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Case 1:05-cv-00296-FMA

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS GRAPEVINE IMPORTS, LTD., and T-TECH, INC., as Tax Matters Partner Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. § § § § § § § § § §

NO. 05-296T (Judge Allegra)

UNITED STATES OF AMERICA'S RESPONSE TO PLAINTIFFS' NEW ARGUMENT IN THEIR MOTION FOR LEAVE TO SUPPLEMENT THEIR APPENDIX IN SUPPORT OF PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT Defendant, United States of America, responds to the new argument raised by Plaintiffs in their Motion to Supplement their Appendix in support of their Motion for Summary Judgment as follows: 1. Plaintiffs filed their motion for summary judgment asserting a statute of limitations defense on October 21, 2005. Plaintiffs filed their Response to the United States' motion for summary judgment and their reply to our response to their motion on December 12, 2005. The United States has filed a cross motion. 2. Now, on the Friday before oral argument on the motions on the following Tuesday, April 11, 2006, Plaintiffs have raised a new argument in their motion to supplement their appendix, i.e., "that the Government chose to take a calculated risk and rely on the statute of limitations in Section 6501 rather than the TEFRA statute of limitations in Section 6229." Plaintiffs' Motion to Supplement, paragraph 3. The United States first learned of this motion,

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and the brand new argument it contains, at the end of the day on Thursday, April 6, 2006. See email to Grover Hartt from Alison Chen attached hereto as Exhibit A. 3. The materials Plaintiffs add to their appendix are a series of e-mails from various employees of the Internal Revenue Service exchanged in the second half of the year 2002. Significantly, Plaintiffs' counsel appears to have obtained these e-mails in response to a Freedom of Information Request filed on behalf of another client in a different case now pending in this Court, JZ Buckingham Investments, LLC v. United States, No. 05-231T (Judge Damich). See Exhibit 59, attached to Plaintiffs' Motion. Plaintiffs have neglected to include an affidavit attesting to the genuineness of the materials contained in this Exhibit to their motion. 4. The materials Plaintiffs add to the record in support of their new argument were received by their attorneys in a letter mailed to them on September 15, 2005, over a month before their opening brief in this case was filed. Remarkably, Plaintiffs do not even offer the meagerest explanation or excuse for this breath-taking lack of diligence. They knew of this information long before the briefing process began; yet they have waited to advance this new argument until the last few days before the oral argument on the motions. We submit that this gambit is an attempt to ambush the United States, and, as we explain below, an attempt to divert both the United States and this Court with completely irrelevant matters. 5. The short, and lethal, answer to this new "calculated risk" argument is itself a question: So What? Even if the Government had made a decision to undertake such a risk, calculated or otherwise, what difference would it make? Other unavoidable questions include: (a) Does the collection of e-mails Plaintiffs add to their appendix really support their

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inference of a decision to accept a "calculated risk" regarding the applicable statue of limitations? (b) Do any of the e-mail correspondents have the authority to bind the United States to any decision to accepted the purported calculated risk? (c) To the extent that any factual dispute regarding these matters exists, is it in any conceivable way material to the disposition of the parties' motions for summary judgment? We submit that the answer to each question is "No". 6. Although discovery issues were involved in Vons Companies, Inc. v. United States, 51 Fed. Cl. 1 (2001), the Court's perspectives on the evidence sought by the plaintiff in that case are highly germane to the new issue Plaintiffs seek to inject into this case. This court cannot sustain plaintiff's contention that internal administrative documents of an executive agency, purporting to explain the meaning or purpose of particular statutory language, have any definitive bearing on the purpose of Congress in promulgating such statutory language. Plaintiff refers this court to no authority supportive of this position. To the contrary, it strains credulity to contend that such postenactment documents could reasonably be considered to form any legitimate part of the legislative history to subject statutory provision which may be considered in determining whether the IRS has properly applied the statute. 51 Fed. Cl. at 20 n.21 (quoting Deluxe Check Printers, Inc. v. United States, 5 Cl. Ct. 498, 500 (1984)). See also General Electric Co. v. United States, 56 Fed. Cl. 488, 497 fn. 13 (2003); Rosee v. Board of Trade, 36 F.R.D. 684, 689 (N.D. Ill. 1965), "[T]he cerebrations and mental processes of government officials, leading to admittedly proper exercises of power, can never be a factor in a judicial proceeding . . . ." The random discussion contained the e-mail conversations in Plaintiffs' Exhibit 59 are irrelevant to and should be disregarded in the disposition of the issues now before this Court in the parties' motions for summary judgment.

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Additional authorities in support of our position on this point are provided in the following table:

Case ISI Corp. v. United States, 503 F.2d 558, 559 (9th Cir.1974). McLeod v. United States, No. CV-S-98-1655-PMP LRL, 2000 WL 1902257, at *2 (D. Nev. Nov. 15, 2000). United States v. Nordberg, No. CIV. A. 93-12681NMG, 1996 WL 170119, at *2 (D. Mass. Apr. 8, 1996), aff'd , 97 F.3d 1445 (1st Cir. 1996). Flamingo Fishing Corp. v. United States, 31 Fed. Cl. 655, 658 (1994). Associated Wholesale Grocers, Inc. v. United States , No. 86-2261-0, 1989 WL 110300, at *1 (D. Kan. Jun. 7, 1989).

Holding " 'the opinions, conclusions and reasoning of government officials are not subject to discovery.' " "The factual and legal analysis employed by the Commissioner is not relevant..." "Information about people who participated in the audit is not relevant, nor are notes made by IRS employees during the audit." "the opinions and conclusions of the agents... are irrelevant issues and therefore not discoverable" "The legal and factual analysis undertaken by the IRS should be of no concern to the courts" "it strains credulity to contend that such postenactment documents could reasonably be considered to form any legitimate part of the legislative history...which may be considered in determining whether the I.R.S. has properly applied the statute."

Deluxe Check Printers, Inc. v. United States , 5 Cl.Ct. 498, 500 (Cl. Ct. 1984).

Furman v. United States , No. 83-1249-3, 1983 WL 1687, at *4 (D. S.C. Nov. 25, 1983).

"This Court cannot conceive of any circumstances under which the information sought by the plaintiffs, hearing reports, comments, general policy statements, letters, memoranda, correspondence, etc. ..., could have any bearing on the resolution of this case." "Resolution of these issues depends solely on application of the pertinent law to the facts of this case; [the IRS's] motivation in issuing the assessments and the opinions of individual IRS agents regarding their propriety are immaterial." "The reasons for the Commissioner's determination are not relevant for the Court does not review those reasons." "The subjective analysis of the agent and technical advisor ... and their respective opinions as to the proper method to be applied in determining whether taxes are due form no part of the plaintiffs' case."

Garity v. United States, No. 9-72624, 1980 WL 1765, at *2 (E.D. Mich. May 20, 1980). Pierson v. United States, 428 F.Supp. 384, 390 (D.C. Del. 1977).

Detroit Screwmatic Co. v. United States, 49 F.R.D. 77, 78 (S.D.N.Y.1970).

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7. In addition, we categorically reject Plaintiffs' characterization in paragraph 3 of their motion of a "TEFRA statue of limitations in Section 6229." As we have made very clear in our briefs, Section 6229 does not impose a limitation; it guarantees a minimum period of time for assessing taxes against taxpayers, i.e., partners in partnerships, not partnerships themselves. WHEREFORE, the United States requests this Court to reject Plaintiffs' contention that "that the Government chose to take a calculated risk and rely on the statute of limitations in Section 6501 rather than the TEFRA statute of limitations in Section 6229."

Respectfully Submitted,

/s/ Grover Hartt, III GROVER HARTT, III Attorney of Record Tax Division U.S. Department of Justice 717 N. Hardwood, Suite 400 Dallas, Texas 75201 (214) 880-9721 (Main) (214) 880-9741 (Fax) EILEEN J. O'CONNOR Assistant Attorney General MILDRED L. SEIDMAN Chief, Court of Fed. Claims Section CHRISTOPHER R. EGAN DAVID R. HOUSE Of Counsel

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CERTIFICATE OF SERVICE IT IS HEREBY CERTIFIED that service of the foregoing RESPONSE TO PLAINTIFFS' NEW ARGUMENT IN THEIR MOTION FOR LEAVE TO SUPPLEMENT THEIR APPENDIX has been made on April 7, 2006, by mailing a copy thereof to: Todd Welty Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P 901 Main Street, Suite 3700 Dallas, Texas 75202

/s/ Grover Hartt, III GROVER HARTT, III

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