[00:00:08] Speaker 00:
Okay, the next target case is number 16-27-20, Stevens against the United States.

[00:00:15] Speaker 00:
Mr. Lair.

[00:00:19] Speaker 01:
May I please escort?

[00:00:21] Speaker 01:
I'm Craig Lair on behalf of the petitioners, Mr. and Mrs. Stevens, and this is a case where the service is attempting to deny the refund of taxes, income taxes.

[00:00:30] Speaker 04:
Do the Stevens allege an overpayment in 95, 96 or 97?

[00:00:33] Speaker 04:
Yes.

[00:00:33] Speaker 04:
Yes.

[00:00:35] Speaker 04:
Very specifically... For each year that they allege that,

[00:00:38] Speaker 04:
Can you show me where in Appendix 1 I can find their claim for a refund?

[00:00:45] Speaker 01:
Appendix 19, page 19, shows the letter that was initially sent on October 8, 2009, where the Stevens and the reference line references were 1995, 1996, and 1997.

[00:01:02] Speaker 01:
And in addition, Your Honor,

[00:01:06] Speaker 01:
supplemental appendix 50, I believe there's a... You don't pretend that's a timeline.

[00:01:17] Speaker 01:
Yes, Your Honor.

[00:01:18] Speaker 01:
We contend the October 8, 2009 letter that was resubmitted January 27, 2010 was a timely filed claim for refund for 1995 and 1956.

[00:01:33] Speaker 01:
taxpayers paid the 1995 and 96 taxes in January of 2010.

[00:01:38] Speaker 01:
They had preemptively sent a letter alleging an equitable recoupment or an offset available to them.

[00:01:47] Speaker 01:
And in that October 8 letter, they informed the government that there are amounts owed for tax years 1995 and tax years 1996 that they first received notice in January of 2009 and that

[00:02:02] Speaker 01:
The defense to those taxes were that the passive activity losses in carry forwards would more than offset or close to offset with the difference between $2,698.

[00:02:13] Speaker 01:
So they provided notice within this regular period of time.

[00:02:20] Speaker 01:
They followed up in January 27, 2010, as is admitted by the government.

[00:02:25] Speaker 01:
with a letter that confirms that they pay those taxes and request those taxes be refunded to them.

[00:02:33] Speaker 03:
I need a little bit of help.

[00:02:37] Speaker 03:
Sure.

[00:02:38] Speaker 03:
We're talking about the October 8, 2009 letter, right?

[00:02:41] Speaker 03:
Correct.

[00:02:41] Speaker 03:
Yes, Your Honor.

[00:02:43] Speaker 03:
And the IRS and the Court of Federal Claims concluded that this was a refund claim

[00:02:51] Speaker 03:
for 1997.

[00:02:52] Speaker 03:
Exactly.

[00:02:53] Speaker 03:
That's fine.

[00:02:54] Speaker 03:
No, no.

[00:02:54] Speaker 03:
Let's keep going here.

[00:02:56] Speaker 03:
And then you were saying that, well, there was an amended tax return for 1997 that was attached to this letter.

[00:03:05] Speaker 03:
But this letter should also be understood as some type of informal claim for 95 and 96.

[00:03:11] Speaker 01:
Yes, Your Honor.

[00:03:14] Speaker 03:
And then what loses me is that

[00:03:20] Speaker 03:
there's a reference to agreed upon adjustments created by the passive activity loss carry forwards and passive activity credit carry forwards.

[00:03:30] Speaker 03:
And to me, I read that as not as a challenge to what happened in 95, 96, but it's an agreement as to how the government treated those passive activity

[00:03:49] Speaker 03:
losses and credits in 95-96.

[00:03:52] Speaker 03:
And so therefore, this letter doesn't seem to call out a challenge to how the IRS has been analyzing 95 or 96.

[00:04:05] Speaker 03:
I guess what I'm wondering is what is the specific set of words in this letter, given what I just said, that could be fair notice to the IRS

[00:04:19] Speaker 03:
that right here, right now, you are disputing something that happened in 95 or 96?

[00:04:26] Speaker 01:
I think the key is the way in which an equitable offset occurs, which is that they provide the net tax difference between the two.

[00:04:38] Speaker 01:
I don't know that they have to under equitable recruitment or under statutory mitigations

[00:04:44] Speaker 01:
challenged the specifics of 1995 and 1996 when it creates by the same series, same transaction in an inconsistent position.

[00:04:53] Speaker 01:
The IRS's position in 1997 was the taxpayer was passive with respect to the same activities they were non-passive here.

[00:05:01] Speaker 01:
That by itself created this inconsistency, results in an offset almost identical, equal to the amount that was due.

[00:05:09] Speaker 01:
What the taxpayer was saying is, yes, we conclude

[00:05:12] Speaker 01:
this amount, that's fine, but there are sufficient funds available under this theory, under an equitable recoupment or under a statutory mitigation theory.

[00:05:21] Speaker 01:
And therefore, the net difference which they invoke in the letter is they remit the tax that's due from that.

[00:05:28] Speaker 01:
It's the same thing as paying the tax and asking for it back.

[00:05:31] Speaker 01:
And this is in October, prior to the payment.

[00:05:34] Speaker 01:
January, they make the payment, January 6, and then they follow it up with a letter that provides

[00:05:41] Speaker 01:
refund these taxes, and here's the mechanism for which the refund is due.

[00:05:47] Speaker 01:
So ultimately, I think the question, you're getting at precisely the question, which is, was the government under notice under this provision?

[00:05:55] Speaker 01:
And there's the first case that the government cites allows for a informal claim for refund.

[00:06:03] Speaker 01:
In fact, first provides the same mechanism that was used here.

[00:06:07] Speaker 01:
The taxpayer submitted a 1040X

[00:06:10] Speaker 01:
for one particular year to provide notice of the change of adjustment.

[00:06:14] Speaker 01:
And that case, in fact, the Court of Federal Plaintiffs allowed and broadened and let them go to three different years based upon the 1040X providing notice to the government of what the theory was.

[00:06:26] Speaker 03:
The 1040X, unfortunately for the Stevens group, or Mr. Stevens, is that it was for a closed year.

[00:06:35] Speaker 03:
And so therefore, it was outside the statute of limitations.

[00:06:38] Speaker 01:
Right.

[00:06:39] Speaker 01:
invokes that which is a by necessary prerequisite for statutory mitigation to be invoked.

[00:06:45] Speaker 01:
And statutory mitigation requires a closed year.

[00:06:48] Speaker 03:
It also requires an open year too, right?

[00:06:51] Speaker 01:
It agreed.

[00:06:52] Speaker 01:
And the open years that we would allege are 1995 and 1996 because the payment was made in January 2010 and the claim for refund occurs within two years of that payment.

[00:07:02] Speaker 01:
And so 95 and 96 were open years.

[00:07:07] Speaker 03:
After

[00:07:08] Speaker 03:
2010, after you paid whatever you needed to pay for 95 and 96, you could have filed a claim then for 95 and 96, right?

[00:07:22] Speaker 03:
You had two years.

[00:07:23] Speaker 03:
Correct.

[00:07:24] Speaker 01:
So why didn't you?

[00:07:26] Speaker 01:
The taxpayer believed this was a claim for 1995 and 96.

[00:07:30] Speaker 01:
I mean, they referenced in the subject line, 1995 and 1996.

[00:07:36] Speaker 01:
that Judge Wheeler first holding was, this was a claim for 1995 and 1996.

[00:07:41] Speaker 01:
And he looked at both the subject line and the nature of the claim and the calculation, which under 1314 is required.

[00:07:49] Speaker 01:
You have to assert, you have to calculate the taxes as if you owe it and as if you don't owe it, and you determine whether or not those offset.

[00:07:59] Speaker 01:
Now, one of the key issues that goes into that is whether jurisdiction

[00:08:04] Speaker 01:
whether that creates jurisdiction.

[00:08:06] Speaker 01:
And so there's been a lot of different reasonings by court, 7th Circuit, 8th Circuit, 9th.

[00:08:12] Speaker 01:
The Supreme Court's looked at this three different times.

[00:08:15] Speaker 01:
And if you look through the Dahl analysis, and it's cited by both parties in this case, Dahl says that you look through, and they go back, in fact, and look at Bull and Soane, even 1935 and 1937 cases, and they look at those cases to say,

[00:08:32] Speaker 01:
Is this being used offensively or defensively is essentially the bright line test for Judge Newman, is a taxpayer can use a equitable recoupment as a defense to taxes being asserted by the government.

[00:08:47] Speaker 01:
What they can't do is go and use it as an independent cause of action.

[00:08:51] Speaker 01:
So they couldn't use equitable recoupments to go get the 1997 taxes, but for the fact that it's interrelated to these 1995 and 1996 taxes.

[00:09:06] Speaker 00:
So just exactly when, on your theory of the case, did the date arrive from which the obligation to appeal arose?

[00:09:18] Speaker 01:
We believe when the taxpayer paid the taxes on January 6, 2010, they had two years from that to file a claim for refund.

[00:09:26] Speaker 01:
We believe this operated by the taxpayers as a claim for refund for these taxes.

[00:09:32] Speaker 01:
We believe they had two years from the date of payment of the taxes.

[00:09:39] Speaker 01:
There's some confusion in this case because the taxpayer first gets notice of these taxes in 2009, more than 13 years after the original tax returns were filed.

[00:09:52] Speaker 01:
There was no means or mechanism that the taxpayer would have had any notice that there would be a determination on an individual level as to whether or not these would be passive or unpassive determinations for this investment.

[00:10:04] Speaker 01:
So the taxpayer was limited until it received notice.

[00:10:08] Speaker 01:
They get their notice in January of 2009.

[00:10:10] Speaker 01:
They send this October 2009 letter to clarify that they believe that they are offset by the availability under the statute for equitably, for statutory mitigation or, alternatively, equitable recruitment.

[00:10:28] Speaker 01:
And it's our belief they had two years in which to do that.

[00:10:34] Speaker 00:
Okay.

[00:10:35] Speaker 00:
That's you from the government and you have everybody on time.

[00:10:45] Speaker 02:
Mr. Sheehan?

[00:10:45] Speaker 02:
Good morning.

[00:10:46] Speaker 02:
May I please report?

[00:10:47] Speaker 02:
I'm Anthony Sheehan.

[00:10:48] Speaker 02:
I represent the United States.

[00:10:49] Speaker 00:
Yes, please explain to me how there can be a claim for refund filed before the tax has been paid for which refund is sought.

[00:10:59] Speaker 02:
There cannot be, Your Honor.

[00:11:00] Speaker 02:
There were no overpayments in 95 and 96.

[00:11:04] Speaker 00:
We look at the... Exactly.

[00:11:06] Speaker 00:
And so what's wrong with the date that we've just heard?

[00:11:10] Speaker 02:
Excuse me?

[00:11:11] Speaker 02:
The date?

[00:11:12] Speaker 02:
Well...

[00:11:14] Speaker 02:
What's wrong with it is that if you look at this claim for refund on October 8, 2009, while there were still outstanding liabilities, this is a claim for refund, an untimely claim for refund for 1997.

[00:11:25] Speaker 02:
It says, we have overpaid our 1997 taxes.

[00:11:29] Speaker 00:
We want a refund for 1997.

[00:11:32] Speaker 02:
But instead of sending us a check, please just credit the money to some other year.

[00:11:38] Speaker 00:
But there's been no final determination.

[00:11:40] Speaker 00:
You can't appeal until you have some kind of resolution.

[00:11:44] Speaker 00:
If this conversation goes on for another five years unresolved, how could they have applied for a refund while they're still in conversation with the service?

[00:11:55] Speaker 02:
If you look at this court's decision in computer vision, which is cited in our brief at pages 1368 and 1369, the court announces the doctrine of general refund claim and proposes this very scenario.

[00:12:10] Speaker 02:
If some years are in audit, which could affect other years,

[00:12:13] Speaker 02:
And if the time is running out, it is perfectly permissible for the taxpayer to put in a protective claim for refund and say, just use this as a marker, hold it open, and we'll fill in the details when the audit is over when we know what they are.

[00:12:28] Speaker 02:
So legally, there is certainly the opportunity to file a protective claim for refund.

[00:12:33] Speaker 02:
Secondly, the taxpayers have made the argument that they had no idea what was going on with their own taxes, which is simply untenable under this record.

[00:12:42] Speaker 00:
Well, they don't say they have no idea.

[00:12:45] Speaker 00:
But what certainly is striking, had they, we say, a prospective claim, there's no final decision.

[00:12:52] Speaker 00:
So you're saying that you have to file some document or other long before that document can be acted on because of the negotiations with the service.

[00:13:05] Speaker 00:
But nonetheless, when it's all over, it's too late to take any appellate action.

[00:13:11] Speaker 02:
If you file a protective claim, that holds those years open.

[00:13:15] Speaker 02:
That's the marker that you lay down.

[00:13:16] Speaker 00:
If you look at... Do you know of any such rule in any other...?

[00:13:24] Speaker 00:
I don't recall being directed to any such rule in the agency procedures that you have to file a protective claim well before, years before, that claim ripens.

[00:13:41] Speaker 02:
is acknowledged that you can file a claim for refund as before.

[00:13:47] Speaker 00:
You can.

[00:13:47] Speaker 00:
The question is, must you?

[00:13:49] Speaker 02:
That's the question.

[00:13:50] Speaker 02:
You must, because if you look at this... And then it gets set aside for another six years.

[00:13:55] Speaker 02:
If you look at the Supreme Court's analysis in Brokamp, especially, the time you file a claim for refund is jurisdictional.

[00:14:03] Speaker 02:
It's mandatory.

[00:14:04] Speaker 02:
There are no equitable tolling.

[00:14:06] Speaker 02:
There's no basis.

[00:14:07] Speaker 02:
I think Brokamp, and I think maybe Dahm also said it,

[00:14:10] Speaker 02:
It's in our brief that the idea that I wasn't aware of what was going on is simply not an excuse as a matter of law.

[00:14:17] Speaker 00:
They're not saying they weren't available.

[00:14:19] Speaker 00:
They were arguing from the beginning that there's a different way, a more accurate way of doing this, a fairer way.

[00:14:30] Speaker 00:
At least you can't say that the service was innocent of their concern about this payment.

[00:14:38] Speaker 00:
I'm trying to understand the position.

[00:14:43] Speaker 00:
I don't think that we've seen for any appeal, any agency action, whatever, that until there's some kind of a final determination, nonetheless, you have to say, I'm going to appeal this five years from now.

[00:14:59] Speaker 02:
Well, that's pretty standard practice in the tax area of filing protective paper remuneration.

[00:15:04] Speaker 02:
For example, in theft loss cases,

[00:15:07] Speaker 02:
where there's always a debate over what year the taxpayer gets to claim a theft loss, it is common practice for some taxpayers to file a refund claim for every year, just to be sure that that marker is put down.

[00:15:19] Speaker 02:
Here, we're auditing 95 and 96.

[00:15:22] Speaker 02:
There is the possibility of carry forwards to 97.

[00:15:27] Speaker 02:
Indeed, if you look at the record, in 2003, the IRS proposed the disallowance of the Stephens' passive losses.

[00:15:36] Speaker 02:
In that document,

[00:15:37] Speaker 02:
There's evidence that SF, the Stevens-Mitch tax department, was supplying spreadsheets.

[00:15:44] Speaker 02:
Also, Mr. Stevens was asked about his activities for purposes of material participation during that audit.

[00:15:50] Speaker 02:
When the IRS determined corporate-level adjustments for SF for 95 and 96, SF filed an appeal.

[00:16:00] Speaker 02:
If you look at pages 147 through 149 of the Joint Appendix, you will see that Wilton Stevens is listed as a related taxpayer.

[00:16:07] Speaker 02:
The proposed disallowances of his passive activity losses are in that document at appendix page 149.

[00:16:14] Speaker 02:
It was mentioned in that document, page 147, that notices of deficiency were a distinct possibility.

[00:16:21] Speaker 02:
And the authorized representative of DSF Corporation was Ronald M. Clark.

[00:16:27] Speaker 02:
If you look at appendix pages 27 through 29, Ronald Clark was also Mr. Stevens' representative.

[00:16:33] Speaker 02:
This happened in 2005.

[00:16:36] Speaker 02:
while the statute of limitations for 97 was still wide open.

[00:16:41] Speaker 02:
The taxpayers knew about the deadline for 97 because they signed the extension, which extended the date for assessment for 97 to the end of 2007.

[00:16:50] Speaker 02:
And on the face of that form, it said that the statute of limitations for refund claim was six months after that date.

[00:17:01] Speaker 02:
Also on March 24, 2008, still within the statute of limitations,

[00:17:06] Speaker 02:
several months, there was another proposed disallowance of the passive activity losses and credits for 95 and 96.

[00:17:12] Speaker 00:
Again... You're telling us that the Notice of Appeal had to be filed before any of these further proceedings took place?

[00:17:20] Speaker 02:
The Notice of Appeal, it's really an administrative thing for refund, Your Honor, had to be filed by June 30, 2008.

[00:17:33] Speaker 02:
That was the deadline.

[00:17:35] Speaker 02:
All of these things I cited took place before that deadline.

[00:17:40] Speaker 02:
All of these things that would put the Stephens' or their agents on notice that there was a distinct possibility that the IRS was going to disallow these losses and that that carry forward they wanted might exist.

[00:17:50] Speaker 02:
Also, as the court has pointed out, they got a notice of deficiency for 95 and 96 and could have gone to the tax court where after they paid those taxes,

[00:17:58] Speaker 02:
They had two years to file a refund claim specifically for 95 and 96.

[00:18:03] Speaker 00:
But the law doesn't require them to go to the tax court?

[00:18:06] Speaker 02:
It does not require them to go to the tax court.

[00:18:08] Speaker 02:
It's the taxpayers' option to go to the tax court or to pay a super refund.

[00:18:15] Speaker 02:
They did neither.

[00:18:15] Speaker 02:
They acquiesced in a notice of deficiency.

[00:18:21] Speaker 02:
And then they filed an untimely refund claim for 2007 saying,

[00:18:26] Speaker 02:
create an overpayment for 2007 and apply it to this unpaid liability.

[00:18:32] Speaker 02:
That's not a refund claim for a prior year.

[00:18:35] Speaker 02:
That's a generate the overpayment in a closed year already.

[00:18:39] Speaker 00:
Well, you see what bothers me.

[00:18:41] Speaker 00:
There's no final decision of the service.

[00:18:44] Speaker 00:
Final decision wasn't until 2012.

[00:18:47] Speaker 00:
So you're saying that nonetheless, years before the final decision

[00:18:55] Speaker 00:
many years before, while all of this back and forth is going on, unless you filed your notice of appeal saying that when it's all over, I'm going to appeal that you're out of court.

[00:19:10] Speaker 02:
The IRS issued the notice of deficiency for 95 and 96 in 2009.

[00:19:19] Speaker 02:
Like I said, the taxpayers or their agents, at least, were aware of what was going on before that.

[00:19:25] Speaker 02:
What happened in 2012 was the denial of their refund claim for 97.

[00:19:32] Speaker 02:
And they did file this suit within two years after that.

[00:19:38] Speaker 02:
But the timely filing of a refund claim is a separate requirement from the timely filing of a refund suit.

[00:19:45] Speaker 02:
And they did not file a timely refund claim for 97, nor did they file any refund claim for the earlier two years.

[00:19:51] Speaker 00:
They couldn't file a refund claim until they had established that the 95-96 payments could be subject to 97 refund.

[00:20:05] Speaker 02:
They could have filed a refund claim for 97 saying 95 and 96 are in audit.

[00:20:12] Speaker 02:
UIRS have proposed disallowing our passive activity losses.

[00:20:16] Speaker 02:
That will generate a carry forward to 97.

[00:20:18] Speaker 02:
We want to put our marker down.

[00:20:20] Speaker 02:
Keep that year open.

[00:20:21] Speaker 02:
with a protective refund claim, as this court proposed in its computer vision opinion, page 1368.

[00:20:29] Speaker 02:
And if indeed there is this disallowance, here's our refund claim.

[00:20:35] Speaker 02:
It's sitting there ready to go, and it's timely.

[00:20:38] Speaker 02:
That is the mechanism taxpayers had to protect themselves during this ongoing audit, of which they and their agents were certainly aware.

[00:20:46] Speaker 02:
If they had done that,

[00:20:49] Speaker 02:
Then we could have looked at 97 and we could have looked at the merits of 97 and determined whether there were any, the state of Mr. Wilton's passive activity income, if any, in that year.

[00:21:00] Speaker 02:
That's an issue that was never reached.

[00:21:02] Speaker 02:
But as it stands right now, 97 was late.

[00:21:05] Speaker 02:
There was never any proper refund claim for 95, 96.

[00:21:09] Speaker 02:
All three years are closed.

[00:21:11] Speaker 02:
And when all three years are closed, doctrines like equitable recruitment and mitigation simply cannot apply.

[00:21:18] Speaker 03:
A lot of the case comes down to interpreting the content of A-19, or October 8, 2009.

[00:21:24] Speaker 03:
Yes.

[00:21:26] Speaker 03:
In your view, what needed to be said that wasn't said that would have then presented fair notice that they were also trying to file a 95-96 claim?

[00:21:40] Speaker 02:
Well, the problem is that, really, you have to have an overpayment before you can get a refund.

[00:21:46] Speaker 02:
They never said there was an overpayment that the IRS got their taxes wrong for 95 and 96.

[00:21:51] Speaker 02:
They essentially admitted here, 95 and 96 are correct.

[00:21:56] Speaker 02:
We owe additional taxes for 95 and 96.

[00:21:59] Speaker 02:
Just use this other money to pay it rather than sending us a check.

[00:22:02] Speaker 02:
Find that we overpaid 97.

[00:22:05] Speaker 02:
You have to have a refund claim, a timely proper refund claim, before you determine an overpayment.

[00:22:10] Speaker 02:
And you have to have an overpayment before there can be a refund.

[00:22:14] Speaker 02:
Here, there's no allegation that there was an overpayment for 95 or 96.

[00:22:18] Speaker 02:
And what you certainly cannot do, Your Honor, is say, well, this year is closed, but I found a mistake in it.

[00:22:26] Speaker 02:
So I'm going to file a refund claim for an open year and say, well, go back and find an overpayment in a closed year and then move the money around.

[00:22:34] Speaker 02:
Because that would throw the statute of limitations out the window.

[00:22:37] Speaker 02:
I can't go now and say, oops, I was going through my papers and found

[00:22:43] Speaker 02:
a mistake in my 2006 return, long closed, file a refund claim for 2016 based on moving money out of that now long closed year.

[00:22:54] Speaker 02:
You need to file a separate refund claim for each year by regulation 301.6402-2 in this Court's opinion, Union Pacific.

[00:23:02] Speaker 02:
And you have to allege my taxes in this year are wrong.

[00:23:07] Speaker 02:
I overpaid because of this mistake.

[00:23:10] Speaker 02:
And I want something to happen with that overpayment.

[00:23:13] Speaker 02:
The only mistake ever alleged is we didn't get our carry forwards to 1997.

[00:23:20] Speaker 02:
What about for a mitigation claim, though?

[00:23:22] Speaker 03:
You can, with a mitigation claim, work with an open year and a closed year, right?

[00:23:30] Speaker 02:
Right, but by the time they made mitigation, there was no open year anymore.

[00:23:34] Speaker 02:
All years were closed.

[00:23:36] Speaker 03:
No, but I'm talking back to the October 8, 2009 letter.

[00:23:41] Speaker 03:
How could they have framed the letter in a way that would have then committed them to walk forward with the mitigation claim?

[00:23:48] Speaker 02:
They would have had to have filed an actual refund claim for 95 and 96, alleging an error there.

[00:23:58] Speaker 02:
That would have led to further determinations and a ruling.

[00:24:01] Speaker 02:
For mitigation, you need to have a determination.

[00:24:03] Speaker 02:
There's not been a determination yet in this case.

[00:24:06] Speaker 02:
Notice that deficiency doesn't count.

[00:24:10] Speaker 02:
There's not been a final court decision.

[00:24:12] Speaker 02:
The denial of a refund claim doesn't count if a refund suit is filed, which is this suit right here.

[00:24:19] Speaker 04:
You said in your red brief around 48 or 49 that nobody could argue that there was no determination, that there was any determination.

[00:24:33] Speaker 04:
And I didn't see anything in the reply which refuted that.

[00:24:37] Speaker 02:
There has been no determination, Your Honor.

[00:24:42] Speaker 02:
There's been no closing agreement for these taxpayers.

[00:24:45] Speaker 02:
There's one for SF, but it needs to be for these taxpayers if you look at Section 7121 of the Code.

[00:24:51] Speaker 02:
So there's been no determination and mitigation is not available in this case.

[00:24:57] Speaker 02:
And if there are no further questions?

[00:24:59] Speaker 00:
No questions.

[00:25:01] Speaker 00:
Thank you.

[00:25:01] Speaker 00:
Thank you, Mr. Sheen.

[00:25:07] Speaker 01:
If I could, I'd also like to reference Supplemental Appendix 32, which was an additional filing by the taxpayer during the two-year claims period that further puts the service on notice.

[00:25:20] Speaker 01:
Specifically, the provisions of statutory negation were being invoked and provides additional detail.

[00:25:26] Speaker 04:
You don't think?

[00:25:30] Speaker 04:
contend that there was a determination.

[00:25:32] Speaker 01:
We do believe there was a determination.

[00:25:33] Speaker 01:
We believe the closing agreement itself, that under 1313A2, a closing agreement, it does not require that it's specific to this taxpayer, that the December 7, 2007 closing agreement that related to 1995 and 96 was a determination.

[00:25:50] Speaker 01:
We also think that the ultimate denial of this claim for refund was a determination.

[00:25:55] Speaker 01:
It gives the taxpayer the availability of statutory mitigation.

[00:25:59] Speaker 01:
think they have the right to offset their open year with a closed year.

[00:26:02] Speaker 01:
That's the purpose of statutory litigation is to provide relief for taxpayers that are impacted by the cutting off of an arbitrary period of time.

[00:26:13] Speaker 01:
I mean, as Judge Newman noted, what could they have done?

[00:26:16] Speaker 01:
The government's only claim is to provide a protective claim for refund.

[00:26:20] Speaker 01:
But there was no indications to the taxpayer that 95 and 96 were open or that the idea that the passive adjustment could occur.

[00:26:28] Speaker 01:
I mean, as I already stated in 97, the reason that this reverses itself is because they were passive in 1997.

[00:26:36] Speaker 01:
So the determination were non-passive, which is not the normal IRS, and it's not something somebody could concede.

[00:26:42] Speaker 01:
They want to quote casualty losses.

[00:26:44] Speaker 01:
The taxpayer knows if casualties occur.

[00:26:46] Speaker 01:
They just may not know the specific time.

[00:26:49] Speaker 01:
Taxpayer here first gets notice in 2009 of any wrong or any chance to do anything.

[00:26:54] Speaker 03:
There was an agreement between the taxpayer and the IRS to extend the time period for making an assessment for 1997 until December 31, 2007.

[00:27:06] Speaker 03:
And then on the face of that, it was clear that the statute of limitations period would expire on June 30, 2008 for the 1997 tax year.

[00:27:20] Speaker 01:
For 1997 to 2001, the taxpayer had knowledge, had the availability.

[00:27:26] Speaker 01:
What they didn't know until 2009 was that 95 and 96 were subject to audit on this theory.

[00:27:33] Speaker 01:
So the taxpayer, the only thing that was out there in the public domain or available, this was not the tax matter partner.

[00:27:39] Speaker 01:
This is one shareholder of the corporation.

[00:27:41] Speaker 01:
The only thing out there was a federal court case initiated by the government in which they challenged some of the grouping of the companies.

[00:27:48] Speaker 01:
And so this federal court case

[00:27:50] Speaker 01:
had no impact on this particular taxpayer.

[00:27:53] Speaker 01:
So they could be monitoring closely all of the developments and the sole government issue was whether or not two passive activities should be grouped together or not, zero impact on this taxpayer.

[00:28:05] Speaker 01:
They had no notice that they were impacted by 1995 and 1996 until January 2009.

[00:28:11] Speaker 01:
There's nothing they could have done.

[00:28:13] Speaker 01:
The remedy proposed by the government is nonsensical because that means every taxpayer should file

[00:28:19] Speaker 01:
protected comfort refund for every item, because you may get a notice in 12 years that a capital loss you deducted this year is gone.

[00:28:27] Speaker 01:
It's not a true remedy for this tax figure.

[00:28:30] Speaker 01:
They received it.

[00:28:31] Speaker 01:
They received it.

[00:28:34] Speaker 01:
And as noted, one of the important things in this case is the government's case concluded with that closing agreement in 2007.

[00:28:41] Speaker 01:
The statute closed in 2008, June 30, 2008.

[00:28:46] Speaker 01:
The taxpayer first gets noticed January 2009.

[00:28:48] Speaker 01:
The government sits on this case for 14 months with zero activity and sends a document that the IRS admits was in their files since 2003.

[00:28:58] Speaker 01:
So they send a document that's been in their files since 2003.

[00:29:02] Speaker 01:
In 2009, six months after the statute is run, the only person with knowledge that the statute was in play was the government.

[00:29:10] Speaker 01:
That seems grounds for equitable tolling, if nothing else.

[00:29:15] Speaker 01:
wrongdoing in this case.

[00:29:17] Speaker 01:
And one is that 14 months was zero activity.

[00:29:20] Speaker 01:
And so in our brief, we've alleged it's negligent at best, intentional at worst.

[00:29:25] Speaker 01:
And all we're asking for is that this case proceed and let us do the work and do discovery to determine, was this activity negligent or was it intentional?

[00:29:36] Speaker 01:
And if so, that impacts the taxpayer's case.

[00:29:39] Speaker 01:
It also impacts the decision of the determination.

[00:29:42] Speaker 01:
was the government on notice or it impacts issues concerning whether or not the proper claim exists because we will have to analyze certain items and whether or not the government received, whether the taxpayer had notice.

[00:29:57] Speaker 01:
They want to allege all these factual things, but all of the indications are that if any information was either available in the government's file or went to the tax matter partner, there's nothing

[00:30:08] Speaker 01:
that this taxpayer received notice or any indication that his 95 and 96 taxes were impacted until 2009 and the government has zero remedy and zero place for the taxpayer to go.