Second Circuit Again Overturns Castle Harbour Partnership FPAA Ruling

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The Second Circuit again overturns a district court's finding that an IRS final partnership administrative adjustment imposing $62 million in additional taxes on Castle Harbour-I Limited Liability Co. was in error, finding the taxpayer failed to point to substantial authority supporting its position. In its initial August 2006 ruling, the Second Circuit found IRS correctly held that a partnership formed by General Electric Capital Corp. with Dutch banks as a way to securitize the aircraft it leased was a sham transaction and that the banks were not bona fide equity participants in the transaction. The ruling reversed and remanded a 2004 decision by the U.S. District Court for the District of Connecticut that found IRS could not impose the additional taxes on partnership income earned in the joint venture.