Broadwood Investment Fund Llc, by v. United States of America

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BROADWOOD INVESTMENT FUND
LLC, by and through Broadwood
Investment Holdings LP, its Tax Matters
Partner; DRAGON COEUR LLC I-B;
MOSMAN INVESTMENT FUND LLC;
HAN KOOK LLC I; HAN KOOK LLC 1-
A,
Plaintiffs - Appellants,
v.
UNITED STATES OF AMERICA,
Defendant - Appellee.
No. 13-55626
D.C. No. 8:08-cv-00295-DOC-AN
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted May 5, 2015
Pasadena, California
Before: FISHER, BEA, and FRIEDLAND, Circuit Judges.
Broadwood Investment Fund LLC, Dragon Coeur LLC I-B, Mosman
Investment Fund LLC, Han Kook LLC I, and Han Kook LLC I-A (“Petitioners”)
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
FILED
AUG 3 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

-- 1 of 4 --

2
challenged the Internal Revenue Service’s disallowance 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. Culbertson, 337 U.S. 733, 741 (1949). That is, the question is whether
considering all the facts—the agreement, the conduct of the parties in
execution of its provisions, their statements, the testimony of
disinterested persons, the relationship of the parties, their respective
abilities and capital contributions, the actual control of income and the
purposes for which it is used, and any other facts throwing light on their
true intent—the parties in good faith and acting with a business purpose
intended to join together in the present conduct of the enterprise.

-- 2 of 4 --

3
Id. at 742. The partners’ intent is “a question of fact, to be determined from
testimony disclosed by their agreement, considered as a whole, and by their
conduct in execution of its provisions.” Id. at 741-42.
The district court erred in granting summary judgment in favor of the
government. Petitioners have presented sufficient evidence to raise a genuine issue
of material fact as to the partners’ intent. In particular, Petitioners presented
evidence that some of the investment materials projected that the partnerships
could be profitable, and that the partners performed due diligence on the assets
before acquiring them. Petitioners also presented evidence of efforts made to
collect on the debts owned by the partnerships. And there is no dispute that the
partnerships allocated distributions, profits, and losses to partners pro rata. The
government also presented substantial evidence in support of its determination that
the partnerships were shams, and we express no opinion on how this issue
ultimately should be resolved on the merits. But the genuine factual dispute as to
the partners’ intent precludes summary judgment on the issue.
The district court’s reliance on the Welcome Letter was misplaced. The
letter merely stated that Nicholas was allowed to change the initial allocation of
each Petitioner’s investment during a three-week window. The letter does not
disclaim Nicholas’ intent to act with a purpose of sharing profits and losses.

-- 3 of 4 --

4
Although the government argued that Nicholas suffered no risk of loss in the
district court, it abandoned that position on appeal.
Accordingly, we REVERSE the district court’s grant of summary in favor
of the government and REMAND for further proceedings.

-- 4 of 4 --