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  Cross-Border Financial Structures  
   
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  Tax Litigation  
   
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Tax Litigation

Tax litigation has always been a significant part of the Firm’s practice and our lawyers collectively have nigh on forty years experience litigating US federal and state tax cases. As Associate Chief Counsel (International), Washington managing partner John Staples was in charge of more than 130 I.R.S. attorneys nationwide who were litigating cases for the I.R.S.. His was the final legal word on all I.R.S. cases his attorneys tried, including pricing, treaty and tax shelter cases among others.


We have set down 35 cases for trial, and tried 9 of them to completion, including through the federal appeals courts where necessary. We won eight of the nine.

Cases

The Firm has brought 35 federal and state tax cases of every sort since 1987. The amounts in issue in these cases exceeded $400 million. We settled all but nine of them on very favorable terms, and tried the remaining nine, winning eight.

Our cases have been of all kinds: “fact” cases, where the law was clear but the facts in dispute (S&L Entertainment Enterprises, B.V. v. United States), “law” cases, where the facts were clear but the law in dispute (Tate & Lyle Inc. v. Commissioner) and mixed “fact and law” cases (A.E. Staley Mfg. Co. v. Commissioner). So far, we have won every tax case we have tried but one.

Some of the issues we have tried include:

1. A.E. Staley Mfg. Co. v. Commissioner, 119 F.3d 482 (7th Cir. 1997), rev’g 105 T.C. 166 (1995). Staley spent more than $25 million to defend itself from a hostile takeover. It ultimately lost and was taken over. The I.R.S. disallowed the deductions Staley took for these defense costs as ordinary and necessary business expenses.

Other taxpayers lost the first two cases on this point. The trial judge in the Tax Court agreed with us, but the full panel of the Tax Court decided (over five dissents) that the defense fees should be capitalized. The Seventh Circuit distinguished the leading Supreme Court case, INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992), and ruled in our favor that unlike friendly takeover expenses, the cost of defending a business and its policies from attack are deductible. Staley is the lead case in this area, and I.R.S. dropped its objections to deducting these expenses after it lost the Staley case.

2. Racal Electronics and Subsidiaries v. Commissioner, T.C. Memo 1990-494. Racal made a loan to a 65% subsidiary, which later became worthless. The I.R.S. denied a deduction for the worthless debt on several grounds, including that the loan was actually a capital contribution. After a fact-intensive inquiry covering 13 factors that distinguish debt from equity, the Tax Court concluded that the loan was bona fide and allowed the deduction.

3. Tate & Lyle Inc. and Subsidiaries v. Commissioner, 103 T.C. 656 (1994). This case concerned the validity of I.R.S. legislative regulations on deferred interest payments to a foreign parent. Treas. Reg. § 1.267(a)-3. We won this case at the Tax Court in a Court reviewed decision, all 19 judges participating, on the grounds that 1) the Treasury exceeded their statutory mandate, and 2) the regulations were unconstitutional under the Due Process Clause because of their retroactive effect. However, after we won the client decided that they would have been better off having lost, due to the interplay of various carry-forward rules. Therefore we did not defend the case when the I.R.S. appealed. Another law firm defended the appeal as a “friend of the court,” on behalf of a Canadian company, but lost. Tate & Lyle Inc. and Subsidiaries v. Commissioner, 87 F.3d 99 (3d Cir. 1996).

4. S&L Entertainment Enterprises, B.V. v. United States, 1980 U.S. Ct. Cl. LEXIS 1248. The U.S. Court of Claims held that the benefits of the U.S.-U.K. income tax treaty were available to a “lend-a-star” structure employing, among others, Led Zeppelin, Lawrence Olivier, and Jack Higgins.

5. The Racal Corporation and Decca Electronics, Inc., 1993 N.Y. Tax LEXIS 208 (May 13, 1993). In this New York state tax case, we proved that Racal was entitled to treat certain indirect holdings as subsidiaries, resulting in favorable tax treatment under then-existing law. The case prompted New York to change its rules.

The full Tax Court, all 19 judges, reviewed two of the cases we tried in the Tax Court because these cases had substantial precedential value. Staley is the leading case allowing large corporations to deduct the costs of unsuccessfully defending a hostile takeover. cf. INDOPCO. Tate & Lyle remains the leading case for the proposition that a legislative I.R.S. regulation can be voided on constitutional grounds. Our cases have been cited as precedent in subsequent cases at least 60 times and more than 120 times overall, including scholarly articles and I.R.S. guidance.

Lawyers

Most of the Firm’s lawyers had substantial tax litigation experience before they joined the Firm. A brief description of their litigating experience follows:

Dan Burt. Dan Burt tried his first case in 1970 and his first tax case in 1978. Since then he has tried a large number of cases to completion, both tax and non-tax and continues to participate in litigation in both the U.S. and the U.K.

John Staples. John Staples began litigating with the Firm when he first joined it in 1991. He then went to the I.R.S. and was the I.R.S.’ chief international litigation lawyer from the time he became Associate Chief Counsel (International) until he left the I.R.S. on March 31 2003. While at the I.R.S. he participated in or was responsible for pricing cases, international tax shelter cases, treaty cases, and all other cases involving international issues.

Jonathan Jackel. Jonathan Jackel was a trial attorney in the U.S. Department of Justice, Tax Division for four years before he joined the Firm. Before that he clerked for the Honorable Renato Beghe of the U.S. Tax Court. While at Justice he tried tax cases of all kinds in Federal district and bankruptcy courts. These cases involved tax shelters, inventory, pensions, fraud, and the credit for producing fuel from a nonconventional source, among other issues. He also litigated civil rights, Privacy Act and Freedom of Information Act (“FOIA”) cases. Jonathan has continued to try cases continuously since joining the Firm.

Forbes Maner. Forbes Maner has been trying tax and non-tax cases since 1978. At least half of his litigation has been on tax cases, and he was part of the team who tried the Staley and Racal cases described above. Forbes also has litigated oil and gas pricing, environmental compliance, and FOIA issues.

In addition, Susan Segar served as a clerk to a judge of the U.S. Tax Court.

Burt, Staples & Maner, LLP attorneys have more than seventy five years of combined trial experience in tax cases in every tax court of first instance the US Federal courts system offers. They have also handled tax disputes in the following states: California, Florida, Illinois, Maine, Massachusetts, Montana, Oregon, New Jersey, New York, North Carolina, and Tennessee.

 

   
   
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