Candidates for the next Slaughter of the Innocents, s/a/k/a The US Tax Court Admission Examination, should take heed of Judge Christian N. (“Speedy”) Weiler’s exegesis anent FRE 801(d)(2), statements of opposing party. We classically trained types call those “admissions against interest.”

Remember, hearsay is inadmissible. Hearsay is a statement offered for the truth thereof in support of a party’s position, made by someone not present in the courtroom (hence not subject to cross-examination, the “greatest legal engine ever invented for the discovery of truth.”). But FRE 801 has some exceptions. Oh, where would we lawyers be without exceptions?

“Statements made by an opposing party are not hearsay. Fed. R. Evid. 801(d)(2).

“As relevant here, Fed. R. Evid. 801(d)(2)(A) provides that a party’s own statement (made in an individual or representative capacity) is not hearsay if offered against that person by the opposing party.” Order, at pp. 1-2.

The case is Otay Project LP, Oriole Management LLC, Tax Matters Partner, Docket No. 6819-20, filed 10/7/24, and of course it’s a tiered-partnerships TEFRA special.

Are the people at the bottom (or top) of the tiers opposing parties?

Under the now-superseded TEFRA régime, “Section 6231(a)(2) defined ‘partner’ to include direct partners in the partnership and ‘any other person whose income tax liability under subtitle A is determined in whole or in part by taking into account directly or indirectly partnership items of the partnership.’ The term ‘indirect partner’ means a person holding interest in a partnership through one or more passthrough partners. I.R.C. § 6231(a)(10). Therefore, both direct and indirect partners of the partnership are considered ‘parties’ in a TEFRA case.” Order, at p. 2. (Footnote omitted but read it; it’s a quick-take on what is an opposing party’s statement.)

So any partner of a partner is an opposing party when the IRS comes calling. Remember, you can be a partner without knowing you are a partner; see Section 7701(a)(2): if you’re doing business with anyone else, for tax purposes you’re their partner, whatever your local laws may say.

Taishoff says, while Judge Speedy Weiler adverts to local (CA) law to check the authority of partners to represent the partnership (Order, at pp. 2-3), don’t count on State law when you want a box-checked LLC to give you cover when non-managing members shoot their mouths off, even under post-TEFRA learning (of which there isn’t any). Of course, argue the point if your local LLC law restricts authority to bind the LLC to the managers, but even then the individual members are on their own.

Here, the Otays are left to argue relevancy or materiality. While their trusty attorneys have done well so far, they face an uphill here.

As always, loose lips sink ships.