Crescent Holdings, LLC v. Commissioner

Arthur Fields (plaintiff) was the president and chief executive officer of Crescent Resources. In 2006, Fields was given a 2 percent interest in Crescent Holdings, the owner of Crescent Resources. If Fields left Crescent Resources within three years of being given the interest, the interest would be forfeited. Further, Fields could not transfer his interest to another person until the interest vested. For two years after the interest was granted, Fields was allocated 2 percent of Crescent Holdings’ income, but he did not receive the allocated income, because the interest had not yet vested. Crescent Holdings sent Fields Schedule K-1s for his share of the partnership’s income, so Fields paid taxes on the undistributed income. Crescent Holdings agreed to reimburse Fields for the taxes he paid on the income in 2006 and 2007. Fields left his job within the three-year forfeiture period, and his interest in Crescent Holdings never vested. Crescent Holdings demanded that Fields repay the amount given to Fields for his 2006 and 2007 tax liabilities. The Commissioner of Internal Revenue (the Commissioner) (defendant) determined that Fields should be treated as a partner in Crescent Holdings for the years 2006 and 2007. Fields petitioned the United States Tax Court for a redetermination, arguing that he was never a partner and that he was not liable for taxes on the undistributed partnership income. Duke Ventures, a partner in Crescent Holdings, intervened, arguing that Fields was liable for the taxes.