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Monday, April 20, 2009

Can Congressional Staff Testify on Meaning of Tax Law?

There is a fascinating new development in the case of In re G-I Holdings, 369 B.R. 832 (D.N.J. 2007), which involved the interpretation of a tax transition rule.  The taxpayer In that case redeemed its partnership interest under an amended partnership agreement in exchange for a deferred property distribution valued at $464 million. Subsequent to the signing of the contract, but prior to the distribution, Congress amended the § 731 nonrecognition rule to require that a taxpayer recognize taxable gain upon distributions of securities it receives from a partnership. Congress provided transition relief to those taxpayers who had entered into a binding contract for partnership distributions of “(i) a fixed value of marketable securities that are specified in the contract, or (ii) other property.”  The court interpreted these distribution options as mutually exclusive and held that transition relief was not available to the taxpayer because the agreement entitled the partnership to vary the value of securities it distributed. In interpreting the transition rule, the court refused to consider an affidavit from a lobbyist retained by the taxpayer to seek relief from the proposed change to § 731.

On Friday, the taxpayer (though its tax counsel Skadden, McKee Nelson, and Riker Danzig Scherer Hyland & Perretti) filed a 121-page motion asking the federal district court to reconsider its decision based on affidavits to be supplied by Senate Finance Committee staffers on the meaning of the transition rule.  The taxpayer also filed a 22-page motion to seal the record concerning the Senate Finance Committee staff's views on the meaning of the transition rule.  For a detailed discussion of the subject, see Rebecca M. Kysar (Brooklyn), Listening to Congress: Earmark Rules and Statutory Interpretation, 94 Cornell L. Rev. 519 (2009).

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