MCM Inv. Mgmt., LLC v. Comm'r

MCM Inv. Mgmt., LLC v. Comm'r

Opinion

MEMORANDUM FINDINGS OF FACT AND OPINION

PUGH, Judge: In a notice of final partnership administrative action dated March 3, 2015, respondent made an adjustment to ordinary income of $40,962,936  [*2]  for tax year 2009.¹ The issues for decision are whether: (1) MCM Investment Management, LLC (MCMIM), is entitled to a loss deduction claimed with respect to a partnership interest that MCMIM reported became worthless during 2009 and (2) MCMIM is liable for an accuracy-related penalty for 2009 pursuant to section 6662(a).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found, and they are incorporated in our findings by this reference. MCMIM is a limited liability company (LLC) organized under Delaware law and treated as a partnership for Federal income tax purposes. When the petition was timely filed, MCMIM's principal place of business was in California.

I. Background on the McMillin Entities

In 1960 Macey L. McMillin, Jr. (Corky), entered into the home building and remodeling industry. By 2009 Corky's real estate business [**2]  had expanded into a group of over 110 entities beneficially owned by Corky and his immediate family members, including his wife, Vonnie McMillin, and their three children, Mark McMillin, Scott McMillin, and Laurie Ray (collectively, McMillin children). The  [*3]  family members owned their respective interests through family trusts. We have simplified the ownership descriptions below to focus on the entities relevant to our analysis.

A. Companies

On April 1, 1998, the McMillin family formed McMillin Companies, LLC (Companies), a Delaware LLC. Companies--the largest of the McMillin family entities--was in the real estate development and sales business in California and Texas. During 2009, the year in issue, Companies was involved in three distinct lines of real estate development: single-family homebuilding, master-planned communities, and commercial development and management. Companies' business lines were operated through various wholly owned and multimember (joint venture) LLCs (project entities). Each project entity held real estate for land development and homebuilding. During 2009 Companies held investments in 73 project entities, 11 management services entities, and 3 investment-holding [**3]  companies.

In 2004 Companies' owners were four S corporations organized under California law (class A members). The class A members in turn were owned by trusts owned by Corky, Vonnie, and the McMillin children. During 2009 Scott McMillin served as chairman and chief financial officer, Mark McMillin served as  [*4]  president and chief executive officer, and Laurie Ray served on the managing board.

OPINION

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