In Uncategorized on 09/07/2017 at 22:51

Tax Court is the judicial counterpart of the NYC Marathon. It is the only place where the one-time small-claimer, with maybe a couple hundred (hi, Judge Holmes) bucks on the table, gets to walk onto the same playing field with the big-time, top-fuel, multinational Fortune 10, beloved of Warren Buffet, major league corporation.

Just now I blogged a retired KS lawyer fighting a $1500 deficiency. Kevin DeWitt Skaggs, star of my blogposts “The Judge Boots His ‘S’,” 4/26/17, and “Oversoon,” 4/26/17, was fighting about less than $300 EITC.

But today Judge Lauber has a designated hitter where a $3.3 billion (that’s a “b” bravo, brothers and sisters) deficiency is on the line.

And the petitioner is to be found in my refrigerator and around the world. And in the Oracle of Omaha’s portfolio.

It’s The Coca-Cola Company and Subsidiaries, Docket No. 31182-15, filed 9/7/17.

It’s a Section 482 transfer-pricing case. Coke made a deal with IRS twenty (count ‘em, twenty) years ago to use the 10-50-50 payment for IP to foreign affiliates.

Judge Lauber man-’splains.

“Under this method the supply point [the foreign sub or affiliate] would retain 10% of gross revenues as a routine return, and the residual operating income (after certain adjustments) would be split 50%- 50% between the supply point and petitioner.” Order, at pp. 1-2.

Under the deal aforesaid, Coke got Section 6662(e)(3)(D) and Section 6664(c) reasonable cause and good faith cover for any chops arising from following the deal.

Now nothing in the deal keeps IRS from coming back and slugging Coke with fire and slaughter. And IRS now wants partial summary J for the same.

“Petitioner does not contend that the 1996 closing agreement prevented the IRS from making the $3.3 billion transfer-pricing adjustment at issue. And respondent will be free to argue, at trial and in his post-trial briefs, that the 1996 closing agreement should be accorded no probative value in determining whether the IRS abused its discretion in adjusting petitioner’s income under I.R.C.§482.” Order, at p. 2.

So check out my blogpost “Advance and Retreat,” 6/26/13. IRS has to be arbitrary and capricious if it upsets the closing agreement applecart.

OK, says Judge Lauber, but that’s not the end of the story.

“But even if that argument is accepted, it does not mean that the closing agreement has no possible relevance to any issue that may arise in this case.” Order, at p. 2.

Although IRS didn’t seek chops in its answer, it can amend at any time. So the closing agreement’s plenary indulgence as to chops is still in play.

Likewise, there’s a joust about whether Coke overpaid Mexican income tax, and whether such payment was “voluntary” (in which case not creditable against US income tax) or “involuntary” (in which case it was). And the Mexican Cokers paid tax based on their cut of the 10-50-50 deal.

“At the very least, the 1996 closing agreement is ‘relevant’ to the Mexico foreign tax credit issue because it helps explain the basis on which the Mexican branch paid income tax to the Government of Mexico. That fact alone ‘might affect the outcome of the [Mexico foreign tax credit issue] under the governing law.’ Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).” Order, at p. 3.

And IRS wants summary J on the Mexican income tax question.

Which draws a Whiskey Tango Foxtrot from Judge Lauber.

“The motion currently before the Court is odd. Respondent has not filed a motion in limine seeking to exclude from evidence on relevance grounds a document captioned ‘1996 closing agreement.’ Rather, respondent has filed a Motion for Partial Summary Judgment seeking a ruling that an historical fact, as a matter of law, can have no conceivable relevance to any issue before the Court. We doubt that this is a proper subject for summary judgment because respondent does not seek summary adjudication in its favor on one or more ‘legal issues in controversy.’ Tax Court Rule 121(a); see Louzon v. Ford Motor Co., 1718 F.3d 556, 561 (6th Cir. 2013) (noting that a summary judgment motion, in contrast to a motion in limine, is a mechanism used ‘to resolve non-evidentiary matters prior to trial’). It would be imprudent for a court to grant a summary judgment motion of this sort six months before hearing any evidence at trial. But we shall deny the motion on its merits in any event.” Order, at pp. 3-4.

IRS counsel, don’t try a motion in limine. It will not end well.






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