Legal Case Summary

Well briefed and we'll take it under advisement. Call our next case. Good morning, Neil Crispin versus Commissioner of Internal Revenue. Good morning, Your Honours and may it please the court. My name is George Covley. I am Councilor. I'm sorry. I'm sorry. Clear off the last argument and get settled. I apologize, Your Honour. No problem. So hasty. Once again, good morning. My name is George Covley. I represent the appellate Neil Crispin in this proceeding. And I'd like to reserve three minutes for rebuttal at the conclusion of our comments. Grant. Please the court. This matter involves something called the custom adjustable rate debt structure, which has been the subject of other cases. As we've explained in our briefs, there are significant factual differences between Mr. Crispin's experience and the other reported cases. We're here because, quite frankly, the tax court has said we decided other cards cases against the tax payers

. And as a result, we don't believe we ever got a fair consideration of our evidence with respect to Mr. Crispin's business purpose, profit potential, or anything else in the case. Let me say you don't think you ever got a fair hearing. You had a chance to put on evidence in front of the tax court. Tax court decided I don't believe Mr. Crispin. He said some things, and I don't think he's truthful. I think he never really intended to have aircraft be substitute collateral here, even if that could have happened. So I'm discounting that. Now, why isn't that classically the responsibility of a trial tribunal and something that isn't for us to enter metal with? Partly, you're honored because of evidence we were not allowed to present. Virtually every point in Mr. Crispin's favor here could have been corroborated by a gentleman named William Boyle, who claimed fifth amendment because of the threats of prosecution that they were ever testified on behalf of the tax payer. Mr. Boyle is the person who went on that. Go ahead, you're honored. I don't understand your argument on that. And he claimed, Boyle claimed the fifth. You alluded to an adverse inference against the government for intimidation. There's no evidence in the record of that. I mean, how can you get around Boyle's testimony, whatever it may have been when Boyle wouldn't testify? Judge Fisher, I believe that the papers filed by Boyle's lawyers in response to our subpoena indicate that he is part of the non-jeweling investigation. By the Southern District of New York, US Attorney's Office relating to alleged tax shelters

. And as a result, was not going to put himself on the stand. Our point very simply is this. Judge Jordan's correct. Our testimony was rejected, but it was rejected as uncorroborated. Our contention is that Mr. Boyle had testified he could have corroborated every important point that Mr. Crispin made. And we believe most of the cases that have come down in this area involve criminal proceedings where we can point to a prosecutor or an agent who goes to a witness and says, if you testify, we'll do the same. So we don't have that. We have a more general threat to Mr. Boyle. We couldn't witness testimony. I mean, what the government is supposed to do. How can that lead to an adverse inference? The government is supposed to investigate suspected criminal activity. Evidently, that's what they're doing. Mr. Boyle chooses to invoke the Fifth Amendment. How can you turn that into a basis to say, in your case, we should win because somebody invoked the Fifth? Your Honor, it's very simply the fact that the government, the United States of government, and its threat to Mr. Boyle by virtue of potential prosecution prevented us from putting him on. But that happens. I mean, that happens that people are under investigation, and therefore aren't willing to testify

. What should have happened here? The government should have been barred from investigating him so that he wouldn't take the Fifth? Absolutely not, Judge Mendel. One of two things. Number one, I think the Internal Revenue Service should have gone to the United States Attorney's Office and said, hey, we are facing an adverse inference of Boyle doesn't testify here. Release him from any potential threat of prosecution for purposes of his testimony here, like a limited community grant. Is there any request for that by your client in the tax court? Is there any request for that? The motion should be seen here. I think I'm shallow in the evening, maybe, anything like that? Your Honor, we frankly felt it by subpoenaing Mr. Boyle in arguing that he should be brought into testify. We had basically done everything we could and everything we were required to when the tax court admitted its declaration, okay, he's unavailable. But what order of the tax court with respect to this, are you asking us to reverse? I'm not asking you to reverse in order of the tax court per se. What I'm asking you to do is what the Eastern District of New York did in the Ramirez case, Your Honor, which is to draw a negative inference against the United States here, the Commissioner of Internal Revenue because Mr. Boyle wasn't available or alternatively deemed his testimony, the Mr. Christmas testimony as corroborated by Mr. Hahn and others, has, would have been corroborated by Mr. Boyle if he had been allowed to testify. If we agreed with that, could we do that or should we, would we be required to send it back to the tax court directing them to refine the facts based on the adverse inference? I'm asking you to send it back to the tax court to do exactly that, Judge Fisher. Now, are you saying you asked the tax court to draw an adverse inference and they refused? What I'm saying is we made a presentation indicating what Mr. Boyle's testimony would have been and the tax court chose not to accept it. They did not, they did not, they did not, the court was not to deny such a request for an adverse interest, correct? That's correct, Your Honor. More specifically, was there ever a request to the tax court for an adverse interest? In all honesty, Judge Jordan, no, there was no specific request. But, but, but, I guess the public. It may be significant, Your Honor, but remember, there were two parts to the Boyle issue here

. We wanted to put Boyle on, we weren't allowed to. We had a former business associate in Mr. Boyle, very Austin, and we identified and pretrial documents that if Boyle didn't testify, we wanted to put Austin on to talk about basically the way the operation was conducted as well as conversation. So, I think the conversation she had had with Boyle, Judge Kropa refused to let us have that testimony only of Mr. Austin. Well, is that order in the record? I believe it is part of the appendix your honor, is any transcript of it. It wasn't something that Judge Kropa issued a specific order with respect to as she did in granting the quashing of the subpoena. I assume for the sake of discussion, we, that we work in planning to agree with you that that some adverse influence was in order here. And that what we're dealing with is Mr. Christians' testimony on the stand, which the judge found incredible. I don't know if she said incredible, Judge Jordan. She just didn't accept it. Not, didn't accept it. Yes. Not credible. Not credible enough to be credited. If that's the state of the record, as we understand it. I'll go back to the question I asked you earlier. Why isn't that classic sort of fact-finding, which would only be overturned if it was clear? Well, it is exactly that kind of fact finding Judge Falk Jordan, and that's what we've argued in our briefs. We believe if you look at the record as a whole, it was clearly erroneous for her to come to that conclusion. But we're backstopping with the fact that if we could have had, if we could have had Boyle's testimony, we could have corroborated every item that she said was not corroborated

. Let's explain to me, leaving the Boyle piece out of it. What's clearly erroneous about not believing a witness's testimony? I don't think there was anything inherently incredible. There was nothing impeached. I mean, I don't think a judge can simply say, well, the testimony is self-serving and corroborated, and therefore we're not going to accept it. I think you have a totality of evidence ranging from the documentary evidence to the testimony of Mr. Christman, testimony of Mr. Hahn, other third parties which supported this testimony. What was, excuse me, fine, in revenue? But what was the evidence in the record, separate apart from Mr. Christman's testimony, that pointed out that this was an actual aircraft transaction, that this was going to be a business of aircraft leasing. What is there in the record? Well, above all the judgment, I mean, it was supposed to be with how he came involved with cards in the first place. He was approached by Roy Hahn, who had what I'll call a busted deal. Roy said, Neil, I've known you for years. You're always looking for financing. I know you've been involved in aircraft. In fact, I consulted with you years ago when I had a potential cards customer who wanted to sell the money. But I'm asking you a pretty pointed question. Where in the record do we see page 492? This is an aircraft financing deal. These are my projections. This is what I'm going to be doing. I have a game plan for a 30-year loan, et cetera, et cetera. Well, that is, it is throughout Mr

. Christman's testimony, the desire to use aircraft is something that was corroborated by two people, Mr. Hahn and Rob Morris, the attorney who did the tax payment, based on conversations with Mr. Christman and a review of all the documents. It wasn't in the letter, the tax letter did not talk about the aircraft. Excellent point, Judge Fisher. The tax letter talked about equipment financing. But in trial, Mr. Morris testified, unlike a lot of tax lawyers, he sat right on the witness's can, he looked Judge Crop and the eye and said, I knew that what Mr. Christman was using the score was aircraft leasing. Doesn't it run in the face of the actual documentation? I mean, didn't, didn't deserve bank have the right to bring that loan in after a year, as they in fact did? Judge Jordan, of course it did. And so can you can you point me to a circumstance for somebody's and a loan that's callable in a year and which in fact is set up to be callable in a year in accordance with other cards, actions that Mr. Hahn generated set up for a variety of other people? Believe it or not, Judge Jordan, you've asked about five questions in one. Let's go to the Hahn. He said that at other banks like Deutsche Bank, he had cards deal, who were 40% of them went to the O'on one year and several went five to six. Other cards deal, the dust to shot case in the Kerman case, which your other decided cases here involved hype over Ryan's bank, which admitted in a deferred prosecution agreement. This thing was never supposed to go more than a year. There is no such evidence in the record with respect to Zurich Bank. All the documents in the record indicate a 30 year loan and... Not when you say all the documents in the record indicate a 30 year loan

. Don't the documents indicate indeed that this was callable in a year? Sure they do. Sure they do. But how can you say all the documents show that this was a 30 year loan? This was a loan that was callable in a year and the cards transaction presented at the get go made that clear, didn't it? The cards transaction presented the fact that there was an annual reset date at which the bank could choose not to continue the loan. But let's face it, George, banks are in the business of making money. And if Mr. Christman had a good business deal to present to the bank at that reset date, the bank surely would have accepted it. But he never presented them originally with an aircraft deal. Because the aircraft were not going to be available until the end of 2002. Secondly, Mr. Boyle said to him, don't bother with a business plan or anything like that until next summer. You know, you set up Boyle as a strong man here that you couldn't use, but Boyle wasn't even the person in authority that could have given him that assurance. Was he? He was the relationship manager at Zuerreak Capital markets in the fact of the matter. He was the face. I mean, he was the guy who was supposed to go out and get business for Zuerreak bank. He was the guy who could have testified. Here's my authority. Here's what the basis is. Here's what they told me to go out and do. We were prevented from putting all of that in to provide background for what Mr. Christman did. Could you address the penalty provision? Well, the gross valuation

. Mistake. I'd love to you, Your Honor. The point will give you an extra two minutes. I just want to hear your take on this. Very simple, Your Honor. We believe the penalty is focused on a natural valuation statement, not subit the lack of economic substance. In the internal and here it's an alleged inflating basis. In the internal revenue code, there are only two places where basis and cost are the same. Or rather basis is always good. There are only two places where it is when you inherit property from somebody receiving as a gift, you take it as fair market value, or if you're dealing with securities, there are the mark to market rules. Otherwise, basis is defined as cost cash plus debt. The basis here, what was in fact the cash Mr. Christman put in and the liability he assumed with respect to the Swiss francs he acquired. One very important point, Your Honor, is the tax court never decided basis. In fact, the government filed a motion for summary judgment to the effect that we had no basis. Judd Krope denied it. And I hate to sound sarcastic or facetious. The fact of the matter is if she had decided we didn't have any basis here, we'd never be talking about economic substance. But when there's a lack of economic substance, doesn't the case look pretty much say that the basis is zero in this type of transaction? There are opinions of not only the tax court, but all the courts of appeals except the fifth and the ninth, which say that. I'm going on the marina opinion issued by this court, which has language of that effect, but also contains very specific findings that in the court below the tax payers stipulated that the basis was way down here. So you would want us to send this back for determination as to the basis? Absolutely

. To the tax court. Absolutely. But the tax court affirmed the penalty. But the tax court never decided basis, Your Honor. No, but they had to buy inference by implication, have bought into exactly what the commissioner said, which is that it's zero because of the dollars. The tax court said no economic substance, therefore the valuation probably applies. We don't believe that's a proper rule of law tax court. You never got into basis. Isn't it implicit that they followed in essence what Gustas Shaw said, which is there's no economic substance, your basis is zero? They've decided all four of the current cases with exactly that language, George. But please remember something. In Gustas Shaw, there was never a contest with respect to economic substance or basis. The only thing Gustas Shaw argued about was whether the penalty was applicable, whether he had reasonable cost and good faith. Sure, but if we follow it, if we said Gustas Shaw seems well-reasoned, doesn't the reasoning of Gustas Shaw carry through any and support just what the tax court did? The tax court says there's no substance here. Gustas Shaw says what seems implicit in the tax court decision, which is basis is zero. Therefore, your claim that deduction is... I think you have to decide all the other issues that are presented here against us to take that position in Gustas Shaw simply because Gustas Shaw never contested the other issues. He said, George, we lose. We lose on all the other issues. We lose on basis economic substance

. But in effect, my heart was pure. Please don't hit me with the penalty. You know, you're on a thank you very much. All right. We'll hear from you on Rebuttal. Thank you. Good morning, ma'am. Please, the court. Judith Haggley from the Justice Department representing the Commissioner of Internal Revenue. There have been five other cards cases addressed by the tax court and in each the court appell the commissioner's determination that the transaction lacks economic substance. And where penalties were imposed that the valuation of the statement penalty applied. The court leaves the same conclusion here, but only after analyzing the fact specific to Mr. Christen's case. You want to address what Mr. Connelly said there at the end. The court, the tax court never addressed the issue of basis and therefore the penalty issue was wrongly dealt with in the tax court. You have asked to go back. That's your response. Well, we think this, we disagree and we think this court should follow with the love and circuit did and Gustascha. And with the tax court found in this case is it found two things. Number one, that the entire cards transaction should be disregarded for tax purposes. And when you disregard a transaction, the any property you've acquired in that transaction's basis is zero. And the court also found on page 30 of the appendix is that when the correct basis is zero. And of course, they were assumed that the correct basis was zero. But how do you assume that? Because it follows naturally from the fact that the transaction has been disregarded for tax purposes, which the court had earlier found on page 28 and 29 of the appendix. And so as the court stated, citing the treasury regulation is that when the correct basis is zero, the claim basis is deemed to be 400% or more than the correct basis in the valuation of the state and the penalty applied. That was the analysis applied by the love and circuit and Gustascha. And it should be the same analysis that we think the court should follow here. Now, is that required that it's zero? I know some of the case law says that. But there's nothing in the tax code that says when there's lack of economic substance, it's concluded that someone paid absolutely nothing. It doesn't say that in the tax code, but it's the economic substance doctrine has been developed by the courts, including this court, one of its primary decisions is the ACM decision. And it's well established that when a transaction or rather we flip it to be respected for tax purposes, a transaction must have economic substance. So then so based on that, you totally undo it and you recalculate what they owe exactly. But then the penalty provision seems to be when someone has engaged in a transaction that, you know, and they're saying the basis is this and the correct basis really is something else. It just seems under the language of the code that that applies to a real, a real actual transaction, not to a sham. Well, but there are seven circuits now, including this court and real decision that have held that evaluation of the statement penalty applies when a transaction has been disregarded. I'm not sure you're going to be talking about intent. I'm not sure that's an ingressional intent. Well, what Congress is looking for is what it was your claim basis, what is your correct basis? And if there's a difference there in the results and a tax deficiency, then the penalty applies. And what Congress was trying to do was to penalize, you know, attempts to create artificial losses, either by inflating value or inflating basis. So I think it's perfectly that it congresives intent, congressional intent, that a shelter that's trying to create a tax benefit that's not 100 to 1000s, but millions of dollars of artificial loss would be subject to this penalty. The tax court didn't specifically say, you know, the basis is zero and therefore it's either said it actually said, it lacks economic substance without regard to value

. And when you disregard a transaction, the any property you've acquired in that transaction's basis is zero. And the court also found on page 30 of the appendix is that when the correct basis is zero. And of course, they were assumed that the correct basis was zero. But how do you assume that? Because it follows naturally from the fact that the transaction has been disregarded for tax purposes, which the court had earlier found on page 28 and 29 of the appendix. And so as the court stated, citing the treasury regulation is that when the correct basis is zero, the claim basis is deemed to be 400% or more than the correct basis in the valuation of the state and the penalty applied. That was the analysis applied by the love and circuit and Gustascha. And it should be the same analysis that we think the court should follow here. Now, is that required that it's zero? I know some of the case law says that. But there's nothing in the tax code that says when there's lack of economic substance, it's concluded that someone paid absolutely nothing. It doesn't say that in the tax code, but it's the economic substance doctrine has been developed by the courts, including this court, one of its primary decisions is the ACM decision. And it's well established that when a transaction or rather we flip it to be respected for tax purposes, a transaction must have economic substance. So then so based on that, you totally undo it and you recalculate what they owe exactly. But then the penalty provision seems to be when someone has engaged in a transaction that, you know, and they're saying the basis is this and the correct basis really is something else. It just seems under the language of the code that that applies to a real, a real actual transaction, not to a sham. Well, but there are seven circuits now, including this court and real decision that have held that evaluation of the statement penalty applies when a transaction has been disregarded. I'm not sure you're going to be talking about intent. I'm not sure that's an ingressional intent. Well, what Congress is looking for is what it was your claim basis, what is your correct basis? And if there's a difference there in the results and a tax deficiency, then the penalty applies. And what Congress was trying to do was to penalize, you know, attempts to create artificial losses, either by inflating value or inflating basis. So I think it's perfectly that it congresives intent, congressional intent, that a shelter that's trying to create a tax benefit that's not 100 to 1000s, but millions of dollars of artificial loss would be subject to this penalty. The tax court didn't specifically say, you know, the basis is zero and therefore it's either said it actually said, it lacks economic substance without regard to value. Right, whatever it's basis, and that was the same, I think, result in the marine case. The parties there had stipulated that the basis property had for $50,000. And the taxpayer didn't get a $50,000 tax benefit, no benefit. And then there was an actual piece of property where they said it's worth x, x, y. Here we don't have that. We have a transaction. We have something that is basically a shell game. But we do have actual property because the property that generated the claim loss was the foreign currency, the Swiss currency, the Swiss Frank's sorry. And the way the taxpayer claimed the benefit was on its tax return reported that it's basis in the Swiss currency was 9.4 million. It exchanged at the same day required it for 1.8 million, which was the property's value, and lo and behold, a 7.6 million artificial loss. Now that was a wash transaction. 1.8 million of foreign currency was acquired in exchange for $108 million. But was 1.8 its basis? No, that's what it acquired. What was its cost? If you were to respect the transaction, the actual cost was 1.8 million. Its fair market value when it was acquired

. Right, whatever it's basis, and that was the same, I think, result in the marine case. The parties there had stipulated that the basis property had for $50,000. And the taxpayer didn't get a $50,000 tax benefit, no benefit. And then there was an actual piece of property where they said it's worth x, x, y. Here we don't have that. We have a transaction. We have something that is basically a shell game. But we do have actual property because the property that generated the claim loss was the foreign currency, the Swiss currency, the Swiss Frank's sorry. And the way the taxpayer claimed the benefit was on its tax return reported that it's basis in the Swiss currency was 9.4 million. It exchanged at the same day required it for 1.8 million, which was the property's value, and lo and behold, a 7.6 million artificial loss. Now that was a wash transaction. 1.8 million of foreign currency was acquired in exchange for $108 million. But was 1.8 its basis? No, that's what it acquired. What was its cost? If you were to respect the transaction, the actual cost was 1.8 million. Its fair market value when it was acquired. And then it was exchanged the same day from 1.8 million dollars. But because the transaction does not have any economic substance, that currency acquisition is not respected. The taxpayer has no basis in that property. But you end up in the same place. You do, exactly. You end up in the same place. You look at it as a basis of 1.8 to claim 9.4, or you look at it as a sham and a zero. You still end up with 7.6 million. That's exactly right. That is exactly right. That is exactly right. The taxpayer has not addressed the reasonable cause argument. We've addressed that in a brief. Quote has any questions on that. I'd be happy to address it. You want to talk if you would about Mr. Boyle and Adversons

. And then it was exchanged the same day from 1.8 million dollars. But because the transaction does not have any economic substance, that currency acquisition is not respected. The taxpayer has no basis in that property. But you end up in the same place. You do, exactly. You end up in the same place. You look at it as a basis of 1.8 to claim 9.4, or you look at it as a sham and a zero. You still end up with 7.6 million. That's exactly right. That is exactly right. That is exactly right. The taxpayer has not addressed the reasonable cause argument. We've addressed that in a brief. Quote has any questions on that. I'd be happy to address it. You want to talk if you would about Mr. Boyle and Adversons. As we was Judge Fisher noted, there was no evidence of witness intimidation in this case. Mr. Boyle decided for personal reasons to claim the Fifth Amendment. His attorney hit his motion that Mr. Boyle was doing this for personal reasons. There should be no adverse inference against the government. The parties in this case really didn't address that issue as Council for Mr. Christman admitted. They never asked the Court for adverse inference. But as the tax court found, even if Mr. Boyle had testified and had made the statements that Mr. Christman claimed, it wouldn't change the outcome of the case. Because even if Mr. Boyle had made the statement that Zorbank would consider looking at aircraft and that Mr. Boyle should, I'm sorry, Mr. Christman should hold off, putting together that credit package till June of 2002, Mr. Christman didn't put that package together. And so as the tax court found, it's not just that Mr. Christman's testimony was uncooperated. It's that Mr. Christman's testimony conflicted with his own actions

. As we was Judge Fisher noted, there was no evidence of witness intimidation in this case. Mr. Boyle decided for personal reasons to claim the Fifth Amendment. His attorney hit his motion that Mr. Boyle was doing this for personal reasons. There should be no adverse inference against the government. The parties in this case really didn't address that issue as Council for Mr. Christman admitted. They never asked the Court for adverse inference. But as the tax court found, even if Mr. Boyle had testified and had made the statements that Mr. Christman claimed, it wouldn't change the outcome of the case. Because even if Mr. Boyle had made the statement that Zorbank would consider looking at aircraft and that Mr. Boyle should, I'm sorry, Mr. Christman should hold off, putting together that credit package till June of 2002, Mr. Christman didn't put that package together. And so as the tax court found, it's not just that Mr. Christman's testimony was uncooperated. It's that Mr. Christman's testimony conflicted with his own actions. He never put together a credit package for Zorbank Bank. He can see it on the stand that Mr. Boyle did not have the authority to deem what type of property would be acceptable collateral. And therefore, even if Mr. Boyle had made these statements, Mr. Christman cannot reasonably rely on that. But one of the things that Mr. Christman argues is that at least as to his unimpeded testimony, he testified that he intended to use the card loans to fund aircraft. He did testify to that. That was inconsistent with that. But the tax court ignored that. The tax court found that it wasn't credible. But it wasn't impeached. It was impeached by his own actions, Your Honor, because he entered into the transaction without first establishing Zorbank what would they would accept? And he can see that in a non-card loan, what you do first is establish with the bank what would be acceptable collateral. That's not what he did here. What he first established was with Chenery how much income Murus was going to earn in 2001, and that was $7.6 million of income. And then if you look at Chenery's documents that we've cited in the record, they note in their internal documents that Mr. Christman wants a $7.6 million loss. There's no analysis in that document

. He never put together a credit package for Zorbank Bank. He can see it on the stand that Mr. Boyle did not have the authority to deem what type of property would be acceptable collateral. And therefore, even if Mr. Boyle had made these statements, Mr. Christman cannot reasonably rely on that. But one of the things that Mr. Christman argues is that at least as to his unimpeded testimony, he testified that he intended to use the card loans to fund aircraft. He did testify to that. That was inconsistent with that. But the tax court ignored that. The tax court found that it wasn't credible. But it wasn't impeached. It was impeached by his own actions, Your Honor, because he entered into the transaction without first establishing Zorbank what would they would accept? And he can see that in a non-card loan, what you do first is establish with the bank what would be acceptable collateral. That's not what he did here. What he first established was with Chenery how much income Murus was going to earn in 2001, and that was $7.6 million of income. And then if you look at Chenery's documents that we've cited in the record, they note in their internal documents that Mr. Christman wants a $7.6 million loss. There's no analysis in that document. How much financing that he may or may not want from Zorbank. And then the card transaction was designed to generate the $7.6 million loss that exactly offset the income earned in this case. One of the other things that Mr. Christman points out is that this transaction wasn't designed specifically for him. It was designed for somebody else, and he picked it up. I mean, he picked it up for the tax benefits. But that also doesn't that also factor into the question of whether or not he had the intention of picking this up for purposes as he said to facilitate liquidity for his aircraft business. I don't think that it does. It was one fact in the case, but it's undermined by the fact that he never pursued the financing that he engaged in this transaction without any sort of written business plan or profitability of analysis that would demonstrate that he was going to take nearest which had been a more security company and transition it over to an aircraft leasing company. So, could have any further questions? Thank you. Mr. Conner. I speak rapidly. I hope I can cover all this in three minutes. First point, this ugly says there were five other cases. I have no of only three country, pine, kerman and duster shop. There are four opinions total, but only three other cases. And as I mentioned, type over, I spent a couple of years involved in two of them. It did a non-possication agreement saying this was a sham. We don't have what's there

. How much financing that he may or may not want from Zorbank. And then the card transaction was designed to generate the $7.6 million loss that exactly offset the income earned in this case. One of the other things that Mr. Christman points out is that this transaction wasn't designed specifically for him. It was designed for somebody else, and he picked it up. I mean, he picked it up for the tax benefits. But that also doesn't that also factor into the question of whether or not he had the intention of picking this up for purposes as he said to facilitate liquidity for his aircraft business. I don't think that it does. It was one fact in the case, but it's undermined by the fact that he never pursued the financing that he engaged in this transaction without any sort of written business plan or profitability of analysis that would demonstrate that he was going to take nearest which had been a more security company and transition it over to an aircraft leasing company. So, could have any further questions? Thank you. Mr. Conner. I speak rapidly. I hope I can cover all this in three minutes. First point, this ugly says there were five other cases. I have no of only three country, pine, kerman and duster shop. There are four opinions total, but only three other cases. And as I mentioned, type over, I spent a couple of years involved in two of them. It did a non-possication agreement saying this was a sham. We don't have what's there. Secondly, with respect to the valuation penalty, we get to congressional intent. Why would they call it a valuation misstatement? If that part of the penalty is based about anything except real valuation. I don't think they can. I don't think they can. To accept that position, Mr. Conner, we wouldn't have to accept that Congress intended for people who make mistakes or fiddle with basis and value in real transactions are to be treated worse than people who are engaged in complete shams. Now, taking your client out of it, I'm talking now about congressional intent. It doesn't sure line of analysis as you've just described it mean that a person is better off actually engaged in a complete sham transaction than in a legitimate transaction, a one in which there's been a inflation of basis. We look at the penalty regimen, Your Honor. There's negligence, there's substantial understatement, there's valuation misstatement. Those three both carry it all, three carry it 20%. It's the extreme 40% penalty that splits the problem here. And our point very simply is in the transactions you described, I can't imagine someone coming up with a 400% inflation of the value in a regular transaction. And therefore that person shouldn't be, wouldn't be worse off than what's happened here. What were the actual numbers here? I virtue of having it be called economic sham, I mean a total sham. What was the additional tax that was due to approximately $7 million, Your Honor? Okay. And then as a result of the penalty, how was that increased? The penalty is 40% of the 7, so it's 2.8 million. Okay. And interest runs on both of them. So the next point I want to make is that this Hagley seemed to say in her comments that the value should be equivalent of cost of $1

. Secondly, with respect to the valuation penalty, we get to congressional intent. Why would they call it a valuation misstatement? If that part of the penalty is based about anything except real valuation. I don't think they can. I don't think they can. To accept that position, Mr. Conner, we wouldn't have to accept that Congress intended for people who make mistakes or fiddle with basis and value in real transactions are to be treated worse than people who are engaged in complete shams. Now, taking your client out of it, I'm talking now about congressional intent. It doesn't sure line of analysis as you've just described it mean that a person is better off actually engaged in a complete sham transaction than in a legitimate transaction, a one in which there's been a inflation of basis. We look at the penalty regimen, Your Honor. There's negligence, there's substantial understatement, there's valuation misstatement. Those three both carry it all, three carry it 20%. It's the extreme 40% penalty that splits the problem here. And our point very simply is in the transactions you described, I can't imagine someone coming up with a 400% inflation of the value in a regular transaction. And therefore that person shouldn't be, wouldn't be worse off than what's happened here. What were the actual numbers here? I virtue of having it be called economic sham, I mean a total sham. What was the additional tax that was due to approximately $7 million, Your Honor? Okay. And then as a result of the penalty, how was that increased? The penalty is 40% of the 7, so it's 2.8 million. Okay. And interest runs on both of them. So the next point I want to make is that this Hagley seemed to say in her comments that the value should be equivalent of cost of $1.8 million. Again, there are rules of basis and value is not the limitation of basis. What's wrong with that reason? If that's, if the basis is not going to be zero, what would the basis be, if not, what Mr. Crispin actually got? 1.8 million worth of francs? Black later lost as it is the cash, plus any liabilities assumed in connection with the acquisition of property. So I mean, what would the basis be? I believe it would be something like 1 million? Significantly more than, yeah. But the point very simply is there are times in life when the value of property is greater or less than the basis. And this is one of them. And it was a real loan that was expected to be repaid over 30 years and was in fact repaid. The light, you know, my light is on here, Your Honor. There's one point I want to make about this. Not doing the credit package and so forth on Mr. Crispin's part, actually two points. Number one, Mr. Boyle left in April. There was no one to deal with. And the evidence showed Zurich was shutting down all of its non-core business including these cards transactions. I guess the second point very simply is this. You and I don't just go to a credit committee. We deal with the representative of the bank, and we want to loan. That was what Mr

.8 million. Again, there are rules of basis and value is not the limitation of basis. What's wrong with that reason? If that's, if the basis is not going to be zero, what would the basis be, if not, what Mr. Crispin actually got? 1.8 million worth of francs? Black later lost as it is the cash, plus any liabilities assumed in connection with the acquisition of property. So I mean, what would the basis be? I believe it would be something like 1 million? Significantly more than, yeah. But the point very simply is there are times in life when the value of property is greater or less than the basis. And this is one of them. And it was a real loan that was expected to be repaid over 30 years and was in fact repaid. The light, you know, my light is on here, Your Honor. There's one point I want to make about this. Not doing the credit package and so forth on Mr. Crispin's part, actually two points. Number one, Mr. Boyle left in April. There was no one to deal with. And the evidence showed Zurich was shutting down all of its non-core business including these cards transactions. I guess the second point very simply is this. You and I don't just go to a credit committee. We deal with the representative of the bank, and we want to loan. That was what Mr. Boyle's position was for Mr. Crispin. It wasn't appropriate for him a year before the transaction to go to the credit committee and say, Here's what I want to do. Thanks. Do not commit themselves to loans a year in advance. But if his intent was to do what he says it was, isn't it curious that he put it in the mortgage security company that he didn't start a new company and say, This is my intent and we're going to call it the Transair leasing. His work with the mortgage security company was ended in a judge round out. It was a matter of what am I going to do with the money here and the cash in that company plus the financing is going to get the point to finance the clients. All right. Thank you.

Well briefed and we'll take it under advisement. Call our next case. Good morning, Neil Crispin versus Commissioner of Internal Revenue. Good morning, Your Honours and may it please the court. My name is George Covley. I am Councilor. I'm sorry. I'm sorry. Clear off the last argument and get settled. I apologize, Your Honour. No problem. So hasty. Once again, good morning. My name is George Covley. I represent the appellate Neil Crispin in this proceeding. And I'd like to reserve three minutes for rebuttal at the conclusion of our comments. Grant. Please the court. This matter involves something called the custom adjustable rate debt structure, which has been the subject of other cases. As we've explained in our briefs, there are significant factual differences between Mr. Crispin's experience and the other reported cases. We're here because, quite frankly, the tax court has said we decided other cards cases against the tax payers. And as a result, we don't believe we ever got a fair consideration of our evidence with respect to Mr. Crispin's business purpose, profit potential, or anything else in the case. Let me say you don't think you ever got a fair hearing. You had a chance to put on evidence in front of the tax court. Tax court decided I don't believe Mr. Crispin. He said some things, and I don't think he's truthful. I think he never really intended to have aircraft be substitute collateral here, even if that could have happened. So I'm discounting that. Now, why isn't that classically the responsibility of a trial tribunal and something that isn't for us to enter metal with? Partly, you're honored because of evidence we were not allowed to present. Virtually every point in Mr. Crispin's favor here could have been corroborated by a gentleman named William Boyle, who claimed fifth amendment because of the threats of prosecution that they were ever testified on behalf of the tax payer. Mr. Boyle is the person who went on that. Go ahead, you're honored. I don't understand your argument on that. And he claimed, Boyle claimed the fifth. You alluded to an adverse inference against the government for intimidation. There's no evidence in the record of that. I mean, how can you get around Boyle's testimony, whatever it may have been when Boyle wouldn't testify? Judge Fisher, I believe that the papers filed by Boyle's lawyers in response to our subpoena indicate that he is part of the non-jeweling investigation. By the Southern District of New York, US Attorney's Office relating to alleged tax shelters. And as a result, was not going to put himself on the stand. Our point very simply is this. Judge Jordan's correct. Our testimony was rejected, but it was rejected as uncorroborated. Our contention is that Mr. Boyle had testified he could have corroborated every important point that Mr. Crispin made. And we believe most of the cases that have come down in this area involve criminal proceedings where we can point to a prosecutor or an agent who goes to a witness and says, if you testify, we'll do the same. So we don't have that. We have a more general threat to Mr. Boyle. We couldn't witness testimony. I mean, what the government is supposed to do. How can that lead to an adverse inference? The government is supposed to investigate suspected criminal activity. Evidently, that's what they're doing. Mr. Boyle chooses to invoke the Fifth Amendment. How can you turn that into a basis to say, in your case, we should win because somebody invoked the Fifth? Your Honor, it's very simply the fact that the government, the United States of government, and its threat to Mr. Boyle by virtue of potential prosecution prevented us from putting him on. But that happens. I mean, that happens that people are under investigation, and therefore aren't willing to testify. What should have happened here? The government should have been barred from investigating him so that he wouldn't take the Fifth? Absolutely not, Judge Mendel. One of two things. Number one, I think the Internal Revenue Service should have gone to the United States Attorney's Office and said, hey, we are facing an adverse inference of Boyle doesn't testify here. Release him from any potential threat of prosecution for purposes of his testimony here, like a limited community grant. Is there any request for that by your client in the tax court? Is there any request for that? The motion should be seen here. I think I'm shallow in the evening, maybe, anything like that? Your Honor, we frankly felt it by subpoenaing Mr. Boyle in arguing that he should be brought into testify. We had basically done everything we could and everything we were required to when the tax court admitted its declaration, okay, he's unavailable. But what order of the tax court with respect to this, are you asking us to reverse? I'm not asking you to reverse in order of the tax court per se. What I'm asking you to do is what the Eastern District of New York did in the Ramirez case, Your Honor, which is to draw a negative inference against the United States here, the Commissioner of Internal Revenue because Mr. Boyle wasn't available or alternatively deemed his testimony, the Mr. Christmas testimony as corroborated by Mr. Hahn and others, has, would have been corroborated by Mr. Boyle if he had been allowed to testify. If we agreed with that, could we do that or should we, would we be required to send it back to the tax court directing them to refine the facts based on the adverse inference? I'm asking you to send it back to the tax court to do exactly that, Judge Fisher. Now, are you saying you asked the tax court to draw an adverse inference and they refused? What I'm saying is we made a presentation indicating what Mr. Boyle's testimony would have been and the tax court chose not to accept it. They did not, they did not, they did not, the court was not to deny such a request for an adverse interest, correct? That's correct, Your Honor. More specifically, was there ever a request to the tax court for an adverse interest? In all honesty, Judge Jordan, no, there was no specific request. But, but, but, I guess the public. It may be significant, Your Honor, but remember, there were two parts to the Boyle issue here. We wanted to put Boyle on, we weren't allowed to. We had a former business associate in Mr. Boyle, very Austin, and we identified and pretrial documents that if Boyle didn't testify, we wanted to put Austin on to talk about basically the way the operation was conducted as well as conversation. So, I think the conversation she had had with Boyle, Judge Kropa refused to let us have that testimony only of Mr. Austin. Well, is that order in the record? I believe it is part of the appendix your honor, is any transcript of it. It wasn't something that Judge Kropa issued a specific order with respect to as she did in granting the quashing of the subpoena. I assume for the sake of discussion, we, that we work in planning to agree with you that that some adverse influence was in order here. And that what we're dealing with is Mr. Christians' testimony on the stand, which the judge found incredible. I don't know if she said incredible, Judge Jordan. She just didn't accept it. Not, didn't accept it. Yes. Not credible. Not credible enough to be credited. If that's the state of the record, as we understand it. I'll go back to the question I asked you earlier. Why isn't that classic sort of fact-finding, which would only be overturned if it was clear? Well, it is exactly that kind of fact finding Judge Falk Jordan, and that's what we've argued in our briefs. We believe if you look at the record as a whole, it was clearly erroneous for her to come to that conclusion. But we're backstopping with the fact that if we could have had, if we could have had Boyle's testimony, we could have corroborated every item that she said was not corroborated. Let's explain to me, leaving the Boyle piece out of it. What's clearly erroneous about not believing a witness's testimony? I don't think there was anything inherently incredible. There was nothing impeached. I mean, I don't think a judge can simply say, well, the testimony is self-serving and corroborated, and therefore we're not going to accept it. I think you have a totality of evidence ranging from the documentary evidence to the testimony of Mr. Christman, testimony of Mr. Hahn, other third parties which supported this testimony. What was, excuse me, fine, in revenue? But what was the evidence in the record, separate apart from Mr. Christman's testimony, that pointed out that this was an actual aircraft transaction, that this was going to be a business of aircraft leasing. What is there in the record? Well, above all the judgment, I mean, it was supposed to be with how he came involved with cards in the first place. He was approached by Roy Hahn, who had what I'll call a busted deal. Roy said, Neil, I've known you for years. You're always looking for financing. I know you've been involved in aircraft. In fact, I consulted with you years ago when I had a potential cards customer who wanted to sell the money. But I'm asking you a pretty pointed question. Where in the record do we see page 492? This is an aircraft financing deal. These are my projections. This is what I'm going to be doing. I have a game plan for a 30-year loan, et cetera, et cetera. Well, that is, it is throughout Mr. Christman's testimony, the desire to use aircraft is something that was corroborated by two people, Mr. Hahn and Rob Morris, the attorney who did the tax payment, based on conversations with Mr. Christman and a review of all the documents. It wasn't in the letter, the tax letter did not talk about the aircraft. Excellent point, Judge Fisher. The tax letter talked about equipment financing. But in trial, Mr. Morris testified, unlike a lot of tax lawyers, he sat right on the witness's can, he looked Judge Crop and the eye and said, I knew that what Mr. Christman was using the score was aircraft leasing. Doesn't it run in the face of the actual documentation? I mean, didn't, didn't deserve bank have the right to bring that loan in after a year, as they in fact did? Judge Jordan, of course it did. And so can you can you point me to a circumstance for somebody's and a loan that's callable in a year and which in fact is set up to be callable in a year in accordance with other cards, actions that Mr. Hahn generated set up for a variety of other people? Believe it or not, Judge Jordan, you've asked about five questions in one. Let's go to the Hahn. He said that at other banks like Deutsche Bank, he had cards deal, who were 40% of them went to the O'on one year and several went five to six. Other cards deal, the dust to shot case in the Kerman case, which your other decided cases here involved hype over Ryan's bank, which admitted in a deferred prosecution agreement. This thing was never supposed to go more than a year. There is no such evidence in the record with respect to Zurich Bank. All the documents in the record indicate a 30 year loan and... Not when you say all the documents in the record indicate a 30 year loan. Don't the documents indicate indeed that this was callable in a year? Sure they do. Sure they do. But how can you say all the documents show that this was a 30 year loan? This was a loan that was callable in a year and the cards transaction presented at the get go made that clear, didn't it? The cards transaction presented the fact that there was an annual reset date at which the bank could choose not to continue the loan. But let's face it, George, banks are in the business of making money. And if Mr. Christman had a good business deal to present to the bank at that reset date, the bank surely would have accepted it. But he never presented them originally with an aircraft deal. Because the aircraft were not going to be available until the end of 2002. Secondly, Mr. Boyle said to him, don't bother with a business plan or anything like that until next summer. You know, you set up Boyle as a strong man here that you couldn't use, but Boyle wasn't even the person in authority that could have given him that assurance. Was he? He was the relationship manager at Zuerreak Capital markets in the fact of the matter. He was the face. I mean, he was the guy who was supposed to go out and get business for Zuerreak bank. He was the guy who could have testified. Here's my authority. Here's what the basis is. Here's what they told me to go out and do. We were prevented from putting all of that in to provide background for what Mr. Christman did. Could you address the penalty provision? Well, the gross valuation. Mistake. I'd love to you, Your Honor. The point will give you an extra two minutes. I just want to hear your take on this. Very simple, Your Honor. We believe the penalty is focused on a natural valuation statement, not subit the lack of economic substance. In the internal and here it's an alleged inflating basis. In the internal revenue code, there are only two places where basis and cost are the same. Or rather basis is always good. There are only two places where it is when you inherit property from somebody receiving as a gift, you take it as fair market value, or if you're dealing with securities, there are the mark to market rules. Otherwise, basis is defined as cost cash plus debt. The basis here, what was in fact the cash Mr. Christman put in and the liability he assumed with respect to the Swiss francs he acquired. One very important point, Your Honor, is the tax court never decided basis. In fact, the government filed a motion for summary judgment to the effect that we had no basis. Judd Krope denied it. And I hate to sound sarcastic or facetious. The fact of the matter is if she had decided we didn't have any basis here, we'd never be talking about economic substance. But when there's a lack of economic substance, doesn't the case look pretty much say that the basis is zero in this type of transaction? There are opinions of not only the tax court, but all the courts of appeals except the fifth and the ninth, which say that. I'm going on the marina opinion issued by this court, which has language of that effect, but also contains very specific findings that in the court below the tax payers stipulated that the basis was way down here. So you would want us to send this back for determination as to the basis? Absolutely. To the tax court. Absolutely. But the tax court affirmed the penalty. But the tax court never decided basis, Your Honor. No, but they had to buy inference by implication, have bought into exactly what the commissioner said, which is that it's zero because of the dollars. The tax court said no economic substance, therefore the valuation probably applies. We don't believe that's a proper rule of law tax court. You never got into basis. Isn't it implicit that they followed in essence what Gustas Shaw said, which is there's no economic substance, your basis is zero? They've decided all four of the current cases with exactly that language, George. But please remember something. In Gustas Shaw, there was never a contest with respect to economic substance or basis. The only thing Gustas Shaw argued about was whether the penalty was applicable, whether he had reasonable cost and good faith. Sure, but if we follow it, if we said Gustas Shaw seems well-reasoned, doesn't the reasoning of Gustas Shaw carry through any and support just what the tax court did? The tax court says there's no substance here. Gustas Shaw says what seems implicit in the tax court decision, which is basis is zero. Therefore, your claim that deduction is... I think you have to decide all the other issues that are presented here against us to take that position in Gustas Shaw simply because Gustas Shaw never contested the other issues. He said, George, we lose. We lose on all the other issues. We lose on basis economic substance. But in effect, my heart was pure. Please don't hit me with the penalty. You know, you're on a thank you very much. All right. We'll hear from you on Rebuttal. Thank you. Good morning, ma'am. Please, the court. Judith Haggley from the Justice Department representing the Commissioner of Internal Revenue. There have been five other cards cases addressed by the tax court and in each the court appell the commissioner's determination that the transaction lacks economic substance. And where penalties were imposed that the valuation of the statement penalty applied. The court leaves the same conclusion here, but only after analyzing the fact specific to Mr. Christen's case. You want to address what Mr. Connelly said there at the end. The court, the tax court never addressed the issue of basis and therefore the penalty issue was wrongly dealt with in the tax court. You have asked to go back. That's your response. Well, we think this, we disagree and we think this court should follow with the love and circuit did and Gustascha. And with the tax court found in this case is it found two things. Number one, that the entire cards transaction should be disregarded for tax purposes. And when you disregard a transaction, the any property you've acquired in that transaction's basis is zero. And the court also found on page 30 of the appendix is that when the correct basis is zero. And of course, they were assumed that the correct basis was zero. But how do you assume that? Because it follows naturally from the fact that the transaction has been disregarded for tax purposes, which the court had earlier found on page 28 and 29 of the appendix. And so as the court stated, citing the treasury regulation is that when the correct basis is zero, the claim basis is deemed to be 400% or more than the correct basis in the valuation of the state and the penalty applied. That was the analysis applied by the love and circuit and Gustascha. And it should be the same analysis that we think the court should follow here. Now, is that required that it's zero? I know some of the case law says that. But there's nothing in the tax code that says when there's lack of economic substance, it's concluded that someone paid absolutely nothing. It doesn't say that in the tax code, but it's the economic substance doctrine has been developed by the courts, including this court, one of its primary decisions is the ACM decision. And it's well established that when a transaction or rather we flip it to be respected for tax purposes, a transaction must have economic substance. So then so based on that, you totally undo it and you recalculate what they owe exactly. But then the penalty provision seems to be when someone has engaged in a transaction that, you know, and they're saying the basis is this and the correct basis really is something else. It just seems under the language of the code that that applies to a real, a real actual transaction, not to a sham. Well, but there are seven circuits now, including this court and real decision that have held that evaluation of the statement penalty applies when a transaction has been disregarded. I'm not sure you're going to be talking about intent. I'm not sure that's an ingressional intent. Well, what Congress is looking for is what it was your claim basis, what is your correct basis? And if there's a difference there in the results and a tax deficiency, then the penalty applies. And what Congress was trying to do was to penalize, you know, attempts to create artificial losses, either by inflating value or inflating basis. So I think it's perfectly that it congresives intent, congressional intent, that a shelter that's trying to create a tax benefit that's not 100 to 1000s, but millions of dollars of artificial loss would be subject to this penalty. The tax court didn't specifically say, you know, the basis is zero and therefore it's either said it actually said, it lacks economic substance without regard to value. Right, whatever it's basis, and that was the same, I think, result in the marine case. The parties there had stipulated that the basis property had for $50,000. And the taxpayer didn't get a $50,000 tax benefit, no benefit. And then there was an actual piece of property where they said it's worth x, x, y. Here we don't have that. We have a transaction. We have something that is basically a shell game. But we do have actual property because the property that generated the claim loss was the foreign currency, the Swiss currency, the Swiss Frank's sorry. And the way the taxpayer claimed the benefit was on its tax return reported that it's basis in the Swiss currency was 9.4 million. It exchanged at the same day required it for 1.8 million, which was the property's value, and lo and behold, a 7.6 million artificial loss. Now that was a wash transaction. 1.8 million of foreign currency was acquired in exchange for $108 million. But was 1.8 its basis? No, that's what it acquired. What was its cost? If you were to respect the transaction, the actual cost was 1.8 million. Its fair market value when it was acquired. And then it was exchanged the same day from 1.8 million dollars. But because the transaction does not have any economic substance, that currency acquisition is not respected. The taxpayer has no basis in that property. But you end up in the same place. You do, exactly. You end up in the same place. You look at it as a basis of 1.8 to claim 9.4, or you look at it as a sham and a zero. You still end up with 7.6 million. That's exactly right. That is exactly right. That is exactly right. The taxpayer has not addressed the reasonable cause argument. We've addressed that in a brief. Quote has any questions on that. I'd be happy to address it. You want to talk if you would about Mr. Boyle and Adversons. As we was Judge Fisher noted, there was no evidence of witness intimidation in this case. Mr. Boyle decided for personal reasons to claim the Fifth Amendment. His attorney hit his motion that Mr. Boyle was doing this for personal reasons. There should be no adverse inference against the government. The parties in this case really didn't address that issue as Council for Mr. Christman admitted. They never asked the Court for adverse inference. But as the tax court found, even if Mr. Boyle had testified and had made the statements that Mr. Christman claimed, it wouldn't change the outcome of the case. Because even if Mr. Boyle had made the statement that Zorbank would consider looking at aircraft and that Mr. Boyle should, I'm sorry, Mr. Christman should hold off, putting together that credit package till June of 2002, Mr. Christman didn't put that package together. And so as the tax court found, it's not just that Mr. Christman's testimony was uncooperated. It's that Mr. Christman's testimony conflicted with his own actions. He never put together a credit package for Zorbank Bank. He can see it on the stand that Mr. Boyle did not have the authority to deem what type of property would be acceptable collateral. And therefore, even if Mr. Boyle had made these statements, Mr. Christman cannot reasonably rely on that. But one of the things that Mr. Christman argues is that at least as to his unimpeded testimony, he testified that he intended to use the card loans to fund aircraft. He did testify to that. That was inconsistent with that. But the tax court ignored that. The tax court found that it wasn't credible. But it wasn't impeached. It was impeached by his own actions, Your Honor, because he entered into the transaction without first establishing Zorbank what would they would accept? And he can see that in a non-card loan, what you do first is establish with the bank what would be acceptable collateral. That's not what he did here. What he first established was with Chenery how much income Murus was going to earn in 2001, and that was $7.6 million of income. And then if you look at Chenery's documents that we've cited in the record, they note in their internal documents that Mr. Christman wants a $7.6 million loss. There's no analysis in that document. How much financing that he may or may not want from Zorbank. And then the card transaction was designed to generate the $7.6 million loss that exactly offset the income earned in this case. One of the other things that Mr. Christman points out is that this transaction wasn't designed specifically for him. It was designed for somebody else, and he picked it up. I mean, he picked it up for the tax benefits. But that also doesn't that also factor into the question of whether or not he had the intention of picking this up for purposes as he said to facilitate liquidity for his aircraft business. I don't think that it does. It was one fact in the case, but it's undermined by the fact that he never pursued the financing that he engaged in this transaction without any sort of written business plan or profitability of analysis that would demonstrate that he was going to take nearest which had been a more security company and transition it over to an aircraft leasing company. So, could have any further questions? Thank you. Mr. Conner. I speak rapidly. I hope I can cover all this in three minutes. First point, this ugly says there were five other cases. I have no of only three country, pine, kerman and duster shop. There are four opinions total, but only three other cases. And as I mentioned, type over, I spent a couple of years involved in two of them. It did a non-possication agreement saying this was a sham. We don't have what's there. Secondly, with respect to the valuation penalty, we get to congressional intent. Why would they call it a valuation misstatement? If that part of the penalty is based about anything except real valuation. I don't think they can. I don't think they can. To accept that position, Mr. Conner, we wouldn't have to accept that Congress intended for people who make mistakes or fiddle with basis and value in real transactions are to be treated worse than people who are engaged in complete shams. Now, taking your client out of it, I'm talking now about congressional intent. It doesn't sure line of analysis as you've just described it mean that a person is better off actually engaged in a complete sham transaction than in a legitimate transaction, a one in which there's been a inflation of basis. We look at the penalty regimen, Your Honor. There's negligence, there's substantial understatement, there's valuation misstatement. Those three both carry it all, three carry it 20%. It's the extreme 40% penalty that splits the problem here. And our point very simply is in the transactions you described, I can't imagine someone coming up with a 400% inflation of the value in a regular transaction. And therefore that person shouldn't be, wouldn't be worse off than what's happened here. What were the actual numbers here? I virtue of having it be called economic sham, I mean a total sham. What was the additional tax that was due to approximately $7 million, Your Honor? Okay. And then as a result of the penalty, how was that increased? The penalty is 40% of the 7, so it's 2.8 million. Okay. And interest runs on both of them. So the next point I want to make is that this Hagley seemed to say in her comments that the value should be equivalent of cost of $1.8 million. Again, there are rules of basis and value is not the limitation of basis. What's wrong with that reason? If that's, if the basis is not going to be zero, what would the basis be, if not, what Mr. Crispin actually got? 1.8 million worth of francs? Black later lost as it is the cash, plus any liabilities assumed in connection with the acquisition of property. So I mean, what would the basis be? I believe it would be something like 1 million? Significantly more than, yeah. But the point very simply is there are times in life when the value of property is greater or less than the basis. And this is one of them. And it was a real loan that was expected to be repaid over 30 years and was in fact repaid. The light, you know, my light is on here, Your Honor. There's one point I want to make about this. Not doing the credit package and so forth on Mr. Crispin's part, actually two points. Number one, Mr. Boyle left in April. There was no one to deal with. And the evidence showed Zurich was shutting down all of its non-core business including these cards transactions. I guess the second point very simply is this. You and I don't just go to a credit committee. We deal with the representative of the bank, and we want to loan. That was what Mr. Boyle's position was for Mr. Crispin. It wasn't appropriate for him a year before the transaction to go to the credit committee and say, Here's what I want to do. Thanks. Do not commit themselves to loans a year in advance. But if his intent was to do what he says it was, isn't it curious that he put it in the mortgage security company that he didn't start a new company and say, This is my intent and we're going to call it the Transair leasing. His work with the mortgage security company was ended in a judge round out. It was a matter of what am I going to do with the money here and the cash in that company plus the financing is going to get the point to finance the clients. All right. Thank you