In Uncategorized on 04/16/2014 at 17:06

No, not Crimea-Ukraine. This is a non-political blog.

Comes now Judge James S. (“Big Jim”) Halpern to continue the tangled trail of James (“Little Jim”) Haber, the star of my blogposts “Ironbridge Over Troubled Waters”, 6/5/12, “Getting Shifty”, 9/20/13, and “Immunology”, 3/18/14. This time it’s a New York state of mind, but not the 1976 Billy Joel crowd-pleaser.

The story can be found in AD Investment 2000 Fund LLC, Community Media, Inc., a Partner Other Than the Tax Matters Partner, 142 T. C. 13, filed 4/16/14, and it’s an unlucky 13 for Little Jim and his partners.

The issue is whether AD and its various partners can duck the substantial understatement, gross overvaluation, and negligence chops that IRS is hurling at them, arising out of a Son-of-BOSS mix-and-match, a phony partnership intended to marry a big paper loss with a real big monetary gain.

Of course, the issue is the reasonable belief of the partnership (and this is a TEFRA partnership-level jump-ball) that they stood a better than 50-50 shot at a win if IRS blew up their little fandango.

AD and chums claim they reasonably believed, without stating they relied on anybody to help them believe. They went with Reg. 1-6662-4(g)(4)(i)(A), which says that if AD and chums did their own digging, they could rely on what they turned up themselves, unlike Reg. 1-6662-4(g)(4)(i)(B), which is the “we relied on experts” and believed.

So AD and chums claim good faith self-determination. And therefore the six opinion letters they got from the law firm of Brown & Wood are privileged, not discoverable, and anyway are irrelevant.

No, says Big Jim. Once you place your state of mind in controversy, whatever induced you to come to that state of mind is fair game, and there’s an implied waiver of client-attorney privilege.

Personal injury lawyers know well that when someone claims they’re sick, sore, lame or lazy, patient-physician privilege is out the window and all the medical records and conversations with the doctors go into evidence. And that’s true even if the plaintiff (or other party) feels, and is in fact, sick, sore, lame, etc.

The aim is to prevent the shield that protects client-attorney confidences from becoming a sword to stick your adversary.

“Respondent [IRS] concedes that petitioners’ averments raise only the first method (self-determination), and not the second method (reliance on professional advice), to show that the partnerships satisfy the belief requirement. Nevertheless, respondent argues, petitioners have placed the opinions into controversy by relying on a reasonable cause, good-faith defense and by putting the partnerships’ beliefs into issue. Respondent states: ‘Under the first method, * * * those tax opinions remain relevant to the subjective inquiries into reasonableness and good faith.’ He adds: ‘Putting reasonable belief in issue places the Partnership[‘s], and specifically James Haber’s, state of mind at issue.” He explains: ‘Mr. Haber [“de facto manager of the partnership vehicle[s]”] received the subject tax opinions before taking the questioned positions and presumably before making his alleged self-determination of authorities.’ The opinions are relevant, respondent argues, because, if they contradict Mr. Haber’s claimed self-determination, they may show that his self-determination was not reasonable, and, if consistent with his self-determination, they may show that he made no self-determination.” 142 T. C. 13, at pp. 6-7.

Nice, huh? A definite Taishoff “good hit” to IRS’ counsel.

But there’s a Golsen face-off here, because AD and chums, being New Yorkers, claim Second Circuit needs explicit reliance on the attorneys’ advice to waive the privilege, while IRS claims that the DC Circuit evidentiary rules apply. But in any case, Second Circuit has held that where one places one’s state of mind at issue, the implied waiver has to apply, in fairness, where facts and circumstances so dictate.

And good faith means you thought you were doing the right thing (or at least 50% of the right thing). And how you got there is everything to the point.

So even though Little Jim may not take the stand (and Judge Big Jim agreed that it would be a bad idea if he did; see my blogpost “Getting Shifty”, op. cit., as my expensive colleagues would say), Judge Big Jim wants to see all six of the Brown & Wood billets doux, with a hearing on whether to impose sanctions on AD and chums for non-production.

Maybe better not to get opinion letters sometimes. Mighty unhandy things.


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