The Supreme Court on March 3 denied certiorari to three private equity funds of Sun Capital, after the First Circuit Court of Appeals ruled in July 2013 that one of those funds was engaged in a trade or business for purposes of the Employee Retirement Income Security Act (ERISA) multi-employer pension termination liability rules.
Those rules reference the tax law's interpretation of a trade or business. The decision garnered considerable media attention regarding how income taxes could be affected if a court reached a similar conclusion under the Internal Revenue Code to look at the involvement of a professional manager to turn what would otherwise be mere investing into a trade or business.
It is important to remember that the decision by the court related only to the application of ERISA and not the Internal Revenue Code. The court appeared to delink the determination under the Internal Revenue Code versus ERISA regarding whether a taxpayer is engaged in a trade or business and by affirmatively stating that it "reject[s] the proposition that, apart from the provisions covered by [Code Section] 414(c), interpretations of other provisions of the Internal Revenue Code are determinative of the issue of whether an entity is a 'trade or business' under [the ERISA provision in issue]."
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