Tax Court (Judge Lauber) rejects Coca-Cola’s Untimely Motion for Reconsideration (12/3/21)

I wrote earlier on the Coca-Cola case, Coca-Cola Co. & Subs, v. Commissioner, 155 T.C. 145 (2020), here.  [Note that the link is to Tax Notes and sometimes, for some reason, the Tax Notes link fails after some short period of time; I thus link the text from the Order’s pdf here.] See Tax Court (Judge Lauber) Issues Significant Transfer Pricing Decision in Coca-Cola; Burden of Proof Issues (11/19/20; 11/25/20), here; and More Coca-Cola - On Transfer Pricing and Blocked Income Regulation (11/23/20), here.  

The Tax Court (Judge Lauber) recently denied two related Coca-Cola motions:  “at docket entry #747, a Motion for Leave to File Out of Time a Motion for Reconsideration of Findings or Opinion Pursuant to Tax Court Rule 161 (Motion for Leave) and concurrently lodged, at docket entry #748, a Motion for Reconsideration.”

The problem is that the motions were filed untimely.  Judge Lauber notes (p. 1):

            Under Rule 161,1 a party shall file a motion for reconsideration of an opinion or findings of fact within 30 days after the opinion is served “unless the Court shall otherwise permit.” Petitioner filed its Motion for Leave 196 days after our Opinion was served. Whether to grant a party’s motion for leave to file a motion for reconsideration in such circumstances is within the Court’s discretion. Louisville & Nashville R.R. Co. v. Commissioner, 641 F.2d 435, 443-444 (6th Cir. 1981), aff’g on this issue 66 T.C. 962 (1976); Thompson v. Commissioner, T.C. Memo. 1989-303, 57 T.C.M. (CCH) 783, 784.

The Order is a short 8 pages.  Suffice it to say that Judge Lauber was not impressed with Coca-Cola's arguments (including bringing in the undoubtedly very expensive big gun (real or imagined), Michael Luttig (Wikipedia here), to belatedly enter the fray after the battle had been lost in the Tax Court).

I am now trying to get the motions, responses and replies. The problem is that filed pleadings are not available generally from the Tax Court DAWSON (like PACER, but not as good as PACER for a host of reasons I won’t get into now).  Even worse, under the current implementation of DAWSON, so long as the docket for the case has any document filed under seal, the entire docket list is unavailable.  Here is what DAWSON returns when you request the docket:

 

In this case with 750 docket entries, simply because some small subset of the documents listed on the docket entries is under seal, then the entire list of docket entries is unavailable.  That makes no sense to me.  PACER has long since been able to provide a complete list of  docket entries even when some particular entries cannot be accessed because under seal, so that documents  not under seal can be identified and obtained online simply by paying the PACER fee.

I won’t go further into the Tax Court’s disservice to the public in its current implementation of DAWSON.  I do say that, in a number of respects, the Tax Court version prior to DAWSON was not as good as PACER, but it was far better than the DAWSON “upgrade.” Enough on that rant for now.  

When I and if I get the pleadings behind this Order I will likely have more to say.

Civil Liability for Conduct that is Acquitted in Criminal Case (11/20/21)

 The Kyle Rittenhouse acquittal on all counts is in the news.  Acquittal or conviction (on some or all counts) was sure to become a political charged phenomenon.  I don’t deal with the political issues here. I respond to a question I was asked yesterday as to whether Rittenhouse’s acquittal absolves him of potential civil liability related to the same conduct for which he was acquitted and specifically address the criminal tax analog of the phenomenon.

For a discussion of the nontax answer, I point readers to this discussion:  Euguene Volokh, Could Kyle Rittenhouse Be Sued for Negligence? (The Volokh Conspiracy 11/20/21), here.  Professor Volokh answers the question succinctly at the beginning of the blog post:

A criminal acquittal doesn't preclude a civil lawsuit out of the same claims. First, the acquittal resolves only that guilt couldn't be proved beyond a reasonable doubt (requiring, say, a >90% confidence level); the standard for civil liability is preponderance of the evidence (which requires just >50%, or perhaps ≥50%, if the injury is easily proved and the burden is then shifted to the defendant to prove self-defense).

A similar phenomenon plays out in the criminal tax area.  A criminal tax evasion acquittal does not prevent the imposition of the civil fraud penalty in § 6663.  And, for the same reason:  the burden of proof for the civil fraud penalty is less than for the criminal penalty. so that acquittal is not issue or claim preclusive for the civil fraud penalty.  Civil liability for the civil fraud penalty requires that the Government prove civil fraud liability by clear and convincing evidence, a burden that as articulated is less burdensome (so to speak) for the Government than the beyond a reasonable doubt standard.

 Here is the key paragraph from my Federal Tax Procedure Book (2021 Practitioner Edition), p. 333 here (footnotes omitted from the quote but may be viewed at the link here):

If the taxpayer is acquitted of the tax evasion charge, however, the IRS may still assert the civil fraud penalty (the acquittal is not preclusive that there was no civil fraud).  Why?  A finding of not guilty is not necessarily a finding of innocence; it is only a finding that the government failed to prove guilt beyond a reasonable doubt.  In an ensuing civil tax case, the government must establish fraud only by clear and convincing evidence, a substantially lesser burden than the beyond a reasonable doubt requirement for criminal conviction.  Accordingly, the IRS may and usually does assert the civil fraud penalty when the taxpayer has been acquitted.

Most civil liability exposures relate to liabilities such as negligence discussed above that require proof of liability by a preponderance of the evidence.  Liability for the civil fraud penalty requires proof by clear and convincing evidence, a standard that falls somewhere between beyond a reasonable doubt (the criminal conviction standard) and preponderance of the evidence.  For discussion of the difficulties in articulating these standards, particularly in jury instructions useful to a jury, see discussion in my book pp. 331-332, here, particularly at n. 1414 and pp.601-602.

This post is cross posted on the Federal Tax Crimes Blog here.

Help Appreciated on Chevron Discussion (11/19/21)

I am trying to finish up a major revision to an article I wrote involving the administrative law and Administrative Procedure Act (“APA”) distinction between legislative and interpretive regulations.  A significant part of the article deals with Chevron deference. 

I am posting one part of the Chevron deference discussion in the article where I break down various interpretive categories with the goal of showing Chevron deference is far less outcome determinative that all the commotion about Chevron would suggest.

That part of the discussion in pdf format is here.  I would appreciate any feedback (particularly critical feedback) that might be offered.  Please offer your comments directly to me at jack@tjtaxlaw.com.  Alternatively, if you think it might be useful for reader comment, post as a comment here.

Issue with Viewing and Downloading Older Linked Document (11/14/21)

I am getting periodic email requests for permission to view and download documents linked in earlier blog entries that were posted on my Google Docs account.  When I originally posted those items, viewing and downloading did not require permission.  For some reason, Google made changes that made some or all of those earlier linked documents require permission to view and download.  Those getting the message that permission is required have the opportunity to email a request for permission.  Please email me and I will give permission.  

Thank you for your interest in this Blog.

Tax Court Judge Gustafson Enters Order Permitting IRS to Concede Without Merits Decision (11/6/21)

In an order in Puglisi v. Commissioner (T.C. Dkt Nos. 4796-20, 4799-20, 4826-20, 13487-20, 13488-20, 13489-20 Order served 10/29/21), here, the Tax Court (Judge Gustafson) permitted the IRS to concede the deficiency adjustments related to the taxpayers' microcaptive insurance and thus move to decision in the case.  Readers know that the IRS believes – strongly believes—that many forms of microcaptive insurance are abusive.  Many microcaptive deficiency cases are pending, and, of course, the Supreme Court recently held in CIC Svcs., LLC v. IRS, 593 U.S. ___, 141 S.Ct. 1582 (2021) that the material advisor reporting requirement imposed by IRS Notice for abusive microcaptives could be subject to pre-enforcement review.  As to CIC, see Supreme Court Holds in CIC Services that IRS Micro-Captive Notice May Be Contested Pre-Enforcement (5/17/21; 5/18/21), here.

In the Puglisi Order, the IRS conceded all of the adjustments related to the microcaptive insurance. Typically, if the IRS concedes, the taxpayer may be more than willing to accept the concession and move on, perhaps trying to recover attorney fees and costs under §7430.  In this case, the taxpayers apparently are unable to recover under § 7430 "' because of the technical limitations of I.R.C. section 7430.'”  (Slip Op. 6.) Here, the taxpayers do not want to move on but want to litigate the merits of the issues the IRS conceded. What is going on that requires an order of 17 pages?

The taxpayer speculates, as recounted in the Order, that (Slip Op 8-9):

Respondent has now concluded that he wants to abandon the tax deficiencies asserted in his notices of deficiency, apparently because he recognizes that Petitioners' cases are not the litigation vehicles that he wants to use to present his theories to this Court. But while Respondent is willing to abandon the asserted deficiencies, he is not willing to concede the inaccuracy of his determinations underlying the adjustments * * *. [The motions for entry of decision make a] strategic attempt to “concede” the overall amounts at issue, in order to avoid an adverse ruling on the specific determinations in the notices of deficiency * * *.

Judge Gustafson addressed the IRS’s litigating strategy later (Slip Op. 16-17):

Court Holds that Erroneous Refund Suit Accrues on the Date the Taxpayer Receives the Check (11/5/21)

In United States v. Page, No. CV-20-08072-PCT-JAT, 2021 U.S. Dist. LEXIS 206339 (D. Ariz. Oct. 25, 2021), CL here, the court held that, based on controlling 9^th Circuit precedent, an erroneous refund suit accrues on the date the taxpayer receives  the refund check rather than later date (specifically when the taxpayer cashes the check).  That holding is consistent with the court’s prior holding that I discussed here:  When Does the Statute of Limitations Start on the Erroneous Refund Suit? (4/29/21), here.

I offered what I can in the earlier blog entry, so I point to that here.  I will just say that, if indeed 9^th Circuit precedent controlled the result, I think it the precedent is wrong, but only the 9^th Circuit can overrule the precedent.  See my thoughts in the earlier blog entry.

Good Tax Court Opinion on Interest Consequences of Distinction between Deposits and Payments (11/2/21)

In Hill v. Commissioner, T.C. Memo. 2021-121, GS here, Judge Lauber held that a portion of a remittance labeled the taxpayer as a deposit will be treated under the interest rule for deposits under § 6603 rather the interest rule than for overpayments.  Judge Lauber states nicely the issue and holed in the opening paragraphs (footnote omitted):

            Currently before the Court is petitioner’s motion to redetermine interest under section 7481(c) and Rule 261.  In 2012 petitioner remitted [*2] to the Internal Revenue Service (IRS or respondent) a check for $10,263,750, designating the remittance as a “deposit” to be applied toward his anticipated gift tax liability for 2011. In a stipulated decision entered July 19, 2019, we determined a gift tax deficiency of $6,790,000 for 2011 and no overpayment for any year. After our decision became final, the IRS sent petitioner a check for $3,473,750, the amount of his excess deposit, but without any interest.

            Respondent concedes that petitioner is allowed interest on the excess deposit, and he computes the interest due as $218,122, calculated using the Federal short-term rate. See sec. 6603(d)(4) (cross-referring to section 6621(b)). But respondent contends that we lack jurisdiction to redetermine interest under section 7481(c), which permits reopening a case for this purpose only where “the Tax Court finds under section 6512(b) that the taxpayer has made an overpayment.” In respondent’s view, petitioner made a deposit, not a payment of tax, and our decision did not determine any “overpayment.”

            Disavowing his repeated designations of the remittance as a “deposit,” petitioner contends that the $10,263,750 check constituted a “payment” of gift tax. And he insists that our decision in effect determined an “overpayment,” because it  [*3] included the parties’ below-the-line stipulation that petitioner had a “prepayment credit” of $10,263,750 that would be “applied to * * * [his] tax year 2011 gift tax liability.” From these premises petitioner concludes, not only that we have jurisdiction to redetermine interest, but also that he is due interest of $1,267,323, the sum calculated using the Federal short-term rate plus three percentage points, the interest rate  specified for “overpayments.” See sec. 6621(a)(1). Concluding that respondent has the better argument, we will deny petitioner’s motion.

I recommend the full opinion for its great discussion of the history of the deposit/payment distinction and the operation of § 6603 designed to somewhat mitigate the difference in interest for deposits and payments.

District Court Denies Government Request to Certify 6103 Issue on Republishing Public Information (11/2/21)

In United States v. Zak (Dkt. 1:18-cv-05774 Entry 330 Dated 10/22/21), Cl here and the CL Docket Entries are here, the Court denied the Government’s motion to certify appeal to the 11^th Circuit on an issue that has split the Appellate Courts.  One of the defendants, Clark, asserted a counterclaim against the United States for damages from violating § 6103’s prohibition on disclosure of return information.  See § 7431 (permitting damages)

The alleged disclosure was the republication of return information from the Government’s complaint.  In a motion to dismiss, the Government argued the information was publicly disclosed in the complaint and therefore its republication of already public information did not give rise to damages.  Clark argued that the Government could still be liable if the immediate source for the return information disclosed was the IRS’s files subject to § 6103 rather than from other public information.

In a July 6, 2021 order, the court held for Clark (Slip Op. 3):

In that Order, the Court emphasized that the Eleventh Circuit has never recognized the Ninth Circuit's “implicit exception” to § 6103's confidentiality requirement for “all tax return information that has become a matter of public record,” and that several other Circuits had expressly refused to do so. (Id. at 9, 13.) The Court was more persuaded by the narrower approach taken by the Fourth, Fifth, Seventh, and Tenth Circuits, under which liability under § 6103 depends on the immediate source of the disclosed information rather than its public or non-confidential status. (Id. at 11–12.) The Court also expressed doubts that the Seventh Circuit's rule permitting the subsequent republication of return information contained in a judicial opinion would similarly apply to the republication of return information contained in a complaint that was prepared by the Government's own lawyers. (Id. at 14–15.)

The Government then moved to certify the following issue to the 11^th Circuit (Slip op. 6):

Whether 26 U.S.C. § 6103 prohibits publication by the government of taxpayer information that has already been lawfully and publicly disclosed by the government in a judicial proceeding pertaining to tax administration?

In the Order discussed here dated 10/22/21, the District Court denied (Slip op. 6-11) the request to certify because the Government “failed to establish a genuine doubt as to the correct applicable legal standard here,” so the Government “failed to show the requisite substantial ground for difference of opinion to warrant an interlocutory appeal.”  The Court also held (Slip op. 11-13) that the immediate appeal would  not advance the litigation. 

Tax Court Dissects Complex Acquisition Transaction With Senior and Subordinated Debt Characterization in Issue (10/27/21)

In Tribune Media Co. v. Commissioner, T.C. Memo. 2021-122, here, issued yesterday, the Tax Court addressed a complex acquisition of the Chicago Cubs and held (in a 127 page opinion), that

• Certain debt (subordinated debt (called “sub debt”)) was equity rather than debt for tax purposes (slip op. 56-90.)  The result of holding the sub debt to be equity was that, under the partnership disguised sale rules, gain was recognized to the extent of the sub debt.  Specifically, and more precisely, since the parties agreed that the partnership disguised sale rules applied, the Court held that the treatment of the sub debt as equity meant that the exception for debt-financed distributions did not apply to that debt.  (This aspect of the transaction planning had been designed to qualify as debt-financed distributions.)  This holding turned upon the debt-equity distinction familiar to tax practitioners and even students of tax law.  The Court held (Slip op. 90) that “Although the sub debt had the superficial appearance of bona fide debt, it more closely resembles equity.”

• The senior debt in the transaction was bona fide recourse debt that could be allocated to support the debt-financed distribution exception to the disguised sale rules.  (Slip op. 91-119.)  With respect to the senior debt (slip op. pp. 118-119) the Court concluded (Slip op. 118-119, footnote omitted):

The Cubs transaction was a disguised sale in both form and substance. The economic reality of this transaction lies squarely within the intent of the disguised sale statute. The parties to the transaction formed a bona fide partnership that operates the Cubs franchise with assets contributed by Tribune. And the partnership in fact distributed cash to Tribune. This transaction also substantively fits into the debt-financed distribution exception for a disguised sale, receiving the distribution tax free up to the amount of the senior debt guaranteed by Tribune. CBH borrowed the senior debt, and Tribune guaranteed the senior debt. When such a transaction is explicitly provided for by Congress and followed by a taxpayer in both substance and form, we will not recharacterize it.The doctrine of substance over form is applied to prevent taxpayers from mislabeling transactions to achieve a desired tax consequence. Petitioners did not mislabel the transaction here; the economic substance of the Cubs transaction is a disguised sale with a debt-financed distribution, a structure contemplated by both the statute and the regulations.

Freeman Law International Tax Symposium on 11/18 and 11/19 (10/19/21)

The following international tax program may be of interest to FTPB readers:  Freeman Law International Tax Symposium on November 18 and 19 (link for information and registration here).  The Symposium has some great participants, some well-known to tax procedure and tax controversy enthusiasts, and covers topics such as international tax topics, including civil and criminal penalty enforcement, cryptocurrency enforcement trends, and global tax reform.