[00:00:00] Speaker 02:
Good morning, ladies and gentlemen.

[00:00:11] Speaker 02:
We have five cases on the calendar this morning.

[00:00:15] Speaker 02:
Two from the Court of Federal Claims, Acts and Takings.

[00:00:20] Speaker 02:
The latter is being submitted in the briefs and therefore will not be argued.

[00:00:25] Speaker 02:
And we have three patent cases, two from district courts and one from the

[00:00:29] Speaker 02:
Our first case is Atkins versus the United States, 2016, 1961.

[00:00:38] Speaker 02:
Mr. Rogers.

[00:00:47] Speaker 00:
Good morning.

[00:00:47] Speaker 00:
May it please the court?

[00:00:48] Speaker 00:
My name is John Rogers, and I represent Charles and Jane Atkins, the appellants in this case.

[00:00:55] Speaker 00:
The Atkins were the victims of horrific fraud and lost more than $2 million.

[00:01:00] Speaker 00:
This was a theft and there's no issue of that on appeal.

[00:01:06] Speaker 00:
The transactions occurred about 17 years ago.

[00:01:08] Speaker 00:
The Atkins are retired and living on what savings are left.

[00:01:13] Speaker 00:
The only issue before us is the year of the loss.

[00:01:16] Speaker 00:
And the taxpayers are asking the court to reverse the trial court and remand the action to the court of federal claims for the taxing of damages and costs.

[00:01:27] Speaker 04:
Could you explain to me

[00:01:29] Speaker 04:
There's a gap in the record with respect to 2002.

[00:01:32] Speaker 04:
What happened with respect to 2002?

[00:01:34] Speaker 00:
In 2002 is when they started to, they believed that... I meant for the tax year.

[00:01:42] Speaker 00:
For the tax year, 2002.

[00:01:43] Speaker 04:
There's nothing that shows that what happened, we've got, we know what happened for 2001, we know what happened for 2003 and 2004.

[00:01:50] Speaker 04:
What happened with respect to 2002?

[00:01:51] Speaker 00:
In 2002, I believe their tax return is in the record for 2002, and 2002 showed

[00:01:58] Speaker 00:
that they did have some income would have been in the carryback offset by the loss taken.

[00:02:06] Speaker 04:
But it doesn't show a disallowance for 2002.

[00:02:08] Speaker 04:
It doesn't show anything.

[00:02:11] Speaker 04:
You don't know what happened for 2002?

[00:02:13] Speaker 00:
2002 was a carryback year.

[00:02:16] Speaker 00:
There was no actual income tax.

[00:02:18] Speaker 04:
So it wasn't disallowed?

[00:02:20] Speaker 00:
It wasn't allowed because the 2004 refund was disallowed.

[00:02:25] Speaker 00:
amended return was disallowed, which would have carried back to 2001, 2002, 2003.

[00:02:29] Speaker 00:
So 2002 was disallowed.

[00:02:36] Speaker 04:
It doesn't say that in the record.

[00:02:37] Speaker 04:
It says 2001 was disallowed, 2003 was disallowed.

[00:02:40] Speaker 04:
It does not report what happened for 2002, but you just don't know.

[00:02:46] Speaker 00:
We believe it was disallowed because he never got any money from it or no refund of it.

[00:02:53] Speaker 04:
Okay.

[00:02:55] Speaker 00:
So the standard review, we believe, is de novo since the issues are issues of law.

[00:03:03] Speaker 00:
The facts are pretty much not in dispute in this case.

[00:03:08] Speaker 00:
The trial court, in fact, found many facts, by and large, in favor of the taxpayer, for example, the credibility of Mr. Atkins.

[00:03:16] Speaker 00:
The issue here is how the court interpreted the regulations and applied them to those facts.

[00:03:21] Speaker 02:
But the loss was in 2002.

[00:03:24] Speaker 02:
And at that point, there was a reasonable prospect of recovery, right?

[00:03:30] Speaker 00:
The loss was in 2002.

[00:03:31] Speaker 02:
And the court found that.

[00:03:34] Speaker 02:
And so the question was, when could the loss be taken?

[00:03:39] Speaker 02:
And that had to be determined by when there was reasonable certainty whether

[00:03:48] Speaker 02:
there would be reimbursement.

[00:03:49] Speaker 02:
So don't we go to the second step?

[00:03:51] Speaker 00:
Yes.

[00:03:52] Speaker 02:
Well, first off... And what was wrong about what the court did with that?

[00:03:56] Speaker 00:
Well, two problems with that.

[00:03:57] Speaker 00:
The court took a very strict interpretation of the reasonable certainty test in applying the Johnson case to it, in that they required... their only fact they relied upon was the fact that the case had not been dismissed.

[00:04:19] Speaker 00:
It had, the court in essence found through all the facts that he, Mr. Atkins, and there's no, there's no evidence Mr. Atkins did anything after 2004.

[00:04:29] Speaker 02:
But he hadn't, he hadn't withdrawn the, he hadn't abandoned the arbitration.

[00:04:33] Speaker 00:
He, he, for all intents and purposes, he had abandoned the arbitration by not taking any action on it.

[00:04:40] Speaker 02:
That's a fact finding, right?

[00:04:41] Speaker 02:
To which we owe deference?

[00:04:43] Speaker 00:
And, and the court, and the court on pages

[00:04:48] Speaker 00:
12 and 14 and 22 of his opinion said he in essence had abandoned it.

[00:04:54] Speaker 00:
He had not taken any action on it.

[00:04:57] Speaker 01:
Can I just ask you, I mean, I took it that the, at least to me, the most, I don't want to say, the stronger of your two arguments here is not to disagree with the CFC's determination that you hadn't abandoned the claim.

[00:05:17] Speaker 01:
It is rather,

[00:05:18] Speaker 01:
that the CFC treated abandonment as the only possible ground on which you could justify getting the deduction.

[00:05:27] Speaker 01:
And that's plainly wrong under the regulation.

[00:05:29] Speaker 01:
You're entitled to have your claim continue and yet meet the standard of ascertainable, reasonable certainty that you're not going to get the recovery that you want to deduct.

[00:05:41] Speaker 01:
And the district court of federal claims did not make a specific finding on that.

[00:05:47] Speaker 01:
Correct.

[00:05:48] Speaker 01:
OK.

[00:05:48] Speaker 01:
Why, on the assumption that the court of federal claims did not make that finding, because you can have your claim go and still take the laws if the probability is low enough, what is the evidence that would justify sending it back for a finding about whether the probability is low enough?

[00:06:11] Speaker 00:
Well, the evidence was overwhelming that as of 2004, these people had been indicted.

[00:06:18] Speaker 01:
uh... they had pled guilty what what it seemed to me that the evidence of the government is concentrating and and and the government's brief substantially uh... and he puts this abandonment ground at the back because i think it recognizes that abandonment is not necessary for you to prevail so the real question is what is the evidence on whether you

[00:06:41] Speaker 01:
had a reasonable certainty that you weren't going to get the money that you wanted deduct.

[00:06:45] Speaker 01:
And the core of what I think they focus on is you didn't make efforts to find out what assets the people had that you were suing in NASD.

[00:06:57] Speaker 00:
Well, I think the facts in that situation that we didn't, A, the records of these people were for the most part

[00:07:07] Speaker 00:
had already been seized by the federal government for their investigatory basis for seeking to try to convict these people who had done the wrongdoing.

[00:07:22] Speaker 04:
And the indictments themselves, did they contain forfeiture counts?

[00:07:26] Speaker 00:
Not only the indictments, but the pleas and the pleas of guilty, which were done in 2004 for many of these people, included forfeitures, fines,

[00:07:35] Speaker 00:
And some restitution, but as the facts showed in the trial court, the chance of restitution, it would have taken like 1600 years before the people would have gotten back their money.

[00:07:47] Speaker 04:
Because the forfeitures and the fines take priority over the restitution.

[00:07:51] Speaker 00:
And that's correct, Your Honor.

[00:07:53] Speaker 00:
So it was very unlikely.

[00:07:56] Speaker 01:
It seems to me that the record is not conveying a clear answer to this, but for example,

[00:08:04] Speaker 01:
Donald & Company was not indicted, is that right?

[00:08:07] Speaker 01:
They were not indicted because they were out of business.

[00:08:10] Speaker 01:
Well, what do we know about what it means out of business?

[00:08:14] Speaker 00:
They shuttered their doors.

[00:08:15] Speaker 01:
That's another metaphor.

[00:08:17] Speaker 01:
How do we know that they didn't have any money?

[00:08:21] Speaker 00:
Because they disappeared.

[00:08:23] Speaker 00:
I mean, there was no record of any assets of Donald & Company after 2002, and we found nothing to

[00:08:33] Speaker 00:
to pursue at that point.

[00:08:36] Speaker 00:
Whatever records of Donald & Company had been taken by the government, we subpoenaed those records, and that was one of the things we mentioned in our brief, was that the court would not turn over the records the government had, would not force the government to turn over their investigatory records.

[00:08:49] Speaker 01:
In the court of the federal claims, I gather you said it was clear that there was no money.

[00:08:55] Speaker 01:
I'm just talking about Donald & Company.

[00:08:58] Speaker 01:
Did the government say, oh no,

[00:09:00] Speaker 01:
Donald, here's why one might think we don't have a record of a bankruptcy.

[00:09:04] Speaker 01:
We don't have any record of that and they possess the records to disprove our statement that the Donald & Company had no... So, but then as to the criminally charged individuals, I guess two of them by indictment, one of them by information, what evidence was there that you could be reasonably certain that those individuals didn't have enough money to pay?

[00:09:30] Speaker 00:
There were several things.

[00:09:33] Speaker 00:
First off, just the fact that we did get their financial statements that they had in later years.

[00:09:40] Speaker 00:
It wasn't the year of 2004.

[00:09:42] Speaker 00:
That did not exist.

[00:09:44] Speaker 00:
But we did have in later years and they had nothing.

[00:09:48] Speaker 00:
And also the record showed that their restitution payments were so low, which is based on income, that they certainly would not have had a lot

[00:09:58] Speaker 00:
to get plus what was seized and forfeited were not a lot of assets.

[00:10:04] Speaker 00:
And if they'd had more substantial assets, certainly the government would have seized that.

[00:10:09] Speaker 04:
Right, so this goes to the point that while the question of reasonable probability has to be forward looking, that you can look at

[00:10:17] Speaker 04:
at subsequent events to determine whether or not that reasonable probably existed at the time.

[00:10:22] Speaker 00:
Especially in this case, the refund was filed in 2006.

[00:10:26] Speaker 00:
So how do you unring the bell of what you know in 2006 to say, well, I couldn't have known that in 2004.

[00:10:32] Speaker 04:
I mean, that's... Does any of this information fall within the bounds of the discovery that you were seeking from the government that the court disallowed?

[00:10:44] Speaker 00:
We don't know because we never saw it, but we would think so because they seized all the records of Donald & Company.

[00:10:50] Speaker 00:
They seized all the records of these individuals regarding these transactions.

[00:10:53] Speaker 04:
That would have disclosed their current assets as of that point in time.

[00:10:57] Speaker 00:
I have to believe that, Your Honor, because that's what the court would have ruled upon to forfeit the assets.

[00:11:05] Speaker 04:
And the forfeiture provisions basically, as I understand it, claimed that

[00:11:10] Speaker 04:
virtually all of the income from Donovan Company was subject to forfeiture because it was burned fraudulently.

[00:11:20] Speaker 00:
Correct.

[00:11:21] Speaker 00:
And certainly there were ongoing schemes and devices going on in multiple areas, not just for the Atkins MyTurn stock, but Electric and several other stocks, and Classica stock were indicted upon.

[00:11:40] Speaker 00:
Our principal point also here is that because there was no reasonable prospect of recovery and there's no reasonable certainty that they would get anything as of 2004, there was just no hope at that point.

[00:11:57] Speaker 00:
And that's when Mr. Atkins basically pulled the plug and basically said, I walked away.

[00:12:05] Speaker 00:
We also want to point out that the

[00:12:09] Speaker 00:
revenue procedure 2009-20, which deals with Ponzi schemes.

[00:12:13] Speaker 00:
It's not on point, but it's certainly analogous.

[00:12:17] Speaker 00:
And what it says very clearly is that the year of discovery is the year of indictment.

[00:12:24] Speaker 00:
And the regulations don't interpret the word discovery.

[00:12:27] Speaker 04:
Right, but you're not saying that actually controls.

[00:12:28] Speaker 04:
You're just saying that's indicative of how this should be looked at.

[00:12:31] Speaker 00:
How this should be looked at is that once he learned of the indictments, that changed the whole tenor

[00:12:38] Speaker 00:
of the case.

[00:12:40] Speaker 02:
Mr. Rogers, you want to save some bottle time?

[00:12:43] Speaker 00:
Yes, Your Honor.

[00:12:44] Speaker 00:
Thank you.

[00:12:46] Speaker 02:
Mr. Sheehan.

[00:12:51] Speaker 03:
May it please the Court, I'm Anthony Sheehan and I represent the United States.

[00:12:57] Speaker 03:
On the law, there's one point of disagreement I have with Mr. Rogers about the ascertained with a reasonable certainty test.

[00:13:06] Speaker 03:
He's saying that we can

[00:13:08] Speaker 03:
go into the future and then try to look back.

[00:13:11] Speaker 03:
We disagree with that.

[00:13:13] Speaker 03:
The statute says the year of loss is the year where the taxpayer can take the deduction is the year in which the taxpayer discovers the loss.

[00:13:22] Speaker 03:
The regulation?

[00:13:23] Speaker 03:
No, the statute says that.

[00:13:24] Speaker 03:
Statute.

[00:13:25] Speaker 03:
The statute, 165E.

[00:13:26] Speaker 03:
E, okay.

[00:13:27] Speaker 04:
Right, but then, and that's what the statute would normally allow, but the IRS takes the position that despite that, you can't if you think there's some chance that you're going to recover.

[00:13:38] Speaker 04:
And this is the first point, because I don't even understand why the IRS would like the methodology that's been adopted by the court of claims.

[00:13:46] Speaker 04:
I mean, as I read the regulation, it says, if there's a reasonable probability of recovery, that's the standard.

[00:13:53] Speaker 04:
And that reasonable certainty is the evidentiary level that you have to prove that standard.

[00:14:00] Speaker 04:
So is there a reasonable probability of recovery?

[00:14:04] Speaker 04:
And can you establish that there's not to a reasonable certainty?

[00:14:08] Speaker 04:
The notion that there would be two tests and that somehow it would be easier early on when you might really haven't even pursued a claim and then harder later doesn't make any sense to me.

[00:14:21] Speaker 03:
Well, I think you made two points, Your Honor.

[00:14:23] Speaker 03:
The first one is that, I think it was as Judge Sharanto pointed out, in our brief we kind of stepped away from that bright line test of you have to abandon it.

[00:14:33] Speaker 03:
But we still, the IRS still reads the

[00:14:37] Speaker 03:
Regulation is more of a temporal regulation that in the year of discovery, you have a reasonable prospect of recovery early on.

[00:14:50] Speaker 03:
And if you do, then later years, as you're pursuing your claim, as you're presumably doing your investigations and getting more information in, you have to show that

[00:15:02] Speaker 03:
You've ascertained with reasonable certainty based on what you've gathered.

[00:15:06] Speaker 04:
Well, you have to prove by a reasonable certainty that you no longer have a reasonable probability.

[00:15:11] Speaker 04:
I understand that the word reasonable shows up both places in the regulation, but there's several other courts, including the 10th Circuit and others, who have interpreted this in a more logical fashion than the Court of Federal Claims seems to have in this case.

[00:15:25] Speaker 04:
Now, I'm not sure it ultimately changes the result in most cases, but it makes it an easier

[00:15:32] Speaker 04:
regulation to understand?

[00:15:34] Speaker 03:
Well, again, the government would still put forward that it's a two-stage temporal test, but I don't know that it is.

[00:15:41] Speaker 01:
It is, but just, I mean, let me see if I can... Right.

[00:15:45] Speaker 01:
...say the different words for I think exactly what Judge O'Malley is saying.

[00:15:49] Speaker 01:
The regulation, in a common sense way, says even though you discover it in year one, if you have a claim, you can't sue if there is

[00:16:00] Speaker 01:
a sufficient probability that you might recover until that probability doesn't exist anymore, as shown by a certain kind of evidence.

[00:16:10] Speaker 01:
But the probability is the same.

[00:16:12] Speaker 01:
At the front, in year one, year two, year three, year four, there's no higher level of probability, just a, I'm not even sure there's a different level of proof, but it's the same probability.

[00:16:26] Speaker 03:
Well, so long as

[00:16:28] Speaker 03:
So long as these tests remains ascertained with reasonable certainty that I'm not going to get my money, then it probably will not make any difference in this case.

[00:16:36] Speaker 02:
Is Judge Toronto correct when he talks about the probability and the reasonable certainty?

[00:16:46] Speaker 02:
Certainty is, as you say, it's temporal.

[00:16:50] Speaker 02:
It relates to a later point in time.

[00:16:54] Speaker 02:
And it's a much higher standard, isn't it?

[00:16:57] Speaker 03:
Yes, certainly ascertained with reasonable certainty is a higher standard than simply reasonable prospect of recovery and I don't think there's a problem in this case because I think we're all in agreement.

[00:17:12] Speaker 03:
We are certainly in a later year and certainly it's the ascertained with reasonable certainty test that would apply to year 2004 no matter what.

[00:17:22] Speaker 04:
But ascertaining what?

[00:17:24] Speaker 04:
A reasonable probability?

[00:17:25] Speaker 04:
remote possibility, though.

[00:17:28] Speaker 04:
There still has to be a reasonable probability.

[00:17:30] Speaker 04:
And so the question is, in 2004, what do you have?

[00:17:34] Speaker 04:
Or whether or not we've had sufficient findings with respect to what we have in 2004.

[00:17:41] Speaker 03:
Yes.

[00:17:41] Speaker 03:
What we have for 2004 is, again, it's the taxpayer's burden to show that the taxpayer ascertained in that year with reasonable certainty.

[00:17:51] Speaker 03:
And what we have here is more or less

[00:17:54] Speaker 04:
Do you agree that it's more a totality of the circumstances test and that there's not one litmus-like abandonment?

[00:18:00] Speaker 03:
Yes, that is the position we took in our brief.

[00:18:01] Speaker 04:
Because that wouldn't make sense, because then you'd say, well, if I'm the taxpayer, I'm just going to abandon that thing fast.

[00:18:07] Speaker 01:
Correct, Your Honor, yes.

[00:18:08] Speaker 04:
That's the last thing I think the IRS would want.

[00:18:10] Speaker 01:
And that's probably not good for anybody except the insurance carrier.

[00:18:13] Speaker 03:
True, true.

[00:18:16] Speaker 03:
The law does try to make taxpayers look to the wrongdoers and the insurance carriers first.

[00:18:24] Speaker 03:
But, you know, certainly in our brief, as Judge Taranto pointed out, we did not, we backed away from that bright line test.

[00:18:32] Speaker 03:
Certainly, if you're going to argue abandonment, you have to show it by objective evidence as they, by a release or something like that.

[00:18:39] Speaker 01:
But the inquiry doesn't end there.

[00:18:41] Speaker 01:
But the inquiry doesn't end there.

[00:18:42] Speaker 01:
And unfortunately, at least as I read the court of federal claims opinion, the findings ended there.

[00:18:48] Speaker 01:
So there just aren't findings that

[00:18:51] Speaker 01:
I'm done talking about abandonment.

[00:18:53] Speaker 01:
There wasn't an abandonment.

[00:18:55] Speaker 01:
Now I need to figure out whether there was reasonable certainty that there wasn't going to be recovery.

[00:19:03] Speaker 01:
And here's why I find there wasn't.

[00:19:05] Speaker 03:
Yes, but we can still look at the record after I think it was a three.

[00:19:09] Speaker 01:
Except we can't make the findings.

[00:19:11] Speaker 01:
OK.

[00:19:12] Speaker 01:
But I can point out to you.

[00:19:12] Speaker 03:
It's a factual question, right?

[00:19:13] Speaker 03:
Yes, Your Honor.

[00:19:14] Speaker 03:
But I can point out to you the evidence that is, and more importantly, the evidence that is not in this record.

[00:19:22] Speaker 03:
The evidence is not.

[00:19:24] Speaker 01:
This is like the dog that didn't bark.

[00:19:27] Speaker 01:
Is that what you're about to say?

[00:19:28] Speaker 03:
Well, for example, the actions did not undertake themselves or with any other victims to go look for assets.

[00:19:37] Speaker 03:
They believed that this pump and dump scheme had been very profitable for Donald and company and that there were assets that there might be money there.

[00:19:45] Speaker 03:
They didn't look for it.

[00:19:46] Speaker 04:
There were forfeiture requests in the indictments and forfeiture agreements in the plea agreements, correct?

[00:19:52] Speaker 03:
Yes, there were.

[00:19:53] Speaker 03:
And that does not necessarily hurt them because that means that the government's going to come in and start marshaling the assets and possibly set up a reimbursement.

[00:20:03] Speaker 03:
No, no, no, no, no.

[00:20:04] Speaker 04:
The government takes the money and keeps the money.

[00:20:08] Speaker 04:
And if there's a restitution order, that's separate.

[00:20:10] Speaker 04:
Those forfeitures are fines.

[00:20:12] Speaker 04:
In fact, we've just recently issued a case discussing that very fact.

[00:20:17] Speaker 03:
The Nakio case?

[00:20:19] Speaker 03:
Yeah.

[00:20:19] Speaker 03:
Yes, where the issue there was the $44 million

[00:20:22] Speaker 03:
that the government received in that case was going to be used to help set up restitution.

[00:20:29] Speaker 04:
Entirely discretionary decision and it happens in the extremely rare cases.

[00:20:35] Speaker 03:
But in 2004, the year in which Mr. Atkins was taking this deduction, so early in the process, you could not rule that out just by looking and saying... So again, maybe there was a remote possibility that the attorney general would take a discretionary

[00:20:52] Speaker 04:
act to set up a fund that the government has no obligation to set up and almost never does?

[00:20:59] Speaker 04:
That's a reasonable probability?

[00:21:00] Speaker 03:
Again, Your Honor, there are statutes on the book.

[00:21:05] Speaker 03:
It does happen.

[00:21:06] Speaker 01:
Would that money have been available to pay for their losses on my turn stock, which were not the subject of the criminal charges?

[00:21:14] Speaker 03:
There are two answers to that question.

[00:21:15] Speaker 03:
First of all, they did have stock that was in the indictment of the elect in the classica.

[00:21:19] Speaker 01:
In terms of MyTurn, the regulation does say related losses.

[00:21:23] Speaker 01:
But I thought the MyTurn was a very large share of their losses.

[00:21:27] Speaker 03:
The MyTurn was a very large share of their losses.

[00:21:30] Speaker 03:
And the regulations that establish the reimbursement program do say that compensation restitution can be made for losses related to those in the indictment.

[00:21:40] Speaker 03:
And certainly, the MyTurn losses were related to those in the indictment.

[00:21:44] Speaker 01:
What did the government say, concede,

[00:21:49] Speaker 01:
um, whatever about Donald and company in the court of federal claims, which was not the subject of any indictment, um, or criminal information.

[00:22:01] Speaker 01:
The, well, Donald and company, um, I gather it's doors don't open anymore.

[00:22:07] Speaker 01:
What does that mean about financial?

[00:22:10] Speaker 03:
It means, it means that it is no longer actively conducting business.

[00:22:14] Speaker 03:
It does not necessarily mean that the assets it might've squirreled away

[00:22:19] Speaker 03:
like the $1.2 million laundered through Chase Manhattan Bank, into banks which were also named in the indictment, might not be there somewhere and be recoverable with the possibility.

[00:22:31] Speaker 03:
The problem is that at the end of 2004, there is just nothing in the record that shows that the Atkins had ruled out, had ascertained with a reasonable certainty that, no, we are not going to recover anything.

[00:22:47] Speaker 03:
Can I just ask a question?

[00:22:49] Speaker 01:
I've been confused about the following of this fact.

[00:22:53] Speaker 01:
Do they really need to have determined that they were going to recover nothing?

[00:22:57] Speaker 01:
What if they had said, okay, I think there's a chance worth pursuing that maybe there's $100,000, but out of my $2.5 million loss, I know, and it's perfectly clear, there is no way I'm getting 2.4 out from it.

[00:23:16] Speaker 01:
Why are they not entitled to take the 2.4 in 2004?

[00:23:19] Speaker 03:
And that's answered by the Court of Federal Claims' second opinion in Johnson.

[00:23:24] Speaker 03:
If they've ascertained with reasonable certainty that the 2.4, no, we're not going to get it, it's just a remote chance, then in that year, they can take the 2.4.

[00:23:35] Speaker 01:
They could not yet take the... Could they do that on remand in this case, if we remand it for the findings that I think are not present here?

[00:23:46] Speaker 03:
If they're able to put on evidence that at the end of 2004, they knew from that evidence that there's a portion they were absolutely not going to get, that would be the burden of proof.

[00:23:58] Speaker 03:
We've already had a three-day trial where they had the opportunity to put on that evidence about what they knew at the end of 2004.

[00:24:04] Speaker 03:
So I don't know what.

[00:24:05] Speaker 01:
Well, they put on evidence that I think we weren't going to get anything.

[00:24:10] Speaker 01:
Would it not be within the permissible fact finding on the evidence

[00:24:16] Speaker 01:
Court of Federal Claims to consider, well, I'm not persuaded nothing, but I'm really pretty persuaded that practically nothing.

[00:24:23] Speaker 03:
If the Court of Federal Claims were to look at the evidence that's in the record and it was persuaded, I might note that most of it's... There are lots of cases that say you don't have to hope for restitution 16 or 116 years down the road.

[00:24:39] Speaker 04:
I mean, having

[00:24:40] Speaker 04:
sat on the bench for years and years in the district court.

[00:24:43] Speaker 04:
I don't think I ever saw anybody get more than a penny or two in restitution.

[00:24:48] Speaker 04:
So you don't have to assume that the possibility of a restitution after all the assets are seized is a reasonable probability, do you?

[00:24:59] Speaker 03:
I think that you need to take a look at it.

[00:25:02] Speaker 03:
In 2004, it was so early in the process, we had the indictments.

[00:25:07] Speaker 03:
We knew there had been guilty pleas.

[00:25:09] Speaker 03:
Those were still under seal until 2005.

[00:25:12] Speaker 03:
So you really couldn't rule it out in 2004.

[00:25:15] Speaker 03:
And all that means really is that the deduction gets delayed.

[00:25:23] Speaker 03:
Indeed, if you look at, again, the Johnson case, the taxpayers there made sure they got protective claims in for every year because these cases can be pretty fuzzy.

[00:25:32] Speaker 03:
And you might have to do a protective refund.

[00:25:35] Speaker 01:
All that means can be extremely consequential, which is why you care so much about years.

[00:25:40] Speaker 01:
I mean, particularly if you move from actively earning income to retirement years, there may be nothing to deduct the thing against.

[00:25:50] Speaker 03:
But the key is, again, to find the right year under the test and the regulation.

[00:25:56] Speaker 03:
Be it if it's a year that happens to be favorable to the taxpayer, so be it happens to be favorable to the government, so be it.

[00:26:02] Speaker 04:
But as the Supreme Court said, they don't have to be incorrigible optimists under this test, do they?

[00:26:07] Speaker 03:
No, they don't.

[00:26:08] Speaker 03:
They do not have to be incorrigible optimists, but we would still maintain that 2004 is so early in the process with all the evidence that was not put in about asset searches and determining what's really going on.

[00:26:22] Speaker 03:
that it's just not the right year, it's just too early.

[00:26:24] Speaker 01:
If the denial as to 2004 is upheld, what are they supposed to do?

[00:26:32] Speaker 01:
It's perfectly clear there was a very large loss.

[00:26:38] Speaker 01:
They should be entitled to a deduction for it.

[00:26:40] Speaker 01:
When can they get it?

[00:26:43] Speaker 03:
Looking at all the facts in this particular record, the government's position that on this record, the proper year would be 2008.

[00:26:52] Speaker 03:
which is the year they formally withdrew their arbitration claim, not because of a bright line test, but because of the lack of other evidence of searches and all that to rule out.

[00:27:03] Speaker 03:
Can they still claim it for 2008?

[00:27:07] Speaker 03:
Problem is that they never filed a refund claim for 2008, which is odd because that's the year of withdrawal.

[00:27:14] Speaker 01:
Your view is they're just out of luck because they have missed their opportunity to file for the year that

[00:27:21] Speaker 01:
Now we have focused on after all this evidence to say 2004, a little too early in 2008, things gelled.

[00:27:32] Speaker 03:
You know, in 2008, not only did they withdraw their claim, but also in December of 2008, the IRS denied the refund claim for 2004.

[00:27:40] Speaker 03:
That's still within the tax year.

[00:27:42] Speaker 04:
So they hadn't even had... Wouldn't you have said 2008 was too late if they'd made that claim?

[00:27:47] Speaker 04:
I mean, really, by 2004,

[00:27:50] Speaker 04:
When you say those indictments were under seal, if it's objective evidence, whatever the indict, I mean, the plea agreements, if the plea agreements, in those plea agreements, they gave up all of their assets, then that is what objectively happened in 2004, regardless of what they knew.

[00:28:07] Speaker 03:
I would answer that too, Your Honor, and come back again to the possibility of restitution.

[00:28:12] Speaker 03:
Secondly, we're not trying to play a shell game here.

[00:28:15] Speaker 03:
We looked at this and the government's positions that 2008

[00:28:19] Speaker 03:
is the correct year.

[00:28:21] Speaker 03:
And they had until April 15, 2012, a year and a half into this litigation to file that refund claim.

[00:28:28] Speaker 03:
So I see my time is up.

[00:28:29] Speaker 03:
If there are no further questions, I thank the court and ask it to defer.

[00:28:32] Speaker 02:
Thank you, Mr. Sheehan.

[00:28:34] Speaker 02:
Mr. Rogers has some more bottle time of over three minutes.

[00:28:39] Speaker 00:
Just a few points.

[00:28:41] Speaker 00:
I think, obviously, if the court has any questions, I'd be happy to answer them.

[00:28:46] Speaker 00:
Well, even if

[00:28:48] Speaker 04:
Even if we find that there's insufficient findings on the record, if in fact 2005 or 2006 is a more logical point in time, you have a problem because you didn't make any protective filings as it relates to those, right?

[00:29:04] Speaker 00:
I tend to disagree a little bit with that, Your Honor, because in 2006, when the claims were made for 2004, that's when you get into that 1311 through 1313.

[00:29:16] Speaker 00:
uh... sections of the code which talk about if there's a double denial of a deduction meaning that because he filed in the wrong year and there's a finding that it's a different year that the court can go back and and fix it by saying no you're allowed this action in in two thousand three or two thousand five and and interjudgment based in calculate damages and and and interjudgment based on that

[00:29:46] Speaker 00:
I do not believe that section of the code requires an administrative client.

[00:29:51] Speaker 00:
It was put in the code for just this reason where you have an amorphous kind of fact pattern as to a year of loss and why would they put in the code if a finding results in a double denial of the deduction, then the court may make an adjustment accordingly.

[00:30:14] Speaker 00:
We mentioned it in our brief just to highlight that to the court as a possibility, especially because the trial court and the government seem to indicate that 2003 might be the year of loss in a trial and then the court's footnotes to its findings.

[00:30:38] Speaker 00:
So we believe that, but again, it was looking at that bright line test.

[00:30:43] Speaker 00:
at the trial court.

[00:30:44] Speaker 00:
So we believe, quite frankly, that the court can send it back if it finds that more evidence is needed as to the year of loss.

[00:30:55] Speaker 00:
I believe, quite frankly, that the evidence is overwhelming, even what we had, that they weren't going to get anything once these people were indicted and had to forfeit their assets.

[00:31:08] Speaker 00:
We just feel that the court should reverse and

[00:31:12] Speaker 00:
remanded for the calculation of damages.

[00:31:16] Speaker 00:
The IRS looked at this and Mr. Kaplan was ready to grant the refund, but the statute of limitations ran out and we had to file in court.

[00:31:29] Speaker 00:
And then the Justice Department and the upper treasury decided to take a different view.

[00:31:34] Speaker 00:
So we believe that the court

[00:31:37] Speaker 00:
ample evidence exists that nothing would be recovered and the refund should be granted.

[00:31:42] Speaker 00:
Thank you, your honor.

[00:31:43] Speaker 02:
Thank you.

[00:31:44] Speaker 02:
Mr. Rogers will take the case under advisement.