Free Proposed Findings of Uncontroverted Fact - District Court of Federal Claims - federal

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No. 06-0224 (Judge Eric G. Bruggink) ______________________ IN THE UNITED STATES COURT OF FEDERAL CLAIMS ______________________

JOHN HERDA, et al., PLAINTIFFS VS. UNITED STATES OF AMERICA, DEFENDANT ____________________ PLAINTIFFS' PROPOSED FINDINGS OF UNCONTROVERTED FACT WITH RESPECT TO THEIR MOTION FOR SUMMARY JUDGMENT ____________________

THOMAS E. REDDING, Lead Attorney SALLIE W. GLADNEY TERESA J. WOMACK REDDING & ASSOCIATES, P.C. 2914 W. T.C. Jester Houston, Texas 77018 Telephone: (713) 965-9244 Telecopier: (713) 621-5227 Attorneys for Plaintiffs John Herda, Margaret Herda, John J. Herda, Susan M. Herda, Nicholas Herda, and Jodi Lynn Herda

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Facts Specific to John J. Herda and Susan M. Herda 1. John J. Herda was a limited partner in Crowne Oil Technology Partners ("Crowne Oil") for each tax year 1981, 1982, 1983, 1984, and 1985. 2. John J. Herda was a limited partner in Dillon Oil Technology Partners-1982 ("Dillon Oil") for each tax year 1982, 1983, 1984, and 1985. 3. Crowne Oil and Dillon Oil were two of a number of partnerships in a group generally known as the "Elektra partnerships." [PEx:2, 3, 4]1 4. John J. Herda invested cash in his partnership interests as follows: PARTNERSHIP TAX YEAR CASH INVESTED Crowne Oil 1981 $12,500 [PEx:22; 26; 30 p. 235] 1982 $12,500 [PEx:23; 30 pp. 235, 238] 1983 $12,500 [PEx:24; 25; 30 pp. 235, 239] Dillon Oil 1982 $12,500 [PEx:29 p. 225] 1983 $12,500 [PEx:29 pp. 225, 228] 1984 $12,500 [PEx:21; 29 p. 229]

[PEx:47] 5. John J. Herda invested the same amount of money in Crowne Oil and Dillon Oil for the same tax years as his brother Nicholas, see below, and, therefore, the brothers had virtually identical partnership interests and losses. [PEx:1 p. 12; 37 p. 282; 19 p. 182; 35 p. 266; 47] 6. John J. and Susan M. Herda claimed deductions on their 1981, 1982, 1983, 1984, and 1985 tax returns for John J. Herda's proportionate share of losses related to his Crowne Oil investment. 7. John J. and Susan M. Herda claimed deductions on their 1982, 1983, 1984, and 1985 tax returns for John J. Herda's proportionate share of losses related to his Dillon Oil investment.
1

References to [PEx:"X" p. "Y"] are to Plaintiffs' Exhibit "X" at Bates stamped page "Y". 2
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8.

John J. and Susan M. Herda did not claim any Crowne Oil or Dillon Oil related deductions for any tax years after 1985. [PEx:15 p. 160; 16 p. 165; 17 p. 170; 18 p. 177; 19 p. 181; 20 p. 198]

9.

On April 15, 1987 the IRS issued two Notices of Final Partnership Administrative Adjustment ("FPAAs") for tax year 1983, one for Crowne Oil and one for Dillon Oil. [PEx:2]

10.

A consolidated TEFRA partnership-level case was filed in the Tax Court at docket no. 21530-87 to contest the 1983 partnership item adjustments proposed by the IRS in the FPAAs to, among others, Crowne Oil and Dillon Oil. [PEx:2]

11.

On April 11, 1988 the IRS issued an FPAA proposing to adjust the partnership items of Dillon Oil for 1984 and 1985. [PEx:3 p. 58]

12.

On April 12, 1988 the IRS issued an FPAA proposing to adjust the partnership items of Crowne Oil for 1984. [PEx:3 p. 73]

13.

A consolidated TEFRA partnership-level case was filed in the Tax Court at docket no. 16768-88 to contest the partnership item adjustments proposed by the IRS in the FPAAs to, among others, Crowne Oil (for 1984) and Dillon Oil (for 1984 and 1985). [PEx:3]

14.

On June 8, 1988 the IRS issued a Notice of Deficiency for tax years 1981 and 1982 to John J. and Susan M. Herda completely disallowing all of their Crowne Oil and Dillon Oil deductions for 1981 and 1982, as applicable, and asserting resultant deficiencies for 1981 and 1982. [PEx:1 p. 9]

15.

A Tax Court case was filed at docket no. 22573-88 to contest the Crowne Oil and Dillon Oil related 1981 and 1982 deficiencies asserted against John J. and Susan M. Herda, among others. [PEx:1]

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16.

On July 10, 1989 the IRS issued an FPAA proposing to adjust the partnership items of Crowne Oil for 1985. [PEx:4 p. 92]

17.

A TEFRA partnership-level case was filed in the Tax Court at docket no. 24725-89 to contest the partnership item adjustments proposed by the IRS in the 1985 Crowne Oil FPAA. [PEx:4]

18.

John J. Herda was a party to each of the Tax Court cases (docket nos. 21530-87, 16768-88, 22573-88, and 24725-89) based on his Crowne Oil and Dillon Oil partnership investments, as applicable.

19.

Susan M. Herda was a party to each of the Tax Court cases (docket nos. 21530-87, 1676888, 22573-88, and 24725-89) only because she filed joint tax returns with her husband for the relevant years.

20.

In 1990 John J.Herda received Substitute Schedules K-1 from Crowne Oil and Dillon Oil which purported to show that he was entitled to deduct losses in 1990 based on each: $16,310 for Crowne Oil and $7,949 for Dillon Oil. [PEx:19 p. 182, 184]

21.

John J. and Susan M. Herda attached both of the 1990 Substitute Schedules K-1 to their 1990 tax return but did not take any deductions related to Crowne Oil or Dillon Oil. [PEx:19 p. 181]

22.

On March 4, 1997 and June 15, 1998 the IRS wrote to John J. and Susan M. Herda, via their attorney, reiterating that the IRS would settle the Elektra related partnership cases only "on the basis of the Krause decision," i.e. "[n]o deductions of any kind are allowable from the partnerships . . . ." [PEx:12; 13]

23.

In 2001 a decision was entered in Tax Court case no. 22573-88 disallowing all of John J. and Susan M. Herdas' 1981 and 1982 Crowne Oil and Dillon Oil related deductions. [PEx:5]

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24.

Also in 2001, John J. and Susan M. Herda settled their disputed 1983, 1984, and 1985 partnership items with the IRS; on Forms 870-L(AD) for Crowne Oil (1983, 1984, and 1985) and Dillon Oil (1983), and on Forms 870-P(AD) for Dillon Oil (1984 and 1985).2 [PEx:6; 7; 8; 9; 10; 11]

25.

The 1983, 1984, and 1985 settlements completely disallowed all of John J. and Susan M. Herdas' Crowne Oil and Dillon Oil deductions for those tax years. [PEx:6; 7; 8; 9; 10; 11; 12; 13]

26.

John J. and Susan M. Herda then filed a Form 1040X claim for refund with the IRS for tax year 1990 in the amount of $23,945.00. [PEx:14]

27.

As the basis for their 1990 refund John J. and Susan M. Herda asserted that As a direct consequence of the adjustments to the partnership items of this partnership, there was a substantial basis adjustment in the partnership interest and a resulting loss upon the worthlessness and termination of the partners' partnership interest in 1990, which losses are the basis of this claim for refund. The taxpayer is claiming an ordinary loss under Rev. Rul. 93-80. Excerpts attached as Exhibit "A." The partners received no distribution of cash or marketable securities or relief of any partnership debt, therefore there was no deemed sale or exchange on the worthlessness and termination of each partnership and Rev. Rul. 9380 should apply. Alternatively, if the loss is not allowed as an ordinary loss, it should be allowed as a capital loss, but in that case the taxpayers request an explanation as to why ordinary treatment under Rev. Rul. 93-80 has been denied. Furthermore, if the loss is not allowed in 1990, it should be allowed and this claim should be considered a protective claim for such other year in which the IRS may determine the loss properly deductible. Basis adjustment and loss recognized based on above explanation: Dillon Oil Crowne Oil $37,500 $37,500

2

For purposes of the Plaintiffs' Motion for Summary Judgment there is no substantive difference between the use of a Form 87-L(AD) and the use of a Form 870-P(AD) because both settled the relevant disputed partnership items. 5
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The increase in the basis in the partnership interest resulting in this refund claim was an adjustment to an affected item resulting from the adjustments to partnership items. This claim also constitutes the taxpayers' protective request that if the refunds are not directly applied to the taxpayers' outstanding liability the Secretary apply §6621(d) to such period. To the extent of equivalent amounts of underpayments or overpayments for the periods set forth, §5.063 of Rev. Proc. 99-43 have not previously been applied to obtain a net interest rate of zero under §6621(d). During the time period from April 15, 1991, to the date to which interest was paid on the deficiency, the excess interest paid during that period should be refunded if the overpayment is not applied to the tax liability as requested by the taxpayers, or, in the alternative, interest on this refund should be paid at the deficiency rate imposed on that deficiency. [PEx:14 p. 152] Facts Specific to Nicholas Herda and Jodi Lynn Herda 28. Nicholas Herda was a limited partner in Crowne Oil for tax years 1981, 1982, 1983, 1984, and 1985. [PEx:27; 30 p. 236-237] 29. Nicholas Herda was a limited partner in Dillon Oil for tax years 1982, 1983, 1984, and 1985. [PEx:28; 29 pp. 226-227] 30. Nicholas invested cash in his partnership interests as follows: PARTNERSHIP TAX YEAR CASH INVESTED Crowne Oil 1981 $12,500 [PEx:22; 26; 30 p. 235] 1982 $12,500 [PEx:23; 30 p. 235, 238] 1983 $12,500 [PEx:24; 25; 30 pp. 235, 239] Dillon Oil 1982 $12,500 [PEx:29 p. 225] 1983 $12,500 [PEx:29 pp. 25, 228] 1984 $12,500 [PEx:21; 29 p. 229]

31.

Nicholas Herda claimed deductions on his 1981, 1982, 1983, 1984, and 1985 tax returns for his proportionate share of losses related to his Crowne Oil investment.

32.

Nicholas Herda claimed deductions on his 1982, 1983, 1984, and 1985 tax returns for his proportionate share of losses related to his Dillon Oil investment.

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33.

Nicholas Herda did not claim any Crowne Oil or Dillon Oil related deductions for any tax years after 1985. [PEx:31 p. 243; 32 p. 247; 33 p. 251; 34 p. 256; 35 p. 260; 36 p. 271]

34.

On April 15, 1987 the IRS issued two FPAA for tax year 1983, one for Crowne Oil and one for Dillon Oil. [PEx:2]

35.

A consolidated TEFRA partnership-level case was filed in the Tax Court at docket no. 21530-87 to contest the 1983 partnership item adjustments proposed by the IRS in the FPAAs to, among others, Crowne Oil and Dillon Oil. [PEx:2]

36.

On April 11, 1988 the IRS issued an FPAA proposing to adjust the partnership items of Dillon Oil for 1984 and 1985. [PEx:3 p. 58]

37.

On April 12, 1988 the IRS issued an FPAA proposing to adjust the partnership items of Crowne Oil for 1984. [PEx:3 p. 73]

38.

A consolidated TEFRA partnership-level case was filed in the Tax Court at docket no. 16768-88 to contest the partnership item adjustments proposed by the IRS in the FPAAs to, among others, Crowne Oil (for 1984) and Dillon Oil (for 1984 and 1985). [PEx:3]

39.

On November 5, 1987 the IRS issued a Notice of Deficiency for tax years 1981 and 1982 to Nicholas Herda completely disallowing all of his Crowne Oil and Dillon Oil deductions for 1981 and 1982, as applicable. [PEx:37]

40.

A Tax Court case was filed at docket no. 39856-87 to contest the Crowne Oil and Dillon Oil related 1981 and 1982 deficiencies asserted against Nicholas Herda, among others. [PEx:38]

41.

On July 10, 1989 the IRS issued an FPAA proposing to adjust the partnership items of Crowne Oil for 1985. [PEx:4 p. 92]

42.

A TEFRA partnership-level case was filed in the Tax Court at docket no. 24725-89 to contest the partnership item adjustments proposed by the IRS in the 1985 Crowne Oil FPAA.

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[PEx:4] 43. Nicholas Herda was a party to each of the Tax Court cases (docket nos. 21530-87, 16768-88, 39856-87, and 24725-89) based on his Crowne Oil and Dillon Oil partnership investments, as applicable. 44. Brenda J. Herda was a party to the Tax Court case at docket no. 39856-87 only because she filed joint tax return with her husband for the relevant years, but was divorced from Nicholas for 1982. 45. On June 15, 1998 the IRS wrote to Nicholas Herda, via his attorney, reiterating that the IRS would settle the Elektra related partnership cases only on the basis of the Krause decision, i.e. "[n]o deductions of any kind are allowable from the partnerships . . . ." [PEx:12; 13] 46. In 2001 a decision was entered in Tax Court case no. 39856-87 upholding the disallowance of all of Nicholas Herda's 1981 and 1982 Crowne Oil and Dillon Oil related deductions. [PEx:39] 47. In 1990 Nicholas received Substitute Schedules K-1 from Crowne Oil which purported to show that he was entitled to deduct losses in 1990 of $16,310. [PEx:35 p. 266] 48. Nicholas Herda attached the 1990 Substitute Schedule K-1 for Crowne Oil to his 1990 tax return but did not take any deductions related to Crowne Oil or Dillon Oil. [PEx:35 p. 260] 49. Also in 2001, Nicholas Herda settled his disputed 1983, 1984, and 1985 partnership items with the IRS; on Forms 870-L(AD) for Crowne Oil (1983, 1984, and 1985) and Dillon Oil (1983), and on Forms 870-P(AD) for Dillon Oil (1984 and 1985). [PEx:40; 41; 42; 43; 44; 45] 50. The 1983, 1984, and 1985 settlements completely disallowed all of John J. and Susan M. Herdas' Crowne Oil and Dillon Oil deductions for those tax years. [PEx:40; 41; 42; 43; 44;

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45] 51. Nicholas Herda then filed a Form 1040X claim for refund with the IRS for tax year 1990 in the amount of $22,700.00. [PEx:46 p. 335] 52. As the basis for their 1990 refund Nicholas Herda asserted that As a direct consequence of the adjustments to the partnership items of this partnership, there was a substantial basis adjustment in the partnership interest and a resulting loss upon the worthlessness and termination of the partners' partnership interest in 1990, which losses are the basis of this claim for refund. The taxpayer is claiming an ordinary loss under Rev. Rul. 93-80. Excerpts attached as Exhibit "A." The partners received no distribution of cash or marketable securities or relief of any partnership debt, therefore there was no deemed sale or exchange on the worthlessness and termination of each partnership and Rev. Rul. 9380 should apply. Alternatively, if the loss is not allowed as an ordinary loss, it should be allowed as a capital loss, but in that case the taxpayers request an explanation as to why ordinary treatment under Rev. Rul. 93-80 has been denied. Furthermore, if the loss is not allowed in 1990, it should be allowed and this claim should be considered a protective claim for such other year in which the IRS may determine the loss properly deductible. Basis adjustment and loss recognized based on above explanation: Dillon Oil Crowne Oil $37,500 $37,500

The increase in the basis in the partnership interest resulting in this refund claim was an adjustment to an affected item resulting from the adjustments to partnership items. This claim also constitutes the taxpayers' protective request that if the refunds are not directly applied to the taxpayers' outstanding liability the Secretary apply §6621(d) to such period. To the extent of equivalent amounts of underpayments or overpayments for the periods set forth, §5.063 of Rev. Proc. 99-43 have not previously been applied to obtain a net interest rate of zero under §6621(d). During the time period from April 15, 1991, to the date to which interest was paid on the deficiency, the excess interest paid during that period should be refunded if the overpayment is not applied to the tax liability as requested by the taxpayers, or, in the alternative, interest on this refund should be paid at the deficiency rate imposed on that deficiency. [PEx:46 p. 334]

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53.

Jodi Lynn Herda was not a party to any of the Tax Court proceedings because she was not married to Nicholas Herda for any of those relevant tax years. She is a party to this proceeding only because she was married to and filed a joint income tax return with Nicholas Herda in 1990, the tax year in which the refund is requested.

Respectfully submitted,

/s/ Thomas E. Redding Thomas E. Redding, Attorney of Record Sallie W. Gladney Teresa J. Womack REDDING & ASSOCIATES, P.C. 2914 West T.C. Jester Houston, Texas 77018 (713) 965-9244 (713) 621-5227 Fax Attorneys for Plaintiffs John Herda, Margaret Herda, John J. Herda, Susan M. Herda, Nicholas Herda, and Jodi Lynn Herda

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Plaintiffs' Document Exhibits 1 Relevant Excerpts from the Petition filed in Dresser, et. al v. Commissioner, Tax Court Docket No. 22573-88 2 Relevant Excerpts from the Petition for Vulcan Oil Technology Partners, et. al v. Commissioner, Tax Court Docket No. 21530-87 3 Relevant Excerpts from the Petition for Vulcan Oil Technology Partners, et al. v. Commissioner, Tax Court Docket No. 16768-88 4 Petition for Crowne Oil Technology Partners v. Commissioner, Tax Court Docket No. 24725-89 5 Decision filed in Dresser, et. al v. Commissioner, Tax Court Docket No. 22573-88 6 1983 Form 870-L(AD) Settlement Agreement for John J. and Susan M. Herda for Crowne Oil 7 1984 Form 870-L(AD) Settlement Agreement for John J. and Susan M. Herda for Crowne Oil 8 1985 Form 870-L(AD) Settlement Agreement for John J. and Susan M. Herda for Crowne Oil 9 1983 Form 870-L(AD) Settlement Agreement for John J. and Susan M. Herda for Dillon Oil 10 1984 Form 870-P(AD) Settlement Agreement for John J. and Susan M. Herda for Dillon Oil 11 1985 Form 870-P(AD) Settlement Agreement for John J. and Susan M. Herda for Dillon Oil 12 Letter Dated March 4, 1997 from IRS Appeals Officer Elizabeth M. Johnson to Thomas E. Redding 13 Letter Dated June 15, 1998 from IRS Appeals Officer Elizabeth M. Johnson to Thomas E. Redding 14 1990 Form 1040X Refund Claim filed by John J. and Susan M. Herda 15 Relevant Excerpts from 1986 Form 1040 for John J. and Susan M. Herda 16 Relevant Excerpts from 1987 Form 1040 for John J. and Susan M. Herda 17 Relevant Excerpts from 1988 Form 1040 for John J. and Susan M. Herda 18 Relevant Excerpts from 1989 Form 1040 for John J. and Susan M. Herda 19 1990 Form 1040 for John J. and Susan M. Herda 20 Relevant Excerpts from 1991 Form 1040 for John J. and Susan M. Herda 21 Negotiable Promissory Note in the amount of $12,500.00 for Nicholas Herda re: Dillon Oil Marked Paid on February 17, 1984 22 Letter Dated December 12, 1981 from Louis Coppage to Nicholas Herda 23 Negotiable Promissory Note in the amount of $12,500.00 for Nicholas Herda re: Crowne Oil Marked Paid on May 3, 19__ 24 Negotiable Promissory Note in the amount of $12,500.00 for Nicholas Herda re: Crowne Oil Marked Paid on April 18, 1983 25 Letter Dated March 15, 1983 from Crowne Oil to Nicholas Herda

Bates No. 0001-0027 0028-0049 0050-0084 0085-0110 0111-0114 0115-0120 0121-0125 0126-0130 0131-0134 0135-0138 0139-0142 0143 0144-0145 0146-0156 0157-0161 0162-0166 0167-0173 0174-0177 0178-0194 0195-0208 0209 0210 0211 0212 0213

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Plaintiffs' Document Exhibits 26 Letter Dated December 31, 1981 from Louis Coppage and James Cunningham to Nicholas Herda 27 Signed Certificate of Beneficial Interest No. 015 in Crowne Oil Dated December 31, 1981, for Nicholas Herda 28 Signed Certificate of Beneficial Interest No. 114 in Dillon Oil Dated December 31, 1982, for Nicholas Herda 29 Signed Confidential Prospective Offeree Questionnaire for Nicholas Herda re: Dillon Oil 30 Signed Confidential Prospective Offeree Questionnaire for Nicholas Herda re: Crowne Oil 31 Relevant Excerpts from 1986 Form 1040 for Nicholas and Jodi Lynn Herda 32 Relevant Excerpts from 1987 Form 1040 for Nicholas and Jodi Lynn Herda 33 Relevant Excerpts from 1988 Form 1040 for Nicholas and Jodi Lynn Herda 34 Relevant Excerpts from 1989 Form 1040 for Nicholas and Jodi Lynn Herda 35 Relevant Excerpts from 1990 Form 1040 for Nicholas and Jodi Lynn Herda 36 Relevant Excerpts from 1991 Form 1040 for Nicholas Herda 37 1981 and 1982 Notice of Deficiency Dated November 5, 1987, for Nicholas Herda 38 Relevant Excerpts from the Petition filed in Willetts, et. al v. Commissioner, Tax Court Docket No. 39856-87 39 Decision filed in Willets, et. al v. Commissioner, Tax Court Docket No. 39856-87 40 1983 Form 870-L(AD) Settlement Agreement for Nicholas Herda for Crowne Oil 41 1984 Form 870-L(AD) Settlement Agreement for Nicholas Herda for Crowne Oil 42 1985 Form 870-L(AD) Settlement Agreement for Nicholas Herda for Crowne Oil 43 1983 Form 870-L(AD) Settlement Agreement for Nicholas Herda for Dillon Oil 44 1984 Form 870-P(AD) Settlement Agreement for Nicholas Herda for Dillon Oil 45 1985 Form 870-P(AD) Settlement Agreement for Nicholas Herda for Dillon Oil

Bates No. 0214 0215 0216 0217-0229 0230-0239 0240-0243 0244-0148 0249-0252 0253-0256 0257-0268 0269-0277 0278-0293 0294-0301 0302-0304 0305-0309 0310-0314 0315-0319 0320-0323 0324-0328 0329-0333

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Plaintiffs' Document Bates No. Exhibits 46 1990 Form 1040X Refund Claim filed by Nicholas and Jodi Lynn Herda 0334-0341 47 Affidavit of John J. Herda 0342

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