Opinion
22581-22
01-22-2024
UBIQUITI INC., F.K.A. UBIQUITI NETWORK INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge.
This case was continued from the Court's January 22, 2024, New York, New York, trial session. The case presents a question under subpart F of the Code, which governed the treatment of controlled foreign corporations (CFCs) during 2015-2016, the tax years at issue. The question is whether petitioner was required to include in its 2015 and 2016 taxable income the previously untaxed earnings of Ubiquity International (International), its wholly-owned CFC. Respondent contends that inclusion is required because International guaranteed (or pledged its assets as security for) certain loans that petitioner received from third-party banks.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (Code), in effect at all relevant times, and regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times.
Under section 951(a)(1)(B), a United States shareholder of a CFC must include in income its pro rata share of the amount determined under section 956 with respect to such shareholder. Under section 956(a), this amount will be the shareholder's pro rata share of any previously untaxed earnings of the CFC that have been invested in "United States property." Section 956(c)(1)(C) defines "United States property" to include "any obligation of a United States person." Under section 956(d), a CFC will be considered as holding an "obligation of a United States person" if such CFC is a "pledgor or guarantor" of that obligation. The Commissioner has promulgated regulations that further define the circumstances in which a CFC is deemed to be a "pledgor or guarantor." See Treas. Reg. § 1.956-2(c).
On November 8, 2023, petitioner filed a Motion for Summary Judgment. It contends that, as a matter of law, International was not a "pledgor or guarantor" of petitioner's bank loans within the meaning of section 956 and the Treasury Regulations. On December 26, 2023, respondent filed two substantially identical documents, a Response and a Cross-Motion for Summary Judgment, contending that International guaranteed petitioner's bank loans or (alternatively) that there exist genuine disputes of material fact as to whether International effected such a guarantee.
We agree with respondent's alternative submission. This case will require us to determine whether International was a "pledgor or guarantor" of petitioner's obligations to its third-party lenders. But the answer to that question will require us to decide a variety of disputed questions of fact, including whether the signatories to the loan agreements-petitioner, International, and the third-party banks-expected or understood that International's assets would be used "directly or indirectly" to support petitioner's repayment of its loan obligations. See Treas. Reg. § 1.956-2(b)(iii).
In consideration of the foregoing, it is
ORDERED that petitioner's Motion for Summary Judgment, filed November 8, 2023, is denied. It is further
ORDERED that respondent's Cross-Motion for Summary Judgment, filed December 26, 2023, is denied. It is further
ORDERED that the parties shall file, on or before March 22, 2024, a status report (jointly if possible, otherwise separately) expressing their views as to the conduct of further proceedings in this case.