*1
fеes,
split
long
company
as a fee
which raises
control over
numerous individu-
However,
questions just
alized
like
the statute re-
these.
split
alleged.
is
Nor does
any
questions
those and
related
are better
quire
plaintiff allege
that the
all of the
answered through discovery, because if we
parties
splitting
involved in the fee
have
complaint,
confine our review to the
in,
knowledge
participation
of their
or
successfully alleged
Weizeoricks have
in,
conspiracy
join
illegal arrange-
an
party
a third
to their real estate transac-
Christakos,
ment.
therefore their satisfies the stat- However,
utory appeal, requirement. pre- conceded that Weizeoricks AAMG KANTER, Estate of Burton de W. pared and delivered the lien release to the ceased, Kanter, executor, Joshua S. possible title It company. that AAMG’s Kanter, Petitioners-Appel and Naomi fee preparation was incurred for the $10.00 lants, delivery possi- of the release. It is also ble that charged AAMG for that service COMMISSIONER OF INTERNAL Statement,” “Payoff elsewhere REVENUE, Respondent- example as a “Fax Fee.” Moreover it is not Appellee. clear, entirely based on the settlement 01-4316, 01-4317, 01-4318, 01-4319, statement, Nos. the Weizeoricks them- 01-4320, 01-4321, 01-4322, 02-1220. paid entirety selves for the of the record- ing buyer fees. The of the house was also Appeals, United States Court of fees, charged recording according $71.00 Seventh Circuit. statement, charge the settlement Argued Sept. 2002. may have also included the release July Decided Every fee. closing unique real estate is a fees, payments series of and other mone-
tary transactions between at least one
lender, a buyer, closing a seller and a *5 York (argued),
Richard H. Pildes New School, City, University Law New York Petitioner-Appellant. for Op- I. (argued), Steven W. Parks Joan (ar- Gary R. Allen penheimer (argued), Dept, of (argued), Parks gued), Steven W. Section, Div., Appellate Tax Wash- Justice Comeau, inton, DC, Reve- J. Internal John IL, Service, Respondent- Chicago, nue Appellee. Kanter, FLAUM, Judge, Burton W. LLC Announcements: Chief
Before Control, (1994); KANNE, Damage Tax’n Judges. Circuit J. CUDAHY Banoff, Burton W. Kanter & Sheldon I. PER CURIAM. Planning Elderly, 70 J. Tax’n (1989); Kanter, AARP— Burton W. Burton Kanter and Naomi The Estate Accumulation, Asset Retention and Pro a decision of the Tax Court. appeal Kanter Transmission, Prelude to 69 Tax tection: appeal deals with six out This consolidated (1991); Kanter, Burton es W. Cash decided separate issues forty-one “B” Pur Reorganization: Cash respect alleged with deficien- Effect of wife, Reorganization, 19 Kanter, “Creeping” chases on his of the late Burton W. cies (1964). entities, Tax L. Rev. In the 1960s and Kanter, and related as well Naomi 1970s, helped Hollywood finance Kanter post-trial issues. We as two additional through arrangements, movies tax shelter part. reverse in part affirm in production and was involved films, major Hollywood including many INTRODUCTION Flew Nest.” The “One Over Cuckoo’s Kanter,1 The late Burton W. and various extraordinary attention to Kanter is IRS’s him, have family entities associated that from 1979 to given understandable by the Internal Revenue been audited Ser Kanter, highly successful tax at virtually, literally, every year if not vice torney, who hobnobbed with Pritzkers and Nixon was President. Kan- since Richard participated Hollywood producers and who accomplished ter a well-known and tax extremely large countless and lucrative lawyer. graduated He from the and estate ventures, reported negative business ad Chicago Law He University of School. *6 justed gross year income each on his fed practice a law very begin had successful paid tax and eral return no federal income ning founding in what would eventu (Tr. 5290-91.) taxes. at Neal, ally law firm of become the Gerber Eisenberg. Among appeal & Kanter’s clients was This consolidated involves Kan- family Hyatt Corporation petitions Pritzker ter’s for review deficiencies accomplished during years fame. Kanter was also an assessed from 1978 to businessman, exposure” portion which is itself a “extensive “good many public private original .... consolidated case tried [and] (Tr. 5278.)2 companies.” in trial that al- generated Kanter wrote Court 1994—-a extensively subjects transcript, than (origi pages on tax-related most 5500 more “Shop Talk” nating pages column the Jour of briefs and thousands of ex- Taxation), nal of an expert consuming on the hibits hundreds of thousands of See, later, subject pages, eventually, years of trusts and five planning. estate and was e.g., Lega page opinion covering Burton W. Kanter & Michael distilled into a 606 J. maro, forty-one separate A thorough Grantor Trust: Handmaiden to issues. de- scription background Taxpayer, IRS Servant to the the entire factual (1997); can in the Tax Sheldon I. Banoff & to this case be found Taxes individually 1. Burton W. Kanter died on October W. Kanter and to the late Burton Kanter, subsequently as "Kanter.” 2001. His estate was substitut- principal party litigation. ed as the to this contortions, order to avoid transcript semantic 2. "Tr.” refers to the for the Tax opinion interchangeably "App.” appendix refers to the current Court trial. will refer to the collectively, Petitioners the Estate of Burton to Petitioners' brief. capital reported the Bea gains Research As opinion. Investment Court’s (CCH) (BRT) Comm’r, sociates, properly were 78 T.C.M. Ritch Trusts taxable Ltd. v. (1999) provi- trial grantor IRA The to Kanter under the trust ]. [hereinafter (IRC). by Special Judge Trial Cou- Internal Revenue was conducted sions of the Code villion, the Tax Court had as to whom Washington Painting: Kanter 3. case under U.S.C. signed challenges the Tax Court’s refusal to allow 7443A(b)(4). Rule also Tax Court See during him he incurred expenses to deduct rules, 180.3 Under the Court’s painting. an aborted sale of a (STJ) then submitted a Special Judge Trial Deposits: 4. 1982 Bank Kanter chal- opin report containing findings of fact lenges the Tax determination of a Judge, ion the Tax Court’s Chief who year upon an deficiency for the 1982 based Judge then the case to Tax Court assigned deposits. analysis аrgues of his bank He 183(b). Tax Court Rule Dawson. See that the Commissioner failed meet his subsequently issued his Judge Dawson prove a that the Tax deficiency, burden to that the Tax Court opinion, which stated presuming Court erred Commission- adopts opinion “agrees with and correct, deficiency er’s determination which is set forth Special Judge, Trial Kanter and that event the evidence (CCH) IRA, at 963. below.” 78 T.C.M. presented at trial was sufficient to over- by the Tax forty-one issues decided Of any presumption come of correctness. Court, to this court:4 appealed six were Leasing: Equitable Kanter chal- determined
1. Fraud: The
lenges the Tax Court’s determination
(and
colleagues) helped
two
that Kanter
Compa-
payments
Equitable Leasing
opportunities
individuals obtain business
ny Kanter
were taxable commis-
entities
payments that
later were
exchange for
sions and not loans.
a series of
fraudulently
through
diverted
entities in order to dis-
Kanter-controlled
The Tax Court disre-
6. Cashmere:
guise
payments’ origins
and lower
involving
garded a series of transactions
(by dividing
tax
income
assessed
(a)
partnership
of certain
the contribution
it to various
up
assigning parts
(Cashmere)
corporation
interests to shelf
*7
losses). Kanter concedes
claiming
entities
(b)
subsequent installment sale of
underpayment
of taxes
that there was
stock,
of which
the result
Cashmere’s
disputes that
the Commissioner was
but
capital
recognition
gain
an immediate
prove by
convincing
clear and
evi-
able to
Kan-
partnership
interests.
Kanter on
underpayment was due to
dence that the
ter
that the transactions had eco-
argues
fraud.
nomic
and should not have been
substance
attempt
disregarded
chal-
as an
to avoid the
2. Bea Ritch Trusts: Kanter
income tax.
payment
determination that
of federal
lenges the
Court’s
Appeals
Court
for the circuit in which
Rule references are to the Rules of
All
(Tax
Rules)
States Tax Court
legal
petitioner
United
lies. Of
residence
unless otherwise indicated.
legal
resi-
petitioners,
Ranter's
three
the Seventh Circuit. Paral-
dence lies within
peti-
4. The Tax Court trial consolidated the
petitioners
appeals
other
are on-
lel
for the
and two other individuals
tions of Kanter
going
Eleventh Circuits.
in the Fifth and
(Lisle
Ballard) against
whom the Com-
appeal
During
pendency
this
the Elev-
missioner assessed deficiencies. Under
opinion.
v.
its
Ballard
enth Circuit issued
7482(b)(1)(A),
§
appeals
U.S.C.
from Tax
Comm’r,
Cir.2003).
(11th
First, Although the Rule is clear opportunity gard” given be STJ’s require rules do not the re Court’s own credibility of witnesses and made evaluate the port parties to be disclosed to the correct, findings presumed the con that those part appellate record. To 183(c), impose Rule preclude the see Tax Court trary, specifically its rules Tax requirement further Court That the Tax Court report’s disclosure. error, for clear findings an STJ’s power prescribe its own rules of review has the would all abdicate the urges, Ranter but procedure undisputed. See 26 U.S.C. Comm’r, decisionmaking au 7453; original F.2d Tax Court’s Stone v. Instead, (D.C.Cir.1989) (“The Rule 183’s thority. we believe is of language merely instructs due-regard make its own rules deter course free to cognizant to be that the STJ Spe it and its mining the relation between credi opportunity to evaluate the Having exercised had the Judges.”). cial Trial witnesses, allows the Tax bility of rulemaking authority, the Tax Court of cor presumption report to be Court to overcome longer requires no an STJ’s *9 and, should it find prescribes rectness it parties made to the ex available findings those were tension, parties suggests to the evidence longer no allows those secreting the re Consequently, objections Compare Tax Court incorrect. file to it. (1973) 1149, any rule-mandated 182(b), (c), (pro- port does not offend Rule 60 T.C. power ings comprising part to decide of the Tax Court’s Tax Court’s check on the process. internal deliberative assigned to STJ. cases Third, Appellate the Federal Rules of Second, Congress has statute require reports Procedure do not that STJ appellate review of STJ precluded direct part statutorily required be made jurisdiction lack to review reports. We appeal record on of a “decision” of the Tax of the Tax but “decisions Court.” anything Appellate Court. Federal Rule of Proce 7482(a)(1). § have re We U.S.C. excepts appeals of Tax dure Court deci of term peatedly held that use proced certain rules of appellate sions from ap §in 7482 means that the “decisions” Among applicable ure.5 those rules not (i) can review dismiss pellate 16, courts to Tax Court review is Rule which (ii) jurisdiction) of or (e.g., for lack provides als that the record on review of an (or of deficiency “any formal determinations administrative order shall include thereof). See, e.g., findings report Kreider v. or on [the order] lack 16(a)(2). (7th Cir.1985). Comm’r, 580, based.” FED. APP. P. F.2d R. Un actions, words, like other administrative the Fed a “decision” other of Appellate eral Rules of thus do Procedure formal Tax ruling Court is the final require that Tax Court decisions be Court; preliminary “report” is not light preliminary reviewed in find (“A 7459(a) re decision. See 26 U.S.C. ings upon which the decision was based. port upon any proceeding instituted before Instead, gov Rule 13 notes that Rule 10 and a decision thereon shall appellate erns the contents of a Tax Court practicable. as quickly be made as record, require and that rule does not by judge be made in accor decision shall any preliminary findings record to include Court, report of the Tax dance with App. 10(a)6 reports. Fed. R. P. 13 & shall, so made when and such decision entered, be the decision the Tax Court.” mind, With these considerations in added)). (emphasis report, An STJ there relationship pre- find that the between the fore, reviewable, final, is not see Estate Smith liminary reports of STJs and the (3d Comm’r, Cir.1981), F.2d reviewable “decisions” of the Tax Court which lends credence Commission striking bears resemblance to the relation- argument Congress ship er’s intended STJ reports between of “divisions” of the reports preliminary final to be treated find- Court and decisions of the Tax Appellate 5. Federal Rule of Procedure 14 court and district are to be read as clerk rules, provisions states that of these referring "[a]ll to the Tax and its clerk. 4-9, 15-20, 22-23, except apply Rule 13(d)(1). Fed. R. P. And Federal Rule of App. review of a Tax Court decision.” Fed. R. App. Appellate provides Procedure 10 in relevant P. 14. part: (a) Composition Appeal. the Record on Appellate pro- Federal Rule Procedure 13 following items constitute the record part: vides in relevant appeal: (d) Appeal; Forwarding; The Record on Fil- (1) original papers and exhibits filed ing. court; in the district (1)An appeal gov- from the Tax Court is (2) transcript proceedings, any; if parts and 12 erned Rules regarding appeal the record on from a (3) copy a certified of the docket entries court, district the time and manner of prepared by the district clerk. forwarding filing, docketing and the Fed. R. App. 10(a). P. appeals. in the court of References in those rules and in Rule 3 the district
843
The dissent takes issue with this com-
is a
A “division”
subset
itself.
Court
(often
noting that divisions are com-
parison,
that is
single judge)
Tax Court
prised
judges,
or more Tax Court
of one
and is
single
hear a
case
designated to
appointed and
presidentially
who are all
determinations with
to make
empowered
statutorily mandated
fifteen-year,
serve a
the Tax Court.
disputes before
respect to
they
can be
7460(a).
term of office from
7444(c),
§§
Under
26 U.S.C.
“inefficiency, neglect of
removed
7460,
generally
§
the division’s decision
duty, or malfeasance
office but for no
Court,
of the Tax
but
the decision
becomes
7443(f). STJs,
§
cause.” 26 U.S.C.
other
power to review
Tax
retains the
Court
however, serve at the discretion of the
own.
decision and render its
the division’s
Judge
statutorily
and have no
man-
Chief
of the
preliminary recommendations
Those
§
term of office. Id.
7443A. If Tax
dated
part
do not become
division which
provides
quasi-colla-
for a
Court Rule 183
do not
of the Tax Court also
final decision
process,
borative
the dissent fears this dis-
part
any
of the record for
addition-
become
participants impairs
tinction
between
(“The
7460(b)
§
re-
al future review.
Id.
judicial independence
of the STJ. As a
part
port of a division shall
result,
questions
dissent
whether an
judge
ease in which the chief
record
participate meaningfully
can
in this
STJ
report shall be reviewed
that such
directs
process.
post at
internal deliberative
See
Court.”).
by the Tax
Thus,
interpret
the two circuits
have
respectfully disagree.
We
We are hesi-
pre
have ruled that a division’s
ed
Tax
suggest
tant to
that members of the
appellate
liminary report
part
is not
expressly
either
сoerce or
Court would
by a
not available for review
record and
their office exert undue influence
nature of
Tax
appeals court once the
Court
federal
an
Nor will we discredit
over
STJ.
an internal review. See
has undertaken
express
that the final Tax
statement
STJ’s
753,
Comm’r, 396 F.2d
Varian v.
Estate of
opinion
with” his own based
“agrees
Comm’r,
(9th Cir.1968);
Heim v.
755 n.
solely
this observed distinction.
on
Cir.1958).
(8th
44,
The Ninth
251 F.2d
procedure,
admittedly
while
unusu
This
congressional
intent
Circuit noted
judicial procedure, does
typical
al vis a vis
appellate
preclude
§ 7460 to
a two-tier
fair
our notions of fundamental
not offend
relationship
the division and
between
Varian,
F.2d at 755.
ness.
See
man
that such a
full court and determined
with the dissent’s
respect,
agree
not offend the court’s notions of
date did
neither
re
process
that due
conclusion
Varian,
F.2d at
fairness.
fundamental
constrained
quires the Tax Court to be
755 n. 2.
to the STJ
degree
a formal
of deference
between these two
wit
Given the similarities
the Tax Court to rehear
requires
nor
relationships,
ultimately
we are led to the same con-
re
or not
nesses whether
post
reached
at 89-
findings.
clusion that the Ninth Circuit
verses the STJ’s
See
Raddatz,
appellate
no two-tier
rela-
States v.
(discussing
Varían:
there is
United
100 S.Ct.
65 L.Ed.2d
tionship
STJs and the
Court. 447 U.S.
between
(1980)
Corp. v.
Instead,
by the
and Universal Camera
reports are treated
STJ
474, 492-94,
NLRB,
71 S.Ct.
findings only
340 U.S.
preliminary
(1951)).
dictum in
Although
and,
applicable rules
we with opportunity vides the for STJs and Tax deprivation proceeding a civil erroneous judges regarding to conference great, nor the costs as high, is neither “as preliminary findings, STJ’s then we have a criminal milieu.” as would be the case in every reason to believe that Tax Court (discussing Tax Court Rule post See at 93 judges duly regard input would procedural-due-process 183 within he, turn, participate and that STJ would Mathews El framework established meaningfully in exchange. Like the 319, 333, dridge, 424 U.S. S.Ct. Circuits, Ninth and the Eleventh we too (1976)). Moreover, agree L.Ed.2d 18 we are loath to interfere with another court’s “only fully responsive remedy” to that the process. deliberative See id. complaint prove would unwork Ranter’s able, require the enormous as would event, the issue is academic since prohibitive rehearing and cost of burden opinion pur- the Tax Court’s in this case witnesses, ultimately prove which would to ports “agree adopt” Special with and input given add little value continued Judge opinion. Trial Couvillion’s We will that the retains under Tax Court Rule STJ and, thus, take the Tax Court at its word purportedly quasi-collaborative pro 183’s move on to a discussion on the merits of post cess. See at 883-884. appeal. Ranter’s recognition
But little value process given would added to the II. Fraud signified by STJ’s continued involvement— A. Facts adoption his of the statement that the final opinion opin- Tax Court reflects his own opinion The bulk of the Tax Court’s why ultimately ion—is we take issue with involves its determination that certain in- the dissent’s conclusion that our review of tax underpayments come were made with opinion unconstitutional- fraudulent intent. The surrounding facts ly impaired by procedure. this The con- complex the fraud issue are the most of all premise clusion do rests on STJs succinctly pos- described will be as as enjoy purported- equal voice this sible. ly quasi-collaborative process. post See above, story The Tax Court’s decision tells a reject 886-887. As discussed Ranter and two business associate s —Rob premise. In much as as the final Tax ert Lisle and Claude Ballard. Lisle and opinion purports agree estate, STJ, adopt principally Ballard worked real opinion we therefore opinion managers believe the real estate division of that the final reflects the legal opinions Company, true Prudential Insurance where findings of the STJ. Any they influ differing preliminary significant authority recommenda- had they tions—if long- ever existed—would no ence over the conduct of Prudential’s busi- Kanter, Lisle, company that administered the records and Ballard concoct- ness. *12 whereby they would use Lisle clients. It maintained plan ed a and funds of its along clients, with Ranter’s positions and Ballard’s books and records for its and often payments skills to collect and hide legal prepared Additionally, client tax returns. to do real estate people who wanted from funds, collecting it administered client re- Prudential.7 business with paying Money ceivables and bills. for kept pooled bank accounts clients was Tax focused on five individu- The Court listed under Administration Co.’s name. Five) (referred collectively as the als Two of these accounts were called the Kanter, Lisle, and Ballard for paid who Special E Special account and the TACI Five, their influence.8 For the Lisle pooled Account. Client funds were or- help oppor- secure business Ballard would get higher der to rate of return on Prudential, return the tunities with aggregated multiplici- funds and to avoid a cash and payments, including made Five interests, ty charges to Kanter. of account maintenance partnership kept in many, smaller client bank accounts point that the IRS became It was the clients’ individual names. Administra- to the According interested. Commission- (and tion not the bank Co. itself where (the payments were diverted er these kept) accounts were tracked individual use the more Commissioner and Court pooled client balances within the accounts “laundered”) to enti- highly charged word records for each on its internal client. acting or someone ties created Kanter many IRA and of its subsidiaries were The dominant at Ranter’s direction. fact, clients of Administration Co.10In payments to a Kan- method was to divert appear does not that Administration Co. corporation called Invest- ter-controlled any significant directly had clients not as- (IRA).9 Associates, Ltd ment Research (or by) sociated with controlled Kanter. payments deposited to IRA were The payments by the Five to IRA that kept IRA with another Kan- the accounts deposited were in the accounts of the Ad- the Administra- entity ter-eontrolled called commingled ministration were with Co. Company. tion The Administration Co. funds of IRA as exactly was what its name indicates: other non-Five-related notes, transactions opinion there were Eulich. The details of the 7. As the Tax Court John involving opin- the Five are in the Tax Court additional of transactions that involved sets (CCH) during post- at 976-1019. Lisle's ion at 78 T.C.M. Lisle and Kanter Prudential career at Traveler’s Insurance involving Company well as transactions incorporated originally in 1974 in IRA was 9. IRA, (CCH) T.C.M. at 970- Kanter alone. intended as a Delaware as Cedilla Co. It was 71. These transactions followed the same making investments. Cedilla vehicle for pattern Kanter his detailed here where used As- changed its name to Investment Research opportunities influence to secure business sub- IRA owned as relevant sociates 1979. compensation sidiaries, times, Carleo, individuals in return TMT and at various BWK, through a of entities was then diverted series no business and Inc. IRA conducted disguise origin of the funds employees bookkeepers in order to other than had no liability. the sake paid virtually and avoid income tax For in salaries. no amount simplicity only to the transac- we will refer involving and the Five as tions Prudential Co. filed for the Administration de- representative of all of the transactions bankruptcy. Concurrently, company called tailed the Tax Court. organized, and took Principal Services was clients, op- many of Administration Co.’s over Weaver, purposes and in the Frey, erating the same were Bruce 8. The Five J.D. Schnitzer, Schaffel, way Administration Co. same as had William Kenneth argued, and the Tax of other Administration Commissioner the funds
well as proper- agreed, that this income was and the commingling This Co. clients. individuals, ly and a defi- taxable keeping of Administra- record inadequate held ciency was assessed. The to track or ac- it difficult tion Co. made from the that the diversion of these funds the Five. payments count for corporations was individuals to sham Kanter, Lisle, It IRA—and undertaken with the fraudulent intent reported Ballard —that the income from *13 payment According evade the of taxes. to on its tax return payments the Five’s Court, arrangement (where by aggregated it was off-set loss- disguised by income earned the individu- es). IRA distributed the Subsequently, als, hid their activities from Pru- but also subsidiary corpora- income into “sham” dential. Carleo, TMT, tions, BWK, and controlled Court, presented In the Tax Kanter Kanter, Lisle, Ballard,
by
respectively,
and
impressive list of witnesses associated with
ratio, respectively,
repre-
in a 10/45/45
Ballard,
Five,
Kanter, Lisle,
and the
payments alleg-
sented the division of the
various relevant entities —all of whom ex-
Kanter, Lisle,
edly
by
and Bal-
agreed
pressly
paid
denied that
the Five
“kick-
corporations
lard.11 These sham
were
steering
backs” to Kanter for
business the
effect,
used,
the personal
in
bank ac-
way. But the Tax
found that
Five’s
Kanter, Lisle,
Ballard,
and
and
had testified that the Five
counts of
these witnesses
had,
fact,
payment
entered into
ar-
these men could withdraw use
funds
Kanter, Lisle,
rangements with
and Bal-
at their leisure.12
contained
them
The
exchange
lard in
for their influence
ob-
repaid
funds withdrawn were never
IRA,
(CCH)
taining
business.
T.C.M.
eventually
were
written off as bad debts.
testimony
at 1065. This
established that
Alternatively,
corporations’
controlled
reported
Kanter had not
income on which
personal
to fund the
funds were used
ex-
he was
therefore
taxable and had
under-
Kanter, Lisle,
Ballard,
penditures of
paid
obligations.
his federal-income-tax
as well as their families.
underpay-
The Tax Court found that these
Kanter,
hand, argues
on the other
that ments were undertaken with intent
payments
corporations
were
alia,
on,
evade taxes based
inter
the fol-
entities,
merely
by the
investments
“ced-
lowing
credibility
faсtors:
the lack of
Kanter.
by
underlying
ed” to them
testimony;
legal
Kanter’s
Kanter’s
edu-
securing
opportunities
scheme of
business
experience indicating
cation and
an aware-
for the Five interested
in re-
individuals
obligation'
report
ness of his
income
turn
payments
(through
to Kanter
taxes;
accurately
pay
Kanter’s sub-
entities)
disputed
Kanter
entirety
its
underreporting
stantial
income for
by
many years;
Kanter.
Kanter’s creation of a eom-
Carleo, TMT,
family.
preferred
and BWK were "shelf” cor-
Ballard’s
BWK’s
shares
Trust,
porations
by
formed
Kanter in 1982.
were issued to the BK Children’s
estab-
1983,
active,
they
acquired
became
and IRA
family.
lished for
benefit of
Kanter’s
As
1984,
of the common stock of each. In
100%
scheme,
part of the
Lisle controlled Carlco’s
corporation
preferred
each
issued shares of
decisions,
investment
Ballard controlled
preferred
stock. Carleo issued its
shares
and Kanter
BWK’s.
TMT’s
controlled
Trust,
the Christie
a trust established Kan-
family.
ter for the benefit of Lisle’s
TMT’s
12. few
actions summarized
these
sen-
preferred shares were issued to the Orient
place
many years.
took
tences
over
Trust,
established Kanter for the benefit of
income,
up
corpora
covering
sets or
sources of
laundering network of sham
plex
...
affairs to
handling
making
it diffi
one’s
avoid
entities that made
tions and other
funds;
records
in transactions of the
Ranter’s
usual
the flow of
cult to trace
kind,
conduct,
[undertaking] any
namely,
with the
cooperation
lack of
IRS —
likely effect of which would be to mislead
documents and the de
withholding
States,
Spies
or to conceal.”
United
subject
sum
of documents
struction
364,
492, 499, 63
U.S.
S.Ct.
L.Ed. 418
monses;
“kick
commingling
Ranter’s
(1943). Additionally, fraud can be shown
monies with other monies
back”
repeated
by significant and
understate
accounts; Ranter’s
Administration Co.’s
Pittman,
income,
ment of
F.3d
through
movement of monies
conduits
cooperation
investigating
a lack of
legitimate
purpose
had no
business
show
Comm’r,
agents, Korecky v.
781 F.2d
funds;
ing
disguise
an intent to
sources of
(11th
Comm’r,
Cir.1986); Zell v.
1568-69
reporting
personal
Ranter’s
of his
income
(10th
Cir.1985), by
763 F.2d
of IRA in order to
on the tax returns
*14
records,
destruction of
Powell v. Gran
was
appearance
create the
income
(9th
Cir.1958),
quist,
by
252 F.2d
59
IRA;
phony
by
earned
and Ranter’s use of
experience
considering
legal
and edu
himself,
disguise
loans to
distributions to
taxpayer,
cation of
Plunkett
IRA,
later written off as bad debts.
78
(7th
Comm’r,
Cir.1972).
465 F.2d
(CCH) at 1083-85.
T.C.M.
principal argument
Ranter’s
Analysis
B.
representation
based on the
he makes
finding
by
A
of fraud
the Tax
concerning
report:
above
the STJ’s
Ran
finding
a factual
that we review
Court is
credible,
ter and his witnesses were found
Comm’r,
clear error. Toushin v.
by
story
and his
was believed
the STJ.
(7th Cir.2000).
with all
F.3d
As
Therefore,
in
finding
there can be no
Court,
fact of the Tax
we must
findings of
was,
alleges,
tent to defraud.
It
Ranter
favor
light
view the evidence
most
only
rejection
findings by
of the STJ’s
findings
and re
able to the
judge
finding
the Tax Court
that led to the
if
verse
we are left with the definite
that Ranter was not credible and that the
and firm conviction that a mistake has
underpayment
accomplished
of taxes was
Pittman,
monses These and the other indicia cited sued.13 The court stated that Court, light when considered in a fa- Weisgal that since testified [Solomon] findings, paint vorable to the Tax compel produc- [receiving a summons picture convincing clear and intent documents], of the BK doc- tion of some payment Kanter to evade of taxes uments, including summoned documents It he knew or believed that he owed. Kanters, had been turned relating to the erroneous for the Tax Court to Company and over to the Administration underpayment find that Kanter’s of taxes part as that some have been discarded involved fraud. three-year record retention and dis- Gallenberger policy.... [Linda] card III. Bea Ritch Trusts disposed of some docu- testified that she A. Facts receipt Kanter] after [related ments summons. IRS (BRT) The Bea Ritch Trusts are a Co., Administration
United States v. group twenty-five trusts established 94-5252, 240518, at A.F.T.R.2d 1994 WL 1969 under one trust document. The trust (N.D.Ill. 1994). May *2 district Ritch, named Kanter’s document Beatrice court went on to note that mother, BRT, grantor Kanter’s
The facts are that
the Kanters first
friend and business associate Solomon
promised
produce
the documents Weisgal as the trustee and
members of
involved in the
sought
[entities
Ac-
family
Kanter’s
as the beneficiaries.
then,
early
Febru-
present
document,
case]
cording to the trust
Beatrice
*16
1994,
government counsel
ary
notified
separate BRT
Ritch funded each of the
third-parties
that the Entities were
over
trusts with a
check. No evidence
$100
itself)
they had no control. The elev-
whom
(beyond the trust document
was
position by the
change
enth-hour
of
presented
actually
substantiate that this
to
faith on the
Kanters is indicative of bad
originally
happened. Kanter himself was
part of
Kanters.
beneficiary
twenty-four of
named as a
alone
twenty-five
trusts and he
was
later,
Id. at *3. Less
than a month
power
over the
granted
appointment
Gallenberger
contempt
judge
same
held
alleged-
of BRT. Kanter
beneficial
comply fully
interest
continuing
for a
failure to
1971,
interest
in BRT in
ly renounced his
with IRS summonses. United States
Co.,
1977,
1978,
thereby purportedly elimi-
Administration
hоwever, beneficiaries were add- ries of sixty new deficiency year against Kanter ed to BRT. respect to BRT’s income from 1987, money Kanter borrowed Before trial, the evidence sale. At Cablevision 1, 1987, BRT, January and as that the income at issue had made clear $287,080. the trust This still owed Kanter during year the calender been earned have been se- appear does debt sought and the Commissioner cured, any indication nor is there pleadings his and reallocate amend (if interest rate a reasonable record that deficiency BRT from 1987 to 1986. The the loans. charged on any) was amendment, and Tax allowed the Court participated Kanter early In 1970s the bur- request denied Kanter’s to shift Island, in Long ventures New in business for hav- proof den of to the Commissioner York, then nascent cable involving the Tax ing raised a “new matter.” See industry. He and other mem- television 142(a)(1). Rule helped entity firm bers of his law Cablevision Co. raise eventually became The Tax Court found that Kanter had funds, find financing and investors secure BRT prove that he did not fund failed return, In Kanter for its cable business. and, despite his three renunciations of others) was to receive interests (along with BRT, that he had not beneficial interest in- partnerships that themselves owned appointed As a the 60 new beneficiaries. arranged Kanter terests Cablevision.14 result, the Tax Court held Kanter hable part- BRT receive the Cablevision have income for and 1987 for tax on BRT’s nership to which he was enti- interests grantor provisions. under the trust IRC’s he contributed the tled—in essence Ca- §§ 26 U.S.C. 674. The partnership interests to BRT. blevision alternative, that, in the Kanter’s also found that the The Tax Court found contribution him borrowing of trust funds made taxable partnership inter- Kanter’s Cablevision 675(3). on BRT’s income. See 26 U.S.C. assets) (along ests with other income and principal BRT of funding source Analysis B. Kanter, therefore, for BRT. was the true of the amend- 1. Was allowance (CCH) IRA, grantor of BRT. 78 T.C.M. proper? ment 1098-99. argument Kanter’s concerns the first reported capital gains BRT allowance of an amendment of $2,033,368 year Sep- ending for the fiscal *17 proof 30, 1987, pleadings the to conform to the tember from the sale of the Ca- ap- BRT alleged deficiency relating partnership owned blevision interests rather than to 1987. Kanter plied to 1986 BRT.15 Because Kanter was the true argues that it was error to allow this grantor of BRT and because he had a allowed, all, that, at once power appointment to name beneficia- amendment speak generalities 14. We in order to avoid to IRA for Kanter’s services to Cablevision as confusing by expanding partnership further situation interests. the Cablevision alphabet soup partnership and trust abbreviations, exact not whose identities are part- partnerships in BRT was a 15. The which necessary explain background the factual respective ner sold their interests in Cablevi- opinion fully of this issue. The itself, triggering capital gain sion IRA, identifies all the relevant entities. See 78 ilowed-through partnerships then (CCH) simply T.C.M. at 1093-1100. We will IRA, (CCH) See 78 T.C.M. at 1093. BRT. partnership refer to the interests transferred
851 by not treat- 2. Should the amendment shifted further erred have Court proof? the burden of under Tax ing as a “new matter” 142(a), would have Rule shift- argues Kanter next proof on the issue to the ed the burden amendment to the pleadings was a new Commissioner. matter that proof shifted burden of
this issue to the Commissioner. See Tax
(“The
deny
142(a)(1)
The decision to allow or
proof
Rule
burden of
upon
petitioner, except
shall be
...
pleadings
under Tax
amendment
that,
matter,
in respеct
new
...
reviewed for abuse of
Court Rule
upon
respondent.”).
shall be
The dis
discretion. See Estate
Ashman v.
question
tribution of burdens is a
of law
(9th
Comm’r,
541,
281 F.3d
542 n.
Cir.
that we review de novo.
argument
This
Comm’r,
2000); LeFever v.
100 F.3d
fails as well. The Commissioner is al
(10th Cir.1996);
Comm’r,
Braude v.
lowed the latitude to amend his pleadings
(4th Cir.1986).
F.2d
It
was
adopt
and even
entirely
sup
new theories
not an abuse of discretion for the Tax
porting assessed deficiencies
trig
without
Court to allow the amendment of the Com
burden,
Rule 142’s
gering
long
shift
so
pleadings
missioner’s
to reallocate the
theory
as the new
is not inconsistent with
deficiency
BRT
to 1986. Kanter was on
original allegation,
require
does not
specific partnership
notice as to the
income
support,
new evidence
its
nor increases
subject
of BRT that
was
of the as
See,
the amount of the deficiency.
e.g.,
(Tr.
4483-86.)
deficiency.
sessed
Comm’r,
Friedman v.
216 F.3d
prejudice
There was no
to Kanter in the
(6th Cir.2000) (“A
position
new
taken
date,
adjustment of the
and he had a fair
necessarily
is not
Commissioner
‘new
opportunity
respect
to defend with
merely
develops
matter’ if it
clarifies or
fact,
Kanter,
amended claim.
it was
original
Commissioner’s
determination
government,
and not the
who elicited the
presentation
requiring
without
of dif
(from
accountant,
testimony
Kanter’s
Gal
evidence, being
ferent
inconsistent with
lenberger)
timing
that revealed the
error
determination,
original
Commissioner’s
prompted
government’s
request
increasing
deficiency.”);
the amount of the
(9th
Comm’r,
1385, 1390
government appar
for amendment.16 The
Abatti v.
644 F.2d
Cir.1981)
Comm’r,
(same); Achiro v.
ently did
realize its error until
Kanter
(1981)
881, 890,
T.C.
was virtue problem for Kanter is that of the late amendment. The amendment Commissioner’s amendment did not offer a pleadings to conform to the evidence theory alleged deficiency. new proper. theory pro- under which Commissioner *18 mistake, reading transcript regarding it 16. A fair of the trial is that decision find strategy regarding Kanter’s the BRT income says Kanter this "was hard to believe when he beginning was from the to demonstrate that prepared not an issue that Kanter was question the income in had been earned in except defend at inasmuch as this trial” — 1986, 1987, try not and to to shift the burden may statement reflect Kanter’s belief at trial proof precisely of Commissioner in shifting proof that a of the burden to the of (Tr. 4455-4501.) argued manner here. at Commissioner would obviate need knowledge With Kanter’s clear advance of the a substantive rebuttal defense. mount strategic apparent mistake and his calender 852 not mining that the did shift specific trans- amendment times was
ceeded at all
proof to the Commissioner.
the burden of
income that was
taxable
produced
actions
properly
was
BRT but which
by
reported
BRT
grantor
Ranter was the
of
grantor
by virtue of
to Ranter
taxable
principally that
Although
argues
The
Ranter
the tax code.17
provisions of
trust
should have borne
the Commissioner
by
supports
Ranter here
upon
relied
case
was the
proving
that Ranter
burden
involved an
Achiro
our
conclusion.
BRT,
and that the
grantor and owner
which the Commission-
under
amendment
burden,
meet that
Commissioner could not
time that a deduc-
the first
alleged
er
that, regardless of bur-
Ranter maintains
under a section of the
improper
tion was
den,
on BRT’s income
he is not taxable
different from the sec-
completely
tax code
provisions.
trust
grantor
under the IRC’s
889-90;
at
argued. 77 T.C.
originally
tion
a factual
grantor
A
status is
finding
Comm’r,
183,
v.
T.C.
see also Shea
for clear errоr.
finding that we review
(1999).
190-92,
The
1999 WL
(7th
871,
Comm’r, 226 F.3d
Scott v.
present-
here
amendment
Commissioner’s
Cir.2000).
Ranter has failed to show
change,
modest
more akin
ed a much more
clearly erro-
decision was
original allegation.
to a clarification
neous.
alleges
he
Ranter correct when
Nor is
increased the
de-
the amendment
assessed
document’s
Despite the trust
deficiency
remained
ficiency.
stated
grant-
Beatrice Ritch was the
showing that
constant, and involved the same income
BRT,
principle of sub
or of
the familiar
transactions, but was re-
from the same
grantor
as the true
stance over form views
disputed year to anoth-
from one
allocated
principally
one who
funded the trusts.
year to correct a calender
disputed
er
(7th
Comm’r,
F.2d
v.
Schulz
prejudice
not
Ranter’s
error
that did
Cir.1982);
Buttorff,
United States
propose
not
The Commissioner did
case.18
Cir.1985).
(5th
F.2d
1060-61
require
income nor
Ranter to
additional
Schulz,
example,
petitioner’s
wife
deficiency
had
against
larger
than
defend
grantor
family
considered the
of a
was
the amendment.
been assessed before
trust because both the Commissioner
Therefore,
is incorrect to claim that the
conveyance
disregarded
this court
entirely
in “an
new
assets,
amendment resulted
subsequently
were
the wife’s
deficiency
increased
in a
question,
used to fund the trust
different
(Pet.
wife,
(emphasis
origi- petitioner.
Br. at 46
trust.”). enjoyment through power of that trust argues Ranter that the Tax find- appointment, grantor then the is treated ing grantor directly that he was the as the owner of the trust and the income of decision, contrary to Illinois trial court the trust must be included in the income of County which the Cook Circuit Court 671, 674(a); §§ grantor. U.S.C. partner- 1.674(a)-1. determined that the Cablevision argues C.F.R. Ranter that he ship property interests did not constitute three times renounced inter his beneficial they law firm and, renunciations, Ranter’s because did not in BRT those est payment legal result from of fees for ser- power appointment lost the that he had Levenfeld, vices. Statland v. No. 84 CH But under the trust document. 1988). (Ill.Cir.Ct., that, Ch. Jan. Ran- after the third of Ran Court notes (a) renunciations, sixty
ter argues ruling the state court ter’s new beneficiaries *20 854 (“The only- grantor to BRT.19Kanter was the shall as the own- added be treated
were any portion respect power under the er of of a trust of person who ever had grantor directly which .... has [t]he appoint new beneficia- document trust (which indirectly corpus borrowed the or income inference logical The most ries. loan, drew) completely repaid and has not that Kanter himself is the Tax Court interest, including any begin- before the new and that appointed the beneficiaries appears ning year.”). of the taxable It renunciations were shams. his earlier undisputed that Kanter had borrowed only- fails to rebut this. Kanter’s Kanter subjects BRT money way from in a directly appears on this issue argument 675(3), liability § him to under and that at brief, in reply argues which he that the his beginning of he still owed BRT 1987 reopen improperly refused to Tax Court $287,030. for This would be sufficient Kan- record to admit evidence that Kanter’s liability are, incur ter to for 1987.21 There grantors the various children were of however, no findings by the Tax Court as that had added as benefi- Trusts been JSK any amount BRT as Kanter owed to of 18.) (Reply BRT.20 Br. at This ciaries of Therefore, January there could probative evidence not be purported would liability no tax Kanter 1986 based whether Kanter had exercised of the issue 675(3). § In the end this conclusion appointment power of under BRT. The liability affect does not ultimate tax be- findings that Kanter was the Court’s § under cause Kanter remains liable BRT grantor power and that he held a for both 1986 and 1987. BRT appointment beneficiaries of conclusion, In we affirm Therefore, clearly were not erroneous. grantor determination Kanter was the finding Tax Court’s that Kanter is BRT in 1986 and 1987 and is taxable on (and BRT’s
taxable on income income for years. BRT’s those 1987) clearly also not erroneous. alternative, As an Tax Court also George Painting Washington IV. borrowing that Kanter’s BRT found from A. Facts repayment adequate without and without security subjected liability Kanter approached Kanter was 675(3) client, income. Feigen, BRT’s See 26 U.S.C. Richard help who wanted Weisgal 19. The new beneficiaries were all trusts— need not consider whether or not was independent named and numbered variations of "JSK and adverse trustee of BRT. IRA, (CCH) Trust.” T.C.M. at 1094-95. facts, however, 21.The existence of these issue, possible logical argument 20. A alternative not would raise an we additional which will (because, assume, we, attempt made Kanter we today. must not to resolve Would valid) claims, appointments not is that were analyze Kanter need to the amount of by Weisgal pos- power made under some he the loans in relation to trust's income Court, during years sessed as trustee. The Tax the Com- the loans were made and spend significant missioner and portion Kanter all from that determine what trust arguing Weisgal time whether is or is not an income 1987 is attributable to Kanter? Comm’r, independent 484-85, and adverse trustee. An affirma- See Bennett v. 79 T.C. we, (1982). question determination tive of that would be WL 11148 Or can as Weisgal necessary appointed if urges, merely sig- were to have Commissioner consider the sixty new were beneficiaries or if Kanter nificant amount of as indicative the loans (Kanter) prove appoint that he able to did not Kanter’s total control over BRT’s income and Because we them. find that the Tax Court’s attribute therefore all of the income for 1987 Comm’r, power determination Kanter exercised a Kanter? See Benson v. T.C. erroneous, 1040, 1047-48, (1981). appointment WL
855 funding buy painting an securing intermediary in served as to introduce England located in George Washington friend, Feigan to Rappaport. another to be Trum- Feigen believed John There was no written contract between put Feigen Kanter in touch with bull.22 Feigan sharing prof- and Kanter for the client, Rappaport,23 another Mr. in Swit- its.” Id.
zerland, pur- agreed who to finance the painting. chase of the The transaction Analysis B. purchase, After the painting
closed. The Commissioner’s determination that Trumbull, was discovered not to be a expenses Kanter’s associated with the agreed the seller to rescind the sale. aAs failed sale of the Washington painting exchange result of rate and interest rate legitimate were not deductions under 26 changes, Rappaport, who had advanced the §§ funds, U.S.C. 162 and is a money. finding lost fact Rappaport wanted to whole, rebuffed, we review for clear Reynolds made and when threat- error. Comm’r, (7th Feigen ened to sue and Kanter for his 296 F.3d Cir. Kanter, 2002); Comm’r, convincing Feig- claimed loss. in Buelow v. 970 F.2d (7th Cir.1992). Rappaport, pro- en to agreed reimburse $94,231 vide of his own funds. Kanter also found, The Tax essentially, Court $10,000 in
paid
legal
fees
incurred
expenses
Kanter could not deduct the
throughout
the course of the transaction.
§§
under
162 and 212 because Kanter’s
return,
On his 1980 tax
Kanter claimed
law,
art,
practice
business was the
$104,231
the sum of
as a deduction on
and there was no evidence that Kanter had
C, stating that his main
Schedule
business
agreement
Feigen
to receive fees
activity
“buying and selling paintings.”
was
profits
or share
from
purchase
The IRS disallowed the claimed
loss.
planned resale of the painting. The Tax
found,
Tax Court
based on
testi-
Kanter’s
simply
did not believe the “self-
mony,
occupation
that Kanter’s main
serving
testimony
and uncorroborated”
attorney
as an
and that he did not hold
(CCH)
Kanter.
78 T.C.M.
at 1121.
IRA
expert
himself out as an art
or art dealer.
totality
Given the
of the Tax Court’s find
This made the claimed deduction unrecog-
ings
systematically engaged
that Kanter
in
§
nizable under 26 U.S.C.
162 as an ordi-
(non-law related)
extensive
business deal
nary
necessary
expense.
business
Ad-
ings whereby
arrange
he “entered into
ditionally, the Tax
did not allow
pursuant
ments
to which he would use his
expense
deduction as a
produc-
...
...
contacts
to assist individuals ...
tion of income “because Kanter received
opportunities
obtaining business
rais
therefor,
no fees and no contract existed
ventures[,]”
ing capital for business
expenditure
did
[and so]
not bear
implausible
find it
proximate
for the Tax Court to
relationship
reasonable and
IRA,
production
engaged
of income.”
conclude
Kanter was not
(CCH) at
merely
dealings
helped
T.C.M.
such
when
Feigen
“[Kanter]
he
se-
painter
Independence,
22. John Trumbull was a
of scenes and
Declaration of
and that is fa-
every
founding
individuals from the time of the
miliar to almost
American schoolchild
is,
reprinting
perhaps,
the United
from its
in countless American His-
States. He
most well
tory textbooks.
general public
painter
known to the
as the
Independence”
the famous "Declaration of
(more
painting
accurately,
parties’
that dramatized
23. Neither the
briefs nor the trial
fictionalized)
signing
transcript
Rappaport’s
the scene of the
reveal Mr.
name.
first
(5)
value;
IRA,
activity may appreciate
Rappaport.
financing
cure
taxpayer
carrying
success
(CCH) at 970.
T.C.M.
(6)
activities;
similar or dissimilar
other
trans-
excessively detailing the
Without
losses
history of income or
taxpayer’s
Five that we sum-
relating to the
actions
*22
(7) the amount
respect
activity;
to the
with
II,
the Tax
we note that
in Part
marized
any,
if
which are
profits,
of occasional
went
to considerable
opinion
Court’s
(8)
earned;
of the tax-
the financial status
against
deficiencies
to confirm
lengths
(9)
personal recre-
and
elements of
payer;
Ran-
a characterization of
on
Kanter based
the activi-
pleasure
carrying
in
on
ation or
beyond
far
ranging
as
ter’s “business”
1.183-2(b).
ty. 26 C.F.R.
In each of the
practice of law.
simple
can,
testimony
based on Ranter’s
We
Five,
involving the
the foun-
transactions
considering the Tax Court’s other
and
determination
the Tax Court’s
dation for
highly probable
sce-
findings, construct
consistently understated his
Kanter
find fi-
which Kanter was to
nario under
after
findings that
time
was its
income
exchange
in
Feigen’s purchase
for
nancing
non-legal business
provided
Kanter
time
anticipated profits. Under
part of the
for
opportuni-
facilitating business
in
services
business,
(1),
doing
this manner of
factor
Prudential,
and
for the Five
ties
documented,
consistent
while not well
handsomely for that facili-
paid
he was
in
pursued
method
other transac-
with the
difficult for us to read
tation.
It is
by the Tax Court. Under
tions detailed
pages
hundred
of the
Court’s
few
first
(2),
in
apparent expertise
Ranter’s
factor
the distinct
not be left with
opinion and
put-
facilitating financing transactions
the Tax Court believes
impression
people
for deals in order
ting
together
involved in this business “ac-
Kanter was
evident to the Tax
income was so
generate
continuity
regularity
tivity with
large
him liable for
Court that
found
in
purpose
engaging
for
primary
...
[his]
income tax. Additional-
underpayments of
profit.”
for income or
activity [was]
pro-
Kanter has indicated that the art
ly,
23, 35,
Groetzinger, 480 U.S.
Comm’r
ject
Feigen’s
was attractive because of
ex-
(1987).
At
There are difficulties revers- ing the Tax here. would have Court We A. Facts credibility finding reverse the Tax Court’s connection,
on the
matter.
that
neither
In examining
return,
Kanter’s 1982 tax
testimony,
Feigen’s
Rappaport’s
nor
testi-
inadequately
IRS determined that
doc-
mony,
any piece
specific
nor
evidence
deposits
umented
into three of Kanter’s
support
exists
the record to
Kanter’s
during
year
bank accounts
that
greatly
testimony. And we have found elsewhere
exceeded the income
reported
Kanter
that,
taxpayer’s
while a
uncontradicted tes- his federal tax return. Based on a com-
timony was sufficient to demonstrate that
parison
deposit
of the
amounts to Kanter’s
the Commissioner’s determination was er-
tax return for
the Commissioner de-
roneous, the Tax
can disregard
Court
that
termined
unreported
that Kanter had
testimony if it
credible. Lerch v. gross
year
income that
in an amount of
Comm’r,
(7th Cir.1989).
877 F.2d
$2,084,017, and issued an assessment of
The Tax Court did not here believe Kan- deficiency. After
produced
Kanter
suffi-
profit
ter’s claim of a
motive.
finding
While
documenting
cient records
some of the de-
Kanter not credible in this instance is con- posits
quеstion,
the Commissioner re-
sistent with the Tax Court’s refusal to find
$1,303,207,
deficiency
duced this
issues,
him credible on other
it results in a
comprised
specific depos-
the sum of four
completely
implausible
inconsistent and
its:
incurring
factual scenario—Kanter’s
more
DEPOSIT AMOUNT
PAYOR OR SOURCE
$100,000
than
in expenses gratuitously to
facilitate a business transaction where
(THC)
Holding
$787,129
Co.
potential profits
huge
any
lie. But without
40,000
Placement
Computer
$
why
unique
indication
this transaction is
(CPS)
Inc.
Services,
activities,
among all the other Kanter
Administration Co.
$190,078
think
clearly
the Tax Court was
erroneous
Account)
(Special E
in rejecting Kanter’s claim that he was
objectives
pursuing commercial
here as
$286,000
Administration Co.
Account)
(Special
elsewhere.
entity incorporated
24. THC was a Kanter
which were Kanter trusts whose income was
IRA,
purpose,
1976. Its
like that of
was the
grantor
attributable to Kanter via the IRC’s
making of investments. One of the relevant
provisions,
et seq.
§§
trust
26 U.S.C.
Ventures,
subsidiaries of THC was Zion
Inc.
(Zion). See
Part VI. The stock of THC
infra
25. The record does not indicate who holds
substantially
was
owned
the BRT and Ev-
legal
ownership
or beneficial
of CPS.
Trusts),
erglades
(Everglades
Trusts 1-5
See
presumption
that the
usual
correctness.
Tax Court found
Commis-
Comm’r,
596 F.2d
Weimerskirch
produced sufficient evidence to
had
sioner
(9th Cir.1979) (finding
presumption
no
in the
of correctness
presumption
a
create
when
as-
of correctness
Commissioner’s
deficiency.
deposit
The bank
indicated
deficiency
lacks
reasonable
sessed
method
reasonable
analysis method
evidence). Finally, Ran-
foundation in the
income, and deposits
reconstructing
ter
Tax Court
argues
THC,
and the Administration
from
CPS
finding deficiency
light
erred in
in-
included taxable
accounts often
Co.
presented.
argu-
All of these
evidence
proper,
it was
Therefore
come.
ments fail.
ruled,
Commissioner to de-
for the
gross
analysis
income from
termine
First,
in Ran
there
no merit
bank
deposits to Ranter’s
account
total
ter’s contention
the Commissioner’s
any deposits properly excluded
minus
deficiency
amount
as
reduction in the
deficiency
for the
income and to assess
deposit
sessed in 1982 under
the bank
the reported
income over
excess of that
analysis
matter
a shift
requiring
is a new
found
Ranter
The Tax
income.
proof.
The Commission
burden
documented that
adequately
had not
part
original
er’s
concession
*24
loans,
were
deposits
question
four
from
deficiency
properly
was
excluded
gross
included
his
they
properly
were
theory,
income is not a
is not
Ranter’s
new
deposit analysis.
under
More-
income
the
original
inconsistent with the
assessment
over,
testimony
not find the
the Court did
not
new or dif
deficiency,
require
does
accountant, Gallenberger,
of Ranter’s
cred-
ferent
from
not
evidence
Ranter and does
on the issue.
ible
deficiency.
the assessed
dis
increase
See
III.
supra
theory
cussion
Part
The same
Analysis
B.
deposit analysis
being applied
bank
was
the
con
before and after
Commissioner’s
that a
The
Court’s determination
cessions,
the
resulting deficiency
taxpayer
unreported
has
income
a find-
increased,
reduced,
pro
not
Ranter
when
for
ing of fact that we review
clear error.
demonstrating
duced
to the
documentation
at 612.
Reynolds, 296 F.3d
The Commis-
that certain
Commissioner’s satisfaction
deficiency
pre-
of a
sioner’s assessment
deposits
remaining,
were
income. The
correct,
by
can be
sumed
but
overcome
insufficiently
deposits,
documented
there
presented
taxpay-
rebuttal evidence
the
fore,
do not cоnstitute new matter.
Pittman,
at
er.
100 F.3d
1313.
escape
arguments
Ranter has three
with re-
Nor can Ranter
deficiency
spect
presumption
by relying
determined
of correctness
on
first,
deposit
analysis:
change
exception
bank
“naked assessment”
deficiency
general
the amount of
un-
“The
rule is that
Weimerskirch.
analysis
der the bank
to the
deposit
presumption
constituted a
of correctness attaches
determination;
“new matter”
deficiency
under
Court Rule
Commissioner’s
required
proof
disproving
that
has the
taxpayer
burden
to shift
burden of
Commissioner,
A
exception
and with that
it.
narrow
where the
burden
exists
Second,
prevail.
arbitrary
Commissioner cannot
determination is
and erroneous
the lack of evidence on this issue
Pfluger
made the
or without rational foundation.”
Cir.1988)
(7th
deficiency
assessment,”
Comm’r,
1379, 1382
a “naked
840 F.2d
was,
(citations omitted).
therefore, improper
give
It
disputed
the Com-
is not
missioner’s
a deficiency
rely
[the]
assessment of
“before the Commissioner can
(CCH)
correctness,
1104;
the Commis T.C.M.
at
presumption
see also United
Esser,
(7th
evi
must offer some substantive
States v.
sioner
F.2d
Cir.1975)
showing
taxpayer
that the
received
(describing
dence
test for implementing
Weim
charged activity.”
income from the
deposit analysis method of reconstructing
erskirch,
income).
the Commissioner as thin as that Lastly, argues Ranter that the uncontra- ined Weimerskirch. dicted at trial evidence shows that four Weimerskirch, the Commissioner as- deposits in question were loans and were deficiency sessed a based on more than By uncontradicted, not income. can we $24,000 unreported the tax- income from Ranter assume means uncontradicted alleged payer’s sale of heroin. Id. 359. by any beyond evidence we evidence Commissioner, however, presented no outlined, establishing, have prima facie, evidence which one could even deficiency there was a during infer was involved in heroin Weimerskirch Because we have found that the Tax Court any way. were, exam- sales in There properly gave the as- Commissioner’s worth, ple, deposits, no records of bank net deficiency presumption sessed of correct- expenditures. or cash Id. at 361-62. ness, interpret argument must Ranter’s deficiency was calculated based on IRS claiming presented evidence agent’s purely hypothetical calculation of presumption. overcame the In that re- what income would be from a realized spect, argument Ranter’s also fails. given level heroin sales each over week *25 considering In whether Ranter met his period given of time. at Id. 359. Not proof, burden of the Tax Court found Gal- only deficiency was the com- calculation lenberger’s summary and Ranter’s asser- pletely any from of actu- divorced evidence unconvincing. tions “No credible evidence by al or inferrable heroin Weimer- sales to support was introduced Ranter’s asser- skirch, the entire but method of calculation deposits tion that the were loans.... We unsupported used by was evidence. Id. testimony accountant, find the of the Gal- attempt The Commissioner’s to attach the lenberger, analysis unreliable and her fa- of presumption correctness to assessed (CCH) tally flawed....” 78 T.C.M. at IRA was, in in deficiency every Weimerskirch 1104. The Tax Court also recalled “Gal- word, sense of naked. lenberger’s regular practice of record de- contrast,
In presumption the general struction” and lack doc- in present correctness far appears ease umentation other than her summary and modestly appareled. more Commis testimony. Id. at 1104-05. The evidence deposits use of bank circum sioner’s as that Ranter asserts was “uncontradicted” gross by stantial evidence of is an income was considered the Tax Court and See, which, accepted 9172PR, methodology. e.g., wanting. United found Exhibit (7th Ludwig, 875, Ranter, States v. 897 F.2d 878 according to demonstrates Cir.1990). CPS, THC, deposits The Tax Court evidence found from and Admin- pro loans, engaged that Ranter was in income istration were Co. reflects a sum- ducing found mary analysis Gallenberger businesses. And the court Linda deposits that actual were that had found made the Tax Court not credible. Nor IRA, appearance 78 it say income. correct for Ranter to that the Tax 86 0 to equipment leasing one transactions make previously that
Court had determined capital money from Administra- The investors’ money investors. deposits of the money found already to be- highly leveraged purchase tion Co. was would be (Pet. 58.) leased, Br. at Kanter residual long equipment to Kanter. in the Tax Court’s to a sentence at equipment cites the end value (allowable capital opinion to issue provide paper as would the ostensible lease 1987) court wherein the gains losses profit capital. princi- A investors’ states, previously, indicated funds “As pal motivation the investment behind special E and from the Administration Co. transactions, however, leasing special E were Kanter’s PSAC accounts opportunity for tax benefits associated (CCH) IRA, 78 T.C.M. at 1126. funds.” a mid- with the venture. Kanter acted as context, sentence, refers This dleman, introducing Mallín investors cited specific funds the accounts return, In leasing his transactions. Mallín specific at and used in the transactions paid Kanter commissions to entities. (five deposits after the at issue years issue deficiency a notice Commissioner issued here) in of the Tax that section deficiency for 1983 that included specific funds were Kan- opinion. These $635,250 four respect payments with funds, entitled, and he was there- ter’s own entities, Zion, Equitable to Kanter fore, he to the basis had claimed for the THC.26 those purchased assets he had funds. FORM OF to generalize But Kanter seeks this state- DATE PAYMENT PAYEE AMOUNT ownership specific his mon-
ment about
money
all
ey to
mean
4,
$317,250
Bank
Zion
Jan.
Transfer
accounts,
times, already
all
Special E
belonged to Kanter. The
THC
Jan.
Check
$
say
opinion
not
this.
does
conclusion,
Court did
Zion
June
Check
$
Kan-
findings regarding
err
its
unreported
ter’s
income
deter-
deposit
$302,000
analysis.
mined
These
bank
THC
June
Bank
*26
Transfer
findings are therefore affirmed.
$635,250
Total
Payments
Equitable Leasing’s
to
VI.
& Zion
THC
alleged
The Commissioner
that
these
A. Facts
payments were
Kan-
paid
commissions
for
Co.,
procurement
ter’s
of investors in Mallin’s
Equitable Leasing
(Equitable)
Inc.
enterprises.
argued
Kanter
that Zion and
wholly
company
was
owned
of Joel
Mallín,
partner
money by Equitable
were loaned
that
friend and former law
of THC
(among
Kanter.
used
was then turned around and invested in
Equitable
Mallín
promote
Equita-
to
and
as an
companies)
Equitable
other
structure
accommodation to
case,
disposition
significance
26. THC was a
to
Kanter-controlled investment
but
(Ex.
company
subsidiary.
9203PK)
and Zion was a THC
the bank transfer record
and
supra
24.
See
nоte
(Ex. 146,
adjusting journal entry
THC
32)
entry
both indicate that the transfer took
opinion
27. The Tax Court
and the Commis-
place
January
1983.
sioner’s brief both indicate that
transfer
January
It
occurred on
1983.
is of no
transac-
Equitable Leasing
to enable it to close certain
investors for Mallin’s
ble
(Tr.
5213-15.)
tions.
transactions.
There was
paid
also evidence
Mallín had
commis-
Tax Court found
there was
sions for these services to Kanter entities.
Equita-
evidence to indicate that
sufficient
(Id.) Additionally, at least
pay-
two of the
paid
to
and
ble had
commissions Zion
THC
in question
ments
were
as
documented
services in
investors
providing
Kanter’s
This
commissions.
was sufficient evidence
payments,
to Mallín. Two of the four
provide
to
a rational foundation for the
(on
$6500,
and for
were
labeled
$9500
Commissioner’s assessment.. The Com-
payment
adjusting
check in
and
THC’s
appropriately
missioner’s assessment
re-
entries,
journal
respectively) as commis-
presumption
ceived its
of correctness. See
sions. The Tax Court determined that
Pittman,
B. $317,350 bank the two transfers of or not monies in- Whether are taxable $302,000 loans. were a taxpayer finding come is a fact that $317,250 transfer, Regarding there we review for clear error. Reynolds, supporting evidence F.3d at The Commissioner’s assess- finding that transfer was correct, deficiency presumed ment Zion, paid commission and Kanter has but can be overcome evidence rebuttal provided finding no evidence rebut this Pittman, presented by taxpayer. 100 despite his control the entities involved at 1313. F.3d and his access to the records of those First, noted, argues
Kanter that the first Com entities. there cir- deficiency assessment of a that Equitable missioner’s cumstantial evidence Leas- *27 not given ing making payments should the benefit of the was to THC and presumption of the Additionally, correctness because Zion as commissions. THC’s any “failed to evi provide adjusting journal entry Commissioner for 1983 has an $317,250 connecting dence Kanter to income.” “32” an indicating this amount of that (Pet. 59.) at labeled, Br. This fares no argument was “Due from Zion—Commission adj. than it Eq. better here considered for did when we Income to commiss. from (Ex. respect it Bank Deposit Leasing, the loaned to Zion on issue. 1/4/83.” 146, 6.) journal adjusting Finally, There was evidence that Mallín and Kan at THC investments, partners in ter were various in appears Kanter concede the facts procured and that Kanter’s law firm had brief that section of his this amount was significant is we believe it entry commission. In his brief on because as received represent $302,000 $635,250 also the and may down the appeal, $8000 Kantеr breaks and show that those transfers “$317,250 as in- transfers including commission (see two transfers were commissions. These Ex. THC Equitable from come roughly contemporaneous, and Kan- journal were p. adjusting journal, adjusting and aggregates ter himself them describes 32, reflecting commission income of entry in as a cumulative amount brief. them his paid to THC’s subsid- $317,250which was (See (“$310,000 ...).” Pet. Br. at 16 as loans from (Pet. from iary as a loan THC Zion $302,000 Equitable reflecting ... a loan 16.) finding The Tax Court’s Br. at $8,000 ”).) $310,000 and an loan .... commission income was payment this was the entry appear 59 would to be same as clearly not erroneous. $310,000 general ledger and as the about the June 1983 transfer What $310,000 Kanter, com- described $302,000? for Equitable from to THC $302,000 prising total $8000 circumstantial evi- Against general Entry adjusting 59 in the THC transfers. payments of commission THC dence journal weighs against general ledger’s presumption of correct- Equitable $302,000 notations for both the and the Commissioner’s assessment of ness weighs transfer and further in favor $8000 an deficiency, entry gen- there is THC’s finding 30, 1983, $302,000 for for ledger eral June $302,000 payment. was In a commission Leasg.” from Equitable “Loan labeled event, does, very evidence at 12.) (Ex. 148, ledger THC To- general least, make the characterization of the entry gether entry there is with this $302,000 unclear, and transfer because days three indicating an transfer $8000 bears the rebutting Kanter burden of Equitable “Loan from earlier also labeled deficiency Commissioner’s assessment of (Id.) This transfer is corrob- Leasg.” $8000 and controlled the entities whose records a from Equitable orated check THC up have could cleared this matter defini- 24, 1983, for a has $8000 June say tively, we cannot that the Tax Court (Ex. 9203PK, reading, memo line “loan.” $302,000 finding erred #2391.) The check corroboration of payment commission THC general ledger entry for the transfer $8000 Kanter’s services. probative indirectly of the likelihood that conclusion, it was clear not error for contemporaneous roughly similar- Tax Court to find that the transfers $302,000 ly entry ledger labeled Leasing Equitable were commissions may also be correct. These cir- transfer and were taxable income. likely cumstances make more that the is accurate its indication that the ledger VII. Cashmere Investment Assoc.’s $302,000 transfer was loan transactions payment. commission A. Facts piece But there one additional of evi- 1970s, During in the record that the Kanter was dence Commissioner involved and Kanter not mentioned. In the developments have a series of real estate adjusting journal, entry developer development 59 is a THC bare- with Sam Zell. *28 $310,000 ly that owned legible entry appears properties by partnerships were (real read, partnerships). Equitable Leasing, Com- estate Kanter’s inter- “N/P — Income, reclassify partnerships mission funds from ests in the real estate were 59.) (Ex. 146, Eq. Leasing.” entry through This a series of Kanter-controlled held trusts, 1. including partnership the BWK Revocable Transfer of real estate 1-5, Trust, Everglades Trusts and the interests to Cashmere (referred Family Trusts to collec- BWK Associates, Cashmere Investment Inc. trusts). Each tively grantor of (Cashmere) was an inactive corpo- “shelf’ grantor trusts was a trust whose these incorporated ration in in Delaware person- was attributable to Kanter income by and controlled Kanter. On or about of ally. A detailed breakdown the real 15, 1983, May Kanter directed the grantor and their partnership estate interests asso- trusts to partner- transfer their real estate provided financial in ciated attributes ship interests to Cashmere in what was IRA, opinion. 78 T.C.M. intended as a (CCH) exchange nontaxable at in under 1107-11. The interests these had, 1982-88, § 26 U.S.C. 351 in return partnerships real as of for Cashmere estate zero basis. common preferred stock. Concur- rently transfer, § grantor
During expressed Zell his desire to trusts also transferred to eight Cashmere purchase partnership all of the real estate to, promissory payable by, notes and held by held grantor interests trusts. Kan- value, grantor with a in trusts face Zell, selling in ter was interested but total, $498,500. of promissory The *29 (Equity), enti- Management under nancial Co. an from this sale reported the income September § 453. ty by of 26 Zell. On method U.S.C. controlled the installment to Waco sold the Cashmere stock corporation whose a Delaware Waco was $1,647,500 Equity payable by check.29 BRT. benefi- was BRT’s sole shareholder liqui- Immediately purchase, after the Zell fam- of Ranter’s the members ciaries were dated Cashmere. the ily, also the beneficiaries who were that, The Tax Court found grantor trusts. The found that this convolut- Tax Court 453(f), the § Waco and under 26 U.S.C. place taking with- ed series of transactions persons.” “related grantor trusts were period in a month three-and-one-half (3). 318(a)(2), § See U.S.C. ultimately resulted in the transfer 31, 1983, promissory the August On to Zell partnership real estate interests by off paid Cashmere were notes held principally to avoid immedi- arranged was the Administration eight drawn on checks gain and recognition ate on the transfer noted, As the E account. Special Co.’s any lacked bona otherwise fide business commin- Special account contained the E (CCH) 1113; IRA, purpose. 78 T.C.M. at entities, mostly gled variety of a funds (B). 357(b)(1)(A), § There- see 26 U.S.C. (if entities, the entirely) Ranter and fore, assumption the of liabilities Cash- internally Co. accounted Administration recognized money mere was as received given for the source of disburse- specific trusts), (through grantor Ranter his and general ment. The Administration Co.’s gain was to taxed on his required he however, ledger, specify did not the source transfer, resulting up from the the full the paying checks notes. eight amount of the liabilities. 26 U.S.C. indicate, in what part, checks themselves 357(b). § Additionally, the Tax Court payor Three of entity is the notes. found that transfer of notes promissory ostensibly paid were notes partnership, the real estate interests also BRT, entity that was with funds purpose lacked bona fide business in question, not the notes maker principally as a were intended means documentary there no evidence was tax. found avoid income funds mak- advancing BRT was represented that the notes transfers mere had, *30 that Additionally, the Court found the transfer had a bona pur- fide business 357(b). § using pose. taxpayer the If subsequent the to Waco the sale fails to hurdle, assumption clear this the “disposition] method was a the installment is liability money treated as person.” by received to a related 26 U.S.C. property taxpayer, the taxpayer and the 453(e)(1)(A). recognizes § subse- Waco then When any gain to the full liability. amount the transferred, quently years, within two the 357(b)(1), 351(b)(1)(A). §§ 26 U.S.C. Sec- Equity, Cashmere stock the installment ond, if liability the amount of the trans- reporting longer method of was no avail- greater ferred is than the basis of the (2). 453(e)(1), § The en- able. U.S.C. transferred, property then, in general, the by tire amount sec- realized Waco the transferor-taxpayer a recognizes capital (at disposition ond was treated as received gain on the by amount which the liability by disposition) the time of the second exceeds the basis of the prop- transferred seller-grantor disposi- trusts the first 357(c)(1). § erty. 26 U.S.C. tion. Id. 357(b) § a. U.S.C. B. Analysis There can question be little that involving Whether transactions the Tax Court was when correct it viewed fed Cashmere had economic substance for totality of the convoluted Cashmere ques eral tax purposes income a factual transactions and found their only pur tion clear Ind. reviewed for error. N. pose avoidance federal income Comm’r, Pub. Serv. Co. v. 115 F.3d 357(b)(1) § tax. Ranter’s argument (7th Cir.1997). Similarly, whether the does not reach this transaction is merit- of reporting installment method avail period less. Within four-month of time question is a able factual that we review corporation an inactive shelf by controlled Comm’r, Applegate for clear error. (Cashmere) Ranter had its stock trans 1125, 1128(7th Cir.1992). F.2d times, ferred three twice between Ranter- controlled entities. that same Within time § 1. The Attempted 351 Transaction span, notes, promissory virtually equal in The tax-free transfer of to a property capital total value to the total negative corporation controlled solely exchange balances, by account were made entities corporation’s for the transferee stock is Ranter, by (along controlled transferred § permitted under U.S.C. 351. The with real estate partnership interests provides IRC also preserving means for balances) holding negative to entities § 351 eligibility circumstances where by controlled Ranter and then satisfied corporation the transferee liabili- assumes entities controlled Ranter. Both Cash ties of the together transferor with the promissory completed mere notes (an property transferred event that is eco- their entire useful within life-cycle nomically equivalent to a mon- transfer of span larger, transaction— intended (boot) ey corporation from the transferee transferring partnership the real in estate transferor). the property 26 U.S.C. promissory terests to Zell. Yet neither limitations, § 357. There two howev- are notes nor Cashmere to facilitate functioned er, to tax-free treatment under partnership of the real transfer estate First, taxpayer-transferor prove must promissory *31 assumption to the of only the desired asset—the Court have found that
ing Zell with en- interests. The partnership partnership the real interests’ liabil- real estate estate avoid was constructed to by principal pur- ities as its tire transaction Cashmere had on the recognition gain realized the the tax. pose avoidance of federal income partnerships’ the real estate assumption of Zell). Therefore, ultimately, (by, liabilities 357(c) § b. 26 U.S.C. of liabilities Cash- assumption the those found, alternatively, The Tax Court also stages process initial mere the 357(c) § to the apply would Cashmere having as than cannot be described other 357(c) § trig- transactions.30 Section is of purpose the avoidance principal as its gered the of the liabilities when amount income tax. See 26 U.S.C. federal property assumed exceeds the basis of the 357(b). § § in the The exchange. contributed re- remaining argument with Ranter’s taxpayer taxed on the amount 357(b) § to that the spect appears to be the liabilities exceed the basis. The statutory pre- to intent of that section was the promisso- Court found that contributed creating li- taxpayers
vent
additional
represent genuine
notes
ry
did not
indebt-
(like
debts)
to be
personal loans
abilities
had, therefore, a
edness and
basis of zero.
in a
packaged
assets contributed
from the
Without
additional basis
§
to extract
the
exchange
order
notes,
of
promissory
the basis
the contrib-
within the contributed
gains сontained
partnership
uted real estate
interests was
pur-
for tax
property
recognition
without
zero, and
the
as-
the amount of
liabilities
taxes,
poses.
kind of intent to avoid
This
(in
sumed
the form the oft-mentioned
of
Ranter,
the
argues
is far removed from
accounts)
capital
negative
necessarily ex-
where the liabilities were
present case
Therefore,
ceeded
zero
the
basis.
part-
real
aspect of the
estate
substantial
§
gain realized in
351 transfer must be
This
nership
contributed.
interests
be
recognized to the
extent
the as-
full
of
argument fails as well. The fact that
sumed liabilities.
“ordinary
being
liabilities
contributed were
partnerships”
Ranter vigorously argues
that the sub-
business liabilities
As
stance of
notes
nothing
promissory
does
to save this transaction.
should
noted,
contributing
respected
not disregarded
entire business
and
as mere
form,
given
partnership
interests
their associ-
and the notes should be
a basis
equal
argu-
was
transac-
face
For
ated liabilities Cashmere
their
value.
heavily
ment
relies
only
tion whose
function was the avoidance
Ranter
the Ninth
Therefore,
into
v.
“taking
tax.
Circuit’s determinations
Peracchi
federal
Comm’r,
(9th Cir.1998),
liability
the nature of
tential for abuse of this and cabined it. § 2. Disallowance of 453 Installment holding to a Method
We confíne our case such as is to an this where the note contributed next steps The sale of to operating subject business is a partnership real estate interests to Zell of bankruptcy non-trivial risk or receiv- first, involved, the sale of the Cashmere ership. closely company] held is [The stock from Ranter’s grantor trusts to not, a example, corporation for shell or a and, second, subsequent Waco sale passive company. investment within two months of the Cashmere stock Id. at 493 n. 14. (the Equity from toWaco Zell-controlled accept grantor reported
Even if we were to entity). Peracchi’s trusts their that a underlying premise taxpayer’s gains self- the sale to under the Waco obligations made to his own held method closely installment allowed 26 U.S.C. 453(e) corporation § § be respected should for tax 453.31 But limits use of the purposes, in of the light language limiting method installment circumstances holding, Peracchi’s we would is a dispоsition not extend where there second of the premise present to the Cash- property years case. within two that is effected passive company by original mere was a person investment a “related” to the seller. that, issue, words, B, before the In other if A and then B transactions sells to (within a shelf And A corporation. years), after the trans- sells to two cannot C fer of partnership report the real estate interests income from its sale under the Zell, liquidated. Cashmere was Cash- if A installment method and B are “related 267(b) and, operating business, §§ mere was not an persons” under 26 or U.S.C. Peracchi, 318(a). corpo- unlike where insurance The Tax Court found ration grantor needed more assets to meet a mini- trusts and Waco were “related premium-to-asset mum regulatory persons,” ratio-for and that amount the entire purposes, no underlying there was busi- income attributable to the sale of the purpose ness transitory here for these stock to recog- Cashmere Waco must be 453(c) § proportion payments Section states: of the received in (realized section, year gross profit which the purposes For "in- the term payment completed) pay- a to be realized when is stallment method” means method of price. recognized ment under which the bears to the total contract income 453(c). year § disposition taxable from a 26 U.S.C. trusts, ownership of grantor as and their finding affirm this We nized in 1983. imputed “upstream,” the Waco stock well. 318(a)(3)(B)®, § grantor under 453(f)(1) defines a “related § Section Therefore, trusts. stock Waco determining person” purposes grantor trusts would be attributed 453(e): § reach of 318(a), person making § Waco a under (A) at- stock would be person whose grantor trusts under “related” (other 318(a) under section tributed 453(f)(1)(A). attribution, therefore, § thereof) (4) paragraph than of the Cashmere stock makes sale proper- person disposing first method ineligible for the installment Waco ty, or 453(e).32 under (B) relationship person who bears III, Kanter Similarly, noted Part 267(b) to the in section described under owner of BRT was the substantial proper- person disposing first *33 26 U.S.C. grantor provisions the trust of ty- Therefore, §§ 671 et an al- seq. there is 453(f)(1). § stock is 26 U.S.C. Waco’s by grantor which the ternative means BRT, by whose beneficia entirely owned persons.”33 trusts and Waco are “related of undisputedly ries were the members 318(a)(2)(B)(ii), by § stock owned Under Similarly, family. Kanter does not Ranter’s grantor; trust attributed to its grantor is family same dispute that these members stock, therefore, is to BRT’s attributed grantor the the of is, were beneficiaries Kanter is consid- Kanter. That himself 318(a)(2)(B)(i), § 26 U.S.C. trusts. Under by to owned ered own the Waco stock by is considered path the stock owned BRT as Following statutory BRT. a similar Therefore, before, as owned its beneficiaries. Ranter’s status the substantial owning are as grantor BRT beneficiaries treated owner of the trusts means he Similarly, any personally those same stock owns is attributed the Waco stock. under grantor are also of to trusts BRT beneficiaries beneficiaries Rules, Mgmt. trepidation at A-11 We some that there 554-2d Tax Portfolio note with (1996) identify ("Apparently, attribution from was no the Tax Court to effort [grantor] precise trust to the beneficiaries and actuarial interests of the beneficiaries occur, precisely to the trust would still BRT those beneficiaries’ the beneficiaries of nor how grantor to be even if the or another is deemed identities matched beneficiaries 'owner,' legisla grantor although would be trusts. This information statute determining percentage history ambiguous pоint and relevant for the exact on this tive are silent.”). any beneficia- regulations of Waco owned the BRT does stock are Nor (who grantor were also trust beneficia- appear ries ruled Our court to have on the issue. ries), imputed would then be research unearthed one commentator grantor did not make grant- trusts. Because Kanter suggested who has to attribution issue, however, argument this this will precludes to or attribution the beneficiaries. Talk, not the Tax Court’s determination. disturb Shop to See Is Stock Attributed Benefi Jones, (7th Trusts?, United States v. F.3d J. TAX’N ciaries Grantor of Cir.1994) ed., (finding argument (Burton not made before W. & Kanter Sheldon I. Banoff waived). opening 1986) ("A brief interpretation court common sense 318(a)(2)(B)(ii) spe should be that its Section grantor appear regarding cific rule attribution from 33. There to be obstacle does not statute, regula- general legislative history, preempt should rule of trust trusts 318(a)(2)(B)(i).”). grantor to of a attribution of Section tions the attribution trust’s ownership stock of a financial interest in this matter of one to the beneficiaries trust may persua well editors of the article diminish the as to the substantial owner of trust proposed §§ answer. seq. under sive value of the 671 et See The Attribution 318(a)(3)(B)(ii). Therefore, § at- that Naomi spouse” Ranter’s was an “innocent un- 6015(b) ownership 6015(f), § § tributed Waco stock der U.S.C. grantor that the trusts also jointly severally means own liable with grantor stock. Because the trusts Waco her husband. In response to Naomi’s mo- ownership tion, are attributed of the Waco the Commissioner stated that “re- 318(a), § grant- stock under and the spondent Waco objection petitioner’s has no persons” are or trusts “related under request first finding for relief [a that Nao- 453(f)(1)(A), § sale of the and the Cash- mi had not meaningfully participated in grantor mere stock from the trusts (See 0364.) litigation].” App. ineligible reporting under the Waco Therefore, the Commissioner felt the al- by operation installment method request reopen ternative hear addi- 453(e). § tional evidence that Naomi was an inno- spouse cent was moot. other, one,
Whether or both methods followed, analysis grantor are trusts’ Order, September its sale Cashmere stock Waco was ineli- Tax Court denied seven Naomi’s motions. for the method gible report- installment (See 0224.) App. at The Tax Court found ing purposes. for federal income tax language 6015(g)(2) that the required Tax Court’s this issue findings on were not any finding spouse that a had not clearly erroneous. “meaningfully participated” the litiga *34 subsequent, separate tion must occur in a VIII. Naomi Ranter motions proceeding properly that could consider A. Facts “prior the matter now us as a pro before 8,May 2001, On ceeding.” § in the midst of the 6015(g)(2). 26 U.S.C. There fore, post-trial ruled, computations, Rule 155 the Tax Court Naomi would attorney ap- separate Karen Hawkins entered an have to wait for a proceeding in pearance the Tax Court on behalf of the Tax have judi- before Court to the res wife, (Naomi), Ranter’s Ranter present adjudicated. Naomi for cata effect of case purpose of claiming Additionally, Naomi Court should thé Tax exercised its not be jointly severally and liable for reopen discretion not to the record and Tax Court’s determined deficiencies take additional evidence on the merits of thereafter, against Shortly Ranter. claim an Naomi’s that she was “innocent Dick, that, of attorney spouse.” Randall record for both The found Tax Court even Naomi, Ranter though provisions to the innocent-spouse moved withdraw his had representation By 1998, in significantly of Naomi. her new been amended counsel, 2000, Naomi filed a underlying availability first series of ob- clarified in jections computa- innocent-spouse Commissioner’s of had been un relief they changed tions because held Naomi liable for of origination pres since the penalties. upheld fraud Tax Court in early ent case 1990s. The court (Order, IRA, objections. 6/20/01; these reopen refused to a whose trial case had 0346.) App. earlier, then filed years Naomi seven concluded more than five asking motions Court especially the Tax to find that when had been no there mention had participated innocent-spouse she not meaningfully during period in of relief litigation provided possibility as 26 U.S.C. since the trial. Given alternative, 6015(g)(2). § In the relief for a subsequent pro Naomi later Naomi in reopen ceeding, asked the rec- the Tax did not feel the reopen ord order to hear additional on the to evidence burden Commissioner statement be “substantial” and litigate issue was case
present “grossly return be erroneous” order justified. § protection. Additionally, receive provided protection increased for divorced Analysis B. spouses by a separated holding such the denial motions This court reviews for spouse liable those items on which record for abuse reopen the Tax Court’s had filed a she would have been liable she Comm’r, 16 Coleman v. of discretion. separate Finally, return. the modifica- (7th Cir.1994). 821, Whether or F.3d provided § re- equitable tions subsequent § a 6015(g)(2) requires spouse. lief 26 U.S.C. innocent determine whether Naomi proceeding to 6015; Harper, § also B. Federal see John participated” in the “meaningfully had Spouses: Innocent New Relief for proceed- “prior us a matter now before IRS Opportunities Under the Restructur- statutory interpreta- ing” question 1998, ing 61 Ala. Law. Act Reform Lilly novo. Eli & tion that we review de (2000). Answers, Inc., 233 F.3d Co. Natural Cir.2000). (7th 456, 467 Section 6015 also contemplates possibility adjudicate that a will court current U.S.C. substance joint liability completion tax before an § of the Internal part 6015 was enacted as pro spouse innocent invokes the section’s Restructuring and Re- Revenue Service 6015, judicata res will tection. Under 105-206, 112 form Act Pub.L. No. if the attach to decision of court (IRRRA). 685, § Technical cor- Stat spouse “participated meaningfully innocent IRRRA were enacted rections to the prior proceeding,” even if the inno [the] us with the as it leaving statute cent-spouse presented issue never Community Re- presently appears. See 26 U.S.C. court. adjudicating Act Pub.L. No. newal Tax Relief § 6015(g)(2). *35 106-554, 2763, App. 114 G. Stat. Section first that the Tax argues 6015 the so-called “innocent Naomi contains spouse “determined,” spouse” allow a should have under provisions that § liability for that not joint 6015(g)(2), meaningfully and several a tax she did avoid participate in the and litigation both husband Tax Court deficiency against assessed joint IRA filing. against and on a tax return that the decision wife based the her had joint liability, preclusive To husband would have no avoid several show, respect potential her inno- spouse generally, innocent must that effect (1) (2) filed, joint cent-spouse joint liability. a the Nao- return was return defense to mi argues tax the that the owed based on the record and understated filer, joint clearly show was items” of the other Court’s decision that she “erroneous (3) IRA, know, not in present she and had no reason to involved case. See did not T.C.MJCCH) (“Petitioner know, understatement, 78 there was an at 969 Naomi (4) Ranter, wife, her fоr R. involved inequitable is to hold liable Ranter’s (5) in this ap- any giving she has activities rise to understatement However, joint plied innocent-spouse protection litigation. la- filed Feder- no she al ter after the income tax returns with Ranter for years than two Commissioner issue.”). years at further begins *36 application prior judicial internal to the proceedings” furcated in order to allow an proceeding. spouse joint innocent issues of have gains support
This
from
reading
liability
proximately
general
tried
to the
(Pet.
78.)
general
principle
judicata.
liability.
res
Res
of tax
Br.
issues
at
prevents
judicata
parties from
Yet in
relitigating
upon
none
cases
which Naomi
already
adjudicated
claims that have
been
spouse
relies did the innocent
remain si
by
judgment
a court
to a final
on the
lent for the duration of the Tax Court
(with
judicata
Of
res
necessity,
proceedings
years
merits.
requires
elapsing
over ten
original
proceedings:
proceeding
petition
two
an
from Ranter’s
to Naomi’s first mo
issue) and,
a final
judgment
regarding
wherein
the merits is
tion
after
rendered,
closed, raise,
subsequent
and a
all
proceeding
the case was
but
for the
time,
a party
litigate
innocent-spouse
wherein
a
first
an
again
seeks
defense to
Comm’r,
original
liability.
claim decided in
proceeding.
joint
In Vetrano v.
116
Me.,
742,
272,
(2001),
748,
See N.H. v.
U.S.
121
T.C.
Naomi claims her silence was
strategy.
Ranter’s defense
There does not
respect
of interest
part, to a conflict
appear to have ever been time when she
joint representation by
counsel
This
joint representation
and her husband.
conflict of
could
say
her
interest,
alleges, is the kind of extraor
she
conflicting
faced
Naomi
interests between
refusing
dinary circumstance that makes
Now,
and Ranter.
with the Tax Court’s
reopen
an
the record
abuse of discre
decision,
having entered
final
Naomi
argue adequate
tion. What Naomi fails to
engage
hindsight
would have us
and find
however,
ly,
is that
there was an actual
prejudiced
inevitably
that she was
representation,
conflict
intеrest.
Joint
joint representation
because she
now
interest;
itself,
is not
conflict
liable for deficiencies for which she is the
actually
representation of one client must
spouse.”
argu-
“innocent
Had Ranter’s
the oth
representation
conflict with the
Court,
ments succeeded in the
she
Fox,
er. See
States v.
F.2d
United
joint
facing
liability
would not be
nor
(5th Cir.1980) (“However,
actual,
alleging
would
conflict
she be
of interest.
merely hypothetical
speculative,
cannot,
not, automatically
and will
con-
We
conflict
must
demonstrated before it
igno-
helpless
clude that her silence was
can be
that an accused
de
said
has been
strategic
rance and not a
decision.
counsel.”);
prived of
assistance of
effective
*37
Comm’r,
Indus., Inc. v.
Dorchester
cf.
prejudiced by
Naomi
not
the
(1997)
T.C.
an abuse of discretion for the court to Painting. Issue IY— reopen question refuse the record in can order There be no Ranter that concerning sought an sale George receive evidence innocent- facilitate the Washington profit. for spouse painting The Tax defense. that, every
Court found instance where involved, potential profit for was Ran- CONCLUSION ter engaged significant non-law-related summary: purpose business of activities with fa- Report. Issue I—STJ Because take cilitating opportunities the business of oth- the Tax at its that in word render- profit. his ers for own Given the number of ing opinion agreed its final with and evidentiary supporting indicators that this adopted opinion Special Judge Trial profit, was venture also for we believe it Couvillion, we arguments find Ranter’s clearly was erroneous to find otherwise. challenging Tax Court’s refusal to dis- findings We Reverse the Tax Court’s on “original” report close the moot. STJ’s this issue.
We Affirm the Tax denial Court’s of Ran- Deposits. Issue V—Bank The Tax ter’s for re- motions access STJ’s clearly did not findings err its port. unreported regarding Ranter’s income in significant
Issue II —Fraud. There is deposit analy- bank 1982 as determined in- circumstantial evidence of findings fraudulent sis. Affirm the Tax We Court’s tent. It not was erroneous for on this issue. activity Treasury “meaningfully litigation participated” Collection is defined in in the 34. 1.6015-5(b)(2)(i) Regulation present judicata would in the case so res notice; We, however, (or not) apply. [A] section 6330 an offset would note overpayment spouse again finding the [innocent] Naomi 6402; against liability under section underlying not involved in the activities filing against suit the United States case, IRA, (CCH) present 78 T.C.M. at 969 spouse [innocent] collection of Kanter, ("Petitioner wife, Naomi R. Ranter’s jоint liability; tax filing or the of a giving was not involved in of the activities pro- claim United States in a court litigation.”), rise to the Commission ceeding spouse is a the [innocent] response er’s in the record that he did not party property or which involves object finding to a Naomi had not mean spouse. activity does [innocent] Collection ingfully meaning participated within the filing deficiency; not a notice include ("For 6015(g)(2), (App. pur § Lien; of a of Federal Tax de- Notice or a case, poses respondent objec of this has no payment mand for of tax. petitioner's request tion [find first relief 5(b)(2)(i). 26 C.F.R. 1.6015 — meaningfully ing participated she had not, litigation].”)), as obviously, indicia relevant We do determine *38 part appeal merits as of this such a determination. whether Naomi argument that Equitable. It not clear address Kanter’s threshold was
Issue VI — (“STJ’s”) to that the Special Judge’s original Tax find Trial for the Court the error were Equitable Leasing report part transfers made a of the record must be income. were taxable commissions appeal that court can on so this determine findings on the We AffiRM adequately whether its contents have been this issue. judge, whose considered is us. opinion before It not
Issue VII —Cashmere. to the Tax Court clearly for erroneous that, I begin analysis the legal Before I assumption the real the found that have believe, why withholding the demonstrates liabilities partnership interests’ estate a report I want take improper, is to the principal purpose as had its Cashmere policy lines address the concerns few Alterna- income tax. avoidance of federal leap encountering mind when first the clearly it not erroneous for tively, was suppression report. For the the the promissory Tax Court to conclude is, “unusual;” merely “not” it Tax Court is represent genuine indebted- notes did not believe, unique among I all institutions and, therefore, basis, ness and had no a in the where one official conducts law exceeded the basis the liabilities assumed (and witnesses) trial thus hears the the full property by of the contributed prepares report or document con- a other taxable amount the liabilities were taining findings her or recommendations Finally, the Tax did to that extent. trial, on or based and another official finding grantor not err group subsequently officials makes of Cashmere stock to Waco trusts’ sale operative decision. Even Commission- method ineligible for installment er, purposes. argument, acknowledged tax at oral federal income reporting for Court, findings except on every We Affirm the Tax Court’s milieu that of this issue. containing findings the document conducting of the official recommendations Kanter. be-
Issue We VIII —Naomi reviewing trial a court are available to interpretation of lieve the Tax Court’s includes, operative This decision. correct, and that Naomi 6015(g) was example, report magistrate of a federal subsequent proceeding for a must wait judge responsible district court partic- before have the level of her she can practice under decision. This also ipation present case determined. the Administrative Procedure Act which also not that was an abuse We do believe to governs practically of discretion for the Tax Court to refuse all federal administra- reopen Naomi to present proceedings hearing case allow tive and where the litigate innocent-spouse defense. We (usually her law officer administrative Tax Court on issue. judge) file a decision must recommended Affirm parties, any distributed to both Affirm foregoing For the reasons we appellate conducting court and to review part the decision of part and Reverse public large. Transparency is the the Tax Court. universal courts practice agencies and CUDAHY, Judge, concurring Circuit practices. The employing these decisional part. part, dissenting in becomes, policy if there question then are transparency dictate for ev- reasons that majority’s opinion I concur with the else, why eryone do these reasons appeal, to Naomi Kanter’s but issues apply dissent I write to the Tax Court? separately otherwise. *39 superficially
The Tax has not denied that a purports Court to be. The Tax containing original findings opinion clearly the Court’s document states that it adopts exists, yet it- agrees the STJ refuses include with the of “opinion” of the STJ. appeal. in the record on It If that this document recital is as interpreted mean- report ing no answer at all to claim that the that initial report is the lies STJ’s before the like a memoran- already, of STJ is law clerk’s us then there is no issue of the judge to a or the of a Tax judge’s regard dum memorandum Court according due jurist panel privi- fellow on a internal of presumption to the correctness STJ’s —an leged document. The findings. decisional document Deference would not be an issue presided is of an official who over the adoption here if there has outright been of the witnesses, trial and heard the and it is findings. STJ’s This state of affairs would an directed towards official who has no also appear to moot due process Kanter’s knowledge first hand of of any aspect argument as well as his Rule 183 argu- trial. I am not the impugning integ- same ment. Kanter relies on United States v. here, Raddatz, rity of the Tax Court judges or at 447 U.S. 100 S.Ct. dissent; (1980), any point in this I am merely L.Ed.2d 424 argue an STJ questioning propriety the of denial of their should be treated the a magistrate same as Raddatz, procedural transparency judge. a circumstance Using Kanter argues every process like where other known to that when Tax Court reverses an STJ’s transparent. approve credibility the law is If we findings having without heard here, Tax practice sug- Court’s are we personally, process witnesses due However, gesting array administrative whole violated. adoption verbatim the federal government may of that it seek findings by STJ’s Tax Court permit available means when fully comport statutes would with even Kanter’s deny transparency engaging interpretation when of process Raddatz’s due like decisional I processes? requirements. believe that legal analysis majority well as But I agree with Kanter that when the my own must be examined in context “agrees Tax Court adopts larger implications allowing an opinion Special Judge,” Trial it does body administrative an (technically, Article not mean Tax opinion that the Court is the court) I Tax like the Court to flout the verbatim reproduction original otherwise ubiquitous principle transpar- report. argues Kanter STJ’s ency said, proceedings. its I That be- routinely reviews and alters STJ exist lieve there also sound constitutional reports through process internal that is demanding grounds transparency in this concealed in published opinions Tax Court instance. by the language, “agrees adopts.” with and matter,
As a
everyone agrees
threshold
Kanter presented
pieces
two
of evidence to
1)
arguments
support
Kanter’s
are immaterial if
attorney
his claim:
Kanter’s
opinion
allegedly
Court’s
is the verbatim
informally
was told
Tax Court
reproduction of the
report,
Judge
Special
STJ’s
Julian Jacobs and Chief
Tri-
Circuit,
majority
and the
Judge
Eleventh
al
Peter J.
Panuthos that
credi-
Commissioner,
bility
Ballard v.
F.3d
findings
Special
Judge
Trial
Cou-
(11th Cir.2003), appear to
believe
villion on fraud were
reversed
case,
Dawson;1
2)
and which the Tax
opinion
Judge
there
exists
attorney
original
1. Kanter’s
revealed the names of the
ment. The
declaration
Kanter's
judges
question
argu-
attorney
judges
when asked
oral
did not name the Tax Court
*40
in
fact
this conclusion from the
support
since the
Tax Court decision
single
not a
the
Rule
a Tax
neither
the
nor
that
Commissioner
adoption of current
where
modify
to
or
has ever settled this issue
Judge
purported
has
Tax Court
Court
stating otherwise,
Trial
Special
Judge.
despite
a
finding
unambiguously
of
reverse a
Notably,
oral
opportunities to do so.
at
alleges
happened
Kanter
What
present
case
Com-
arguments
the
the
case,
commonly
in
what
occurs
present
dispute
not
Kanter’s conten-
missioner did
Court,
Court'judge
that Tax
the Tax
is
report undergoes
the
some
tion that
STJ’s
(which had
report
takes
STJ’s
been
the
process
of
the
of
during
kind
revision
Judge pursuant
the
to
filed
Chief
with
Tax
in his
“adoption” by the
Court. And
183)
with the
together
Rule
and works
in
very
the Commissioner is
careful
brief
emerges
it.
this process
to edit
From
STJ
Tax
the
stating
adopted
that
the
Court
may may
not bear
report
a final
that
of
“opinion
Resp.
the
Br. at
[STJ].”
original report,
the
but
any
to
resemblance
added).
the
(emphasis
And
Commissioner
may
“opinion”
the
be called
STJ’s
still
stating
just
is
as
in never
that the
careful
(but
if
“report”)
the
the STJ
not
STJ’s
adopted
“report.”
the
Tax Court
STJ’s
to it. This modified
agrees to subscribe
own
This care mirrors the Tax Court’s
Tax
“adopted” by the
Court
report is then
in
refusal to release the STJ’s
language
its
opinion.
the Tax Court
judge and filed as
report Kanter.
reason,
that,
argues,
Kanter
This is the
Court decisions since
880-plus
the
Tax
I
that the
supports
believe
record
I
find
involved
STJ
1983 that
could
Tax
in a
engages
notion that
Court
purported
Tax
report,
judge
Court
quasi-collaborative process of
of the
review
adopt
opinion
agree with
report from which a new and fre-
STJ’s
Never,
any
in-
every
STJ
instance.
quently
opinion emerges
different STJ’s
adoption of the current
stance since the
agreed
the Tax
adopted
find,
I
has a Tax
Rule
could
Court
correct,
understanding
If
my
Court.
agreed
adopted the
judge not
with and
many,
if
reports”
there are two “STJ’s
opinion.
(or
all),
STJ’s
not most
even
Tax Court cases—
under
origina,! “report”
filed
Rulé 183
extraordinary unanimity
I
tell-
find this
Court,
Judge
with the Chief
of the Tax
ing.
difficult to believe
over the
It is
product
solely
which is
work
(since
years
the amend-
course of nineteen
(and
represented
STJ
which
the STJ’s
183),
Rule
not
to current
giving
ments
rise
trial)
at
of
later
views
the end
(and
judge
there are 19
single
Tax Court
STJ,
of
which is a
“opinion”
collabora-
7443(a))
them,
has
of
ever
U.S.C.
effort,
then
tive
but which the
disagreed
single
original finding
with a
adopts”
“agrees
opinion
with and
(and
them).
any
are
20 of
there
about
STJ
event,
Court.
I do
say
degree
I
that this
with confidence
degree
claim to know the
which
unusual,
but
unanimity
impossi-
is not
original
report
present
STJ’s
filed
appellate
system
arms-length
ble in a
altered,
and I do not take as
case
style
involving
independent
indi-
review
of that fact the
highly likely,
that it
determinative
declaration
viduals.
I believe
attorney
therefore,
regarding
of Kanter’s
his conver-
that there is some kind of colla-
So,
personnel.
with Tax Court
path
involved in the
from sations
process
borative
given
interpretation
STJ
I
Tax Court’s
report
Tax Court decision.
draw
Dick,
Attorney
App.
G.
allegedly
who
these statements con-
Declaration
Randall
made
report.
cerning
STJ's
at 250-52.
the alteration
I
at
finding
want to take
closer look
Stone court’s
that the
procedure,
report
STJ’s
was owed deference
argument.
Ranter’s
followed
rules,
182(d)
time,
Rule
*41
wraps a
of
argument
Ranter’s
number
regard
“[d]ue
stated that
shall be given to
one request
different issues into
for the
the circumstance that the [STJ] had the
First,
report.
whether
the
STJ’s
or not
to
opportunity
evaluate the credibility of
to
procedure denying
Tax Court’s
access
witnesses;
findings
and the
of fact recom-
report
the
violates its own Rule 183.
STJ’s
mended
the
be presumed
[STJ] shall
to
Second, whether
Tax Court’s proce-
the
182(d),
Tax
be correct.”
Court Rule
60
law,
In-
including
violates other
the
dure
(1973).
1150,
T.C.
The explanatory notes
(“IRC”). Third,
ternal Revenue Code
that,
to
rale prescribed
this
in regard to
the
procedure
whether
Tax Court’s
vio-
“special weight”
given
the
to be
the STJ’s
due process protections. Finally,
lates
and
one
findings,
should look to Court of
importantly, whether
due
most
Ranter’s
147(b).
Rule
Claims
The
Id.
Stone court
process rights
this
appellate
review
found this prescription particularly in-
court are
re-
violated when
undertake
182(d)’s
structive because Rule
language
view of the Tax Court’s decision without
practically
was lifted
verbatim from Court
report
original
the context of the STJ’s
147(b). Stone,
of Claims Rule
865 F.2d at
respect
credibility findings.
to
At
345.
the time that
the language of
147(b)
Court of Claims Rule
had been
procedure
1. Does the Tax
vio-
Court’s
rales,
for
adopted
the Tax Court’s
the
late Tax Court Rule 183?
interpreted
Court of Claims
that language
agree
I
majority’s
with the
determina-
require
review of
findings
the
of its
tion that Rule
no
imposes
requirement
183
version
under
report
of
STJ’s
a clearly
clearly
of disclosure or of
erroneous defer-
See, e.g.,
erroneous standard.
Elmers v.
However,
upon the Tax Court.
I
ence
States,
226,
(1965).
United
Ct.Cl.
think some additional discussion of the
The
court
language
Stone
found that the
of
form,
evolution of
into its
Rule 183
current
rale,
rule’s command
look to the
why
compel
rule
current
does not
Court of Claims and the Court of Claims’
production
require
of
report
nor
STJ’s
use of a
erroneous standard of
any particular deference to the
re-
STJ’s
required the
such a
review
use of
standard
port,
very
would be
informative. Ranter
findings.
the Tax Court’s review STJ
Commissioner,
points us to
Stone v.
Stone,
However,
(same); Litigation, but see Tax Court 630- 2. Is procedure the Tax Court’s other- 2nd Tax Mgmt. Portfolio A-49 n. 599 (1997) (“The (but wise unlawful? Circuit not the Tax D.C. Court) position the has taken that the level quite ably clearly The majority and out- of deference is to review the Trial Special why existing lines rules and statutes do Judge’s ‘clearly draft on a opinion errone- appear compel not to of the inclusion STJ’s standard.”). However, agree ous’ I with report in record on In appeal. doing the majority’s
the conclusion that this is no so, majority places significant weight the case, longer nothing the and I have addi- the argument analogiz- on Commissioner’s tional to add its the mat- reasoning on ing the Court judge relationship STJ-Tax ter. relationship to the division-Tax gov- Court
Therefore, majority, by § the I in like also do erned 26 U.S.C. which a Tax preliminary not believe that Court Rule 183 never report re- division’s is made report an quires STJ’s to be reviewed if the Tax Court the public reviews case standard, opinion. under a erroneous nor issues Before moving and its own issues, quasi-colla- that Rule 183 is violated a I process the meatier due of process analogy, however, borative revision an STJ’s want note that this report, pro- important nor that the Rule requires overlooks some considerations. First, report. spite duction of the In I a whose is report division reviewed again must how it is has opportunity note remarkable Court court, fact, 5. The Stone language, adopts stated in its inter- new it hew to must Stone, pretation regard presumed meaning due and оf what it has said.” language, correct F.2d at [tax] "until court 347. adjudication Tax final ultimate and review from the a file dissent present not with a division’s any way dissent of its case a place in that decision and could, report. in theo- objections objections — findings division’s overruled ry, include relationship a finally, And between original report. in its that were contained is different division and the Tax Court far findings made Thus, original can be those relationship from between STJ manner, if roundabout public, albeit all, Tax are judges Court. to be. An STJ’s wants them the division essentially, equal. They presidentially are public. is made original report never year statutorily for mandated 15 appointed terms, Second, significantly § they equal 7460 differs each have an vote require “due Rule in that does the business of Tax Court. 26 U.S.C. has that the division regard” for the fact An at the appointed §§ STJ credibility heard witnesses and evaluated no Judge discretion the Chief and has may not division (perhaps because the statutorily mandated term office. adjudicator who heard have been the § Congress 7443A. has authorized U.S.C. witnesses), require nor does removing limited for specific and means report the division’s presumption judge “Judges Tax Court from office: contrast, requires Rule correct. may removed regard presumption both due President, opportunity after notice report. There- correctness for STJ’s inefficiency, neglect public hearing, fore, extent that Tax Court’s office, for no duty, malfeasance but *44 must, 183, Rule accord opinion final under 7443(f). § 26 There other cause.” U.S.C. the respect original to some kind of STJ’s statutory no for protection is such STJs. original report has findings, the STJ’s keeping prelimi- Ultimately, a division’s di- significance, whereas the ongoing some nary report less appears problemat- secret in consequence is of no the report vision’s given ic the division’s almost unfettered review) (or appellate formulation in ability to make its known wishes opinion. Tax Court’s job final for opinion the without concern However, security reprisal. or an STJ Third, may the not have since division Court, serves at the discretion of nor the wit- conducted the trial heard judicial independence and his her is nesses, an policy of deference to such by Only therefore circumscribed. quite adjudicator necessarily ap- would be not contrast, allowing report always original an access the STJ’s propriate. By is STJ and, the for can the Tax Court insulate itself from person the hears witnesses who reason, are adjudicator perception “findings” that an entitled STJ’s of Again, signifi- arbitrarily deference. this raises the malleable at the discretion Tax original report cance of the STJ’s to the the Court.6 that, transparency suggesting through judicial and re- I am in this case or in be original general, judges providing the of the Tax Court coerce or access STJ's view— independence judicial report judicial exert allow undue influence over STJs. The would for fact, however, independence compromising procedures of the of of is a without the finders procedure pre- principle. This is the same structural The statutes and Tax Court. Act, establishing utilizing by Court and scribed the Administrative Rules STJs Procedure requires report lack of ALJ who judicial independence the structure of in, example, prepared find and filed our III courts. heard the witnesses to be for Article enlightenment. public One To way imposing a structural for describe modicum of judicial system independence its lack structured the Tax Court would STJ lament
881 addition, provisiоns deprived property. are other there Mathews v. El 319, that, 333, 893, dridge, 424 U.S. 96 the Internal Revenue Code at S.Ct. 47 (1976). least, very Congress not L.Ed.2d 18 Notice and an oppor show that did tunity be heard are the hallmarks of a keep a clear intent STJ demonstrate hearing. fair Mullane v. Central Hanover reports secret—unlike the clear intent Co., 306, 313, Bank Trust keep private that & 339 U.S. 70 reports division is shown 652, (1950). 7459(b) § 94 § that S.Ct. L.Ed. 865 in 7460. 26 states Su U.S.C. preme all Raddatz reiterated report writing the “Tax Court shall three test fact, part announced Mathews findings opinions, its and memoran- for process due opinions.” Additionally, evaluating protections: 26 dum U.S.C. 7461(a) [Tjhree § “all reports states that factors should be considered in records,” public ... be determining shall whether the flexible con- 7462 states that “Tax and U.S.C. cepts process of due been have satisfied: provide (a) publication (b) Court shall private implicated; interests reports Printing its at the Government of an risk erroneous determination may Office such form manner as be process reason accorded and adapted public best information and probable procedural value of added ” (c) majority While the use.... correct safeguards; public interest or statutory burdens, there are no rules sections and administrative including specifically that the initial re- require procedures costs that the additional are, port public, of the STJ be made there would involve. token, no same sections that Raddatz, forbid U.S. at S.Ct. 2406 con- report public made Mathews, —in (citing U.S. S.Ct. §to pri- trast 7460’s clear intent to keep 893). case, In the present context of the
vate
division
that is
report
reviewed
one would need to determine whether a
§§
full
And
Tax Court.
quasi-eollaborative process wherein the ul-
appear
a strong presump-
to establish
fact,
finder of
has
timate
who
not heard
public
tion
the IRC in favor of
dissemi-
*45
herself,
amend,
the witnesses
can
revise
that, ap-
nation of Tax
documents
Court
findings of
preliminary
reverse the
easily apply
could
parently,
the STJ’s person
actually
who
heard the witnesses
report. Only a
interpretation
formalistic
(and
preliminary
reveal those
find-
never
by the Tax Court that the STJ’s
report
ings)
running
without
afoul of the Fifth
a
Tax
it to
“report
not
Court” allows
two
comprises
separate
Amendment. This
such a presumption.
avoid
(1)
questions:
must the
Tax
review
findings
degree
with a
STJ’s
formal
procedure
Does the Tax Court’s
vio-
(such
error);
(2)
deference
as clear
process?
late due
hear
must the
Court itself
witnesses
process
Due
that
have
requires
credibility
Ranter
issues of
before
determine
he
hearing
reversing
been afforded a fair
before
the STJ?7
1)
judicial independence
suggest
alleges
that I
does not
the Tax Court owes the STJ a
that
2)
degree
impugning
integrity
am
distin-
formal
of deference
guished
change
findings
members
the Tax Court.
And
Court cannot
the STJ's
with-
certainly
interpreted
having
dissent should
not
be
out
heard the witnesses. Once it is
that,
Amendment,
way.
that
determined
under the Fifth
original
Court can act
an
as
fact
novo,
separated
7. Kanter has
these two oft inter-
finder and determine facts de
then one
concepts
arguments
conducting
twined
his
he
when
must ask whether the method
Act
Magistrates
under review re-
Camera
Federal
Universal
As Raddatz
clear,
process
the due
court to
quired
at one end of
the district
conduct
de
make
administrative law
general
magistrate judge’s
find-
spectrum
novo review the
—the
require
not
that
does
process
context—due
no
ings, and the Court took
issue with that
finder be constrained
the ultimate fact
review,
crеdibility
even
standard of
origi-
degree
formal
of deference
This
findings.
parallels
administrative
fact
Nor must that
hearing
nal
officer.
demonstrates,
believe,
context, and
I
that
making
before
finder rehear
-witnesses
process
the full continuum of due
along
fact
findings,
or not the
finder
whether
and Univer-
concerns framed
Raddatz
find-
original hearing officer’s
reverses the
Camera,
process
per
sal
there is no
se due
(“Gen-
680,
ings. See id. at
100 S.Ct.
ultimate
of fact
violation when the
finder
in adminis-
erally, the ultimate factfinder
preliminary findings de novo.
reviews
is a commission or
proceedings
trative
Therefore,
agree
majority
I
that
board,
trier has not heard the
and such
require
the Fifth Amendment does not
testify....
commis-
witnesses
While
findings
that
the Tax Court review STJ
may
...
defer to the find-
sion or board
using any particular degree of deference.
officer,
hearing
of a
that is not com-
ings
means
that there is no constitu-
This
also
Corp.
Camera
pelled.”); Universal
requirement
tional
that the Tax Court use
474,
456,
NLRB,
492-94, 71 S.Ct.
340 U.S.
review of its STJs’ re-
appellate-style
(1951);
also 5
findings pro- report; violates due we do not. procedure has si-collaborative sense, to this my writing In a real cess. Tax governed review the Court is Our of than dis- more concurrence point has been governing same by the standards those very to navi- important it But I feel sent. our review of a district court’s civil bench to agreement order gate these areas trial; are legal conclusions means area of for the pivotal properly prepare are de of fact findings reviewed novo part ways I with where disagreement, for error. 26 U.S.C reviewed clear See majority. Commissioner, 7482(a); v. Pittman (1996). 1308, Obviously, we F.3d 1312-13 Tax review appellate 4. Does report do not need to the access STJ’s findings without access Court’s meaningful de novo review of the conduct pro- report violate due the STJ’s clearly legal Tax Court’s conclusions. But cess? involves to the erroneous review deference in- stage procedure is another There Tax conclusions of the fact finder —the (and per- key my here one volved in the present case. This is a defer- Court analy- due requires process spective) attrib- Supreme ence has of the Tax Court’s appellate review sis— uted, fact to the credibility, case of report or not the STJ’s decision. Whether finder’s of the wit- first-hand observations parties to the com- made is available question. nesses find- Tax Court its ment before the issues “clearly when finding is erroneous” [A] Tax or not the ings, and whether it, although support is evidence disposi- there purportedly can reverse the STJ’s evi- having reviewing court the entire findings without credibility tive witnesses, firm dence is the definite and question left with heard the relevant pro- mistake com- or not the due conviction that a has been still remains whether court rights parties before this mitted. cess have opportunity no are violated when findings factual to review the Court’s are findings When based on determi- initial light for clear error in the STJ’s of wit- regarding credibility nations 387, report. Lucey, See Evitts 469 U.S. nesses, standard] erroneous [the (1985) L.Ed.2d 821 S.Ct. demands to the greater even deference (there appeal, no right is constitutional findings; trial the trial court’s created, right appeal once is but judge can be aware the variations comport due to be process must tone of voice that bear so demeanor and effective).
meaningful question This heavily understanding on the listener’s distinguishes the issue whether the Tax belief what said. procedures intrinsically are unfair Court’s N.C., (which v. City City, Anderson Bessemer majority neither I nor believe true) 564, 573, 575, U.S. S.Ct. from the issue whether (on (citations omitted). (1985) L.Ed.2d procedures are unreviewable Thus, I clear majority disagree).10 integral it is to the standard of ed, ques- depend upon asking I am more question 10. This does fundamental required give being some tion whether our clear error review of the Tax Court’s level meaningful report. findings Al- Court's can be without of formal deference STJ’s report though question before the context of the STJ’s to inform us would much requirement exist- easier to answer if such review.
885 findings that there be the of the ALJ who actually error review deference heard credibility who has findings of the official witnesses—influence that becomes even Although heard the actually witnesses. significant more when an agency re- has Court in Anderson was dis- Supreme preliminary credibility versed those find- a of fact cussing deference due finder NLRB, 946, v. ings. Kopack See 668 F.2d has, himself, witnesses, I heard the who Cir.1982) (“One (7th 958 must attribute instruc- think the Court’s command is also significant weight to an findings ALJ’s First, its ways. tive in two on face based on demeanor because neither instructs that of credi- Anderson on issues the reviewing [NLRB] nor court has the opportunity bility the to hear is witnesses opportunity similarly to observe the testi- significant a clear context. Sec- error witnesses.”); fying Ross, Moore v. 687 ond, by Anderson informs context (2d Cir.1982) 604, F.2d 609 (“Accordingly, impliedly undermining reliability of reviewing courts have often found federal credibility that reverse deter- findings unsupported by decisions evi- substantial actually of an official who has minations they dence hinge when on assessments give heard the witnesses. If are to we contrary credibility to those made greater findings “even deference” to the witnesses.”); ALJ who heard the v.Ward judge a who has heard the witness whose (5th NLRB, 8, Cir.1972) (“The 462 F.2d stake, credibility is at inevitably we must preeminence of the Examiner’s conclusions give deference to who sub- judge less regarding probity testimonial does sequently findings. reverses those amount to an inflexible rule that either the major I find this line of support for reviewing Board invariably or a court must thinking administrative law arena.11 decision, defer thereby effectively to his context, administrative Adminis- nullifying judicial either administrative or trative Procedure Act a re- requires that review. But when the Board second- court viewing agency examine an determi- guesses gives the Examiner and credence on a nation based record includes testimony which he has found—either findings hearing preliminary from the offi- expressly implication be inher- —to (like an Judge cer Administrative Law ently untrustworthy, substantiality (ALJ)).12 557(b), §§ 5 U.S.C. 706. When best.”). is evidence tenuous at reviewing findings court agency reviews evidence, credibility Supreme Universal substantial Cam- strongly preliminary influenced philosophy era best summarized the be- 162-63, 1816, agency 11. Most review de- of administrative U.S. 119 S.Ct. (1999); adjudications terminations or under Tripp is done L.Ed.2d see also v. Commis Cir.1964) sioner, (7th (u the "substantial evidence” standard. 337 F.2d si standard, ng apply clear error both error” and evi which "clear "substantial of district dence” in to review of review court as well as reference Tax Court’s fact). Therefore, findings, indistinguishable findings guid virtually factual I look for context, the substantial ance to the administrative law evidence standard. See Z.S., reviewing which courts District examine administra School Wisconsin Dells v. (7th (" (including tive Cir.2002) agency adjudi determinations F.3d differ- '[T]he cations). ence clear error and evi- [between substantial is a subtle ... we one—so fine that dence] single again, have failed uncover a instance in 12. And in the administrative context novo, reviewing agency findings court conceded that the factual can make de regardless any preliminary findings, use one standard rather than other much produced in fact would have out- different the Commissioner claims Tax Court "), Zurko, quoting respect report. come.' Dickinson can do to an STJ’s *49 testimony separated that was “We intend witnesses’ process: hind this (and by by days a con- even weeks hundreds supporting evidence or recognize that pages transcript). when an of in the may be less substantial or thousands clusion by a advantage gained has is to be examiner who Whatever impartial, experienced mul- and with the first-hand observation of witnesses is witnesses lived observed the so tiplied exponentially different from when trial is conclusions case has drawn voluminous. long transcript he reached and the so than when has Board’s 496, 71 of the credi- at The detailed interconnection the same conclusion.” U.S. of on bility This never more the case different witnesses different S.Ct. 456. is im- credibility. one of factual issues'makes the accumulated than the issue is when Raddatz, pressions presiding irreplace- said in officer Supreme As the I item credibility single of able. can think of no of more is within the context evaluating in a Tax significance on a “cold record” are findings based find- fraud than the find- they if differ from the decision on unfiltered suspect most ings of who watch over the ings actually the one who heard the STJ stood of trial. question. in witnesses sure, always must
To be courts difficulty determining how comes making problems sensitive and when this concern rises the consti- the cold credibility determinations on tutional of due No court of process. level years ago, than 100 Lord record. More I which am aware ever considered the has Privy viеw of the Coleridge stated the agency’s swallowing of an ramifications should not be Counsel a retrial preliminary refusing regurgitate and reading *50 worlds, greater possible learning this to risk of error here is the liken a the safeguard procedural process whereby original impressions value the added the (the in this context. report) higher STJ’s is through the STJ are tempered the colla- report the STJ’s would be Without process Court, and, Tax I borative with the reviewing deferentially credibility finding a assume, would Tax opinions the Court’s by the Tax based on a made Court cold would by be molded and informed the (albeit record with the theoretical collabo- impressions first-hand of the STJ. Whatev- actually heard ration STJ who the er process limitations on this review en- witnesses) own analysis based on our by tails would be the balanced fact that the precedents same cold that record. opinions STJ does not still hold or findings (as in the administrative context well noted in represented conflict with in those the Camera) as Universal demon- world, opinion. a it no longer such how preliminary findings strate valuable seems so strange every that Tax Court in like present are review cases the case an in involving opin- STJ resulted an Mathews Under the test’s third one. agreed ion that adopted with and the opin- the prong, added cost and administrative ion of opinion the final repre- STJ —the is de in this minimis— burden instance a compromise sents between positions the balance, On I publishing report. the STJ’s both of the judge Tax Court and of the strongly believe that the absence of the (This things STJ. view of would still re- report in the record our consid- STJ’s disingenuous main somewhat because the of the Tax decision eration Court’s creates Tax opinion’s language Court clearly seeks legitimate process due concerns with re- to imply that opinion represents to our spect review. STJ.) original I report of the believe that analytical monkey throws a real What is, less, position this more or taken into all of that wrench this is the result of the majority. process
the collaborative Court rejoinder to utopian obvious that, opinion represents an allegedly, process view of the Tax point is to (but not, I “opinion” repeat, the STJ already out what I noted: have the STJs STJ). “report” of the What this could equal are not Tax Court judges is that the of the Tax mean collaboration might to assume that the naive STJs with opin- Court the STJ produced has have an equal voice the collaborative represents that ion the revised and true process opinions. Court results legal opinions and findings STJ. The The result system whereby is a the Tax therefore, original report, by necessity discretionary Court total maintains control no longer would be a statement of valid over the function of STJs but expects findings the STJ’s as it differed inasmuch reviewing court simply accept to at face Therefore, from the final opinion. opinion value the declaration process that due is concerned extent with hand, I opinion On the one the STJ. changes that the Tax makes to certainly do not believe the Tax Court findings report contained in the STJ’s (which forcing is prevaricating coop- STJs to represent disagree- would points STJ), express erate under the threat of unem- between ment and the However, judicial ployment. indepen- those concerns are balanced the fact process dence in due the context of is not actually disagree STJ does not and, fact, lightly, changes principle with those be taken and its ab- has certi- signing consequences. fied their off on sence has The fact is that correctness opinion. could, I process ap- in the best of all this entire of the Tax Court well extract the efficiencies detrimental Commissioner designed to pears petitioner. as to to be heard designating cases involved having bear by STJs without I find pages, After all of these what traditionally- associated costs procedural I ma- interesting is that believe the most decision-making adjunct this kind of *51 complete and I jority agreement are that transparency). I do not believe (e.g., central here —that the views issue opin- final assent the STJ’s ultimate that, I say howev- the STJ matter. When protection enough is ion Tax Court er, process I look at the structure of the majority does. parties. dis- can be under the STJ’s views leaving a and I find carded without trace dissent, have to I not Because I do glass half-empty. majority sees outcome, note merely articulate a final but (“agrees verbal with and formula How process that I find a due violation. I do adopts”) glass and finds the half-full. ever, theory. The simple solution not believe the concealment by inter process violation is avoided due process Court’s revision behind 7459, §§ 7461 and preting 26 U.S.C. verbal formula allows this court to conduct the STJ’s require publication as to so at meaningful appear, I appellate review. report original report as a least, moment in that be alone Corp. v. See Edward J. DeBartolo Court. Therefore, I respectfully belief. dissent.13 Bldg. & Trades Florida Coast Const. Gulf 575, 1392, Council, 485 U.S. 108 S.Ct. (1988). appeal L.Ed.2d would This original re stayed to allow STJ’s be It is
port part to be made the record. say not significant to what I do summarize Carolyn SMITH, Plaintiff-Appellant, process I here. do not believe that due to file requires parties that the allowed objections report to the STJ’s before AND AMERICAN GENERAL LIFE Nor opinion.
issuance of the Tax Court’s ACCIDENT INSURANCE COMPA re process do I believe due necessarily NY, INC., Defendant-Appellee. quires report pub that the STJ’s be made No. 02-2114. lic its ultimate before the Tax issues making the opinion. by eventually But Appeals, United Court of States (and part the avail report public STJ’s Circuit. Seventh appeal), record of the Court on able Argued Jan. 2003. con opportunity this court will have an appellate Fur meaningful duct review. July Decided 2003. ther, may procedural this is a result Aug. 18, Rehearing Denied 2003. parties, including all the Commis benefit sioner, just Kanter— petitioners like can very easily
Tax Court decisions re findings (credibility-
verse —related otherwise) in a of STJs manner Although, again, part I concur as to the Kanter. opinion concerning appeal of Naomi notes gains that would significant concerned 1, 1983, were all May dated and were triggered by unqualified be sale of the 1,1983. payable on August promis- These partnership by real interests held estate notes, Kanter, sory according to grantor his had trusts. The Court found twenty partner- equal one of the real estate basis to face value and increases the ship grantor interests held aggregate trusts total of the basis transferred accounts; negative capital is, had property gain so as to eliminate the bases, by their liabilities exceeded their an would otherwise have been realized under amount, total, $476,889. IRA, 357(c) § through U.S.C. the assumption (CCH) Therefore, T.C.M. 1108. negative Cashmere capital of the ac- unqualified transfer those interests counts in the transfer the real estate assumption involve the would liabilities partnership interests. See 26 U.S.C. bases, trigger in excess and would 357(c).28 § Kantеr, capital gains to the who seller— was the owner virtue the IRC’s stock to Sale Cashmere Waco grantor provisions. trust See 26 U.S.C. §§ 671-677. 12, 1983, July On in the next stage of the entities, transfers Zell-controlled Kanter In a series of transactions took trusts grantor directed to sell their place ultimately resulted the trans- preferred common and stock in Cashmere partnership fer of the real estate interests Capital Corp. prom to Waco return for grantor from the trusts to Zell-controlled issory place totaling approxi installment notes entity. transfer took three stages. mately grantor million. trusts $1.5 357(c) provides part: property pursuant 28. Section relevant basis of the transferred exchange, to such such then excess shall (c) Liabilities in basis.— excess of gain considered (1) as a the sale or ex- general. In the case of an ex- change capital property change— of a asset or of asset, may (A) capital applies which is not a as the case to which ... section 351 sum of the be. if the amount liabilities 357(c). adjusted exceeds the 26 U.S.C. assumed total
Notes
notes promissory ers of the among en- between and Ranter-controlled obligations on the way, some assumed tities, true represent and did not indebted- (CCH) IRA, 1110-11. notes. 78 T.C.M. Therefore, had ness. Ranter no basis September As of Waco held all of not, therefore, notes, and the notes did Cashmere, stock in and Cashmere’s assets aggregate proper- increase the basis partnership inter- included the real estate ty transferred Cashmere. Under (from $498,500 note ests in cash 357(c), § the excess of liabilities over basis payments). property the transferred was therefore capital Be- recognized gain to Ranter. of Cashmere stock from Waco Sale partnership cause interests the basis to Zell 357(b) (c), zero, under both full amount of the transferred liabilities subsequently negotiated Ranter the sale Fi- Equity of Waco’s Cashmere stock was taxable Ranter. noted, purchase price price 29. As Cashmere’s assets included of Cashmere included $498,500 $1,149,000 plus partnership partnership estate in cash inter- for the real Therefore, $1,647,500 purchase ests. interests.
interests to Zell: notes preponderance created, transferred, the evidence were and satisfied be Zell, liabilities not were transferred for fore consummation of the sale to principal purpose tax liquidated avoidance and and Cashmere was as soon as possession leav- it was erroneous for the into Zell’s its stock came
notes had hands of transferee face-value basis represent here did not genuine indebted- corporation). hypothetical risk ness, Court did not err prop- might this note somehow become the that the finding promissory notes had
activities.” See She notes “collection 6015(b). likely any in expanded delay § would not be U.S.C. Section there present previous innocent-spouse provisions by re- of the case with such course determination, moving that there would be no need requirement under- (2001) (“Claim such reopen order to make S.Ct. the record L.Ed.2d 968 determination, preclusion judicata] that the generally [res Commission- refers objection no expressly prior noticed to such to the effect of a judgment er in fore closing determination. successive litigation very claim, relitigation same whether or not Unfortunately Naomi, gen the claim raises the same issues as the judicata lan principles eral of res and the suit.”) added); (emphasis earlier see also dеny her guage the statute this relief (6th ed.1990) Black’s Law DICTIONARY 6015(g)(2) only time. is prop this Section judicata res (defining as the “[r]ule that a subsequent judicial pro invoked in a erly final judgment rendered a court ... preclusive ceeding to avoid the effect of a an constitutes absolute to a subsequent bar determination, judicial prior and has no claim.”) involving action the same (empha ini application during pendency added). Therefore, sis Naomi cannot have judicial proceeding preclusive tial whose the level of her meaningful participation First, she to avoid. start effect wishes thereof) (or lack present case deter plain language with the of the statute. judicata until res mined becomes relevant (7th INS, Lara-Ruiz v. F.3d subsequent in a proceeding. Cir.2001). observed, As the Tax Court alternative, that, In the argues Naomi if plain language 6015(g)(2), §of she wait for a subsequent must proceeding judicata,” “Res limits its effect to labeled § 6015(g)(2) relevant, before becomes she consideration of a “decision of a court in innocent-spouse wants to have her defense prior if proceeding,” to determine (under 6015(b) joint liability 26 U.S.C. participated meaningfully “individual (f)) adjudicated & us, during the merits prior proceeding.” To lan such pendency present case. This would guage prior clear: a decision from a require, argues, reopening she proceeding only means that this record statute is allowing her to introduce the applicable original proceed when the court neces- sary support evidence to her ing determining liability tax has concluded. innocent- claim, spouse can and she We conclude this section is further claims that it designed to innocent spouses assist was an abuse discretion for the Tax avoiding effect preclusive of the other Court not to allow her to so. do spouse’s prior, completely adjudicated support prior seeks Naomi case, court but that the section has no that, claims, Court decisions she have “bi
notes conducted factual finding manner done testimony: prior witnesses’ Tax Court here. The reason for this clear: Act the Administrative Procedure fail to careful note must often “The most requires publication findings of such fully convey the evidence in some of its no agencies. for executive And court that It important elements.... cannot most I could find has ever discussed the avail- give or manner of the the look witness: ability findings being of preliminary as doubts, hesitation, his his his variations process Only protections. related to due precipi- or language, his confidence Universal Camera’s dicta the value consideration; tancy, his calmness close, preliminary findings comes evidence, ... body the dead with Supreme its Court there based out when spirit; supplied, its language decision of the Administra- orally, by given the ear and openly tive Act. Procedure Queen eye receive of those who it.” Bertrand, 460, 481, Moo.P.C.N.S. However, three-part under the test of (1867). Eng.Rep. Raddatz, Mathews and I think it not un- Raddatz, 679-80, process 100 S.Ct. reasonable to invoke due in this U.S. Raddatz, appellate re- present 2406. And unlike context at the court level of Mathews, I dealing case are full trial a view. the first prong Under (on merits, judge again on the albeit trial note that the nature quasi-criminal civil fraud), significant the “quasi-criminal” private issue of of fraud is a more inter- ancillary determination, simple an Addi- est than a civil but suppress. motion inordinately tionally, present case was not as the crimi- weighty interest long suppression complicated, hearing and the of nal Raddatz. Un- resolution however, issues I required synthesis multiple prong, der second believe