Jade Trading – Court of Federal Claims
{"Image DocumentName": "Jade Trading \u2013 Court of Federal Claims", "Image ImageDescription": "The Court of Federal Claims held that the transaction creating the basis increase lacked economic substance. See Jade Trading, LLC v. United States, 80 Fed. Cl. 11 (2007). The court found that basis increase claimed by each LLC satisfied the technical provisions of the Code. The court then analyzed the transaction under the economic substance doctrine. The court stated that Coltec unequivocally reaffirmed the vitality of the economic substance doctrine in the Federal Circuit. The court found that \u2013 The transaction lacked economic reality because (i) the losses claimed were not tied to any economic loss (i.e., the LLCs did not incur a  15 million loss) and (ii) the use of the partnership structure had no real economic purpose. The taxpayer had the burden of proving that the transaction had economic substance. The objective reality of the transaction was the relevant criterion rather than any subjective intent of the taxpayer. The transaction to be analyzed was the spread transaction that gave rise to the inflated basis (rather than any hypothetical transactions that could have occurred and/or any other trades). The court found that there was no objective profit potential, because the maximum profit potential on the spread ( 140,000) was exceeded by the high fees ( 934,100). The court also noted that transaction was marketed as a tax avoidance mechanism. The court also noted that the options had to be viewed together rather than as two distinct legal entitlements because of the economic realities of the transaction. The transaction did not alter the economic interests of independent third parties (i.e., the other partners in Jade). The court held that the transaction lacked economic substance on the basis of the above conclusions, which the court viewed as relevant based upon its interpretation of Coltec.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}