Here are key excerpts (emphasis in original):
Upon review of the record and relevant law, we conclude that the District Court incorrectly determined that the 20-percent negligence penalty was inapplicable. In finding that TIFD had a “reasonable basis” for treating the Dutch banks’ interest as equity rather than debt, the District Court relied on various inapposite authorities treating preferred stock as equity for tax purposes. We previously rejected such an analogy to preferred stock as inapt, finding that the Dutch banks’ interests here were “‘overwhelmingly in the nature of a secured lender’s interest.’” TIFD II, 666 F.3d at 849 (quoting TIFD I, 459 F.3d at 231). TIFD has pointed to no authorities treating an interest such as the Dutch banks’ interest—which we previously found had only “illusory or insignificant” indicia of equity—as equity. TIFD I, 459 F.3d at 231. The District Court reasoned that our prior rejection of the analogy to preferred stock did not mean that the analogy was without reasonable basis. But we did not merely reject the analogy on balance; rather, we concluded that the preferred stock authorities invoked by TIFD provided “no support for [its] treatment of the banks’ interest as equity.” TIFD II, 666 F.3d at 849 (emphasis supplied). Accordingly, the District Court’s holding that TIFD had a “reasonable basis” for its return position was error.
The District Court also incorrectly held that TIFD’s underpayment was not attributable to negligence. TIFD and the District Court argue that TIFD took great pains to create an equity interest and had an economic interest to do so. As we previously found, the Dutch banks’ interests “were designed to have a superficial appearance of equity participation.” TIFD I, 459 F.3d at 227. An attempt to create the appearance of a legitimate tax position is not an attempt in fact to comply with the Internal Revenue Code, and neither TIFD nor the District Court cites any evidence in the record that TIFD made a proper investigation of the correctness of its tax position. Accordingly, TIFD failed to carry its burden to establish the absence of negligence, and the District Court’s finding to the contrary was error.The Court of Appeals is much too polite and formal to call GE's gambit bullshit, but I think that the reasoning leaves no doubt that the gambit can be so characterized.