[00:00:05] Speaker 03: fortune-shipping SA Appellant, which is Commissioner of Internal Revenue Service. [00:00:09] Speaker 03: Mr. Flout for the Appellant, Mr. Colonel Roloney for the Appellate. [00:00:22] Speaker 03: Good morning. [00:00:23] Speaker 03: May it please the Court, my name is Stephen Flott. [00:00:26] Speaker 03: I represent the appellate Good Fortune Shipping SA. [00:00:30] Speaker 03: With me are Justice Sigmund and Brittany Oravik, who helped brief the case. [00:00:34] Speaker 03: I reserve five minutes for rebuttal. [00:00:37] Speaker 03: The challenge regulations are based on a false premise and an erroneous assertion. [00:00:43] Speaker 03: The false premise is that disallowing the attribution of bearer shares prevents taxpayers like good fortune from circumventing the ownership and residence requirements of Section 883C. [00:00:54] Speaker 03: The erroneous assertion is that without the challenge regulations, the IRS will have the time-consuming and onerous burden of chasing down and confirming the ownership of bearer shares. [00:01:09] Speaker 03: As to the first, the IRS can examine any Form 1120-F claiming a Section 883 exemption. [00:01:17] Speaker 03: If it does, the taxpayer has the burden of proving that it meets the requirements of the section. [00:01:24] Speaker 03: As to the second, [00:01:26] Speaker 03: The IRS does not have to track down ownership of bearer shares, quite the opposite. [00:01:31] Speaker 03: Taxpayers like Good Fortune must prove to the satisfaction of the IRS the identity of the owners of the shares in their structure. [00:01:39] Speaker 02: But there's no question that it's more difficult to prove ownership with bearer shares than otherwise, isn't that correct? [00:01:47] Speaker 02: That would be true. [00:01:48] Speaker 02: And is that a problem that's addressed in the statute? [00:01:51] Speaker 03: No. [00:01:52] Speaker 02: It's not addressed in the statute. [00:01:54] Speaker 03: I mean, the burden is still on the taxpayer to prove ownership. [00:01:56] Speaker 03: So it's accepted that ownership is possession of bearer shares. [00:02:01] Speaker 03: So they are owned. [00:02:03] Speaker 03: The issue for the taxpayer in this case, good fortune, is to prove that they, in fact, did own them at the relevant time. [00:02:08] Speaker 02: Because the statute, really, when it was enacted in 86... You don't have any problem with what they did. [00:02:14] Speaker 02: Was it in 2010 that they... Well, that was just a... No, I mean... You don't have any problem with that. [00:02:20] Speaker 02: That's all. [00:02:21] Speaker 03: Not at all. [00:02:22] Speaker 03: Because that really essentially takes what I'll call the classic bearer's share and turns it really into a registered share in another form. [00:02:33] Speaker 03: The... [00:02:34] Speaker 04: Can I ask how are the registered shares reflected in shipping companies? [00:02:43] Speaker 03: Well, these are private companies as if you would have any other private company and if you have a registered share, it's really a share issued in the name of the shareholder. [00:02:54] Speaker 03: As opposed to, in the case of the bearer, it's simply issued to bearer. [00:02:57] Speaker 04: Yes, but where is it registered? [00:03:00] Speaker 04: In the books of the company? [00:03:02] Speaker 03: In the company. [00:03:03] Speaker 03: I mean, they would be held, as with any company, they would be held in the records of the company itself. [00:03:11] Speaker 03: There's no public register, as you know here. [00:03:13] Speaker 03: There's no public register of shares. [00:03:17] Speaker 03: And if the, in this case, if good fortune cannot prove [00:03:22] Speaker 03: ownership of the shares and residence of the shareholders, it will pay tax. [00:03:28] Speaker 03: If the court invalidates the challenge regulations, all that good fortune will have won is the opportunity to prove that the bearer shares in questions are possessed by residents of qualified country during 2007. [00:03:42] Speaker 00: Why do you say that all they will have won is opportunity? [00:03:45] Speaker 00: Because I thought the way you're briefing the case is that [00:03:49] Speaker 00: If you're right that the regulation can't be sustained as is, then you already would have proven it. [00:03:54] Speaker 03: No, no, we don't. [00:03:55] Speaker 00: You don't take that position. [00:03:56] Speaker 03: No, no, no, I don't take that position. [00:03:58] Speaker 03: All we're asking is an opportunity to prove that there are qualified shareholders who are the true beneficial owners of a majority of the shares in good fortune sharing, period. [00:04:10] Speaker 00: But you made some submissions that would allow the agency to trace ownership of the bearish shares. [00:04:17] Speaker 03: Absolutely. [00:04:18] Speaker 03: We have to do that. [00:04:19] Speaker 00: And you're not taking the position that if you were to prevail, that those submissions are necessarily sufficient? [00:04:26] Speaker 03: Not at all. [00:04:27] Speaker 03: We still have the whole burden. [00:04:32] Speaker 04: Where's the sort of limit of the IRS's [00:04:36] Speaker 04: authority on assuring that proof is sufficient. [00:04:42] Speaker 04: So imagine you submitted everything you were proposing to submit, and they said, sorry, we're still not persuaded. [00:04:50] Speaker 03: Is this then? [00:04:51] Speaker 03: Then we lose. [00:04:52] Speaker 04: Then we have to pay tax. [00:04:55] Speaker 04: But can you appeal in some way the reasonableness of their determination? [00:04:59] Speaker 03: Oh, I think I could. [00:05:01] Speaker 03: Oh, certainly. [00:05:01] Speaker 03: We could go to tax court and say that the position they've taken, for example, we've already provided in this case. [00:05:07] Speaker 03: volumes of evidence about bank accounts, loan agreements, personal guarantees, other indicia of the ultimate beneficial owners of this company, but... And then would the test be something like our arbitrary or appreciation rule? [00:05:24] Speaker 04: That is, if they decline, if you gave them all that information, [00:05:27] Speaker 04: and I don't know, plus photo, you know, 24-hour photographs of the person holding the videos of the person holding the bearish years at every time of his entire life, and they still said no. [00:05:40] Speaker 04: Would your, the way in which you appeal that would be in tax court to say it's arbitrary and capricious? [00:05:47] Speaker 00: Exactly. [00:05:47] Speaker 04: Is that the way in which it would go? [00:05:48] Speaker 03: Precisely. [00:05:49] Speaker 00: You wouldn't pay and then file a refund action? [00:05:52] Speaker 00: That's not the way, that's in a different context. [00:05:54] Speaker 03: Certainly we could do that as well. [00:05:56] Speaker 03: We have a choice of either appealing to the tax court, paying the amount of tax due, and then going to district court seeking a refund. [00:06:07] Speaker 00: You don't take the position though that the IRS could never determine that there's a class of ownership. [00:06:13] Speaker 00: I know you think the fairer shares don't fit this category, but there's a class of ownership [00:06:18] Speaker 00: a type of ownership that's so difficult to prove up that that's just out of bounds. [00:06:24] Speaker 03: No, because in this case it seems to me that because the taxpayer has the burden of proof, the IRS simply sits back and says, because all the IRS has when it examines an [00:06:35] Speaker 03: Every 1120F filed has a Schedule S with it. [00:06:39] Speaker 03: Schedule S is a two-page form, which is summary in nature indicating the exemption, the ownership, et cetera. [00:06:47] Speaker 03: That's all they have. [00:06:48] Speaker 03: They have no way of knowing at that point in time whether the shares of the ultimate beneficial owners are held by nominees. [00:06:56] Speaker 03: They're held simply by straw men. [00:07:00] Speaker 03: They have no way of knowing the form of ownership. [00:07:03] Speaker 03: So they still have to make a case-by-case examination to determine if the people who are claiming to be the owners are truly the owners. [00:07:13] Speaker 03: And indeed, if you look at the Follow the Money Rule section, 183-4C4, it says even if [00:07:24] Speaker 03: You have a stockholder of a corporation that issues shares. [00:07:28] Speaker 03: But in fact, there's a private agreement that says the money flows to different parties, for example, through either preference shares, through a contractual agreement. [00:07:39] Speaker 03: We want to know who is getting the money from this venture. [00:07:44] Speaker 03: That is the true ultimate beneficial owner. [00:07:47] Speaker 00: I think I might have been asking a question from the opposite direction. [00:07:49] Speaker 00: Suppose there's a situation in which a country has [00:07:52] Speaker 00: allows ownership of shares that are just e-shares. [00:07:56] Speaker 00: So there's not even paper. [00:07:57] Speaker 00: And they just say, you know, these are basically e-shares, and they're traded on the e-market. [00:08:02] Speaker 00: And that's how we do ownership. [00:08:06] Speaker 00: And that country says that that's fine. [00:08:08] Speaker 00: And the IRS says, no, not for our purposes. [00:08:12] Speaker 00: That's just not something that is traceable in a way that's going to work. [00:08:17] Speaker 00: So we're just going to take that class of shares and say, [00:08:21] Speaker 00: get the benefit of the exemption if your shares are traded on the non-paper e-market? [00:08:27] Speaker 00: Could the IRS do that? [00:08:30] Speaker 03: Well, again, I don't see the benefit of doing it because this is all a priori before they even get to the exam. [00:08:36] Speaker 03: They're saying in this regulation what it says is you can't even come and try to prove your ownership irrespective of the nature of what proof you have. [00:08:46] Speaker 03: You are automatically disqualified, period. [00:08:49] Speaker 02: You don't even get to the point of even... But the basis of that is a judgment that... It's too hard. [00:08:53] Speaker 02: It's too hard. [00:08:54] Speaker 02: And I think, to follow up on Judge Shreve's question, let's posit a case where it's impossible, actually, to... Then the taxpayer is gonna lose. [00:09:02] Speaker 03: The taxpayer is gonna lose full... But what I'm saying is, at the point that the service enters into the inquiry, [00:09:09] Speaker 03: It would be no different if it wasn't each year. [00:09:12] Speaker 00: I mean, that just makes it sound like your position is that the IRS always has to allow the taxpayer to try to prove ownership, even if the IRS has made a determination that there's a type of ownership that's basically untraceable. [00:09:24] Speaker 00: And suppose they go further and they say, [00:09:26] Speaker 00: This is a type of ownership that we've examined for the last 10 years. [00:09:29] Speaker 00: It's just riven with fraud. [00:09:31] Speaker 03: Clearly, if the IRS had come to some factual determination based on prior experience that this particular situation, then they would have a reasonable basis for going forward because there would be some facts that they could cite to. [00:09:44] Speaker 03: What I'm saying at this point, the only thing they've said is, listen, it's clear, they don't like bearer shares. [00:09:50] Speaker 03: I'm not here as an advocate for bearer shares, but what I'm saying is, in this particular instance, the hypothetical you've posed, [00:10:00] Speaker 03: presuppose that the IRS has already investigated these situations, attempted to find out the proof, and has come up and said, we just can't do it. [00:10:07] Speaker 04: All right. [00:10:07] Speaker 04: In this case... I understand that bearer shares are diminishing in numbers, but at one point they were very popular, is that right? [00:10:14] Speaker 03: They were used very extensively in the shipping industry. [00:10:16] Speaker 03: This was not a new invention of a way to get around rules. [00:10:19] Speaker 03: No, no, no. [00:10:20] Speaker 03: In fact, if... Well, precisely. [00:10:23] Speaker 03: I think what's happened most recently is that bearer shares have been used [00:10:26] Speaker 03: in what's called for various purposes. [00:10:29] Speaker 03: But in terms of the shipping industry, bearer shares have been a common for centuries since corporations began in the 18th century. [00:10:38] Speaker 04: I think it wasn't that uncommon even for public corporations to use bearer shares. [00:10:43] Speaker 03: Well, exactly, bearer bonds. [00:10:45] Speaker 03: I mean, there are a lot of bearers. [00:10:47] Speaker 04: All right, thank you. [00:11:01] Speaker 01: Good morning, Your Honors. [00:11:02] Speaker 01: My name is Richard Calderoni, and I represent the Commissioner of Internal Revenue in this appeal. [00:11:06] Speaker 01: May it please the Court. [00:11:08] Speaker 01: In Section 883 of the Internal Revenue Code, Congress enacted an exemption from tax that depends in part [00:11:15] Speaker 01: on the residence of a foreign shipping corporation's shareholders. [00:11:18] Speaker 01: The regulations that issue in this case simply say that to determine a corporation's eligibility for that exemption, the IRS must be able to reliably determine the residence of its shareholders. [00:11:31] Speaker 01: And because the use of bear shares prevents the IRS from doing so, [00:11:36] Speaker 01: The IRS will not count bearish shares when determining whether a corporation... That's not the present view, though, right? [00:11:42] Speaker 02: In 2010, you went to a different regime that allows the use of bearish shares, right? [00:11:48] Speaker 01: Only certain bearish shares, Your Honor. [00:11:50] Speaker 01: Only bearish shares that are immobilized or dematerialized. [00:11:52] Speaker 01: And either immobilized or dematerialized bearish shares are, as Mr. Flott stated, much closer to registered shares. [00:11:59] Speaker 01: There's a contemporaneous record kept [00:12:01] Speaker 01: in the corporation's books of ownership of those shares. [00:12:04] Speaker 01: And in the case of traditional bearer shares, there's no such record. [00:12:08] Speaker 01: It's just you have to trace, determine the ownership of bearer shares. [00:12:11] Speaker 01: You would have to trace who possessed pieces of paper at a given time. [00:12:14] Speaker 00: So can I ask this question that if the colloquy towards the end of your colleague's argument suggests that [00:12:24] Speaker 00: If the IRS had given a fulsome explanation of why a particular type of efficient degree of reliability, and maybe even that as a type of ownership that's just been indicative of fraud before, and so we're just not going to allow taxpayers to prove ownership with this particular class and had done the work to show that, that might be one thing. [00:12:46] Speaker 00: But as I understand, as far as I could tell, [00:12:49] Speaker 00: There's one sentence in the Federal Register of Materials that explained this, and I may be missing something, but the sentence I saw was, due to the difficulty of reliability demonstrating the true ownership of such shares, the reproposed regulations do not adopt its suggestion in the interest of sound tax administration. [00:13:04] Speaker 01: Your Honor, I would say two things about that. [00:13:06] Speaker 01: One is that good fortune statement that had the IRS had extensive experience in this area and then closed it off, that would be okay. [00:13:13] Speaker 01: That's a concession that this is not a Chevron step one case. [00:13:16] Speaker 01: That's a concession that the regulations here are consistent with the plan. [00:13:19] Speaker 00: So suppose I agree with you on that, that it's not a step one case, that it's really about [00:13:23] Speaker 00: It's either, you know, it's arbitrary and capriciousness or something, but it's really about the lack of work done by the IRS to exempt an entire class of ownership from proof. [00:13:33] Speaker 01: Your Honor, I would say that under the trainery rule, the agency does not have to provide a complete detailed explanation. [00:13:39] Speaker 01: It just has to be enough of a hook. [00:13:41] Speaker 01: in the regulations to determine, you know, why these regulations... I don't remember anything in Chenery about enough of a hook. [00:13:48] Speaker 04: That's not a phrase I remember. [00:13:50] Speaker 01: It's not a specific phrase. [00:13:51] Speaker 04: All you've said, in addition to the single sentence and the proposed regulation, is in the final regulation, we retain this provision due to the difficulty of reliably demonstrating the true ownership. [00:14:03] Speaker 04: What if you had that sentence with respect to ordinary shares? [00:14:06] Speaker 04: What if you had that sentence with respect to nominees? [00:14:09] Speaker 04: I mean, we would – you haven't given us any – your brief has arguments, but Channery means we don't rely on your brief. [00:14:19] Speaker 04: Channery actually means we rely on what the agency stated in the regulation. [00:14:24] Speaker 04: And all you said is you think it's difficult. [00:14:28] Speaker 01: Yes, Your Honor, but two things about that. [00:14:29] Speaker 01: One is that good fortune has forfeited a Channery argument along those lines. [00:14:33] Speaker 01: It does not make that argument don't appeal. [00:14:35] Speaker 04: This is a classic Chevron Step 2 question. [00:14:39] Speaker 04: So we need to evaluate your explanation to determine whether it's reasonable, right? [00:14:45] Speaker 01: If you don't have an explanation, then it's not reasonable. [00:14:49] Speaker 01: But there is an explanation here, Your Honor. [00:14:50] Speaker 01: The explanation is that it's difficult to reliably determine the true ownership. [00:14:55] Speaker 00: I think the Chief Judge has the same question that I was getting to. [00:14:57] Speaker 00: So suppose that that exact same thing had been done with respect to registered shares. [00:15:03] Speaker 00: The same sentence, the two sentences, the one dealing with the proposed regulation and the one dealing with the following regulation, and it's just a conclusion about registered shares. [00:15:11] Speaker 01: Your Honor, if it were the case with bearer shares and registered shares, then the exemption would effectively be a dead letter, so the IRS would not... No, well, they allow bearer shares. [00:15:18] Speaker 00: Suppose that they allow bearer shares and then just say, or you, I'm sorry, the IRS says registered shares are out of bounds because we can't trace ownership. [00:15:26] Speaker 01: Well, Your Honor, that would not be reasonable because it's much easier to trace the ownership of registered shares than to just drop that. [00:15:31] Speaker 00: Well, how do we know that? [00:15:32] Speaker 00: Yeah, that all you've got is a sentence. [00:15:34] Speaker 00: So you just have it once. [00:15:35] Speaker 00: I think you must be right. [00:15:37] Speaker 00: But if all we have is two sentences, how do we know that? [00:15:42] Speaker 01: There's no dispute about that, Your Honor. [00:15:43] Speaker 01: The parties have agreed that bearer shares have these characteristics that give rise to the... I don't think the parties agree that they have those characteristics to an extent that should justify it. [00:15:55] Speaker 00: categorically excluding bearish shares? [00:15:57] Speaker 01: Well, certainly, Good Fortune believes that bearish shares can't be categorically excluded, but there's no dispute. [00:16:03] Speaker 01: In fact, Good Fortune's or Prybree's expressly concedes that when you have registered shares, there's a contemporaneous record kept of those shares. [00:16:10] Speaker 01: In bearish shares, there's no record kept of those shares. [00:16:12] Speaker 01: And that's the difference, that's the key difference underlying the two shares. [00:16:17] Speaker 00: I get that, but the fact that there's no record kept contemporaneously doesn't necessarily mean [00:16:23] Speaker 00: that it's reasonable to exempt the entire class. [00:16:26] Speaker 00: It could mean that. [00:16:27] Speaker 00: It definitely could. [00:16:29] Speaker 00: But just the mere fact that that, I don't even think even that is said, actually, in the administrative materials. [00:16:34] Speaker 00: I think it's just a fact that everybody understands, and I'll take it as a given. [00:16:37] Speaker 00: But that's not said. [00:16:38] Speaker 00: All that's said is ownership is hard to prove. [00:16:42] Speaker 01: That's correct, Your Honor, but for there to be a reliable way to demonstrate the ownership of bearish heirs at a past point in time, it would have to be something like what Chief Judge Garland mentioned of someone having a 24-hour video of a vault, keeping video of that from 2007, that's actually at issue here, until now. [00:17:04] Speaker 01: This doesn't say that. [00:17:05] Speaker 04: This says difficulty of reliably demonstrating. [00:17:08] Speaker 04: It doesn't say it's impossible to demonstrate. [00:17:10] Speaker 04: It just says difficulty. [00:17:12] Speaker 04: How much difficulty would be sufficient to exclude a class of shares? [00:17:18] Speaker 01: The difficulty given by a class of shares that is designed to be anonymous and secret and hidden ownership, Your Honor, is I think more than sufficient. [00:17:27] Speaker 01: Well, it doesn't say that in this regulation. [00:17:29] Speaker 04: It doesn't say anything at all about this question. [00:17:33] Speaker 04: How are, in a private shipping company, how do they approve registered ships to you? [00:17:39] Speaker 01: Your Honor, they would come in and fulfill all the substantiation requirements in the regulations, which require ownership statements from each level of ownership. [00:17:47] Speaker 01: And then, in examination, the IOs... Ownership statements by the... [00:17:51] Speaker 01: by the corporation, by everyone who owns shares of the corporation, by anyone behind those intermediaries and on down until you reach individuals. [00:18:00] Speaker 04: But the same would be true for bearish shares. [00:18:02] Speaker 04: The person would have to make the same statements, right? [00:18:05] Speaker 01: Yes, Your Honor. [00:18:05] Speaker 04: So what's the difference for registered shares? [00:18:07] Speaker 01: The difference is in the case of registered shares, the IRS can verify that by asking the corporation for the contemporaneous records that it kept of the ownership of those shares. [00:18:15] Speaker 04: Right, now your belief, your concern here is that the bearer shares people are lying. [00:18:20] Speaker 04: The corporation and the bearer share people would be lying, is that right? [00:18:24] Speaker 01: Our concern is that it would be very easy to abuse this exemption along those lines. [00:18:30] Speaker 01: Yes, Your Honor. [00:18:31] Speaker 04: Well, let's be clear. [00:18:33] Speaker 04: Imagine that the corporation says these are the bearers and they are residents, and the bearers say we are the bearers and they are residents, and it's under oath, okay? [00:18:43] Speaker 04: They all say that under oath. [00:18:44] Speaker 04: Now, you say that's not good enough because you think they would perjure themselves, right? [00:18:49] Speaker 01: Or because there is no contemporaneous record. [00:18:51] Speaker 04: Everyone could be making a mistake, Your Honor. [00:18:54] Speaker 01: You think this is a problem of a mistake, not of a question of intentional fraud? [00:19:00] Speaker 01: I'm saying the situation could – the regulation is intended to cover both situations. [00:19:06] Speaker 04: That is, of course, not reflected here. [00:19:08] Speaker 04: I thought the point of your brief – there was nothing in your brief about accidentally making misstatements. [00:19:13] Speaker 04: I thought your whole point here is you're trying to prevent the risk of fraud, right? [00:19:17] Speaker 04: That is the larger point, yes. [00:19:19] Speaker 04: All right, let's deal with that one first. [00:19:20] Speaker 04: Okay. [00:19:20] Speaker 04: Okay, so the – on the bearer shares, you get both the shipping company and the bearers to say, under oath, they did it. [00:19:30] Speaker 04: You say that's not good enough because [00:19:33] Speaker 04: they could be fraudulent, okay? [00:19:35] Speaker 04: With respect to the registered shares, you ask the corporation to produce what they say, quote, are their contemporaneous records. [00:19:43] Speaker 04: But if they were as nasty folk as you've already assumed with respect to the same companies for their bear shares, why don't they keep two sets of books and they produce just one set of books which they provide to you which says 100%. [00:19:59] Speaker 01: It's possible that they might do that, Your Honor, but it's bedrock chevron law that an agency does not have to cut off, in this case, every potential avenue for abuse of a tax exemption in order to cut off some potential avenues of abuse for a tax exemption. [00:20:15] Speaker 04: There has to be some explanation for us about why one works and the other doesn't. [00:20:21] Speaker 04: The one sentence of difficulty doesn't quite get us there. [00:20:26] Speaker 01: I think it does, Your Honor. [00:20:27] Speaker 01: The test here is the residency of the shareholders of a foreign shipping corporation. [00:20:32] Speaker 01: Bearer shares are designed to throw a cloak of secrecy over the identity and therefore the residency. [00:20:38] Speaker 04: Well, private companies are designed to throw a cloak over the transparency of their internal operations. [00:20:45] Speaker 04: That's why they're not public companies. [00:20:47] Speaker 04: So you could make the same argument. [00:20:49] Speaker 01: Yes, Your Honor, but the substantiation requirements in the regulations are themselves designed to get over that problem, to pull back the curtain as you go layer by layer down. [00:21:00] Speaker 00: So in 2010, there was no disavowing of the statement that there's a difficulty of reliably demonstrating the true ownership of such shares being bearish shares. [00:21:12] Speaker 00: That's correct. [00:21:12] Speaker 00: It's just that the regulations came up with a way to actually reliably demonstrate the true ownership of such shares. [00:21:19] Speaker 01: Not of traditional bearish heirs, Your Honor, of different kinds of bearish heirs for which there are contemporaneous records. [00:21:24] Speaker 00: No, but I don't understand that because they're not legally a different category, right? [00:21:30] Speaker 00: It's just that what happens is, in order to make use of the exemption, the companies have to keep the contemporaneous records. [00:21:38] Speaker 01: specifically by either dematerializing reshares, which means actually getting rid of the pieces of paper, or immobilizing by keeping the book akin to the book that you would have for registered shares. [00:21:48] Speaker 00: They're still called bearish shares. [00:21:50] Speaker 01: They're still called bearish shares, but they're specifically immobilized or dematerialized bearish shares. [00:21:56] Speaker 01: And under the law of some countries, not the US, but some other countries, my understanding is that immobilized and dematerialized bearish shares are legal and traditional bearish shares and not. [00:22:05] Speaker 00: Yeah, okay, but they're still all called bearer shares, so there's a way to have a thing called bearer shares. [00:22:11] Speaker 00: that has attendant to it sufficient security about ownership that the IRS is willing to count those? [00:22:19] Speaker 01: Under current law, yes, but as was discussed in Mr. Flotstein, that is a relatively recent innovation that was not in widespread use in 2007. [00:22:26] Speaker 00: Can I ask one last question, which is suppose, and you asked the question, I know you resist the premise, but assume that the regulation is determined to be invalid and not a Chevron step one, but a Chevron step two. [00:22:39] Speaker 00: What happens then? [00:22:41] Speaker 01: What happens then is I think in this case, Your Honor, there has to be a remand to the IRS for the IRS to make a determination of whether good fortune is entitled to the exemption. [00:22:50] Speaker 01: I assume that the IRS would have to do that on a case-by-case basis for any other tax years before the 2010 amendments kicked in. [00:22:57] Speaker 01: And then, you know, the 2010 regulations, however, would remain valid at this time because they're not at issue in this case. [00:23:04] Speaker 00: And what would happen with other taxpayers beyond this one? [00:23:08] Speaker 01: Beyond this one for years under these regulations, they would, the IRS would again have to make case by case determinations as to whether those taxpayers are entitled to the exemption. [00:23:19] Speaker 01: Thank you. [00:23:20] Speaker 04: Not quite. [00:23:20] Speaker 04: One more question. [00:23:21] Speaker 04: Um, there was a guidance at some point that allowed proof of ownership of bearish shares. [00:23:27] Speaker 04: Is that right? [00:23:28] Speaker 04: Yes, Your Honor. [00:23:28] Speaker 04: That was referendum procedure 91-12. [00:23:31] Speaker 04: And that was, I take it, reversed by the rule that we have before us now? [00:23:37] Speaker 04: Yes, Your Honor. [00:23:37] Speaker 04: That's correct. [00:23:38] Speaker 04: And was there any explanation as to why [00:23:42] Speaker 04: What was sufficient for proof in what year was that? [00:23:46] Speaker 04: 1991. [00:23:47] Speaker 04: In 1991 was no longer sufficient in 2003? [00:23:50] Speaker 04: The regulations were first proposed in 2000 and became final in 2003. [00:23:56] Speaker 04: Was there any explanation for why the specific forms of proof that were permitted in 91 [00:24:02] Speaker 04: are now too difficult to reliably demonstrate. [00:24:06] Speaker 01: Your Honor, there actually were no specific forms of proof allowed in 1991. [00:24:10] Speaker 01: It simply said documentation sufficient. [00:24:13] Speaker 01: And revenue procedures are actually not binding authority on substantive questions like what is sufficient here. [00:24:20] Speaker 01: They're simply guidance to the taxpayer. [00:24:23] Speaker 01: But the guidance to the taxpayer was that there would be something that would be sufficient. [00:24:26] Speaker 04: Yes, but it was not specified what. [00:24:28] Speaker 04: Fine. [00:24:29] Speaker 04: But was there any explanation given why [00:24:32] Speaker 04: there was no longer anything that was sufficient. [00:24:35] Speaker 01: Your Honor, the explanation is simply that it's difficult to reliably demonstrate the true ownership of bearer shares. [00:24:40] Speaker 04: You agree that the bearer shares is a form of ownership? [00:24:44] Speaker 01: Oh, definitely, Your Honor. [00:24:45] Speaker 01: In fact, the regulations state as much. [00:24:48] Speaker 01: Okay, thank you. [00:24:49] Speaker 01: Thank you, Your Honor. [00:24:57] Speaker 04: Is there any time left? [00:24:59] Speaker 04: I'll give you another minute. [00:25:01] Speaker 03: I have nothing further to add unless your honors have some questions. [00:25:05] Speaker 04: No. [00:25:05] Speaker 04: Thank you. [00:25:06] Speaker 04: No. [00:25:06] Speaker 04: Thank you very much. [00:25:07] Speaker 04: We'll take the matter under submission.