Third time is distinctly unlucky for Clair R. Couturier, Jr., Docket No. 19714-16, filed 9/21/23, as Judge Albert G. (“Scholar Al”) Lauber kicks Clair’s expert witness SJS into touch. You’ll remember that Clair was fighting over a busted IRA (ten years’ worth of 6% per annum Section 4973(a) excess contributions tax).

Clair and an outfit called The Employee Ownership Holding Company, Inc. (TEOHC) did a give-and-go rollover, and canceled a bunch agreements (hi, Judge Holmes), which gave rise to some $26 million of cash and a note. But no separate allocation between rolled and canceled (unrolled) was made at the time, so it remains to do so now, so that the worth of the unrolled can be determined, and the 6% excise tax applied (plus chops).

This is Clair’s third appearance in this my blog. See my blogpost “Foolish Consistency – One Mo’ Time,” 7/6/22 for the rest.

SJS opines that the canceled agreements violate ERISA, so they’re worthless. Yes, don’t yell, it’s a conclusion of law, which is the province of the judge, so whatever SJS has to say about that is out.

Next, “…he opines that their value should be capped at 15% of ‘the total equity value of the company [i.e., TEOHC].’ He bases this opinion on a ‘rule of thumb that many ESOP trustees use when negotiating executive compensation agreements that dilute the ownership rights of the ESOP.’ This supposed ‘rule of thumb’ is that ‘no more than 15% of the equity value can be used for executive compensation.’ His report supplies no facts or data to support this statement; it is simply an assertion discussed in a single paragraph on page 14 of his report. He acknowledges that his supposed rule of thumb ‘is not a hard rule’ and that he has ‘seen ESOP-owned companies with more . . . equity compensation to management than 15%.’” Order, at p. 2.

Do you hear echoes of the infamous “Primoli memo,” which birthed the much-derided 15% diminution for façade easements? Judge Scholar Al hears echoes of vitamin pill scion Mitch Skolnick, whose unhorsing I chronicled in my blogpost “Horsefeathers,” 6/3/19.

“SJS’s second opinion must be excluded because he supplies absolutely no facts or data to support his 15% number, but only his bare assertion that this is a ‘rule of thumb that many ESOP trustees use.’ In Skolnick v. Commissioner, T.C. Memo. 2019-64, 117 T.C.M. (CCH) 1319, 1322, we rejected expert testimony from an appraiser for similar reasons, ruling that an expert must ‘explain how he got to his results, which requires that he show the data he considered, the methodology he applied, and the manner in which he applied his methodology.’ ‘Without that information,’ we noted, ‘the Court has no means of examining whether the report ‘rests on a reliable foundation and is relevant to the task at hand.’ Id.” Order, at p. 2. (Citation omitted).

Besides, the issue is not what a hypothetical ESOP trustee may have done, but what the parties to the deal (Clair and TEOHC) agreed was the value of what Clair got.

So Judge Scholar Al gives “thumbs down” to SJS’ report and his rule of thumb.