IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 25, 2008
No. 07-60862 Charles R. Fulbruge III
(Consolidated with 07-60863 and 07-60864) Clerk
ESTATE OF ROBERT W. LISLE, Deceased; ESTATE OF DONNA M. LISLE,
Deceased
Petitioners-Appellants,
THOMAS W LISLE, Independent Co-Executor; AMY L. ALBRECHT,
Independent Co-Executor,
Appellants
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
Appeals from a Decision of
the United States Tax Court
Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
This case returns to this court for the second time for review of the Tax
Court’s judgment that taxpayers Robert W. Lisle and his wife Donna M. Lisle1
failed to declare and pay income tax on approximately $1,280,000 in revenue
1
Donna M. Lisle, and her estate, is a participant in this dispute solely as a result of
having filed joint tax returns with Robert W. Lisle.
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
earned as a result of Robert Lisle’s relationship with a series of real estate deals
and related transactions. See Estate of Robert W. Lisle v. Comm’r, 341 F.3d 364
(5th Cir. 2003)(Lisle I). In this appeal, like the first, the Tax Court found that
Robert W. Lisle, along with Claude M. Ballard and Burton W. Kanter, earned
the unreported income through an elaborate kickback scheme involving the sale
of influence by Lisle and Ballard through their positions in the Real Estate
Department at Prudential Life Insurance Co. of America. The Commissioner
asserted that Kanter kicked back commissions he or his corporation earned to
Lisle and Ballard in return for their influence. The unreported revenue
allegedly arose from five arrangements, sometimes called “the Five,” made
between Kanter and (1) J.D. Weaver (also called the Hyatt-Embarcadero
transaction), (2) Bruce Frey, (3) William Schaffel, (4) Kenneth Schnitzer, and (5)
John Eulich (also called the Essex transaction).2 In each instance, Kanter dealt
with clients who were seeking to do business with Prudential. Two of the deals
involved hotel management contracts, another a property management contract,
another involved the conversion of apartment complexes to condominiums, and
still another involved assistance with selling and financing real estate
transactions. The Tax Court further found that the kickbacks were distributed
among Lisle, Ballard and Kanter in a 45-45-10 percent split through numerous
transactions involving various corporations and trusts, favorable loans, and
payments to Lisle’s children.
In this appeal, unlike the first, we have the benefit of the fact findings and
conclusions of the Special Trial Judge that were rejected by the Tax Court and
obscured in the first appeal. With the benefit of a complete record, our equivocal
findings in the first appeal, and the findings of the Eleventh Circuit in the
appeal of the related case affecting taxpayer Ballard, Ballard v. Comm’r, 522
2
For a detailed description of the Five, see Lisle I.
2
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
F.3d 1229 (11th Cir. 2008)(Ballard III), we conclude that the Tax Court reviewing
the report of the Special Trial Judge failed to give due regard to the factfindings
of the trial judge and erred in issuing a judgment contrary to those findings.
Accordingly, for the reasons set forth below, we vacate the Tax Court’s judgment
as to the Lisles and remand with instructions to issue a final order adopting the
Special Trial Judge’s report.
I.
The cases for income tax deficiencies against Lisle, Ballard and Kanter
were consolidated in the Tax Court. In the Lisle case that proceeded through
this circuit, the Tax Court ruled that the taxpayers fraudulently failed to declare
and pay income tax on approximately $1,280,000 of income. In Lisle I, this court
reversed the Tax Court’s finding of fraud, affirmed the Tax Court’s ruling
sustaining the assessment of a deficiency for years 1987, 1988 and 1989, and
remanded the case to the Tax Court for the limited purposes of recalculating the
deficiencies and additions to the tax consistent with the opinion. Lisle I. The
Supreme Court later granted certiorari in two related cases from the Seventh
and Eleventh Circuits (Ballard v. Comm’r, 321 F.3d 1037 (11th Cir.
2003)(Ballard I), and Estate of Kanter v. Comm’r, 337 F.3d 833 (7th Cir. 2003))
and reversed. Ballard v. Comm'r of Internal Revenue, 541 U.S. 1009 (2004) and
544 U.S. 40 (2005). As we explain below, the basis for the Supreme Court’s
reversal was the failure of the Tax Court to follow proper procedure.
In the Tax Court, prior to the first appeal to this circuit, the Chief Judge
of the Tax Court had assigned the consolidated case to Special Trial Judge D.
Irwin Couvillion for trial. Judge Couvillion presided over a five-week trial in the
summer of 1994. Around September 1998, Judge Couvillion submitted a 303
page written report containing his findings of facts and opinions to the Chief
Judge for subsequent review by a Tax Court Judge. The parties were not
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No. 07-60862 (Consolidated with 07-60683 and 07-60684)
provided a copy of Judge Couvillion’s report. The Chief Judge assigned the case
to Tax Court Judge H.A. Dawson, Jr. for his review and final disposition. On
December 15, 1999, Judge Dawson issued the opinion of the Tax Court. (T.C.
Memo 1999-407; see Investment Research Assocs. Ltd. v. Commissioner, T.C.
Memo 1999-407, 1999 Tax Ct. Memo LEXIS 463, 78 T.C.M. (CCH) 951 (1999)).
Judge Dawson found that Ballard, Kanter and Lisle had acted with intent to
deceive the Commissioner and held them liable for underpaid taxes and
substantial fraud penalties. Judge Dawson’s opinion purported to adopt the
findings contained in the report submitted by Judge Couvillion. But we now
know that this was not entirely accurate.
As stated by the Eleventh Circuit:
We now know, based on new documents filed with this Court, that
the following events occurred in the Tax Court:
1. Judge Couvillion's original report initially recommended that
Ballard [nor Kanter or Lisle] was not liable for the deficiencies in
tax asserted against him. Specifically, Judge Couvillion concluded
that "there were no 'kickback schemes,' and none of the alleged
'kickback schemes' payments by 'The Five' represented unreported
income of Kanter, Ballard, and Lisle. There was, therefore, no
underpayment of tax." In fact, Judge Couvillion's original report did
not consider the government's allegation of fraud "as even rising to
the level of suspicion of fraud."
2. After Judge Dawson was assigned to the case, he reviewed Judge
Couvillion's original report and advised the Chief Judge that he
disagreed with it. Approximately one week later, on or about August
27, 1998, then Chief Judge Cohen advised Judge Dawson that she
also disagreed with Judge Couvillion's original report.
3. A conference was scheduled between Chief Judge Cohen, Judge
Dawson, and Judge Couvillion. It appears that shortly before this
conference was to take place, Judge Couvillion was aware that both
Chief Judge Cohen and Judge Dawson disagreed with his report.
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No. 07-60862 (Consolidated with 07-60683 and 07-60684)
4. On September 1, 1998, Judge Couvillion withdrew his original report.
5. Chief Judge Cohen assigned Judge Dawson and Judge Couvillion
to write a "collaborative report." This "collaborative report" stood in
stark contrast to Judge Couvillion's original report. In fact, the
collaborative report now concluded that Ballard [as well as Kanter
and Lisle] should be liable for the deficiencies in tax asserted
against him.
6. On October 25, 1999, Judge Dawson adopted the "new
collaborative report."
7. On November 4, 1999, Chief Judge Cohen adopted the "new
collaborative report" with some minor modifications.
8. On December 15, 1999, Chief Judge Cohen formally assigned the
case to Judge Dawson, and the "new collaborative report" was filed
as the decision of the Tax Court.
Ballard v. Comm'r, 429 F.3d 1026, 1029 (11th Cir. 2005)(Ballard II) .
The taxpayers suspected that the document labeled Opinion of the Special
Trial Judge was not in fact Judge Couvillion’s original ruling. They filed
motions in the Tax Court seeking access to Judge Couvillion’s original ruling,
which motions were denied. The taxpayers appealed to their respective circuit
courts, including this court, all of which treated Judge Dawson’s opinion as the
Opinion of the Special Trial Judge. Kanter and Ballard appealed to the Supreme
Court which granted certiorari to resolve the question whether the Tax Court
may exclude from the record on appeal Rule 183(b) reports submitted by special
trial judges.
The Supreme Court held that Tax Court Rule 183 did not describe or
authorize the collaborative effort with regard to the trial judge’s opinion and the
Tax Court was not authorized to exclude from the record on appeal reports by
special trial judges pursuant to Rule 183(b). Rule 183 further requires the Tax
Court Judge to give due regard “to the circumstance that the Special Trial Judge
5
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
had the opportunity to evaluate the credibility of witnesses, and the findings of
fact recommended by the Special Trial Judge shall be presumed to be correct.”
Tax Court Rule 183(c)(2000 ed.), as cited in Ballard, 544 U.S. at 53. Appellate
review is impeded and the standards are meaningless when the Tax Court judge
collaborates in the special trial judge’s opinion. The Supreme Court reversed the
judgments affirming the Tax Court judgments which were rendered without
giving proper deference to the trial judge’s findings and the cases were remanded
for further proceedings. Ballard, 544 U.S. at 65.
In response to the Supreme Court’s opinion, this court recalled its
mandate and remanded the case to the Tax Court with orders to:
(1) Strike the "collaborative report" that formed the basis of the Tax
Court's ultimate decision; (2) reinstate Judge Couvillion's original
report; (3) refer this case to a regular Tax Court judge who had no
involvement in the preparation of the aforementioned "collaborative
report" and who shall give "due regard" to the credibility
determinations of Judge Couvillion, presuming that his fact findings
are correct unless manifestly unreasonable[, in dealing with the
remaining issues of tax deficiency]; and (4) Adhere strictly hereafter
to the amended Tax Court Rule in finalizing Tax Court opinions.
Estate of Robert W. Lisle v. Comm’r, 431 F.3d 439, 439-40 (5th Cir. 2005) (Lisle
II), adopting the Eleventh Circuit’s approach on remand in Ballard II, 429 F.3d
at 1032.
On remand, the Tax Court assigned the case to Judge Haines. He adopted
some of the Special Trial Judge’s findings, rejected other recommended findings
and credibility determinations as manifestly unreasonable and supplemented
other recommended findings because he viewed them as incomplete. Judge
Haines concluded that Lisle was liable for income tax deficiencies. Our remand
in Lisle II did not disturb this court’s decision to reverse the imposition of fraud
penalties against Lisle, so the fraud issue is no longer part of this case. Lisle
now appeals the Tax Court’s judgment which it rendered following our remand.
6
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
II.
Lisle argues first that the Tax Court failed to give appropriate deference
to the findings of the Special Trial Judge. The Tax Court’s review of the opinion
of the Special Trial Judge is restricted by Rule 183. In reviewing the report “Due
regard shall be given to the circumstance that the Special Trial Judge had the
opportunity to evaluate the credibility of witnesses, and the findings of fact
recommended by the Special Trial Judge shall be presumed to be correct.”
Ballard, 544 U.S. at 53. The government asserts that because the Special Trial
Judge has no authority to decide the case, it is the Tax Court Judge who must
decide the case. Thus, according to the government, just as the Tax Court’s
factual findings are generally reviewed for clear error, so too should the Tax
Court’s rejection of the Special Trial Judge’s findings of fact and credibility
determination be reviewed for clear error.
Lisle argues that our focus should be on whether the findings of the
Special Trial Judge are supported by the record. We agree. As stated by the
Eleventh Circuit in its opinion in the parallel case affecting taxpayer Ballard,
After the Tax Court Judge has conducted his review and issued a
final opinion, we generally review this opinion for clear error. See
Stone, 865 F.2d at 344; 26 U.S.C. § 7482(a)(1) (instructing Courts of
Appeals to review Tax Court decisions in the same manner as
district court decisions on civil cases tried without a jury);
Fed.R.Civ.P. 52(a)(6) (instructing that Courts of Appeals can set
aside the district court's findings on cases tried without a jury if
they are clearly erroneous). However, when the Tax Court Judge
rejects the Special Trial Judge's findings and we are faced with a
conflicting report and opinion, we determine whether the Tax Court
Judge committed clear error by rejecting the Special Trial Judge's
findings as clearly erroneous by reviewing the Special Trial Judge's
report to determine if his findings were, indeed, without record
support. Matter of Multiponics, Inc., 622 F.2d 709, 712-13, 722 (5th
Cir. 1980) (applying Rule 52(a) to bankruptcy proceedings, wherein
the district court rejected the Special Master's findings, and holding
7
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
that "we must review the findings of the Special Master and may
affirm the [d]istrict [c]ourt's reversal only if we also deem the
Master's findings clearly erroneous").
Ballard III, 522 F.3d at 1235 (footnotes omitted). Wright & Miller state the
general rule regarding appellate review when the district court has rejected the
special master’s findings as follows: “The more common view is that it is the
findings of the master that are then measured by the ‘clearly erroneous’ test.”
9C Charles Wright & Arthur Miller, Federal Practice and Procedure § 2584 (3d
ed. 2008). In Bazemore v. Stehling, 396 F.2d 701 (5th Cir. 1968), we considered
the analogous standard of review we apply when reviewing the judgment of a
district court which in turn reviewed the findings of a bankruptcy referee. First,
the referee in a bankruptcy case must set forth his findings of fact and
conclusions of law. Id. at 702. For the court of appeals to review the findings of
the district judge, accepting or rejecting the referee’s findings, this court must
examine the evidence to determine not whether the district court’s findings were
clearly erroneous, but whether the findings of the referee were. Id. at 703. If
the findings of the referee were not clearly erroneous, the district judge was
bound to accept them. Id.
This court adopted the position of the Eleventh Circuit that the Tax Court
Judge may disturb the Special Trial Judge’s findings of fact and credibility
determinations only if they are “manifestly unreasonable.” Lisle II, 431 F.3d at
440 (in order remanding this case to the Tax Court), citing Ballard, 429 F.3d at
1031 and 1032.
According to the Supreme Court,
[The clear error] standard plainly does not entitle a reviewing court
to reverse the finding of the trier of fact simply because it is
convinced that it would have decided the case differently. The
8
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
reviewing court oversteps the bounds of its duty . . . if it undertakes
to duplicate the role of the lower court. In applying the clearly
erroneous standard to the findings of a district court sitting without
a jury, appellate courts must constantly have in mind that their
function is not to decide factual issues de novo. If the district court's
account of the evidence is plausible in light of the record viewed in
its entirety, the court of appeals may not reverse it even though
convinced that had it been sitting as the trier of fact, it would have
weighed the evidence differently. Where there are two permissible
views of the evidence, the factfinder's choice between them cannot
be clearly erroneous.
Anderson v. Bessemer City, 470 U.S. 564, 573-74, 105 S. Ct. 1504, 1511-12, 85 L.
Ed. 2d 518 (1985) (internal quotation and citation omitted). Further,
when a trial judge's finding is based on his decision to credit the
testimony of one of two or more witnesses, each of whom has told a
coherent and facially plausible story that is not contradicted by
extrinsic evidence, that finding, if not internally inconsistent, can
virtually never be clear error.
Id. at 575, 105 S. Ct. at 1512. A trial judge’s credibility determinations are due
this extra deference because "only the trial judge can be aware of the variations
in demeanor and tone of voice that bear so heavily on the listener's
understanding of and belief in what is said." Id. For these reasons, we agree
with the taxpayer that the Tax Court did not give the required deference to the
findings of the Special Trial Judge. Applying the correct standard of review, we
turn now to review the Special Trial Judge’s Report.
III.
We are aided at this stage by this court’s prior decision in this case and by
the decision of the Eleventh Circuit reviewing the same and findings with
respect to a different taxpayer, Ballard, who like Lisle was an executive at
Prudential. At the outset, it is important to note that when this court affirmed
the original decision of the Tax Court and found that Lisle was liable for the tax
deficiencies, we found that “much of the evidence is equivocal” and concluded
9
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
that “when the burden of proof is by a preponderance of the evidence, we will not
find clear error if the evidence supports either of two theories.” Lisle, 341 F.3d
at 383. Since in Lisle I this court understood that the Special Trial Judge had
made critical fact findings against the taxpayers, the balance tipped in favor of
affirming the deficiencies. However, now that we know that the trier of fact
actually found in favor of the taxpayers, that equivocal evidence is insufficient
to overturn the Special Trial Judge’s findings.
The Special Trial Judge’s findings have also been upheld by the Eleventh
Circuit in the related case against taxpayer Ballard. Ballard v. Comm’r, 522
F.3d 1229 (11th Cir. 2008)(Ballard III). That ruling is relevant to this case
against Lisle because the deficiencies imposed by the Tax Court against Ballard
result from the same findings involving the same Five transactions relied on for
the deficiencies against Lisle. Also, the government’s theory against Ballard and
Lisle was identical: that both Ballard and Lisle, while they were executives at
Prudential, sold their influence in return for kickbacks that generated the
alleged unreported income. The Eleventh Circuit concluded
that Judge Couvillion’s findings of fact and credibility
determinations were supported by the record and that his finding
that Ballard was not responsible for a deficiency and had not
committed fraud were not manifestly unreasonable. We conclude
that, in finding otherwise, Judge Haines did not presume Judge
Couvillion’s findings to be correct or give Judge Couvillion’s
credibility determinations their due deference. See Tax Court Rule
183. Rather Judge Haines conducted a nearly de novo review of the
facts. This review violated Rule 183's and our instructions. See
Anderson, 470 U.S. at 573-74, 105 S.Ct.at 1511-12. It is clear that
this case is a “close call.” Had Judge Haines been the original trial
judge, his rulings would probably be entitled to affirmance.
However, he was not the trial judge and did not see or hear the
witnesses. Judge Couvillion did and found them credible. It is no
surprise that a knowledgeable tax attorney would use numerous
legal entities to accomplish different objectives. This does not make
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No. 07-60862 (Consolidated with 07-60683 and 07-60684)
them illegitimate. Unfortunately such “maneuvering” is apparently
encouraged by our present tax laws and code. Judge Couvillion
heard the witnesses and reviewed the exhibits and concluded the
government simply failed to prove such by clear and convincing
evidence. The record fully supports his findings of fact and
conclusions. Accordingly, we remand to the Tax Court with
instructions to vacate Judge Haines’ opinion and enter an order
approving and adopting Judge Couvillion’s original report as the
opinion of the Tax Court.
Id. at 1254-55. Following our own independent review of the record, we agree
with the conclusion of the Eleventh Circuit in Ballard with respect to taxpayer
Lisle.
IV.
We will address one additional argument raised by the Commissioner.
The Commissioner faults the Special Trial Judge and the Eleventh Circuit for
glossing over its flow of funds argument, particularly for their conclusion that
once it was determined that no kickbacks occurred in connection with the
transactions, the flow of funds need not be examined. The Commissioner argues
that the transactions cannot be properly analyzed without taking the money flow
into account. The Commissioner also argues that the documentary evidence of
the flow of funds supports the Tax Court’s rejection of the Special Trial Judge’s
credibility determinations in favor of the taxpayers.
As described in Lisle I,
Kanter established a number of corporations, partnerships, and
trusts allegedly to receive, distribute, and disguise illegal kickbacks
from five business arrangements at issue here. These five
transactions and their principal participants are referred to by the
parties and the Tax Court as "the Five."
Most of the payments in this case initially were made through
Investment Research Associates, Inc. (IRA), which Kanter
incorporated in Delaware.
11
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
Lisle I, 341 F.3d at 370. Kanter controlled IRA. All of the payments from the
Five to IRA were reported on IRA’s federal income tax returns.
[IRA] owned controlling interests in several subsidiary corporations
including Carlco, Inc., TMT, Inc., and BWK, Inc. As we will discuss,
in 1983, IRA distributed all of its assets to Carlco, TMT, and BWK
in a 45-45-10 percent split, which were thereafter managed
respectively by Lisle, Ballard, and Kanter. The government asserts
that forty-five percent of the payments from the Five to Kanter
corporations were distributed to Lisle based on this arrangement.
Id. In sum, the Commissioner proceeded on a theory that the payments
described above from the Kanter controlled corporation, IRA, to a subsidiary,
Carlco, which Lisle managed, were kickbacks that Kanter was paying to Lisle
for influencing action by Prudential.
First, we agree with the Eleventh Circuit that Judge Couvillion did not
clearly err in declining to further analyze the Commissioner’s flow of funds
argument after he determined that no kickbacks occurred and thus Ballard, like
Lisle, had not earned income from kickbacks from the Five transactions. If there
was no kickback scheme that generated income to Lisle, there was no relevant
money flow to follow. Ballard III, 522 F.3d at 1253.
The fact that Kanter transferred money from IRA to Carlco, which entity
and funds were under the management of Lisle, does not establish that Lisle
earned that money. In Lisle I, we found the “assertion that Lisle was the true
earner of forty-five percent of the payments because he received forty-five
percent of the proceeds, and therefore we will assign forty-five percent of the
proceeds to Lisle because he earned them [to be] circular.” 341 F.3d at 380.
Rather we questioned whether there was any evidence of Lisle actually receiving
any of the payments which the Five made to Kanter, based on the evidence the
government relied on: Lisle’s management of the assets of Carlco, the payment
12
No. 07-60862 (Consolidated with 07-60683 and 07-60684)
of consulting fees to Lisle’s children; and the loans to Lisle and the trusts which
benefitted Lisle’s family. Id. at 381.
We rejected the argument that Carlco was Lisle’s alter ego. Id. at 378. As
to the payments to Lisle’s children, we found that “there is no evidence of Lisle’s
involvement in authorizing them,” and also questioned whether the payments
to Lisle’s children from the Weaver deal (one of the Five) supported the
Commissioner’s position that Lisle was funneling money to his children.
It is true that Kanter, Ballard, and Lisle could have had an
arrangement to split the funds from the Weaver deal, and
accomplished this by funneling some of the money through KWJ to
Lisle and Ballard's children. Alternatively, it is also possible that
Kanter hired the children of a close family friend who both had some
real estate experience to bring potential real estate investments to
his attention. In fact, one of Lisle's children was otherwise employed
full-time by Kanter. The question is whether the evidence supports
the conclusion that Lisle was funneling money from the Weaver deal
to his children.
When the Weaver transaction is examined closely, the evidence is
far from clear that Lisle and Ballard were receiving kickbacks
laundered through Kanter to their children. First, one must assume
that Ballard and Lisle agreed with Weaver to split the commission,
and that after meeting Kanter, decided to use him to help launder
the money years later. Weaver received a commission from Hyatt for
his help in getting Hyatt the Embarcadero contract in 1970 or 1971.
Ballard and Lisle did not meet Kanter until 1972. The agreement
between Kanter and Weaver for the purchase of the Hyatt
commission payments through the purchase of KWJ corporation
was not reached until 1976, and the purchase did not take place
until 1979. The funds from commission payments were not
disbursed to Carlco, TMT, and BWK until 1983, although small
payments to Lisle's and Ballard's children began in 1982. If Lisle
had agreed to sell his influence to Weaver for a cut of the
commission Weaver received from Hyatt, it is not credible that he
would rely on a deal formulated years later by Kanter, a man he did
not even know at the time he allegedly sold his influence to Weaver.
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No. 07-60862 (Consolidated with 07-60683 and 07-60684)
And if the commission paid to KWJ belonged to Lisle, Ballard, and
Kanter in a 45-45-10 split, there is no explanation for why KWJ
made payments to the children which were not in proportion to this
split. There may be some overarching rationalization for these
inconsistencies, but we have not discerned it.
Id. at 381-382. Regarding the loans, we noted:
The government does not explain how these loans can be
characterized as kickbacks when they began before the Five ever
made any payments to Kanter's corporations. In fact, many of the
largest loans to the Ballard and Lisle family trusts occurred before
the first payment by a member of the Five in 1977. Of the $ 220,000
loaned to Lisle and his family's trusts over the sixteen years cited by
the court, $ 68,000 was loaned before 1977. While this does not
mean that later loans were not distributions of income from the
Five, it casts serious doubt on that conclusion.
Id. at 382. We therefore disagree with the Commissioner that the flow of funds
evidence provides such persuasive proof of the existence of a kickback scheme
that Judge Couvillion’s contrary finding must be overturned.
The Eleventh Circuit made a similar finding as to taxpayer Ballard.
We nonetheless note that Judge Haines's thorough treatment of the
flow-of-funds argument does not convince us that Judge Couvillion's
finding concerning the scheme was manifestly unreasonable. The
fact that Kanter transferred to TMT, Carlco, and BWK money
received from the Five does not necessarily show that Ballard and
Lisle earned that money. A finding that Ballard was the true earner
of 45% of the payments because his corporation ultimately received
45% of the payments is circular. Likewise, Judge Haines's attack on
Kanter's explanation for the allocation involves leaps of logic.
Although Judge Haines accurately stated that Kanter's reasoning
that Carlco's investment might imperil IRA's deductions did not
apply to TMT or BWK, this does not necessitate a conclusion that
TMT, Carlco, and BWK were the parties' alter egos. Rather, Kanter
may have wished for TMT, Carlco, and BWK to maintain similar tax
status. He was an acknowledged expert in our tax laws. Also,
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No. 07-60862 (Consolidated with 07-60683 and 07-60684)
although Judge Haines accurately noted that all of the money
allocated per the 45% -45% -10% split was traceable to the Five and
that IRA had other money that was not allocated, this does not
necessitate a finding that the allocation was a method of getting
kickback income to anyone. Rather, Kanter simply may have chosen
one of its sources of income to fund the allocation. In sum, Judge
Haines attributed too much to these facts.
Ballard v. Comm'r, 522 F.3d 1229, 1254 (11th Cir. 2008). The evidence relied
on by the Commissioner and the Tax Court is inadequate to overcome the
presumption of correctness that accompanies the findings of the Special Trial
Judge.
V.
For the reasons stated above, we vacate the judgment of the Tax Court and
remand this case to the Tax Court with instructions to enter an order adopting
Judge Couvillion’s original report as the opinion of the Tax Court and to enter
judgment consistent with that report and this opinion.
VACATED and REMANDED.
15