Stewart v. Department of Revenue

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Stewart v. Department of Revenue

Case Number
Call Date
September 1, 2016
Court Number
Case Summary

S-15-0700 Brenton R. Stewart & Mary M. Stewart (Appellants) v. Nebraska Department of Revenue, an agency of the State of Nebraska, and Leonard J. Sloup, in his official capacity as the Acting Tax Commissioner

Lancaster County District Court, Judge Jeffre Cheuvront

Attorneys: Tracy A. Oldemeyer & Andre R. Barry (Cline Williams Wright Johnson & Oldfather, LLP) (Appellants) --- L. Jay Bartel (Attorney General's Office)

Civil: Nebraska Special Capital Gains Tax Exclusion

Proceedings below: The district court affirmed the decision of the Tax Commissioner denying Appellants' petition for redetermination of a deficiency issued by the Department of Revenue for income tax to Appellants for the 2010 tax year. Both parties filed a Petition to Bypass the Court of Appeals which were granted by the Nebraska Supreme Court.

Issues: The district court erred in 1) failing to give controlling effect to the plain language of ''77-2715.08 and 77-2715.09, which set forth, in clear and unambiguous terms, all of the requirements necessary to qualify for the Nebraska Special Capital Gains Exclusion, and which do not create any additional "economic substance" or "business purpose" requirement, or any other limitation on how, when, or under what circumstances earlier sales or transfers of stock must occur to meet the five unrelated shareholder requirement, 2) its application of the "sham transaction" doctrine to disregard the sales to Hohwieler, Vincent and Carlson, because application of the "sham transaction" doctrine is incompatible with the plain meaning of ''77-2715.08 and 77-211,5.09 and the "sham transaction" doctrine itself, which cannot be applied to defeat legislative intent, 3) failing to recognize that the "sham transaction" doctrine does not apply if a transaction has any practical economic effect or business purpose, such as a real and valid transaction with a purpose of meeting the requirements set forth by statute, and in failing to recognize that the transaction for which the Exclusion was claimed-the sale of the Stewarts' lifetime investment in their Pioneer stock to Aurora Cooperative did undoubtedly have both economic substance and a non-tax business purpose, and 4) basing its decision on a finding that there was no reasonable possibility of a profit to the Stewarts from the sale of shares to Hohwieler, Vincent, and Carlson, when the parties stipulated that Mary Stewart recognized a capital gain and paid income tax on her sale of the three shares to Hohwieler, Vincent, and Carlson.