Nachrichten April 20, 2017

Shearman & Sterling Achieves Major Victory for McKelvey Estate

Shearman & Sterling secured a major victory, in a case of first impression, in the United States Tax Court on behalf of the Estate of Andrew J. McKelvey, the founder of At stake was an IRS-asserted $41.3 million deficiency determination, plus interest.

The case involved the extension of two variable prepaid forward contracts (VPFCs).  In 2007, McKelvey entered into VPFCs with respect to Monster stock with two investment banks. In 2008, McKelvey paid consideration to the investment banks to extend the settlement dates of the VPFCs. The IRS argued that the 2008 extensions constituted sales or exchanges of property under Code section 1001 or constructive sales under Code section 1259, resulting in its deficiency determination.

In its decision, the United States Tax Court sided completely with the taxpayer to hold that McKelvey’s extensions of the VPFCs did not constitute sales or exchanges of property, and the open transaction treatment afforded to the VPFCs under Rev. Rul. 2003-7 continues until the transactions are closed by future settlement.  In addition, the Tax Court held that the taxpayer did not engage in constructive sales of stock in 2008.  

The Team