Broadwood Investment Fund LLC ex rel. Broadwood Investment Holdings LP v. United States

MEMORANDUM *

Broadwood Investment Fund LLC, Dragon Coeur LLC I-B, Mosman Investment Fund LLC, Han Kook LLC I, and Han Kook LLC I-A (“Petitioners”) challenged the Internal Revenue Service’s dis-allowance of tax losses they reported. The district court granted summary judgment in favor of the government, holding that Petitioners were sham partnerships formed for the purpose of creating tax losses for Henry Nicholas, who was one of the partners in each of the Petitioner entities. We reverse and remand for further proceedings.

“In a case ... in which the Commissioner has made a deficiency determination, the taxpayer has the burden of producing enough evidence to rebut the deficiency determination and the burden of persuasion in substantiating a claimed deduction.” Goldberg v. United States, 789 F.2d 1341, 1343 (9th Cir.1986).

A partnership may be disregarded for federal tax purposes when it is determined that the partners did not “really and truly intend[ ] to join together for the purpose of carrying on [a] business and sharing in the profits or losses or both.” Comm’r v. Cul *441 bertson, 337 U.S. 733, 741 , 69 S.Ct. 1210 , 93 L.Ed. 1659 (1949). That is, the question is…