[00:00:00] Speaker 01:
Case number 23-1050.

[00:00:01] Speaker 01:
Carried.

[00:00:04] Speaker 01:
Mrs. Farmer, you may proceed when you're ready.

[00:00:19] Speaker 04:
May I please record?

[00:00:27] Speaker 04:
I stand here before you today representing Mr. Corey Smith, who seeks to disavow his legal positions.

[00:00:34] Speaker 04:
He previously advanced these positions by being highly influenced by Mr. John Castro, who, as you are probably aware, has been convicted of fraud.

[00:00:44] Speaker 04:
And Mr. Castro represented himself out as a tax attorney.

[00:00:49] Speaker 04:
He was never licensed to practice law.

[00:00:55] Speaker 04:
My client and myself are aware that this is a very unusual situation and that you're really not supposed to come and change your position at this time.

[00:01:04] Speaker 04:
But he asked for the court to take into consideration that the only reason he advanced these arguments was Mr. Castro's contract with him that required him to litigate this issue to his satisfaction to receive any of the fees back.

[00:01:22] Speaker 05:
Ms.

[00:01:23] Speaker 05:
Farmer, I wanna thank you for being here and also thank you for the candor and the transparency.

[00:01:29] Speaker 05:
When you say that Mr. Smith disavows, it seems to me like that's similar to saying that Mr. Smith is abandoning the arguments that you made.

[00:01:43] Speaker 05:
And I think my question for the government is going to be, why wouldn't we just issue a judgment saying,

[00:01:52] Speaker 05:
The arguments have been abandoned.

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They're therefore forfeited.

[00:01:55] Speaker 05:
And that's the end of the case.

[00:01:58] Speaker 05:
I understand the government won't get the advisory opinion from us that they might wish to use in future cases.

[00:02:04] Speaker 05:
But that's not really our role.

[00:02:07] Speaker 05:
Does that sound right to you?

[00:02:10] Speaker 04:
We don't ask that that happen.

[00:02:12] Speaker 04:
We do really actually would also stand with the government that they're probably

[00:02:17] Speaker 04:
is purpose in having this judgment because there are so many pending cases and other people who have been affected by Mr. Castro.

[00:02:25] Speaker 04:
So we're not asking for there not to be a ruling in this matter.

[00:02:29] Speaker 04:
If there's any possible way for there to be one, there's been an amicus.

[00:02:33] Speaker 04:
This has gone so far.

[00:02:35] Speaker 04:
Everybody has expended time, finances, you know, to get it to this point.

[00:02:42] Speaker 04:
So whatever works best for everyone.

[00:02:45] Speaker 03:
You're basically asking to voluntarily dismiss the appeal.

[00:02:49] Speaker 04:
Yes, and we understand that the appeal was requested to be dismissed and the court rightfully denied that because of the advancement of the case and the matters pending before it.

[00:02:59] Speaker 04:
And so we don't disagree with that and think that that was the right decision because going back through and seeing how many people have been fraudulently impacted by Mr. Castro and are still in

[00:03:15] Speaker 04:
litigation at this point.

[00:03:16] Speaker 04:
And the way Mr. Castro is handling these cases, having the clients go pro se and filing these himself, he logs into their accounts and files them.

[00:03:30] Speaker 05:
Wait, what?

[00:03:31] Speaker 04:
Yes.

[00:03:32] Speaker 04:
He logs into their PACER account and files the pleadings.

[00:03:37] Speaker 05:
Under their login identification?

[00:03:39] Speaker 05:
Yes.

[00:03:41] Speaker 04:
Yeah.

[00:03:42] Speaker 04:
I just found that out two days ago.

[00:03:45] Speaker 04:
So as soon as Mr. Castro realized he's in Australia, so he's not up to date with everything going on here, and he did not actually find out that Mr. Castro was indicted until Mr. Wasserman put an objection to Mr. Castro's motion for leave to file an amicus brief.

[00:04:06] Speaker 04:
So after that point, he tried to remove himself from this litigation, and that's why he hired me and my firm to help him do that.

[00:04:19] Speaker 03:
All right.

[00:04:19] Speaker 03:
Thank you.

[00:04:20] Speaker 03:
Thank you.

[00:04:30] Speaker 06:
Good morning and may I please the court, Carl Wasserman on behalf of the commissioner.

[00:04:33] Speaker 06:
I want to address Judge Walker's question to Ms.

[00:04:37] Speaker 06:
Farmer.

[00:04:39] Speaker 06:
Mr. Smith did in fact put in a motion to withdraw this appeal.

[00:04:42] Speaker 06:
We objected to that.

[00:04:44] Speaker 06:
It was not stipulated and there are at least 14 other cases

[00:04:48] Speaker 06:
are pending in the tax court that are directly stayed because of this case.

[00:04:56] Speaker 06:
Mr. Smith was the first case to be filed promoting the positions that he took in this case.

[00:05:04] Speaker 06:
And although I understand that he now has abandoned these arguments, he does have

[00:05:11] Speaker 06:
affidavits in this case, there is a record in this case.

[00:05:15] Speaker 06:
And many of the other cases in the tax court are going to depend on this, what the court decides in this case.

[00:05:21] Speaker 05:
Mr. Wasserman, I understand it.

[00:05:22] Speaker 05:
And I don't blame you for wanting us to do more than dismiss the appeal on the grounds either that the arguments have been abandoned or that.

[00:05:37] Speaker 05:
You know the the adversarial process exists for a reason the idea, I know you know this, but the idea is that.

[00:05:46] Speaker 05:
we will do a better job in figuring out the right answer to a legal question if there's adversarial presentation.

[00:05:55] Speaker 05:
I don't think I've ever seen a case where there's less adversarial presentation, especially after Ms.

[00:06:01] Speaker 05:
Farmer's very thoughtful comments and understandable comments.

[00:06:05] Speaker 05:
And I don't blame Mr. Smith for being mad at Mr. Castro.

[00:06:10] Speaker 05:
But in part for the reason that you want us to reach the merits,

[00:06:15] Speaker 05:
I'm cautious to reach the merits because this will affect, if we issue a published opinion reaching the merits, this will control future cases.

[00:06:24] Speaker 05:
And those future cases may wish to present adversarial, may wish to have an adversarial presentation.

[00:06:33] Speaker 05:
And we might get the answer wrong.

[00:06:36] Speaker 05:
We might be more likely to get the answer wrong now than we would later if a later case has adversarial presentation.

[00:06:44] Speaker 06:
I understand, Judge.

[00:06:46] Speaker 06:
Of course, my friend, your own appointed attorney, has also done a lot of work in this case.

[00:06:52] Speaker 06:
He's not against you either.

[00:06:55] Speaker 06:
As well, he should not be, because the government is correct in this case.

[00:06:59] Speaker 06:
I do want to emphasize something, and I think it is important.

[00:07:03] Speaker 06:
40 years of work has gone into this pine gap arrangement.

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It is carefully thought out between the IRS and the Australian tax authorities.

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It was designed to provide American taxpayers who work in smack in the middle of Australia in the pine cap facility with a tax benefit.

[00:07:28] Speaker 06:
It provides them with simply by filing a closing agreement.

[00:07:34] Speaker 06:
This was Mr. Smith's closing agreements, four pages.

[00:07:38] Speaker 06:
By filing that closing agreement,

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You get the benefit of American taxes, which are lower than Australian taxes, US withholding.

[00:07:46] Speaker 06:
You simply say, I will not claim this foreign earned income exclusion.

[00:07:50] Speaker 06:
You don't have to pay Australian taxes.

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They don't take Australian withholding from you.

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And you don't even have to file a tax return.

[00:07:59] Speaker 06:
So this four pages does a lot of work.

[00:08:02] Speaker 06:
I would tell you, Your Honor, that there are hundreds of these agreements.

[00:08:06] Speaker 06:
that are currently in use, you can get off the website.

[00:08:13] Speaker 03:
My understanding has been all those decades that, well not all those decades, but it's been a long time and it's worked.

[00:08:21] Speaker 03:
And that Mr. Castro, if I'm understanding correctly, is behind not only Mr. Smith's now terminated effort to challenge it,

[00:08:30] Speaker 03:
and behind the efforts of the other cases that you mentioned that are coming up through the tax court?

[00:08:36] Speaker 06:
Your Honor, as far as I know, there are other petitioners in the tax court who have independent counsel.

[00:08:43] Speaker 06:
There are some who may be simply pro se.

[00:08:45] Speaker 06:
I do know that, as far as to my knowledge, all of those cases were stayed pending Smith.

[00:08:52] Speaker 06:
Now, there was one other case that was in the court of federal claims.

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And we filed a notice of recent decision with you about that case.

[00:09:00] Speaker 03:
And I wonder if it's appropriate if the IRS is in touch with people to notify them of what's gone on with the proponent of the theory on which they now rely.

[00:09:16] Speaker 06:
Well, I think, as you said, Your Honor, this program has worked.

[00:09:20] Speaker 06:
And I think that I'm hoping that, again, depending on whether or not this court does issue a decision or waits for another

[00:09:28] Speaker 06:
another possible case, that the word would get out that these agreements, just as Judge Toro, and he wrote a very thoughtful decision here, he said it was beyond question, those are his words, that these agreements were properly authorized by the IRS, that they were not improperly obtained by the IRS.

[00:09:48] Speaker 06:
It's a small agreement, but it does a lot of work, and I think

[00:09:53] Speaker 06:
Even though, as I said, Mr. Smith has conceded that his closing agreements were binding, and I think we're going to hear that from the amicus, we'll take the same position.

[00:10:04] Speaker 06:
I understand everyone singing from the same hymnal here, but at the same time,

[00:10:11] Speaker 06:
if there is a live controversy.

[00:10:13] Speaker 06:
And again, we did not, the court did not deny the motion to, excuse me, the court did not grant Mr. Smith's motion to withdraw.

[00:10:22] Speaker 06:
I think this would be a good opportunity for the court to rule.

[00:10:25] Speaker 06:
I'd be happy to answer any questions if you have any.

[00:10:27] Speaker 02:
Are all, if I recall correctly, in this case, the tax was paid and the taxpayer is seeking refund, is that correct?

[00:10:35] Speaker 06:
Well,

[00:10:38] Speaker 06:
No, Your Honor, he received a refund.

[00:10:42] Speaker 02:
OK.

[00:10:43] Speaker 06:
Exactly.

[00:10:44] Speaker 06:
Now, the refund was frozen.

[00:10:46] Speaker 06:
But he received a refund because what you do is when you file your tax returns, if you live in a foreign country and you claim the exclusion, then they would see that you have this Section 911 that we've briefed.

[00:11:00] Speaker 06:
Then you would deduct that from your income.

[00:11:04] Speaker 06:
what Mr. Smith and all the others are required to do is file a copy of this closing agreement saying, I'm not allowed to take the waiver.

[00:11:12] Speaker 06:
So when the return was processed by the service, they saw that he claimed this exclusion and they reduced his income down to zero and refunded him the money.

[00:11:27] Speaker 03:
They refunded the money, but it's frozen.

[00:11:30] Speaker 06:
Correct.

[00:11:30] Speaker 03:
So you have access to it.

[00:11:33] Speaker 06:
That's correct.

[00:11:33] Speaker 03:
And it will now be, the IRS will be made whole in light of Mr. Smith's current position with respect to Mr. Smith's case.

[00:11:41] Speaker 06:
That is my understanding.

[00:11:42] Speaker 06:
Is that true of all the cases?

[00:11:45] Speaker 06:
I believe so, because if I understand correctly, no one who filed a tax return

[00:11:53] Speaker 06:
claiming they all claim this exemption and none of them filed a copy of their closing agreement which would have indicated to anyone who examined the returns that they were not entitled to take and all refunds if there were refunds have been frozen as far as i know i don't i can't say for sure your honor i don't believe i don't believe they were issued because i believe one of the requirements was that they were frozen but i i don't know for a fact but i know refunds were issued

[00:12:21] Speaker 05:
I take one more shot and ask for your help, just as I think through the question that I started out with.

[00:12:29] Speaker 05:
We don't have jurisdiction to issue an advisory opinion.

[00:12:32] Speaker 05:
I'm not saying that we lack jurisdiction.

[00:12:34] Speaker 05:
I'm not saying that we're in that place.

[00:12:37] Speaker 05:
But it feels a lot like you're asking for an advisory opinion.

[00:12:41] Speaker 05:
And can you do anything to swage that concern?

[00:12:49] Speaker 06:
Well, Your Honor, I mean, the rules do say that if you are going to dismiss a case at this point, that it be stipulated.

[00:12:56] Speaker 06:
And I understand we can't stop someone from coming up here and saying that they abandoned the case.

[00:13:00] Speaker 06:
That said, again, the fact that there are affidavits, does he say that I didn't mean what I said in my affidavits?

[00:13:11] Speaker 06:
Those are sworn.

[00:13:12] Speaker 06:
Does he say that?

[00:13:13] Speaker 06:
As far as I know, he's not saying I'm lying.

[00:13:16] Speaker 06:
So he put things in dispute.

[00:13:18] Speaker 06:
The case is fully briefed.

[00:13:21] Speaker 06:
I hear your point, Your Honor.

[00:13:22] Speaker 03:
But if he's abandoning his claims, I take it that the service would not have any basis on which to refuse to stipulate, any substantive basis.

[00:13:34] Speaker 03:
I mean, I understand your interest in terms of the development of the law.

[00:13:38] Speaker 03:
But in terms of the concrete interest in this dispute,

[00:13:43] Speaker 03:
I think it's hard to see what.

[00:13:46] Speaker 06:
Let me offer one other possibility.

[00:13:49] Speaker 06:
When people take positions for the service, sometimes there are penalties for negligence.

[00:13:56] Speaker 06:
I did the wrong thing.

[00:13:58] Speaker 06:
Sometimes there are willful penalties that a person should know better.

[00:14:02] Speaker 06:
And I think this might be an opportunity

[00:14:04] Speaker 06:
that people should be in a position where they do know better.

[00:14:07] Speaker 06:
Penalties may be on the line, whether it's in this case or future cases, that I think would strengthen the service's position if this court does render a decision in the government's favor.

[00:14:18] Speaker 03:
If they have not been sought, then I think those issues would have to arise when and if they were sought.

[00:14:26] Speaker 06:
Yeah, and as far as I know, I believe there are such penalties in some of the tax cases that are currently being stayed.

[00:14:34] Speaker 06:
And as I said, I think that would be one other sort of hook if the court were going to render a decision.

[00:14:40] Speaker 02:
Thank you, Your Honor.

[00:14:41] Speaker 02:
None has been assessed in this case.

[00:14:43] Speaker 02:
I'm sorry?

[00:14:44] Speaker 02:
No penalty has been assessed in this case.

[00:14:47] Speaker 06:
In this case, Your Honor, because I think, like I said, we froze his refund.

[00:14:55] Speaker 06:
So we have it back in this case.

[00:14:56] Speaker 06:
I was simply saying that in future cases, if a decision comes from this court,

[00:15:03] Speaker 06:
upholding these agreements, then if someone else will come along and say, I have the right to do this, it was strengthened services position to know that there is binding law that these agreements are valid.

[00:15:17] Speaker 06:
Thank you, Ron.

[00:15:25] Speaker 03:
Harris, we invited you to participate.

[00:15:27] Speaker 00:
Yes.

[00:15:28] Speaker 00:
Good morning, Your Honors.

[00:15:29] Speaker 03:
The party seems to be going down.

[00:15:32] Speaker 00:
Well, Your Honors, I'm happy to address whatever issues the court would find useful, but I'll start with yours, Judge Walker, about the adversarialness of the proceeding.

[00:15:40] Speaker 00:
Now, obviously, I'm cognizant of the concern expressed by the court that we lack adversarial proceedings here, and I think there's two questions under that, you know, with respect to that, before getting to the merits.

[00:15:51] Speaker 00:
Obviously, we didn't brief this, but just to raise them for the court.

[00:15:55] Speaker 00:
One is an Article 3 question, does the court have jurisdiction?

[00:15:57] Speaker 00:
And here Mr. Smith is aggrieved by a judgment below issued by the tax court.

[00:16:03] Speaker 00:
And in terms of pure adversarialness, does he have an interest in reversing that judgment?

[00:16:09] Speaker 00:
The answer is probably yes for purposes of Article 3, although we'd be happy to file a letter brief to that effect if the court would find it useful.

[00:16:17] Speaker 00:
Now, the broader issue is, has there been a concrete presentation of adversarialness for the issues in the case?

[00:16:23] Speaker 00:
We think the answer is no, given Mr. Smith's arguments here today.

[00:16:28] Speaker 00:
And so the question is, under Federal Rule of Appellate Procedure 42, whether this court should voluntarily dismiss the appeal or issue an order dismissing the appeal

[00:16:37] Speaker 00:
deeming Mr. Smith's arguments forfeited.

[00:16:39] Speaker 00:
You know, there are circumstances in which federal courts of appeal have refused to dismiss cases under Rule 42, but those circumstances don't appear to apply readily to the circumstances here.

[00:16:49] Speaker 00:
I'll just direct the court's attention for reference to United States versus State of Washington Department of Fisheries.

[00:16:57] Speaker 00:
That's the Ninth Circuit case from 1978 at 573F, 2nd, 1117.

[00:17:02] Speaker 00:
And there the court then Judge Kennedy was expressing a concern about

[00:17:05] Speaker 00:
gamesmanship and what you don't want is a party to appear to our argument, see which way a court of appeals is going and then abandoned claims in order to obtain a ruling that in order to avoid obtaining a ruling that would steer the law in a particular direction.

[00:17:21] Speaker 05:
Well, and I pick that point.

[00:17:23] Speaker 05:
I understand it up to a point.

[00:17:26] Speaker 05:
It is pretty common argument to ask for concessions.

[00:17:30] Speaker 05:
And when those concessions are made, I think we view that as a significant purpose of the oil argument.

[00:17:39] Speaker 05:
And here, not only has one argument been conceded, but all of the arguments have been conceded.

[00:17:47] Speaker 00:
I hear that.

[00:17:48] Speaker 00:
I hear that, Your Honor.

[00:17:49] Speaker 00:
I think this is an unusual situation that goes beyond just conceding one point or one argument that would help sharpen the legal issues for the court.

[00:17:56] Speaker 00:
And here, Mr. Smith has obviously abandoned all of his arguments and doesn't appear to seek reversal.

[00:18:01] Speaker 05:
I might be less worried about going as far as the government wants us to go if some of the legal issues weren't

[00:18:11] Speaker 05:
at least a little bit tricky.

[00:18:12] Speaker 05:
I mean, the question of whether science is part of what we analyze if there is a misrepresentation in an agreement like this, it seems not incredibly easy legal question.

[00:18:27] Speaker 05:
And it seems like it could have pretty far reaching consequences.

[00:18:30] Speaker 05:
And hard legal questions with far reaching consequences are exactly the kind of questions that we benefit the most from a true adversarial presentation.

[00:18:41] Speaker 00:
Of course, agreed, Your Honor.

[00:18:42] Speaker 00:
And I think obviously here, you know, the legal questions were complicated enough to warrant the appointment of a friend of the court.

[00:18:49] Speaker 00:
So, you know, that's maybe one more point in favor of waiting for a case in which the legal issues are sharpened and presented.

[00:18:56] Speaker 05:
Do you think we could use your very nice brief in a future case that raises this issue?

[00:19:02] Speaker 05:
Would the court be able to, I mean, I think the answer is yes.

[00:19:04] Speaker 05:
We could read it.

[00:19:05] Speaker 05:
We could consider it.

[00:19:06] Speaker 05:
We wouldn't have to appoint you or someone else all over again to say the exact same thing.

[00:19:11] Speaker 00:
I think that's probably right.

[00:19:12] Speaker 00:
And I'll represent that I'm happy to appear again if the court would find it useful to speak to the merits issues in the briefs.

[00:19:20] Speaker 03:
We appreciate the offer.

[00:19:21] Speaker 03:
And I assume also that Mr. Wasserman will be able to cite to this brief as a document of public record if and when these other mentioned appeals from the tax court are pursued.

[00:19:39] Speaker 00:
I think that's right, Judge Pillard.

[00:19:40] Speaker 00:
And the only thing I would say is on the misrepresentation point coming back to your point, Judge Walker, there's obviously three different paths to resolving the misrepresentation issue before the court.

[00:19:50] Speaker 00:
One is the tax court's route of saying statements of foreign law cannot be statements of fact.

[00:19:56] Speaker 00:
One is the government's proposed test, which would impose an intent requirement.

[00:19:59] Speaker 00:
As we point out in our brief, there are cases going back to the 1930s, Ingram versus Commissioner, that impose that intent requirement.

[00:20:06] Speaker 00:
But it's not entirely clear how you get to that from the statutory text.

[00:20:10] Speaker 00:
And so we've proposed a third route, which is that a statement of law can be a misrepresentation of facts so long as it's clearly and demonstrably erroneous, given that statements of law are sort of like opinions.

[00:20:22] Speaker 00:
The United States is making representation that it believes foreign law to mean a certain thing.

[00:20:27] Speaker 00:
And in that context, we think in order for that to rise to a misrepresentation, there needs to be some showing that reasonable minds couldn't differ about the meaning of law.

[00:20:36] Speaker 00:
closing agreements are supposed to settle uncertainty about the meaning of law.

[00:20:40] Speaker 00:
So that's our position.

[00:20:42] Speaker 03:
Maybe the one thing that we might do if we had a case before us is agree with your powerful advocacy and actually Mr. Smith's advocacy that statements of foreign law are statements of fact and see what the tax court

[00:21:01] Speaker 03:
as the expert in the standards for, say, enter in this context would say, in light of that.

[00:21:10] Speaker 03:
So it may not just be our court that could have the benefit of your brief, but perhaps the tax court, if it has any more of these cases to...

[00:21:19] Speaker 03:
to process, but we, I know you were appointed by the court and we're very appreciative of you and your colleague, Ms.

[00:21:30] Speaker 03:
Consra, being here today.

[00:21:31] Speaker 03:
Your brief was very able and it's a generous assistance to the court, so we thank you for that.

[00:21:39] Speaker 00:
Thank you, Your Honors, our pleasure.

[00:21:42] Speaker 03:
All right, and I trust that Ms.

[00:21:43] Speaker 03:
Farmer, nothing further?

[00:21:45] Speaker 04:
I don't think I said it was for a battle, but there were penalties in this case.

[00:21:51] Speaker 04:
So for two years, he did receive a refund and the contingency agreement was 50% of the refund paid to Mr. Castro.

[00:22:00] Speaker 04:
He has since made the IRS whole.

[00:22:02] Speaker 04:
He's paid all penalties.

[00:22:03] Speaker 04:
So there are penalties and interest.

[00:22:06] Speaker 04:
He's paid all of those.

[00:22:08] Speaker 04:
And then the last year was frozen.

[00:22:12] Speaker 04:
Two more years after that are in a different matter, and they're still in the tax court, but he's paid all of those, and they are drawing up a stipulation to end that also.

[00:22:23] Speaker 04:
Thank you.

[00:22:23] Speaker 04:
Thank you.

[00:22:25] Speaker 04:
The case is submitted.