The following published opinion was released by the U.S. Court of Appeals for the Fifth Circuit on May 12, 2008:

• Kornman & Associates, Inc. v. U.S. (King, DeMoss, Southwick, JJ.; opinion by DeMoss, J.). The district court granted summary judgment in favor of the IRS and against the plaintiff partnership entities in tax shelter litigation involving the short sale of T-bills and the subsequent transfer of interest in the brokerage account as to which the obligation to replace the T-bills subject to the short sale attached. The district court’s summary judgment was based on the finding that the obligation to replace borrowed securities is a liability under § 752 of the Internal Revenue Code. On appeal, the government argued that the obligation to replace securities involved in the short sale is fixed at the time of the transfer of the interest in the brokerage account, thereby making it a § 752 liability; while the taxpayers argued that, while the obligation to replace the securities is fixed, the value of that obligation and the determination of whether a loss or a gain will be realized is not fixed. The Fifth Circuit affirmed the summary judgment. The Fifth Circuit first rejected the government’s argument that IRS revenue rulings are entitled to Chevron deference, because they are not subject to notice-and-comment rulemaking (unlike Treasury regulations), slip op. at 15-17; instead, the Fifth Circuit held that revenue rulings are treated under a standard akin to Skidmore deference, entitling them to “some persuasive value” dependent on the evident thoroughness of the ruling, the validity of its reasoning, and consistency with other pronouncements. Slip op. at 17-18. Applying this standard, the Fifth Circuit held that the revenue rulings at issue were entitled to “significant weight.” Slip op. at 18. The Fifth Circuit, comparing the revenue rulings at issue to Treasury regulation 1233, held, “there is no fundamental link between section 1233, which deals with the calculation of capital gains and losses in short sales, and section 752, which deals with the effect of liabilities on a partner’s outside basis.” Slip op. at 25. The Fifth Circuit then held that the short sale that generates the cash proceeds and the corresponding covering transaction are “inextricably intertwined,” and that to treat the short sale proceeds as an unencumbered cash contribution without treating the covering transaction as a liability “flies in the face of reality.” Slip op. at 27. The Fifth Circuit accordingly held that the obligation to close a short sale is a liability for § 752 purposes.