Free Proposed Findings of Uncontroverted Fact - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS Nos. 06-245T, 06-246T, and 06-247T (Consolidated) MURFAM FARMS, LLC, § By and Through Wendell H. Murphy Jr., § a Partner Other Than Tax Matters Partner, § § PSM FARMS, LLC, § By and Through Stratton K. Murphy, § a Partner Other Than Tax Matters Partner, § § MURPHY PORK PARTNERS, LLC, § By and Through Wendell H. Murphy, Jr., § a Partner Other Than Tax Matters Partner, § § Plaintiffs, § § v. § § UNITED STATES OF AMERICA, § § Defendant. § PROPOSED FINDINGS OF UNCONTROVERTED FACT Pursuant to Rule 56(h)(1) of the Rules of the Court of Federal Claims, Plaintiffs MURFAM Farms, LLC, PSM Farms, LLC and Murphy Pork Partners respectfully submit the following Proposed Findings of Uncontroverted Fact in Support of its Motion for Partial Summary Judgment as to the Validity of Treasury Regulation § 1.752-6. 1. On April 4, 2000, MURFAM Farms, LLC ("MURFAM") was formed as a limited

liability company under Delaware law. Pl. Ex. 1, App. A at pp. 1-2; Pl. Ex. 2, App. A at pp. 3-9. a. The initial members of MURFAM were Wendell Murphy,

Wendell Murphy, Jr., Wendy Crumpler, Joyce Norman, and Angela Brown. Pl. Ex. 2, App. A at pp. 3-9.

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b.

No election under Treas. Reg. § 301.7701-3(c) was filed with the

Internal Revenue Service by or on behalf of MURFAM to be classified as a corporation for federal income tax purposes. 2. On April 4, 2000, PSM Farms, LLC ("PSM") was formed as a limited liability

company under Delaware law. Pl. Ex. 3, App. A at pp. 10-11; Pl. Ex.4, App. A at pp. 12-18. a. The initial members of PSM were Harry Murphy, Marc Murphy,

and Stratton Murphy. Pl. Ex. 4, App. A at pp. 12-18. b. No election under Treas. Reg. § 301.7701-3(c) was filed with the

Internal Revenue Service by or on behalf of PSM to be classified as a corporation for federal income tax purposes. 3. On April 4, 2000, Murphy Pork Partners, LLC ("Pork") was formed as a limited

liability company under Delaware law. Pl. Ex. 5, App. A at pp. 19-20; Pl. Ex. 6, App. A at pp. 21-27. a. The initial members of Pork were Wendell Murphy, Wendell

Murphy, Jr., and Harry Murphy. Pl. Ex. 6, App. A at pp. 21-27. b. No election under Treas. Reg. § 301.7701-3(c) was filed with the

Internal Revenue Service by or on behalf of Pork to be classified as a corporation for federal income tax purposes. 4. On April 6, 2000, the following entities were formed. a. WHM Ventures, LLC (WHM) was formed as a limited liability

company under Delaware law. Pl. Ex. 7, App. A at pp. 28-29. b. WHMJ, LLC (WHMJ) was formed as a limited liability company

under Delaware law. Pl. Ex. 8, App. A at pp. 30-31.

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c.

WMC, LLC (WMC) was formed as a limited liability company

under Delaware law. Pl. Ex. 9, App. A at pp. 32-34. d. HDM, LLC (HDM) was formed as a limited liability company

under Delaware law. Pl. Ex. 10, App. A at pp. 35-36. e. MDM Ventures, LLC (MDM) was formed as a limited liability

company under Delaware law. Pl. Ex. 11, App. A at pp. 37-38. f. SKM Ventures, LLC (SKM) was formed as a limited liability

company under Delaware law. Pl. Ex. 12, App. A at pp. 39-40. g. JMN Ventures, LLC (JMN) was formed as a limited liability

company under Delaware law. Pl. Ex. 13, App. A at pp. 41-42. h. ANB, LLC (ANB) was formed as a limited liability company

under Delaware law. Pl. Ex. 14, App. A at pp. 43-44. 5. None of the following entities dissolved during calendar year 2000. a. WHM did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 7, App. A at pp. 28-29. b. WHMJ did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 8, App. A at pp. 30-31. c. WMC did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 9, App. A at pp. 32-34. d. HDM did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 10, App. A at pp. 35-36. e. MDM did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 11, App. A at pp. 37-38.

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f.

SKM did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 12, App. A at pp. 39-40. g. JMN did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 13, App. A at pp. 41-42. h. ANB did not dissolve under Delaware law during calendar year

2000. Pl. Ex. 14, App. A at pp. 43-44. 6. On April 14, 2000, the limited liability companies identified in paragraph 4 above

entered into the following over-the-counter, non-publicly traded European-style foreign currency option positions with Deutsche Bank AG New York Branch (collectively, the "Options"). a. WHM purchased--for a premium of $26,400,000.00--a digital

option on the USD/EURO exchange rate with a strike price of less than or equal to .9207 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $52,800,000.00. Pl. Ex. 15, App. A at pp. 45-47. b. WHM purchased--for a premium of $8,000,000.00--an Option

on the USD/EURO exchange rate with a strike price of less than or equal to.9207 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $16,000,000.00. Pl. Ex. 16, App. A at pp. 48-50. c. WHMJ purchased--for a premium of $17,300,000.00--an Option

on the CHF/USD exchange rate with a strike price of less than or equal to 1.5839 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $34,600,000.00. Pl. Ex. 17, App. A at pp. 51-53. d. WHMJ purchased--for a premium of $4,000,000.00--an Option

on the CHF/USD exchange rate with a strike price of less than or equal to 1.5839 CHF

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per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $8,000,000.00. Pl. Ex. 18, App. A at pp. 54-56. e. WMC purchased--for a premium of $5,300,000.00--an Option

on the USD/EURO exchange rate with a strike price of less than or equal to.9207 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $10,600,000.00. Pl. Ex. 19, App. A at pp. 57-59. f. JMN purchased--for a premium of $9,700,000.00--an Option on

the CHF/USD exchange rate with a strike price of less than or equal to 1.5839 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $19,400,000.00. Pl. Ex. 20, App. A at pp. 60-62. g. ANB purchased--for a premium of $3,000,000.00--an Option on

the CHF/USD exchange rate with a strike price of less than or equal to 1.5839 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $6,000,000.00. Pl. Ex. 21, App. A at pp. 63-65. h. HDM purchased--for a premium of $2,000,000.00--an Option on

the CHF/USD exchange rate with a strike price of less than or equal to 1.5839 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $4,000,000.00. Pl. Ex. 22, App. A at pp. 66-68. i. HDM also purchased--for a premium of $12,000,000.00--an

Option on the USD/EURO exchange rate with a strike price of less than or equal to .9207 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $24,000,000.00. Pl. Ex. 23, App. A at pp. 69-71.

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j.

MDM purchased--for a premium of $6,300,000.00--an Option

on the CHF/USD exchange rate with a strike price of less than or equal to 1.5839 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $12,600,000.00. Pl. Ex. 24, App. A at pp. 72-74. k. SKM purchased--for a premium of $6,300,000.00--an Option on

the CHF/USD exchange rate with a strike price of less than or equal to 1.5839 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $12,600,000.00. Pl. Ex. 25, App. A at pp. 75-77. l. WHM sold--for a premium of $25,608,000.00--an Option on the

USD/EURO exchange rate with a strike price of less than or equal to.9205 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $51,018,000.00. Pl. Ex. 15, App. A at pp. 45-47. m. WHM sold--for a premium of $7,760,000.00--an Option on the

USD/EURO exchange rate with a strike price of less than or equal to.9205 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $15,460,000.00. Pl. Ex. 16, App. A at pp. 48-50. n. WHMJ sold--for a premium of $16,781,000.00--an Option on

the CHF/USD exchange rate with a strike price of less than or equal to 1.5837 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $33,432,250.00. Pl. Ex. 17, App. A at pp. 51-53. o. WHMJ sold--for a premium of $3,880,000.00--an Option on the

CHF/USD exchange rate with a strike price of less than or equal to 1.5837 CHF per 1.00

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USD, a termination date of June 13, 2000, and a final exchange amount of $7,730,000.00. Pl. Ex. 18, App. A at p. 54-58. p. WMC sold--for a premium of $5,141,000.00--an Option on the

USD/EURO exchange rate with a strike price of less than or equal to .9205 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $10,242,250.00. Pl. Ex. 19, App. A at pp. 57-59. q. JMN sold--for a premium of $9,409,000.00--an Option on the

CHF/USD exchange rate with a strike price of less than or equal to 1.5837 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $18,745,250.00. Pl. Ex. 20, App. A at pp. 60-62. r. ANB sold--for a premium of $2,910,000.00--an Option on the

CHF/USD exchange rate with a strike price of less than or equal to 1.5837 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $5,797,500.00. Pl. Ex. 21, App. A at pp. 63-65. s. HDM sold--for a premium of $1,940,000.00--an Option on the

CHF/USD exchange rate with a strike price of less than or equal to 1.5837 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $3,865,000.00. Pl. Ex. 22, App. A at pp. 66-68. t. HDM sold--for a premium of $11,640,000.00--an Option on the

USD/EURO exchange rate with a strike price of less than or equal to .9205 USD per 1.00 EURO, a termination date of June 13, 2000, and a final exchange amount of $23,190,000.00. Pl. Ex. 23, App. A at pp. 69-71.

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u.

MDM sold--for a premium of $6,111,000.00--an Option on the

CHF/USD exchange rate with a strike price of less than or equal to 1.5837 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $12,174,750.00. Pl. Ex. 24, App. A at pp. 72-74. v. SKM sold--for a premium of $6,111,000.00--an Option on the

CHF/USD exchange rate with a strike price of less than or equal to 1.5837 CHF per 1.00 USD, a termination date of June 13, 2000, and a final exchange amount of $12,174,750.00. Pl. Ex. 25, App. A at pp. 75-77. 7. Under the terms of their respective sold (short) options, the limited liability

companies incurred the following obligations: a. WHM had an obligation to pay $51,018,000.00 if the USD/Euro

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to.9205 USD per 1.00 EURO. Pl. Ex. 15, App. A at pp. 45-47. b. WHM had an obligation to pay $15,460,000.00 if the USD/Euro

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to.9205 USD per 1.00 EURO. pp. 48-50. c. WHMJ had an obligation to pay sold $33,432,250.00 if the Pl. Ex. 16, App. A at

CHF/USD exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to 1.5837 CHF per 1.00 USD. Pl. Ex. 17, App. A at pp. 51-53.

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d.

WHMJ had an obligation to pay $7,730,000.00 if the CHF/USD

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to 1.5837 CHF per 1.00 USD. Pl. Ex. 18, App. A at pp. 54-56. e. WMC had an obligation to pay $10,242,250.00 if the USD/Euro

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to .9205 USD per 1.00 EURO. Pl. Ex. 19, App. A at pp. 57-59. f. JMN had an obligation to pay $18,745,250.00 if the CHF/USD

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to 1.5837 CHF per 1.00 USD. Pl. Ex. 20, App. A at pp. 60-62. g. ANB had an obligation to pay $5,797,500.00 if the CHF/USD

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to 1.5837 CHF per 1.00 USD. Pl. Ex. 21, App. A at pp. 63-65. h. HDM had an obligation to pay $3,865,000.00 if the CHF/USD

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to 1.5837 CHF per 1.00 USD. Pl. Ex. 22, App. A at pp. 66-68. i. HDM had an obligation to pay $23,190,000.00 if the USD/Euro

exchange rate on the termination date (or such later date as provided by the option

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agreement) was less than or equal to .9205 USD per 1.00 EURO. Pl. Ex. 23, App. A at pp. 69-71. j. MDM had an obligation to pay $12,174,750.00 if the CHF/USD

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to 1.5837 CHF per 1.00 USD. Pl. Ex. 24, App. A at pp. 72-74. k. SKM had an obligation to pay $12,174,750.00 if the CHF/USD

exchange rate on the termination date (or such later date as provided by the option agreement) was less than or equal to 1.5837 CHF per 1.00 USD. Pl. Ex. 25, App. A at pp. 75-77. 8. On April 17, 2000, the following transfers occurred: a. WHM transferred the options described in paragraphs 6.a and 6.l

above to MURFAM. WHM did not reduce the adjusted basis in its partnership interest in MURFAM for the sold (short) option described in paragraph 6.1 above. Pl. Ex. 26, App. A at pp. 78-79. b. WHM transferred the options described in paragraphs 6.b and 6.m

above to Pork. WHM did not reduce the adjusted basis in its partnership interest in Pork for the sold (short) option described in paragraph 6.m above. Pl. Ex. 27, App. A at pp. 80-81. c. WHMJ transferred the options described in paragraphs 6.c and 6.n

above to MURFAM. WHMJ did not reduce the adjusted basis in its partnership interest in MURFAM for the sold (short) option described in paragraph 6.n above. Pl. Ex. 28, App. A at pp. 82-83.

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d.

WHMJ transferred the options described in paragraphs 6.d and 6.o

above to Pork. WHMJ did not reduce the adjusted basis in its partnership interest in Pork for the sold (short) option described in paragraph 6.o above. Pl. Ex. 29, App. A at pp. 8485. e. WMC transferred the options described in paragraphs 6.e and 6.p

above to MURFAM. WMC did not reduce the adjusted basis in its partnership interest in MURFAM for the sold (short) option described in paragraph 6.p above. Pl. Ex. 30, App. A at pp. 86-88. f. JMN transferred the options described in paragraphs 6.f and 6.q

above to MURFAM. JMN did not reduce the adjusted basis in its partnership interest in MURFAM for the sold (short) option described in paragraph 6.q above. Pl. Ex. 31, App. A at pp. 89-90. g. ANB transferred the options described in paragraphs 6.g and 6.r

above to MURFAM. ANB did not reduce the adjusted basis in its partnership interest in MURFAM for the sold (short) option described in paragraph 6.r above. Pl. Ex. 32, App. A at pp. 91-93. h. HDM transferred the options described in paragraphs 6.h and 6.s

above to Pork. HDM did not reduce the adjusted basis in its partnership interest in Pork for the sold (short) option described in paragraph 6.s above. Pl. Ex. 33, App. A at pp. 9496. i. HDM transferred the options described in paragraphs 6.i and 6.t

above to PSM. HDM did not reduce the adjusted basis in its partnership interest in PSM

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for the sold (short) option described in paragraph 6.t above. Pl. Ex. 34, App. A at pp. 9799. j. MDM transferred the options described in paragraphs 6.j and 6.u

above to PSM. MDM did not reduce the adjusted basis in its partnership interest in PSM for the sold (short) option described in paragraph 6.u above. Pl. Ex. 35, App. A at pp. 100-102. k. SKM transferred the options described in paragraphs 6.k and 6.v

above to PSM. SKM did not reduce the adjusted basis in its partnership interest in PSM for the sold (short) option described in paragraph 6.v above. Pl. Ex. 36, App. A at pp. 103-104. 9. On December 16, 2005, the IRS issued a final notice of partnership administrative

adjustment (FPAA) to MURFAM. Pl. Ex. 37, App. A at pp. 105-115. 10. The MURFAM FPAA makes the following allegation concerning the Regulation: It is determined that the obligations under the sold option positions transferred to MURFAM Farms constitute liabilities for purposes of Treasury Regulation § 1.752-6, the assumption of which by MURFAM Farms shall reduce the purported partners'...bases in MURFAM Farms.... Id. 11. pp. 116-130. 12. The PSM FPAA makes the following allegation concerning the Regulation: It is determined that the obligations under the sold option positions transferred to PSM Farms constitute liabilities for purposes of Treasury Regulation § 1.752-6, the assumption of which by PSM Farms shall reduce the purported partners' bases in PSM Farms.... Id. On December 15, 2005, the IRS issued an FPAA to PSM. Pl. Ex. 38, App. A at

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13. pp. 131-142. 14.

On December 15, 2005, the IRS issued an FPAA to Pork. Pl. Ex. 39, App. A at

The Pork FPAA makes the following allegation concerning the Regulation: It is determined that the obligations under the sold option positions transferred to Murphy Pork Partners constitute liabilities for purposes of Treasury Regulation § 1.752-6, the assumption of which by Murphy Pork Partners shall reduce the purported partners' bases in Murphy Pork Partners.... Id.

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Respectfully submitted, By: s/Joel N. Crouch Joel N. Crouch State Bar No. 05144220 M. Todd Welty State Bar No. 00788642

MEADOWS, COLLIER, REED, COUSINS & BLAU, L.L.P. 901 Main Street, Suite 3700 Dallas, TX 75202 (214) 744-3700 Telephone (214) 747-3732 Facsimile [email protected] [email protected] ATTORNEYS FOR PLAINTIFFS

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CERTIFICATE OF SERVICE I hereby certify that on March 7, 2008, a copy of the foregoing Plaintiffs' Proposed Findings of Uncontroverted Fact was served upon counsel listed below via electronic means. Dennis M. Donohue, Esq. Trial Attorney United States Department of Justice Tax Division P.O. Box 26 Ben Franklin Station Washington DC 20044 (202) 616-3366 s/Joel N. Crouch Joel N. Crouch

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