Jonathan A. 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 partners 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 plaintiffs
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 courts 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 commissioners failure to
challenge both grounds for the trial courts 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 courts 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 courts 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
courts 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 partners 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)
(partners 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 ...