William Young Ruby Young v. Commissioner Internal Revenue Service
Opinion
Opinion
Hug, J.
Appellants William and Ruby Young (“taxpayers”) appeal the Tax Court order disallowing the allocation of 75% of the tax losses of Riverfront Associates, Ltd. (“Riverfront”), to one partner, Spokane Hotel Associates, Ltd. (“Spokane”) on grounds that the allocation lacked economic substance. On appeal, taxpayers contend it was clear error for the Tax Court to find that the allocation lacked economic substance. We affirm.
BACKGROUND
We highlight the following key facts and terms of the Riverfront partnership agreement. Taxpayers became limited partners in Spokane. Spokane, in turn, became a limited partner in Riverfront by contributing $500,000 in capital/cash. Riverfront was formed for the purpose of constructing, owning and operating a hotel in Spokane, Washington. On the admission of Spokane as a limited partner, Riverfront’s partnership agreement was amended to reflect the following:
The Tax Court found that the allocation of 75% of Riverfront’s losses to Spokane lacked economic substance. The Tax Court determined that Spokane really held a 10% equity position in Riverfront. Therefore, Spokane was only entitled to 10% of Riverfront’s tax losses.