Free Response to Motion - District Court of Federal Claims - federal

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Furermore, in enactig Subchapter K in 1954, Congress stated as its motivation its desire
to eliate confsion and provide certainty with respect to the tax treatment of parerships and

. parers. "The presence of a tax avoidance motive, however, is of no consequence if the realty of
the transfer of

interest and the good faith ofthe pares are satisfactorily established." Mim.6767,

1952-1 CB 111. H.R. Rep. No. 1337, 83d Congress, 2d Session 65 (1954); S. Rep. No. 1622, 83d
Congress, 2d Session 89 (1954).

There are numerous areas where Subchapter K deliberately requies tax results that are
inconsistent with substance or economic reality. The general rule of Subchapter K creates clear distortons by not mandatig equality between "inide" and "outside" basis, precisely the situation
in the instant case. Also, the character and holdig period of parership

assets is determned at the
must be allocated among the parers even

parership leveL. Furer, recognzed parership income

though it is unclear which parers, if any, will benefit from such income, and even though if the

parership were treated as an aggregate entity no parer would report any income. Additionally,
parership "terminations" under Code section 708(b)(1)(B) can have signcant beneficial tax
effects or signficant adverse tax effects on parers whose economic position with respect to the
parership's assets and business is not changed. These rues, and

numerous similar rules, reflect

the fact that Subchapter K was codified priarly to provide cerainty, not to achieve the goal of

economic harony. Thus, the resultant step-up in basis is more liely than not consistent with the
intent

of subchapter K. 75,

75 It should be noted tht, durg the comment period on the proposed reguations, the New York State Bar
Asociation made a recommendation to the Treasur that a short sale examle that contaied facts simlar to the
traction at isue be included in the Reguation. The recommendation from the New York State Bar Asociation wa
that the examle ilustrted a traction tht

would violate the proposed anti-abuse regulations. However, the Treasur

did not adopt the recommendation and did not include the examle in the Reguation. '

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2. Validity of

the Regulation.
Congress' strong statement that parerships, if

As discussed below, in light of

they are real,

are to be respected regardless of

the motive for their formation and use, and Congress's desire to
the taxation of parerships and parers, the scope of

provide certaity

in the area of

the Regulation

and its associated remedies are grossly overbroad. Hence, to the extent the Regulation were applied

as broadly as its words permt, it would be invalid. If the Regulation were interpreted to overrde
the Clearly expressed intent of Congress as reflected in the provisions of Subchapter K, it would be
invalid. See, e.g., Wasserman & Cuff

"IR Attempts To 'Demonize' the Parership: The Final

Section 701 Regulations--Antiabuse Reguations or Simply Abusive Reguations?" Portland Tax

Foru, 1995; Gouwar, "The Proposed Parership Anti-Abuse Reguation: Treasur Oversteps its
Authority," 11 Joural of

Parership Taxation 287 (Winter 1995); McKee, Nelson & Whtmre,
Parerships and Parers,

"Special Report - Subchapter K Anti-Abuse Rule," Federal Taxation of

2d Edition (Waren, Gorham & Laont, 1994); Dell, "The Proposed Parership Anti-Abuse
Regulation: Let's Get Real (and Practical), Shall We?!" 21 Joural of

Real Estate Taxation 99;

Lipton, "IRS Improves Parérship Anti-Abuse Regs., but Major Problems Remai" 82 Joural of

Taxation 132 (Marh 1995); Banoff, "AnatomyofanAntiAbuseRule: WhatsReallyWrongWith
Reg. Section 1.701-2" Tax Notes, March 20, 1995, p. 1859; Chevron. U.S.A.. Inc. v. Natual

Resources Defense CounciL. Inc.. 467 U.S. 837 (1984); and Commssioner v. South Texas Lumber

Co.. 333 U.S. 496 (1948). Moreover, regulations issued under Code section 7805 generally have

been treated as interretive, and not legislative. See United States v. Vogel Fertlizer Co.. 455 U.s.
16 (1982); Rowan Coso v. United States. 452 U.S. 247 (1981); Dresser Industres. inc. v.
Commissioner. 911 F.2d 1128 (5th Cir. 1990); Gehl Co. v. Commssioner. 795 F.2d 1327 (7th Cir.

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1986); CWTFars.Inc. v. Commssioner. 755F.2d 790

(11thCir.

1985),

cert.

denied,

477

U.s. 902

(1982).

The thst of the legal commenta: is that the Regulation is unworkable because it does not
include a clear and reasonable standad that can be used by taxpayers and the IR to identi

prohibited tranactions, nor are the examples of parership arangements sufcient to provide a

standard or an analytcal approach which can be reasonably utilized to identify permssible or
imperssible transactions. Inasuch as the Reguation itself and the Examples it contas provide

litte or no gudance as to the difference between tranactions which are prohibited and those which
are not, it may be void for vagueness. The apparent implied standard for application by the IRS of
the Regulation consists of "I know it when I see it" (Jacob

ells v. Ohio. 378 U.S. 184,197 (1964)).

Ths tye of ambiguous ex post facto standard for application of the Regulation permts and
encourages arbitr and discratory enforcement, which is one of the specific evils addressed
by cour in invalidatig laws for vagueness. See, e.g., Papachrstou v. City of Jacksonville. 405

U.S. 156 (1972). See also Vilage of

Hoffman Estates v. Flipside. Hoffan Estates. Inc., 455 U.S.

489 (1982), in which the cour found that a commercial ordiance may be void for vagueness; and
Diebold. Inc. v.' MarshalL. 585 F.2d 1327 (6th Cir. 1978), where an economic regulation was held

void for vagueness.
Additionally, the Regulation should be viewed as a signficant reguatory action under
Executive Order (EO) 12866. The "Special Analyses" section of

the preamble states that "It has

been determed that ths Treasur decision is not a signficant reguatory action as defined in EO
12866." Additionally, in a "Speciai Analyses and the Secreta's Authority section of the

preamble,

the lRS and Treasur acknowledge and discount adverse commentar and criticisms of this
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determation and conclude, without analysis, that they..... believe that the reguation complies with
all statutory and regulatory requirements related to the issuace of

the notice of proposed ruemakg

and that it is clearly withn the Secretar's authority to issue the fial regulation." However, for
reasons hereinafter discussed, we believe that the issuace of the Regulation does constitute a
signficant regulatory action.

Section 3(f) of

EO 12866 defies a "signficant reguatory action" to include any regulatory
to result in a rule that "may: (1) (h)ave an anual effect

action that

is liely

on the economyof$100
the economy, (or)

million or more or adversely affect in a material way the economy, a sector of

productivity ..." (emphasis added). The term "signficant regulatory action" alo includes any
regulatory action that is likely to result in a rule that "may: (4) raise novel

legal or policy issues"
inc1udes the issuance offial

(emphasis added). EO 12866 §3(f)(4). ''Reguatory

action"

regulations

by Treasur decision.

There may be a signficant effect on the economy from the prohibition of allegedly abusive

parership transactions targeted by the Reguation. Anyone of these targeted tractions could

involve $100 millon or more. The impact on Brown Group transactions alone meets ths
requirement. (Such tranactions derive their name from the case of Brown Group. Inc. v.

Commssioner. 102 T.C. 616 (1994), withdrwn and reversed upon reconsideration, 104 T.C. No.
5 (1995), involvig the attempted use of a parership stctue to avoid realzation of

"subpar F

income.") According to IR officials in their motion for reconsidertion, the original decision by

the Tax Cour in Brown Group, which is a stated target of the Reguation, would reduce tax
collections by $4 bilion. (See also, "Tax Cour's Decision in Brown Group May Have Major
Ramfications," 63 Tax Notes 512, May 2, 1994; "Subpar F: U.S. Tax Cour's Brown Group

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Decision Rej ects Aggregate Theory. of

Parership Taxation; Threatens Operation of Subpar F," 8

Tax Notes Intl1175, May 2, 1994.)
Furter, the Reguation could well deter many non-abusive and legitimate economic

tranactions and thereby have an effect on the U.S. economy that may easily be greater than $100

millon anually. If

the Regulation affects just ten transactions per year, and each of

the tranactions

has an impact on the economy of $10 millon, there would obviously be an anual impact on the

economy of $100 millon. In such case, the Treasur decision may be a "signficant reguatory
action" under §3(f)(1) of EO 12866. The likely effect of

the Reguation on its intended targets, when

combined with the effect on untended targets, is likely well in excess of the minium limits
requied to make EO 12866 apply.
Moreover, EO 12866 can apply even if

the impact on the economy as a whole does not reac:n

an anual level of $100 millon if the Reguation may "adversely effect in a material way the
economy, a sector of

the economy (or) productivity." For example, the real estate industr, a sector

of the economy that is only recently. reviving from recession, may be adversely affected by the
Reguation, as may the equipment leasing industr, the oil and gas industr, hedge fuds, and

stctued finance tractions.
Moreover, by creatig an "abuse of entity" stadard that prohibits the use of parerships "in
circumvention of the intent of ..." other prov.sions of the Code, the Regulation raises novel

legal and

policy issues, so as to constitute a "signficant regulatory action" under EO 12866 §3(f)(4). The
controversy suounding the issuance of

the Reguation is unprecedented. The Regulation describes
ignore the litera language or requirements of

circumstances under

which theIRS may

the Code, and

ths ability alone obviously "may... raise novel legal or policy issues."

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Thus, the Treasur may have ered in determnig that the Regulation is not a "signficant

regulatory action" under the EO 12866, and if so, at a minium, a regulatory assessment appears to
be required.
Furer, the Reguation is fuer subject to attack because it grts to the Commssioner of

Interal Revenue the discretionar power on a case-by-case basis to alter the substantive law and its
application to the facts, and thereby

usurs Congressional legislative authority and strps the cours

of de novo adjudication

authority when there is no basis in the law for ths grant of power to the

Commssioner in the maner asserted by the Regulation.

Subchapter K (sections 701 though 761) of chapter 1 of the Code addresses the federal
income taxation of parers and parerships. Under the Regulation, the Commissioner, who is a
the Treasur, is given cerai discretionar powers that can be exercised

delegate of

the Secretar of

on a case-by-case basis with respect to transactions involvig parerships. Specifically, under
certain standards which may not be ascerainable, the Commssioner, under pargraph (b) of the
Regulation, can recast a transaction "as appropriate to achieve tax results that are consistent with the.

intent of subchapter K" and "can deterne, based on the parcular facts and circumstances, that to

achieve tax results that are consistent with the intent of subchapter K," the parcular maner in
which the claied tax treatment should be "adjusted or modied." Paragraph (d) sets fort varous ,
examples of when the Conìssioner may exercise his powers to recas a trsaction as somethg

other than'what it purorts to be. However, in none of

those examples which conclude that the

Commssioner may recast the transaction (Examples 6, 9, 10 and 13) is there any statement of what

the recast trsaction shal be or indeed whether the transaction shall be recast at alL. Intead, the

matter is left to the discretion of the Commssioner. Under paragraph ( e) of the Regulation, subject
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to standards that may

not be ascertaiable, the Commssioner "can treat a parership as an aggregate

of its parer in whole or in par as appropriate to car out the puroses of any provision of the

hiteral Revenue Code or the reguations promulgated thereunder."
The Treasur Deparent, which is the adstrative agency charged by Code section 780 1

with the administration and enforcement of the internal revenue laws, has by the issuance of ths

Reguation asserted an expansion of its powers beyond the powers it had before. Prior to ths
Reguation, the Secretar's delegate, i.e., the Commissioner, with respect to the matters addressed
by

the Regulation, ha the power as a litigant (as does the taxpayer) to argue toa cour his own views

as to the proper interretation of the tax laws and their application to the facts of a parcular case.

Under the Regulation, with respect to the matters addressed therein, the Commssioner has the
discretionar power under certai stadards (which may

not be ascertaiable) to alter the substantive

law and its application to the facts and to do so on a case-by-case basis. The Commssioner's
determation thus becomes par of the law itself and is no longer merely the position of a litigant.

The power of a cour to make a de novo interpretation of the law and a de novo application of it to
the facts of a parcular case, has been, to the extent the Commissioner's power is exercised, reduced
to a review of

whether the Commssioner has abused his discretion. Ths would be starkly apparent

in tax-refud cases, where the Commssioner is not even a par to the case, the Justice Deparent
representing the governent in such cases. Furermore, the Regulation sets up no procedures which

must be followed or fidings which mus be made which would form an adminstrative record which

would provide a basis to enable a cour adequately to perform a fuction of judicial review of the
exercise of power by an admstrative agency.

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Thus, the Reguation has granted to the Commssioner both a new legislative power and a

new judicial power. The new legislative, power is the power to alter the express provisions of
subchapter K and other provisions of

the Code so as to conform them to the same perceived intent

of subchapter K. The new judicial power is the power to make these alterations and deterations

on a case-by-case basis.
The powers of an admstrative agency charged by Congress with the enforcement and
adstration of a body of law are only those powers expressly or impliedly granted to the

admstrative agency by Congress. An admnistrative agency canot by regulation expand its
powers uness such expanion of powers by regulation is expressly or impliedly authorized by

Congress. The issue, then, is whether the Treasur Deparent has the authority to issue ths
Reguation, which grants to the Commssioner these new legislative and

judicial powers.

Ths matter, therefore, touches upon fudaental issues relatig to the natue of our

governent; specifically, the separation-of-powers doctre, which distrbutes legislative, executive,
and

judicial powers among the three branches of governent. Notwithstandig ths doctrne, it has

been held permssible under cert circumstances for Congress (being the legislative branch) to

grant to an administrtive agency (being, in the executive brach) cerain legislative and judicial
powers. Without examg the scope of Congress' power to make such grants, the fact is that, with
respect to the Regulation, it has not done so in the present case. That is, Congress has simply not
expressly or impliedly authorized the Treasur Deparent to create for itself

the power to alter the

substantive law relatig to the taxation of parerships or, most certaiy, to do so on a case-by-case
basis. Treasur Decision 8588, which promulgated the Reguation, stated thai the authority for the

Regulation was Code section 7805 and also Code sections 701 though 761. Code section 7805 is
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the general provision authonzing the Treasur Deparent to issue "needful rules and reguations"
forthe enforcement of

the internal revenue laws. Code section 7805 has been held to authorize only

interpretative reguations. See, e.g., United States v. Vogel Fertlizer Co., supra; Rowan Coso v.
United States, supra; Dresser Industres. Inc. v. Commssioner, supra; Gehl Co. v. Commissioner,

supra; CWT Fars. Inc. v. Commssioner, supra. The power to modify or alter on a case-by-case
basis is not the power to interret. With respect to Code sections 701 though 761, relating to the
taxation of parers and parerships, there is simply nothg in those sections from which can be

inerred the power to issue a regulation grantig new legislative and judicial powers to the

Commssioner in the maner assered by the present Regulation.

For an interretative reguation to be valid, it must implement in a reasonable maner a

Congressional mandate set fort in the Code. See, e.g., U.S. v. Carght. 411 U.S. 546, 550
(1973); U.S. v. Correll. 389 U.S. 299, 307 (1967). An interpretative regulation implements the
Congressional mandate in a reasonable maner ifit hanonies the statute's origi and purose with

the statutory language. See, e.g., U.S. v. Vogel Fertlizer Co., supra; National Muffer Dealers
Ass'n. v. U.S., 440 U.S. 472, 477 (1979).

To be valid under the foregoing test, an interpretative reguation must satisfy the following

requiements:
(a) The reguation canot usur Congressional authority by adding restrctions that are

not contaied in the statute. See, e.g., Hughes Intl. Sales Corp. v. Commssioner,
100 T.C. 293, 304 (1993);

(b) The reguation canot be inconsistent with statutory language. See, e.g., The An
Jackson Famlv Foundation v. Commissioner, 15 F.3d 917 (9t Cir.1994);

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(c) il the absence of statutory ambiguty, the regulation must comport with the plai
language of

the statute it purorts to interpret. See, e.g., Nalle il v. Commissioner,

997 F.2d 1134 (5th Cir. 1993);

(d) The reguation canot broaden the scope of coverage of the statute beyond its
unambiguous terms. See, e.g., Rowan Coso v. U.S.. supra; and

( e) The reguation canot be used by the Secretar or his delegate to rewrte legislative enactments that give effect to ideas of policy and fitness or the desirbility of symetr in statutes, especially where an unclear regulatory interpretation of an
othere clear statutory

provision is the means used to accomplish these ends. See, e.g., Busse v. Commssioner, 479 F.ld 1147, 1151 (7th Cir. 1973).

Based upon the foregoing requiements for a valid interpretative reguation, a compellg

argument can be made that the Regulation more likely than not exceeds Treasur's rulemakg
authority. First, the Regulation does not reflect the language or the intent of Code section 701 under
which it is promulgated and which it purorts to interpret or Code sections 701 though 761. Code
section 701 provides that: "A parership as such shall not be subject to the income tax imposed by

ths chapter. Persons carg on business as parers shall be liable for income tax only in their

separate or individual capacities." The Regulation does not interpret ths provision.
Second, there is no other authority under subchapter K for issuance of

the Regulation. The

Reguation states that a tranaction may be abusive if the transaction, although ~omplyig with the
literal

language of the Code, violates the "puroses" of subchaprer K or is in circumvention of the

intention of other provisions of the Code. Thus, the Regulation canot be an interpretative

regulation; instead of "interretig" the law, it allows the IR to ignore subchapter K and other
provisions of the Code. The Regulation, in effect, represents a legislative action by

the Treasur,

creating new tax law and

effectig its new anti-abuse policy without Congressional approval.

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Furer, Congress has previously considered and rejected broad anti-tax avoidance language

for the adminstration of

subchater K. The House verion of

the Tax Reform Bil of 1975 would

have requied, under Code section 704(b), that an allocation have a "business purose" and that "no

signficant avoidance or evasion of any tax imposed by the subtitle results from such allocation."
The Senate Finance Commttee expressly

rejected the "signficant avoidance or evasion of any tax"

concept presented in the House Bil because of its concern as to the uncertaity of application for

such a standard. See S. Rep. No. 938, Par I 49th Congo 2d Sess. 100 n.l1 (June 10, 1976). The
Finance Commttee replaced that standard with the present "substantial economic effect"test which
was adopted by the Conference Commttee and subsequently included in Code section 704(b) by

the
rej

Tax Reform Act of197 6. (Pb. L. 94-455). Accordingly, Congress has aleady

ected the standard

of "significant avoidance or evasion of any tax" in the adminstration of provisions which are
signficant to the opertion of subchapter K. Treasur canot now issue a purorted interretative
regulation that attempts to implement an even broader anti-abuse rue than Congrss has considered

and failed to adopt.
There are provisions of the Code which expressly give the Commssioner (as delegate of

the

Secretar) certai power to alter substantive law and its application to the facts on a case-by-case
basis. For example, Code section 482 authorizes the Commissioner to

'reallocate income among

related entitie.s. Code section 446(b) states that if a taxayer's method of accountig does not clearly

reflect income, "the computation of taxable income shall be made under such method as, in the

opinon of the Secretar, does clearly reflect income." Also, for example, Code section 385
authorizes the Secretar to prescribe reguations to determne whether an interest in a corporation

is to be treated as stock or as debt, and Code section 1502 authorizes the consolidated retu
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regulatio11, which in many ways alter the substantive tax law with respect to corporations filing
consolidated retus. There is simply

nothg, however, authorizing the Secretar to alter or modi

the provisions of subchapter K, much less to do so on a case-by-case basis.
Case-by-case basis adjudication authority

is not somethig foreign to adminstrative agencies.

The Regulation, however, is simply not in conformance with the present regulatory scheme set fort

by Congress for enorcement of

the internal revenue laws. For example, the Board of

Tax Appeals,

which adjudicated certai tax cases, was formerly

par of

the Bureau of

Internal Revenue, which was

par of

the Treasur Deparent. Today, the fuctions of

the Bureau of

Internal Revenue have been

taken over by the IR, which remais par of

the Treasur Deparent. However, the fuctions of

the Board of

Tax Appeals are today perormed by the United States Tax Cour, a Title I legislative
the Treasur Deparent. Thus, case-by-case adjudication of

cour, which is not par of

tax cases

is somethng that Congress addressed. Clearly, Congress could- not have envisioned that the

Commssioner could be granted such authority by a regulation promulgated without express statutory

authority therefor.
The purorted grant by the Reguation of these new legislative and judicial powers to the
Commssioner is starling. If

the Reguation's grant of authority to the Commissioner is vald under
no lit on the abilty of

present law, there is vialy

the Treasur Deparent to issue regulations

grantig to the Commissioner the power to alter substantive law with respect to a taxayer on a

case-by-case basis in pursuance of some perceived intent of some statutory provisions. The

Regulation, if valid, represents a viral elimination of restraints on the abilty of goverent
officials to expand their own powers over the people by met1S of their own declarations to that
effect. In other words, an interretation of

the Reguation that it is valid would create a vast shift in
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the presumptions to be made about Congressional silence as to alocations, retentions, and grants of

power in a regulatory scheme. Congressional silence as to whether a parcular power has been
grted to or intead witheld from an admstrative agency would be constred more easily and
more often in favor of

the grantig than the witholdig. Ths is not in accordance with the strctue

of our goverent laid down by the Founders. In the U.S. Declaration of Independence, for
example, it is said, as par of the list of the cres commtted by the Kig of

Great Britan, who acted

outside the restraits of representative governent: ''He hath created a multitude of new offces and
sent hither swars of offcers to harass our people and eat out their substance."

Accordigly, the Regulation appear to be a lawless expanion by

bureaucrats of

their own

powers over .the people and is in derogation of the people's rights to have independent judicial
determations of their controversies with their governent regardig the amounts of their propert
tht their governent may take or retai. In simlar cases where the Treasur or other executive

deparents have usured Congressional authority in the promulgation of a regulation, the cours

have held the regulation invalid. See, e.g., RLC Industres Co. v. Commissioner. 58 F. 3d 413 (9t
Cir.1995); The National Life and Accident Inurance Co. v. U.S.. 524F.2d559, 560 (6thCir.

1975).

Even assumg, arguendo, a predomiant tax avoidance motive, it is arguable that such a motive is
not inconsistent with the puroses of subchapter k inasmuch as that purose has been demonsated

and determed to be the achievement of certty, not the desire to reflect economic substace, and,
to the extent that a taxpayer has followed the literal provisions of the Code, those results which

obtai should be given tax effect. .
Additionally, the Regulation may be held to be invalid due to 1) vagueness, as it does not
arculate a clear and workable standard delineatigpennissible and proscribed transactions, and thus

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pennts and encourages arbitr and discrinatory enforcement; 2) faiure to comply with

Executive Order 12866 and perform the requied regulatory assessment; and 3) a lack of authority
for issuance of the Regulation and the unauthorized usuration oflegislative and judicial authority.

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M. NOTICE 2000-4
. In Notice 2000-44, the Servce provided two examples of tranactions purorted to "give
tapayers arificially high basis in parership interests and thereby give rise to deductible losses on

disposition of those parership interests." Notice 2000-44 is prima facie inapplicable to your
sitution, because the result of the transactions discussed herein was an increase in basis in the

Shares which did not give rise to a loss upon the sale of

the Shares. Even if

Notice 2000-44 were

applicable, it would not change our opinons herein.

.The Servce uses three cases76 and Treas. Reg. §1.165-1(b) to attempt to substantiate its
positions in Notice 2000-44. In each of

the cases, the purorted trsactions were not respected for

federal income tax puroses. However, all thee cases clearly higed on the economics suroundig
the sale of the assets which produced the purorted loss. In no case was the economic position of
the seller of the assets afer the sale signficantly affected by the sale. Treasur Regulation § 1.165-

1(b), states in par "(t)o be alowable as a deduction under §165(a), a loss must be evidenced by
closed and completed tranactions, fied by identifiable events. . . Only a bona fide loss is alowable.

Substce and not mere form shal govern in detering a deductible loss." By citig the Treasur
Reguation in Notice 2000-4, the Serce implies that the maner in which basis is determed
afects whether loss will be recogned under Code §165. Code §165 has

no such requiement.

Whe Code § 165 perts deductions for certain losses, the question of whether a disposition of
assets results in a gai or loss

is not deterned by reference to Code §165. Such'a determination

is made under Code §1001.

76 ACM Parership v. Commssioner. 157 F.3d 231,252 (3rd. Cir. 1998); Sculvv. United States. 840 F.2d
478,486 (7th Cir. 1988); Shoenberg v. Commssioner. 77 F.2d 446, 448'(8th Cir. 1935).
CHICAGO 151694 v 2, 47675.00001

JFW-1417

Case 1:05-cv-00748-CCM

Document 22-14

Filed 12/29/2006

Page 16 of 16

We believe a better

readig of

the legal authority discussed in Notice 2000-44 is to state only

the curent law: losses are deductible under Code § 165 only when realied upon a disposition of

propert which is respected for federal income tax puroses. Here, if

the Parership were to sell

the Shares for cash equal to a fai market value sale price close to the Parership's basis, such a sale.
would more likely than not be respected as a sale for federal income tax puroses. In such a
circumstance, no offsettg trade would be entered into; no parially related entity would purchase

the Shares from the Parership; and the Parership would not sell the Shares for a financial
instrent designed to mic the.retu which could have been obtaied if

the Shares had been

retaied. The Shares would be sold for cash, which substantively, actuly, and irevocably changes

your economic position and therefore, more liely than not, places such a sale outside the scope of
the ruligs laid down in the cases cited by Notice 2000-44.

CHICAGO 151694 v 2. 47675.00001

M-2

JFW-1418

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