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) COMPAN, INC., TAX MATTERS PARTNER,
Plaintiff
v.

THE UNTED STATES,
Defendant

DEFENDANT'S REPLY TO PLAINTIFF'S RESPONSE AN OBJECTION TO DEFENDANT'S MOTION TO STAY PROCEEDING

EILEEN 1. O'CONNOR Assistant Attorney General

DAVID GUSTAFSON DAVID R. HOUSE Attorneys Justice Deparment (Tax) Federal Claims Section Court of P.O. Box 26 Ben Franklin Post Offce Washington. D.C. 20044 (202) 616-3366

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Page

TABLE OF CONTENTS
Defendant's Reply Motion to Plaintiff's Response and Objection
To Defendant's Motion to Stay Proceedings ...................................... 1

Introduction .................................................................. 2

Discussion:
i. The Issues in the Case Are Related and Are Substantially Similar

to Those in the Criminal Case ........................................ 3

II. The Potential Hardship Is Real ....................................... 7

II. Plaintiff

Wil Not Be Hared by a Stay ............................... 12

IV. The Duration of

the Requested Stay is Reasonable. . . . . . . . . . . . . . . . . . . . . . . 13

V. The Potential for Summar Judgment.

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Description
1. Order of the United States District Court for the
Northern District of

Texas (Dallas Div), John Doe 1 &

Johne Doe 2 v. KPMG, L.L.P. 398 F.3d 686 (5th Cir. 2005).
2. Memorandum Opinion of

the United States District Court for the New York, United States v. Jeffrey Stein, et aI., Southern District of S05 Crim. 888 (LAK) (SDNY). the United States District Court for the Southern District of New York, United States v. Jeffrey Stein, et al., S05 Crim. 888 (LAK) (SDNY).

3. Order of

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Page

TABLE OF AUTHORITIES
Cases:
Afro-Lecon, Inc. v. United States, 820 F.2d 1198 (Fed. Cir. 1987) . . . . . . . . . . . . . . . . . 10
Ampetrol v. United States, 30 Fed. Cl. 320 (1994) ............................6,8

Campbell v. Eastland, 307 F.2d 478 (5th Cir. 1962), cert. denied,
371 U.S. 955 (1963) ................................................. 10
C3, Inc. v. United States,S Cl. Ct. 6591 (1984) ................................ 6
John Doe 1 and John Doe 2 v. United States, 398 F.3d 686 (5th Cir. 2005) ...3,8,9, 12

AD Global v. United States, Fed. Cir. No. 06-5046 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Litton Systems, Inc. v. United States, 215 Ct. Cl. 1056 (1978) .................... 10

Penden v. United States, 512 F.2d 1099 (Ct. Cl. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . 10
St. Paul Fire & Marine Ins. Co. v. United States, 24 Cl. Ct. 513 (1991) .........2,3,7

Keith A. and Laura B. Tucker v. Commissioner, Docket No. 12307-04 ...... . . . . . . . 10
United States v. Stein, et aI., S05 Crim. 888 (LAK) (SDNY) .................... 1,6

Miscellaneous:
Federal Rule of Criminal Procedure Rule 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

11

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

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

Plaintiff,
v.

THE UNTED STATES OF AMERICA,
Defendant.

DEFENDANT'S REPLY TO

PLAITIFF'S RESPONSE AN OBJECTION
TO DEFENDANT'S MOTION TO STAY PROCEEDINGS

Defendant has moved this Court to stay proceedings on the grounds that moving forward

with this case wil interfere with the pending and related criminal proceeding taking place in the
Southern District of

New York, United States v. Stein, et al., S05 Crim. 888 (LAK) (SDNY). As
in Support of

presented in the Brief

Defendant's Motion (hereinafter, "defendant's Brief'), the

Declaration of David House, and the attachments thereto, i the issues involved in this case are

both related to and substantially similar to those in the criminal case. The potential for hardship
and prejudice to the governent is real and the delay sought is not significant. Accordingly, the

IAll references to the Exhibits attached to the Declaration of

David House, submitted

with the defendant's Brief, will be to "House Decl., Ex. ".
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Motion to Stay satisfies the three part test of St. Paul Fire & Marine Ins. Co. v. United States, 24
Cl. Ct. 513 (1991), and should be granted.

INTRODUCTION
Plaintiff's Objection seeks to diminish the connection between the two cases on the basis
that the taxpayer enjoying the benefits of

the shelter, Keith Tucker, is not under indictment.

While it is true that Keith Tucker is not under indictment, that is not the end of the inquiry. As
shown in the defendant's Brief and below, Mr. Tucker's motives for entering into the shelter
transactions, the basis for Ruble's tax opinions, the truth or falsity of the representations of

the

opinion letters, and the bona fides of the tax shelter transactions are at issue in both this case and
the criminal case.

Plaintiff also complains that the governent wil not be harmed by a denial of the stay
since plaintiff has no intention of seeking discovery which would infrnge on the criminal matter.
It is no surprise that plaintiff

has no desire to probe into Ruble's determination in his tax opinions

written for plaintiff that the Epsolon transaction would "more likely than not" pass muster under
the tax laws, since development of

these subjects would be inimical to plaintiffs case. Likewise,

it is no har to plaintiff

if

the Governent is prevented from obtaining third-party discovery

regarding the shelter transactions, the substance of

the marketing pitch, and Tucker's motives, so

plaintiff is in favor of this case proceeding to decision under those restrictions. Under the guise
of objecting to the reasonable stay request filed in this case, plaintiff is clearly attempting to push

the case along while barrng defendant from being able to discover third-party information with

respect to plaintiffs tax planning which will shed light on plaintiff s motives for entering into the
Son of Boss shelter - motives plaintiff has placed in issue as a result of fiing the complaint in
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this matter.
Plaintiff

has a history of seeking to prevent the Governent from gaining third-pary

information with respect to his tax planning efforts. See John Doe 1 and John Doe 2 v. United
States, 398 F.3d 686 (Sth Cir. 200S). Furher, as stated in the defendant's Brief, the criminal

defendants could well gain discovery into the governent's criminal case to the extent that the governent's trial counsel in this case does manage to obtain some third-party discovery into
plaintiffs motives, Ruble's information and motives, and KPMG's operation with regard to the
transactions in this case.

Plaintiff also objects to defendant's Motion on the basis that it was the Service that issued
the Notice of

Final Parnership Administrative Adjustment ("FP AA") and the Service should,

therefore, be forced to live with the consequences of its actions in issuing an FP AA when the

criminal case was on the horizon. As wil be shown below, plaintiff could have extended the
statute of limitations with respect to issuing the FP AA, but refused to do so. Accordingly,

despite plaintiffs implication that the Governent had a choice regarding when to issue the
FP AA, Mr. Tucker refused to permit any realistic choice at all.

DISCUSSION
i. The Issues in This Case are Related and are Substantially Similar to Those in the

Criminal Case.

The first part of

the three-part test of St. Paul Fire & Marine Ins. Co. v. United States, 24

Cl. Ct. 513 (1991), requires the party seeking the stay ofa civil case to establish that the issues in

the civil case are related to and substantially similar to those in the criminal case. In the

defendant's Brief, the Governent set forth in detail the connections between the civil case and

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the criminal case.

Plaintiffs complaint seeks a redetermination of

the partnership adjustments made in the

FPAA attached to plaintiffs complaint. The FPAA lists among the reasons for adjustment that
the acquisition of any interest in Epsolon Limited and the alleged foreign currency transactions

lacked any genuine business purpose apart from tax reduction, lacked economic substance, and

constituted economic shams for federal income tax purposes; and that plaintiff failed to enter into the transactions with a profit motive. The FP AA further determined that the adjustments were
attributable to a tax shelter for which no substantial authority has been established for the
position taken, and that there was no showing of reasonable belief

by the partnership or its

partners that the position taken was more likely than not the correct treatment of the tax shelter

and related transactions. The FP AA went on to assert penalties. The complaint fied in this case
alleges that the foregoing determinations are erroneous, including the determination that Epsolon
lacked substantial authority for the tax treatment reflected on its tax return for 2001, and, in the alternative, Epsolon had a reasonable basis for believing that the tax treatment reflected on its tax

return for 2001 was more likely than not the proper treatment. Thus Mr. Tucker's motives and
intentions, as well as the advice he received from the persons marketing the tax shelter to him,

are relevant to the civil case. In addition, the information known to the scriveners of the various
transaction documents and the author of the tax opinions supporting the transaction are also

relevant to determine both the bona fides of the transactions and whether the imposition of
penalties is appropriate.

As set forth in defendant's Brief (at 10 - 20), the issues and facts in the criminal
proceeding relate to and are substantially similar to the facts of

this case. The facts and issues

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relevant to both this case and the criminal proceeding include, among others, KMPG's review
and evaluation of

the SOS shelter and Ruble's opinion letter, and KPMG's determination that

neither would withstand an IRS challenge; KPMG's decision nevertheless to market SOS

shelters to taxpayers including the Tuckers and to prepare tax returns encompassing purorted
SOS losses; KPMG's actual marketing of

the shelter to the Tuckers; Ruble's opinion letter and

the veracity of

the representations contained therein made by, among others, the taxpayers; and

the role of the shelter boutique, its principal owner, and related paries in implementing the
Tucker shelter. In the letter from Assistant United States Attorney Shirah Neiman (House Decl.,

Ex. 7), the United States Attorneys Office has confirmed that the Tucker/Epsolon transactions
are part of the activity described in the indictment.

Plaintiffs own brief acknowledges, albeit obliquely, that the transactions in this case

relate to and are substantially similar to the facts of this case. At page 4 of its brief, plaintiff
acknowledges that Mr. Ruble rendered two tax opinions with respect to plaintiffs transactions. Plaintiff also acknowledges that Mr. Speiss, a partner in KPMG's "Inovative Strategies" group, advised plaintiff with respect to the transactions. Plaintiff then dismisses the notion that Mr.
Speiss and Mr. Ruble would be third-pary witnesses in this case even though Mr. Tucker's
motivation for entering into the transactions and understanding of the transactions are in issue.
The plaintiff actually states, at page 4, that the documents underlying the transactions are
sufficient to determine the validity of

the transaction. That may well be plaintiffs position, but

both the criminal case and the civil case will be based, at least in par, upon whether or not the
documentation of the transactions including the Tax Opinion was accurate. Paragraph 49 of the
superseding indictment (House DecL., Ex. 5) alleges that opinion letters and associated

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documents were false and fraudulent in numerous ways, including stating that the transactions

were entered into "'for substantial non-tax business reasons' when in truth and in fact, the
transactions were undertaken in order to generate the phony tax losses SOS purported to generate
and not for any 'substantial non-tax business reason. '" It is an understatement to say that the

factual issues in this case regarding the validity of the transactional documents, representation

letters, and opinion letters, as well as plaintiffs motives for entering into the transactions, relate
to and are substantially similar to those in the criminal proceeding.

Plaintiffs attempts to distinguish this case from Ampetrol v. United States, 30 Fed. CI.

320 (1994), and C3, Inc. v. United States, 5 CI. Ct. 6591 (1984), are unavailing. The very
documents upon which plaintiff claims the parties can rely to establish the bona fides of the
transactions at issue are the subject of

the criminal case, in which the criminal defendants are
the criminal

alleged to have prepared false and fraudulent documents in furtherance of

conspiracy. The holdings of Ampetrol and C3 are applicable to this case. As shown above, the

factual issues present in this case are directly related and substantially similar to those presented
in the criminal case.

Plaintiff also objects to the stay by contending that the criminal case and this case do not
involve the same transactions. (PI. Brief at 8.) Plaintiff

is mistaken. The letter from Assistant

United States Attorney Shirah Neiman expressly states that the Tucker/Epsolon transactions are
encompassed within the Stein indictment, referencing, inter alia, paragraph 32 and paragraphs
47-51 of that indictment. (House DecL., Ex. 8.) Again, defendant's Brief

traces in detail the

connections the Tucker/Epsolon transaction have with the criminal case, including the fact that
the superseding indictment alleges that the short options strategy was referred to by several
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different names, including "spread option strategy" and "digital option." (House DecL. Ex. 5,

para.

47.) Tucker himself

referred to the Epsolon transactions as digital options (House Decl.,

Ex. 9 at item 4), and, in response to an IRS summons, Sidley Brown, Austin & Wood provided

that Keith Tucker had participated in "Diversified - Spread Options." (House DecL., Ex. 8.)

Plaintiffs attempts to dismiss the connections between this case and the criminal case simply
ignore the facts.

Indeed, plaintiff undercuts its own argument when it claims "no person that is directly or
indirectly related to plaintiff

has been indicted." (PI. Brief at 7.) R.1. Ruble, who plaintiff

admits prepared the tax opinion letters for plaintiff, and is thus directly related to plaintiffs
transaction, has been indicted for his role in the very SOS shelter engaged in by plaintiffs.

As shown above and in the governent's Brief, the issues and facts in this case both
relate to and are substantially similar to the issues and facts in the criminal case. The first part of
the test of St. Paul Fire, supra, is clearly met.
II. The Potential Hardship is ReaL.

The second part of the three-par test of St. Paul Fire is that the pary moving for the stay
make a showing of hardship or inequity if the civil case proceeds in the face of

the criminal

action. In defendant's Brief, the Governent has set forth the hardship which wil be involved in

proceeding with this case while the criminal case is going forward, including the inability to

discover information from third parties who have already announced their intention to assert their

Fifth Amendment protection against self incrimination. Those persons include Ruble, the author
of

the plaintiffs Tax Opinions, and Tim Speiss, parner ofKPMG's "Inovative Strategies"

group, who advised Mr. Tucker regarding these transactions. Plaintiff attempts to diminish the
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hardship involved by asserting that plaintiff

has no intention of seeking discovery into the

criminal case. Plaintiff

ignores the Governent's need for independent discovery and appears to

be attempting to use the pendency of the criminal case to prevent the Governent from gaining
third-party information for use in the civil case.

If this civil case were to proceed, the Governent would also be faced with the prospects
of interfering with the criminal case by taking depositions of potential witnesses who may be

called in the criminal matter. Proceeding with discovery in this case runs the very real risk of
permitting the criminal defendants insight into the criminal case before they are entitled to that

information. In AmpetroI, the court found that the mere fact of deposition discovery in the civil

case would be a suffcient hardship on the prosecution in the criminal case. In paricular, the
court found that "(i)t would be impossible to limit the educational effect of a deposition on a
witness, or the impact that the mere designation of discovery here might have in affecting

strategy in the criminal proceeding." 30 Fed. CI. 320, 322 (1994). Given the close relationship
between the criminal case and this case, the effect on the criminal proceeding is no less than that
presented in Ampetrol.

Plaintiff contends that the harm to the Governent's civil and/or criminal cases in
proceeding with this case is of the Governent's own making. (PI. Br. at 12-14.) Plaintiff

is in

error. Plaintiff attempts to create the image that the Governent chose to issue the FP AA at the
same time the criminal investigation was proceeding. In fact, the Governent attempted to have

plaintiff and Mr. Tucker sign waivers of the statute oflimitations on assessment which could
have delayed the issuance of the FP AA, but they refused. Mr. Tucker appeared as John Doe 1 in

the case of John Doe 1 and John Doe 2 v. United States, 398 F.3d 686 (5th Cir. 2005). (House
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DecL., Ex. 6.) In that case, Mr. Tucker was attempting to prevent KPMG from disclosing his
identity and any of

his dealings with the tax shelter in response to an IRS summons. The United

States intervened and, as par of the case, requested that the Court order the parties to execute

waivers of the statute of limitations on assessment. Mr. Tucker resisted that request.
The District Court issued an order in which it declined to order the parties to execute
waivers of the statute oflimitations. A true and correct copy of

that Order, obtained from the
Texas, is attached hereto

website of

the United States District Court for the Northern District of

as Exhibit 1.2 On page 10, n. 3, of

that Order, the District Court stated that the plaintiffs behavior

in obtaining an extension in that Court was "puzzling. . . unless it was to run out the clock." In
fact, plaintiff is now contending that the statute of limitations had ru and the FP AA was issued
untimely. (PI. CompI. Para. 8.) Although plaintiffs contention regarding the timeliness of

the

FPAA is mistaken, plaintiff

wants to have it both ways: refuse to consent to an extension of

time

for assessments which could have delayed the issuance of the FP AA, and then complain that the
governent has issued an FP AA during the pendency of the criminal investigation. This is

followed by the argument that the governent has "made its bed and must lie in it." (PI. Brief at
14.) It was plaintiffs refusal to execute the waiver of the statute of

limitations, while attempting

to prevent KPMG from providing information in response to a summons, that created this
situation. As suggested by the District Court, it would appear that plaintiff

had all along been

attempting to "run out the clock."
Where plaintiff

has created the situation that caused the Governent to issue the FP AA at

2The District Court held in that Order that equitable tolling would apply to extend the

statute of limitations on assessment. That portion of the Order was reversed on appeaL. John
Doe 1 and John Doe 2 v. United States, 398 F.3d 686 (5th Cir. 2005).
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the time the criminal investigation is proceeding, plaintiffs argument that the Governent

should not be permitted a stay because its harm is self-inflcted is incredible. Stays are permitted

in order to prevent the very type of har that plaintiff is attempting to engineer in this case. See,
e.g., Afro-Lecon, Inc. v. United States, 820 F.2d 1198 (Fed. Cir. 1987); Litton Systems, Inc. v.
United States, 215 Ct. Cl. 1056 (1978); Penden v. United States, 512 F.2d 1099, 1104 (Ct. Cl.

1975).

Plaintiff next argues, PI. Brief at 14-16, that any harm from this case has already been
done by the Tax Court's denial of

the motion to stay in Keith A. and Laura B. Tucker v.

Commissioner, Docket No. 12307-04. This is simply not accurate. Plaintiff states, at 14, that
Tucker is "in the midst of discovery," implying that depositions are going forward. No

depositions have been taken in that case. Again, the United States is considering what options it
may have with respect to the Tax Court's denial of

the stay in that case. Further, the fact that the

Governent must now be forced to choose whether to limit its discovery and examinations in the

Tax Court case or to risk damage to the criminal case as a result of the denial in Tucker does not

justify forcing such a decision in this case. The one-sentence denial of stay in the Tax Court,
without explanation, does not address the strong public interest as set forth by the Fifth Circuit in
Campbell v. Eastland, 307 F.2d 478 (5th Cir. 1962), cert. denied, 371 U.S. 955 (1963):

The very fact that there is a clear distinction between civil and criminal actions
requires a governent policy determination of priority: which case should be tried

first. Administrative policy gives priority to the public interest in law enforcement. This seems so necessary and wise that a trial judge should give
substantial weight to it in balancing the policy against the right of a civil a reasonably prompt determination of

litigant to

his civil claims or liabilities.

Nor does the "damage" created by the Tax Court's Tucker decision obviate the need for a stay in

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this case. A stay in this case would avoid prejudice to the criminal tral and this proceedings by:
1) allowing the Governent to take its depositions of

third paries later - i.e., after the criminal

trial- when it could do so without providing undue disclosure of

the governent's criminal case;

2) providing both the governent and plaintiff access to the record of the criminal trial, which

wil very likely narrow the issues in this case; and 3) enabling the governent to obtain access to
grand jury information under Federal Rule of

Criminal Procedure Rule 6 that wil be available

after the Stein trial, and not before. Thus, the stay would enable the parties to proceed in this
case without the limitations that wil exist in the Tax Court case because of

the need to protect

the public interest in law enforcement - which limitations are exactly what plaintiff is attempting

to force on the Governent in this case as well.
Plaintiff also attempts to argue, focusing on Mr. Speiss, that the stay will not prevent

unindicted witnesses from asserting their Fifth Amendment rights in the future. This is simply

speculation. What is not speculation is that granting the stay wil permit the Governent to take
depositions of third parties without providing undue disclosure of

the governent's criminal

case, and that the Governent wil be able to provide the Court with full factual development
without the constraints against revealing grand jury information under Rule 6(e) of

the Rules of

Criminal Procedure. Plaintiff complains that permitting the Governent access to grand jury
information is somehow a windfall or creates a unique or unfair advantage. (Pl Brief at 12.)
Plaintiff ignores the fact that plaintiff

wil also gain access to the same information - as wil the

Court.

Plaintiff is, in effect, arguing that the Court should not have access to the information
surrounding the Epsolon tax shelter transactions. While it is understandable that plaintiff

wishes

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to argue that the transaction documents are all that is necessary to determine the bona fides of the

Tucker/Epsolon transaction, the Governent should be permitted to go behind the documents
and present all the surrounding facts necessar to determine whether Mr. Tucker had the requisite

profit motive in entering into those transactions and to determine whether the transactions

themselves were economic shams - a presentation that the Governent cannot make before the
criminal triaL
III. Plaintiff

Wil Not Be Harmed by a Stay.

Plaintiff complains at pages 16-19 of its brief that the Governent is the party attempting
to interfere with plaintiffs ability to fairly and objectively present the merits of

the transactions

at issue in this case. In fact, to the contrar, it is plaintiff, and plaintiff alone, that is attempting to
limit the presentation of facts to this Court.3 If

the Governent's stay is granted, plaintiff, in due

course, wil have a full and fair opportunity, as will the Governent, to test any factual
allegations through appropriate discovery. If

the stay is not granted, the Governent's trial
fact, and in the

attorneys in this case wil be limited in their ability to test plaintiffs allegations of

presentation of evidence to the Court, out of

the need to protect the public's interest in law

enforcement.

In the event plaintiff prevails on the merits of this case, plaintiff will be entitled to interest

3Plaintiffs Brief, at pages 16-19, presents a vitriolic and highly specious diatribe

regarding the governent's criminal investigation. While the governent does not agree with the criminal proceedings or with plaintiffs speculation as to are also irrelevant to the issues presented in the governent's Motion to Stay.
plaintiffs mis-characterization of future events, they

the merits of the tax liability here ring hollow when plaintiff and Mr. Tucker have been attempting to prevent the discovery of information into these transactions from the star. See, e.g., John Doe 1
Plaintiffs protests that the governent is attempting to prevent a full and fair hearng of

and John Doe 2 v. United States, 398 F.3d 686 (5th Cir. 2005).

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on the deposit it has made. Thus, any potential or actual harm to plaintiff is alleviated by the
provision for interest.
iv. The Duration of the Requested Stay Is Reasonable.

As stated in the defendant's Brief, the trial in the criminal case is scheduled for September 11, 2006. While plaintiff desires to speculate about possible delays,4 the judge in the criminal case has made it clear that the case is to go forward as scheduled.5 Thus the

Governent's request that the proceedings in this case be suspended until after the criminal trial
is not an unreasonable delay in the proceedings in this case. Therefore the third par of

the St.

Paul Fire three-part test is satisfied.

V. The Potential for Summary Judement.
The plaintiff

has stated that it intends to fie a motion for summary judgment with respect

to the issue of the timeliness of the FP AA. The plaintiff contends that such a Motion can be fied
utilizing no testimony from any individual that would interfere with the criminal proceeding and

that any documentary evidence to be presented with the Motion is already in the possession of

4Plaintiff again seeks to cast harrowing and specious concerns about the governent's use

of the suspension to seek out prejudicial admissions through supposed leveraging of indictments. The Governent rejects and denies plaintiffs speculations and mis-characterizations.

51n the criminal case, on Januar 26,2006, the Judge denied the governent's Motion to
disqualify one of the defendant's attorneys' on the basis of a conflict of interest. One of the the Order) was that a substitute counsel would grounds for denial stated by the judge (at p. 23 of not have time to adequately prepare for the trial, thus signaling that the criminal trial is to go that Order is attached as Exhibit 2. Further, the forward as scheduled. A true and correct copy of Judge in the criminal case issued an Order dated February 1, 2006, in which he notified the criminal defendants that a guilty plea must be submitted prior to June 15, 2006, in order to be considered timely to obtain acceptance credit for permitting the governent to avoid trial preparation. This again indicates that the judge intends for the criminal case to go forward as
scheduled. A true and correct copy of that Order is attached as Exhibit 3.
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both parties and would not interfere with the criminal proceeding. If

plaintiff

is correct in its

contentions regarding the evidentiary basis for such a Motion, the Governent does not object to
suspending further proceedings with the exception of proceeding on a Motion for Summary
Judgment directed solely to the question of the timeliness of the issuance of

the FP AA.

However, this issue is already before the Federal Circuit, which has recently allowed an

interlocutory appeal in AD Global v. United States, Fed. Cir. No. 06-5046. The initial brief
before the Federal Circuit is due on or before March 14,2006. If plaintiff

were to move for

summar judgment on this issue, this Court might well decide to take the matter under
advisement until the Federal Circuit's decision in AD Global.

CONCLUSION
The Tucker/Epsolon transactions are part of the activity that is the subject of

the Stein

indictment, and the issue of the legitimacy of the transactions will be litigated in the criminal

triaL To require the civil case to go forward with discovery and lor trial prior to the conclusion
of the Stein trial would prejudice the criminal trial, and would prejudice the ability of the United

States to fairly develop their defense in the civil case pending before this Court. As stated in the

defendant's Brief, the ilegal tax shelter criminal proceedings are enormously important with
respect to the effective administration of

the Internal Revenue laws, and this case is just one facet

of the overall conspiracy. Thus, as a result of grand jury secrecy, Fifth Amendment
considerations, and the danger that events in this case could compromise the criminal

prosecution, proceedings in this case should be suspended until after the criminal case has been

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resolved. As a practical matter, discovery will not be feasible until after that trial, which is set to

begin on September 11, 2006, and assuming conviction, after any sentencing proceeding has
ended.

WHEREFORE, defendant respectfully moves that the instant case be stayed until
resolution of

the pending criminal trial, with the exception that plaintiffbe allowed to fie a

motion for summary judgment on the issue of the timeliness of the FP AA.

Respectfully submitted,

sl David R. House DAVID R. HOUSE Attorney of Record
U.S. Deparment of Justice - Tax Division

Federal Claims Section Post Offce Box 26
Court of

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

EILEEN J. O'CONNOR Assistant Attorney General DAVID GUSTAFSON Acting Chief, Court of Federal Claims

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