Partnership Disputes Net Earnings From Self-Employment Adjustments

Point72 Asset Management, L.P., Point72 Capital Advisors, Inc., Tax Matters Partner,
Petitioner,
v.
Commissioner of Internal Revenue,
Respondent.

UNITED STATES TAX COURT

PETITION FOR READJUSTMENT OF PARTNERSHIP ITEMS UNDER CODE SECTION 6226¹

PETITIONER, POINT72 CAPITAL ADVISORS, INC. (“ADVISORS”), HEREBY PETITIONS under Section 6226(a) for a readjustment of the adjustments set forth in the Notices of Final Partnership Administrative Adjustment dated May 15, 2023 (“FPAA”), pertaining to the Form 1065 (U.S. Return of Partnership Income) for Point72 Asset Management, LP (“PAM”) for its tax years ending December 31, 2015 (“2015 Form 1065”) and December 31, 2016 (“2016 Form 1065”). As the basis for this Petition, Petitioner alleges as follows:

1. PAM's current address and principal place of business is 72 Cummings Point Road, Stamford, Connecticut 06902.

2. PAM timely filed its 2015 and 2016 Forms 1065.

3. PAM is a Delaware limited partnership.

4. PAM is a partnership for federal income tax purposes.

5. Advisors is the Tax Matters Partner (“TMP”) for PAM's 2015 and 2016 Forms 1065 pursuant to Section 6231(a)(7).

6. Advisors is filing this Petition within the 90-day period set forth in Section 6226(a) in its capacity as TMP of PAM.

7. PAM's taxpayer identification number is set forth in the Statement of Taxpayer Identification Number, which is attached to this Petition.

8. Respondent's office located in Boston, Massachusetts issued the FPAAs. A complete copy of the FPAA for 2015 is attached as Exhibit A. A complete copy of the FPAA for 2016 is attached as Exhibit B.

9. Advisors disputes the proposed “Net earnings (loss) from self-employment” (“NESE”) adjustments in the FPAAs.

10. Respondent made the following errors in the FPAAs:

a. By asserting an adjustment to NESE of $124,748,743 for 2015;

b. By asserting that NESE should be $124,748,743 instead of $0 as reported on the 2015 Form 1065;

c. By failing to describe any meaningful factual, tax or legal basis for adjusting “NESE” for 2015;

d. By asserting an adjustment to “NESE” of $219,314,741 for 2016;

e. By asserting that NESE should be $219,314,741 instead of $0 as reported on the 2016 Form 1065; and

f. By failing to describe any meaningful factual, tax or legal basis for adjusting “NESE” for 2016.

11. Based on information and belief, the facts, and mixed points of fact and law, upon which Advisors relies include, but are not limited to, the following:

General

a. PAM was a partnership for Federal income tax purposes in 2015 and 2016.

b. PAM timely filed its Forms 1065 for 2015 and 2016.

c. The Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248 (“TEFRA”) unified audit procedures apply to PAM's 2015 and 2016 Forms 1065.

d. PAM properly named Advisors as its TMP for the 2015 and 2016 Forms 1065.

e. PAM had two partners during 2015 and 2016:

(i) Advisors owned a 0.01 percent general partner interest in PAM; and

(ii) Point72 Capital Holdings, LP (“Holdings”) owned a 99.99 percent limited partner interest in PAM.

Advisors — Background

f. On April 29, 2004, S.A.C. Capital Advisors, Inc. was formed as a Delaware corporation.

g. On April 7, 2014, S.A.C. Capital Advisors, Inc. changed its name to Point72 Capital Advisors, Inc. (previously defined as “Advisors”).²

h. During 2015 and 2016, Advisors was a Delaware corporation.

i. During 2015 and 2016, Advisors was an S-corporation for Federal income tax purposes.

j. During 2015 and 2016, Advisors had a single owner, Steven A. Cohen (“Mr. Cohen”).

Holdings — Background

k. On December 5, 2008, Advisors formed S.A.C. Capital Holdings, LP as a Delaware limited partnership by filing the “Certificate of Limited Partnership of S.A.C. Capital Holdings, L.P.” (“Holdings LP Certificate”).

l. Advisors signed the Holdings LP Certificate as general partner of Holdings.

m. Effective January 1, 2009, Holdings adopted the “Agreement of Limited Partnership of S.A.C. Capital Holdings, L.P.” (“Holdings LP Agreement”) that admitted Mr. Cohen and others as limited partners.

n. The Holdings LP Agreement named Advisors as general partner and Mr. Cohen, among others, as a limited partner.

o. On April 7, 2014, S.A.C. Capital Holdings, L.P. changed its name to Point72 Capital Holdings, L.P. (previously defined as “Holdings”).³

p. During 2015 and 2016:

(i) Advisors owned a 0.01 percent general partner interest in Holdings; and

(ii) Mr. Cohen owned a 99.99 percent limited partner interest in Holdings.

q. During 2015 and 2016, Holdings was a Delaware limited partnership.

r. During 2015 and 2016, Holdings was a partnership for Federal income tax purposes.

s. Holdings timely filed partnership returns for 2015 and 2016.

t. During 2015 and 2016, Holdings was subject to the TEFRA unified audit procedures.

PAM — Background

u. On March 11, 2014, Advisors filed a Certificate of Limited Partnership for PAM with the Delaware Secretary of State (“PAM LP Certificate”).

v. Advisors signed the PAM LP Certificate as the general partner of PAM.

w. Effective March 11, 2014, PAM adopted the “Agreement of Limited Partnership of Point72 Asset Management, L.P.” (“PAM LP Agreement”).

x. The PAM LP Agreement named Advisors as general partner and admitted Holdings as limited partner.

y. The PAM LP Agreement remained in effect during 2015 and 2016.

z. During 2015 and 2016, PAM was a limited partnership under Delaware law.

aa. During 2015 and 2016, Advisors was the general partner of PAM under Delaware law.

ab. During 2015 and 2016, Holdings was a limited partner of PAM under Delaware law.

2015 and 2016 Operations

ac. During 2015 and 2016, PAM operated an investment management business, with nearly 1,100 employees globally.

ad. PAM engaged in a trade or business during 2015 and 2016.

ae. Section 6.1 of the PAM LP Agreement in effect during 2015 and 2016 sets forth who may manage PAM and what powers that manager may exercise.

af. Section 6.1 of the PAM LP Agreement in effect during 2015 and
2016 vested control of PAM in its general partner, Advisors.

ag. Section 6.1 of the PAM LP Agreement in effect during 2015 and 2016 also confirms that Holdings may not participate in the management of PAM.

ah. During 2015 and 2016:

(i) Advisors had the exclusive right to manage PAM;

(ii) Advisors and its designees exercised all management and control over PAM;

(iii) Advisors and its designees did not authorize Holdings to act as a manager of PAM;

(iv) Advisors was PAM's sole general partner for purposes of Delaware law; and

(v) Advisors was PAM's sole general partner for Federal income tax purposes.

ai. PAM properly reported Advisors as its sole general partner on its 2015 and 2016 Forms 1065.

aj. PAM properly allocated 0.01 percent of its income, expenses, gains, losses, and credits to Advisors in 2015 and 2016 in accordance with Section 7 of the PAM LP Agreement.

ak. During 2015 and 2016:

(i) Holdings acted solely as a limited partner of PAM for Delaware law purposes; and

(ii) Holdings acted solely as a limited partner of PAM for Federal income tax purposes.

al. PAM properly allocated 99.99 percent of its distributable income, expenses, gains, losses, and credits to Holdings on its 2015 and 2016 Forms 1065 in accordance with Section 7 of the PAM LP Agreement.

am. PAM properly reported Holdings as a limited partner on its 2015 and 2016 Forms 1065.

an. PAM properly reported Holdings as a limited partner on its 2015 and 2016 Forms 1065 based on Section 1402(a)(13).

TEFRA Issues

ao. The FPAAs do not recharacterize any item reported on page 1 of the 2015 or 2016 Forms 1065.

ap. The FPAAs do not allocate NESE from Advisors to Holdings.

aq. The FPAAs do not allocate NESE from Holdings to Advisors.

ar. The FPAAs adjustment to NESE does not affect the distributive share to be received by Advisors.

as. The FPAAs adjustment to NESE does not affect the distributive share to be received by Holdings.

at. Subtitle A does not require PAM to determine dispositively the amount of its ordinary income that constitutes NESE.

au. Treas. Reg. § 301.6231(a)(3)-1 does not identify NESE as more appropriately determined at the partnership-level.

av. The FPAAs' alleged adjustment to NESE does not constitute a partnership item that can be adjusted in this TEFRA partnership proceeding.

aw. Respondent audited Holdings, Advisors, and Mr. Cohen's 2015 and 2016 returns and closed these audits without making changes.

ax. The Section 6501 assessment period for Holdings, Advisors, and Cohen has expired for 2015 and 2016.

12. The contents of the FPAA are erroneous, unreasonable, arbitrary, and capricious. As a result, Respondent bears the burden of proof as to all matters.

WHEREFORE, Petitioner prays that the Tax Court:

(i) Determine that the FPAAs' NESE adjustments are not partnership items which can be adjusted in this TEFRA partnership proceeding;

(ii) Determine that the 2015 and 2016 Forms 1065 are accurate as filed with respect to NESE;

(iii) Determine that Respondent bears the burden of proof as to all issues; and

(iv) Grant such other and further relief that it deems appropriate.

Respectfully submitted,

Date: August 11, 2023

JOHN W. HACKNEY
Tax Court Bar No. HJ1581
john.hackney@chamberlainlaw.com

Date: August 11, 2023

ERIN R. HINES
Tax Court Bar No. HE0442
erin.hines@chamberlainlaw.com

Date: August 11, 2023

JOHN J. NAIL
Tax Court Bar No. NJ0385
john.nail@chamberlainlaw.com

Date: August 11, 2023

BELINDA BE
Tax Court Bar No. BB21392
belinda.be@chamberlainlaw.com

CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY
191 Peachtree Street, N.E.
Forty-Sixth Floor
Atlanta, Georgia 30303
Telephone: (404) 659-1410
Facsimile: (404) 659-1852

COUNSEL FOR PETITIONER