Second Circuit upholds IRS disallowance of $22.7 million loss from disguised partnership sale
Pimlico, LLC v. Commissioner, No. 24-1982, 2025 BL 281488, 2025 Us App Lexis 20239 (2d Cir. Aug. 11, 2025), Court Opinion
The Second Circuit affirmed the Tax Court’s finding that Pimlico, LLC’s partnership transactions constituted a disguised sale, disallowing a $22.7 million tax loss claimed through a series of inter-entity transfers.
Holding
The court held that contributions and distributions among Pimlico, LLC, its affiliates, and a Brazilian company were properly treated as a disguised sale under 26 U.S.C. § 707(a)(2)(B). The Tax Court did not err in applying the presumption of a sale and finding no facts rebutting it.
Why It Matters
Reinforces Treasury’s authority to recharacterize partnership contributions as taxable sales when substance diverges from form.
Clarifies that contemporaneous cash transfers between related parties can trigger the disguised-sale presumption.
Highlights that failure to object to key evidence in the Tax Court can waive appellate challenges.
Demonstrates how pre-2004 partnership rules enabled built-in loss shifting, later closed by statute.
Timeline
August 2002: Santa Bárbara Indúst…
