Cayman Islands Investment Fund Challenges FPAAs in Tax Court

1. The Petitioners are YA Global Investments, LP f/k/a Cornell Capital Partners, LP, Yorkville Advisors, GP LLC, Tax Matters Partner and YA Global Investments, LP f/k/a Cornell Capital Partners, LP, Yorkville Advisors, LLC, Tax Matters Partner. YA Global Investments, LP f/k/a Cornell Capital Partners, LP ("YA Global" or the "Partnership") is a Cayman Islands limited partnership with a mailing address and principle place of business of Walkers SPV Ltd., Walker House, 87 Mary Street, George Town, Grand Cayman, FC KY1-9002 (Address Used By Court).

2. YA Global is a taxed as a partnership for U.S. federal income tax purposes.

3. The Partnership's Forms 1065, U.S. Return of Partnership Income, for taxable years 2006 through 2010 were filed with Internal Revenue Service at Ogden, UT 84409.

4. The FPAAs, each of which is dated March 6, 2015, were issued by the Office of Internal Revenue Service, Large Business and International Division, Technical Services Group in New York, New York. Copies of the FPAAs, redacted pursuant to Tax Court Rule 27, are attached as Exhibit A.

5. The pleaders are the Tax Matters Partners. The Tax Matters Partner in taxable year 2006 is Yorkville Advisors, LLC, a Delaware limited liability company with a principal place of business and address at 1012 Springfield Avenue, Mountainside, New Jersey 07092 (Address Used By Court) . The Tax Matters Partner in taxable years 2007 through 2010 is Yorkville Advisors GP, LLC, a Delaware limited liability company with a principal place of business address at 1012 Springfield Avenue, Mountainside, New Jersey 07092.

6. A single petition for readjustment of partnership items is being filed pursuant to Rule 241(h) of the Tax Court Rules of Practice and Procedure.

7. The Partnership is not a party to this proceeding.

8. The Commissioner also issued a Notice of Deficiency dated March 11, 2015 (the "Notice of Deficiency") to the Partnership for taxable years 2006 through 2009 setting forth a deficiency in withholding tax under I.R.C. § 1446, an addition to tax under I.R.C. § 6651(a)(1), an addition to tax under I.R.C. § 6651(a)(2), and an addition to tax under I.R.C. § 6655 and I.R.C. § 1446(f)(2), all of which are nonpartnership items. The Notice of Deficiency was issued by the Office of Internal Revenue Service, Small Business and Self-Employed in New York, New York. The Partnership intends to file a petition with respect to the Notice of Deficiency on or before June 9, 2015.

9. Taxable Year 2006. The adjustments set forth in the 2006 FPAA are based upon the following errors:

(a) The Commissioner erred in determining that the Partnership was engaged in a trade or business within the United States during the taxable year ended December 31, 2006;

(b) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of I.R.C. § 475 and required to apply the "mark to market" accounting rules described in I.R.C. § 475;

(c) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of Treas. Reg. § 1.864-2(c)(2)(iv)(a);

(d) The Commissioner erred in determining that all gains and losses of the Partnership are treated as ordinary income or loss;

(e) The Commissioner erred in determining that the Partnership had net ordinary business income in the amount of $102,861,052;

(f) The Commissioner erred in determining that all items of income, gain, deduction, and loss of the Partnership were effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(g) The Commissioner erred in determining that even if the Partnership was not a dealer in securities within the meaning of I.R.C. § 475, all items of income, gain, deduction, and loss are treated as effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(h) The Commissioner erred in adjusting Portfolio income interest in the amount of $27,557,943 and determining Form 1065 Schedule K line 5 to be zero;

(i) The Commissioner erred in adjusting Portfolio income qualified dividend in the amount of $427,367 and determining Form 1065 Schedule K line 6b to be zero;

(j) The Commissioner erred in adjusting Portfolio income ordinary dividend in the amount of $1,212,281 and determining Form 1065 Schedule K line 6a to be zero;

(k) The Commissioner erred is adjusting Portfolio income net short-term capital gain in the amount of $66,353,835 and determining Form 1065 Schedule K line 8 to be zero;

(l) The Commissioner erred in adjusting Portfolio income net long-term capital gain in the amount of $1,756,027 and determining Form 1065 Schedule K line 9a to be zero;

(m) The Commissioner erred in adjusting Other income in the amount of $9,797,190 and determining Form 1065 Schedule K line 11 to be zero;

(n) The Commissioner erred in adjusting Other deductions in the amount of $7,405,162 and determining Form 1065 Schedule K line 13d to be zero;

(o) The Commissioner erred in adjusting Investment Income included in portfolio income in the amount of $28,770,224 and determining Form 1065 Schedule K line 20a to be zero;

(p) The Commissioner erred in determining net earnings from self-employment to be $22,483,852;

(q) The Commissioner erred in including an adjustment with respect to withholding tax under I.R.C. § 1446 in the 2006 FPAA as it is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2006 FPAA, the Commissioner erred in determining that (i) the Partnership was required to withhold and failed to withhold on effectively connected taxable income allocable to its foreign partners under I.R.C. § 1446 and (ii) the Partnership is liable for withholding tax in the amount of $15,900,807;

(r) The Commissioner erred in including the disallowance of the foreign partners' use of their distributive share of deductions under I.R.C. § 882(c)(2) in the 2006 FPAA as it is not a partnership item. Alternatively, if the disallowance of the foreign partners' use of their distributive share of deductions was properly included in the 2006 FPAA, then the Commissioner erred in denying the foreign partners' use of their distributive share of deductions in determining net ordinary business income;

(s) The Commissioner erred in including additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655 in the 2006 FPAA as these additions to tax relate solely to withholding tax under I.R.C. § 1446, which is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2006 FPAA, the Commissioner erred in determining that (i) the Partnership is liable for an addition to tax under I.R.C. § 6651(a)(1) for the failure to file Form 8804 and (ii) the Partnership is liable for additions to tax under I.R.C. §§ 6651(a)(2) and 6655 for failure to pay withholding tax under I.R.C. § 1446;

(t) The Commissioner erred in including an accuracy related penalty under I.R.C. § 6662 in the 2006 FPAA;

(u) The Commissioner erred in determining that an accuracy-related penalty due to negligence or disregard of rules or regulations under I.R.C. § 6662(b)(1) or substantial understatement of income tax under I.R.C. § 6662(b)(2) is applicable;

(v) The Commissioner erred in determining that the tax withheld under I.R.C. §§ 1441 or 1442 in the amount of $195,095 is zero; and

(w) The Commissioner erred in taking a position in the 2006 FPAA that is inconsistent with the Commissioner's position taken in the 2010 FPAA.

10. Taxable Year 2007. The adjustments set forth in the 2007 FPAA are based upon the following errors:

(a) The Commissioner erred in determining that the Partnership was engaged in a trade or business within the United States during the taxable year ended December 31, 2007;

(b) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of I.R.C. § 475 and required to apply the "mark to market" accounting rules described in I.R.C. § 475;

(c) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of Treas. Reg. § 1.864-2(c)(2)(iv)(a);

(d) The Commissioner erred in determining that all gains and losses of the Partnership should be treated as ordinary income or loss;

(e) The Commissioner erred in determining that the Partnership had net ordinary business income in the amount of $122,405,903;

(f) The Commissioner erred in determining that all items of income, gain, deduction, and loss of the Partnership were effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(g) The Commissioner erred in determining that even if the Partnership was not a dealer in securities within the meaning of I.R.C. § 475, all items of income, gain, deduction, and loss are treated as effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(h) The Commissioner erred in adjusting Portfolio income interest in the amount of $45,083,015 and determining Form 1065 Schedule K line 5 to be zero;

(i) The Commissioner erred in adjusting Portfolio income qualified dividends in the amount of $102,652 and determining Form 1065 Schedule K line 6b to be zero;

(j) The Commissioner erred in adjusting Portfolio income ordinary dividends in the amount of $739,568 and determining Form 1065 Schedule K line 6a to be zero;

(k) The Commissioner erred in adjusting Portfolio income net short-term capital gain in the amount of $72,034,012 and determining Form 1065 Schedule K line 8 to be zero;

(l) The Commissioner erred in adjusting Portfolio income net long-term capital gain in the amount of $540,186 and determining Form 1065 Schedule K line 9a to be zero;

(m) The Commissioner erred in adjusting Other income in the amount of $9,056,334 and determining Form 1065 Schedule K line 11 to be zero;

(n) The Commissioner erred in adjusting Other deductions in the amount of $1,591,352 and determining Form 1065 Schedule K line 13d to be zero;

(o) The Commissioner erred in adjusting Investment Income included in portfolio income in the amount of $45,822,583 and determining Form 1065 Schedule K line 20a to be zero;

(p) The Commissioner erred in disallowing foreign taxes claimed in the amount of $38,208;

(q) The Commissioner erred in including an adjustment with respect to withholding tax under I.R.C. § 1446 in the 2007 FPAA as it is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2007 FPAA, the Commissioner erred in determining that (i) the Partnership was required to withhold and failed to withhold on effectively connected taxable income allocable to its foreign partners under I.R.C. § 1446 and (ii) the Partnership is liable for withholding tax in the amount of $27,800,851;

(r) The Commissioner erred in including the disallowance of the foreign partners' use of their distributive share of deductions under I.R.C. § 882(c)(2) in the 2007 FPAA as it is not a partnership item. Alternatively, if the disallowance of the foreign partner's use of their distributive share of deductions was properly included in the 2007 FPAA, then the Commissioner erred in denying the foreign partners' use of their distributive share of deductions in determining net ordinary business income;

(s) The Commissioner erred in including additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655 in the 2007 FPAA as these additions to tax relate solely to withholding tax under I.R.C. § 1446, which is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2007 FPAA, the Commissioner erred in determining that (i) the Partnership is liable for an addition to tax under I.R.C. § 6651(a)(1) for the failure to file Form 8804 and (ii) the Partnership is liable for additions to tax under I.R.C. §§ 6651(a)(2) and 6655 for failure to pay withholding tax under to I.R.C. § 1446;

(t) The Commissioner erred in including an accuracy related penalty under I.R.C. § 6662 in the 2007 FPAA;

(u) The Commissioner erred in determining that an accuracy-related penalty due to negligence or disregard of rules or regulations under I.R.C. § 6662(b)(1) or substantial understatement of income tax under I.R.C. § 6662(b)(2) is applicable;

(v) The Commissioner erred in determining that the tax withheld under I.R.C. §§ 1441 or 1442 in the amount of $120,053 is zero;

(w) The Commissioner erred in disallowing the administrative request seeking an adjustment of certain short-term capital gain to be reclassified as long-term capital gain; and

(x) The Commissioner erred in taking a position in the 2007 FPAA that is inconsistent with the Commissioner's position taken in the 2010 FPAA.

11. Taxable year 2008. The adjustments set forth in the 2008 FPAA are based upon the following errors:

(a) The Commissioner erred in determining that the Partnership was engaged in a trade or business within the United States during the taxable year ended December 31, 2008;

(b) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of I.R.C. § 475 and was required to apply the "mark to market" accounting rules described in I.R.C. § 475;

(c) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of Treas. Reg. § 1.864-2(c)(2)(iv)(a);

(d) The Commissioner erred in determining that all gains and losses of the Partnership are treated as ordinary income or loss;

(e) The Commissioner erred in determining that the Partnership had net ordinary business income in the amount of $61,936,273;

(f) The Commissioner erred in determining that all items of income, gain, deduction, and loss of the Partnership were effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(g) The Commissioner erred in determining that even if the Partnership was not a dealer in securities within the meaning of I.R.C. § 475, all items of income, gain, deduction, and loss are treated as effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(h) The Commissioner erred in adjusting Portfolio income interest in the amount of $50,148,704 and determining Form 1065 Schedule K line 5 to be zero;

(i) The Commissioner erred in adjusting Portfolio income qualified dividend in the amount of $78,195 and determining Form 1065 Schedule K line 6b to be zero;

(j) The Commissioner erred in adjusting Portfolio income ordinary dividend in the amount of $577,181 and determining Form 1065 Schedule K line 6a to be zero;

(k) The Commissioner erred is adjusting Portfolio income net short-term capital gain in the amount of $17,074,059 and determining Form 1065 Schedule K line 8 to be zero;

(l) The Commissioner erred in adjusting Portfolio income net long-term capital loss in the amount of $22,498,796 and determining Form 1065 Schedule K line 9a to be zero;

(m) The Commissioner erred in adjusting Other income in the amount of $5,186,508 and determining Form 1065 Schedule K line 11 to be zero;

(n) The Commissioner erred in adjusting Other deductions in the amount of $1,924,837 and determining Form 1065 Schedule K line 13d to be zero;

(o) The Commissioner erred in adjusting Investment Income included in portfolio income in the amount of $55,892,393 and determining Form 1065 Schedule K line 20a to be zero;

(p) The Commissioner erred in adjusting Other credits at Form 1065 Schedule K line 15f in the amount of $249,917 for lack of substantiation;

(q) The Commissioner erred in including an adjustment with respect to withholding tax under I.R.C. § 1446 in the 2008 FPAA as it is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2008 FPAA, the Commissioner erred in determining that (i) the Partnership was required to withhold and failed to withhold on effectively connected taxable income allocable to its foreign partners under I.R.C. § 1446 and (ii) the Partnership is liable for withholding tax in the amount of $16,882,544;

(r) The Commissioner erred in including the disallowance of the foreign partners' use of their distributive share of deductions under I.R.C. § 882(c)(2) in the 2008 FPAA as it is not a partnership item. Alternatively, if the disallowance of the foreign partner's use of their distributive share of deductions was properly included in the 2008 FPAA, then the Commissioner erred in denying the foreign partners' use of their distributive share of deductions in determining net ordinary business income;

(s) The Commissioner erred in including additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655 in the 2008 FPAA as these additions to tax relate solely to withholding tax under I.R.C. § 1446, which is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2008 FPAA, the Commissioner erred in determining that (i) the Partnership is liable for an addition to tax under I.R.C. § 6651(a)(1) for the failure to file Form 8804 and (ii) the Partnership is liable for additions to tax under I.R.C. §§ 6651(a)(2) and 6655 for failure to pay withholding tax under to I.R.C. § 1446;

(t) The Commissioner erred in including an accuracy related penalty under I.R.C. § 6662 in the 2008 FPAA;

(u) The Commissioner erred in determining that an accuracy-related penalty due to negligence or disregard of rules or regulations under I.R.C. § 6662(b)(1) or substantial understatement of income tax under I.R.C. § 6662(b)(2) is applicable.

(v) The Commissioner erred in determining that the tax withheld under I.R.C. §§ 1441 or 1442 in the amount of $128,922 is zero; and

(w) The Commissioner erred in taking a position in the 2008 FPAA that is inconsistent with the Commissioner's position taken in the 2010 FPAA.

12. Taxable year 2009. The adjustments set forth in the 2009 FPAA are based on the following errors:

(a) The Commissioner erred in determining that the Partnership was engaged in a trade or business within the United States during the partnership year ended December 31, 2009;

(b) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of I.R.C. § 475 and was required to apply the "mark to market" accounting rules described in I.R.C. § 475;

(c) The Commissioner erred in determining that the Partnership was a dealer in securities within the meaning of Treas. Reg. § 1.864-2(c)(2)(iv)(a);

(d) The Commissioner erred in determining that all gains and losses of the Partnership should be treated as ordinary income or loss;

(e) The Commissioner erred in determining that the Partnership's net ordinary business income is $24,790,341;

(f) The Commissioner erred in determining that all items of income, gain, deduction, and loss of the Partnership were effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(g) The Commissioner erred in determining that even if the Partnership was not a dealer in securities within the meaning of I.R.C. § 475, all items of income, gain, deduction, and loss are treated as effectively connected with the conduct of a trade or business within the United States pursuant to I.R.C. § 864(c);

(h) The Commissioner erred in disallowing the Partnership's deduction in the amount of $46,506,023 for interest write off;

(i) The Commissioner erred in adjusting Portfolio income interest in the amount of $42,617,464 and determining Form 1065 Schedule K line 5 to be zero;

(j) The Commissioner erred is adjusting Portfolio loss net short-term capital loss in the amount of $18,792,337 and determining Form 1065 Schedule K line 8 to be zero;

(k) The Commissioner erred in adjusting Portfolio loss net long-term capital loss in the amount of $96,771,203 and determining Form 1065 Schedule K line 9a to be zero;

(l) The Commissioner erred in adjusting Other income in the amount of $4,042,912 and determining Form 1065 Schedule K line 11 to be zero;

(m) The Commissioner erred in adjusting Other deductions in the amount of $56,665,190 and determining Form 1065 Schedule K line 13d to be zero;

(n) The Commissioner erred in adjusting Investment Income included in portfolio income in the amount of $46,660,376 and determining Form 1065 Schedule K line 20a to be zero;

(o) The Commissioner erred in including an adjustment with respect to withholding tax under I.R.C. § 1446 in the 2009 FPAA as it is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2009 FPAA, the Commissioner erred in determining that (i) the Partnership was required to withhold and failed to withhold on effectively connected taxable income allocable to its foreign partners under I.R.C. § 1446 and (ii) the Partnership is liable for withholding tax in the amount of $6,748,616;

(p) The Commissioner erred in including the disallowance of the foreign partners' use of their distributive share of deductions under I.R.C. § 882(c)(2) in the 2009 FPAA as it is not a partnership item. Alternatively, if the disallowance of the foreign partner's use of their distributive share of deductions was properly included in the 2009 FPAA, then the Commissioner erred in denying the foreign partners' use of their distributive share of deductions in determining net ordinary business income;

(q) The Commissioner erred in including additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655 in the 2009 FPAA as these additions to tax relate solely to withholding tax under I.R.C. § 1446, which is not a partnership item. Alternatively, if withholding tax under I.R.C. § 1446 was properly included in the 2009 FPAA, the Commissioner erred in determining that (i) the Partnership is liable for an addition to tax under I.R.C. § 6651(a)(1) for the failure to file Form 8804 and (ii) the Partnership is liable for additions to tax under I.R.C. §§ 6651(a)(2) and 6655 for failure to pay withholding tax under to I.R.C. § 1446;

(r) The Commissioner erred in including an accuracy related penalty under I.R.C. § 6662 in the 2009 FPAA;

(s) The Commissioner erred in determining that an accuracy-related penalty due to negligence or disregard of rules or regulations under I.R.C. § 6662(b)(1) or substantial understatement of income tax under I.R.C. § 6662(b)(2) is applicable; and

(t) The Commissioner erred in taking a position in the 2009 FPAA that is inconsistent with the Commissioner's position taken in the 2010 FPAA.

13. Taxable Year 2010. The adjustments set forth in the 2010 FPAA are based upon the following errors:

(a) The Commissioner correctly determined that the Partnership was not in a trade or business within the United States in taxable year 2010, however if the Commissioner's determinations in taxable years 2006 through 2009 are correct, then the Commissioner erred in not determining that the Partnership was engaged in a trade or business within the United States in taxable year 2010.

14. Facts. The facts upon which Petitioners rely, as the basis of Petitioners' case, are as follows:

(a) YA Global is a Cayman Island limited partnership with an address and principle place of business in Walkers SPV Ltd., Walker House, 87 Mary Street, George Town, Grand Cayman, FC KY1-9002;

(b) The Partnership's general partner is Yorkville Advisors GP, LLC, a Delaware limited liability company. YA Global Investments (U.S.), LP, a Delaware limited partnership, and YA Offshore Global Investments, Ltd, a corporation organized under the laws of the Cayman Islands, are the Partnership's limited partners;

(c) The Partnership was an investment fund in taxable years 2006 through 2010;

(d) The Partnership did not have an office or other fixed place of business in the United States during taxable years 2006 through 2010;

(e) The Partnership was engaged in investment activity as an investor and sought equity returns with respect to stocks and securities during taxable years 2006 through 2010;

(f) The Partnership was not engaged in the business of lending, banking, financing, or similar business during taxable years 2006 through 2010;

(g) The Partnership was not engaged in stock distribution activities during taxable years 2006 through 2010;

(h) Yorkville Advisors, LLC, the Partnership's investment manager, was not the Partnership's agent for purposes of determining whether the Partnership was engaged in a trade or business within the United States in taxable years 2006 through 2010;

(i) The Partnership qualified for the trading safe harbor under I.R.C § 864(b)(2)(A)(i) during taxable years 2006 through 2010;

(j) The Partnership was not a dealer within the meaning of I.R.C § 864(b)(2)(A)(ii) during taxable years 2006 through 2010;

(k) The Partnership qualified for the trading safe harbor under I.R.C § 864(b)(2)(A)(ii) during taxable years 2006 through 2010;

(l) If the Partnership is not an investor, then the Partnership's activities constituted "trading in stocks or securities" for purposes of I.R.C. § 864(b)(2)(A) for taxable years 2006 through 2010;

(m) The Partnership was not engaged in a trade or business within the United States during taxable years 2006 through 2009;

(n) YA Offshore was not engaged in a trade or business within the United States during taxable years 2006 through 2009;

(o) With respect to taxable year 2010, the Commissioner issued a "no change" FPAA, confirming that the Partnership's tax return position that it was not engaged in a trade or business within the United States in taxable year 2010 is correct. The Partnership's activities in taxable year 2010 (and in all subsequent taxable years) are materially the same as the Partnership's activities in taxable years 2006 through 2009. The Commissioner did not assert any facts in support of the adjustments set forth in the 2006 FPAA, 2007 FPAA, 2008 FPAA, and 2009 FPAA nor does the Commissioner assert that the Partnership's activities in taxable year 2010 are materially different from those facts in taxable years 2006 through 2009 in support of his inconsistent position;

(p) The Partnership was not engaged in a trade or business within the United States in taxable years 2006 through 2010;

(q) Upon information and belief, the Commissioner took the inconsistent position in the 2010 FPAA and denied the deduction for interest write off in taxable year 2009 to deny its partners a deduction for the losses sustained in taxable years 2009 and 2010;

(r) Alternatively, if it is determined that the Partnership was engaged in a trade or business within the United States for taxable years 2006 through 2009, then the Partnership should also be considered to be engaged in a trade or business within the United States in taxable year 2010, entitling its partners to utilize losses sustained in taxable years 2009 and 2010 in determining taxable income in the taxable years 2006 through 2008;

(s) Upon information and belief, if the Partnership was engaged in a trade or business within the United States for taxable years 2006 through 2010, then the Partnership should also be considered to be engaged in a trade or business within the United States in all subsequent years potentially resulting in significant refunds to the U.S. taxpayers having an interest in the Partnership;

(t) The Partnership did not have net ordinary business income in the amounts of $102,861,052, $122,405,903, $61,936,273, and $24,790,341 during taxable years 2006, 2007, 2008 and 2009, respectively;

(u) The Partnership did not have any items of income effectively connected with the conduct of a trade or business within the United States during taxable years 2006 through 2010, and therefore the Partnership was not required to withhold on effectively connected taxable income allocable to its foreign partners under I.R.C. § 1446;

(v) In the alternative, if it is determined that the Partnership has income effectively connected with the conduct of a trade or business within the United States and the Court has jurisdiction to determine deductions under I.R.C. § 882(c)(2), the Partnership's foreign partners are entitled to the use of their distributive share of deductions under I.R.C. § 882(c). To the extent that the Partnership's foreign partners filed Forms 1120-F subsequent to the filing deadlines prescribed in Treas. Reg. § 1.882-4(a)(3)(i), the foreign partners satisfy all the factors entitling the foreign partners to a waiver pursuant to Treas. Reg. § 1.882-4(a)(3)(ii);

(w) In the alternative, if the Partnership was engaged in a trade or business within the United States during taxable years 2006 through 2010, its income is at least partly attributable to property sold or exchanged for use, consumption, or disposition outside the United States and an office or other fixed place of business of the Partnership in a foreign country participated materially in such sale;

(x) Pursuant to I.R.C. § 6226(f), the Court's jurisdiction in this proceeding is limited to determining partnership items, and penalties and additions to tax which relate to an adjustment to a partnership item:

(i) The Court does not have jurisdiction to determine the Partnership's liability for withholding tax under I.R.C. § 1446;

(ii) The Court does not have jurisdiction to determine the Partnership's liability for the additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655 because these additions to tax solely relate to withholding tax under I.R.C. § 1446 which is not a partnership item, and the Partnership is not a party to this matter.

(y) The period of limitations for making an assessment with respect to withholding tax under I.R.C. § 1446 and the additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655 expired prior to the issuance of the 2006 FPAA and 2007 FPAA:

(i) The Partnership filed Forms 1065 on or about October 13, 2007 and September 25, 2008 for taxable years 2006 and 2007, respectively;

(ii) With respect to taxable years 2006 and 2007, the Commissioner requested that the Tax Matters Partner extend the statutes of limitations on the assessment of partnership and certain nonpartnership items on seven separate occasions by signing Form 872-P, Consent to Extend the Time to Assess Tax Attributable to Partnership items, and Form 872, Consent to Extend the Time to Assess Tax;

(iii) The initial Form 872-P was signed by the Tax Matters Partner on January 29, 2010. Subsequently, the Tax Matters Partner signed Forms 872-P on July 19, 2010, December 20, 2010, and August 31, 2011. These Forms 872-P do not include I.R.C. § 1446;

(iv) After the period of limitations for making an assessment with respect to I.R.C. § 1446 for taxable years 2006 and 2007 had expired, Forms 872-P were prepared by the Commissioner and signed by the Tax Matters Partner on February 24, 2012 (the "2012 Forms 872-P");

(v) On the 2012 Forms 872-P, the Commissioner inserted, for the first time, language referring to I.R.C. § 1446;

(vi) The Commissioner cannot resurrect an expired statute of limitations;

(vii) Upon information and belief, the Commissioner's included specific language referring to I.R.C. § 1446 on the 2012 Forms 872-P because I.R.C. § 1446 is not captured by the general references to partnership items;

(viii) Upon information and belief, the Commissioner did not include I.R.C. § 1446 on the earlier Forms 872-P because I.R.C. § 1446 is not a partnership item and the period of limitations on assessment may only be extended by properly executing a Form 872;

(ix) The period of limitations for making an assessment with respect to withholding tax under I.R.C. § 1446 can only be extended with a properly executed Form 872;

(x) The initial Form 872 was signed by the Tax Matters Partner on January 29, 2010. Subsequently, the Tax Matters Partner signed Forms 872 on July 19, 2010, December 20, 2010, and August 31, 2011. These Forms 872 were signed by the Tax Matters Partner on the same dates as the Forms 872-P. These Forms 872 explicitly limited the extension of the statutes of limitations to the assessment of withholding tax under I.R.C. §§ 1441 and 1442. I.R.C. § 1446 was not included on these Forms 872 and the Tax Matters Partner did not otherwise consent to extend the statutes of limitations for assessment for this item;

(xi) After the period of limitations for making an assessment with respect to withholding tax under I.R.C. § 1446 for taxable years 2006 and 2007 had expired, Forms 872 were prepared by the Commissioner and signed by the Tax Matters Partner on February 24, 2012 (the "2012 Forms 872"). The 2012 Forms 872 were signed by the Tax Matters Partner on same date as the 2012 Forms 872-P;

(xii) On the 2012 Forms 872, the Commissioner inserted, for the first time, I.R.C. § 1446 in addition to I.R.C. §§ 1441 and 1442;

(xiii) The Commissioner cannot resurrect an expired statute of limitations.

(z) Irrespective of whether withholding tax under I.R.C. § 1446 is a partnership or a nonpartnership item, the period of limitations for making an assessment with respect to all partnership and nonpartnership items expired prior to the issuance of the FPAAs for taxable years 2006 through 2010:

(i) During the examination of the Partnership, the Commissioner requested numerous statute extensions, Forms 872 and Forms 872-P (collectively, the "Statute Extensions"), over a period of four years with respect to both the Partnership and YA Offshore for taxable years 2006 through 2010;

(ii) Upon information and belief, each time the Commissioner requested the Statute Extensions, the Tax Matters Partner requested the status of both the examination of the Partnership (the "Examination") and the approval of YA Offshore's waiver request under Treas. Reg. § 1.882-4(a)(3) (the "Waiver Request") and was informed that the Commissioner did not know the status, no decisions had been made, and additional time was needed to consider the case and Waiver Request;

(iii) Upon information and belief, in July 2014 the Commissioner again requested that the Tax Matters Partner sign Forms 872-P and Forms 872 extending the statutes from December 31, 2014 to March 31, 2015, and the Tax Matters Partner again requested the status of the Examination and Waiver Request and was again informed that the Commissioner did not know the status, had not made a decision with respect to the case, and although additional time was needed, the Commissioner knew of no reason why the Waiver Request would not be granted;

(iv) Upon information and belief, in or around September 2014, the Commissioner informed Petitioners, for the first time, that the Partnership would be receiving a Chief Counsel Advice Memorandum ("CCA") concluding that the Partnership and YA Offshore was engaged in a trade or business within the United States in taxable year 2006 and 2007;

(v) Upon information and belief, the Commissioner had not previously informed the Tax Matters Partner that he had requested the CCA and that the CCA was about to be issued, despite the Tax Matters Partner's multiple requests regarding the status of the case and Waiver Request;

(vi) Upon information and belief, the Commissioner sought the Statute Extensions to secure time for the Office of Chief Counsel to issue the CCA to support the adjustments set forth in the FPAAs;

(vii) Upon information and belief, the Commissioner did not consider the Waiver Request;

(viii) The Waiver Request was summarily denied on March 11, 2015 without identifying any factual or legal support;

(ix) The Tax Matters Partner relied on the Commissioners statements with respect to the status of the Examination and Waiver Request and would not have signed the Statute Extensions otherwise, and in no event would have signed the statute extensions on July 16, 2014 extending the statues to March 31, 2015 had it known about the CCA;

(x) Reliance on the Commissioner's representations caused Petitioners, the Partnership, and its partners substantial prejudice;

(xi) The Commissioner is estopped from relying on the Statute Extensions;

(xii) Petitioners were wrongfully induced to sign the Statute Extensions and the Commissioner is barred from relying on the Statute Extensions for taxable years 2006 through 2010;

(xiii) The Commissioner is barred from relying on the CCA in support of the adjustments set forth in the FPAAs.

(aa) The Partnership was not a dealer in securities and was not required to apply the "mark to market" accounting rules described in I.R.C. § 475 for taxable years 2006 through 2009;

(bb) The Partnership substantiated foreign taxes paid as reflected on Form 1065 Schedule K Line 161 in taxable years 2007;

(cc) The Partnership substantiated and is entitled to the reclassification of certain short-term capital gain to long-term capital gain as set forth in the Partnership's Administrative Adjustment request for taxable year 2007;

(dd) The Partnership substantiated Other credits as reflected on Form 1065 Schedule K Line 15f in taxable year 2008, and therefore the Partnership is entitled to a $249,917 credit in taxable year 2008;

(ee) The Partnership substantiated the interest write off as reflected on Form 1065 Schedule M-3 Line 25 in taxable year 2009, which is allowed under IRC § 166, and therefore the Partnership is entitled to a $46,506,023 deduction for taxable year 2009;

(ff) The Partnership was not in a trade or business within the United States during taxable years 2006 through 2009, and therefore the Partnership properly reported all items of (i) portfolio income and loss, including interest, qualified dividend, ordinary dividend, net short-term capital gain, and net long-term capital gain; (ii) other income; (iii) other deductions; (iv) investment income; and (v) net earnings from self-employment in Forms 1065 filed for taxable years 2006 through 2009;

(gg) If the Court has jurisdiction to determine the Partnership's liability for additions to tax under I.R.C. §§ 6651(a)(1) and 6651(a)(2), and 6655, the Partnership is not liable under I.R.C. § 6651(a)(1) for failure to file Forms 8804, is not liable under I.R.C. § 6651(a)(2) for failure to pay withholding tax under I.R.C. § 1446, and is not liable under I.R.C. § 6655 for failure to pay estimated tax, for taxable years 2006 through 2009;

(hh) The Partnership and its partners are not liable for the accuracy related penalty under I.R.C. § 6662 for taxable years 2006 through 2009;

(ii) The Partnership and its partners retained fully informed, competent, and independent attorneys, Certified Public Accountants, and tax advisors (collectively, "Tax Professionals");

(jj) The Tax Professionals advised the Partnership and its partners that they were not engaged in a trade or business within the United States in taxable years 2006 through 2010, and thereafter;

(kk) The Partnership and its partners relied on the advice of its Tax Professionals with respect to the filing of returns required by the Internal Revenue Code and regulations thereunder;

(ll) Based on the advice of its Tax Professionals, the Partnership did not file Forms 8804 during taxable years 2006 through 2010;

(mm) Based on the advice of its Tax Professionals, the Partnership's foreign partners did not file timely Forms 1120-F;

(nn) The Partnership and its partners relied on the Tax Professionals' advice in good faith and such reliance was reasonable;

(oo) The Partnership and its partners were not negligent in complying with any provision of the internal revenue laws;

(pp) The Partnership and its partners did not act carelessly, recklessly or intentionally disregard the rules or regulations of the internal revenue laws;

(qq) The Partnership and its partners acted in a reasonably prudent fashion without willful neglect in relying on its Tax Professional's advice;

(rr) If the Court has jurisdiction to determine the Partnership's liability for additions to tax under I.R.C. §§ 6651(a)(1) and 6651(a)(2), the amount of the addition to tax under I.R.C. § 6651(a)(1) is reduced by the amount of the addition to tax under I.R.C. § 6651(a)(2). Therefore, the additions to tax under I.R.C. § 6651(a)(1) and I.R.C. § 6651(a)(2) are applied incorrectly in the FPAAs for taxable years 2006 through 2009;

(ss) If the Court has jurisdiction to determine the Partnership's liability for additions to tax under I.R.C. §§ 6651(a)(1) and 6651(a)(2), the additions to tax under I.R.C. §§ 6651(a)(1) and 6651(a)(2) do not apply to a failure to file Forms 8804 and pay withholding tax under I.R.C. § 1446, respectively, and therefore are applied incorrectly in the FPAAs for the taxable years 2006 through 2009; and

(tt) Partnership was not engaged in a trade or business within the United States, and therefore properly withheld, paid, and reported tax withheld under I.R.C. §§ 1441 or 1442 for taxable years 2006 through 2008;

15. The burden of proof with respect to the adjustments, additions to tax, and penalties made in the FPAAs is on the Commissioner as provided under I.R.C. § 7491.

16. The FPAAs fail to identify the factual basis for any of the adjustments or the assertion of the additions to tax and penalties, and therefore the burden of proof with respect to the Commissioner's adjustments, additions to tax, and penalties in the FPAAs is on the Commissioner.

WHEREFORE, the Petitioners pray that this Court determine that (a) the Partnership was not engaged in a trade or business within the United States, (b) the Partnership did not have any items of income effectively connected with the conduct of a trade or business within the United States, (c) the Partnership qualifies for the trading safe harbors under I.R.C § 864(b)(2)(A), (d) there are no adjustments with respect to the partnerships items as reported on the Partnership's returns, and (e) the Partnership and its partners are not liable for the accuracy-related penalty under I.R.C. § 6662.

Petitioners further pray that the Court determine that it lacks jurisdiction to determine the Partnership's liability for withholding tax under I.R.C. § 1446.

Petitioners further pray that the Court determine that it lacks jurisdiction to determine the Partnership's liability for the additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655. In the alternative, if the Court has jurisdiction to determine the Partnership's liability for the additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655, Petitioners pray that the Court determine that the Partnership is not liable for the additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655.

Petitioners further pray that the Court determine that the statutes of limitations have expired and the Commissioner is time-barred from making an assessment with respect to withholding tax under I.R.C. § 1446 and the additions to tax under I.R.C. §§ 6651(a)(1), 6651(a)(2), and 6655 for taxable years 2006 and 2007.

Petitioners further pray that the Court determine that the Statute Extensions are void and have no legal effect and the Commissioner is time-barred from making an assessment with respect to all partnership and nonpartnership items for taxable years 2006 through 2010.

Petitioners further pray that the Court determine that the Commissioner is estopped from relying on the Statute Extensions and the Commissioner is time-barred from making an assessment with respect to all partnership and nonpartnership items for taxable years 2006 through 2010.

Petitioners further pray that the Court determine that the Statute Extensions have expired and the Commissioner is time-barred from making an assessment with respect to all partnership and nonpartnership items for taxable years 2006 through 2010.

In the alternative, if it is determined that the Partnership has income effectively connected with the conduct of a trade or business within the United States, the Petitioners further pray that the Court determine the Partnership's income is at least partly attributable to property sold or exchanged for use, consumption, or disposition outside the United States and an office or other fixed place of business of the Partnership in a foreign country participated materially in such sale.

In the alternative, if it is determined that the Partnership was engaged in a trade or business within the United States for taxable years 2006 through 2009, Petitioners further pray that the Court determine that the Partnership was engaged in a trade or business within the United States for taxable year 2010 and determine that the Partnership and its partners are entitled to tax losses sustained in taxable years 2009 and 2010.

In the alternative, if it is determined that the Partnership has income effectively connected with the conduct of a trade or business within the United States and the Court has jurisdiction to determine deductions under I.R.C. § 882(c)(2), Petitioners further pray that the Court determine that Partnership's foreign partners are entitled to use their distributive share of deductions under I.R.C. § 882(c)(2). To the extent that Forms 1120-F were filed subsequent to the filing deadlines prescribed in Treas. Reg. § 1.882-4, Petitioners further pray that the Court determine that the foreign partners satisfy all the factors entitling the foreign partners to a waiver pursuant to Treas. Reg. § 1.882-4(a)(3).

Petitioners further pray that the Court grant such other and further relief as this Court deems just and proper.

DATED: June 3, 2015

ADMITTED