Free Motion for Leave to File - District Court of Federal Claims - federal

Case 1:05-cv-00231-EJD

Document 140-4

Filed 12/06/2007

Page 1 of 12

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 Parners, a South Carolina general partnership,

Plaintiff,
v.

United States of America,
Defendant.

APPENDIX TO UNITED STATES' CORRCTED OPPOSITION TO PLAINTIFF'S MOTION TO COMPEL NON-PARTY JENKENS & GILCHRIST

Description
Declaration of John Lindquist, with Exhibit A
Declaration of

PAGES
2-11
12

Manager Joseph J. Durak, Jr (signed)

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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.

JOHN A. LINDQUIST, pursuant to 28 U.S.c. Section 1746, hereby declares under
penalty of

perjury as follows:
the Washington D.C. offce of

1. I am an attorney of

the United States Deparment of

Justice, Tax Division, co-counsel for Defendant, the United States of America ("United States")
in these proceedings.
2. I submit this Declaration in support of

United States' Opposition to Plaintiffs to Compel

Non-Part Jenkens & Gilchrist.
3. Attached hereto as Govt. Ex. A are a true and correct copy of the first eight pages of a

purported legal opinion issued by Jenkens & Gilchrist to Jerr Zucker with respect to the
COBRA transaction which is at issue in the above-referenced matter.
4. The purported opinion recites, inter alia, that:

On November 23, 1999, you, through a Delaware limited liability company wholly owned by you, JZ Buckingham Investments LLC
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("JZLLC"), entered into certain over-the-counter, non-publicly traded European style foreign currency option positions on the Euro and the Japanese Yen (the "options") with Deutsche Bank AG New York Branch ("Bank"), an unrelated substantive counter party. Specifically, you bought digital options on (1) the Euro/U.S. Dollar exchange rate at a strike price
of U.S. $1.0123 per 1.0 Euro with an expiration date of

December 22,

December 27, 1999 and a payoff amount of $40,000,000.00, and paid a premium of $20,000,000.00 and (2) the
1999, a settlement date of

Japanese Yenl.S. Dollar exchange rate at a strike price of 106.19 Japanese Yen per U.S. $1.00 with an expiration Date of December 22,

1999, a settlement date of December 27, 1999 and a payoff amount of
$50,000,000.00, and paid a premium of $25,000,000.00 (collectively

referred to herein as the "Long Option"). Additionally, you sold (1) a digital option on the EurofU.S. Dollar exchange rate at a strike price of U.S. $1.0121 per 1.0 Euro and received a premium of $19,000,000.00, with an expiration date of December 22, 1999, a settlement date of December 27, 1999 and a payoff amount of $37,500,000.00 and (2) a digital option on the Japanese Yenl.S. Dollar exchange rate at a strike price of i 06.21 Japanese Yen per U.S. $1.00 and received a premium of $23,750,000.00 with an expiration Date of December 22, 1999, a settlement date of December 27, i 999 and a payoff amount of $46,875,000.00 (collectively referred to herein as the "Short Option").
Govt. Ex. A, p.2 at ~1 (emphasis added).
I declare under penalty of

perjury, pursuant to 28 U.S.C. § i 746, that the foregoing is true

and correct.

Executed this 3rd day of

December, 2007.

-"\

1

2

2905647.1

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Jenkens &r;Ollto....." .. ,eO'lllio-At Gilchrst
ii~ wnf WOol_lOt ""lIT
CMlCAGO. IUINI MIac,.

'UII....MO
O-L~.. 'UAI

6UI"". 'i....

.UR _

.'1'" .."'..01

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11121.U.1100
..u... (111t ....11..

Clnl",.UOl

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i.oi '-bJl. CAllo-Uli IltOl ...._

I.. ""010. ,....

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~anua 31, 200
CONFlDENTAL .

AITORNEY-CLlENTPRlLEGED.
Mr. Jt: Zucker

16 Buckgh Dnvc .
Chleson South Carlina 29407

Dea Mr. Zucer
You have requested us to review the United States federl income la CCnSuence of a
'.,

-, numba oftrsactioRS in wmch you have bun involved an to provide our op~on reging ccnain
matmal United States fedenil income tax issuea. Such trsaion ar desribe below under the

heing "Facts."
In connection with tlus opinion, we have exared such matten of law, and such corporate,

limited liibiJity and parership records and such other agrents. cerficates, instrents and
documc:ts, and we have made such othr inquies of offcQ"~ owner and TCRseItatives of the

entities involved IS we have deemed necear to rener th opinions set foit heei. W~ have

withut BJy investigation or indepndent con1ation relied upn an aswoed the açu. ofthe

respto such inquires and such ccrificatcs,corpnte,limited JiabiJtycompany anpanhip
records and othct documents with ret to factul matten.

l:

In panicular, our opinion is bas upon the following facts:
,/.
CHICAG It0 ,1. "'.9.oil

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. GOVERNMENT

; EXIBIT

I A
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jenkens & Gilchrst
.. .._,...~'" CO..,,..1'1O

Mr. Jerr Zucker

Janua 31,200
Page 2

i. On Novembe 23, 1m, you, thugh i Delawar liited liability c.pay wholly

own by you. JZ Buckigham Investenll u. ("JZl enter into cc: over.the.~owiter, .
non-publicly tncd Eurpe inle foreign cury optn

Yen (the '"tionsj with Deutshe Ban AG New Yon:Brab ("ai"). an urlaie substative

counter par. Speifically, you bought digita options on (1) the Eu.S. Dolla excle rate at

. .

positions on the Eu an the J apane

~

i stre price of U.S.Si.0123 pc 1.0 Eur with an expiraon dai of Deber 22, 199. a
setlement date or

Dccember 27, 199 and a payoff amount oCS40.00,OOIHlO; an pad a prcDUum

or S20,OO,00.00 an (2) the Japanese Yen.S. Dollar exchae rate at a strke pr of 106.19

~::/

JapaneS Y c: pe U.S.S 1.00 with an expiration date of Dcembe 2i, 1999, a seement date of
Dccembe 27. 1 999 an a payoff amout or S50.00,OO.OO, and paid a premhun or $15 ,00,00.00

(collectively rerem to herin as the "Log Option"). Addtionally, you sold (1) a digiLi option on

the EwolU.S. Dolla exchange rate at a strke price of u.s.S 1.0 121 pe 1.0 Eur md reived a

prcmiWn of S 19,00.00.00. with an expiration ~e or Deembe 22, 1999, . senlent date oc.
December 27, 1 999,and a payoffaiountof$37,500,OO.00 an (2) adigita optiononthJapancs
YenIS. Dollar exchage rate al a stre,price of

106.21 Japaes Yco peU.S.SLOO in reeived

a preum of S23,750,OO.OO, with an expirtion date ofDccembcr 22, 199, a seroemnt date of

Decauber 27, 199, an a payoff amunt of $46,87 5 ,00.00 (collecvely rerered to heei as the
"Sbort Option'").
2. On November 24. 1999, you contrbuted the Options to JBJZ Paz, a South
\-.,
.!

Carolina general piiership (th "Parerhip'') as a contrbution to capita.

_.-

CtfAGO ,.. .1_ .614""0001

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......

Jenkens & '."r....l.. ~ .. P"Cl"lltO~ Gilchrst
Mr. JcrZucker
Jiiua 31,200

Page 3 .
3. On Deembe 22, 199, th Pairsp's Option positions terinaied in Iirdane
with their tens.
4. On varous dates in Debe. 199, th Par purh&S Canadian Dollar (the
"Foreign Curency') IS ii invest.

S. On Decembe 22, 1999, you contrbuted 4,500 sh or Cill Syrs In. (the
"Long Ter Shaes") to the Parerhip is. cOnnibution 10 cait.. You have RpJeenle tht )IU
ha held these Shares for more th one)U. AlsO on Deembe 22. t 999, th ot par of

the

Parerhip contrbuted 500shies of

Cisc Sysem In. (th

"Shor TenShiil', as &contrbution

7'\ tg capitaL. The other paer has rtpresented that he ha held the Shan Ter Shar for ks th six

-/

monÙl. (Te Shon Tcr Shues and the Long Ten Shar will hereinafter be coUectively refer

10 as th "Sba".)
6. On Decembe 27, 1 999, you contributed your interest in th.: Parenp to JBJZ
Invest~rs, Inc. (uJBJZ INC:'), . Delaware corntion in which you arc the 90% sharholde. ll .
contrbution to its caita.

7. On December 27. 199. the Parerhip was dissolved an liquidated. As a

distrbution in liquidation of lhe Parerhip, all of the Foreign Curcy and the Shares wee
distr~uted to IBJZ INC.
8. On Deembe 28, 1999. JBIZ INC. sold aU of

its investment in the Foregn Curncy

which it reeived upon the liquidation of

th Parership and on Decembe 28, 1999. JIZ INC. sold.

all of its investment in the Shar which it received upon ile liquidation or the Panl'p.
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'.j
~-~-,.

Jenkens &C01...'.. ,. "HI"."'''' Gilchrst
Mr. Jer Zucker

Janua 31,200
Page 4

OPINION
Based on the following discusion and an,elysis and subject to the qiiification, limitations

and BS5umptiom se fort herein, we ar or the opinion that uner CWT1 U.S. feder ince la

law it i$ mon: likely thin iit tM:

A. JZUC, as . single membe linutcd liabilty CQmpa. should be disregacd u aD

. Cßtity for fecr ine ta Pwp.
B. Invcsna ÎJ th Options shuld not be iaable an ile OptilU. should be mated as
lepUJte insts fOf fed ine wi pll.

l.

....i

c.
D. Y our

The Parerhip should be clusificd as a parp for fedci iDCme LLX purscs.
contrbution of'th Options an th Long Term Sh to the Panhip shou Id
not result in . taiilepi Of loss_

E. The Short Opti~m should not be a liabilty withn the meariúg of section 752 of'the
Interal Revenue Co of i 986,

as amended (th "Coej.

F. Your basis in your ÌDtaCI in theParel$hip after th contrbution o(the Options
should iniude the cost of

th Long Opion contrbuted wiui MlUlcnt for the

Short Opon.
G. An adjusent to your adjusted basis in your Parerp intert should

be Rquirc

as a result of

the expirion o(Ùle Options, due to ile recgntion of ord income

on such expiration under Code scction 1234.

~ .. ..:

~.'/

ClCAOO 1- . J, "149.øii

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Jen~.~~~ c2HE.~st
Mr. Jm) Zuker Janua 31.200
Page 5

H. Yoar contrbution of your intem in the Parp to lBJZ INC. should nol be i
taxable traction and IBJZ INC. 's bui in IhPanmlup intc: con~butcd by
you should be. equal to your basis in such intei as orthe dae of

suh contrbution.

i. Your bass in)'ur intCT in IBJZ IN. shuld be inQby an amown equal to
the adjusted basi of your in

ter in th Parbip as of th date of cobution.

J. The liquidaon or th P-iermp should nOt rC$I~ in ga or loss RCgntion.
K. The liquidation oftJ Parerp should relt in an alloction of

the Piihip's

"ouædc" basii to th propertiei disabutcd by it in liquidation. In thi CIS, th

').
;;,1

propees consisted or cah, an invescii in th Foregn Cureny and an
investment in the Slw.
L. Th dispsition by IBJZ INC. of all or the

Foregn C\yrcieived in liquidation

orthe Parnership should result in an ordilU loss an the dbposition by JBJZ!NCor all of the Shaes reeived in liquidation' or

the Parership should reult in capital

loas, or which 10-;' will be shor-Ici caita loss an 90/. win be long-tenn capita
loss.
M. . The step b'action and sl tnon doctres should not aply to the

trtions desbe be.
N. Code sections 707(aX2)(), 165(e), 46., 469 and 1092 sbould not apply to the
transactions desribe herein.

rlilc..li... . i. .61..lIl

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J enkens & COlo..,I_ . . ...n..IIV"''' Gilchrst
t.:.

Mr. Jmy Zucker

Janua 31,200
Page 6

O. Treasur Regulation seOD C01"re. Reg. sc.'j 1.701.2 should not apply CO the

tracons desbe he.
The opinOIl sel fort abve an subjcciio the fo~lowi quaifications, limtaiions and

excetion:
No opiiuon is aprssed aboul the ta Irlmenl ofth desbe tntion for purose of

any stale or local income: lax. or any ta 01h th th Uniied Slate fedua inCome ta.

Niy misstemeni of ii mlÚerial fact ~r orml$io of uiy fa,i thi may be mak:al or any
change in any of me facls refci 10 may reuire a moification or an or a pa of our opinons.
,. ~

î ~:/

Ou opinions ar limited 10 me miner expresly sel for herein an no opinon may be
implied or inferr bend me maner 50 Slaled. The opiiùoll cxp~se hcnin an based upon our
interretation orcumllaw. Th opilÚons expreed herin an nol bindÎI OD the Inlerl Revenue

,Servce (the "IR" or ihe "Serce") or the cour, and ihee can be no assi:rane thi the IR and
the cour wil not tae'. posiiion contr 10 th opiiuons ~xpresed berin. We do noi under
10 advise you of any chages in law which ìnay ocur afer the date herf. The Code, th
regulalions promulgaled thereuer. and the administrtive

position of

th IR are subjec 10 chage

either pro¡pectively or rétractively. Such chages could render ce or all of th opinions

ex~ed hen:in inaplicale.
For pursC$ of aU of the above OpíniODS. we ar rtlyina on me trth of the rcp~scntaiíoll

of you and/or parers or reresentatives of the Parerp or authrized offcirs of JaJZ lNC.

~~~.

; '..
:....

CHI.i ,t0 .l.".ll,lll

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"

..)
Mr. Jer Zuker
Page 7

Jenkens & Gilchrist
_ "0.......' ~O..Ol.'tOii

Janua 31. 200

The opinions expresed herein ar fuished by II solely

for )'W" beefii an for the befii

of

the Parership an IBJZ INC. an the miy not be relied upn or delivered to any persc;m oih~

th you, JZLLC, the Parership an mJZ INC. and yo succ or usiSß wilhut ou exprs,

prior wrUCD apva.
REPRESENTATIONS'

,
the Options for iubsiantial nontax business

You and/or putcr of the Parerlúp and/or iulhiizecf offeen of JBJZ INC. have
represented th following:

a.

You entered into the purhase and iaIc of

":
..J

reason.. including (i) to produce overall economic prot. beuseofyolU beliefthai
ihe Eurol.S. Dollar exclwge rate an the Japan Ycø.S. Dollii exchage rale
relltionshps would .change; and (ii) your belief thal the most dirt way.

with th

most leverge, to realii.e gain from expected change in c~y pri. was ihe
purhase and sae of

th Options.

b. You contributed the Options to the Putc:lúp for substial nonta busine
reasons, Înc1uding, but not limited to, potential diverfition. of

th nsk of eeain

investents, the desire to coinveS1 as parer with th other c:pan and for

)'ur convcnC1.
c. Your contribution of

your interst in the Panmhip to JBJZ INC. was mad for

substantial nonta busines rans.

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.. .,

J enkens &e..."..,.. ....'A.......... Gilchrt
Mr. Jmy Zuker

J aoua 3 i, 200
Page S

d. Neith you. JZL, the Piihip. nor JBJZ INC. wer oblga Eo engae in any

tranacion to which our opiiúon5 herin relate upon the completion or any oiler or

such trtion.
e. Pror to their contrbution, the Long Ter Shar hid bc held by you ror, more th

one )', an the Sho Tenn Shares hid bee held by the olher parer or the

Parbip for leu th ii" month.
f. To the be of ~ur knowledge. )O have prvide Eo us all, th fac and

circumtaces neces for us to fon our opilÙon.

~PPLJCABLE LAW
,.. ,Ou analyss of the applicable United. Staes federl incme ta law with rescct 10 the

above-stated facts an .in supprt of each of ihe: lettered opinions u set fort on pages 3 thugh 5

hereor is anached with each attchmentlettered 10 corrnd to cac~ such opilÙon.

.' Bas on the foregoing and subject to me qualification, limtation an aswntions set fol1
herin we an of

the opiion that th describe ta conscquen have substantial authrity an thi

ii is in likely than not tht )'u will prvail if chlenge by th IR.

~ fl i:~
v cr trly )'

JENS & GD.CHR

Cii..c. 1_ .l. oelf"OOI

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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 Parner
of JBJZ Parers, a South Carolina general parership,

Plaintiff,
v.

United States of Amerca, Defendant.
DECLARATION OF JOSEPH J. DURAK, JR PURSUANT TO 26 USC SECTION 1746

1. I am the Account Manger, Tax Shelter Promoters for the Financial Services
Industr, Large and Mid-Size Business Division.

2. In my capacity as Program Manager I reviewed the overall calculation of

the $76
ta shelters in violation

milion penalty to which Jenkens & Gilchrst (J&G) was subject referenced in IRS News
Release IR-2007-71, which stemmed from J&G's promotion of

of the tax law concerning tax shelter registration and maintenance and turover to the IRS of tax shelter investor lists.
3. Also referenced in the above stated News Release is that J&G aggressively

marketed potentially abusive ta shelters such as COBRA (Curency Options Bring
Reward Alternatives); BEST (Short Option/asis Enhancing Securties Transaction);

BLISS (Basis Leveraged Investment Swap Spreads); OPS (Option Parnership Strategy); BEDS (Basis Enhancing Derivatives Structue); and BOSS (Bond & Option Sale Strategy), and two transactions that are not listed transactions - HOMER (Hedge Option Monetization of Economic Remainders); and (BART) Basis Adjustment Remainder Trusts).
4. The majority of

the penalty calculation attibutable to the COBRA shelter was calculated in the course of determining the liability under the Internal Revenue Code of a
that taxpayer and not the retu
information of J&G or of plaintiff. There is a small portion of

taxpayer other than J&G. It is the retur information of

the penalty computation that is the tax return information of J&G, but taen out of context, this information would have no meaning.
I declare under penalty of perjur the above is tre and correct.

Dated the 5th day of December 2007.

&
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