236, 252–53 (1998) (“Our decisions remain
binding precedent until we see fit to reconsider them,
regardless of whether subsequent cases have raised
doubts about their continuing vitality.” (citation omitted));
Dickerson v. United States, 530 U.S. 428, 437 (2000)
(“Congress retains the ultimate authority to modify or set
aside any judicially created rules of evidence and proce-
dure that are not required by the Constitution.” (citations
omitted)). In addition, even if we were bound by Horn,
which we are not, see Int’l Custom Prods., Inc. v. United
States, 843 F.3d 1355, 1360 (Fed. Cir. 2016) (“When our
precedent is silent on a particular question, we may look
to another circuit for guidance and may be persuaded by
22 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
its analysis, though decisions from other circuits are not
binding on this court.” (internal quotation marks and
citation omitted)), Horn does not provide that objective
indicia should serve as the foundation of a court’s analysis
of whether a partnership is bona fide. In fact, Horn does
not mention “partnership” at all. See generally 968 F.2d
1229. Horn is simply inapposite.
Second, RRF argues that the Court of Federal Claims
incorrectly focused on Tiger’s unilateral intent. Appel-
lant’s Br. 46–50. For example, RRF states that the Court
of Federal Claims “dwelled on its finding that Tiger had
no real interest in being a long term investor. . . . But the
[Court of Federal Claims] could never explain why this
mattered to partnership formation.” Id. at 47. RRF
overlooks that Culbertson explicitly counsels that both
parties must intend to form a partnership, meaning that
both RRF’s and Tiger’s intent were relevant. See 337 U.S.
at 742 (repeatedly referring to the intent of the “parties”
(emphasis added)). In addition, contrary to RRF’s asser-
tions, the Court of Federal Claims did not look to Tiger’s
unilateral intent; instead, it found that RRF both knew of
and shared in Tiger’s intention. See, e.g., RRF II, 122
Fed. Cl. at 609 n.15 (“The balance of the evidence of RRF’s
knowledge of what was really happening is so overwhelm-
ing . . . .”), 621 (“Tiger and RRF . . . collaborated in a
scheme to use the tax laws to their advantage. . . . [W]e
are not obligated to give them effect when their sole
intent was to avoid treating the . . . transaction as what it
was, a sale.”).
Finally, RRF asserts that the Court of Federal Claims
incorrectly relied on its finding that the parties had
“use[d] the tax laws to their advantage.” Appellant’s Br.
50 (quoting RRF II, 122 Fed. Cl. at 621). It is true that a
“taxpayer has an unquestioned right to decrease or avoid
his taxes by means which the law permits.” Coltec Indus.,
Inc. v. United States, 454 F.3d 1340, 1355 (Fed. Cir. 2006)
(citation omitted). However, this was not the foundation
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 23
of the Court of Federal Claims’s holding. Instead, it
determined that RRF’s and Tiger’s “sole intent” was
manipulating the tax code, RRF II, 122 Fed. Cl. at 621,
and, thus, that they lacked the “true intent” to form a
bona fide partnership, Culbertson, 733 U.S. at 742.
B. RRF’s Transaction with Tiger Lacked
Economic Substance
Even had RRF and Tiger intended to form a bona fide
partnership, the Court of Federal Claims correctly deter-
mined that RRF’s transaction with Tiger fails under the
economic substance doctrine, see RRF II, 122 Fed. Cl. at
617, which “prevent[s] taxpayers from subverting the
legislative purpose of the tax code by engaging in transac-
tions that are fictitious or lack economic reality simply to
reap a tax benefit,” Coltec, 454 F.3d at 1353–54. We have
articulated five principles guiding our analysis as to the
economic substance doctrine, four of which are relevant
here.
“First, although the taxpayer has an unquestioned
right to decrease or avoid his taxes by means which the
law permits, . . . the law does not permit the taxpayer to
reap tax benefits from a transaction that lacks economic
reality.” Id. at 1355 (citation omitted). RRF argues that
the Court of Federal Claims “did not find tax avoidance
was RRF’s sole motive.” Appellant’s Br. 51. That is
untrue. The Court of Federal Claims found that RRF’s
and Tiger’s “sole intent was to avoid treating
the . . . transaction as what it was, a sale,” by “collabo-
rat[ing] in a scheme to use the tax laws to their ad-
vantage.” RRF II, 122 Fed. Cl. at 621 (emphasis added).
Although RRF claims that this finding is “unsupported
and contradicted,” Appellant’s Br. 52, we disagree. RRF
has not demonstrated that the Court of Federal Claims’s
factual findings were unsupported by the record, as
explained above. See supra Section III.A.2. Nor has RRF
shown that these findings are contradicted, as the pur-
24 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
portedly contradictory findings primarily relate to the
formation of RRF, not RRF’s transaction with Tiger. See
Appellant’s Br. 51–53.
“Second, when the taxpayer claims a deduction, it is
the taxpayer who bears the burden of proving that the
transaction has economic substance.” Coltec, 454 F.3d at
1355. RRF claimed a deduction for a loss that was passed
through to FFIP and then to Ms. Zimmerman. See RRF I,
101 Fed. Cl. at 500. Because RRF claimed the deduction,
it “bears the burden of proving that the transaction has
economic substance.” Coltec, 454 F.3d at 1355. RRF has
not met that burden.
“Third, the economic substance of a transaction must
be viewed objectively rather than subjectively.” Id. at
1356. There are some objective indicators of the economic
reality of the transaction, such as RRF’s expert’s testimo-
ny that, under RRF’s business model, RRF had a legiti-
mate reason to provide shares instead of paying cash for
the CLNs. RRF II, 122 Fed. Cl. at 611. However, the
great bulk of the objective evidence indicates that the
Tiger transaction lacked economic substance, including
Tiger’s quick sale of its RRF shares to FFIP for “approxi-
mately $800,000 less than the sales price of the shares
roughly one to two weeks earlier,” when the value of the
shares had increased during that period. Id. at 609
(footnote omitted). What could have been accomplished
via a direct sale of CLNs from Tiger to FFIP was instead
carried out via Tiger’s contribution of CLNs to RRF and
subsequent sale of its partnership interest to FFIP. The
former would result in no transfer of Tiger’s $230 million
in built-in losses, while the latter transferred the built-in
losses to U.S. tax-paying entities. Tellingly, RRF ar-
ranged for these losses to go entirely to FFIP. See RRF II,
122 Fed. Cl. at 622 (“Mr. DiBiase ended with a ‘challenge’
to the accountants: ‘Get tax losses from [CLNs] to FFIP.
Don’t want any of such losses to be allocated to other
entities [i.e., RRF partners] which will get no benefit from
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 25
them.’” (citation omitted)). This principle supports the
Government.
“Fourth, the transaction to be analyzed is the one that
gave rise to the alleged tax benefit.” Coltec, 454 F.3d at
1356. Here, the transaction that gave rise to the tax
benefit is RRF’s exchange of shares for Tiger CLNs and,
relying on expert testimony, the Court of Federal Claims
found that Tiger “was gaining nothing” from this transac-
tion. RRF II, 122 Fed. Cl. at 619. RRF has not demon-
strated any reason to disturb this finding. See Appellant’s
Br. 51–53.
“Finally, arrangements with subsidiaries that do not
affect the economic interest of independent third parties
deserve particularly close scrutiny.” Coltec, 454 F.3d at
1357. Because this transaction is not between subsidiar-
ies, this factor is not relevant to our analysis. In sum,
four of the five factors indicate that RRF’s transaction
with Tiger lacked economic substance.
IV. The Court of Federal Claims Did Not Err in Determin-
ing that Penalties Applied
The Court of Federal Claims upheld the 40% penalty
that the IRS imposed because RRF “did not reasonably
rely on objective advice from a tax professional based on
all of the pertinent laws, facts, and circumstances.” RRF
II, 122 Fed. Cl. at 623–24. RRF argues that imposing
penalties (1) violates the Internal Revenue Code’s “basic
principle . . . that no penalty can be imposed when a
taxpayer’s view is reasonable and in good faith, . . . even if
a court ultimately disagrees,” Appellant’s Br. 56, and
(2) ignores “that RRF reasonably relied on its tax experts’
advice,” id. at 58 (citation omitted). We disagree.
Although partnerships do not pay income tax, I.R.C.
§ 701, “the applicability of any penalty . . . which relates
to an adjustment to a partnership item” is determined at
the partnership level, id. § 6221. When a taxpayer un-
26 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
derpays, the IRS “shall . . . add[] to the tax an amount
equal to 20[%] of the portion of the underpayment,” id.
§ 6662(a), and this penalty “shall” be increased to 40% for
“gross valuation misstatements,” id. § 6662(h)(1). Howev-
er, “[n]o penalty shall be imposed . . . with respect to any
portion of an underpayment if it is shown that there was
a reasonable cause . . . and that the taxpayer acted in
good faith . . . .” Id. § 6664(c)(1). Section 6664(c)(1) is a
“narrow defense,” and “[t]he taxpayer bears the burden of
showing this exception applies.” Stobie Creek Invs. LLC
v. United States, 608 F.3d 1366, 1381 (Fed. Cir. 2010).
Reliance on a professional tax advisor’s advice may pro-
vide such a defense if, inter alia, the advice is “based upon
all pertinent facts and circumstances and the law as it
relates to those facts and circumstances,” Treas. Reg.
§ 1.6664-4(c)(1)(i) (2003), and is “not . . . based on unrea-
sonable factual or legal assumptions” or “unreasonably
rel[iant] on the representations . . . of the taxpayer,” id.
§ 1.6664-4(c)(1)(ii).
We agree with the Court of Federal Claims that RRF
cannot meet its burden. As to RRF’s first argument, the
Court of Federal Claims did not apply novel reasoning
based on a new legal standard. Instead, it applied long-
standing Supreme Court precedent, i.e., Culbertson.
As to RRF’s second argument, the Court of Federal
Claims found that Mr. DiBiase supplied all of the infor-
mation upon which Ernst & Young relied. See, e.g., RRF
II, 122 Fed. Cl. at 622 (stating that “the list of working
‘facts’ behind E[rnst] & Y[oung]’s preparation of RRF’s tax
return were orchestrated by Mr. DiBiase to achieve a
desired result and were not critically evaluated by” Ernst
& Young’s representatives), 623 (Ernst & Young “simply
took at face value Mr. DiBiase’s self-interested summary
and utilized these ‘facts’ to prepare the tax forms.”).
These conclusions are well-supported by the record. See,
e.g., J.A. 2576–77 (confirming that the tax group at Ernst
& Young “accepted the information that was supplied by
RUSSIAN RECOVERY FUND LTD. v. UNITED STATES 27
Mr. DiBiase as correct” and that “the tax group at Ernst
& Young did no independent investigation into the factual
accuracy of the information that Mr. DiBiase supplied”),
9350 (fax from Ernst & Young raising concerns about
ACM P’ship v. Comm’r, 157 F.3d 231 (3d Cir. 1998), a case
involving the economic substance doctrine, that Ernst &
Young did not address elsewhere in the record). This
constitutes “unreasonabl[e] rel[iance] on the representa-
tions . . . of the taxpayer,” Treas. Reg. § 1.6664-4(c)(1)(ii),
which does not satisfy the requirements of I.R.C.
§ 6664(c)(1).
Indeed, the only evidence that RRF offered the Court
of Federal Claims of any “advice” that Ernst & Young
provided is the tax returns themselves. See RRF II, 122
Fed. Cl. at 623 (“[T]he only record [RRF] offers of ‘advice’
given to RRF concerning the propriety of taking the losses
is the returns themselves. There are no backup memos or
records of conversations concerning the propriety of
claiming built-in losses. We are simply asked to accept
that, by signing off on the returns for 1999 and 2000,
E[rnst] & Y[oung] was giving its considered advice on
whether it was appropriate to take the loss deduction.”).
The same is true on appeal. See Appellant’s Br. 60–62
(arguing that tax returns are advice). However, tax
returns are insufficient to demonstrate reliance on profes-
sional tax preparer advice for the reasonable cause excep-
tion. See Richardson v. Comm’r, 125 F.3d 551, 558 (7th
Cir. 1997) (finding no reasonable cause where, “other than
the fact that a tax preparer signed [the taxpayer’s] re-
turns, there [was] no evidence in the record that [the
taxpayer] received any advice from professionals”); Neo-
natology Assocs., P.A. v. Comm’r, 115 T.C. 43, 100 (2000)
(“The mere fact that a certified public accountant has
prepared a tax return does not mean that he or she has
opined on any or all of the items reported therein.”), aff’d,
299 F.3d 221 (3d Cir. 2002).
28 RUSSIAN RECOVERY FUND LTD. v. UNITED STATES
CONCLUSION
We have considered RRF’s remaining arguments and
find them unpersuasive. For these reasons, the final
decision of the U.S. Court of Federal Claims is
AFFIRMED