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Reserve Mechanical, Part II: Motion for Reconsideration Denied

Man holding red X
September 21, 2018

By Saren Goldner and P. Bruce Wright
Eversheds Sutherland (US) LLP

Editor's note: P. Bruce Wright and Saren Goldner are partners in the tax department of Eversheds Sutherland (US) LLP situated in the New York office. Below they extract the salient features of the Tax Court's denial of the taxpayer's motion for reconsideration in the Reserve Mechanical case.

The taxpayer's motion for reconsideration was denied by the US Tax Court (without comment) in the Reserve Mechanical case. In order to seek any further relief, the taxpayer will need to appeal the case.

In the motion, the taxpayer argued that the court's conclusion in the case (Reserve Mech. Corp. v. Commissioner, T.C. Memo 2018-86) that the taxpayer had income subject to US withholding tax was contrary to the court's conclusion that the taxpayer's transactions were not insurance.

In the case, the court appeared to base its withholding tax conclusion on the fact that the taxpayer had filed Form 990, which is the tax return that is filed by a small insurance company subject to tax under Internal Revenue Code section 501(c)(15), and had reported income on the form as "program services income." The notice of deficiency issued by the Internal Revenue Service contended that the taxpayer was subject to the US withholding tax on this income on the basis that it was US source fixed or determinable annual or periodical (FDAP) income. The court concluded that because the taxpayer did not provide evidence to negate its characterization as US source FDAP, this income was subject to US withholding tax.

In denying the motion for reconsideration, it appears that the court may have concluded that the taxpayer had ample opportunity to present its arguments in the case but did not, and, accordingly, the court was not obliged to reconsider the case.

See the complete documents linked below.

Reserve Mechanical Motion for Reconsideration

Reserve Mechanical Motion for Reconsideration Denied

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