[00:00:33] Speaker 00:
OK, the next argued case is number 17-14-10, Alta Wind against the United States.

[00:00:51] Speaker 00:
Mr. Weiner.

[00:00:59] Speaker 01:
Good morning, and may it please the court, Andy Weiner for the United States.

[00:01:03] Speaker 01:
Section 1603 provides a payment in lieu of a tax credit based on a taxpayer's basis and eligible property, which includes equipment and other tangible property of a qualified wind farm facility.

[00:01:16] Speaker 01:
Pointiffs in this case purchased wind farm businesses, including all of the tangible and intangible property.

[00:01:23] Speaker 03:
Could I understand what your position has been?

[00:01:27] Speaker 03:
Unfortunately, Barson's testimony expert report

[00:01:31] Speaker 03:
is not in the appendix.

[00:01:34] Speaker 03:
How did he calculate this?

[00:01:37] Speaker 03:
He obviously provided evidence which was excluded as to the cost basis for the tangibles.

[00:01:49] Speaker 03:
How did he calculate that?

[00:01:51] Speaker 01:
So he used the cost method with respect to the eligible property.

[00:01:55] Speaker 01:
And he determined the cost method based on, excuse me,

[00:01:59] Speaker 01:
based on what taxpayers claim the costs were.

[00:02:02] Speaker 01:
I mean, what plaintiffs claim the costs were, plus... But what was he using?

[00:02:06] Speaker 03:
Clear market value to determine the value of the tangible assets?

[00:02:11] Speaker 01:
The intangible or the tangible?

[00:02:12] Speaker 01:
I'm sorry, you're on.

[00:02:13] Speaker 01:
The tangible assets.

[00:02:14] Speaker 01:
Tangible.

[00:02:15] Speaker 01:
No, he used the costs that were reported by the plaintiffs.

[00:02:20] Speaker 01:
So not the replacement value.

[00:02:22] Speaker 01:
The costs that were reported by the plaintiffs in terms of what they, what it cost them to install the equipment, plus

[00:02:28] Speaker 03:
a developer profit and turned to the original cost of acquiring the property, for example, the turbine.

[00:02:38] Speaker 01:
Well, yes.

[00:02:41] Speaker 01:
He then backed out a couple of costs that they had.

[00:02:44] Speaker 01:
But yes, he started with the basis of using their cost reporting.

[00:02:48] Speaker 01:
He backed out a couple of things because their costs were actually not necessarily out of pocket costs.

[00:02:55] Speaker 01:
They included

[00:02:56] Speaker 01:
the cost of acquisition of a bunch of property from ALCO, which they acquired the wind farms from.

[00:03:02] Speaker 01:
And that included its own developer profit and turnkey component.

[00:03:06] Speaker 02:
So we had to pack that out.

[00:03:07] Speaker 02:
Just to simplify things in my mind, is it essentially collecting up all the receipts of the costs of this and that and the other that the plaintiffs had to undertake in order to put these wind farms together?

[00:03:21] Speaker 01:
That would be what KPMG presumably did in vouching for these are the costs that they incurred.

[00:03:29] Speaker 01:
And then on top of that, Mr. Parsons, Dr. Parsons added a developer profit in Turkey component based on market data.

[00:03:39] Speaker 01:
How much would a developer demand as a reasonable rate of return?

[00:03:45] Speaker 01:
to install and build this equipment before the sale.

[00:03:49] Speaker 02:
Before we go a little deeper, and we're going to have to go deep, can you explain to me just how all your different theories interact?

[00:03:59] Speaker 02:
You have the residual method.

[00:04:00] Speaker 02:
You have this peculiar circumstances.

[00:04:02] Speaker 02:
And then you have the cost method, which was, I assume, what Parsons was going to be testifying to.

[00:04:09] Speaker 02:
How do all those interact?

[00:04:10] Speaker 02:
Are they, in your view, alternative theories for

[00:04:16] Speaker 02:
cutting down what the basis is, or at least what the basis was found to be?

[00:04:21] Speaker 01:
Yeah, I appreciate the question.

[00:04:22] Speaker 01:
There are two basic theories that we have in order that we think compel reversal in this case.

[00:04:28] Speaker 01:
One is that the taxpayers did not follow the residual method and determine fair market value of the individual assets they acquired.

[00:04:36] Speaker 01:
They backed into that number by saying, we're going to start with the purchase price.

[00:04:40] Speaker 02:
We understand that, but I want to know how your theories interact with each other.

[00:04:45] Speaker 02:
Are they alternative theories?

[00:04:47] Speaker 02:
Are they stacked on each other?

[00:04:48] Speaker 02:
If Parsons gets to testify, then does that mean that the trial judge is put to the test to try to figure out whether it's the sale price or the Parsons cost method that is the right way to determine the basis?

[00:05:06] Speaker 01:
Yeah, the way this trial should have happened is you should have, the court should have found the 1060 applies, so the residual method.

[00:05:12] Speaker 01:
So that means you've got to classify all your, you've got to characterize all your assets by class, asset class.

[00:05:18] Speaker 01:
So you would determine, you would, a lot of the tangible assets here would be under class five.

[00:05:24] Speaker 01:
You would have to value those assets on a asset by asset, on an individual basis.

[00:05:30] Speaker 01:
And then there would be a, there would be competing.

[00:05:32] Speaker 03:
Using fair market value?

[00:05:33] Speaker 01:
You would have to determine what the fair market value of those assets were.

[00:05:36] Speaker 01:
And there would be competing expert testimony with respect to that.

[00:05:40] Speaker 03:
Is that your basic position that whichever method you use, what you ask is what's the fair market value of the assets?

[00:05:45] Speaker 01:
Yes, the fair market value of the assets is what is required.

[00:05:49] Speaker 01:
The, the 1060 says that you determine which class the asset falls in, and then the amount that you allocate to that particular asset is going to be capped by its fair market value.

[00:05:59] Speaker 01:
And so you would have a fight over what's the fair market value.

[00:06:03] Speaker 01:
So we would say that it would be a cost plus a developer and turnkey value component.

[00:06:11] Speaker 01:
And they say, no, it's just whatever the purchase price is.

[00:06:16] Speaker 02:
But I guess what I'm trying to figure out is that cost method, the costs of the tangible assets plus profit plus turnkey value.

[00:06:27] Speaker 02:
Is that independent in an independent separate lane from your residual method theory?

[00:06:33] Speaker 01:
No.

[00:06:34] Speaker 01:
No.

[00:06:35] Speaker 01:
Because in order to apply the residual method, as I said, you have to figure out what the residual method, maybe it would be helpful to explain sort of where the residual method comes from to, I think, provide some useful weighting to see how it applies in this case.

[00:06:51] Speaker 01:
The residual method came from this idea that

[00:06:55] Speaker 01:
because of intangible property and unidentifiable assets such as goodwill and going concern value are so hard to value.

[00:07:05] Speaker 01:
What would happen is taxpayers would shoehorn as much value in the asset that they saw most beneficial and ignore the asset that they saw as least beneficial.

[00:07:14] Speaker 01:
You can't, at one point in time, you couldn't amortize goodwill and going concern value.

[00:07:20] Speaker 01:
So what would happen?

[00:07:21] Speaker 01:
taxpayers would shoehorn all the value into the tangible assets and basically say that we weren't purchasing the business for anything.

[00:07:28] Speaker 01:
We were just buying a bunch of assets.

[00:07:30] Speaker 01:
And so Congress said, listen, let's short-circuit a lot of these disputes.

[00:07:35] Speaker 01:
Let's keep the government from getting whipsawed because purchasers and sellers would both allocate assets differently because they had competing interests in that regard.

[00:07:44] Speaker 01:
And so what would happen was under the residual method that Congress mandated, it said, listen,

[00:07:50] Speaker 01:
We want you to start with the easiest assets.

[00:07:52] Speaker 01:
Class one is cash.

[00:07:54] Speaker 01:
Take cash off the board.

[00:07:56] Speaker 01:
And so you start with your purchase price, you deduct out the cash, and then you're left with, you know, this is called the waterfall method for a reason, you have a certain bucket that captures the cash, and so you move on to class two, and then class three.

[00:08:11] Speaker 01:
And each time, the amount of the purchase price gets smaller and smaller until you're left with potentially a residual at the end.

[00:08:18] Speaker 02:
Does the cash grant that comes from Treasury count as Class 1 cash?

[00:08:23] Speaker 02:
No.

[00:08:24] Speaker 01:
No.

[00:08:25] Speaker 01:
No, because that's something that actually was not part of the transaction.

[00:08:29] Speaker 02:
That 1603... It depends on how you define the transaction though.

[00:08:34] Speaker 03:
Well, the 1603, the purchase price, did not include... Under your theory of the fair market value of the tangible assets, whatever value was attributable to the grant would not be included as part of the value of the asset, right?

[00:08:49] Speaker 03:
Correct.

[00:08:50] Speaker 03:
So, 1060, this waterfall regulation puts the tangible assets in class five, I think, right?

[00:09:02] Speaker ?:
Mm-hmm.

[00:09:03] Speaker 03:
Well, it doesn't tell you, does it, to use fair market value?

[00:09:09] Speaker 01:
It does tell you to determine based on fair market.

[00:09:12] Speaker 01:
So the regulations talk about the regulations under 1060, 1060-1, I believe, talk about allocation method and refers back to the regulations under 338.

[00:09:24] Speaker 01:
And 338, 6 and 7, dash 6 and dash 7, talk about how the

[00:09:31] Speaker 01:
allocation to the individual assets is capped at the fair market value.

[00:09:35] Speaker 01:
And so that's how the residual method works within each class.

[00:09:40] Speaker 00:
So to be sure that I understand, the government's position is that the basis is limited to what it costs for the machinery, and it has to be reduced by whatever component of the actual purchase price was due to goodwill.

[00:09:59] Speaker 01:
Yes, except the way the residual method kind of.

[00:10:02] Speaker 00:
Or however you figure it out, because where I'm going with this is therefore when you also, the other side of what they're taxed on is what they receive when they sell the asset.

[00:10:17] Speaker 00:
So I didn't see where the government was saying that that, too, that the selling price should be reduced on the same formula.

[00:10:27] Speaker 00:
that the other one used the actual selling price, that which was received, but to reduce the basis on a different formula than the measure of the actual selling price.

[00:10:38] Speaker 00:
Is that right?

[00:10:40] Speaker 01:
Both parties have to use the same allocation.

[00:10:43] Speaker 01:
So I believe the answer.

[00:10:44] Speaker 00:
So their selling price would also be reduced by whatever value the Goodwill had?

[00:10:48] Speaker 01:
No, because Goodwill as a component is one of the assets that's transferred.

[00:10:54] Speaker 03:
The question... Goodwill is part of basis, but the statute only allows them to recover the cost of the tangible assets and not the goodwill, right?

[00:11:02] Speaker 01:
Right, Your Honor.

[00:11:02] Speaker 01:
That's the key point here, is that with respect to the residual method, what's important to keep in mind is that they didn't just buy eligible assets.

[00:11:14] Speaker 01:
They bought wind farm businesses that included a whole bunch of intangible property, and it's because they valued the

[00:11:22] Speaker 01:
purchase price on the basis of not the assets that they were acquiring.

[00:11:25] Speaker 01:
They valued it based on the income streams that they were going to get, because this was an unbelievably predictable business.

[00:11:32] Speaker 01:
And so they said, listen, we know we've got all this wind data.

[00:11:36] Speaker 01:
We know basically it's a regulated industry.

[00:11:38] Speaker 01:
We've got a customer lined up for the next 24 years.

[00:11:43] Speaker 01:
They're not going to go bankrupt.

[00:11:44] Speaker 01:
They're one of the biggest utilities in the country.

[00:11:47] Speaker 01:
And we know what sort of revenue streams we're going to get.

[00:11:53] Speaker 01:
And so what plaintiffs were acquiring was not just the assets.

[00:11:59] Speaker 01:
They were acquiring an income stream.

[00:12:00] Speaker 01:
They were acquiring a business.

[00:12:02] Speaker 01:
And so when you look at it from that perspective, you have to segregate, well, what's the fair market value of the individual assets?

[00:12:09] Speaker 01:
And what did they acquire that was not class five assets, which would be class six or class seven?

[00:12:16] Speaker 01:
Intangibles and then unidentifiable intangibles, which would be goodwill and going concern.

[00:12:21] Speaker 03:
If I understand the peculiar circumstances doctrine correctly, when that applies, the cases say that you use fair market value of the asset, the tangible asset in this case, right?

[00:12:39] Speaker 01:
In terms of the peculiar circumstances, yes.

[00:12:42] Speaker 01:
That's an alternative to our first argument.

[00:12:45] Speaker 03:
Yes.

[00:12:45] Speaker 03:
But that's what the peculiar circumstances... Basically when... Says you use the fair market value

[00:12:50] Speaker 03:
in this case, for the tangible assets.

[00:12:54] Speaker 01:
Well, peculiar circumstances, just to make sure that... No, no, the result.

[00:12:57] Speaker 01:
Yes, the result should be the fair market value.

[00:13:00] Speaker 03:
It should be reduced down to... And in order to bring into play the peculiar circumstances doctrine, if I understand it, you have to have two things.

[00:13:09] Speaker 03:
One, that the price paid is, I don't know, substantially in excess of fair market value or something like that, and that the parties

[00:13:19] Speaker 03:
have an incentive to misallocate, right?

[00:13:26] Speaker 01:
Respectfully, no, Your Honor.

[00:13:27] Speaker 01:
I would say that the Peculiar Circumstances Test, in which Lemon is the shining example of what that test is all about, talks about influencing the purchaser to pay in excess of the fair market value.

[00:13:42] Speaker 01:
That is what the test is.

[00:13:43] Speaker 01:
So it doesn't have to be highly inflated, which is what the Court of Federal Claims applied here.

[00:13:48] Speaker 01:
It doesn't have to be the fact that there was undue manipulation.

[00:13:53] Speaker 01:
It has to be that the purchaser was influenced to pay in excess of fair market value, which is why peculiar circumstances exist.

[00:14:01] Speaker 01:
As a general rule, cost equals basis under the internal revenue code.

[00:14:07] Speaker 01:
That's section 1012.

[00:14:08] Speaker 01:
The peculiar circumstances exception is when cost isn't the fair market value, because that's the assumption that underlies

[00:14:19] Speaker 01:
cost equals basis is that the cost is the fair market value.

[00:14:22] Speaker 01:
We usually let the market dictate what the basis is because that's what people pay.

[00:14:27] Speaker 02:
Let me just tell you what's on my mind.

[00:14:30] Speaker 02:
The matter that sticks out for me the most, at least at the moment, is the government subsidy and how that arguably got baked in to the sale price.

[00:14:43] Speaker 02:
And so as I understand your peculiar circumstances argument,

[00:14:49] Speaker 02:
with respect to that subsidy, you're not arguing that the subsidy itself is the peculiar circumstance.

[00:14:59] Speaker 02:
It's the indemnity?

[00:15:01] Speaker 02:
Correct.

[00:15:01] Speaker 02:
Okay.

[00:15:02] Speaker 02:
So then exactly, can you, I can't quite see and understand what is it about the indemnity that causes a peculiar circumstance if it is the case that

[00:15:19] Speaker 02:
The subsidy itself is not a peculiar circumstance, and it turns out that the law permits the sale price to be the basis, then the indemnity doesn't matter.

[00:15:33] Speaker 02:
The person is entitled to that high sale price.

[00:15:37] Speaker 02:
And then if it turns out that no, it's not going to be the sale price is the basis, but in fact, it's going to be this cost method.

[00:15:45] Speaker 02:
Then again, the indemnity is going to be irrelevant.

[00:15:50] Speaker 02:
So maybe I'm not quite understanding what your indemnity argument is with respect to saying it's a peculiar circumstance.

[00:16:00] Speaker 02:
But to me, it seems like the potential more core peculiar circumstance is the very large government subsidy that arguably itself is getting baked into the sale price.

[00:16:15] Speaker 01:
I see that my time is up.

[00:16:18] Speaker 00:
Now please answer the question.

[00:16:22] Speaker 01:
The indemnity is the peculiar circumstance, we're asserting the indemnity is the peculiar circumstance here because the indemnity is operating as a classic bootstrap in this instance.

[00:16:34] Speaker 01:
The peculiar circumstances has to do, all the peculiar circumstances that we've identified here have to do with sort of a circular cash flow where the plaintiffs have asserted that they paid

[00:16:45] Speaker 01:
X for these wind farm businesses.

[00:16:50] Speaker 01:
But then the recipient, Teragen, is either promised or has promised to make related payments back to the plaintiffs.

[00:17:00] Speaker 01:
So the way that it works with the indemnity is the idea is that we're... Can I simplify this?

[00:17:07] Speaker 02:
Sure.

[00:17:08] Speaker 02:
Let's say Toyota sells a car for $25,000.

[00:17:10] Speaker 02:
Right.

[00:17:11] Speaker 02:
And then the government announces and passes a law

[00:17:15] Speaker 02:
Anybody that owns a Toyota is, we're gonna give you $10,000.

[00:17:20] Speaker 02:
Congratulations Toyota owners.

[00:17:22] Speaker 02:
And then all of a sudden, the Toyota dealerships bump their price up to $30,000.

[00:17:26] Speaker 02:
And then the Toyota dealership say, anybody that buys a Toyota from us, we promise you're gonna get $10,000.

[00:17:37] Speaker 02:
It's really the government law that got passed

[00:17:42] Speaker 02:
for ordaining that everybody's going to get 10 grand.

[00:17:46] Speaker 02:
It's not necessarily the indemnity, I don't think, that inflated the sale price of the Toyota from 25 to 30.

[00:17:56] Speaker 02:
Am I right or am I wrong about that?

[00:17:58] Speaker 02:
What is it about the indemnity that now somehow distorted the sale price?

[00:18:04] Speaker 02:
I mean, it seems like it's more the

[00:18:06] Speaker 02:
the law's passage that gave the Toyota dealerships the opportunity to raise their prices?

[00:18:13] Speaker 01:
I don't disagree with respect to your hypothetical, but there's one key fact that's different from the hypothetical you laid out in the facts of this case, is that in this case, the section 1603 payment was based on the purchase price.

[00:18:27] Speaker 01:
You calculate it based on the allocation of the purchase price to the particular

[00:18:34] Speaker 01:
the particular assets.

[00:18:36] Speaker 02:
OK, so change my hypothetical.

[00:18:38] Speaker 02:
You get 30% of 25K or 30% of the sale price.

[00:18:45] Speaker 01:
Yes.

[00:18:45] Speaker 01:
And if what Toyota was selling was not just an individual asset, it's not just they didn't just buy a turbine.

[00:18:56] Speaker 01:
They bought multiple assets that constituted a wind farm business that you have to make allocations as between eligible and ineligible property.

[00:19:04] Speaker 01:
But the bottom line is that by virtue of basically what Terrigen was saying is you agree to this purchase price because it will increase your 1603 payment.

[00:19:15] Speaker 01:
And if the government doesn't end up being on the hook for making that full payment, we'll come in and we'll pay you the difference.

[00:19:23] Speaker 01:
And so this idea of you pay us $100 million and you put in for a $30 million 1603 payment.

[00:19:30] Speaker 01:
But if you don't get a $30 million 1603 payment, if you only get a $15 million 1603 payment, the indemnity kicks in, and Terigen says, we'll pay you the difference.

[00:19:40] Speaker 01:
We'll pay you the $15 million.

[00:19:42] Speaker 03:
Could I back up for just a second?

[00:19:45] Speaker 03:
The contract here between Terigen and the ALTA entities had a single sales price, right, for everything that was being transferred.

[00:19:57] Speaker 03:
Am I correct about that?

[00:19:59] Speaker 03:
I believe so, yes, Your Honor.

[00:20:00] Speaker 03:
And then what happened afterwards?

[00:20:04] Speaker 03:
KPMG came along, I don't know how long afterwards, and the parties, Terrigin and Alta, the Alta entities retained KPMG to allocate the purchase price.

[00:20:17] Speaker 03:
Is that what happened?

[00:20:18] Speaker 01:
In order to make an application for these 1603 payments, you have to have the basis of the eligible property attested to.

[00:20:26] Speaker 01:
And so I believe that that's how KPMG became involved in the application process.

[00:20:34] Speaker 01:
I don't know whether it was commensurate with or after the fact, but the bottom line is that was the case.

[00:20:41] Speaker 03:
Now, what did KPMG purport to be doing, to be making a determination of the fair market value of the tangible asset?

[00:20:47] Speaker 01:
They did two things.

[00:20:49] Speaker 01:
They offered two sort of spreadsheets, if you will.

[00:20:54] Speaker 01:
One is that they determined they vouched for what the costs were.

[00:20:58] Speaker 01:
And then the other one is they vouched for the pro rata allocation.

[00:21:04] Speaker 01:
They distinguished between eligible property on one side and ineligible property on the other.

[00:21:10] Speaker 01:
And so then they determined what that would be and said that it was a reasonable way to allocate

[00:21:15] Speaker 01:
basis as between, or allocate the purchase price as between eligible and ineligible property, which is contrary to... So they didn't do it in terms of fair market value?

[00:21:25] Speaker 01:
They didn't do, they didn't apply the residual method.

[00:21:28] Speaker 01:
They claim it's fair market value.

[00:21:29] Speaker 03:
Well, whether it's the residual method or peculiar circumstances, the fair market value test is the test.

[00:21:34] Speaker 03:
They didn't purport to be determining the fair market value of the acquired tangible assets.

[00:21:41] Speaker 01:
I believe that they...

[00:21:43] Speaker 01:
I believe that they would say that they did purport to based on this allocation method that they used, yes.

[00:21:50] Speaker 03:
And the allocation method was what?

[00:21:52] Speaker 01:
Was they took the purchase price, they figured out the relative percentage of eligible development and construction costs over the total development and construction costs for each of these businesses, and then they multiplied that percentage

[00:22:12] Speaker 01:
based on the purchase price and said that's allocable to the eligible assets, and everything else is ineligible assets, which doesn't allow for... But did they pay any attention to the fair market value of turbines and all the assets that were included here?

[00:22:30] Speaker 01:
Like the fungible, how much would it cost to buy a turbine from the company?

[00:22:34] Speaker 01:
No.

[00:22:35] Speaker 03:
So then how was it that they were doing fair market value if they didn't look to the market value of the acquired assets?

[00:22:41] Speaker 01:
Well, I would imagine what they're going to say is they started by looking at, in order to determine the percentage.

[00:22:52] Speaker 03:
No, no, I'm asking your view of it.

[00:22:54] Speaker 01:
Why is this?

[00:22:56] Speaker 01:
They know.

[00:22:56] Speaker 01:
I agree with you.

[00:22:58] Speaker 01:
They did not determine.

[00:22:59] Speaker 01:
They completely departed from the actual cost of the assets.

[00:23:04] Speaker 03:
Or the fair market value of the assets.

[00:23:05] Speaker 01:
Yes.

[00:23:06] Speaker 01:
I mean, they said everything.

[00:23:07] Speaker 01:
They said basically,

[00:23:08] Speaker 01:
in each case they said that the eligible assets are the cost plus whatever the outbubble portion of what's left over.

[00:23:22] Speaker 03:
Everything except they backed out land and a few other things which were specifically

[00:23:27] Speaker 03:
Yes.

[00:23:28] Speaker 01:
And then they just spread the excess purchase price amongst all the assets.

[00:23:32] Speaker 01:
That's exactly what they did.

[00:23:33] Speaker 02:
Before you go, let me just ask another question.

[00:23:36] Speaker 02:
For your residual method, for Parsons cost method, is there any analysis involved in potentially backing out the subsidy?

[00:23:49] Speaker 02:
Or is that just something that you don't really think about or even worry about because really all you're trying to do is just calculate the

[00:23:57] Speaker 02:
cost or fair market value of the individual turbines, et cetera.

[00:24:03] Speaker 01:
That I think is the answer.

[00:24:04] Speaker 01:
Is that because, ultimately, the question here is their basis in the eligible property, what Parsons, what the government is concerned with, is looking at that component of it.

[00:24:18] Speaker 01:
So you don't... OK.

[00:24:19] Speaker 02:
And you didn't argue below that the government subsidy itself is a peculiar circumstance.

[00:24:26] Speaker 02:
Is that fair?

[00:24:27] Speaker 01:
Yeah, that is correct.

[00:24:29] Speaker 01:
We didn't argue.

[00:24:30] Speaker 00:
What we argued was the indemnifications which guaranteed them a particular subsidy payment is what is... On that theory, there'd be no capital gain at all, because all that they were selling were the used turbines, which couldn't be worth as much as they were when they were originally purchased.

[00:24:55] Speaker 01:
No, Your Honor, because they're going to say that they paid a tremendous amount of tax on this.

[00:25:01] Speaker 01:
Because remember, that if you add up all the costs, it comes up to only 60% of what they got for these wind farms.

[00:25:13] Speaker 01:
So this was a huge, great deal for Terrigen.

[00:25:17] Speaker 00:
They ended up.

[00:25:18] Speaker 00:
You're saying that's not enough.

[00:25:20] Speaker 01:
Yeah, but the thing is that they didn't

[00:25:24] Speaker 01:
allocate appropriately.

[00:25:26] Speaker 01:
They didn't determine what the proper basis of the eligible assets compared to the entire wind farms were.

[00:25:34] Speaker 01:
They shoehorned all the value into the tangible eligible assets and basically said there's nothing left for all these intangible and what these plaintiffs were actually purchasing, which was these revenue streams.

[00:25:50] Speaker 00:
You're saying they paid no tax?

[00:25:54] Speaker 01:
No, Turgeon attests that they paid a lot of tax.

[00:25:57] Speaker 01:
But the thing is is that they paid tax on.

[00:26:01] Speaker 03:
This isn't a question of the tax to them.

[00:26:05] Speaker 03:
Yeah.

[00:26:06] Speaker 03:
It's a question of how to calculate the grant, which they get only for the tangible assets.

[00:26:11] Speaker 03:
Correct.

[00:26:12] Speaker 00:
Well, of course, then it has to be a question.

[00:26:14] Speaker 00:
Well, that's a quibble.

[00:26:17] Speaker 00:
I think we have the position.

[00:26:19] Speaker 01:
OK.

[00:26:19] Speaker 01:
Thank you, Your Honors.

[00:26:20] Speaker 01:
I'll reserve my time for questions.

[00:26:24] Speaker 00:
Mr. Rosenbaum?

[00:26:27] Speaker 04:
Your Honor, let me start with the question that you all asked a number of questions about, which is, how do you treat the cash grant?

[00:26:33] Speaker 04:
You didn't see a significant briefing of that because the government did not argue to this court that the error was including the value of the cash grant as... Perhaps not, but the cash grant would be backed out under the fair market value methodology.

[00:26:47] Speaker 04:
Well, but they have... Let me just say, the law is crystal clear that the cash... No, no, no, but is not...

[00:26:54] Speaker 04:
No, absolutely not correct, Your Honor.

[00:26:57] Speaker 03:
That under their computation it's backed out?

[00:26:59] Speaker 04:
Absolutely not, Your Honor, because the law is perfectly clear that the value, the tax, be it a tax credit or whatever, it is considered part of the value.

[00:27:10] Speaker 03:
No, that's your argument about how it should be considered.

[00:27:12] Speaker 03:
What I'm asking is whether Parsons' calculation using the cost method was just the cost of the assets, that it wouldn't include the value of the government grant.

[00:27:24] Speaker 04:
I would not characterize that as the approach that he took, Your Honor.

[00:27:28] Speaker 04:
Why not?

[00:27:29] Speaker 04:
Well, because what he did is he looked at the cost of Terrigen to construct the facility plus what he thought was a reasonable developer fee on top of that.

[00:27:38] Speaker 04:
That's how he did it.

[00:27:40] Speaker 02:
Can we just assume from the moment that Terrigen had qualified for the 1603 cash grant and thus never sold the farms?

[00:27:53] Speaker 02:
What would the basis of the farms have been in that instance?

[00:27:56] Speaker 02:
Sure.

[00:27:56] Speaker 02:
What would one go about calculating the basis for Terrigen?

[00:28:01] Speaker 04:
Right.

[00:28:01] Speaker 04:
The basis is the cost to the taxpayer under any circumstance.

[00:28:06] Speaker 04:
If Terrigen were the taxpayer, then it would have been their cost to construct the facility.

[00:28:11] Speaker 04:
Just like if someone were to build a house.

[00:28:14] Speaker 02:
So it would be the cost method.

[00:28:16] Speaker 04:
Well, no.

[00:28:16] Speaker 04:
That would be considered, well, that would, their cost, it's what they paid.

[00:28:22] Speaker 04:
Remember, plaintiffs here are buying property.

[00:28:26] Speaker 04:
The cost to them is what they paid when they bought the facility.

[00:28:29] Speaker 02:
I'm trying to think through my hypothetical.

[00:28:31] Speaker 02:
Terrigen bought these farms for something like $400 million and then put some money into it.

[00:28:39] Speaker 02:
And then the law gets passed in 2009.

[00:28:44] Speaker 02:
Everybody gets 30% of their basis.

[00:28:46] Speaker 02:
Congratulations.

[00:28:48] Speaker 02:
Now, how does Terigen, assuming it qualified, calculate its basis?

[00:28:52] Speaker 04:
Terigen's basis would be whatever their out-of-pocket costs were.

[00:28:57] Speaker 04:
And they, of course, would pay no income tax at that point of any kind.

[00:29:04] Speaker 03:
I think the point is that if Terigen had applied for the grant itself, because it hadn't had this, what you characterize as a problem because of ownership by nonprofits,

[00:29:17] Speaker 03:
the grant to TerraGen would have been materially lower than the grant to the ALTA entities, correct?

[00:29:27] Speaker 04:
Yes, Your Honor, but that's the same in any transaction.

[00:29:31] Speaker 03:
How could it be that Congress would intend that the grant should be inflated because there was a sale of the property?

[00:29:41] Speaker 04:
Because that's how every transaction works, Your Honor.

[00:29:44] Speaker 04:
If I build a building myself,

[00:29:46] Speaker 04:
I claimed appreciation based upon my out-of-pocket expenses.

[00:29:49] Speaker 03:
No, we're talking about a particular, particularly incentives that are being created by this statute.

[00:29:56] Speaker 03:
Why would it be that Congress would want to inflate the value of the grant just because people entered into a purchase and sale transaction?

[00:30:05] Speaker 04:
Because it's not being inflated, Your Honor.

[00:30:08] Speaker 04:
It's not?

[00:30:09] Speaker 04:
No, absolutely.

[00:30:10] Speaker 04:
You said it was hugely increased.

[00:30:13] Speaker 04:
It is.

[00:30:13] Speaker 04:
That's because, Your Honor, if I could

[00:30:15] Speaker 04:
If I build a building myself, and it costs me $80 million to build it, I depreciate based upon the $80 million.

[00:30:25] Speaker 04:
If I qualify for an investment tax credit, I do it based upon the $80 million.

[00:30:30] Speaker 04:
Rather than holding ownership, I sell it to someone else for $100 million.

[00:30:38] Speaker 04:
That person claims depreciation on $100 million.

[00:30:41] Speaker 04:
They claim the investment tax credit on $100 million.

[00:30:43] Speaker 03:
Congress had no intention.

[00:30:45] Speaker 03:
I think you're not addressing my question.

[00:30:47] Speaker 03:
Here's a special program designed to create grants in lieu of tax credits to encourage people to build these wind farms, to buy the turbines, to do the assets, to acquire the assets necessary to do that.

[00:31:01] Speaker 03:
How could it be that Congress would want the

[00:31:05] Speaker 03:
basis of those assets for purposes of the calculation of the grant to be increased just because people engaged in a sale transaction so that if if Tarigen itself had applied for the grant the number would be a hundred million dollars, but if they sell it to somebody else suddenly the grant is three hundred million dollars what why Why does that fit into the purposes of this program?

[00:31:32] Speaker 04:
The purpose of the program was to duplicate what already existed under the investment tax credit.

[00:31:39] Speaker 04:
And that's absolutely clear.

[00:31:41] Speaker 04:
This was not a new program.

[00:31:43] Speaker 04:
This was a program that substituted, for a certain period of time, a CAS grant in lieu of investment tax credit, but based on the same precepts that would be used for both.

[00:31:54] Speaker 04:
And in an investment tax credit context, basis is what the taxpayer paid for the property

[00:32:02] Speaker 04:
that constitutes, that gives rise to the tax credit.

[00:32:07] Speaker 04:
And if the person built it themselves, what they paid out of pocket to build it themselves is their basis.

[00:32:13] Speaker 04:
If they purchase it, it's what they paid to purchase it.

[00:32:17] Speaker 04:
And the offsetting, why would Congress have this system in place?

[00:32:22] Speaker 04:
Because they know that if there is a sale at a higher price than what the cost was to the original developer,

[00:32:31] Speaker 04:
That developer will pay tax on the Delta between the two, which will all set in time, which all sets entirely.

[00:32:40] Speaker 02:
Just so it's clear.

[00:32:42] Speaker 04:
Can I go back to my Toyota analogy?

[00:32:46] Speaker 04:
I'm not done.

[00:32:48] Speaker 02:
All right, please.

[00:32:49] Speaker 02:
Okay.

[00:32:51] Speaker 02:
Toyota, they sell their cars for $25,000.

[00:32:54] Speaker 02:
Yes.

[00:32:54] Speaker 02:
And then the government passes a law.

[00:32:57] Speaker 02:
Anybody that owns a Toyota, we're going to pay you $10,000.

[00:33:02] Speaker 02:
Toyota all of a sudden starts selling their Toyotas for $30,000.

[00:33:06] Speaker 02:
And of course, a lot of people maybe that wouldn't have bought the Toyotas are now buying the Toyotas.

[00:33:12] Speaker 02:
Doesn't the rebate law that Congress passed cause people to buy the Toyotas at an inflated price above the fair market value?

[00:33:24] Speaker 04:
No, Your Honor.

[00:33:26] Speaker 04:
Fair market value?

[00:33:27] Speaker 04:
The black letter is that fair market value is established by arm's length negotiations.

[00:33:34] Speaker 04:
What a willing buyer will pay a willing seller.

[00:33:36] Speaker 04:
And what a willing buyer will pay a willing seller for property is affected almost always by considerations of the law.

[00:33:45] Speaker 04:
Take a recent example.

[00:33:46] Speaker 04:
There's now limited deductibility as to property taxes.

[00:33:50] Speaker 04:
That just happened.

[00:33:52] Speaker 04:
You read in the newspapers that may have a depressing impact on home

[00:33:56] Speaker 04:
price of housing prices because you no longer qualify for that.

[00:34:01] Speaker 04:
What people pay for their homes or willing to pay for their homes may go down as a result.

[00:34:07] Speaker 04:
What they pay for that house is still the fair market value of the house.

[00:34:10] Speaker 03:
When they go to pay property taxes... Your problem is that the statute provides a grant based on the value of the tangible assets and not something else like the rebate.

[00:34:24] Speaker 04:
And that

[00:34:26] Speaker 04:
gets to the question, how has the law treated that issue?

[00:34:30] Speaker 04:
And this is not materially briefed because the government did not raise this issue in its pleadings to the court except tangentially in the reply brief.

[00:34:40] Speaker 04:
It is dealt with at length in our findings of fact and conclusion of law, which is docket 158, paragraphs 258 to 64.

[00:34:48] Speaker 04:
But as an example, in the Sachs decision by the Ninth Circuit, the court said,

[00:34:54] Speaker 04:
Investors may take depreciation deductions and tax credits based upon the purchase price they paid, even though what they paid was anticipation of those benefits.

[00:35:07] Speaker 04:
That is on all fours with the questions that the Court is asking.

[00:35:11] Speaker 04:
The IT&S decision, a tax court decision by 1991, Sachs is 69, F3, 982 at 991.

[00:35:19] Speaker 04:
IT&S is 97, tax court, 496 at 532, note 28.

[00:35:24] Speaker 04:
quote, tax court, the Supreme Court has recognized that the tax savings generated by an asset can be an identifiable component of its value, its meaning of the asset's value.

[00:35:37] Speaker 04:
And we all know from buying houses ourselves that, as an example, the deductibility of property taxes is an influence as is the ability to deduct the

[00:35:50] Speaker 03:
Yeah, but you're not addressing the purpose of this statute.

[00:35:54] Speaker 03:
You're arguing that the grant ought to be based on the, that the existence of the grant ought to increase the grant.

[00:36:01] Speaker 03:
And it's difficult to see that that's what Congress intended here.

[00:36:06] Speaker 04:
Congress intended that whatever happened, Congress said the grant will be based upon the basis of the property.

[00:36:15] Speaker 04:
And it said,

[00:36:16] Speaker 04:
that we want this to mean the exact same thing it already means for purposes of the investment tax credit.

[00:36:23] Speaker 04:
The law is crystal clear.

[00:36:24] Speaker 04:
I've provided some examples of how the courts have dealt with this issue.

[00:36:28] Speaker 04:
There are many other examples.

[00:36:30] Speaker 04:
It's uniformly the case that one includes in the value of the property whatever benefits come along with those property.

[00:36:39] Speaker 04:
And in this particular case, it was only the eligible property

[00:36:43] Speaker 04:
that qualified for the cash grant.

[00:36:45] Speaker 04:
So by definition, the benefits here are associated with the eligible property.

[00:36:50] Speaker 04:
And this would be exactly how it would have worked had the cash grant program not been enacted.

[00:36:55] Speaker 04:
And instead, these people qualified for installed investment tax credits.

[00:37:00] Speaker 04:
And that hasn't changed at all.

[00:37:02] Speaker 02:
When it comes to the government's proposed residual method, they seem to be looking at that, approaching it from the ground up, right?

[00:37:11] Speaker 02:
Going through the classes and from the ground up trying to build up what is the appropriate basis.

[00:37:17] Speaker 02:
And the trial courts seem to look at it maybe more from the top down.

[00:37:23] Speaker 02:
Let's start with your sale price, and now let's see if things like Goodwill and

[00:37:29] Speaker 02:
and going concern value can be backed out from that sale price and then made findings that there wasn't enough here to prove up that those things existed or of any real value.

[00:37:42] Speaker 02:
So I'm just wondering, is that the right way to look at it, going from the top down rather than from the ground up?

[00:37:50] Speaker 04:
I would describe it a little differently, Your Honor, as follows.

[00:37:53] Speaker 04:
The trial court definitely started with a proposition that we think is unassailable, that basis

[00:38:00] Speaker 04:
is the same as fair market value, and fair market value is determined by the price established by arms length negotiations.

[00:38:08] Speaker 04:
So if one of these facilities transacted at $560 million, that's the fair market value.

[00:38:16] Speaker 04:
And then the question becomes, of course, well, what was in that transaction?

[00:38:20] Speaker 04:
And if you assume 1060 applies, and we have some arguments that it doesn't, but let's assume 1060 does apply, you have to allocate the purchase price

[00:38:30] Speaker 04:
to the various asset classes.

[00:38:32] Speaker 04:
So what the judge said is, let's see which asset classes were actually transferred as part of this transaction.

[00:38:43] Speaker 04:
Now, the waterfall will tell you how you allocate the purchase price sequentially.

[00:38:48] Speaker 04:
But the first thing is, does it exist?

[00:38:51] Speaker 04:
Use an easy example.

[00:38:53] Speaker 04:
Class one is cash.

[00:38:55] Speaker 04:
Was any cash transferred?

[00:38:57] Speaker 04:
And the answer is no.

[00:38:58] Speaker 04:
then obviously there's nothing to allocate to class one.

[00:39:01] Speaker 04:
You don't worry about the order in which you do it.

[00:39:05] Speaker 04:
He went through all the classes, and he determined, and there was oodles of testimony on this, that there were no classes other than class five, which is tangible property.

[00:39:15] Speaker 03:
Part of the problem with that is that he excluded the Parsons testimony.

[00:39:19] Speaker 03:
If we were to hold that he made an error in doing that, then your reported factual findings would

[00:39:28] Speaker 03:
have to be set aside so that the entirety of the testimony would be considered, right?

[00:39:33] Speaker 04:
Well, Your Honor, we think otherwise because what Parsons did is say, I will just consider there to be goodwill or going concern value without applying any definitions as to what those terms mean.

[00:39:48] Speaker 04:
I'll just call that the money

[00:39:51] Speaker 04:
that's left over.

[00:39:52] Speaker 03:
But that's an argument that's not been briefed on appeal.

[00:39:56] Speaker 03:
What I'm saying is we let us say that the trial judge made an error in not listening to Parson's explanation or that he made an error in excluding the testimony entirely and he should have taken it for what it was worth.

[00:40:13] Speaker 03:
Then we have a

[00:40:15] Speaker 03:
potential conflict in testimony between your accountants and Dr. Parsons, right?

[00:40:27] Speaker 04:
I would say not, Your Honor.

[00:40:28] Speaker 04:
If one looks at those materials, then if one concludes that there is no goodwill or going concern value by definition based upon the considerations that were applied by Judge Wheeler, then there is nothing left

[00:40:45] Speaker 04:
over that could possibly be put into a class other than class five.

[00:40:50] Speaker 04:
And that's the fundamental conclusion that Judge Wheeler reached based upon the testimony was that... Based on the testimony, that's the problem.

[00:40:59] Speaker 04:
Well, yes, Your Honor, but I would submit, and of course, we'd be happy to talk about the correctness of Judge Wheeler's decision as to Dr. Parsons, but beyond that, our view is that

[00:41:14] Speaker 04:
These facilities had not gone into operation yet.

[00:41:17] Speaker 04:
There cannot be goodwill or going concern value under those circumstances.

[00:41:22] Speaker 04:
And we believe those are true, both factually and as a matter of law, based upon these court's precedent.

[00:41:28] Speaker 04:
And if that is correct, then there is nothing for Dr. Parsons to be addressing.

[00:41:33] Speaker 04:
No one disagrees that these facilities had not gone into operation at the time they were purchased by the plaintiffs.

[00:41:39] Speaker 04:
This court in the Don case, reliant upon precedent

[00:41:44] Speaker 04:
tax court as well has said that goodwill and going concern value have a time component.

[00:41:51] Speaker 04:
They're only built up as you operate over time.

[00:41:54] Speaker 04:
That's the direct answer to your question is, Your Honor, if you agree with that, then there is no, you would not be mandating anyway.

[00:42:03] Speaker 02:
Is it your view that the trial court

[00:42:04] Speaker 02:
made a legal ruling or a fact finding on going concerned?

[00:42:08] Speaker 04:
I think he did both.

[00:42:10] Speaker 04:
I mean, he was applying what he understood to be the legal test and he analyzed a number of facts and said based upon those facts, I conclude that it doesn't exist.

[00:42:19] Speaker 04:
He did place a special emphasis on the fact that there is no, they had not gone into operations.

[00:42:27] Speaker 04:
We think as a matter of law, that's enough to conclude that there's no good will or going concern value, but he looked at additional facts as well.

[00:42:33] Speaker 02:
So for the residual method, there's also class six intangibles.

[00:42:38] Speaker 04:
Yes.

[00:42:38] Speaker 02:
So is there potential for value to be put into that bucket?

[00:42:46] Speaker 04:
And that was addressed too, Your Honor.

[00:42:49] Speaker 04:
And the answer to that is no.

[00:42:51] Speaker 04:
And I'll get to why Dr. Parsons is irrelevant as to that as well.

[00:42:56] Speaker 04:
The law is perfectly, a contract can be a Class 6 asset, but only if it's above market.

[00:43:03] Speaker 04:
The law is very clear on that point.

[00:43:06] Speaker 04:
There was copious testimony that none of the contracts here were above market.

[00:43:12] Speaker 04:
And therefore, none of them qualified as separate assets.

[00:43:15] Speaker 04:
That was the conclusion that had been reached by KPMG originally.

[00:43:19] Speaker 04:
And one of the questions was, what did KPMG do?

[00:43:23] Speaker 04:
One of the things, KTMG was looking for assets to which the purchase price might properly be allocated.

[00:43:29] Speaker 04:
And they talked about goodwill and going concern value and concluded there wasn't any.

[00:43:34] Speaker 04:
They looked at all these other potential assets and found they didn't exist.

[00:43:38] Speaker 04:
That was confirmed by our, by what I call non-class six, non-class five, excuse me, assets and concluded there weren't any.

[00:43:47] Speaker 04:
And so Dr.

[00:43:52] Speaker 04:
If Dr. Parsons, for example, had said, oh, I've identified certain contracts that I think are above market, well, that would have been additional factual information that his exclusion kept from being before the court.

[00:44:08] Speaker 04:
But he didn't provide anything like that, Your Honor.

[00:44:11] Speaker 04:
And so once again, we see no condition under which

[00:44:21] Speaker 04:
Judge Wheeler's decision would be changed.

[00:44:25] Speaker 04:
Fundamentally, the waterfall tells you in what order you assign the purchase price, but the waterfall doesn't tell you which buckets exist.

[00:44:36] Speaker 04:
That's a separate inquiry.

[00:44:39] Speaker 04:
That's the inquiry that Judge Wheeler took.

[00:44:41] Speaker 04:
That's the inquiry KPMG had taken at the time the initial allocation was done and

[00:44:48] Speaker 04:
the conclusion reached was there were no other classes.

[00:44:53] Speaker 02:
So I guess the so-called waterfall method you're going through, you're trying to figure out how to assign different chunks of the purchase price to the, you know, tangible assets and things like that.

[00:45:07] Speaker 02:
And then what we have here is a large

[00:45:14] Speaker 02:
perhaps arguable remaining chunk of the sale price that maybe doesn't quite fit into the remaining classes?

[00:45:24] Speaker 02:
Well, whether it's six or seven?

[00:45:26] Speaker 02:
No, Your Honor.

[00:45:28] Speaker 02:
Go in concern?

[00:45:29] Speaker 04:
No.

[00:45:31] Speaker 02:
Contracts.

[00:45:32] Speaker 02:
So then what do we do in that kind of circumstance?

[00:45:34] Speaker 04:
Well, there's nothing left over, Your Honor.

[00:45:36] Speaker 04:
I mean, that's, you know, the purchase price has told you what the fair market value is of the assets that were transferred.

[00:45:43] Speaker 04:
That's not

[00:45:44] Speaker 02:
But the residual method then obligates and requires all of us to now divvy it up into these different classes.

[00:45:53] Speaker 04:
Into the assets, into the classes of assets that actually exist.

[00:45:59] Speaker 04:
And so as I, to use my example again, if class one doesn't exist, nothing gets allocated to it.

[00:46:05] Speaker 04:
If goodwill and going concern value don't exist, which is class seven, nothing gets allocated to it.

[00:46:11] Speaker 04:
If there are no contracts that are above market,

[00:46:14] Speaker 04:
or other things that will qualify as a intangible other than goodwill and going concern value, then nothing gets attributed to class six.

[00:46:26] Speaker 02:
So then which class enjoys the benefit of receiving all of the value of the sale price in case it doesn't fit into any other class?

[00:46:37] Speaker 04:
Class five.

[00:46:39] Speaker 04:
But I mean, in the sense that class five

[00:46:42] Speaker 04:
would capture any asset not otherwise identified.

[00:46:45] Speaker 04:
That's the definition of Class V, but in this case, of course... Any asset, including intangible assets?

[00:46:51] Speaker 04:
No, Your Honor.

[00:46:52] Speaker 04:
Well, the phraseology is, I think, any asset not otherwise identified.

[00:46:59] Speaker 03:
I mean, if you would... Yeah, but there are other categories after Class V that deal with intangibles.

[00:47:03] Speaker 04:
Yes, and you would put those in... If you had identified another intangible, that would be Class VI.

[00:47:08] Speaker 04:
We agree with that, but the...

[00:47:10] Speaker 04:
there was a particular, you know, there are tests for determining, I mean, that the principle indicia that the government points to is the existence of contracts, and there's a particular legal test as to whether or not a contract can be an intangible, and no question about that, but it is a prerequisite, which is that it be above market.

[00:47:29] Speaker 04:
Otherwise, it's not deemed to be a separate intangible.

[00:47:31] Speaker 04:
This was addressed at great length and considered by the judge, and I think the law is straightforward on that point.

[00:47:38] Speaker 04:
So if

[00:47:40] Speaker 04:
And of course, these are issues on which great deference is owed to the judge's factual findings.

[00:47:49] Speaker 04:
This is a clearly erudite review.

[00:47:53] Speaker 04:
Well, and that is, and his decision to exclude Dr. Parsons is subject to, not only subject to,

[00:48:03] Speaker 03:
abuse of discretion standard, but because... What case says that you can exclude someone's testimony on the grounds that he's a perjurer without giving him an opportunity to explain?

[00:48:13] Speaker 04:
Well, I think the judge found that he... What case?

[00:48:21] Speaker 04:
Your Honor, he made a factual finding that he had... What case?

[00:48:30] Speaker 04:
He testified.

[00:48:32] Speaker 03:
What case?

[00:48:32] Speaker 04:
I think Unisys says that if the judge reaches the conclusion that the expert had engaged in serial perjury, that that is the basis.

[00:48:42] Speaker 03:
Without giving the witness an opportunity to explain?

[00:48:47] Speaker 04:
Your Honor, he gave explanations in the course of his testimony before he... He gave explanations in the course of his testimony.

[00:48:53] Speaker 00:
If it looks as if we need additional briefing on that point, if it turns out to be dispositive, we will...

[00:49:01] Speaker 00:
I won't say so.

[00:49:03] Speaker 00:
Any more questions?

[00:49:07] Speaker 00:
Okay.

[00:49:07] Speaker 00:
Thank you, Mr. Rosenbaum.

[00:49:09] Speaker 00:
Mr. Weiner, you have your rebuttal time.

[00:49:15] Speaker 01:
Thank you, Judge Newman.

[00:49:16] Speaker 01:
Just a couple of points that I'd like to make on rebuttal.

[00:49:19] Speaker 01:
One is that here

[00:49:21] Speaker 01:
the government asserted that there were about all of class five, class six, and class seven assets, including class six assets being the section 197 intangibles.

[00:49:32] Speaker 01:
And Dr. Parsons did directly speak to two of the big ones, which would be the power purchase agreements and the interconnection agreements.

[00:49:41] Speaker 01:
And I would also refer you to when Turigen had actually purchased the wind farms from ALCO,

[00:49:50] Speaker 01:
And Duff and Phelps, another accounting firm or valuation firm, did a valuation.

[00:49:57] Speaker 01:
They put considerable value to the interconnection agreements, basically saying, look, let's value what the businesses, what they acquired with the interconnection agreements, and then what's value without the interconnection agreements.

[00:50:11] Speaker 01:
And the delta was the value that they ascribed.

[00:50:16] Speaker 01:
And so here, it is highly relevant that Dr. Parsons got excluded.

[00:50:21] Speaker 01:
as well.

[00:50:23] Speaker 01:
We disagree with plaintiff's counsel that what a court should do is to try to figure out whether there is goodwill or going concern value and if it can't identify it, then we can't allocate anything to that bucket.

[00:50:44] Speaker 01:
That's contrary to the residual method and it puts the cart before the horse.

[00:50:49] Speaker 01:
Part of what the residual method is designed to do is to figure out whether the unidentifiable assets of residual of goodwill and going concern value actually exist.

[00:51:00] Speaker 01:
And if you can't substantiate the fair market value of the class five assets as being the full purchase price, then the residual method requires you to

[00:51:15] Speaker 01:
allocate those either in Class 6 or Class 7.

[00:51:19] Speaker 03:
Why not Class 5?

[00:51:21] Speaker 02:
If it doesn't fit very well in any other bucket, that's what Class 5 is for, right?

[00:51:28] Speaker 01:
No, the assets themselves, that's what Class 5 is for.

[00:51:32] Speaker 01:
The value is what we're talking about, the purchase price.

[00:51:36] Speaker 01:
The idea being is that the value of those assets that do not belong in any other class, belong in Class 5, and so you determine what the fair market value is.

[00:51:45] Speaker 03:
Some of these assets, in addition to the tangible assets, fit within class five.

[00:51:51] Speaker 03:
The statute doesn't say you get a grant based on class five.

[00:51:54] Speaker 03:
It says you get a grant based on the value of the tangible assets.

[00:51:58] Speaker 01:
Right.

[00:51:59] Speaker 01:
And again, within class five, then you have to allocate between eligible and ineligible, which is, I think, also the fundamental point.

[00:52:06] Speaker 01:
What plaintiff's counsel keeps asserting is that, well, if I sell a house, the house is whatever the fair market value is.

[00:52:14] Speaker 01:
But here, they didn't just sell a house.

[00:52:15] Speaker 01:
They sold a myriad of assets, including both tangible and intangible.

[00:52:19] Speaker 01:
So that only begs the question.

[00:52:21] Speaker 01:
The question is, how do you allocate that purchase price among the assets acquired?

[00:52:27] Speaker 01:
And so these examples of a house don't really help.

[00:52:31] Speaker 01:
And then finally, I would just say one thing about if I'm... Yes, one more sentence.

[00:52:36] Speaker 00:
We're well over time.

[00:52:37] Speaker 01:
Okay.

[00:52:38] Speaker 01:
Is that I've just...

[00:52:40] Speaker 01:
refer Judge Chen to the Van Duser case, which is helpful, I believe, in terms of the tax benefit and indemnities.

[00:52:49] Speaker 01:
Here, what you didn't have is here they guaranteed a particular subsidy, which influenced the purchase price.

[00:53:00] Speaker 01:
In Van Duser, which was a different scenario, there was no guarantee.

[00:53:03] Speaker 01:
They just basically said, we're going to give you a working facility.

[00:53:10] Speaker 01:
And there was an expectation of tax benefits to come from that, but there were no guaranteed payments coming from the seller to the purchaser.

[00:53:17] Speaker 01:
That's what makes this a peculiar circumstance.

[00:53:21] Speaker 01:
And in conclusion, we ask that you reverse.

[00:53:23] Speaker 00:
Thank you, Your Honor.

[00:53:25] Speaker 00:
OK.

[00:53:25] Speaker 00:
Thank you.

[00:53:26] Speaker 00:
Thank you both.

[00:53:26] Speaker 00:
The case is taken under submission.

[00:53:29] Speaker 03:
All rise.

[00:53:33] Speaker 03:
The honorable court is adjourned from day to day.