Thomas Investment Partners, Ltd. v. United States , 444 F. App'x 190 ( 2011 )


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  •                            NOT FOR PUBLICATION
    UNITED STATES COURT OF APPEALS                            FILED
    FOR THE NINTH CIRCUIT                               JUL 20 2011
    MOLLY C. DWYER, CLERK
    U.S. COURT OF APPEALS
    THOMAS INVESTMENT PARTNERS,                      No. 09-55638
    LTD.; et al.,
    D.C. No. 2:06-cv-07376-JFW-RZ
    Plaintiffs - Appellants,
    v.                                             MEMORANDUM*
    UNITED STATES OF AMERICA,
    Defendant - Appellee.
    THOMAS DIVISION PARTNERSHIP,                     No. 09-55639
    L.P.; et al.,
    D.C. No. 2:06-cv-07374-JFW-RZ
    Plaintiffs - Appellants,
    v.
    UNITED STATES OF AMERICA,
    Defendant - Appellee.
    THOMAS MASTER INVESTMENTS,                       No. 09-55641
    L.P.; et al.,
    D.C. No. 2:06-cv-07377-JFW-RZ
    *
    This disposition is not appropriate for publication and is not precedent
    except as provided by 9th Circuit Rule 36-3.
    Plaintiffs - Appellants,
    v.
    UNITED STATES OF AMERICA,
    Defendant - Appellee.
    HUNTINGTON/FOX INVESTMENTS,               No. 09-55642
    L.P.; et al.,
    D.C. No. 2:06-cv-07380-JFW-RZ
    Plaintiffs - Appellants,
    v.
    UNITED STATES OF AMERICA,
    Defendant - Appellee.
    MAGUIRE PARTNERS MASTER                   No. 09-55650
    INVESTMENTS, LLC and MAGUIRE
    PARTNERS, INC., as Tax Matters            D.C. No. 2:06-cv-07371-JFW-RZ
    Partner,
    Plaintiffs - Appellants,
    v.
    UNITED STATES OF AMERICA,
    Defendant - Appellee.
    Appeal from the United States District Court
    2
    for the Central District of California
    John F. Walter, District Judge, Presiding
    Argued and Submitted July 11, 2011
    Pasadena, California
    Before: FERNANDEZ, RYMER, and TALLMAN, Circuit Judges.
    Plaintiffs - Appellants appeal the district court’s judgment in favor of the
    United States after a consolidated bench trial on their respective challenges to final
    partnership administrative adjustments (“FPAA”) the IRS issued to each for tax
    years 2001 and 2002. 
    26 U.S.C. § 6226
    . We have jurisdiction pursuant to 
    28 U.S.C. § 1291
    , and we affirm.1
    I
    The district court did not abuse its discretion in admitting evidence
    demonstrating that the transactions at issue were Arthur Andersen proprietary tax
    products. Sochin v. Comm’r, 
    843 F.2d 351
    , 355 (9th Cir. 1988) (“We review the
    trial court’s decision to admit or exclude evidence based on the issue of relevancy
    for an abuse of discretion.”), abrogated on other grounds by Landreth v. Comm’r,
    
    859 F.2d 643
    , 648–49 (9th Cir. 1988), as recognized by Keane v. Comm’r, 
    865 F.2d 1088
    , 1092 n.8 (9th Cir. 1989). Such evidence is highly relevant to the
    1
    The parties are familiar with the facts of the case so we do not repeat them
    here.
    3
    resolution of both factors of the economic substance inquiry applied by the court in
    this case. Goldberg v. United States, 
    789 F.2d 1341
    , 1344 (9th Cir. 1986); Karme
    v. Comm’r, 
    673 F.2d 1062
    , 1064 (9th Cir. 1982); accord Stobie Creek Invs., LLC v.
    United States (Stobie I), 
    82 Fed. Cl. 636
    , 658–59 (2008), aff’d, 
    608 F.3d 1366
    (Fed. Cir. 2010) (Stobie II).
    Neither did the court abuse its discretion by requiring that the parties submit
    their direct testimony by declaration. FTC v. Enforma Natural Prods., Inc., 
    362 F.3d 1204
    , 1212 (9th Cir. 2004) (“We review issues relating to the district court’s
    management of trial for abuse of discretion.”). The practice is explicitly authorized
    by Local Rule 43-1 of the Central District of California, and we have previously
    approved of its use in other cases. Kearney v. Standard Ins. Co., 
    175 F.3d 1084
    ,
    1094–95 (9th Cir. 1999) (en banc) (citing In re Adair, 
    965 F.2d 777
    , 779 (9th Cir.
    1992), with approval).
    Neither did the court abuse its “broad discretion” by consolidating the
    Appellants’ largely identical cases. Pierce v. Cnty. of Orange, 
    526 F.3d 1190
    ,
    1203 (9th Cir. 2008). The court appropriately determined that “the saving of time
    and effort consolidation would produce” outweighed “any inconvenience, delay, or
    expense that it would cause.” Huene v. United States, 
    743 F.2d 703
    , 704 (9th Cir.
    1984) (citing Fed. R. Civ. P. 42(a)); see United States v. Howard, 
    480 F.3d 1005
    ,
    4
    1012 (9th Cir. 2007) (“We traditionally assume that judges, unlike juries, are not
    prejudiced by impermissible factors.” (citation omitted)).
    We also reject Appellants’ claim that the court “ignored” their evidence and
    thereby abused its discretion. The record convinces us that the court appropriately
    considered the evidence Appellants offered both at trial and by post-trial filings
    and simply resolved the disputed facts in the Government’s favor. Appellants’
    disagreement with that resolution, without more, does not establish reversible
    error. See Casebeer v. Comm’r, 
    909 F.2d 1360
    , 1365 (9th Cir. 1990) (rejecting the
    taxpayer’s claim that the court erred by not crediting his testimony because, while
    “such testimony [wa]s necessary ‘to prove that he had a bona fide profit motive,’
    there is no requirement that the tax court believe him”).
    Finally, we agree with the court’s conclusion that Appellants were not
    legally entitled to a jury trial. Suits filed against the United States must strictly
    comport with the terms under which sovereign immunity has been waived.
    Lehman v. Nakshian, 
    453 U.S. 156
    , 160–61 (1981). In authorizing FPAA suits,
    Congress expressly provided that such suits “be tried by the court without a jury.”
    Compare 
    28 U.S.C. § 2402
    , with 
    26 U.S.C. § 6226
     (FPAA cause of action), and 
    28 U.S.C. § 1346
    (e) (jurisdiction for § 6226 suits). Appellants’ attempt to recast their
    claims as “action[s] in the nature of a refund” in order to fall within the jury trial
    5
    provision of § 2402 is contradicted not only by the clear terms of § 1346(e), but by
    the jurisdictional statement each pled in their respective complaints.
    II
    We likewise find no error in the district court’s conclusion under the
    economic substance doctrine that Appellants’ transactions were legal shams. Sacks
    v. Comm’r, 
    69 F.3d 982
    , 986 (9th Cir. 1995) (reviewing de novo the legal
    standards applied and the court’s application of the law to the facts, but reviewing
    the court’s factual findings for clear error).
    First, the court appropriately considered (1) whether Appellants
    demonstrated that either of the principals directing their respective transactions had
    a business purpose for engaging in the transaction other than tax avoidance and (2)
    whether either transaction had economic substance beyond the creation of tax
    benefits. Casebeer, 
    909 F.2d at 1363
     (quoting Bail Bonds by Marvin Nelson, Inc.
    v. Comm’r, 
    820 F.2d 1543
    , 1549 (9th Cir. 1987)); see 
    id.
     (rejecting the argument
    that both inquiries must be concluded against the taxpayer “in order to hold that a
    transaction is a sham”). Further, in evaluating the legal import of “economic
    substance,” it correctly considered whether the transactions were “likely” to
    produce a non-tax economic benefit. Id. at 1365 (citation omitted); see Knetsch v.
    United States, 
    364 U.S. 361
    , 366 (1960) (concluding that a transaction was a sham
    6
    because it “did not appreciably affect [the taxpayer’s] beneficial interest except to
    reduce his tax” (internal quotation marks omitted) (citation omitted)); Stobie II,
    
    608 F.3d at 1377
     (“[Transaction] lacked economic reality . . . [because] there was
    no reasonable possibility that the FXDOTs would return a profit.).
    Second, we find no error, let alone clear error, in any of the court’s factual
    determinations. Sacks, 
    69 F.3d at 986
    . We reject Appellants’ overstated
    contention that “the real world refutes the Government’s case.” The other price
    quotes Appellants received did not contemplate inclusion of the return-minimizing
    “Asian-style feature,” a material distinction. Moreover, the fact that Appellants
    must rely on a market downturn that occurred nearly seven years after they entered
    into their transactions to show that their call-option spread transactions would ever
    have conferred a real-world benefit only bolsters the Government’s position. It
    underscores the district court’s determination that the transactions were “extremely
    unlikely” to confer a non-tax economic benefit on Appellants. See, e.g., Casebeer,
    
    909 F.2d at 1365
    .
    Finally, we conclude that the court appropriately applied the law to the facts.
    Sacks, 
    69 F.3d at 986
    . The evidence demonstrated that the transactions were
    extremely unlikely to confer a non-tax benefit and that both principals engaged in
    the transactions solely to create tax benefits. As such, the transactions amounted to
    7
    legal shams, and the FPAAs were appropriate. Stobie II, 
    608 F.3d at 1375
     (“The
    economic substance doctrine seeks to distinguish between structuring a real
    transaction in a particular way to obtain a tax benefit, which is legitimate, and
    creating a transaction to generate a tax benefit, which is illegitimate.”).
    III
    Because we affirm the district court’s conclusion that the Appellants’
    transactions were legal shams under the economic substance doctrine, we do not
    reach the merits of its alternative holdings.2
    AFFIRMED.
    2
    Appellants waived their right to challenge the district court’s amended
    determination that a 20% negligence penalty should apply by not adequately
    contesting that determination in their opening briefs. Martinez-Serrano v. INS, 
    94 F.3d 1256
    , 1259 (9th Cir. 1996) (“Issues . . . not supported by argument are
    deemed abandoned.”).
    8
    

Document Info

Docket Number: 09-55638, 09-55639, 09-55641, 09-55642, 09-55650

Citation Numbers: 444 F. App'x 190

Judges: Fernandez, Rymer, Tallman

Filed Date: 7/20/2011

Precedential Status: Non-Precedential

Modified Date: 10/19/2024

Authorities (16)

Knetsch v. United States , 81 S. Ct. 132 ( 1960 )

Samuel Martinez-Serrano v. Immigration and Naturalization ... , 94 F.3d 1256 ( 1996 )

Rex T. KEARNEY, Jr., Plaintiff-Appellant, v. STANDARD ... , 175 F.3d 1084 ( 1999 )

Federal Trade Commission v. Enforma Natural Products, Inc. , 362 F.3d 1204 ( 2004 )

united-states-v-jesse-lee-howard-united-states-of-america-v-jose-luis , 480 F.3d 1005 ( 2007 )

Seymour Sacks Star Sacks v. Commissioner, Internal Revenue ... , 69 F.3d 982 ( 1995 )

Lehman v. Nakshian , 101 S. Ct. 2698 ( 1981 )

Donald R. Huene and Annette S. Huene v. United States of ... , 743 F.2d 703 ( 1984 )

Jerome Goldberg and Marjorie Goldberg v. United States , 789 F.2d 1341 ( 1986 )

Stobie Creek Investments LLC v. United States , 608 F.3d 1366 ( 2010 )

Bail Bonds by Marvin Nelson, Inc., a Corporation v. ... , 820 F.2d 1543 ( 1987 )

harvey-l-casebeer-patricia-casebeer-lewis-w-moore-shirley-l-moore , 909 F.2d 1360 ( 1990 )

John E. Keane, Dorothy M. Keane v. Commissioner of Internal ... , 865 F.2d 1088 ( 1989 )

Alan B. Karme and Laila M. Karme v. Commissioner of ... , 673 F.2d 1062 ( 1982 )

Ivan K. Landreth Lucille Landreth v. Commissioner Internal ... , 859 F.2d 643 ( 1988 )

James E. Sochin v. Commissioner of Internal Revenue, Dennis ... , 843 F.2d 351 ( 1988 )

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