Sobel v. Commissioner of Revenue Services

         Argued April 30, 2019

          The Superior Court, Judicial District of New Britain, Carl J. Schuman, J.

         Appeal dismissed.

         Philip Miller, assistant attorney general, with whom were Louis P. Bucari, Jr., Hartford, and, on the brief, George Jepsen, former attorney general, for the appellant (defendant).

         Jonathan A. Sobel, self-represented, with whom was Jonathan M. Shapiro, for the appellee (plaintiff).

         Robinson, C. J., and Palmer, Mullins, Kahn, Ecker, Vertefeuille and DiPentima, Js.

          OPINION

         VERTEFEUILLE, J.

Page 582

          [333 Conn. 714] This appeal arises from a dispute as to whether the income of a general partner who lives in Connecticut and manages intangible property owned by limited partnerships operating in New York constitutes income derived from trading intangible property for the general partner’s own account, in which case it would be taxable in this state or, instead, constitutes income from a trade or business, in which case it would be taxable in New York. The plaintiff, Jonathan A. Sobel, who resided in Connecticut and worked in New York, was a member of a limited liability company that was the managing partner of two limited partnerships that operated as hedge funds. The plaintiff reported his income derived from the two partnerships on his Connecticut tax returns in 1997 and 1998, and sought a [333 Conn. 715] credit pursuant to General Statutes § 12-704 (a) (1)^[1] for income taxes that he had paid on the income as a nonresident in New York. The defendant, the Commissioner of Revenue Services (commissioner), disallowed the credit after conducting an audit. Specifically, the commissioner concluded that the plaintiff was not entitled to a credit because (1) the plaintiff’s income must be treated as if it derived from trading intangible property for his own account^[2] because the limited partnerships were trading their own intangible property and the character of the partnerships’ income passed through to the income of their general partner; see General Statutes § § 12-712 (c) (1)^[3] and 12-715 (b); ^[4] (2) Connecticut does not tax the income of nonresidents from trading intangible property for their own accounts; see General Statutes § 12-711 (f); ^[5] and (3) residents

Page 583

of this state are [333 Conn. 716] not entitled to a credit for income taxes paid in other states unless Connecticut would tax nonresident income of the same character. See General Statutes § 12-704 (a) (1). The plaintiff then filed a protest against the proposed income tax assessment. The commissioner denied the protest in relevant part. The plaintiff appealed from that denial to the trial court, which, after conducting a trial de novo, concluded on two independent grounds that the plaintiff was not trading intangible property for his own account but was engaged in the trade or business of trading intangible property owned by the limited partnerships. Accordingly, the court concluded that the plaintiff was entitled to a credit for the income tax that he paid in New York. The commissioner then filed this appeal,^[6] in which he challenged only one of the two independent bases for the trial court’s decision. After oral argument, this court, sua sponte, ordered the parties to submit supplemental briefs on the issue of whether the appeal was moot as a consequence of the commissioner’s failure to challenge both grounds for the trial court’s decision. See, e.g., State v. Lester, 324 Conn. 519, 526-27, 153 A.3d 647 (2017) ("[w]here an appellant fails to challenge all bases for a trial court’s adverse ruling on his claim, even if this court were to agree with the appellant on the issues that he does raise, we still would not be able to provide [333 Conn. 717] [him] any relief in light of the binding adverse finding[s] [not raised] with respect to those claims," and, therefore, appeal is moot [internal quotation marks omitted] ). The commissioner contended in his supplemental brief that the appeal is not moot because there was only one basis for the trial court’s ruling that the plaintiff was engaged in a trade or business, which he had challenged on appeal. The plaintiff contended in his supplemental brief that the appeal is moot. We agree with the plaintiff that the appeal is moot because the commissioner failed to challenge an independent basis for the trial court’s ruling and that the appeal must therefore be dismissed.

         The record reveals the following relevant facts, which were found by the trial court or are undisputed, and procedural history. The plaintiff and his brother, Peter Sobel, were the sole members of a limited partnership, Livingston Asset Management, LLC (LAM, LLC), which acted as the general partner of two limited partnerships, Livingston Asset Management, LP (LAM, LP), and Livingston International Fund, LP (LIF, LP). LAM, LP, and LIF, LP, were hedge funds, and the function of LAM, LLC, was to manage their assets. The limited partnerships made profits primarily from the trading of United States treasury bills and stock index options that were owned by the partnerships. LAM, LLC, received approximately 30 percent of the partnerships’ profits, one half of which, in turn, was allocated to the plaintiff.

Page 584

          In 1997 and 1998, the plaintiff, who resided in Connecticut and worked in New York,^[7] reported the income that he received from LAM, LLC, as capital gains on his federal and New York income tax returns, and he paid taxes on the income in those jurisdictions. The plaintiff [333 Conn. 718] also reported the income on his Connecticut tax return, and he sought a credit pursuant to § 12-704 (a) (1) for the income taxes that he had paid as a nonresident in New York. The commissioner concluded that, because the limited partnerships’ profits were derived from trading intangible property for their own accounts, that income characterization must be passed through to the plaintiff. See General Statutes § 12-712 (c) (1) (character of partner’s income is determined in accordance with § 12-715); General Statutes § 12-715 (b) ("[e]ach item of partnership ... income ... shall have the same character for a partner ... as for federal income tax purposes"); see also 26 U.S.C. § 702 (b) (2012) (partner’s income from distributive share has same character as if income were realized directly from source from which partnership realized income). Because Connecticut does not tax the income of nonresidents derived from trading intangible property for their own accounts; see General Statutes § 12-711 (f); the commissioner concluded that the plaintiff was not entitled to a credit for the ...