Free Motion for Leave to File - District Court of Federal Claims - federal

Case 1:01-cv-00358-LB

Document 84-4

Filed 08/28/2006

Page 1 of 5

03-201 74,

03-20271
v.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
MORRIS A. WEINER,
P lainti ff-Appellant -Cros s-Appel lee

UNITED STATES OF AMERICA,

De f endan t -Appel lee-Cros s - Appe 11 an t

Consolidated with
03-20176
MARION S. KRAEMER; JOYCE W. KRAEMER,
Plain ti f f s-Appe llan t 5

v.
UNITED STATES OF AMERICA,

Defendant-Appellee

ON APPEALS FROM THE JUDGMENTS OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS

BRIEF FOR THE APPELLEE-CROSS-APPELLANT
EILEEN J. 0' CONNOR

Assistant Attorney General

RICHARD FARBER (202) 514-2959
JOAN I. OPPENHEIMER (202) 514-2954

At tornevs
Of Counsel:

Tax Division

MICHAEL T. SHELBY United States Attorney

Deoartment of Justice Post Office Box 502 Washinaton, D.C. 20044

EXHIBIT

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Case 1:01-cv-00358-LB

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§ 6621 (c) applies automatically to the extent an underpaymnt is

attributable to a tax motivated transaction. There is nothing in the language of the statute that would allow a taxayer to avoid
liability for the increased interest provided therein by

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conceding or settling his tax liability.

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THE DISTRICT COURT HA JUISDICTION TO

DETERMINE WHTHR TH PARTNSHIP TRSACTIONS HA ECONOMIC SUBSTANCE AN,
THFORE, .CORRCTLY DENIED TAXPAYERS'

MOTIONS TO PRE TH GOVERN FROM
OBTAINING THOUGH DISCOVERY AN FROM

INTODUCING AT TRIAL EVIDENCE THT TH PARTNRSHIP TRSACTIONS LACKE ECONOMIC
SUBSTANCE

Standard of Review

The question whether the court had jurisdiction to consider
whether the partnership transactions had economic substance is a

question of law reviewable ~ ll. Tavlor, 127 F.3d at 475.

Taxpayers invoked the district court's jurisdiction to
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determine their liability for § 6621 (c) interest, which liability

depends on whether their underpayments were attributable to "sham
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or fraudulent transaction(s)." I.R.C. § 6621(c) (3) (A) (v). They

nevertheless contend (Br. 113-14) that the court lacked
jurisdiction to determine whether the partnership transactions

were shams. They reason that the economic substance of
partnership transactions is a partnership item and that the
District Court lacks jurisdiction to determine partnership items.

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They therefore contend that the court improperly denied Weiner's

motion to prevent the Government from obtaining through discovery

various TFA documents and the Kraemers' motion in limine
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objecting to the Government's introduction of evidence regarding
the economic substance of the partnership transactions.

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Taxayers are wrong. By identifying the "item" under
consideration as the sham nature of the partnership transactions,
rather than as § 6621 (c) interest, taxpayers attempt to deflect

the court's attention from this interest, which is the "item" at
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issue. iSection 6621 (c) interest is an "affected item)' not a i

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"partnership item." See discussion SUDra, p. 72. Unlike the
prohibition of refund suits attributable to partnership items,l1/ there is no prohibition on refund suits attributable to affected

items. See Carroll v. United States, 198 F. supp. 2d 328, 355-56

(E .D. N. Y. 2001), vacated on other 9rounds, 339 F. 3d 61 (2d Cir.
2003). Indeed, if there were, taxpayers could not have brought

these suits.
Since the District Court had jurisdiction to determine

whether taxayers overpaid § 6621 (c) interest, it had the
jurisdiction to make ,findings incident to this determination,

including findings that a partnership engaged in sham or

fraudulent transactions. ~ I.R.C. § 6621 (c) (3) (A) (v)
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(defining, as a "tax motivated transaction," "any sham or

fraudulent transactionW). Cf. I.R.C. § 6214 (b) (in redetermining

si/ ~ I.R.C. § 7422(h), discussed suora at pp. 22-23.

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an income tax deficiency for any taxable year, the Tax Court has jurisdiction to "consider such facts with relation to the taxes

for other years . . . as may be necessary correctly to
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redetermine the amount of such deficiency"); Zack v.

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Commssioner, 291 F.3d 407, 415-16 (6~ Cir. 2002) (in case
involving the 1985 and 1986 tax years, Tax Court had jurisdiction
to determine existence of net operating loss carryback from 1988

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to 1985 and 1986, even though it lacked jurisdiction to
redetermine taxpayer's tax liability for 1988).

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VI

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TH GOVERN CONCEDES THT TH DISTRICT
COURT HA JUISDICTION TO REIEW TH
THESE CAES

IN LIGHT OF THIS COURT'S DECISION IN BEAL

COMMISSIONER'S REFUSAL TO ABATE INTREST IN
Section 6404 (e) permits the Commissioner to abate any

interest assessment caused by an IRS employee's error or delay in

performing a ministerial act. In Weiner and Kraemer the
Government maintained and the District Court held that only the Tax Court had jurisdiction to review the Commissioner's denial of

interest apatement claims. (RE 52-55, 135-41.) That holding was
based on I.R.C. § 6404(h), which provides:

The Tax Court shall have jurisdiction over any action brought by a taxpayer . . . to determine whether the Secretary's failure to abate interest under this section was an abuse of discretion. . . . (~)

~/ Section 6404 (h) was initially designated § 6404 (g). It was redesignated § 6404 (i) by the Internal Revenue Service

(continued. . .)

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- 99 CONCLUSION

For the foregoing reasons, the judgment in Kraemer is
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correct and should be affirmed. The judgment in Weiner is
correct to the extent the court held that he was not entitled to

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any refund of taxes. The judgment in Weiner is erroneous,
however, and should be reversed to the extent the court held that
he was not liable for the § 6621 (c) interest imposed by the

Commissioner.
Respectfully submitted,

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EILEEN J. 0' CONNOR

~~sistant Attornev General

/jtyi."\ ~~d ~ -.J~~
£lHA FARER . . (202) 514-2959
JOAN I. OPPENIMER (202) 514-2954 Attorneys
Tax Division DeDartment of Justice Post Office Box 502 Washington. D.C. 20044
Of Counsel:

\ ~ ,'" !'

MICHAL T. SHELBY
United States Attorney
NOVEMBER 2003

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