[00:00:00] Speaker 04:
because otherwise it might have been confusing.

[00:00:05] Speaker 01:
Thank you.

[00:00:22] Speaker 02:
Okay, the next case before the court, case number 161718, Russian Recovery Fund versus the United States, an appeal from the Court of Federal Claims.

[00:00:37] Speaker 02:
I have to say I have never seen so many initials, acronyms.

[00:00:45] Speaker 02:
It was, had to read the court's opinion about 15 times and your briefs about 15 times to make sure I knew what everything was standing for.

[00:00:53] Speaker 02:
All right, so now I'm not going to pronounce your last name correctly.

[00:01:01] Speaker 02:
Hallward, I get that part.

[00:01:03] Speaker 02:
Hallward Dreemeyer.

[00:01:04] Speaker 02:
Dreemeyer.

[00:01:05] Speaker 02:
That's OK.

[00:01:05] Speaker 02:
You want four minutes for rebuttal?

[00:01:07] Speaker 02:
Yes.

[00:01:10] Speaker 03:
OK.

[00:01:10] Speaker 03:
May I please the court?

[00:01:12] Speaker 03:
I'd like to touch upon, albeit briefly, all three of the issues that are before the court, the statute of limitations, merits, and penalties.

[00:01:21] Speaker 03:
With respect to the statute of limitations,

[00:01:23] Speaker 03:
The government is seeking to assess a tax on Ms.

[00:01:26] Speaker 03:
Zimmerman's 2001 tax return, although the government conceded below that there was no RRF item on Ms.

[00:01:36] Speaker 03:
Zimmerman's 2009 tax return.

[00:01:37] Speaker 04:
In Electrolux, we interpreted attributable to, under a separate provision of the IRS code, to mean due to, caused by, or generated by.

[00:01:48] Speaker 04:
Do you contest the use of that definition here?

[00:01:50] Speaker 03:
Well, what I think is important about Electrolux is it added the adjective directly, directly attributable to.

[00:01:57] Speaker 03:
And that's what we rely on, that this item on Ms.

[00:02:01] Speaker 03:
Zimmerman's tax return in 2001 is directly attributable to a fifth of 2001 partnership item.

[00:02:08] Speaker 03:
Electrolux rejected the tracing approach that the government is applying here.

[00:02:13] Speaker 03:
And when you apply tracing as here across tax years under TEFRA,

[00:02:18] Speaker 03:
you actually are acting inconsistently with the most fundamental premise of Tefra.

[00:02:23] Speaker 03:
And that was the analysis that Judge Allegra applied in the Prestep Holdings case.

[00:02:28] Speaker 00:
Do you agree that the Sente case is correctly decided, the analysis of Sente?

[00:02:33] Speaker 03:
Well, I'm not sure that the Sente case is correctly decided.

[00:02:39] Speaker 03:
But what I do think is salient about that case is that

[00:02:43] Speaker 03:
The IRS issued five F-POS.

[00:02:46] Speaker 03:
There were three partnerships over two years.

[00:02:49] Speaker 03:
There was one that there was no change that was necessary.

[00:02:52] Speaker 03:
They issued five F-POS because adjustments needed to be made at each of those points.

[00:02:57] Speaker 03:
And here, the government cannot assess, you can't even determine what the tax is for Ms.

[00:03:03] Speaker 03:
Zimmerman in 2001 without first adjusting FIFIP's return, both in 2000 and in 2001.

[00:03:11] Speaker 03:
And the government did not issue an FPAW for FIFA.

[00:03:13] Speaker 00:
But in Sente, as I understand the facts of that case, what the tax court said is you have to go back to the source partnership, in that case, drilling and excavation.

[00:03:27] Speaker 00:
And you don't look at Sente, which was the pass-through partnership.

[00:03:32] Speaker 00:
And the only difference I can see between that case and this one is, in this case,

[00:03:36] Speaker 00:
not all the losses were consumed in one year.

[00:03:39] Speaker 00:
So there was a carryover.

[00:03:40] Speaker 00:
But the carryover, it seems to me, if the Electrolux stands for anything, it is that the carryovers don't really carry the attributable to force of attributable to when looking at a limitations period.

[00:03:54] Speaker 03:
Why isn't that right?

[00:03:55] Speaker 03:
To unpack that, I think there are two parts.

[00:03:57] Speaker 03:
One, in Sente, there was no

[00:04:00] Speaker 03:
indication that the intermediate partnership had done anything to the item other than simply pass it through in the tax year.

[00:04:10] Speaker 03:
There were two tax years, but in each one, it went directly from the source to the taxpayer straight through, and there was no indication that there was actually any application of the intermediate partnership's own tax attributes.

[00:04:24] Speaker 03:
And here, there's no question but that FIFIP did apply its own at-risk

[00:04:29] Speaker 03:
and basis limitations to the RF item, thereby making it its own item.

[00:04:34] Speaker 02:
And that's what allowed it.

[00:04:36] Speaker 02:
But Chifra says you have to do the FIPPA, however you pronounce that, whatever you call it, the FPAA, the Partnership Adjustment, at the point of origin.

[00:04:46] Speaker 03:
That's right.

[00:04:47] Speaker 02:
And so they had no choice except to do it at Russian recovery level.

[00:04:52] Speaker 03:
They do have to do an FPAA at Russian recovery.

[00:04:54] Speaker 03:
But the question is whether they also have to do an FPAA

[00:04:57] Speaker 03:
at FIFIP, given that FIFIP also applied its own tax attributes, its own at-risk and basis limitations, and then, because of that, carried it over across years.

[00:05:09] Speaker 03:
And the problem with the government's theory is that it's inconsistent, as I said before, with the annual accounting principle, which is the fundamental premise of TEFRA.

[00:05:18] Speaker 03:
And one of the ways that we know that is the notice provision.

[00:05:21] Speaker 02:
So is your point of origin now becoming the secondary partnership?

[00:05:25] Speaker 03:
It's the directly attributable, the Zimmerman 2001 tax return, the item on that tax return as to which the government is trying to assess taxes, is directly attributable to the 5th of 2001 partnership item.

[00:05:42] Speaker 03:
And partnership item is defined as an item for a partnership in a partnership tax year.

[00:05:48] Speaker 03:
So even in the definition of partnership item is this notion of tax year.

[00:05:51] Speaker 03:
But in 6229,

[00:05:54] Speaker 03:
A and D, the statute of limitations provisions, the reference to taxable year three, four times in those two subsections, plus every time you reference partnership items, there's an implicit tax sheet.

[00:06:06] Speaker 04:
Let me ask you a couple of tighter questions.

[00:06:10] Speaker 04:
I find this concerning.

[00:06:12] Speaker 04:
One is, the Court of Federal Claims found that Erdson and Young failed performance duties evaluating.

[00:06:22] Speaker 04:
I've sat on and argued a lot of CPA cases.

[00:06:27] Speaker 04:
Where in the record is there evidence that Ernst & Young fulfilled its obligations as a CPA?

[00:06:32] Speaker 03:
Well, Ernst & Young asked three questions.

[00:06:34] Speaker 03:
And I think they are the salient three questions.

[00:06:36] Speaker 03:
And this is on Appendix 40.

[00:06:40] Speaker 03:
First, whether Totger had made a contribution.

[00:06:43] Speaker 03:
And the answer to that is yes.

[00:06:45] Speaker 03:
Second, whether there was an economic reason for the contribution.

[00:06:49] Speaker 03:
And the answer to that is yes.

[00:06:51] Speaker 03:
And third,

[00:06:52] Speaker 03:
was the subsequent transfer to FFIT related or premised on the contribution.

[00:06:57] Speaker 04:
And who did they ask those questions?

[00:06:58] Speaker 03:
They asked those questions to RRF.

[00:07:02] Speaker 03:
Mr. Diabazi.

[00:07:03] Speaker 03:
Mr. Diabazi.

[00:07:05] Speaker 03:
That's right.

[00:07:06] Speaker 03:
And he answered each of those questions correctly.

[00:07:09] Speaker 03:
And because of that, Ernst & Young's analysis was based on the information that they thought relevant.

[00:07:16] Speaker 03:
It was based on all the full information

[00:07:18] Speaker 02:
But they're trying to say that they relied on Ernst & Young's analysis based on those answers, but the Court of Federal Claims found that the knowledge of Russian recovery and the players in Russian recovery was overwhelming.

[00:07:33] Speaker 02:
Evidence of their knowledge that those answers were wrong was overwhelming.

[00:07:39] Speaker 04:
didn't do any investigation at all.

[00:07:41] Speaker 04:
That's not what CPAs do.

[00:07:43] Speaker 03:
Well, the CPAs identified what the relevant questions were.

[00:07:46] Speaker 03:
Those three, and indeed those three, were the relevant questions.

[00:07:49] Speaker 03:
And if I may, for each of those three items, the trial court's findings actually are in our favor.

[00:07:56] Speaker 03:
As to whether there was a reason for the contribution, the court found that RF had a legitimate business purpose to exist and a legitimate purpose to seek in-kind contributions.

[00:08:08] Speaker 03:
RRF didn't have cash to purchase Tiger's CLNs.

[00:08:12] Speaker 03:
They wanted in-kind contributions, and there was a good reason to do so.

[00:08:16] Speaker 03:
RRF and Tiger did make a contribution.

[00:08:20] Speaker 03:
The partial documents were clear.

[00:08:23] Speaker 04:
What due diligence did Tiger perform?

[00:08:27] Speaker 03:
What due diligence did Tiger perform?

[00:08:29] Speaker 03:
Well, the record is clear that there was actually a negotiation between the parties about the terms of the memorandum and the side agreement.

[00:08:37] Speaker 03:
And Tiger knew of Ms.

[00:08:39] Speaker 03:
Zimmerman, that she was a sophisticated investor.

[00:08:42] Speaker 03:
But Tiger's interest in making this contribution was to be clear that they were diversifying the nature of their holdings.

[00:08:51] Speaker 03:
Prior to this, they held CLNs.

[00:08:53] Speaker 03:
There was no market for CLNs.

[00:08:55] Speaker 02:
But Tiger employees testified that their purpose was to dump these CLNs as fast as possible via a sale.

[00:09:02] Speaker 02:
And however it was characterized, what they really intended was to sell these things.

[00:09:06] Speaker 03:
But Your Honor,

[00:09:07] Speaker 03:
They may have wanted to sell to RRF, but RRF wasn't buying.

[00:09:12] Speaker 03:
RRF didn't have the cash to buy.

[00:09:15] Speaker 03:
RRF was looking for in-kind contributions.

[00:09:17] Speaker 00:
But the trial court found that both RRF and Tiger collaborated, that was the court's word, on a scheme which had the effect of converting what on its face looked like a partnership investment into a sale, because eight days as

[00:09:36] Speaker 00:
It was understood going in, what happened, that whether it's eight days or three weeks or a month, there was going to be a conversion that would cash out Tiger's interest in the CLNs.

[00:09:49] Speaker 00:
And that was Tiger's interest, and that was what RRF knew.

[00:09:52] Speaker 03:
If I may, when the court actually comes up to the specific question, was it a prepackaged deal from beginning to end all the way to the sale to FIFIP

[00:10:04] Speaker 03:
On page 24 of the appendix, it says, may indeed, may indeed have been orchestrated from beginning to end.

[00:10:12] Speaker 03:
It stopped short of making that finding.

[00:10:14] Speaker 03:
And it stopped short of making that finding for a reason, because it can't.

[00:10:18] Speaker 03:
In its own analysis of FIFIP's involvement, it is on June 1, after Tiger has already made the investment in RF, that FIFIP comes into the picture.

[00:10:27] Speaker 03:
At that time, what the testimony is, and this is both on appendix 16 and on appendix 20 and footnote 16,

[00:10:34] Speaker 03:
that Tiger was offering to sell its RF shares.

[00:10:38] Speaker 03:
It was looking for a buyer.

[00:10:39] Speaker 03:
It intimated that it had a buyer outside of RF and its orbit and wondered whether FIFIT would be interested.

[00:10:46] Speaker 03:
It offered them at that point at a discount.

[00:10:49] Speaker 03:
FIFIT was an absolute value return, absolute return fund.

[00:10:53] Speaker 03:
And once it knew that it was being offered at a discount, it met its investment objectives and it could do so.

[00:10:59] Speaker 03:
That all happens after Tiger has contributed its assets into RRF.

[00:11:04] Speaker 00:
What's the relationship between how much overlap is there in the partnership of RRF and FIFI?

[00:11:11] Speaker 03:
They have different investors.

[00:11:12] Speaker 03:
There's a lot of overlap, right?

[00:11:15] Speaker 03:
I don't know exactly the percentage, but they have not only some different investors, they also have different investment objectives.

[00:11:21] Speaker 03:
And so those who are making decisions have to make their decisions with fiduciary duty

[00:11:26] Speaker 03:
to the particular investors and the particular objective of that fund.

[00:11:31] Speaker 03:
So for FIFIP, which is an absolute return fund, it's not until they have the discount at which Tiger is offering it that it makes it an attractive investment that matches their investment objectives.

[00:11:44] Speaker 03:
And that doesn't happen until more than a week after Tiger is in.

[00:11:48] Speaker 03:
What's the relationship between Bracebridge and FIFIP?

[00:11:56] Speaker 03:
related, Ms.

[00:11:57] Speaker 03:
Zimmerman is involved in both, and she is a principal in both.

[00:12:04] Speaker 03:
But they are separate.

[00:12:06] Speaker 03:
And they have, as I said, separate investors.

[00:12:08] Speaker 03:
She has a fiduciary obligation to them separately and to their different objectives.

[00:12:13] Speaker 03:
And so what's interesting here is that the judge walked up to and didn't

[00:12:19] Speaker 03:
find that it was prepackaged all the way to Fitfit because he couldn't.

[00:12:23] Speaker 02:
The facts are to the contrary.

[00:12:25] Speaker 02:
What he had to find is that there was no non-tax avoidance purpose in Tiger's initial investment.

[00:12:33] Speaker 03:
Well, Your Honor, the court found, and again, these are the court's own findings, that Tiger's investment was at risk in RRF for as long as it was there.

[00:12:45] Speaker 03:
And it also made the finding that RRF made a profit wholly apart from it.

[00:12:49] Speaker 03:
the tax attributes.

[00:12:51] Speaker 03:
This court has said in Salem Financial case that one test of whether it's bona fide business purpose is whether if you set aside the tax benefits, it is profitable.

[00:13:02] Speaker 03:
And here they made a profit of $7 million in 1999.

[00:13:05] Speaker 03:
They made 225% return in 1999.

[00:13:09] Speaker 03:
105% return in 2000, even before taking the context.

[00:13:12] Speaker 02:
Right, but a partnership can have some bona fide purposes and some non-bona fide purposes.

[00:13:17] Speaker 03:
Well, but again, the court found, this is the court's own findings, that it was a legitimate business purpose of RRF to seek income contributions.

[00:13:25] Speaker 00:
Yes, yes.

[00:13:25] Speaker 00:
That was the initial purpose of RRF.

[00:13:28] Speaker 00:
It's fine.

[00:13:28] Speaker 00:
RRF is a legitimate operation.

[00:13:31] Speaker 00:
As Judge Bruginck said, that's when the Tiger transaction and the CLNs came up.

[00:13:37] Speaker 00:
That's when things went south.

[00:13:39] Speaker 00:
And that's when all that's required in order to find that this is an abusive tax shelter is that there is an improper purpose behind this transaction, not that there be an improper purpose behind the partnership.

[00:13:51] Speaker 00:
And that's true.

[00:13:51] Speaker 03:
But there was a legitimate purpose to seek in-kind contributions.

[00:13:55] Speaker 03:
RF didn't have money to buy Tiger's interests.

[00:14:00] Speaker 03:
Tiger was agreeing to be bound and couldn't redeem until July.

[00:14:05] Speaker 03:
If it decided to stay longer than that, that was fine.

[00:14:08] Speaker 03:
Tiger's successors were bound to the memoranda.

[00:14:11] Speaker 03:
Their rights were the same.

[00:14:13] Speaker 03:
And interestingly, the side agreement that the government points to actually makes clear that Tiger had no right to cash out.

[00:14:22] Speaker 03:
that it was in the sole discretion of RRF, whether to give them in kind, it could be something else in kind.

[00:14:28] Speaker 00:
But if RRF knew that it had $200-plus million in potential losses sitting there if it allowed Tiger to cash out, of course it was going to allow Tiger to cash out.

[00:14:39] Speaker 00:
And what's different for this case?

[00:14:42] Speaker 03:
This case has none of the hallmarks of any of the other cases that there were sham partnerships found or economic substance.

[00:14:49] Speaker 03:
There was no purchase of tax attributes.

[00:14:52] Speaker 03:
Fitfit bought it at a discount.

[00:14:54] Speaker 03:
They didn't pay for tax attributes.

[00:14:56] Speaker 03:
They bought it at a discount.

[00:14:58] Speaker 03:
And there was no... What they sold was liquidity.

[00:15:01] Speaker 03:
That's what... What they sold was liquidity, and that is a legitimate business purpose of Tiger.

[00:15:06] Speaker 03:
Tiger was sitting with non-marketable CLNs, and what they obtained based on this contribution was liquidity.

[00:15:13] Speaker 03:
They now had shares in RF, and there were investors who would not want it.

[00:15:17] Speaker 00:
And they have NASA, which was all these losses that they could, they hoped,

[00:15:21] Speaker 03:
pass on to a US taxpayer.

[00:15:31] Speaker 03:
the own return.

[00:15:32] Speaker 03:
And they all did have returns.

[00:15:33] Speaker 00:
But the payment for them was the availability of liquidity.

[00:15:36] Speaker 03:
The court's cases say that it has to be the sole purpose to be taxed.

[00:15:40] Speaker 03:
And here it was not.

[00:15:41] Speaker 03:
There was a different profit mode.

[00:15:42] Speaker 03:
But if I could, just for a second, go back to statute of limitations, because I want to urge the court to look very carefully at Judge Allegra's decision in the press upholding case.

[00:15:51] Speaker 03:
Because the jurisdictional deposit issue is just the flip side of the statute of limitations.

[00:15:57] Speaker 03:
And Judge Allegra is explicit that he disagrees with Judge Brugink's analysis of this.

[00:16:03] Speaker 03:
And he goes on at length, explaining why it is that that analysis is utterly inconsistent with the annual accounting rule, and most importantly, with respect to notice.

[00:16:11] Speaker 03:
Because the 5th of 2001 partners don't get notice of the RF 2000 F-ball.

[00:16:18] Speaker 03:
Indeed, they don't have a right

[00:16:20] Speaker 03:
to participate in the 2000 RRF FPAW proceeding.

[00:16:24] Speaker 03:
And as this court held in the Pratty case, they absolutely have to raise any statute of limitations objection in the partnership proceeding.

[00:16:33] Speaker 03:
And yet, they can't even be a party to it.

[00:16:36] Speaker 02:
Thank you very much.

[00:16:36] Speaker 02:
We'll give you two minutes for the final.

[00:16:38] Speaker 02:
Thank you.

[00:16:48] Speaker 01:
Good morning.

[00:16:49] Speaker 01:
May I please the court?

[00:16:50] Speaker 01:
Andy Weiner for the United States.

[00:16:52] Speaker 04:
Mr. Weiner, to your opposing counsel's last point, should we disregard the annual accounting principle when constrained 62-29?

[00:17:05] Speaker 04:
And if so, why?

[00:17:06] Speaker 01:
Well, I would take issue with the disregarding part.

[00:17:10] Speaker 01:
I don't think the annual accounting principle is at issue here.

[00:17:13] Speaker 01:
What Ms.

[00:17:15] Speaker 01:
Zimmerman reported on her 2001 return was a substantial portion of the Section 988 losses that were attributable to RRF's 2000 return.

[00:17:27] Speaker 01:
And so when you eliminate those losses for RRF and you apply that through a computational adjustment to Ms.

[00:17:36] Speaker 01:
Zimmerman, that eliminates her losses that she herself claimed in 2001.

[00:17:41] Speaker 01:
So you're not looking at,

[00:17:42] Speaker 01:
tax items in different years, she's the one who claimed the losses in 2001.

[00:17:47] Speaker 01:
And by virtue of those losses being disallowed, then she loses the benefits of those losses in 2001.

[00:17:53] Speaker 01:
So the annual accounting principle, I think, is misapplied here.

[00:17:57] Speaker 02:
What about the argument that there should have been a partnership adjustment issued to FFIP?

[00:18:07] Speaker 01:
Well, Your Honor, I think that the plain language of the statute 6229 addresses this.

[00:18:13] Speaker 01:
And I think all the court really needs to do is look to the plain language.

[00:18:16] Speaker 01:
It says that an FPAP, a notice that the IRS provides to the partnership, calls any open limitations period for any tax of any person attributable to, which makes it the operative language here, the partnership item for the year at issue in the FPAP.

[00:18:36] Speaker 01:
And so here you've got the section 988 losses that were claimed on the 2000 return of RRF.

[00:18:43] Speaker 01:
And that tolls Ms.

[00:18:46] Speaker 01:
Zimmerman's limitations period for 2001, because her losses, the portion that she claimed in 2001, is clearly attributable to the losses that were originated on the RRF.

[00:18:57] Speaker 02:
But were they adjusted because of the FFIP?

[00:19:01] Speaker 01:
They flowed through FFIP, and incidentally they also flowed through a number of other partnerships.

[00:19:08] Speaker 01:
But the important part is that basically the whole way the TEFRA scheme works is you're supposed to address the losses at their source.

[00:19:18] Speaker 01:
You cut the head of the snake, not the tail, so that you can have one unified and consistent proceeding that will apply to everybody who makes use of those partnership losses.

[00:19:30] Speaker 01:
And so the fact that FFIP might have limited their use of losses in one year and carried it over to another year doesn't have any bearing on whether those losses were legitimate in the first place.

[00:19:41] Speaker 00:
What is the difference?

[00:19:42] Speaker 00:
To pick up on and follow up on Judge O'Malley's question, what is the difference between this case and Sente, which seemed to me to be

[00:19:53] Speaker 00:
a pretty clear articulation of the attributable to rule as applied in roughly this context between that case and this case, which is another way of saying what was FFIP doing that distinguishes it from Sente?

[00:20:14] Speaker 00:
Nothing.

[00:20:15] Speaker 00:
I mean, well... Well, your opposing counsel said a lot, so why could you address his argument?

[00:20:20] Speaker 00:
I understand, but the government's position is... It's not helpful to me to hear one side say nothing and the other side say a whole lot.

[00:20:27] Speaker 01:
Well, I mean, again, what FFIP was limited the losses that they claimed on their return.

[00:20:34] Speaker 01:
That's what they did.

[00:20:35] Speaker 01:
Now, that doesn't have... They're still the same losses that originated from RRF.

[00:20:41] Speaker 00:
Well, let me ask this question this way.

[00:20:44] Speaker 00:
I want to hear everything you have to say, but maybe this is a way to frame it.

[00:20:47] Speaker 00:
If FFIP had had enormous gains during the year, half a billion dollars in gains, and could have disposed of that entire loss in one year, would this case be, was there anything else that they were doing that would distinguish what they did from Sente?

[00:21:10] Speaker 01:
I think the answer is no, but let me put it in terms of Sente.

[00:21:13] Speaker 01:
OK.

[00:21:15] Speaker 01:
What Sente did was they had two source partnerships for the loss that was being challenged by the taxpayers in that case.

[00:21:22] Speaker 01:
You had an intermediate partnership, Sente, which was engaged in its own transactions that had nothing to do with the loss that was being challenged that was flowing through drilling and equipment.

[00:21:34] Speaker 01:
And so when the IRS issued the F-POD, the intermediate partnership, which it did properly because

[00:21:41] Speaker 01:
It was also contesting these other transactions that had nothing to do with drilling and equipment.

[00:21:46] Speaker 01:
What the taxpayers' incentive did was say, hey, we want to also challenge this partnership item that was adjusted.

[00:21:54] Speaker 01:
And the court said, no, you have to adjust the partnership items at the source for the reasons that that's what the TEFRA scheme requires you to do in order to have a unified proceeding.

[00:22:05] Speaker 01:
The rules regarding computational adjustments, the definition of flow through partner, they all

[00:22:11] Speaker 01:
point in the same direction, adjust it as a source.

[00:22:14] Speaker 01:
And in addition, as my opposing counsel says, you had to adjust it both at the RRF level and at the FFIP level.

[00:22:24] Speaker 01:
That makes no sense.

[00:22:26] Speaker 01:
It begs for duplicative proceedings.

[00:22:29] Speaker 01:
It begs for inconsistent results.

[00:22:31] Speaker 01:
If there's a proceeding regarding RRF that said that the losses were improper and invalid and eliminates those losses, there is nothing that can happen in a proceeding

[00:22:41] Speaker 01:
in FFIP that would revive those losses.

[00:22:44] Speaker 01:
The fact that they limited the amount of losses that they claimed doesn't actually have any bearing on their validity.

[00:22:52] Speaker 02:
Were there any other returns of any other partners that remained open as of 2001?

[00:23:01] Speaker 01:
I believe so.

[00:23:01] Speaker 01:
The way that the court structured the proceedings with respect to

[00:23:09] Speaker 01:
the statute of limitations issue was that Zimmerman represented not just herself, but all the partners whose returns were filed within three years of when the IRS then issued the EFPA.

[00:23:28] Speaker 01:
And then DiBiase represented a group of partners who filed their returns before

[00:23:35] Speaker 01:
the three-year period that finished.

[00:23:38] Speaker 02:
How many partners fell into the Ms.

[00:23:40] Speaker 02:
Zimmerman category?

[00:23:41] Speaker 01:
My understanding is most of the partners fell into Ms.

[00:23:43] Speaker 01:
Zimmerman's category.

[00:23:44] Speaker 04:
There's some pending tech cases still, right?

[00:23:48] Speaker 01:
Yes, because the way that the way that RRF, Russian Recovery, claimed the billeting losses was they did it in a structured way.

[00:23:59] Speaker 01:
So they claimed a couple of them by the sale of

[00:24:03] Speaker 01:
Remember, when they sold the losses to General Sagara, they sold 77%.

[00:24:06] Speaker 01:
So they kept 22% in change.

[00:24:10] Speaker 01:
And the losses at issue here are based on the sale of the 22%.

[00:24:17] Speaker 01:
And then what they did was when they sold those losses to General Sagara, they got back preferred stock.

[00:24:22] Speaker 01:
And so they got a substitute basis in the built-in losses from the

[00:24:29] Speaker 01:
the credit length notes, then substituted to the preferred stock, and then they had those in their pockets so they could trigger those losses whenever they wanted.

[00:24:39] Speaker 01:
So they triggered them in 2004, three years later.

[00:24:43] Speaker 01:
And so then if you add up both losses from 2000-2001, you come up with $222 million, which was the built-in loss that was transferred from Tiger to RRF.

[00:24:59] Speaker 01:
in a fictitious contribution transaction.

[00:25:02] Speaker 01:
Now, to get to the merits of that transaction, the important part is that everybody knew that Tiger was transferring their loss.

[00:25:11] Speaker 05:
How are you going to address that Ernst and Young point that you made in your brief?

[00:25:15] Speaker 05:
I found it very disturbing.

[00:25:18] Speaker 01:
Well, I think that clearly your understanding of the record is correct.

[00:25:25] Speaker 01:
Ernst and Young

[00:25:27] Speaker 05:
I went into the record looking at it.

[00:25:31] Speaker 05:
The CPA doesn't act that way.

[00:25:34] Speaker 04:
Doesn't call and say, hey, tell me what I should say, and relies on that.

[00:25:41] Speaker 01:
Which is what happened.

[00:25:43] Speaker 01:
And during my opposing counsel's argument, he did say that at one point the CPA said, was this transaction an economic substance?

[00:25:51] Speaker 01:
And then waited for an answer for six months, and then DBS finally gets around to sending a memo.

[00:25:57] Speaker 01:
in which he basically, just in a conclusory way, says, yes, there is economic substance here.

[00:26:01] Speaker 01:
That is not commensurate with reasonable cause and good faith.

[00:26:07] Speaker 02:
What about the point that your friend on the other side makes about the fact that the Court of Federal Claims didn't actually make the finding that you're relying on, which is that there was no economic substance and that this was planned all along.

[00:26:23] Speaker 02:
That he said it's possible that it was planned all the way through.

[00:26:26] Speaker 01:
Yeah.

[00:26:27] Speaker 01:
Well, Your Honor, I think that the court below is being actually very careful and deliberate, but not in a way that has any bearing on the results in this case.

[00:26:40] Speaker 01:
The transaction was planned because Tiger knew that it was selling the losses.

[00:26:47] Speaker 01:
RRF, on page 13 of the appendix, the court's opinion, and from page 38 to 40,

[00:26:55] Speaker 01:
There are specific findings with respect to RRF was interested in purchasing these assets for their tax value, acquiring these assets for their tax value.

[00:27:05] Speaker 01:
And from 38 to 40, the court goes into extensive findings with respect to the fact that RRF and Tiger collaborated on a scheme to do just that.

[00:27:16] Speaker 01:
And the fact that so clearly, in order for those losses to be transferred,

[00:27:23] Speaker 01:
What's very important here is for those possible to be transferred, what happened is Tiger had to purportedly or ostensibly contribute them to the partnership and then immediately get out, or at least get out before they were managed or otherwise profiting from.

[00:27:41] Speaker 01:
Because if they were still in the partnership when those assets were disposed of, then Tiger would have gotten losses under 703.

[00:27:48] Speaker 01:
Which they couldn't use.

[00:27:49] Speaker 01:
Which they couldn't use.

[00:27:49] Speaker 01:
That's the whole point.

[00:27:50] Speaker 01:
The whole point is for them to contribute them

[00:27:52] Speaker 01:
and then get out so that somebody else who is a US taxpayer can then step into their shoes and claim those boxes.

[00:27:59] Speaker 02:
But is it possible that Russian recovery and Tiger had no economic purpose but that FFIP did?

[00:28:07] Speaker 01:
No, Your Honor.

[00:28:08] Speaker 01:
Well, first of all, I think that the issue here is actually between the question is whether Tiger became a bona fide partner of RRF.

[00:28:16] Speaker 01:
And so FFIP, the question

[00:28:18] Speaker 01:
that the Supreme Court tells you to ask in determining whether that was a bona fide transaction or not, or whether those two parties genuinely, truly intended to join together in the conduct of a business.

[00:28:30] Speaker 01:
And so you're looking primarily to the intent of RRF on the one hand of the transaction and Tiger on the other.

[00:28:43] Speaker 01:
And the court squarely found that neither of those parties intended that they bona fide

[00:28:48] Speaker 01:
enter into a business together because the whole point was for Tiger to get out.

[00:28:53] Speaker 01:
So it was disguised sale as the court characterized it properly.

[00:28:57] Speaker 01:
Now, excuse me a second.

[00:29:00] Speaker 01:
I apologize.

[00:29:06] Speaker 01:
What the record shows is that the parties were planning this transaction since May.

[00:29:11] Speaker 01:
What the record also shows is that RRF was keenly focused on tax losses.

[00:29:16] Speaker 01:
in emails from April and May, in which the transaction happens at the end of May.

[00:29:22] Speaker 01:
What the record does not necessarily show was that they had the buyer for Tiger's partnership interest, which Tiger then sold on June 3rd, arguably a week or two after becoming a partner, had sold its partnership interest on June 3rd to FFIP.

[00:29:43] Speaker 01:
There's no indication in the record

[00:29:47] Speaker 01:
Tiger was specifically supposed to sell to FFIP, which is why the court, I think, said the whole transaction looked to probably be mapped out all in advance.

[00:29:58] Speaker 01:
But admittedly, the first indication that FFIP was going to be the buyer of Tiger's interest was in a correspondence on June 1.

[00:30:07] Speaker 01:
But what is perfectly clear is that come hell or high water, Tiger was getting out of that partnership.

[00:30:16] Speaker 01:
the whole structure of the transaction was that TIGRA sells.

[00:30:21] Speaker 01:
And so the fact that it wasn't necessarily selling to FFIP doesn't matter because the subsequent steps of the transaction were perfectly mapped out.

[00:30:29] Speaker 01:
That FRF was supposed to sell these assets to General Segar, which actually Deutsche Bank disclosed to the IRS in a registered transaction.

[00:30:44] Speaker 01:
as a registered transaction back in March and said that these assets were in the Caymans, which is where RRF was incorporated.

[00:30:52] Speaker 01:
And so everything was, most of the details had come out in the course of the evidence.

[00:30:58] Speaker 01:
Now, the one fact of FFIP purchasing it might not have been clear from the record as a pre-planned step, but that step was necessarily supposed to happen.

[00:31:12] Speaker 01:
And that's the fundamental point.

[00:31:15] Speaker 01:
And it's the key step in the whole transaction.

[00:31:17] Speaker 02:
Before you sit down, we've got a different court of claims judge that concluded the opposite as legally, with respect to the legal proposition, on how the statute of limitations is supposed to operate.

[00:31:33] Speaker 02:
And so what are we supposed to do with that?

[00:31:37] Speaker 01:
Your Honor, I respectfully disagree.

[00:31:39] Speaker 01:
If the reference is to pre-sub,

[00:31:42] Speaker 01:
That has to do with the requirement that in order to bring a case in the court of federal claims, you have to make a statutory deposit.

[00:31:54] Speaker 01:
Where if you had gone to tax court, there's no statutory deposit requirement.

[00:31:58] Speaker 01:
The court said, well, for statutory deposits, we're only going to look to one tax, the taxpayers one tax year.

[00:32:06] Speaker 01:
Because if you look to more than one tax year,

[00:32:09] Speaker 01:
then you run afoul of the annual accounting principle.

[00:32:14] Speaker 01:
But that has nothing to do with the, that is a completely different question as to the statute of limitations issue, which says that all tax of any person, not partner even, of any person attributable to the partnership items for the tax year issue in the FPAC are suspended

[00:32:36] Speaker 01:
for the duration that you can bring a proceeding based on the FPA or for one year thereafter.

[00:32:41] Speaker 01:
And so here, the attributable to language that Judge Wallach had mentioned that the court had already established an electrolux saying attributable means generated by, caused by, that is perfectly consistent with going to look into the source partnership.

[00:32:56] Speaker 01:
And I see if I run out of my time.

[00:32:58] Speaker 01:
But in addition to that, Your Honor, and I'll stop.

[00:33:01] Speaker 01:
Give me a few seconds to finish up, just because I'm running out of time.

[00:33:05] Speaker 01:
I'm sorry, I lost my train of thought.

[00:33:11] Speaker 01:
But I would just say that the court's case law is perfectly consistent with the result here with respect to the statute of limitations.

[00:33:21] Speaker 02:
OK, thank you.

[00:33:23] Speaker 02:
All right, two minutes.

[00:33:25] Speaker 03:
Thank you.

[00:33:26] Speaker 03:
With respect to the statute of limitations,

[00:33:28] Speaker 03:
There can't be a computational adjustment here, because you can't know the effect on the individual's 2001 return without further adjusting the FIFF return.

[00:33:36] Speaker 03:
FIFF had combined this loss with other income and losses it had from other sources, and then taking that whole and applied basis and at-risk limitations.

[00:33:46] Speaker 03:
We can't know what the effect is for the individual's 2001 return without adjusting that.

[00:33:52] Speaker 03:
And the government, in as much

[00:33:53] Speaker 03:
as said so on page 38 of the red brief, implying that FIFIP had done something wrong.

[00:33:58] Speaker 03:
Whether FIFIP did anything wrong, we can't know until we adjust FIFIP's return, which we can't do because the government investigated and issued a no change letter.

[00:34:07] Speaker 03:
That no change letter in 2001 is what the FIFIP 2001 partners like Ms.

[00:34:11] Speaker 03:
Zimmerman received with respect to their 2001 returns, not a notice of an FPAW that made them know that they were supposed to participate in the proceeding to raise any objections.

[00:34:21] Speaker 03:
With respect to Judge Allegra's

[00:34:23] Speaker 03:
opinion, he specifically rejected the notion that we do multi-year adjustments.

[00:34:29] Speaker 03:
He rejected that as inconsistent with the fundamental premise of annual accounting.

[00:34:34] Speaker 03:
With respect to the merits, the government and the judge below implicitly add into the requirement a durational minimum for being a partner.

[00:34:46] Speaker 03:
That is inconsistent with this court's decisions in Falconwood, as well as a decision in 70 feet.

[00:34:53] Speaker 00:
This case would come out the same way if the sale to FFIP had occurred the next day after the contribution.

[00:35:02] Speaker 03:
70 Acre is a case in which the partnership existed for a day, and that was enough.

[00:35:08] Speaker 03:
For the time that Tiger was invested, it was at risk.

[00:35:14] Speaker 00:
sound basis for concluding this really wasn't a partnership investment?

[00:35:17] Speaker 00:
It was a sale?

[00:35:18] Speaker 03:
Well, it would be hard to think.

[00:35:20] Speaker 03:
I mean, one of the things, of course, I've emphasized is that FIFIP doesn't come on the scene until June 1st, which is more than a week after.

[00:35:27] Speaker 03:
It would be hard to imagine that that would be possible in the circumstance of a day later.

[00:35:31] Speaker 03:
With respect to penalty, they hired the best.

[00:35:34] Speaker 03:
The taxpayer doesn't have to know

[00:35:36] Speaker 03:
what it is that the accountant is supposed to ask.

[00:35:39] Speaker 03:
They're supposed to be able to rely on them.

[00:35:41] Speaker 03:
And although the government referenced General Cigar several times.

[00:35:44] Speaker 04:
The accountant relied on the taxpayer.

[00:35:47] Speaker 03:
Well, and the taxpayer relied on what questions the CPA was asking.

[00:35:52] Speaker 03:
But the government refers to General Cigar with respect to penalty.

[00:35:55] Speaker 02:
But the Court of Justice passed a specific finding that the taxpayer knew that the answers to those questions were not true.

[00:36:02] Speaker 03:
And we discussed why I think that's inconsistent with the court's other subsidiary findings.

[00:36:06] Speaker 03:
Specifically with respect to penalty, the government mentioned General Segar several times.

[00:36:11] Speaker 03:
The government investigated General Segar's taking of a loss as to these specific items and had a no change letter.

[00:36:19] Speaker 03:
If the government's own investigators concluded that this was appropriate, it's hard to understand how it is that the taxpayer is supposed to know that something was wrong.

[00:36:28] Speaker 03:
Thank you very much.