                           NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS                            FILED
                           FOR THE NINTH CIRCUIT                               JAN 14 2014

                                                                          MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

JEFFREY K. BERGMANN; KRISTINE                    No. 12-70259
K. BERGMANN,
                                                 Tax Ct. No. 20894-05
              Petitioners - Appellants,

  v.                                             MEMORANDUM*

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent - Appellee.


              Appeal from a Decision of the United States Tax Court

                     Argued and Submitted December 3, 2013
                            San Francisco, California

Before: GOULD and PAEZ, Circuit Judges, and HUFF, District Judge.**

       Petitioners-Appellants Jeffrey and Kristine Bergmann appeal a decision by

the United States Tax Court holding that their amended return for 2001 was not a

qualified amended return (“QAR”) under Treasury Regulation § 1.6664-2(c)(3)(ii),


        *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
       **
             The Honorable Marilyn L. Huff, District Judge for the U.S. District
Court for the Southern District of California, sitting by designation.
making the Bergmanns liable for an accuracy-related penalty of $41,196 for their

2001 tax return. We have jurisdiction under 26 U.S.C. § 7482(a)(1). We review

de novo the Tax Court’s interpretation of a Treasury Regulation, Metro Leasing

Development Corp. v. CIR, 376 F.3d 1015, 1021 (9th Cir. 2004), and we affirm.


      Jeffrey Bergmann, a tax partner at KPMG, LLP, and his wife Kristine

Bergmann used a tax strategy known as the “Short Option Strategy” (“SOS”) that

KPMG developed and promoted to clients. These SOS transactions artificially

inflated the taxpayer’s basis in foreign currency, allowing the taxpayer to claim

falsely high losses or low profits on sales of that currency. The Bergmanns

engaged in SOS transactions in 2000 and 2001. They timely filed their original

2001 joint tax return, claiming ordinary and long-term capital losses for the two

transactions. The IRS served two summonses on KPMG on March 19, 2002 for its

role in promoting SOS transactions. In March 2004, shortly after KPMG gave the

IRS a list of SOS participants including the Bergmanns, they filed an amended

return for 2001 removing all the previously-claimed losses and reporting and

paying an additional $205,979 in taxes. At no point did the Bergmanns concede

that the losses were improperly reported or foreclose themselves from taking

another position on a later amended return.



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      The Tax Court held that under Treasury Regulation § 1.6664-2(c)(3)(ii), the

IRS summonses to KPMG in 2002 was an event terminating the Bergmanns’

ability to file a 2001 QAR under Treasury Regulation § 1.6664-2(c)(3). We agree.

The Bergmanns argue that the Tax Court applied the updated, incorrect version of

the relevant Treasury Regulation in its decision. We conclude, however, that there

is no indication that the Tax Court applied the incorrect regulation. The Tax Court

consistently cited Treasury Regulation § 1.6664-2(c)(3)(ii), the correct regulation,

and gave a fair paraphrase of that regulation in its decision. For these reasons we

reject the Bergmanns’ assertion that the Tax Court erroneously applied the current

regulation to their case.


      The Bergmanns also argue that the Tax Court incorrectly interpreted

Treasury Regulation § 1.6664-2(c)(3)(ii) when it concluded that the IRS

summonses to KPMG was an event terminating their ability to file a QAR and thus

avoid accuracy-related penalties for their 2001 tax return. The Bergmanns assert

that the regulation’s reference to 26 U.S.C. § 6700(a) in defining “person” requires

that the Commissioner show that KPMG met the requirements of both § 6700(a)(1)

and (a)(2)—that is, KPMG was promoting an abusive tax shelter.




                                          3
      However, the principles of statutory interpretation apply equally to

regulatory interpretation, Boeing Co. v. United States, 258 F.3d 958, 967 (9th Cir.

2001), aff’d, 537 U.S. 437 (2003), and do not support that conclusion. The

Bergmanns’ interpretation of Treasury Regulation § 1.6664-2(c)(3)(ii) would

impermissibly render its text and purpose nonsensical, and so we reject that

argument. Section 6700(a) describes both the potentially liable persons and the

fines those persons will pay for promoting abusive tax shelters. The statute lays

out the offense in its entirety. However, Treasury Regulation § 1.6664-2(c)(3)(ii)

applies when a qualifying person is “first contacted by the Internal Revenue

Service concerning an examination of an activity described in section 6700(a).”

The regulation explicitly limits the terminating event to when a person under §

6700 is “first contacted.” The Bergmanns’ interpretation of the regulation would

have the contradictory result of denying KPMG’s status as a “person” until it was

clearly liable under § 6700(a), and yet the regulation only applies to the first

contact by the IRS pursuant to an investigation of liability under that section.


      We agree with the Tax Court that the terminating event described in

Treasury Regulation § 1.6664-2(c)(3)(ii) is completed when the IRS first contacts a

person concerning liability under § 6700 for an activity with respect to which the

taxpayer claimed a tax benefit. This interpretation is supported by the purpose of

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QARs: encouraging and rewarding taxpayers who voluntarily disclose abusive tax

practices, thereby saving IRS resources. See T.D. 9186, 2005-1 C.B. 790. In this

case, once KPMG had been told of an investigation and given the Bergmanns’

names to the IRS, the record fails to demonstrate that their amended return was

voluntary or saved IRS resources. For these reasons, we affirm the decision by the

Tax Court.


      AFFIRMED.




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