Friday, August 26, 2016
Following up on my previous post, Retired U.S. Tax Court Judge Indicted For Tax Evasion While She Sat On The Court: Tax Controversy 360, Taxpayer Argues First Circuit Should Not Follow Tax Court Decision by Judge Indicted for Tax Fraud:
On August 15, 2016, the taxpayer in Santander Holdings USA filed its brief to the US Court of Appeals for the First Circuit in its case involving what the Internal Revenue Service (IRS) has labeled a “foreign tax credit generator” transaction. The taxpayer prevailed at the district court level and the IRS appealed that decision, arguing that the lower court’s opinion was contrary to existing precedent in the Tax Court and other appellate courts. Much has been written about these cases and the issue presented, but this post focuses on an interesting argument raised by the taxpayer regarding the weight to be afforded to a prior Tax Court opinion.
The taxpayer’s brief argues that the Tax Court opinion in Bank of New York Mellon should not be followed because “the judge in that case—Judge Diane Kroupa—faced a disabling conflict when she rendered” the opinion due to the fact that she was indicted for tax fraud in April 2016 and was under audit by the IRS and allegedly committing further tax fraud at the time she was considering the Bank of New York Mellon case. Citing an opinion by the US Court of Appeals for the Ninth Circuit, the taxpayer argued that the alleged misconduct directly implicated the character and integrity of Judge Kroupa and that the other appellate opinions on this issue heavily relied on her factual findings in deciding their cases. It further argued that the government’s reliance on “Judge Kroupa’s defective factual findings, [which were] made in a tainted proceeding … should be given no weight here.” Finally, the taxpayer, referencing the Eaton case, stated that, “[r]ecognizing Judge Kroupa’s inherent conflict of interest in any case, the Tax Court has already permitted one taxpayer to move for reconsideration more than three years out of time.” We have previously discussed the indictment of Judge Kroupa here and here.
See also Keith Fogg (Harvard), The First Reconsideration of a Case Due to Former Judge Kroupa’s Tax Problems. (Hat Tip: Ann Murphy.)