Svetlana Como
ACC 416
April 16, 2012
MARRIOTT INTERNATIONAL RESORTS, L.P., et al., Plaintiffs, v. THE UNITED STATES, Defendant
In 1994, Marriott engaged in two short-sale transactions of U.S. Treasury securities with the intention of hedging its exposure to interest-rate risks related to a pool of fixed-rate mortgages that Marriott had obtained in the course of conducting its time-share business. As a result of these transactions, Marriott was obligated to return the securities involved at some point in the future, after the close of the tax year. When Marriott filed its tax returns for 1994, it did not subtract the resulting "contingent liability" from the Partnership's tax basis. On February 2, 2001, the IRS issued to Marriott a Notice of Final Partnership Administrative in which the IRS determined that Marriott "realized a gain of $1.8 million rather than a loss of $72 million" and, accordingly, that Marriott's taxable income for the tax year ended December 30, 1994, should have been increased by $73 million.
Marriott filed a suit in April 2001; according to Marriott the short-sale transactions gave rise to a "contingent" rather than a "fixed" obligation that should not be considered a "liability" for purposes of determining the Partnership's tax basis pursuant to Section 752 of the Internal Revenue Code, 26 U.S.C. Section 752 of US Internal Revenue Code provide that an increase in a partner's share of the liabilities of a partnership shall be considered to be a contribution of money by the partner to the partnership, and a decrease in a partner's share of such liabilities shall be considered as a distribution of money by the partnership. Section 752 does not provide a definition of “liabilities”, and Marriott argues that IRS misinterpreted the word “liabilities” in section 752 of US Internal Revenue Code, and partnership basis should not have been