That’s the paraphrase from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Foe of the Partitive Genitive, Judge Mark V. Holmes, in a designated hitter 8/7/14.

And Judge Holmes embellishes this text from a much more exalted source in HTM Fidelity Insurance Company Ltd, Docket No. 18925-13.

These are two companion cases, but IRS and HTM agree to continue Case No. One, so they can go back to Appeals and try to hash out their disputes, and Judge Holmes is down with that.

But IRS tries to wildcard in an economic substance argument in Case No. Two, and HTM says “OK, but IRS has burden of proof, as that’s new matter, not new theory.” HTM will go back to Appeals on Case No. Two as well as Case No. One, but IRS must carry the weight on economic substance.

IRS needs to amend its answer in Case No. Two, and that’s OK with Judge Holmes. He has discretion. The key points are whether there’s an excuse for the delay in amending (there really isn’t, as IRS was fiddling with economic substance at Examination) and whether HTM would “suffer unfair surprise, disadvantage, or prejudice.” Order, at p. 2 (Citation omitted).

Since HTM and IRS are going back to Appeals to haggle, and trial won’t be happening soon, HTM has time to deal with economic substance. It’s not like the parties were on the eve of trial, with witness lists and documents exchanged, pretrial briefs written and exchanged, and all that jazz. So IRS can amend.

But the question remains: who has to prove what? And the answer depends upon whether economic substance is new theory or new matter.

If the facts to be established at trial, and the burden of establishing them, is the same whatever the legal theory, then that burden doesn’t shift from the party that had it to begin with (here it’s HTM). The application of the law can be fought out on papers.

But in this case it isn’t so simple.

“The reason is that the evidence needed to show nondeductibility because a transaction lacks economic substance is different from that needed to show that a deduction is not ordinary and necessary (or not really insurance) – it can stretch to the subjective intent of some entity associated with the transaction and usually includes some notion of profit potential. And the need for different evidence is what distinguishes a new ‘matter’ from a new ‘theory’.” Order, at p. 2.

And Weekend Warrior Trailers, 2011 T. C. Memo. 105, filed 5/19/11, doesn’t help IRS, because there IRS first raised economic substance, and only afterwards threw in Section 162 nondeductibility, so the evidence for economic substance was already out there (and taxpayer won). See my blogpost “Even a Little Substance Matters”, 5/19/11.

Or as Judge Holmes puts it: “But there respondent was trying to add the narrower ground (nondeductibility under section 162) to a case in which he first raised the broader ground. That larger sets contain smaller sets doesn’t mean that the sets are congruent.” Order, at p. 2.

Remember lesser-included-offenses from Criminal Law 101?

So IRS, you must bear your own burden.