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Abstract: 

The Seventh Circuit’s decision is particularly troubling for taxpayers because not only did the Court of Appeal’s affirm the Tax Court’s rejection of the taxpayer’s method of valuation (which included various favorable adjustments), but it also rejected the Tax Court’s dismissal of the ultra-strict valuation method advocated by the IRS in the case and essentially gave the IRS method a second chance by remanding the case for reconsideration of the IRS method under the more IRS lenient “clear reflection of income” standard of Section 446. In addition, the Seventh Circuit effectively rebuked Tax Court Judge Laro, author of the lower court decision, for crafting a compromise swap valuation method and in a footnote questioned whether the Tax Court had the requisite authority to craft such a compromise.

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