[00:00:01] Speaker 00:
Case number 17-1025 at L, Green Gas Delway statutory trust appellate, methane bio LLC, tax matters partner versus commissioner of internal revenue service.

[00:00:14] Speaker 00:
Mr. Kovach for the appellate, Ms.

[00:00:16] Speaker 00:
Rubin for Appellee Commissioner IRS.

[00:00:51] Speaker 04:
May it please the court.

[00:00:53] Speaker 04:
The tax court below applied a double standard in this case, and that double standard was a legal error that permeated the lower court's opinion.

[00:01:01] Speaker 04:
Congress established a tax credit for the production and sale of non-conventional fuels, including landfill gas.

[00:01:09] Speaker 04:
Green Gas and Pontiac claimed those credits from 24 landfills, all of which had landfill gas collection facilities.

[00:01:17] Speaker 04:
Some of those facilities were connected to gas or electricity equipment.

[00:01:21] Speaker 04:
Some were not.

[00:01:23] Speaker 04:
The production tax credit statute makes no distinction between those two.

[00:01:27] Speaker 04:
The tax court created such a distinction out of thin air.

[00:01:30] Speaker 04:
And on that basis, they'll disallow all protection tax credits from all the landfills not connected to such gas to energy equipment.

[00:01:38] Speaker 04:
This was reversible legal error.

[00:01:40] Speaker 04:
The tax court then compounded that error by holding green gas and Pontiac's landfills to a double standard of substantiation as well.

[00:01:47] Speaker 04:
holding that non-electricity generating landfills were subject to a higher substantiations standard than electricity generating ones.

[00:01:56] Speaker 04:
Further, the tax court imposed negligence penalties based on Greek Gas and Pontiac's alleged failure to meet that artificially heightened standard of substantiation for the non-electricity generator.

[00:02:06] Speaker 05:
Can I just ask a question about the statutory – your understanding of the credit?

[00:02:11] Speaker 05:
Your understanding is that you can get a credit for building pipes that vent the gas into the atmosphere and that burn off the gas.

[00:02:24] Speaker 04:
Well, the credit is for the production and sale of landfill gas.

[00:02:27] Speaker 05:
Yeah, yeah, I understand that.

[00:02:28] Speaker 05:
But in the bottom line of the scheme,

[00:02:31] Speaker 05:
All that happens in most of these circumstances is the gas is either blown off into the air or it's flared off, burned off.

[00:02:40] Speaker 04:
Is that right?

[00:02:42] Speaker 04:
Well, I think there are many ways you can do it.

[00:02:44] Speaker 04:
It could be vented, it could be flared, or it could be connected to some sort of generator or other gas.

[00:02:49] Speaker 05:
Yeah, you have that in some, but you don't have that in most of the operations.

[00:02:55] Speaker 04:
That's correct.

[00:02:56] Speaker 04:
But that's not necessary under Section 45K.

[00:03:00] Speaker 05:
45k says you're supposed to be this is a credit for producing fuel, right?

[00:03:05] Speaker 05:
That's fuel is something that can be used to turn into energy all you're doing is

[00:03:11] Speaker 05:
venting off and burning the gas.

[00:03:13] Speaker 05:
That's all that happens here.

[00:03:15] Speaker 04:
Well, the production of landfill gas, which untreated landfill gas by itself is fuel, it's qualified fuel under the section.

[00:03:22] Speaker 05:
Well, that depends on what the meaning of fuel is.

[00:03:24] Speaker 05:
Usually fuel is something that can be turned into energy, and when you blow it off in the air, it can't be turned into energy.

[00:03:31] Speaker 05:
It's gone.

[00:03:31] Speaker 04:
But the sale does not take place after the gas has already been vented.

[00:03:36] Speaker 05:
Maybe, but what was Congress's, what do you think, when Congress used the word fuel, what do you think they meant?

[00:03:45] Speaker 05:
How would it apply to a situation in which the gas is just wasted?

[00:03:50] Speaker 05:
The whole point, at least by the titles of the statute, the idea is to be producing some kind of alternative fuel.

[00:03:58] Speaker 05:
And if all you do is blow it off into the air, it's not really an alternate fuel, is it?

[00:04:02] Speaker 05:
It's just a way of polluting the atmosphere.

[00:04:04] Speaker 04:
I think that's putting the cart before the horse.

[00:04:06] Speaker 04:
Which part's the cart and which part's the horse?

[00:04:09] Speaker 04:
The act of production and the sale is what's creditable.

[00:04:14] Speaker 04:
What the buyer does with the gas afterwards is not an issue when it comes to the statute.

[00:04:19] Speaker 04:
There's a totally different tax credit.

[00:04:21] Speaker 04:
Section 45, which is a tax credit for

[00:04:24] Speaker 04:
electricity generation from landfill gas and other non-commissioned sources.

[00:04:27] Speaker 04:
Who was the buyer here?

[00:04:28] Speaker 04:
I'm sorry?

[00:04:29] Speaker 04:
Who was the buyer?

[00:04:30] Speaker 04:
The buyer here was RTC, Resource Technology Corporation.

[00:04:36] Speaker 03:
Let me just ask you about something in your brief, just to follow up on the Chief Judge's questions.

[00:04:42] Speaker 03:
I understood your brief as saying that when first adopted in 1980,

[00:04:49] Speaker 03:
that the statute, the credit did work exactly the way Chief Judge Garland said, right?

[00:04:55] Speaker 03:
It was for fuels, correct?

[00:04:58] Speaker 03:
It was for the producing of fuels.

[00:05:00] Speaker 03:
That's what you say in your brief.

[00:05:02] Speaker 03:
But then you go on and say, but that subsequent legislative history,

[00:05:06] Speaker 03:
shows that this was made available, Congress decided to make this available for the broader purpose, the broader purpose of releasing gas just to comply with environmental regs, even if it wasn't turned into fuel, right?

[00:05:23] Speaker 04:
Yes, but I would make a distinction that in 1980, part of the... You do say that in your brief, right?

[00:05:30] Speaker 04:
Yes, with this distinction, that in 1980 the idea was to promote nascent technologies for developing alternative fuels.

[00:05:38] Speaker 04:
This is a tax subsidy.

[00:05:40] Speaker 03:
But under the original enactment, as you see it, you would not have been entitled to this tax credit.

[00:05:45] Speaker 04:
That's not true, Your Honor.

[00:05:46] Speaker 04:
We would still be.

[00:05:49] Speaker 04:
landfill gas, straight from the landfill, contains methane, as the tax court correctly held, is a qualified fuel under the production tax credit.

[00:05:58] Speaker 04:
And so, yes.

[00:05:59] Speaker 04:
And it can actually be used.

[00:06:00] Speaker 04:
There's discussion in the record of untreated landfill gas being used in something called a leachate development.

[00:06:09] Speaker 04:
Leachate is liquid that comes off of the landfill.

[00:06:13] Speaker 04:
It's really disgusting.

[00:06:14] Speaker 04:
There's a way to treat that using landfill gas

[00:06:17] Speaker 04:
straight from the landfill, you ignite it, it evaporates the leaching.

[00:06:22] Speaker 03:
Why would Congress have based this calculation of the credit on a barrel of oil equivalent if it had had in mind that methane released into thin air would qualify?

[00:06:38] Speaker 04:
Well, I think because they wanted to encourage people to go into the business.

[00:06:41] Speaker 03:
Keep in mind that building a landfill... Wait, excuse me.

[00:06:45] Speaker 03:
My question was why would they have used the barrel of oil equivalent as the measure?

[00:06:54] Speaker 03:
Because they wanted to get to the... Doesn't that sound like what Congress had in mind was producing a fuel that could be used?

[00:07:02] Speaker 04:
Yes, which landfill gas can be, but I think the barrel of oil equivalent goes to the methane content of whatever of the gas, and the same way for the other types of non-conventional fuels that are addressed in the production tax credit statute.

[00:07:19] Speaker 04:
So I do believe that in 1980, what Congress intended to do was to support people entering the industry for developing landfill gas as a potential energy source.

[00:07:31] Speaker 04:
And that necessarily includes a subsidy element.

[00:07:34] Speaker 04:
That necessarily includes, you know, we're paying for the production of gas that may not all be used right away.

[00:07:39] Speaker 05:
It's not a question of all.

[00:07:40] Speaker 05:
Is there any indication?

[00:07:45] Speaker 05:
that any of these plants, leave aside the gas to electricity ones, were going to be used for anything else?

[00:07:52] Speaker 04:
Testimony of the record is that that was the original intention.

[00:07:55] Speaker 04:
There were that all of these were intended to be eventually gas to energy plants.

[00:08:01] Speaker 04:
There was financial difficulty for RTC, which led to a bankruptcy.

[00:08:06] Speaker 05:
Before the bankruptcy, was there any, there was no

[00:08:11] Speaker 05:
I mean, I can understand why Congress would want you to build the pipes, but why get the credit until it actually does something?

[00:08:19] Speaker 05:
Well, it does do something, Your Honor.

[00:08:20] Speaker 04:
Yeah, it vents it into the atmosphere.

[00:08:22] Speaker 04:
Which is very important, Your Honor, and maybe I should step back and explain why.

[00:08:27] Speaker 04:
Landfill gas follows the path of least resistance.

[00:08:30] Speaker 04:
If you don't have these vents, the path of least resistance often is neighboring communities.

[00:08:35] Speaker 04:
And there's testimony in the record from the commissioner's expert

[00:08:39] Speaker 04:
about an incident in Madison, Wisconsin.

[00:08:41] Speaker 05:
There was nothing in the statute suggesting that the purpose here is to prevent that kind of thing.

[00:08:48] Speaker 05:
The purpose is to create an alternative fuel.

[00:08:52] Speaker 05:
Forget about the legislative history.

[00:08:56] Speaker 05:
The government has a different view about the – even the legislative history you cite.

[00:09:00] Speaker 05:
But with respect to the statute itself, there's no suggestion that the purpose is some kind of environmental purpose other than the environmental purpose of competing with oil and gas, regular oil and gas.

[00:09:15] Speaker 04:
If you look at the statute, the question is, are you producing qualified fuel?

[00:09:19] Speaker 04:
Are you producing landfill gas?

[00:09:23] Speaker 04:
the facilities that were in place in all 24 landfills were producing them.

[00:09:27] Speaker 04:
They were taking the landfill gas from down in the bowels of the landfill, bringing it up to the surface, which is the... So, venting, allowing methane gas to escape from the landfill and go somewhere else's production.

[00:09:43] Speaker 04:
It is, yes.

[00:09:44] Speaker 02:
Why isn't the landfill owner the one that gets the credit here?

[00:09:47] Speaker 02:
If a landfill owner just allows it to vent into the community,

[00:09:52] Speaker 02:
Is that also a production that qualifies?

[00:09:54] Speaker 04:
No, because there's no facilities facilitating that.

[00:09:56] Speaker 02:
And again, these vents were... A pipe's a facility?

[00:09:58] Speaker 04:
Yes, absolutely.

[00:09:59] Speaker 04:
And these are not just holes in the ground.

[00:10:01] Speaker 04:
These are actual... Well, would a hole in the ground work?

[00:10:04] Speaker 02:
Why wouldn't a hole in the ground work and do the exact same thing?

[00:10:06] Speaker 04:
I don't think a hole in the ground by itself would be a facility.

[00:10:08] Speaker 02:
All right, someone pokes with a stick to release it up.

[00:10:11] Speaker 02:
The stick a facility?

[00:10:13] Speaker 02:
I wouldn't think so.

[00:10:15] Speaker 02:
Why not?

[00:10:15] Speaker 02:
It's releasing the gas up.

[00:10:16] Speaker 04:
Because that is not producing it in the way that even the vent is.

[00:10:19] Speaker 04:
How?

[00:10:20] Speaker 02:
It's releasing it into the air.

[00:10:22] Speaker 04:
When you look at the vent, it's a pipe.

[00:10:25] Speaker 04:
It has perforations, especially design.

[00:10:28] Speaker 04:
The design is to provide a path of least resistance for the methane gas.

[00:10:32] Speaker 04:
I don't see any difference between.

[00:10:33] Speaker 04:
If you go in there and spoke with a stick, that's not going to accomplish that.

[00:10:36] Speaker 02:
Of course it is.

[00:10:36] Speaker 02:
It's going to loosen things up and create a path of least resistance that releases it into the air.

[00:10:40] Speaker 02:
So the stick's a facility.

[00:10:43] Speaker 02:
The hollow stick, so it's a teeny weeny pipe.

[00:10:47] Speaker 04:
I wouldn't agree with that, and I think that that's pretty far from our case, where we actually have... I think it's just a smaller pipe.

[00:10:55] Speaker 04:
This was not just a pipe, though.

[00:10:57] Speaker 04:
This was also a network.

[00:10:58] Speaker 04:
These were vents that were connected to header pipes, some of which were connected to flares, which is a method for treating gas.

[00:11:05] Speaker 02:
That just burns it off.

[00:11:06] Speaker 02:
It destroys the gas.

[00:11:08] Speaker 04:
Well, that's important for environmental reasons, but not for producing fuel.

[00:11:12] Speaker 04:
And also, by the way, shows that landfill gas is fuel because it's burning.

[00:11:15] Speaker 02:
At what point in this travel through the pipe did RTC buy the gas?

[00:11:20] Speaker 04:
At the point of production.

[00:11:21] Speaker 02:
So what's the point of production with the pipe?

[00:11:23] Speaker 04:
That's the point where it comes to the surface.

[00:11:25] Speaker 02:
So they didn't buy it before it came to the surface.

[00:11:28] Speaker 04:
That's correct.

[00:11:28] Speaker 02:
And when it came to the surface, it evaporated.

[00:11:30] Speaker 05:
So they bought it for the purpose of evaporating it up into the air and getting no money for it?

[00:11:36] Speaker 05:
That seems like not exactly profit-making on RTC's point of view.

[00:11:40] Speaker 04:
Well, it does save on compliance with environmental regulations.

[00:11:44] Speaker 04:
So there is an economic aspect to it.

[00:11:46] Speaker 03:
But that's not the purpose of the statute.

[00:11:50] Speaker 03:
Wait, so you say, going back to what you just said, so it's produced at the surface.

[00:11:54] Speaker 03:
Beneath the surface, it's methane, right?

[00:11:57] Speaker 04:
Well, methane among other things, yes.

[00:11:58] Speaker 03:
Well, but it's methane, right?

[00:11:59] Speaker 03:
And when it goes through the pipes and goes into the air, it's methane.

[00:12:03] Speaker 03:
So what's produced?

[00:12:05] Speaker 04:
Well, the landfill gas itself is the methane in the landfill gas.

[00:12:09] Speaker 03:
But it was produced... Below the surface.

[00:12:11] Speaker 03:
Below the surface.

[00:12:11] Speaker 03:
Produced by the landfill.

[00:12:12] Speaker 03:
By the landfill.

[00:12:13] Speaker 03:
That's who produced the methane.

[00:12:17] Speaker 03:
It's a landfill.

[00:12:18] Speaker 04:
No, because the production in this, in terms of facility producing landfill gas, is the vent.

[00:12:25] Speaker 03:
Yeah, but no one would think of the word production as meaning releasing a gas that's already produced.

[00:12:32] Speaker 03:
You would say released.

[00:12:34] Speaker 04:
I would disagree with that, because if you're looking at oil, for instance, oil in the ground, I can't say, well, there's oil on the ground.

[00:12:40] Speaker 04:
A bunch of dinosaurs died a million years ago.

[00:12:42] Speaker 04:
That's the production.

[00:12:44] Speaker 04:
I don't think that's right.

[00:12:46] Speaker 04:
The production is bringing it to the surface where it can be used in some way.

[00:12:50] Speaker 04:
And that's exactly what the statute was intended.

[00:12:53] Speaker 04:
And that's exactly what Green Gas and Cognac did.

[00:12:56] Speaker 04:
These were all output contracts.

[00:12:58] Speaker 04:
And this is an important point that because they're all output contracts, RTC agreed to buy all their output for, I think, there were six-month periods.

[00:13:05] Speaker 04:
So the fact that they could use some or all or none of it really is irrelevant to the tax credit that the seller

[00:13:14] Speaker 05:
is entitled to as a tax credit for the seller.

[00:13:28] Speaker 05:
Statutory interpretation we would still have to go next go to the substantiation question.

[00:13:33] Speaker 05:
Isn't that right?

[00:13:33] Speaker 04:
Well, yes, but I would dispute that it's independent because what I think the court did is hold The electricity generating landfills and the non electricity generating landfills to a double standard.

[00:13:45] Speaker 05:
It's a different question I'm talking about independent of the statutory interpretation question

[00:13:50] Speaker 05:
There's still a substantiation question for each of the two kinds of landfills.

[00:13:55] Speaker 05:
That's correct.

[00:13:55] Speaker 05:
Is that right?

[00:13:56] Speaker 05:
Yes.

[00:13:56] Speaker 05:
We would still have to reach that even if we agreed with you with respect to the statute.

[00:14:01] Speaker 05:
That is correct.

[00:14:01] Speaker 05:
All right.

[00:14:02] Speaker 05:
So on the and with respect to substantiation, it's a clear error standard on our part, right?

[00:14:09] Speaker 04:
Yes, although if the court, as here, made a legal error in its ruling, that, of course, would be essentially de novo.

[00:14:16] Speaker 05:
And the legal error you claim is that there was an inference for failing to call certain witnesses who died.

[00:14:22] Speaker 05:
That's one of them, Your Honor.

[00:14:25] Speaker 05:
That's a nice way to put it, but that wasn't what the court said.

[00:14:27] Speaker 05:
The court didn't say, because they died, we're going to infer against them.

[00:14:32] Speaker 05:
What the court said was, because they died, come up with some other witnesses.

[00:14:36] Speaker 05:
And your failure to produce other witnesses

[00:14:38] Speaker 05:
is used against you, isn't that right?

[00:14:40] Speaker 04:
Well, what the court said is, I want you to bring the people that prepared these logs.

[00:14:44] Speaker 04:
The only people that prepared those logs were the witnesses that were dead.

[00:14:47] Speaker 05:
It said only the people who prepared them.

[00:14:50] Speaker 05:
There were other logs that were prepared by other people.

[00:14:52] Speaker 05:
There were other people who could have observed the logs who were actually there.

[00:14:58] Speaker 04:
Approximately 85% of the logs were prepared by Mr. Walker and Mr. Johnson, the two deceased individuals.

[00:15:06] Speaker 04:
So those two individuals were beyond anyone's power to summon at trial.

[00:15:11] Speaker 04:
And the standard that the text court used was, I want to hear from the people that prepared these logs.

[00:15:17] Speaker 04:
And if you can't bring them up, I'm going to assume that everything in those logs is a lie.

[00:15:20] Speaker 04:
That if I could bring them into the courtroom, they would say that everything in those logs was a lie.

[00:15:24] Speaker 02:
Did the people that produced the other 15% testify?

[00:15:27] Speaker 04:
They did not, Your Honor.

[00:15:28] Speaker 02:
Why not?

[00:15:28] Speaker 04:
That's a very good question, Your Honor.

[00:15:33] Speaker 04:
I think, you know, I think the short answer is that they were not employees of Green Gas or Pontiac.

[00:15:38] Speaker 04:
They weren't even employees of RTC at that point.

[00:15:40] Speaker 04:
RTC, you know, through the bankruptcy had been liquidated.

[00:15:43] Speaker 02:
So I'm not sure that... But there were other people that had done 15 percent of the logs that could have been called and weren't.

[00:15:49] Speaker 04:
They could have been called by either side.

[00:15:50] Speaker 04:
And the standard under health limits is, you know, are they exclusively under the power of one party?

[00:15:56] Speaker 04:
Those witnesses were not.

[00:15:57] Speaker 05:
Well, but it's your obligation to support your credit, right?

[00:16:02] Speaker 05:
That's clear.

[00:16:02] Speaker 05:
You have to provide substantiation for the credit.

[00:16:05] Speaker 04:
Right.

[00:16:05] Speaker 05:
We have to show that it's a sufficiency standard, not a... You shouldn't call anybody to support those

[00:16:15] Speaker 04:
That's not true.

[00:16:16] Speaker 04:
We call John Connolly, who was the president of RTC, who was the direct supervisor of the two deceased individuals.

[00:16:21] Speaker 05:
But he didn't see any, he didn't see them being made, he doesn't know whether they were made.

[00:16:25] Speaker 05:
He's just the supervisor, is that right?

[00:16:27] Speaker 04:
Well, I wouldn't say just the supervisor.

[00:16:28] Speaker 04:
He's the one that also directed the methodologies that they would use.

[00:16:31] Speaker 04:
So I think that he is, in the absence of the people who were dead, who could not be called, he was the logical person, probably the only logical person that could be called.

[00:16:40] Speaker 02:
Right, but the Capsule found him not to be credible, very self-interested.

[00:16:44] Speaker 02:
And it's pretty hard for us to overturn that.

[00:16:47] Speaker 04:
Well, except that the reason that the court found Mr. Connelly's testimony not credible was because of the adverse inference.

[00:16:56] Speaker 04:
Because he said, I have these logs, the log, but you didn't bring the witnesses, therefore I will conclude that those witnesses would contradict everything you said.

[00:17:04] Speaker 04:
And on that basis, I don't find you credible.

[00:17:06] Speaker 02:
I'm sorry.

[00:17:07] Speaker 02:
I thought the tax court also found him not credible because he was involved in the whole scheme.

[00:17:13] Speaker 02:
He wasn't sort of an objective witness.

[00:17:16] Speaker 04:
I don't specifically remember, you know, that particular point.

[00:17:22] Speaker 04:
I take your point however you want.

[00:17:25] Speaker 04:
But if you look at the analysis and the substantiation, what it is that the tax court was discussing was the adverse inference, the logs.

[00:17:33] Speaker 04:
I do not find this call incredible because I am assuming that Mr. Walker, Mr. Johnson, the dead witnesses... Can you tell me where you get that from?

[00:17:42] Speaker 05:
I'm reading on page 107.

[00:17:44] Speaker 05:
The partnerships could have corroborated the site logs to testimony of other RTC employees or non-party landfill site managers, yet they chose not to.

[00:17:53] Speaker 05:
Although we admitted the site logs under 807A of the federal rules, we conclude that these logs corroborated only by the self-serving testimony of Mr. Connolly, have little or no probative value, and thus cannot be the basis upon which we can make the Cohen estimate.

[00:18:09] Speaker 04:
That's an accurate quote, Your Honor, but this is because of the adverse inference that that's what led the Court to that decision.

[00:18:15] Speaker 05:
Can you show me the place in the Court's opinion where it says that there's an adverse inference because dead people can't testify.

[00:18:25] Speaker 04:
That's the part I'm interested in.

[00:18:30] Speaker 04:
I don't think there's a reference to dead people not testifying.

[00:18:32] Speaker 04:
That's part of the problem.

[00:18:34] Speaker 05:
If you look at page 106... I'm using this as a shorthand for the argument we've been discussing.

[00:18:39] Speaker 04:
Fair enough.

[00:18:39] Speaker 04:
If you look at page 106 of the opinion, starting at appendix 316, there's a discussion of Wichita Terminal, which is a tax court case, which is the tax court's adverse inference case.

[00:18:52] Speaker 05:
But can you, in the part of the court where the court starts its opinion, at 263?

[00:18:57] Speaker 05:
Yes, Your Honor.

[00:18:58] Speaker 05:
Where after that, where it actually issues its opinion, does it do what it says here, what you say?

[00:19:04] Speaker 05:
I'm not saying it doesn't.

[00:19:05] Speaker 05:
I'm just, it's a long opinion.

[00:19:06] Speaker 05:
If you could help me find a spot, that would be great.

[00:19:10] Speaker 05:
I guess I'm not following exactly what... You said that in deciding that there was a lack of substantiation, the Court said that the people who actually prepared them had to testify, those people are dead, and we're going to hold an inference against the taxpayer here.

[00:19:27] Speaker 04:
Well, that would be the section that's starting on page 104, appendix 314, and then continuing through to 317.

[00:19:37] Speaker 04:
Wait.

[00:19:40] Speaker 02:
On 317, they say, Appendix 317, partnerships could have corroborated the site logs through testimony of other RTC employees or non-party landfill site managers, yet they chose not to.

[00:19:52] Speaker 02:
Are you saying that couldn't have happened?

[00:19:54] Speaker 04:
Well, I am saying that under the applicable standard, because any of those witnesses that were still available, if they were, would not be in Green Gas or Pontiac's exclusive control.

[00:20:06] Speaker 05:
That's a different question.

[00:20:07] Speaker 05:
The place you're pointing me is exactly the place I quoted you, right?

[00:20:11] Speaker 05:
More or less, there's more context before that.

[00:20:15] Speaker 05:
It would seem a little harsh for the tax court to say, because you can't produce dead people, unless it's a movie or something, we're going to hold this against you.

[00:20:28] Speaker 05:
But that's why I'm asking you to show me where that is.

[00:20:30] Speaker 04:
Well, that's exactly what he did, by saying that we don't find Mr. Connolly's testimony because he's not the one that prepared the logs.

[00:20:41] Speaker 02:
I guess I wondered, so your answer is... He says it's because they're self-serving.

[00:20:45] Speaker 05:
It doesn't say because he's not the one.

[00:20:47] Speaker 05:
It's because Connolly's testimony is self-serving.

[00:20:50] Speaker 05:
There's another place where they don't find him credible at all, but leave that aside.

[00:20:54] Speaker 04:
Oh, sorry.

[00:20:55] Speaker 04:
Go ahead, Judge.

[00:20:56] Speaker 02:
Go ahead and respond.

[00:20:57] Speaker 04:
Okay.

[00:20:58] Speaker 04:
Look at page 105 of the opinion on 315.

[00:21:01] Speaker 04:
There's a discussion about Mr. Connolly was the only RTC employee who testified, did not personally prepare the logs, was not present at the landfills at the time the logs were created, had no means of independently verifying the information on the logs.

[00:21:14] Speaker 04:
If you further up, second, they do not offer any testimony from RTC employees who prepared the site logs.

[00:21:19] Speaker 04:
Although two of them are now deceased, other employees who prepared the site logs did not testify.

[00:21:23] Speaker 04:
The problem is, 85% of them, only two people who were dead were the preparers.

[00:21:29] Speaker 04:
So that leaves us in this.

[00:21:31] Speaker 05:
Where is that evidence?

[00:21:33] Speaker 04:
I am looking at page 105.

[00:21:34] Speaker 04:
Where is your evidence?

[00:21:35] Speaker 02:
Your 85%?

[00:21:36] Speaker 04:
Yeah, the 85% point.

[00:21:38] Speaker 04:
Where is that?

[00:21:40] Speaker 04:
That is from our brief.

[00:21:42] Speaker 04:
We actually, you know, that's not in the opinion, but that is from our brief, and we actually did the, we actually counted them, Your Honor, and I can point you to the page.

[00:21:54] Speaker 05:
All right, I have the point.

[00:21:57] Speaker 04:
On the... Page 12 of our opening brief.

[00:22:06] Speaker 04:
And there are citations to the record at the bottom of page 12.

[00:22:12] Speaker 05:
And on the question of the sale and the court's determination that petitioners didn't have the rights to sell the gas, Congress, Peoria, and Springfield, and the bankruptcy, does that consist of all the gas to electric ones?

[00:22:32] Speaker 04:
almost all the electric ones.

[00:22:34] Speaker 04:
I think Lyons is not included in that.

[00:22:40] Speaker 05:
You said there was a separate legal error with respect to the gassed electric ones, or not so?

[00:22:46] Speaker 04:
Well, there was, again, the adverse inference.

[00:22:47] Speaker 04:
And there, the situation is he concluded that there were no rights to the gas because there was no paper document, there was no paper gas rights agreement.

[00:22:57] Speaker 04:
Even though we had, in addition to testimony, bankruptcy court records, of which the court below took judicial notice, in which there were discussions of gas rights and gas sales agreements involving those landfills.

[00:23:11] Speaker 04:
Actually, some of them were assigned by the district court, or by the bankruptcy court, excuse me.

[00:23:15] Speaker 04:
So I think that is pretty good evidence that they exist.

[00:23:19] Speaker 05:
The Nucket Bankruptcy Court found that the agreement had expired.

[00:23:22] Speaker 04:
Well, I think specifically you're talking about the Pontiac landfill, because there are a couple.

[00:23:29] Speaker 04:
Specifically with Pontiac landfill, yes, that is correct.

[00:23:32] Speaker 04:
The bankruptcy court did make that finding.

[00:23:36] Speaker 04:
That was part of extensive litigation between RTC and Allied, which purchased the Pontiac landfill.

[00:23:46] Speaker 04:
And there was litigation in federal district court, in the seventh circuit, in bankruptcy court, in state courts that ultimately led to a settlement agreement, what we call the Scattered Settlement.

[00:23:56] Speaker 04:
As part of that settlement, the parties agreed that the rights to that landfill conveyed as of, I think it's August of 2011.

[00:24:06] Speaker 05:
Well, but the parties can't resolve this question.

[00:24:09] Speaker 05:
For us, the bankruptcy court said it had expired.

[00:24:12] Speaker 05:
So the fact that the parties then agreed for purposes of their deal to go back earlier, that can't bind us.

[00:24:22] Speaker 04:
Well, neither does the Bankruptcy Court ruling.

[00:24:24] Speaker 05:
Well, but you were relying on the Bankruptcy Court's statements by the Bankruptcy Court to suggest that there was an agreement.

[00:24:31] Speaker 05:
Is that what you said before?

[00:24:32] Speaker 05:
That's why I asked.

[00:24:33] Speaker 04:
As evidence, yes, of course.

[00:24:34] Speaker 04:
I mean, it doesn't, I mean, but that's, but, you know, this Court is not necessarily bound by the conclusion that the, you know, that there was for Green Gas and Pontiac, and maybe I should step back for a moment.

[00:24:45] Speaker 04:
Green Gas and Pontiac

[00:24:47] Speaker 04:
not RTC.

[00:24:48] Speaker 04:
The agreement was between RTC and the landfill.

[00:24:52] Speaker 04:
That's what was vitiated by the bankruptcy court in that opinion.

[00:24:55] Speaker 04:
We stood in the position of sublessors, essentially, which puts us in a different position.

[00:25:00] Speaker 04:
And under Illinois law, which governs that particular landfill's agreements, that could constitute a breach does not constitute a voiding of the contract.

[00:25:12] Speaker 04:
So from our perspective, from Green Gas and Pollyants' perspective,

[00:25:16] Speaker 04:
Our position is we were still there.

[00:25:20] Speaker 05:
My trustee law clerk has found a Illinois state appellate court decision that says that under Illinois law the termination of a lease terminates all subleases made under the lease.

[00:25:38] Speaker 05:
Quote, it is well established that a sub-tenant, a person holding possession of property by virtue of a lease or a tenant under a top lease, possesses only the rights of such tenant and nothing more.

[00:25:49] Speaker 05:
The possession of the sub-tenant is that of a tenant under the top lease and the termination of such top lease, ipso facto, works a termination of the sub-lease.

[00:26:00] Speaker 05:
Is that not, that's Errant versus Lakeview Courts, 51 Illinois Appellate, 3rd, 564.

[00:26:07] Speaker 05:
quoting an earlier Illinois decision.

[00:26:11] Speaker 05:
Where do you get the idea that under Illinois law, the sublease continues after the top lease is terminated?

[00:26:17] Speaker 04:
I was looking at two Seventh Circuit cases, which I cite on pages 46 and 47 of the brief, which discuss the law governing contracts of issue, specifically fine Illinois law.

[00:26:29] Speaker 04:
And our citation is that rejection of the contract in bankruptcy constitutes a breach, but not an automatic termination.

[00:26:40] Speaker 05:
So who do we believe?

[00:26:41] Speaker 05:
Seventh Circuit about Illinois law or Illinois law about Illinois law?

[00:26:46] Speaker 05:
Who would we believe the D.C.

[00:26:47] Speaker 05:
Circuit about D.C.

[00:26:49] Speaker 05:
law?

[00:26:50] Speaker 05:
Yes, that's right.

[00:26:51] Speaker 05:
I think people would believe D.C.

[00:26:53] Speaker 05:
law over the D.C.

[00:26:54] Speaker 05:
Circuit.

[00:26:54] Speaker 05:
Of course, in the D.C.

[00:26:55] Speaker 05:
Circuit, we would have to believe another D.C.

[00:26:57] Speaker 05:
Circuit panel, which we just heard in a previous case.

[00:27:00] Speaker 05:
But if there were no previous D.C.

[00:27:02] Speaker 05:
Circuit panel, we would have to rely on Illinois law, not on another federal court's interpretation.

[00:27:08] Speaker 05:
Look, we're getting a little over the edge here, and it's my own fault.

[00:27:12] Speaker 05:
I apologize.

[00:27:13] Speaker 02:
Can I just clarify one thing?

[00:27:17] Speaker 02:
Notwithstanding the unfortunate demise of the two folks that did 85% of the logs, there could have been testimony from other RTC employees or non-party landfill site managers.

[00:27:30] Speaker 02:
And your answer, I think, if I got it right, was that yes, but they weren't in your exclusive control.

[00:27:37] Speaker 04:
That's correct.

[00:27:38] Speaker 02:
So there were people you could have called.

[00:27:40] Speaker 02:
I'm putting aside the control part of that test, but there were other people you could have called and didn't.

[00:27:46] Speaker 04:
I don't know, and I think that that record doesn't reflect whether they were within the power to summon.

[00:27:52] Speaker 04:
I don't know where they are.

[00:27:54] Speaker 04:
But I will also say that as far as the site logs, they're signed by one individual, Johnny Johnson, Richard Walker.

[00:28:03] Speaker 04:
And my understanding is that that was rather a solitary exercise.

[00:28:07] Speaker 04:
Not many people wanted to go to the landfill with them.

[00:28:10] Speaker 04:
From your description, we can understand why.

[00:28:13] Speaker 04:
That's right, Your Honor.

[00:28:14] Speaker 05:
All right, thank you.

[00:28:14] Speaker 05:
We'll hear from the other side.

[00:28:15] Speaker 05:
Thank you.

[00:28:30] Speaker 01:
And the first thing I'd like to start with is one that Judge Garland made, which is that there are independent and alternative grounds for rejecting the credits in this case.

[00:28:46] Speaker 01:
There's the statutory interpretation, which goes into production, facility, sales, in service.

[00:28:53] Speaker 01:
Then there's substantiation.

[00:28:54] Speaker 05:
Can I just be clear about the independence, though?

[00:28:58] Speaker 05:
If we agreed with you on the statutory interpretation,

[00:29:03] Speaker 05:
and therefore the venting and flaring ones don't work.

[00:29:08] Speaker 05:
We would still have to, you don't dispute with respect to the gas to electricity sections if that would be appropriate for a credit if it was substantiated, right?

[00:29:22] Speaker 01:
To my knowledge, they got their credits for any electricity that was proven to have been generated based on landfill gas.

[00:29:29] Speaker 05:
Proven is a trick word here.

[00:29:30] Speaker 05:
Your argument, we'd still have to decide whether the tax court was right that there wasn't a substantiation with respect to some of those, right?

[00:29:40] Speaker 01:
I think as I understand it, to the extent that electricity, as in not just flared or vented gases, was proven from a landfill, they got credits for it, and that was true for all of the landfills.

[00:29:55] Speaker 05:
Aren't they disputing, maybe I'm misunderstanding, aren't they disputing the degree of substantiation required in those gassed electricity?

[00:30:08] Speaker 01:
to the extent that they relied on flaring or venting.

[00:30:11] Speaker 05:
What about the other?

[00:30:12] Speaker 01:
But not for electricity.

[00:30:14] Speaker 05:
I see.

[00:30:14] Speaker 05:
Well, what about the argument about who owned the property at what point?

[00:30:20] Speaker 01:
Right.

[00:30:20] Speaker 05:
You'd still have to decide that, wouldn't you?

[00:30:21] Speaker 01:
I believe you may need to for Congress, Peoria, and Springfield, only because if you look to A319 to 320, which was the end of the substantiation analysis, the court made some general language about how there was inadequate substantiation for blaring and venting, even at the non-venting

[00:30:42] Speaker 01:
non-venting landfills, but she only made specific holdings as to two of the non-venting landfills.

[00:30:50] Speaker 01:
That's going to be Lyons-MacCook and Pontiac.

[00:30:56] Speaker 01:
Because the consequence of the attribution decision regarding the missing contracts for Congress

[00:31:05] Speaker 01:
Peoria, and Springfield would justify no credits for those landfills.

[00:31:11] Speaker 01:
The tax court didn't make a specific holding as to substantiation at those three landfills.

[00:31:17] Speaker 01:
Now, as it happens, because the Final Partnership Administrative Adjustment, or FPAW in this case, actually gave credits for those landfills, the decision did as well.

[00:31:28] Speaker 01:
And I don't know that the parties actually went back and said, hmm, would substantiation justify

[00:31:34] Speaker 01:
this exact number because under the court's holding, zero would have been justifiable.

[00:31:39] Speaker 01:
So they just went with what the final partnership administrative adjustment went with.

[00:31:45] Speaker 01:
Now, let me put it to you this way.

[00:31:47] Speaker 01:
If you were to reverse on everything but substantiation and send it back for recalculation of the decision, I cannot guarantee you that the numbers for Congress, Peoria, and Springfield would be the same.

[00:31:59] Speaker 01:
I also cannot guarantee you that they would change by even one cent.

[00:32:02] Speaker 01:
is, I guess, what I would say.

[00:32:03] Speaker 01:
So probably if you were trying to do the very minimal, you know, I don't only want to decide, but I absolutely have to decide, you could decide substantiation, and you could decide the contract attribution.

[00:32:16] Speaker 01:
And if you rule for the government on those two, you wouldn't have to decide the statutory analysis.

[00:32:20] Speaker 05:
Just to be clear on the substantiation, I'm looking at A319, 320.

[00:32:24] Speaker 01:
Yes.

[00:32:24] Speaker 05:
To conclude on this issue, we do not see evidence produced by the partnerships as sufficient to substantiate the alleged production and sale of LFG from venting flaring and non-venting landfills when gas to electricity equipment did not work.

[00:32:40] Speaker 01:
Right.

[00:32:41] Speaker 05:
So that does seem like there's a substantiation problem when it doesn't work.

[00:32:44] Speaker 01:
I do agree with that.

[00:32:45] Speaker 01:
I'm just not sure how exactly the parties

[00:32:48] Speaker 01:
worked through the numbers or that they just simply adopted what was in the final partnership administrative adjustment.

[00:32:56] Speaker 01:
I'm not sure whether the taxpayers would say if substantiation was the only issue that they would have agreed with the numbers for Congress, Peoria, and Springfield.

[00:33:05] Speaker 01:
It might be that they would and maybe that they should, but I cannot tell you for sure that they would.

[00:33:11] Speaker 05:
What about the argument that the

[00:33:14] Speaker 05:
The tax court unfairly corrected a presumption where the only people who could have testified to the satisfaction of the tax court were dead.

[00:33:26] Speaker 01:
I don't think that's accurate.

[00:33:27] Speaker 01:
First of all, if you look at the court's analysis, starting with A315 and going through 317, it first starts off by listing off the variety of problems that the commissioner had identified with these site visit locks.

[00:33:43] Speaker 01:
And it then says, I agree, these are huge problems.

[00:33:48] Speaker 01:
They're sparse.

[00:33:49] Speaker 01:
A lot of them have recurring numbers that don't actually make sense given how landfill gas works and causes them not to be credible.

[00:33:58] Speaker 01:
And the only witness they put forward was Connolly, who I have found.

[00:34:01] Speaker 01:
And they found throughout the opinion that Connolly lacked credibility, was not reliable, gave self-serving testimony.

[00:34:07] Speaker 01:
And specifically here, he didn't have personal knowledge.

[00:34:10] Speaker 01:
Then it goes into the adverse inference, which definitely cited that, and says you didn't call other witnesses that you could have called.

[00:34:20] Speaker 01:
And they've never provided any evidence or any statements to indicate that they couldn't have called these witnesses.

[00:34:27] Speaker 01:
And they're the only witnesses who would have known those witnesses were necessary.

[00:34:31] Speaker 01:
Only the taxpayers knew that, because we don't get to take depositions before taxable cases.

[00:34:36] Speaker 01:
So we didn't know that these site visit logs were only supported in their testimony by somebody who had no personal knowledge, only Connelly.

[00:34:45] Speaker 01:
He didn't participate in site visit logs.

[00:34:47] Speaker 01:
We also know that while they say, oh, 85% of these logs were done by these two people, we also know it sounds like there's reason to believe that they relied on landfill operators for at least some of that data.

[00:34:59] Speaker 01:
They didn't call those people.

[00:35:01] Speaker 01:
The commissioner called some landfill operators.

[00:35:03] Speaker 01:
There's no indication that they could not have called

[00:35:05] Speaker 01:
landfell operators to try to substantiate support from the site visit logs.

[00:35:10] Speaker 01:
So ultimately, this is a case very much like the Escar Corporation case in the 10th Circuit, where there's a missing

[00:35:16] Speaker 01:
evidence at adverse inference put in.

[00:35:19] Speaker 01:
And what the court really said, there were a lot of reasons given here to conclude that the commissioner's determination here was correct.

[00:35:28] Speaker 01:
And here, the commissioner's determination was there's no substantiation.

[00:35:31] Speaker 01:
There, it had to do with the best use of land.

[00:35:33] Speaker 01:
But he said, you know, it has to do with the documents that were provided, what the testimony was.

[00:35:38] Speaker 01:
And ultimately,

[00:35:41] Speaker 01:
We think that the missing witness inference is appropriate because they could have provided other witnesses.

[00:35:47] Speaker 01:
They were the only ones who knew they were necessary, and they've never given any indication that these witnesses were not available to them.

[00:35:53] Speaker 01:
But even if you were to conclude that the missing evidence inference should be- Let's pause over that.

[00:35:59] Speaker 05:
Did they ever argue that other witnesses were not available?

[00:36:02] Speaker 01:
No, I've never seen anything indicating, any indication that says, oh, we would have called this other person except we couldn't find him, or this other person refused to come and we couldn't subpoena him.

[00:36:15] Speaker 01:
There was never any indication that they could not have called anybody for any of these site visit logs.

[00:36:20] Speaker 01:
The only thing they said is that for these two witnesses that they had passed away.

[00:36:23] Speaker 05:
Is there subpoena authority in the tax court?

[00:36:24] Speaker 05:
Excuse me.

[00:36:25] Speaker 05:
Is there subpoena authority for third party witnesses?

[00:36:27] Speaker 01:
I believe that there is.

[00:36:29] Speaker 05:
I'm not suggesting there isn't.

[00:36:30] Speaker 05:
I don't know.

[00:36:31] Speaker 05:
I'm just asking.

[00:36:32] Speaker 01:
I believe that there is, but certainly they've never indicated that there was any problem with getting a witness to come and testify.

[00:36:40] Speaker 01:
But moreover, you know, they had the burden here.

[00:36:43] Speaker 03:
You started a sentence where you said, even if we think there's a problem with the adverse inference, but you never finished it.

[00:36:49] Speaker 03:
What's the end of that sentence?

[00:36:50] Speaker 01:
The end of that sentence is this would be harmless error.

[00:36:52] Speaker 01:
They have the burden of proof here.

[00:36:54] Speaker 01:
They produced inadequate documents that on their face are highly problematic.

[00:36:59] Speaker 01:
That on their face, their own witness said, well, if there's repeating numbers, that could mean estimation.

[00:37:04] Speaker 01:
That could mean that they got this from some other party.

[00:37:07] Speaker 01:
It could mean manipulation.

[00:37:09] Speaker 01:
And so you have these documents that are sparse, that lack credibility on their face.

[00:37:14] Speaker 01:
And the only witness they brought forward to try to support it and bolster these documents, that it was their burden to provide, had no credibility and no personal knowledge and was self-serving.

[00:37:26] Speaker 01:
He's completely tied in.

[00:37:27] Speaker 01:
Both the witnesses that they rely on, Connolly and Nichols, the court throughout the opinion said, you don't have credibility here.

[00:37:34] Speaker 01:
And that deserves a deference.

[00:37:37] Speaker 05:
What about the argument about

[00:37:39] Speaker 05:
with respect to the electricity, I'm going to call an electricity one so it's clear, that there were witnesses who talked about those agreements even though they couldn't find the documents, and that the bankruptcy court made reference to agreements.

[00:37:54] Speaker 01:
Okay, let's start with the witness.

[00:37:56] Speaker 01:
That was Connolly, who was found to be not credible here.

[00:37:58] Speaker 01:
So what the court ultimately found here is this.

[00:38:00] Speaker 01:
There is really good documentary evidence to show that third parties

[00:38:05] Speaker 01:
had gas rights and gas sales rights at Congress, Peoria, and Springfield.

[00:38:10] Speaker 01:
But there's no good evidence to show that they lost, that those third parties lost those rights, or those rights were given to Green Gas.

[00:38:18] Speaker 01:
All you have is Connolly.

[00:38:20] Speaker 01:
All you have is his word.

[00:38:22] Speaker 01:
Now, in their reply brief, the taxpayers come forward and said, hey, here's exhibit 5026-P.

[00:38:28] Speaker 01:
It's a bankruptcy court order where gas sales agreements, gas rights agreements between RTC and Green Gas were assumed and assigned to a successor entity.

[00:38:41] Speaker 01:
That means that those contracts exist.

[00:38:43] Speaker 01:
Actually, no it doesn't.

[00:38:46] Speaker 01:
The trustee, Steinberg, was actually asked about that document at trial.

[00:38:52] Speaker 01:
And this is going to be transcript pages 13, 11 to 12.

[00:38:56] Speaker 05:
And he said... Well, we're in what?

[00:38:59] Speaker 01:
This is the trial transcript.

[00:39:00] Speaker 05:
In a joint appendix?

[00:39:02] Speaker 01:
It's not in the appendix because I didn't know they were citing 5026-P when I wrote my brief.

[00:39:07] Speaker 01:
I see.

[00:39:07] Speaker 01:
But this is in the record because it's in the trial transcript.

[00:39:10] Speaker 05:
The record of the tax court.

[00:39:12] Speaker 01:
Yes.

[00:39:12] Speaker 05:
Could you submit that after you go back to your office today, would you submit that to us?

[00:39:18] Speaker 01:
Yes.

[00:39:19] Speaker 01:
Attached to a 28-J letter, would that be adequate?

[00:39:21] Speaker 01:
Yes, that's exactly what I have in mind.

[00:39:22] Speaker 05:
Thank you.

[00:39:23] Speaker 01:
So this is going to be pages 13, 11 to 12 from the transcript.

[00:39:28] Speaker 01:
He was asked, well, did you look to see if these contracts existed?

[00:39:31] Speaker 01:
He says, no.

[00:39:32] Speaker 01:
Basically, at the end of a bankruptcy case such as this one, when I'm required to close down

[00:39:42] Speaker 01:
basically the business I've been kind of running.

[00:39:45] Speaker 01:
I just transfer any interest, if any, to the successor interest.

[00:39:49] Speaker 01:
I didn't go look to see if these contracts existed.

[00:39:52] Speaker 01:
And then he was asked, well, I don't see the language, if any, in this document.

[00:39:56] Speaker 01:
He says, but that's what it means.

[00:40:00] Speaker 01:
And again, this kind of goes to the fact that sometimes you get a court order and it's not necessarily clear the full consequence of what it means.

[00:40:09] Speaker 01:
All you know is that any rights were transferred.

[00:40:12] Speaker 01:
You don't necessarily know those contracts existed.

[00:40:14] Speaker 01:
And certainly, the trustee is not telling you that it does.

[00:40:18] Speaker 02:
Can I ask you about the statutory issue?

[00:40:21] Speaker 02:
Absolutely.

[00:40:23] Speaker 02:
Is there a definition somewhere of facility?

[00:40:26] Speaker 01:
There really isn't a standard definition of facility.

[00:40:28] Speaker 02:
Is there a type of facility?

[00:40:30] Speaker 01:
No.

[00:40:30] Speaker 01:
I mean, I think that the way that the commissioner has consistently interpreted the statute kind of looks at facility and production and sales and the statutory purpose holistically and says it really needs to be a facility capable of transferring

[00:40:46] Speaker 01:
fuel for sale to a third party to use as fuel.

[00:40:51] Speaker 01:
And obviously, when something's being flared or vented, it's not capable of transfer to someone else for fuel, not for use for any purpose.

[00:40:59] Speaker 01:
You know, they mentioned that untreated landfill gas could be used for leachate evaporation.

[00:41:04] Speaker 02:
The statute doesn't say anything about how the purchaser is supposed to use.

[00:41:07] Speaker 02:
If they actually connected it and it went into somebody's, I don't know if it can work this way with methane, but it goes into somebody's truck and they say, thank you very much, I've got my truck full of methane gas now and drive away and vent it, that wouldn't deprive these folks of their tax credit, would it?

[00:41:22] Speaker 01:
That's right.

[00:41:23] Speaker 01:
But the fact is here, for anywhere where there's flaring or venting, it wasn't capable of being transferred to a third party for use as fuel.

[00:41:32] Speaker 01:
And that's how the court interpreted it, and we think that that's correct, is that it really needs to be capable of being used by fuel by the purchaser, even if the purchaser then doesn't use it.

[00:41:44] Speaker 01:
Now, there's an argument that was made especially strongly in the reply brief to say, oh,

[00:41:50] Speaker 01:
Actually, it was sold, and then it was burned off.

[00:41:52] Speaker 01:
They told us to burn it off, so we did.

[00:41:53] Speaker 01:
This, again, is not entirely accurate based on the documents.

[00:41:58] Speaker 01:
If you look at in A622-24 is testimony that said, oh, well, there's this commercial quantity.

[00:42:05] Speaker 01:
requirement in the contracts.

[00:42:08] Speaker 01:
And there was no sale until that was met.

[00:42:10] Speaker 01:
And we basically sat down and determined that between Connolly and Nichols.

[00:42:16] Speaker 01:
But at the end of each six-month period, it was determined, was it met, was it not met?

[00:42:20] Speaker 01:
And if not, they would have to agree whether there was going to be a sale.

[00:42:25] Speaker 01:
But then in the reply brief, the taxpayers come back and say, well, look at exhibit 37-J.

[00:42:31] Speaker 01:
And that shows that their title was transferred as soon as it came out of the ground.

[00:42:35] Speaker 01:
Again, I don't really think that it does.

[00:42:37] Speaker 01:
If you look at paragraph 3.2 of that contract, and that's going to be at 868, it specifically says, hey, this is the commercial quantity requirement, and there is no sale for purposes of this statutory provision until such time as the commercial quantity is met or there's an agreement that there will be a sale despite the commercial quantity not being met.

[00:42:59] Speaker 01:
So for every landfill that was venting and flaring, there's at least at some period where there was no obligation to purchase while gas was coming out.

[00:43:10] Speaker 01:
And for some of them, it may not have been determined until really the end of a six-month period, at which point all of the gas that issued for that six-month period had already gone up in the air.

[00:43:21] Speaker 01:
So what you really have here is a situation where RTC determined this is not profitable, let's try to monetize the tax credits, and they just didn't bother to create facilities that could be used for electricity, for transferring methane by pipeline, for storing, for leachate evaporation.

[00:43:40] Speaker 01:
All it could be used for was venting and flaring.

[00:43:43] Speaker 05:
This is part of your argument that I take it the tax court didn't decide that it was a sham?

[00:43:48] Speaker 01:
That's right.

[00:43:48] Speaker 01:
The tax court explicitly said that it was not deciding that issue.

[00:43:52] Speaker 01:
That's A214 Note 4.

[00:43:55] Speaker 01:
And the fact that there were credits given for electricity, the tax court certainly never decided that that meant, oh, it's not a sham.

[00:44:02] Speaker 01:
And I think there's a lot of interpretations that you could have, including the fact that, look,

[00:44:06] Speaker 01:
Our FPAW gave credits for these, and the tax court didn't say, oh, you shouldn't because it was a sham.

[00:44:13] Speaker 01:
The court just didn't resolve that question at all.

[00:44:16] Speaker 01:
And it's obviously we have reserved it, and we definitely think that if you were to rule against us in any way that gave them any additional credits, it should be remanded for deciding the sham issue.

[00:44:27] Speaker 05:
Any questions?

[00:44:29] Speaker 05:
Thank you.

[00:44:30] Speaker 05:
Timeline?

[00:44:32] Speaker 05:
We'll give you another minute anyway.

[00:44:34] Speaker 04:
One minute.

[00:44:34] Speaker 04:
Thank you, Your Honor.

[00:44:38] Speaker 04:
Addressing the commercial quantities issue, commercial quantities provisions occur in energy contracts across the country, and I think it would be a mistake to accept the Commissioner's

[00:44:50] Speaker 04:
here, I would point to the reply brief on page 14 and 15, where we discuss commercial quantities provisions specifically, that that is something that occurs in the industry and certainly is not some sort of, you know, does not vitiate the fact of a sale, just like there are all-output contracts, take-or-pay contracts in the energy industry, which provide all-output, whether you can use it or not, that's still a sale, number one.

[00:45:16] Speaker 04:
Number two,

[00:45:19] Speaker 04:
While my colleague was correct that there are no depositions in tax court, the IRS did conduct an examination and could have contacted anyone who they wanted, and they did.

[00:45:29] Speaker 04:
So I disagree that the IRS had no means of contacting any witnesses that they wanted to for any purpose.

[00:45:36] Speaker 04:
But you don't disagree the burden is on you to substantiate.

[00:45:41] Speaker 05:
You don't disagree that the burden of proof is on you in the tax court, not on the IRS.

[00:45:48] Speaker 04:
As a substantiation.

[00:45:49] Speaker 04:
Yes.

[00:45:49] Speaker 04:
That's correct, Your Honor.

[00:45:50] Speaker 04:
We believe we met that burden.

[00:45:52] Speaker 04:
And I did want to talk about the credibility issue.

[00:45:56] Speaker 04:
The tax court did find Mr. Connolly's testimony credible on substantiation issues, specifically this issue of parasitic load.

[00:46:04] Speaker 04:
Mr. Connolly did a

[00:46:06] Speaker 04:
made an assumption, a rule of thumb, for the electricity generating plants, saying that, well, if we know that some kilowatt hours have been transferred over, but we know that there's more.

[00:46:18] Speaker 04:
We know that electricity had to be expended, actually, to run the generator and so forth.

[00:46:21] Speaker 04:
I didn't meter them.

[00:46:22] Speaker 04:
I didn't measure it.

[00:46:23] Speaker 04:
10%.

[00:46:24] Speaker 04:
And the taxpayers said, no, OK, fine.

[00:46:27] Speaker 04:
You're credible.

[00:46:28] Speaker 04:
I agree with that.

[00:46:29] Speaker 04:
Then you go to the non-electricity generating landfills.

[00:46:33] Speaker 04:
And no matter what substantiation we provided,

[00:46:36] Speaker 05:
The first one sounds very much like the cone rule.

[00:46:41] Speaker 05:
Everybody agrees that there was going to be another amount of electricity that was required, a parasitic amount, and so far it's reasonable to make an estimate.

[00:46:51] Speaker 05:
It's different than whether anybody ever actually – and so they're credible, because maybe it shouldn't have been 20 percent, maybe it should have been 10 percent.

[00:46:58] Speaker 05:
It's just like an expert testifying.

[00:47:00] Speaker 05:
The other ones, that's not the problem.

[00:47:02] Speaker 05:
The problem is whether he's being honest or not, whether he actually saw any of this or not, whether he's making up numbers or not.

[00:47:10] Speaker 05:
In a way that gives us

[00:47:12] Speaker 05:
Maybe that gives the tax court more credibility.

[00:47:14] Speaker 05:
They accepted the credibility on what seemed like a reasonable estimate and disavowed credibility with respect to other things that really weren't based on logical estimate from agreed facts.

[00:47:29] Speaker 04:
Except I would suggest that they were.

[00:47:31] Speaker 04:
For instance, using the air emissions factors where you actually do a calculation while we have, you know, we know that each vent

[00:47:38] Speaker 04:
provides 0.5 to 1.5 cubic feet per meter.

[00:47:43] Speaker 04:
And, you know, so we have 20 vents, do that calculation.

[00:47:47] Speaker 04:
That, just as well, and, frankly, that has, you know, more scientific basis than the parasitic load, which the court accepted.

[00:47:54] Speaker 02:
Again, that's our point.

[00:47:55] Speaker 02:
Yeah, but that being released varies over time, and hour by hour, so you can't simply just go, they have this capacity, and multiply it by 20.

[00:48:04] Speaker 02:
That was the point.

[00:48:05] Speaker 02:
You don't have these stable numbers.

[00:48:06] Speaker 04:
That's a fair estimation, and that does bring me to the point of the methane concentration and stipulation, which is in our brief, and I'm happy to rest on that brief, but it's there.

[00:48:17] Speaker 04:
you know, that it's, if I may correct my colleague, there were tax credits at the electricity generating landfills that were, that the tax court did disallow on account of this bankruptcy and, you know, and the, you know, contracts issues.

[00:48:35] Speaker 04:
I point the court to

[00:48:36] Speaker 04:
page 91 of the opinion, A301, for that.

[00:48:42] Speaker 04:
And I would be remiss if I didn't at least touch on penalties, because even if, as a technical matter... You had a chance to open on that.

[00:48:49] Speaker 05:
I didn't hear a word about penalties from the government just now, so we'll have to rest on the briefs.

[00:48:53] Speaker 04:
And if there are no further questions, thank you.

[00:48:55] Speaker 05:
Thank you.

[00:48:55] Speaker 05:
We'll take the matter under submission.

[00:48:56] Speaker 05:
We'll take a brief break.