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Finding of Federal Tax Liability Upheld

By FindLaw Staff on April 16, 2010 4:53 PM

In US v. Bergbauer, No. 08-2054, the Fourth Circuit faced a challenge to a district court's grant of summary judgment to the government establishing defendants' federal tax liability in concluding that the sale of defendant's interest in a subsidiary of Ernst & Young LLC was a fully taxable event in the year 2000. 

In affirming the district court's decision, the court held that as reflected in the record, the district court did not err in finding that both prongs of the "economic reality" test have been satisfied, where there was an intent to recognize the value of all the stock at issue as taxable income in 2000 and the parties bargained at arms-length for and received, real economic benefit from treating all the stock at issue as received for income tax purposes in 2000. 

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