Free Affidavit - District Court of Federal Claims - federal

Case 1:05-cv-00231-EJD

Document 97

Filed 07/17/2007

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS No. 05-231 T (Chief Judge Damich) ______________________________ JZ Buckingham Investments LLC as Tax Matters Partner of JBJZ Partners, a South Carolina general partnership, Plaintiff, v. United States of America, Defendant.

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DECLARATION OF DAVID STEINER IN SUPPORT OF UNITED STATES' MOTION FOR LEAVE TO AMEND ITS ANSWER TO ASSERT COUNTERCLAIM FOR PENALTIES

DAVID M. STEINER, an attorney duly admitted to practice before this Court, hereby declares, pursuant to 28 U.S.C. § 1746, as follows: 1. I am a trial attorney at the United States Department of Justice and am one of the attorneys responsible for defending the interests of the United States in this matter. I submit this declaration in support of the United States' Motion for Leave to Amend Its Answer to Assert a Counterclaim for Penalties. The United States Attorney for the Southern District of New York has recently unsealed a criminal indictment against Robert Coplan, Martin Nissenbaum, Richard Shapiro and Brian Vaughn, dated May 22, 2007, annexed hereto as Exhibit A. Annexed hereto as Appendix A is a summary list of IRS information document requests and taxpayer responses. Annexed hereto as Appendix B is a summary list of material documents withheld by the taxpayers from the IRS in violation of the taxpayers agreement according to Announcement 2002-2.

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Annexed hereto as Govt. Ex. 562 is an Ernst & Young e-mail forwarding a template engagement letter. Annexed hereto as Govt. Ex. 541 is a Ernst & Young COBRA Action Workplan. Annexed hereto as Govt. Ex. 2252 is a two page fax dated November 22, 1999, from Ray Knight of Ernst & Young to Jerry Zucker and Jim Boyd which Zucker and Boyd failed to produce to the IRS. This fax was located by counsel for the United States on July 14, 2007, within files maintained on this transaction by Charlotte Crosby, the taxpayers' personal assistant. Annexed hereto as Govt. Ex. 2257 is a five page fax dated November 12, 1999, from Zucker to Knight specifying that the transaction was in fact for a $100 million loss, the total cost of the transaction, and the proposed allocation of loss as between Zucker and Boyd. Annexed hereto as Govt. Ex. 2260 is a retained copy of a response of Zucker and Boyd to a Jenkens & Gilchrist letter dated December 14, 1999, in which Jenkens & Gilchrist had requested that the taxpayers execute numerous documents, but not "fill in any blanks which appear in those documents at this time (i.e. dates)." Zucker and Boyd failed to turn over this document to the IRS. This retained copy was located by counsel for the United States on July 14, 2007, within files maintained on this transaction by Charlotte Crosby, the taxpayers' personal assistant. Annexed hereto as Govt. Ex. 1104 is a five page fax dated November 15, 1999, disclosing that E&Y's fee on the transaction was a fixed percentage (1.5%) and that the law firm's fee was also was also a fixed percentage (3%). In fact, the E&Y engagement letters attached to this memo make clear that these percentages were based on the taxpayer's "desired loss." Moreover, the memo indicates that, as amended, the "amount of loss is $50 million" (reduced from $100 million) with 60% to be ordinary loss and 40% to be long term capital loss. The memo discloses that the allocation of the partnership interests, and therefore the losses, was now to be "90/10" (not 98/2) with 10% allocated to Boyd. Zucker and Boyd did not produce this fax to the IRS. Plaintiff produced it later in response to the United States' discovery requests. Annexed hereto as Govt. Ex. 1029A are retained copies of engagement letters dated November 15, 1999, executed with E&Y. Zucker and Boyd failed to disclose these to the IRS. Plaintiff subsequently produced a revised engagement letter signed by Zucker in response to United States discovery requests. Annexed hereto as Govt. Ex. 1109 is and e-mail dated April 3, 2002, from Robert Coplan of Ernst & Young to Paul Daugerdas of Jenkens & Gilchrist.

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Annexed hereto as Govt. Ex. 169 is a letter dated April 17, 2002, reportedly postmarked April 19, 2002, from Boyd to Revenue Agent Gadsen electing to disclose the transaction reported on the 1999 Form 1040, Form 1065 and Form 1120S. Annexed hereto as Govt. Ex. 170 is a letter dated April 20, 2002, from Zucker to Revenue Agent Simmons electing to disclose the transaction reported on the 1999 Form 1040, Form 1065 and Form 1120S. Annexed hereto as Govt. Ex. 2259 is a Form SS-4 for JBJZ Investors, Inc.

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Annexed hereto as Govt. Ex. 171 is a letter dated April 30, 2002, from Revenue Agent Alan E. Moss to Zucker requesting information pursuant to the agreement to furnish information in accordance with Announcement 2002-2, attaching IDRS ##1 and 2. Annexed hereto as Govt. Ex. B are relevant pages of the deposition of James Boyd. Annexed hereto as Govt. Ex. C. Are relevant pages of the deposition of Jerry Zucker. Annexed hereto as Appendix C are relevant pages from the Expert Report of David Wayne LaRue, Ph.D., in this matter.

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I, David M. Steiner, declare under penalty of perjury that the foregoing is true and correct. Executed on July 17, 2007.

s/ David M. Steiner DAVID M. STEINER Trial Attorney, Tax Division U.S. Department of Justice Post Office Box 55 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 307-5892

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CERTIFICATE OF SERVICE I hereby certify that on July 17th, 2007, I electronically filed the foregoing Declaration with the Clerk of the Court using the ECF system which will send notification of such filing to the following: Joel N. Crouch Texas State Bar No. 05144220 Meadows, Collier, Reed Cousins & Blau, L.L.P. 901 Main Street, Suite 3700 Dallas, Texas 75202 s/ David M. Steiner David M. Steiner Trial Attorney, Tax Division U.S. Department of Justice Post Office Box 55 Ben Franklin Station Washington, D.C. 20044 (202) 307-5892

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