Free Reply to Response to Motion - District Court of Federal Claims - federal

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No. 05-999 T (Judge Margaret Sweeney)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

EPSOLON LIMITED, BY AND THROUGH SLIGO (2000) COMPANY, INC., TAX MATTERS PARTNER,

Plaintiff
v.

THE UNITED STATES,

Defendant

REPL Y OF THE UNITED STATES TO PLAINTIFF'S RESPONSE AND REPLY TO CROSS-MOTION OF THE UNITED STATES FOR PARTIAL SUMMARY JUDGMENT, AND ALTERNATIVE RULE 56(t) MOTION

EILEEN J. O'CONNOR Assistant Attorney General
DAVID GUSTAFSON DAVID R. HOUSE Attorneys Justice Department (Tax) Federal Claims Section Cour of P.O. Box 26

Ben Franlin Post Offce
Washington, D.C. 20044 (202) 616-3366

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Page

TABLE OF CONTENTS
the United States to Plaintiffs Response and Reply to the United States for Parial Sumar Judgment, And Alternative Rule 56(t) Motion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Reply of Cross-motion of

I. Introduction ..................................................... 2
II. II. AD Global and Grapevine Were Correctly Decided .................. 5

A. Section 6229 operates as a possible extension of the statute
of limitations of § 6501 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
B. Issuini: the FP AA suspends the statute of limitations

of § 6501(a) ................................................ 8
III. The statute of limitations is suspended by 7609( e )(2) until the

response by Sidley Austin to the summons is resolved . . . . . . . . . . . . . . . . . . 10

A. The plain meanine of the statute suspends the statute of
limitations until the summoned party's response is
resolved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

B. Adopting plaintiffs position would alter Coneress'
statutory scheme and frustrate the Congressional purpose
underlyine § 7609(e)(2) ..................................... 12

C. The holdine of United States v. Powell does not prevent the
application of

the suspension of§ 7609(e)(2) to Mr. Tucker....... 16

iV. Plaintiffs Rule 56(f) motion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

V. The Government's Rule 56(f) Motion ...............................20
Conclusion ................................................................. 22

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Page

TABLE OF AUTHORITIES

CASES:
AD Global Fund, LLC v. United States, 67 Fed. Cl. 657 (2005) . . . . . . .. 3,4,5,6, 7,8, 10
Andantech, L.L.c. v. Commissioner, 331 F.3d 972 (D.C. Cir. 2003) ........... 5,6,10

Grapevine Imports v. United States, 71 Fed. Cl. 324 (2006) . . . . . . . ., 3,4,5,6,7,8,9,10

Powell v. United States, 379 U.S. 48 (1964) ........ . . . . . . . . . . . . . . . . . . . . .. 16, 17
Rhone-Poulenc Surfactants and Specialties, L.P. v. Commissioner, 114 T.C. 533 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4,5,6, 7,8,10,12

Schumacher v. United States, 72 Fed. Cl. 95 (2006) . . . . . . . . . . . . . . . . . . . . . . . . .. 3,5

United States v. Davis, 636 F.2d 1028 (5th Cir. 1981), cert. denied,
454 U.S. 862 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18, 19
United States v. First National State Bank of

New Jersey, 616 F.2d

668 (3rd Cir. 1980) .............................................. 18, 19

United States v. Garrett, 571 F.2d 1323 (5th Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . .. 16

United States v. Schwartz, 469 F.2d 977 (5th Cir. 1972). . . . . . . . . . . . . . . . . . . ., 18, 19

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Page

Statutes:
Internal Revenue Codes of 1986 (26 U.S.c.):
§ 6501 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Passim

§ 6503 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9, 17
§ 6229 . . . . . . . . . . . . . 0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Passim

§ 7605 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
§ 7609 . 0 . . . . . . . 0 0 . . . . . . . . . . . . . . . . . . . . 0 0 . . . . . . . . . . . . . . . . . . . . . Passim

Miscellaneous:
H.R. Conf. Rep. 99-841,1986-3 CoB. (voL. 4), at 809 . . . . . . 0 . 0 . . . . . . . . . . . . . . . . . . 15
H.R. Conf. Rep. No. 101-964 (1990)......... 0 0 0.................0..........17

United States Court of

Federal Claims Rules:

R. 56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16, 19,20,21,22

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS
(Judge Sweeney)

No. 05-999 T
EPSOLON LIMITED, by and through SLIGO (2000) COMPANY, INC.,
Tax Matters Parner,

Plaintiff,
v.

THE UNITED STATES OF AMERICA,
Defendant.

REPL Y OF THE UNITED STATES TO PLAINTIFF'S RESPONSE AND REPLY TO CROSS-MOTION OF THE UNITED STATES FOR PARTIAL SUMMARY JUDGMENT, AND ALTERNATIVE RULE 56(t) MOTION

Plaintiff has moved for summary judgment on the question of whether the FP AA was
timely and the United States has cross-moved for summary judgment on that issue.! The FP AA

was issued when the statute oflimitations of § 6501(a)2 for assessing taxes attributable to
parnership items was open for Mr. Tucker's 2001 taxable year, because of the suspension of

the

statute oflimitations contained in § 7609(e)(2). For "any person with respect to whose liability
the summons is issued," that section suspends the statute of limitations for a period beginning 6
months after an IRS summons is served, and ending on the date on which "the summoned party's

! Although reference is made in this Reply to the "parnership" and various purported
entities, defendant does not concede that, under the applicable law, a viable partnership or the alleged entities existed.

2All references to code sections wil be to Title 26, U.S.C., unless otherwise designated.
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response to the summons" is finally resolved. In the event the Court determines that the
three-year statute of

limitations of § 6501(a) was not open at the time the FPAA issued, the

United States wil need to conduct discovery on the question of

whether Mr. Tucker fied a false

or fraudulent return with the intent to evade tax, which would permit the application of the

unlimited statute oflimitations of § 6501(c)(I).

i. Introduction
The Governent's opening brief and proposed findings present the necessar time

line

which establishes that the statute of limitations was open at the time the FP AA issued with

respect to the transaction at issue in this case. There is no genuine issue as to any fact material to

that timeline. Both Mr. Tucker's retur for the taxable year ending December 31, 2001, and the

partnership retur for that period were deemed filed on April 15,2002.3 Sixteen months later, on
October 15,2003, a summons was served on the accounting firm of Sidley Austin Brown &
Wood ("Sidley Austin").4 That summons required Sidley Austin to produce:
the name, address and taxpayer identification number for each United States
taxpayer who, during any par of

the period Januar 1, 1996 through October 15, 2003, participated in a transaction which was or later became a 'listed transaction'

or other 'potentially abusive tax shelter' organized or sold by the law firm of Sidley Austin Brown & Wood LLP and its predecessor Brown & Wood LLP?

3See PI. Proposed Findings 1, and 6, and the governent's responses thereto.

4Def. Prop. Finding 3.
5Def. Prop. Finding 4.

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Not until March 3, 2005, did Sidley Austin finally resolve its response to the summons.6
Pursuant to the 3-year statute of

limitations of26 U.S.C. § 6501, Mr Tucker's taxable year 2001
the summons served on Sidley Austin,

would have been open to April 15,2005.7 As a result of

however, the statute of limitations was suspended beginning on April 15,2004 - six months after
the service of the summons.8 As of

the date the statute oflimitations was suspended, April 15,

2004, there remained one year left to run on the statute. The suspension was not lifted until

March 3, 2005, at the earliest. Therefore, the statute oflimitations for Mr. Tucker's 2001 taxable
year was open at least until March 3, 2006. As a result, the FP AA was timely when mailed nine

6It is possible that the period of suspension continued beyond March 3, 2005, if Sidley the enforcement order, which required the Austin did not fully comply with the terms of multiple taxpayers' names and associated data. So far as we know, Sidley Austin production of never provided Mr. Tucker's social securty number, nor the taxpayer identification numbers of March 3, 2005, is the earliest date this case, however, the date of the entities. For purposes of upon which the suspension could have ended, assuming that Sidley Austin fully complied with
the enforcement order at that time. If fuher information is later discovered by Sidley Austin and

turned over to the Governent, then the date of the later production wil be the date of final

resolution on which the suspension terminates.

7 As set forth in the Governent's opening brief, and below, the general limitations period
for determining whether the FP AA was timely issued is the three-year period of § 6501 with
respect to the individual partner of the parnership. Section 6229 provides for an extension of

that period in the event the parnership return is fied after the parner's return. Schumacher v. United States, 72 Fed. Cl. 95 (2006); Grapevine Imports v. United States, 71 Fed. Cl. 324 (2006); AD Global Fund, LLC v. United States, 67 Fed. Cl. 657 (2005). AD Global was appealed and is pending in the Federal Circuit on this issue.
8Pursuant to § 7609(e)(2), the statute oflimitations is suspended for a period beginning 6
months after service of the summons, and ending on the date of final resolution of the summoned
part's response.

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months earlier on June 17,2005.9 Furher, issuance of

the FP AA again suspended the ruing of

the statute of limitations for assessment. 10

Plaintiff has attempted to cloud the issue with supplemental proposed findings contending
that the Governent had the information that had been requested by the Sidley Austin sumons

in its possession by April 13, 2004. The information is alleged to have been part of 2,499 pages
of documents that were unsealed in Dallas, Texas, with respect to a different summons issued to

KPMG. As shown below, that contention is irrelevant to the real issue here, which is when did

Sidley Austin, as the summoned par, finally resolve its response to the summons served upon
it. Further, several of

plaintiffs proposed findings are, at best, misleading, and some are

inaccurate, as shown by the declaration of Stuar Gibson and the supplemental declaration of
John Lindquist submitted herewith. None of

plaintiffs supplemental proposed findings actually

state that Sidley Austin provided the Governent with all of the information demanded by the
i summons served upon it. Nor could they.

i As a result, any disputes the Governent has with

respect to plaintiff s supplemental proposed findings are not material to the issue regarding the
statute of limitations.

9Section 7609(e)(2)
IOSection 6229(d)(1); Grapevine Imports v. United States, 71 Fed. Cl. 324 (2006); AD

Global Fund, LLC v. United States, 67 Fed. Cl. 657 (2005)(appeal pending); Rhone-Poulenc
Surfactants and Specialties, L.P. v. Commissioner, 114 T.C. 533 (2000).

llSee Declaration of John Lindquist, fied with the Governent's Cross Motion, and the
Supplemental Declaration of John Lindquist, paras. 28-37, fied with the Governent's Response

to Plaintiffs Supplemental Proposed Findings.
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II. AD Global and Grapevine Were Correctly Decided.
The Governent has shown in its opening brief that the period for assessing taxes
attributable to parnership items is the 3-year statute oflimitations of § 6501, and that § 6229(a)
operates as a possible extension of § 6501. The language of § 6501(a) establishes a 3-year statute
of limitations for assessment of taxes:

(a) GENERAL RULE.- Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the
return was filed...the term 'return' means the retur required to be fied by the

taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit)." (Emphasis added.)

Section 6229 refers to a minimum period within which the general time for assessment shall not

expire for puroses of assessing taxes attributable to parnership items:
(a) GENERAL RULE.- Except as otherwise provided in this section, the period for assessing any tax imposed by subtitle A with respect to any person which is
attributable to any parnership item (or affected item) for a parnership taxable

year shall not expire before the date which is 3 years after the later of(1) the date on which the partnership retur for such taxable year was
fied, or

(2) the last day for fiing such retur for such year (determined without regard to extensions)." (Emphasis added.)
All of the courts that have considered this issue agree that § 6501 establishes the general
limitations period within which all tax shall be assessed.12 Section 6229, on the other hand,

provides only a minimum period within which the § 6501 period for assessments attributable to

l2Andantech, L.L.c. v. Commissioner, 331 F.3d 972 (D.C. Cir. 2003); Schumacher v.

United States, 72 Fed. Cl. 95 (2006); Grapevine Imports v. United States, 71 Fed. Cl. 324 (2006); AD Global v. United States, 67 Fed. Cl. 567 (2005), appeal pending; Rhone-Poulenc Surfactants and Specialties, L.P. v. Commissioner, 114 T.C. 533,542 (2000).
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parnership items shall not expire.13 In their opinions, these judges explain that plain language,

policy, and legislative history all support the conclusion that § 6229 does not establish an
independent and exclusive limitations period.

Therefore, as presented in the Governent's opening brief, the statute oflimitations with
respect to issuing the FPAA in this case was open on April 15,2004. As shown below, and in
the governent's opening brief, § 7609(e)(2) suspended the running of

that statute from April

15, 2004, until March 3, 2005. The limitations period was open on June 17,2005 when the
FPAA issued. Furher, the FPAA and the fiing of

this suit fuher suspended the assessment

statute pursuant to § 6229( d).

A. Section 6229 operates as a possible extension of the statute of limitations of
S 6501.
Plaintiff has responded to the governent's Cross-Motion contending that

AD Global

Fund v. United States, 67 Fed. Cl. 657 (2005), and the recent decision in Grapevine Imports v.

United States, 71 Fed. Cl. 324 (2006), were incorrectly decided and, therefore, § 6229(a) is a
separate and exclusive statute of limitations for issuing an FP AA.14 Plaintiff s arguments on this

13Andantech, 331 F.3d at 977 ("the language of § 6229, rather than simply stating a
three-year statute oflimitations, indicates by the use of

the term 'shall not expire' that the

provision is intended to dictate a minimum period, but not an absolute restriction"); Rhone, 114 time for the assessment of any tax attributable T.C. at 542 ("6229 provides a minimum period of
to partnership items").
its brief by requesting the then suggests it be granted Cour await resolution of AD Global in the Federal Circuit. Plaintiff "discovery rights to identify further evidence relating to its alternative legal arguments." We is seeking "discovery rights." As a canot tell for which alternative legal arguments plaintiff l4Pl. Response, pp. 17-23. Plaintiff introduces this portion of

result, the Governent canot respond as to whether this request for "discovery rights" is
appropriate under the Rules of the Court of

Federal Claims, or whether the unspecified discovery
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is necessar to determine the issues presented. We do not see how it could be.

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point consist of tortured and strained interpretations of the statutes similar to those that caused

the Grapevine Cour to state: "Fortunately, like the Carollan Jabberwock, the interaction
concerns raised by plaintiffs ultimately prove a fiction."15

At pages 21-23 of its Response, plaintiff asserts that the holdings of Grapevine and AD

Global create an anomaly as to the interaction of § 6229(a) and 6229(b)(1)(B). Section
6229(b)(1 )(B) provides that the tax matters parner may agree with the Secretar to extend the
period described in 6229(a) for all partners. Plaintiff

then raises the specter of a tax matters

parner ("TMP") agreeing to extend the statute of limitations as to all partners for all tax items on
their individual returs, whether or not parnership related, if

the "period described in" § 6229(a)
the pertinent part of § 6229(a) reveals the

refers to § 6501 as held by the courts. A reading of

fallacy in plaintiff s argument:

the period for assessing any tax imposed by subtitle A with respect to any person which is attributable to any partnership item (or affected item) for a partnership taxable year shall not expire before the date which is 3 years after the later of
(emphasis added) . . .

Thus the TMP could only agree to extend the period described in § 6229(a) for the assessment of

tax attributable to parnership items or affected items. Accordingly, defendant's interpretation of
§ 6229(a) as upheld by the courts does not lead to the drastic result envisioned by plaintiff.
Similarly, plaintiffs concern about the interaction of § 6501

(c)(4) and § 6229(b)(3) is

without basis. Plaintiffs attempt to raise an anomaly where none exists rests again on its
premise that defendant's interpretation (and that of AD Global, Grapevine, and Rhone-Poulenc)
of § 6229(a) would permit a TMP to extend the statute of

limitations of § 6501 for all items on

l5Grapevine, 71 Fed. Cl. at 336.
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any individual parner's individual return. As explained above, a full reading of § 6229(a) shows
plaintiff s concern is misplaced.
"In short, as every other court to consider these claims has found, plaintiffs' supposed
interaction problems are little more than gewgaw and gimcrack, holding none of the interpretative value plaintiffs would offer."16 Section 6229(a) provides a possible extension of
the 3-year statute of limitations of § 6501 for assessment of

taxes attributable to parnership

items and affected items.

B. Issuin~ the FP AA suspends the statute of limitations of S 6501(a).
Plaintiffs also contend that issuance of the FP AA does not suspend the statute of

limitations of § 6501(a). In this case, the FPAA issued on June 17,2005, and plaintiffs filed
their petition in this Cour on September 15,2005. Section 6229(d) provides:
(d) SUSPENSION WHEN SECRET AR Y MAKES ADMINISTRATIVE notice ofa final parnership administrative adjustment with respect to any taxable year is mailed to the tax matters parner, the running ofthe
period specified in subsection (a) shall be suspended-

ADJUSTMENT.- If

(1) for the period during which an action may be brought under section 6226 (and, if a petition is filed under section 6226 with respect to such the court becomes final), and administrative adjustment, until the decision of
(2) for one year thereafter.

The reference in § 6229(d) to "the period specified in subsection (a)" is, as shown above, a
reference to the statute of limitation of § 6501(a)Y Thus, the issuance of

the FPAA tolled the

16Grapevine, 71 Fed. Cl. at 337.

17Grapevine, 71 Fed. Cl. at 340; AD Global, 67 Fed. Cl. at 694; Rhone-Poulenc, 114
T.C. at 552-553.
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statute of

limitations of § 6501 as it applies to the TuckersY The filing of

the petition in this

Court by Epsolon further tolled the statute oflimitations of § 6501(a) pursuant to § 6229(d)(1),
until the case is final and for one year thereafter. Therefore, the statutory notice of deficiency
issued to the Tuckers on March 22, 2006, was timely.

Plaintiff, at pages 19-21 of its Response, argues that none of the statutory provisions

suggests that § 6501 is extended by the issuance of an FP AA. As shown above, plaintiff is in

error. Plaintiff s Response winds itself through the various deficiency provisions, concluding
that they do not apply to "assessment of tax with respect to parnership items."19 Plaintiff

then

states that § 6503 provides that the limitations in § 6501 can "only" be suspended by a notice of
deficiency. Section 6503 is not the exclusive provision for suspension of

the 3-year statute of

limitations. Plaintiff ignores that provisions other than § 6503 provide for suspension of the
statute of limitations where a notice of deficiency has not been issued. For instance,
§ 7609(e)(2), described below, provides for the suspension of the statute of

limitations pending

the resolution ofa summoned par's response to a summons. Plaintiffs attempts to argue that
the interaction of various provisions of the Code contradict defendant's interpretation of § 6229

(and that of every cour to expressly address the issue) are no more persuasive here than the
attempts made by the taxpayer in Grapevine.
Upon issuance of the FPAA, § 6229(d) provides for the suspension of

the period

specified in § 6229(a). Again, the period specified in § 6229(a) is the limitations period of

18Id.

19Response at 20.

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§ 6501 as extended by § 6229.20 Thus, the issuance of

the FPAA tolled the limitations period of

§ 6501 and the assessment oftax against the Tuckers on March 22,2006, was timely.
III. The statute of

limitations is suspended by 7609(e)(2) unti the response

by Sidley Austin to the summons is resolved.

A. The Dlain meanine: of the statute suspends the statute of limitations until the summoned part's response is resolved.
In the Governent's opening brief, we established that § 7609(e)(2) suspends the statute
of limitations of § 6501 from a period beginning six months after issuance of the summons until
the response of

the summoned par is resolved. Section 7609(e)(2) provides:

(2) SUSPENSION AFTER 6 MONTHS OF SERVICE OF SUMMONS. In the absence of the resolution of the summoned party's response to the

summons, the ruing of any period of limitations under section 6501 or under

6531 with respect to any person with respect to whose liability the summons is issued (other than a person taking action as provided in subsection (b)) shall be suspended for the period -

(A) beginning on the date which is 6 months after the service of such summons, and
(B) ending with the final resolution of such response.
(Emphasis added.)

The statutory language makes clear that the running of the section 6501 period of

limitations for any person with respect to whose liability the summons is issued wil be

suspended until the final resolution ofthe summoned pary's response to the summons. Here, in
the case of a "John Doe" summons pertaining to an ascertainable class of persons under
§ 7 609( t), in the absence of timely compliance with the summons, the statute of limitations for

20Andantech, 331 F.3d 972 (D.C. Cir. 2003) ; Grapevine, 71 Fed. Cl. 324 (2006); AD

Global, 67 Fed. Cl. 567 (2005); Rhone-Poulenc, 114 T.C. 533, 542 (2000).
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"any person" in the class is suspended until the final resolution of

the summoned par's

response to the summons. Such resolution canot occur under § 7609( e )(2) before the

summoned party has provided all the information required by the summons. Where, as here, a
John Doe summons requires production of information with respect to a group of persons,

suspension cariot end before the summoned par fully complies with the summons by
producing the summoned information with respect to all members of

the group.2l

The plain meaning of § 7609(e) does not provide for an exception in the event the

governent obtains information as to one taxpayer in the John Doe class from a source other
than the summoned pary. Nothing in the legislative history of § 7609(e) or § 7609(t) suggests
that Congress intended to provide an exception to the suspension rules where information which

may be responsive to a summons is available from other sources - an exception which could
have been easily provided. The plain meaning of

the suspension provisions in § 7609(e) canot

be reconciled with plaintiff s argument for an exception where summoned information as to one

taxpayer in the John Doe class is obtained from sources other than the summoned part. To
create such an exception, Congress would have to rewrite the statute.

In this case, the statute of limitations on Tucker's 2001 taxable year with respect to taxes

attributable to parnership items would have ended on April 15,2005- three years following the
filing of

the Tuckers' tax return.22 A "John Doe" summons was issued to Sidley Austin on
2lCongress intended that § 7609(e)(2) apply to John Doe summonses and confirmed such

intention by enacting § 7609(i)( 4) which provides for notice of any suspension ofthe limitations period under § 7609(e)(2) to any person described in § 7609(t) with respect to a summons described in § 7609(t)(setting forth additional requirements for John Doe summons).
22§§ 6229(a); 6501(a). As shown above, that period begins ruing from the later of

the

filing of the individual return or the fiing of the parnership retur. In this instance, both the
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October 15,2003. (Def. Prop. Finding 3.) Pursuant to § 7609(e)(2)(A), the suspension ofthe
statute oflimitations began on April 15,2004, when 365 days remained on the statute of
limitations. Pursuant to § 7609(e)(2)(B), the suspension ends upon the resolution of

the

summoned par's response. As presented in the Governent's opening brief, Sidley Austin's

response to the summons was not resolved until March 3, 2005.23 Therefore, on March 3, 2005,

after ten months of suspension, the statute of limitations resumed running - for 365 days - and

would expire on March 3, 2006. The FPAA was issued on June 17,2005 - well before the
statute of limitations had run, and, as shown above, again suspended the running of the statute of
limitations.24 When plaintiff

fied its petition in this case, the statute remains suspended until a
taxes against the Tuckers on March

final decision of

this Court.25 Therefore, the assessment of

22, 2006, was timely.
B. Adoptini: plaintiffs position would alter Coni:ress'

statutory scheme and frustrate the Con!!ressional purpose

underlyine § 7609(e)(2).
As applied to a John Doe summons involving a group or class of

persons, § 7609(e)(2)

provides for the suspension of the statute of limitations for "any person with respect to whose
liability the summons is issued," until the "final resolution" of

the summoned part's response to

the summons. Congress thereby fashioned an administratively manageable suspension regime

parnership return and the individual retur were deemed fied on April 15,2002.
23Def. Prop. Finding 23. It is possible that the period of suspension continued beyond

March 3, 2005, if Sidley Austin did not fully comply with the terms ofthe enforcement order, multiple taxpayers' names and associated data. which required the production of
24Section 6229( d)
25Id.

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through which the Commissioner could effectively track statute suspensions for multiple John

Doe class members based on a common date-the date of final resolution of the summoned
party's response to the John Doe summons.26
Plaintiff argues that the suspension of § 7609( e )(2) is inoperable because the governent

had, from other sources, some information with respect to Mr. Tucker which may have been

demanded by the summons served on Sidley Austin?7 To begin its argument, plaintiff misstates
the information required by the summons as requiring only "'the name, address and taxpayer
identification number' of a specific taxpayer."28 The summons actually required Sidley Austin to produce the following information:

the name, address and taxpayer identification number for each United States
taxpayer who, during any par of

the period Januar 1, 1996 through October 15,

2003, paricipated in a transaction which was or later became a 'listed transaction'

the Tax Reform Act of 1986 (P.L. 99-514) states with respect to § 7609(e)(2) that "the statute oflimitations is suspended until the issue is resolved. The issue is not considered to be resolved during the pendency of any action to compel production of the documents."
26The General Explanation of

27Response, pp. 13 - 16. Plaintiff also states, at page 13 of its Response, that "Defendant
14, 2004, that SABW had identified Mr. Tucker as a taxpayer who engaged in one ofthe transactions referenced in the summons, and knew Mr. Tucker's address and taxpayer identification number." On the same page, plaintiff asserts: "SABW determined that Mr. Tucker's identifying information was responsive to the summons and that defendant was, in that context, provided with Mr. Tucker's name, address and taxpayer identification this happened on or before April 14,2004." These statements are incorrect. No number. All of where does plaintiff provide an affidavit from Sidley Austin personnel to support these statements, nor could they. Prior to June 29, 2004, Sidley Austin affirmatively refused to provide Mr. Tucker's identity to the Governent. (Def. Prop. Finding 17,20, Lindquist Supplemental Declaration, paras. 27-34.) Not until March 3, 2005, did Sidley Austin provide the Governent with the names of the entities involved in the tax shelter transactions. (Def. Prop. Finding 23.)
knew not later than April

28Response, pp. 13, 15-16.

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or other 'potentially abusive tax shelter' organized or sold by the law firm of Sidley Austin Brown & Wood LLP and its predecessor Brown & Wood LLP.z9
Thus, the summons requires that Sidley Austin produce the identities (including name, address
and tax identification number) for each United States taxpayer who paricipated in shelter

activities. The request for information regarding paricipants in the tax shelters incIudes the
entities Sligo 2000 and Epsolon, their addresses and taxpayer identification numbers.30 The
names of Sligo 2000 and Epsolon were not produced by Sidley Austin until March 3, 2005.31

Therefore, despite plaintiffs attempts to imply to the contrar, Sidley Austin's response to the
summons was not resolved until March 3, 2005, if

then.

Under the theory urged by plaintiff, Congress's coherent, unified suspension regime

would devolve into a confused and unmanageable tangle. The suspension provided for in

§ 7609(e)(2) would have no meaning. Under plaintiffs interpretation, the Service would be
required to: (1) continually review any and all responses to all summonses to see if any response to one summonse could be considered responsive to another summons, whether or not related;

29Def. Prop. Finding 4.

makes much ofMr. Lindquist's statements in the United States' Opposition to Intervention fied in the Ilinois District Court that the United that Opposition. Tellingly, plaintiff States was seeking "only identities." Plaintiff cites page 2 of ignores that immediately following that statement on page 2 of the Governent's Opposition, the summons, making it clear exactly what was meant by Mr. Lindquist quotes the text of that Opposition "identities." Plaintiff adds language to Mr. Lindquist's statement from page 9 of by adding "(intervening John Does')" Mr. Lindquist specified that the Governent was seeking the identities ofthe John Does - not limited to the intervenors. Again, the identities requested under the summons included Sligo 2000 and Epsolon, their addresses and their taxpayer identification numbers.
300n page 15, of plaintiffs Response, plaintiff

31Def. Prop. Finding 23. So far as we know, Sidley Austin never did produce the taxpayer

identification numbers.
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(2) continually review all information obtained from any and all audits to determine if
information received from another source was responsive to an outstanding summons;

(3) determine whether any information gathered in any other fashion was relevant to information

requested of any summoned party as to any taxpayer; (4) determine if any information was in

hand which was relevant to a taxpayer whose statute oflimitations was about to expire; and (5)
calculate the tax and issue an FP AA or statutory notice of deficiency prior to the expiration of the

statute of limitations. This is not the kind of burden Congress intended on placing on the

Commissioner. The § 7609(e)(2) suspension provision applies "to any person with respect to
whose liability the summons is issued" and ties the suspension period to the final resolution of the summoned party's response. The statute as enacted by Congress avoids the difficulties which
plaintiff is seeking to place into the statutory scheme.
Plaintiffs interpretation of

the suspension provision of § 7609(e)(2) would also defeat the

purose of the suspension. Congress enacted the statute to change the prior law under which, "if

the IRS litigated to obtain access to the third-pary records, the statute of limitations can expire
prior to final determination as to the availability of

the records.,m Mr. Tucker concurrently

prosecuted two separate pieces of

litigation, one in Texas with respect to KPMG and one in

Ilinois with respect to Sidley Austin, both seeking to prevent the Service from learning his

identity. The potential effect of

both actions was to delay the Service's learing his identity as a

tax shelter investor until after the three-year statute had expired. If plaintiff s theory were to
prevail here, the Congressional purpose underlying § 7609(e)(2) would be frustrated.

32H.R. Conf. Rep. 99-841, 1986-3 C.B. (voL. 4), at 809.

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Both the plain meaning of § 7609(e)(2) and the intent of

Congress establish that the

suspension of

the statute of

limitations continues until the summoned pary's response is finally

resolved. Adoption of

plaintiffs strained interpretation would result in an administrative and
the John Doe class would be

litigation nightmare. Every person who fit the description of

encouraged to first delay the summoned part's response (as happened here), then seek to
determine what other information the Service might have from any source which arguably

presented that same information as requested by the summons, and the time the Service obtained
that information, all in hopes of

running out the clock on the statute oflimitations.33 The clear

line laid down by congress as to the duration of the suspension-final resolution of the summoned

pary's response-renders any such exercise irrelevant.

C. The holdini: of United States v. Powell does not prevent the application of the suspension of § 7609(e)(2) to Mr. Tucker.
Plaintiff contends that the Service had the information requested by the Sidley Austin

summons somewhere in the voluminous record unsealed by the Texas District Cour on April 12,
2004. Even if

true, this is irrelevant. Plaintiff cites to the cases Powell v. United States, 379 U.S.

48 (1964), and United States v. Garrett, 571 F.2d 1323 (5th Cir. 1978), for the proposition that if

the governent already has in its possession the same information requested by a summons, the
summons "is satisfied and is moot."34 Plaintiff misstates the nature of

the holdings of Powell and

Garrett. First, those two cases concern the prerequisites which must be satisfied prior to

33 Although defendant is unsure as to what plaintiffs rule 56(t) motion involves, it is

suspected that plaintiff wishes to discover what information the Governent had and when it had
that information regarding the KPMG enforcement proceeding. The plain language of

the statute

renders the need for such a fishing expedition unecessar as that information is irrelevant.
34Response, p. 14.

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enforcement of a summons - not whether a specific summoned par's response has been
resolved. In this case, the Sidley Austin summons was enforced by order of the Ilinois District
Court on April 28, 2004-after plaintiff contends the information was already in the hands of the

Governent. Thus, the enforceability of the summons was decided and that decision is res

judicata. The time for Mr. Tucker to cite Powell and argue that the Governent already had the
summoned information in its possession was in the enforcement proceeding in which he had
intervened.35

Even if the issue of whether the information sought by the Service is already in the

possession of the Governent from any source were present in this case, and it is not, cases
subsequent to Powell have looked at the question of

when information is already in the

possession of

the governent. In Powell, 379 U.S. 48, 57-58 (1964), the Supreme Court held

that, for an IRS summons to be enforced, the Governent must show:
that the investigation wil be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner's possession, and that the administrative steps required by the Code have been followed. . .
In construing these requirements, subsequent cases have held that the requirement that the
information was "not already in the possession of the governent" was to prohibit unnecessary

summonses as set forth in § 7605(b):

35Such litigation in and of itself would have operated to keep the suspension of
§ 7609(e)(2) in place. In the legislative history to § 65030) (regarding suspension of

the statute

of limitations in the case of a designated summons") the Conference Report states that the term "final resolution" in that statute has the same meaning as that term in§ 7609(e)(2), i.e., that no court proceeding remains pending and the summoned person has complied with the summons to the extent required by the Court. H.R. Conf. Rep. No. 101-964 (1990).
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Read in context, we construe the "already possessed" principle enunciated by
unnecessar summonses, rather than an absolute prohibition against the enforcement of any sumons to the extent the IRS. information already in the possession of that it requests the production of
Powell as a gloss on § 7609(b)'s prohibition of

United States v. Davis, 636 F.2d 1028, 1037 (5th Cir. 1981), cert. denied, 454 U.S. 862 (1981).

The Davis Court noted that this principle had already been applied, citing United States v.

Schwartz, 469 F.2d 977, 985 (5th Cir. 1972), and United States v. First National State Bank of
New Jersey, 616 F.2d 668 (3rd Cir. 1980).

In Schwartz, the taxpayer objected to enforcement of a summons on numerous grounds

including that the Service had already had access to the summoned information. The Schwartz
Court held that, even though the Service had free access to corporate records for a period of time,

the requested records were not already in the possession of the Service, even during that period of
access, because the information sought was not readily available to the corporations' bookkeeper
and retrieving the information required a search of voluminous corporate records.

In First National State Bank of New Jersey, the Third Circuit considered the question of
whether the Service could summons copies of

Forms 1099 andl087 from banks, even though
the

originals of

those Forms had been filed with the Service and were already in the possession of

Service. The Third Circuit stated that the Powell requirement was based upon "the desire to
prevent abuse ofthe administrative summons process and harassment of

the taxpayer." First

National State Bank of

New Jersey, 616 F.2d 668 at 664. Because the forms were not kept in an

indexed system, the Third Circuit held that, as a practical matter, the information was not in the
possession of the Service.

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Again, the issue of whether the information sought by the Sidley Austin summons was

already in the possession ofthe United States as a result of a summons directed to another part is
not present in this case. Even if

that issue were present here, however, the information sought

from Sidley Austin by the summons served on it was not in the possession of the United States

where some ofthe information requested was buried in approximately 2500 pages of documents
deposited in the United States District Cour for the District of

Texas in an injunction proceeding

brought against KPMG and finally unsealed on April 12,2004. United States v. Davis, 636 F.2d
1028 (5th Cir. 1981), cert. denied, 454 U.S. 862 (1981); United States v. Schwartz, 469 F.2d 977,
985 (5th Cir. 1972); United States v. First National State Bank of

New Jersey, 616 F.2d 668 (3rd

Cir. 1980).

The relevant question is on what date did Sidley Austin finally resolve its response to the

summons served upon it. § 7609(e)(2). As established above, the earliest possible date that Sidley
Austin could be considered to have resolved its response to the summons was on March 3, 2005.
iv. Plaintiff's Rule 56(f) motion.

Plaintiff

has incorporated into its Response its own Rule 56(t) motion seeking unspecified

discovery regarding unspecified allegations made by the Governent. Presumably, plaintiff
wishes to engage in discovery to learn what information the Governent had with respect to Mr.
Tucker and when the Governent acquired that information, regardless of the source of that
information. Plaintiffs supplemental Proposed Findings of

Undisputed Fact indicate that plaintiff

is seeking to establish that information present in the 2,499 pages fied in response to the KPMG
summons as par of

the Texas litigation may have been shared among the various components of

the Deparment of Justice and the IRS. As is shown above, the relevant inquiry is when did

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Sidley Austin finally resolve its response to the sumons served upon it and ordered enforced in
the United States District Court for the District of Ilinois. The declaration of John Lindquist of
the Deparment of Justice, attached to the Governent's Cross Motion for Summary Judgment,

and his supplemental declaration filed simultaneously with this Reply, establish that the earliest

date Sidley Austin could be considered to have finally resolved its response was March 3,2005.
Since plaintiff cannot present declarations from Sidley Austin personnel to establish a different date, there is simply no reason to grant its Rule 56(t) motion.
V. The Government's Rule 56(f) Motion.

While the Governent contends that its Cross-Motion for Summar Judgment on the issue
of whether the statute of limitations barred the assessment of taxes arising from the FP AA in this

case should be granted, if that Cross Motion is denied, the Governent has requested leave to
conduct discovery into the issue of whether or not Mr. Tucker had fied a false or fraudulent

return. If a false or fraudulent return was filed, then the unlimited statute of limitations of

§ 6501(c)(l) would apply, with the result that the FPAA was issued timely. Unlike plaintiffs

vague request in its Rule 56(t) motion, the Governent has set forth detailed reasons why there is
a potential for fraud in this matter.
As is stated in the Governent's opening brief and in its Brief in Support of

the Motion to

Suspend Proceedings, the individuals, entities, and transactions involved in this case are

intimately related to a broad-based conspiracy to develop, promote, sell, and implement various

ilegal tax shelters by the worldwide accounting firm KPMG LLP and others. The Service
determined that, inter alia, the transactions at issue in this case which gave rise to the claimed loss
were not entered into with a profit motive, lacked economic substance, had no bona fide business
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purpose, and were shams. The United States expects to prove at trial that these losses were
calculated to be used by Mr. Tucker to avoid paying income taxes on substantial amounts of

income. Furhermore, Mr. Tucker took aggressive steps to prevent his identity from being
disclosed to the Service in response to summonses seeking the identities of taxpayers who had

paricipated in tax shelters.
In order to determine whether an allegation of fraud in this case is appropriate, the United

States requires discovery into the merits of the Tucker/Epsolon transaction - both document

discovery and depositions - including inquiries into KPMG's marketing ofthe SOS shelter to Mr.
Tucker, and the paricipation in implementing the transaction by various KPMG personnel and
R.J. Ruble, who is an indicted defendant in the criminal case proceeding in the Southern District
of

New York. As is explained in the letter dated Januar 13,2006, from the United States
New York, the Epsolon/Tucker transaction is part of

Attorney's Office for the Southern District of

the matters contained in the Superceding Indictment fied in United States v. Jeffey Stein, et al.,
S05 Crim. 888 (LAK) (SDNy).36 For reasons stated in the Governent's Brief

in Support of

Defendant's Motion to Suspend, that discovery would necessarily interfere with the criminal case.

Therefore, the Governent requests that, if the Cour reaches the issue of whether the unlimited
statute oflimitations of § 6501(c)(I) applies because Mr. Tucker fied a false or fraudulent return
with the intent to evade tax, the Cour refuse plaintiffs application for judgment pursuant to
RCFC 56(t) to allow discovery on this issue after the case is no longer stayed.

36Exhibit 7 to the Declaration of David House fied with the Governent's Brief in
Support of Motion to Stay Proceedings.
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CONCLUSION
The statute oflimitations of § 6501 governs the assessment of

tax attributable to

parnership items. As of the issuance of the FP AA, the statute of limitations of § 6501 was open

and suspended pursuant to § 7609( e )(2)(B). The statute of limitations to assess tax against Mr. Tucker for 2001 remains open and suspended as a result of the issuance of the FP AA and the
fiing of

this suit pursuant to § 6229(d)(I). Therefore the United States asks the Court to grant the

United States Motion for Parial Summar Judgment by holding that the adjustments reflected in
the 2001 FP AA are not barred by limitations, so that the Court may determine Epsolon's 2001
parnership items.
In the alternative, if the Court reaches the issue of

whether Mr. Tucker filed a false or

fraudulent return with the intent to evade tax resulting in the application of the unlimited statute

oflimitations of § 6501(c)(1), the Cour should refuse plaintiffs application for judgment
pursuant to RCFC 56(t) and continue the stay in this matter.
Respectfully submitted,

sf David R. House
DA VrD R. HOUSE

Attorney of Record U.S. Deparment of Justice - Tax Division Court of Federal Claims Section Post Office Box 26

Ben Franlin Station Washington, D.C. 20044
(202) 616-3366 (202) 540-9440 (facsimile)

EILEEN 1. O'CONNOR Assistant Attorney General DAVID GUSTAFSON Federal Claims Chief, Court of s/David Gustafson Of Counsel
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