[00:00:00] Speaker 04: It looks like we're ready for 24-9004 Liberty Global versus CIR. [00:00:08] Speaker 02: May it please the court, Parker Ryder Longmade for Liberty Global. [00:00:11] Speaker 02: I will aim to reserve three minutes for rebuttal. [00:00:14] Speaker 02: The dispute here is whether the gain from LGI's sale of JCOM, its Japanese telecoms business, is foreign source income or U.S. [00:00:23] Speaker 02: source income. [00:00:24] Speaker 02: If the gain is foreign source, then LGI can claim credits for the more than $240 million in taxes that the government agrees were paid to the Japanese government on LGI's investment in JCOM and thus avoid double taxation. [00:00:39] Speaker 02: If the gain is instead U.S. [00:00:40] Speaker 02: source, in contrast, then LGI cannot claim the full credit. [00:00:44] Speaker 02: The answer is that the gain is foreign source under the plain terms of the regulations, namely section 1.904F-2D1 that Treasury was authorized to promulgate under section 7805 of the tax code. [00:01:00] Speaker 02: Section 904F3A covers all dispositions by an OFL account holder of property used predominantly in a foreign trade or business. [00:01:10] Speaker 03: Let me ask you a question. [00:01:11] Speaker 03: So if there had been no sale, [00:01:14] Speaker 03: Would the 241 million have gone into the OFL account? [00:01:20] Speaker 02: Well, Your Honor, every year there would have been income remitted back as dividends or deemed dividends to LGI. [00:01:26] Speaker 02: And they would have paid. [00:01:27] Speaker 02: And JCOM would have been paying Japanese taxes for which LGI was responsible as a stockholder in JCOM. [00:01:34] Speaker 02: So what not? [00:01:35] Speaker 03: So I don't think that's responsive. [00:01:38] Speaker 03: I mean, it either was going to go in there or it wasn't going to go in there. [00:01:42] Speaker 03: The $241 million that you want to claim [00:01:48] Speaker 03: If there had not been a sale, was it going to go in the OFL account? [00:01:53] Speaker 02: It's not the $240-plus million that goes into the account. [00:01:57] Speaker 02: What the sale does is it recognizes gain on this transaction and it fills up the OFL account. [00:02:02] Speaker 02: But that's going to happen regardless of the sourcing treatment that we're talking about here today. [00:02:07] Speaker 02: So there's going to be recapture of the OFL account here. [00:02:11] Speaker 02: The only question is what happens to the [00:02:13] Speaker 02: to the gain in excess of the OFL recapture amount. [00:02:17] Speaker 02: And the question there is whether we're talking about US source income or foreign source income. [00:02:21] Speaker 05: Well, the section 904 is talking about recapture. [00:02:29] Speaker 05: You're talking about recapture of the OFL. [00:02:33] Speaker 05: Why isn't the tax court exactly right that it doesn't talk at all about anything other than recapture of the OFL? [00:02:43] Speaker 02: Well, Your Honor, I think it's not quite right that it talks about nothing beyond recapture. [00:02:47] Speaker 02: Certainly, recapture is the primary purpose of Section 904 F3A, but what the Congress and Treasury hear through the regulations, it was authorized to prescribe. [00:02:56] Speaker 05: We don't jump to the regulation, right? [00:02:58] Speaker 05: We start with the statute. [00:02:59] Speaker 02: I think there are three things, also read against the background of the rulemaking authority in 7805A, that show you that there's rulemaking authority here to prescribe the rule for gain and excess of the OFL account balance. [00:03:12] Speaker 02: The first thing is the broad disposition coverage in 904F3A. [00:03:16] Speaker 02: It applies to any disposition by an OFL account holder of any property used in foreign trade or business. [00:03:23] Speaker 02: Any disposition. [00:03:24] Speaker 02: that this is under the background tax rules. [00:03:26] Speaker 02: If those applied, it could be treated as foreign source or U.S. [00:03:30] Speaker 02: source, gain recognized or not recognized, but applies to all of those. [00:03:33] Speaker 02: The definition in 904 F3B Romanet 1 makes clear that a disposition includes a sale, exchange, distribution, or gift of property, whether or not gain or loss is recognized. [00:03:44] Speaker 02: So the statute is saying it's going to provide the rule for all of these dispositions. [00:03:48] Speaker 02: It then provides a notwithstanding clause, the second point, provides a notwithstanding clause that turns off the other tax code provisions there. [00:03:56] Speaker 05: Well, all of them? [00:03:58] Speaker 05: Turns off all of them? [00:03:59] Speaker 05: So you don't get a dividend either, right? [00:04:02] Speaker 02: Well, I can come back to the dividend question. [00:04:04] Speaker 05: Oh, no. [00:04:04] Speaker 05: Does it turn off all other provisions of the tax code? [00:04:09] Speaker 02: There is no dispute. [00:04:10] Speaker 02: It turns off provisions. [00:04:11] Speaker 05: That's a yes or no answer. [00:04:13] Speaker 02: Your Honor, yes, it turns them off with respect to gain recognition and sourcing treatment. [00:04:18] Speaker 05: Well, it doesn't limit it to that. [00:04:21] Speaker 05: You took a position earlier that you didn't have to pay any taxes whatsoever because of that notwithstanding clause, right? [00:04:33] Speaker 02: Your Honor, one of the positions we took before the tax court was that the gain above the OFL recapture amount was not recognized because the rule provided in 904F3A is that the gain recognition is only up to the OFL account balance. [00:04:49] Speaker 02: That of course would be a drastic rule and what we're pointing out here is that there is a gap in the operative language. [00:04:56] Speaker 05: So you've backed off of that argument. [00:04:57] Speaker 02: We're not making that argument before this court. [00:04:59] Speaker 02: The argument we're making before this court is that [00:05:01] Speaker 02: The Treasury is authorized under 7805A to prescribe the rules for gain recognition and sourcing treatment above the OFL recapture amount. [00:05:11] Speaker 05: But where's the limiting principle? [00:05:14] Speaker 05: I mean, your first argument would follow, wouldn't it, the one you've abandoned, if you're right here. [00:05:21] Speaker 02: I'm sorry, I'm not sure the first argument would follow. [00:05:23] Speaker 02: I may have misunderstood, but the point here is that Treasury is prescribing the rule whether there's gain recognition. [00:05:30] Speaker 02: It has to do that. [00:05:30] Speaker 02: It has the gap-filling authority to do that because 904F3A doesn't supply the rule expressly for what happens above the OFL recapture amount. [00:05:39] Speaker 05: Well then, isn't it 8, what is it, 856, or do I have? [00:05:44] Speaker 05: Am I having dyslexia? [00:05:46] Speaker 02: 865, Your Honor. [00:05:48] Speaker 02: But that goes back to the notwithstanding clause that we're talking about. [00:05:51] Speaker 05: But notwithstanding clause, both the Supreme Court and this court have said over and over again that a notwithstanding clause comes into play if you have two provisions [00:06:04] Speaker 05: that conflict. [00:06:06] Speaker 05: There isn't a conflict here. [00:06:08] Speaker 05: If you treat this provision as dealing with what it says it's dealing with, the overall foreign loss, and you treat the excess as going back to the provision that's already there, which is 865, where's the conflict? [00:06:25] Speaker 02: So I think, Your Honor, it's an order of operations question, and it's a right of first refusal, if you will, for Treasury to come in and prescribe the rule, because the notwithstanding clause and the broad definition of disposition that makes clear that it covers all gain or loss, whether it's recognized and is turning off the other co-provisions with respect to gain or loss recognition and sourcing treatment, it gives Treasury the space to solve [00:06:47] Speaker 04: The issue to prescribe the rule and say what the rule will be and I would like to turn to the to the regulation of possible before you do that, I think this is what I understood or twist on what judge Carson asked if if the the OFL account was zero and This transaction occurred how would the two point eight? [00:07:13] Speaker 04: 8 billion capital gain be characterized? [00:07:16] Speaker 04: Under your theory of the case? [00:07:17] Speaker 02: It would be U.S. [00:07:18] Speaker 02: source, Your Honor, under Section 865, but I think the point here is there would be double taxation then in that circumstance on LGI's investment in JCOM. [00:07:28] Speaker 02: The IRS agrees here that LGI is responsible for this more than $240 million in taxes being paid to the Japanese government. [00:07:35] Speaker 02: What we're really talking about is not a windfall or something of that nature. [00:07:38] Speaker 02: We're not increasing the foreign tax credits. [00:07:41] Speaker 02: We're just trying to get the limit, the foreign tax credit limit to the right place so that when you multiply it by the U.S. [00:07:46] Speaker 02: tax rate, the foreign tax credit scheme can actually give LGI credit for taxes that it has paid. [00:07:53] Speaker 02: There's agreement on that point. [00:07:55] Speaker 02: And so what the gap-filling authority, the 7805-904-F3A, allow Treasury to do is to address issues like this. [00:08:02] Speaker 03: I guess I don't understand what you're trying to say. [00:08:05] Speaker 03: So under Judge Timkovich's hypothetical, you're saying that it would be US source income. [00:08:12] Speaker 03: And so going from there, the position has to be because there is some language in here characterizing [00:08:22] Speaker 03: what everybody agrees would be US source income into foreign source income because there's an OFL account balance. [00:08:32] Speaker 03: Then we have, you want to say that everything is then foreign source. [00:08:39] Speaker 03: So you get to a credit for the 241 million. [00:08:45] Speaker 02: Your honor, it's that the Treasury regulations provide that outcome. [00:08:49] Speaker 02: The plain text of the Treasury regulations. [00:08:51] Speaker 03: And so I guess that gives me another question. [00:08:55] Speaker 03: We've had a change in Treasury regulations in sort of the relevant time period, right? [00:09:01] Speaker 03: That's part of your position. [00:09:02] Speaker 02: It happened after the 2010 tax or happened in 2012. [00:09:05] Speaker 03: And so in your position, so under the 2012 reg, your position would not carry the day. [00:09:13] Speaker 03: That's right, Your Honor. [00:09:14] Speaker 03: But prior to that, when it didn't say anything about it, you say it would. [00:09:19] Speaker 02: Well, Your Honor, I disagree that the regulations didn't say anything about it. [00:09:22] Speaker 02: In fact, I think what the regulations make clear, and I'd like to have an opportunity to walk the court through them, is that what they're doing is they're borrowing the background tax provisions that do not apply of their own force because of the notwithstanding clause and saying, we're going to use those for gain recognition. [00:09:37] Speaker 02: So 1001, Section 1001 in particular of the tax code, is just a general gain recognition rule that when a transaction or disposition occurs, gain is recognized at that moment. [00:09:47] Speaker 02: There are certain transactions that turn off that principle. [00:09:50] Speaker 02: Section 351, 361 exchanges, and that's why you have certain so-called non-recognition transactions, and the rule also operates on those. [00:09:58] Speaker 02: But what the regulation does in D1 is that it says that gain shall be recognized on the transaction, and such gain shall be treated as foreign source. [00:10:08] Speaker 02: So the policy the Treasury adopted in the rules was that it took the gain recognition, and it paid it exactly to foreign source treatment. [00:10:15] Speaker 03: Do you have some authorities that applied the Treasury regulation that was in place in 2010 in the manner that you're talking about? [00:10:25] Speaker 03: Was that ever disputed during that time period? [00:10:29] Speaker 03: Did the tax court or any other court ever rule on that? [00:10:32] Speaker 02: The tax court, other than in this case, the tax court hasn't ruled on it to our knowledge. [00:10:36] Speaker 02: But of course, many negotiations happen between the IRS and taxpayers as happened here that don't become public knowledge. [00:10:41] Speaker 02: We don't have that kind of information. [00:10:43] Speaker 02: We have the field service advice memo that talks about some of how these principles work as well. [00:10:49] Speaker 05: Well, and you rely on that. [00:10:50] Speaker 05: That's the field service guidance from 2000. [00:10:53] Speaker 01: That's right. [00:10:54] Speaker 05: And that's what you rely on for the argument that the gain from the stock sale is a proxy. [00:11:02] Speaker 05: for future earnings. [00:11:04] Speaker 02: That's right, Your Honor. [00:11:05] Speaker 05: Doesn't that guidance also say pretty clearly that the deeming and recharacterization provision applies only to the lesser of the gain or the overall foreign loss? [00:11:20] Speaker 02: I don't think it does, Your Honor. [00:11:21] Speaker 05: I think it's talking about... I think it does. [00:11:24] Speaker 02: I'm not sure which particular provision you're looking at, Judge McHugh, but I don't think it specifically addresses the question here. [00:11:31] Speaker 05: It does talk about... It's at page six. [00:11:34] Speaker 05: It's the IRS National Office Field Service Advice of section 904F3. [00:11:40] Speaker 05: And it's memorandum number 200041004 at six, October 13, 2000. [00:11:53] Speaker 02: I think what Treasury is explaining that regulation D1 does here is that it says whether any gain is otherwise recognized on the disposition and without regard also to the source of any gain that is otherwise recognized on the disposition or the manner in which any gain is otherwise recognized. [00:12:14] Speaker 02: The point being that D1, which I just discussed with Judge Carson, which pegs the foreign source treatment to the gain recognition, applies in all circumstances. [00:12:24] Speaker 02: And then other provisions in the regulations in D3 and D7, example one in particular, make clear that the gain recognition rules in the background code provisions are the provisions that apply to give you the gain recognition rule. [00:12:37] Speaker 05: Well, in the statute in subsection F1, it's pretty clear that it's talking about the lesser up, correct? [00:12:49] Speaker 02: When it's talking about recapture, Your Honor. [00:12:51] Speaker 05: It's talking about recapture of your overall foreign losses, right? [00:12:57] Speaker 01: That's right. [00:12:58] Speaker 05: And it's your position that the regulation that's interpreting and applying this statute [00:13:06] Speaker 05: somehow broadens that to treat all of the gain from a stock sale as being able to be treated the same way, the lesser of would be in the statute. [00:13:21] Speaker 02: Well, Your Honor, I think 904F3A is doing two things. [00:13:23] Speaker 02: It's giving you a recapture principle, but it's also addressing the foreign tax credit regime more generally and how to avoid double taxation. [00:13:29] Speaker 02: It's providing a rule that applies to every single disposition, and then it's saying, here's the rule that's going to apply up to the recapture amount, but not saying what happens after that. [00:13:38] Speaker 02: And we think because of the not [00:13:39] Speaker 02: Excuse me because of the notwithstanding clause and the broad definition of all the dispositions that it covers standing the regulation can say notwithstanding So sorry you're on I took you to be asking about 904 f of the tax code I was I was pointing out that in the tax code is brought the scope of 904 f3a is broader than just 904 f1 if I could just reserve one minute and just ask the same question differently the term such gain in your argument means all gain and [00:14:08] Speaker 02: For the purposes of the recapture. [00:14:11] Speaker 02: It does, Your Honor, but the reason it does is because the Treasury regulations themselves, and I point in particular to D3 and D7, example one, are using the other co-provisions that otherwise wouldn't apply to recognize the gain that those provisions would recognize. [00:14:25] Speaker 02: And in this case, as we discussed, all the gain gets recognized. [00:14:28] Speaker 02: That's all the gain that comes in is the gain that's recognized. [00:14:31] Speaker 02: And then such gain, that is all the gain that is recognized, gets treated as foreign source income. [00:14:36] Speaker 02: Thank you. [00:14:37] Speaker 02: I'll give you some time. [00:14:47] Speaker 00: Good morning may it please the court judith hagley from the department of justice representing the commissioner Under section 865 a u.s. [00:14:56] Speaker 00: Resident that sells foreign stock must must Statue says shall treat the gain is us source the three billion in gain is realized three billion in [00:15:06] Speaker 00: is U.S. [00:15:07] Speaker 00: source. [00:15:08] Speaker 00: If that taxpayer had an OFL balance of $1, then $1 of the $3 billion is treated as foreign source under Section 904-3's recapture. [00:15:18] Speaker 00: But the rest of the gain remains unaffected, and that result flows from the text, context, and purpose of Section 904-F3A, which makes clear as the tax court correctly determined [00:15:30] Speaker 00: that applies only to the amount needed to recapture the outstanding OFL balance. [00:15:36] Speaker 00: And Liberty Globals claim that that $1 of an OFL, outstanding OFL, could resource that $3 billion in U.S. [00:15:46] Speaker 00: source gain is foreign source and only conflicts with the statute and its context and purpose. [00:15:52] Speaker 00: But it makes no sense. [00:15:54] Speaker 00: It makes no sense that a taxpayer [00:15:56] Speaker 00: with no FL account and a taxpayer with an OFL of $1 would have such a dramatic difference with the OFL account holder getting the preferential tax roll. [00:16:06] Speaker 05: Well, I agree it makes no sense. [00:16:08] Speaker 05: I think the argument is that we put our blinders on and look at the plain language of the regulation and such gain means all gain. [00:16:19] Speaker 05: How do you respond to that? [00:16:20] Speaker 00: Well, the response to that is that Liberty Global [00:16:22] Speaker 00: Well, two responses. [00:16:23] Speaker 00: The first one, direct response, is that they misread the regulations, focusing on snippets in isolation, rewriting the regulation, and reading the divorce of context. [00:16:33] Speaker 00: They look at regulation-2D1, which provides a general overview of the operative rules that follow later in the regulation. [00:16:41] Speaker 00: But it does not address all gain. [00:16:43] Speaker 00: It doesn't even refer to the word all, purport to permanently resource [00:16:49] Speaker 00: U.S. [00:16:50] Speaker 00: source gain as foreign source and make it completely taxable. [00:16:53] Speaker 00: Section-D1 doesn't specify the amount recognized and refers to income to which Section 2A of the regulation is applicable. [00:17:05] Speaker 00: And Section 2A applies only until the OFL account is recaptured. [00:17:10] Speaker 00: So the regulation tracks the statute in section 2A, and 2A is incorporated by reference in dash 2D1. [00:17:18] Speaker 00: This point was emphasized by the tax court in its opinion. [00:17:21] Speaker 00: At addendum page 20, we repeated the point in our brief on page 58, Liberty Global ignores it. [00:17:28] Speaker 00: But Liberty Global's reliance on the regulations is misplaced in the first instance because it claims that there is some gap for the Treasury regulations to fill. [00:17:37] Speaker 00: And there is no gap with regard to gain exceeding the OFL account, just a limit in the statute's scope. [00:17:44] Speaker 00: Section 904 of 3 is limited to the lesser of the OFL account or the built-in gain. [00:17:50] Speaker 00: There is no gap for the regs to fill. [00:17:52] Speaker 04: Doesn't your subsequent regulations suggest that you thought there was a gap? [00:17:56] Speaker 04: I'm sorry? [00:17:57] Speaker 04: The regulatory history, doesn't that suggest that the service thought there was a gap here? [00:18:03] Speaker 00: No, the regulatory history in this case [00:18:07] Speaker 00: If you look at the preamble to the 1987 regs and then the 2007 regs, it's all about just recapturing an outstanding OFL account. [00:18:15] Speaker 00: There's no reference to gain in excess, no thought that they were filling some gap. [00:18:20] Speaker 00: And there is no gap with regard to the excess because there are other statutory provisions that apply to gain in excess of an OFL account. [00:18:28] Speaker 00: Section 865 with regard to sourcing, Section 1001 with regard to gain recognition, [00:18:34] Speaker 00: in this case because we're doing CFC stock section 1248 with regard to dividend treatment. [00:18:40] Speaker 03: Why was there a regulation change then if there wasn't some kind of dispute over that? [00:18:46] Speaker 03: Do you know, I mean historically, were people taking this position? [00:18:50] Speaker 03: in 2012 at the time the new Treasury Reg came out? [00:18:55] Speaker 00: Well, the regulation in 2012 clarified the earlier statute. [00:18:59] Speaker 00: I understand that. [00:19:00] Speaker 00: Hold on. [00:19:01] Speaker 03: Nobody is answering questions today. [00:19:03] Speaker 03: Everybody's answering what they want the question to be. [00:19:06] Speaker 03: The question is, was there a position like this being taken at the time? [00:19:12] Speaker 00: Are you aware of that? [00:19:13] Speaker 00: You may not know. [00:19:14] Speaker 00: According to the preamble, a question had been raised about what do you do with regard to U.S. [00:19:20] Speaker 00: gain in excess of an OFL account. [00:19:23] Speaker 00: As far as I know, no taxpayer had actually taken that position on a tax return or had, you know, gone into an administrative proceeding because, you know, the statute is quite clear and what happened in 2012 is the reg became as clear as the statute. [00:19:40] Speaker 00: But in addition, shortly after the 1987 regulation was promulgated, Treasury issued the memorandum that Liberty Global relies on, that the 2000 field source advice memorandum, which makes two points, both that support the tax force reading of the regulation, in this case number one, the regs simply don't address the situation where it's U.S. [00:20:01] Speaker 00: source gain that's being recognized. [00:20:04] Speaker 00: They address other situations, and that in that situation where U.S. [00:20:08] Speaker 00: source gain is recognized, [00:20:09] Speaker 00: The gain is resourced as foreign source only to the extent of the OFL account balance. [00:20:16] Speaker 05: And you said the statute is clear on that. [00:20:19] Speaker 00: The statute is clear on that. [00:20:20] Speaker 05: What do you point to in the statute? [00:20:23] Speaker 00: First, beginning with the plain language of the statute, it provides that its deeming rule applies only to the lesser of the outstanding OFL account balance or the built-in gain in the asset. [00:20:36] Speaker 00: The statute isn't concerned with and doesn't address [00:20:39] Speaker 00: gain in excess of the OFL account balance. [00:20:42] Speaker 00: It's a very limited deeming rule. [00:20:46] Speaker 05: Could the regulation expand on that? [00:20:49] Speaker 00: If the regulation were to try to expand on that, it would conflict with the operative sourcing rule at section 865 and it would be invalid. [00:20:58] Speaker 00: I'm not here to disavow our regulation. [00:21:00] Speaker 00: I'm here to disavow Liberty Global's strained reading of the regulation. [00:21:06] Speaker 00: They rely on the notwithstanding clause, but the notwithstanding clause in section 904 of 3 does not turn off the other provisions. [00:21:14] Speaker 00: It doesn't displace other provisions if those two provisions could be read harmoniously, as is the case here. [00:21:20] Speaker 00: It just determines which provision prevails in the event of a conflict. [00:21:26] Speaker 00: And there's no conflict here. [00:21:28] Speaker 05: If they were right about that notwithstanding clause, wouldn't that also invalidate 1248 and they wouldn't be entitled to a dividend? [00:21:38] Speaker 00: That's correct. [00:21:39] Speaker 00: That's correct, Your Honor. [00:21:41] Speaker 00: Their reliance on the very dividend that gives them the foreign tax credit, which by the way, they got the deemed foreign tax credit, they just can't use it in the year without foreign source income, depends on reading the notwithstanding clause the way that we do. [00:21:54] Speaker 05: Well, would it also read out 865 if it was notwithstanding anything else? [00:22:01] Speaker 05: If it was notwithstanding, I mean, I'm trying to figure out what the limiting principle is to reading the notwithstanding clause the way it's been argued. [00:22:13] Speaker 00: The notwithstanding clause applies only to the extent of a conflict. [00:22:18] Speaker 00: And there is no conflict with any other provision, whether it's 865, 1248, [00:22:23] Speaker 00: 1001 with regard to gain in excess of the OFL account. [00:22:29] Speaker 00: Because the 904 of three is only concerned with amounts that are equal to or lesser than the OFL account. [00:22:40] Speaker 00: So we request that this court affirm the well-reasoned decision of the tax court. [00:22:45] Speaker 00: Unless the court has any further questions, the government rests on its brief. [00:22:49] Speaker 04: Thank you, counsel. [00:22:50] Speaker 04: And could you give counsel two minutes? [00:23:00] Speaker 02: Thank you, your honor. [00:23:01] Speaker 02: Just to return to the question of what parts of the regulation make clear that we're talking about all the gain, it's in D1 that says, in Romanet 1, gain will be recognized on the disposition of such property, and two, such gain will be treated as foreign source income. [00:23:15] Speaker 02: And if you look at the other provisions, D3, D4, and D7, [00:23:20] Speaker 02: they make clear that what the regulations are doing is looking to these other tax code provisions that 904 F3A, and it's not withstanding clause, have turned off. [00:23:29] Speaker 02: So for example, the lead in language in D3, dispositions where gain is recognized irrespective of section 904 F3, [00:23:36] Speaker 02: making clear that 904 F3 applies the rule, but they're looking in the counterfactual if it didn't. [00:23:41] Speaker 02: Or in D4, the lead-in dispositions in which gain would not otherwise be recognized. [00:23:47] Speaker 02: And then in example 1 to D7, you have discussion about how a taxpayer recognizes $1,000 of gain on a sale under Section 1001, which is one of these background provisions, but has only an overall foreign loss account balance of $600. [00:24:02] Speaker 02: And in all these cases you're taking that gain based on the recognition background principles and under the plain text of D1 treating it as such gain. [00:24:11] Speaker 02: I would also say that to the response that these rules don't make much sense, there are plenty of what we might call cliff rules in the tax code. [00:24:20] Speaker 02: you change by 0.01% of a percentage point and all of a sudden a different rule applies. [00:24:25] Speaker 02: This is, for example, the rules that apply in 865F for sourcing treatment outside the 904F3 context if you have dispositions of CFC stock. [00:24:33] Speaker 02: And if you have 80% of the stock of that CFC, it's treated as foreign source. [00:24:38] Speaker 02: 79.99% is treated as U.S. [00:24:40] Speaker 02: source. [00:24:41] Speaker 02: So these are necessary line drawing decisions that Congress makes. [00:24:44] Speaker 02: And Treasury did the exact same thing here when it made the rule that was ratified in 2004 when Congress came in and said we're gonna apply all these rules to CFC stock sales. [00:24:53] Speaker 02: And that's the rule that applies until 2012 when Treasury decided to change the rule. [00:24:58] Speaker 02: That's the court reverse. [00:24:59] Speaker 02: Thank you, Your Honor. [00:25:00] Speaker 04: Thank you, Council. [00:25:00] Speaker 04: We appreciate your arguments. [00:25:02] Speaker 04: Council excused and the case will be submitted.