Tuesday, June 29, 2021
Benjamin Alarie, Bettina Xue Griffin & Christopher Yan (Blue J Legal), An Unprofitable Pretax Venture Can Still Be a Partnership, 171 Tax Notes Fed. 1951 (June 17, 2021):
In this inaugural installment of Blue J Predicts, the authors use machine-learning models to anticipate and analyze the possible outcome of the IRS’s appeal in Cross Refined Coal. Future installments will focus on other pending tax cases.
Using a machine-learning model provides quantifiable insights into situations like the dispute in Cross Refined Coal. Several factors in the case favor a partnership characterization; for example, the fact that the parties shared management and operational responsibilities. However, there are also contentious characterization questions involving several elements of the eight-part Luna test for de facto partnerships. Using a machine-learning model, we are able to identify, rank, and quantify the importance of the disputed characterizations and to demonstrate, based on the previously decided case law, that it is more likely than not that the IRS will be unsuccessful on appeal.