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COURT REFUSES TO RECONSIDER RULING ON VALUATION MISSTATEMENT PENALTY.

FEB. 18, 2010

Krause, J. Winston, et ux. v. U.S.

DATED FEB. 18, 2010
DOCUMENT ATTRIBUTES
  • Case Name
    J. WINSTON KRAUSE AND SHERI S. KRAUSE, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant.
  • Court
    United States District Court for the Western District of Texas
  • Docket
    No. 1:08-cv-00865
  • Judge
    Sparks, Sam
  • Cross-Reference
    For the prior district court opinion in J. Winston Krause et ux. v.

    United States, No. 1:08-cv-00865 (W.D. Tex. Jan. 22, 2010), see

    Doc 2010-7968 or 2010 TNT 70-12.
  • Parallel Citation
    105 A.F.T.R.2d (RIA) 1902
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2010-7972
  • Tax Analysts Electronic Citation
    2010 TNT 71-19

Krause, J. Winston, et ux. v. U.S.

 

IN THE UNITED STATES DISTRICT COURT

 

FOR THE WESTERN DISTRICT OF TEXAS

 

AUSTIN DIVISION

 

 

ORDER

 

 

BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically Plaintiffs J. Winston Krause and Sheri S. Krause (collectively "Plaintiffs")'s Motion for Reconsideration [#27], Defendant United States of America ("Defendant")'s Opposition [#31], and Plaintiffs' Reply [#32]. Having considered the motion, opposition, and reply, the Court enters the following opinion and order.

 

I. PROCEDURAL BACKGROUND

 

 

On January 22, 2010, this Court entered an order granting Defendant's Motion for Summary Judgment and Denying Plaintiffs Motion for Summary Judgment. Order [#25] at 8. Defendants asserted Plaintiffs were barred from challenging the penalties assessed by the IRS because Plaintiffs had failed to contest the Final Partnership Administrative Adjustment ("FPAA") sent to Krause & Associates Advanced Strategies, LP ("KAAS"). This Court agreed, holding the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), I.R.C. §§ 6221-6233, required all partnership-level defenses be presented at the partnership level. Order at 6. Plaintiffs failed to present any partnership-level defenses regarding the applicability the penalties, and their partner-level defenses were not available to contest the penalties. Id. at 6-7.

On January 29, 2010, Plaintiffs filed a Motion for Reconsideration. In their motion, Plaintiffs argue the Court made three material factual errors. See Pl. Mot. at 1-4. Essentially, Plaintiffs assert the Court (1) misidentified a disallowed deduction rather than a disallowed gain, (2) ignored an offsetting FPAA adjustment, and (3) ignored the actual cause for Plaintiffs' tax increase. See id. The result of these errors, according to Plaintiffs, is the Court made the wrong decision in concluding the IRS penalties were attributable to the partnership adjustments. Rather than the owing over $100,000, Plaintiffs claim the Court should have found they owed less than $100. See id. at 5.

 

II. LEGAL STANDARDS

 

 

"Although the 'Motion to Reconsider' is found nowhere in the Federal Rules of Civil Procedure, it has become one of the more popular indoor courthouse sports at the district court level. Such pleadings are becoming an intricate part of motion practice by which the losing party to a motion obtains a second bite at the apple -- a chance to reargue and sometimes submit additional argument and authority in support of his lost motion." State of Lousianna. v. Sprint Commc'ns Co., 899 F. Supp. 282, 284 (M.D. La. 1995). The Fifth Circuit has held such a motion may be considered a motion to alter or amend under Rule 59(e). See Teal v. Eagle Fleet, Inc., 933 F.2d 341, 347 (5th Cir. 1991). However, a Rule 59(e) motion does not provide "the proper vehicle for rehashing old arguments or advancing theories of the case that could have been presented earlier." Resolution Trust Corp. v. Holmes, 846 F. Supp. 1310, 1316 (S.D. Tex. 1994).

Instead, a Rule 59(e) motion is an extraordinary remedy which should be used sparingly. Templet v. HydroChem Inc., 367 F.3d 473, 479 (5th Cir. 2004). The movant must show the Court committed a manifest error of law or fact, or must present newly discovered evidence. See Waltman v. Int'l Paper Co., 875 F.2d 468, 473 (5th Cir. 1989). A district court has considerable, but not limitless discretion, in deciding a motion to reconsider; the Court should strike the proper balance between the need to bring litigation to an end and the need to render just decisions on the basis of all the facts. Lavespere v. Niagara Mach. & Tool Works, Inc., 910 F.2d 167, 174 (5th Cir. 1990), abrogated in part on other grounds by Little v. Liquid Air Corp., 37 F.3d 1069 (5th Cir. 1994).

 

III. DISCUSSION

 

 

Plaintiffs' core argument is the tax increase and subsequent penalty was not attributable to the partnership adjustments. Pl. Mot. at 2. This is the identical argument Plaintiffs made in their summary judgment motion. See Pl. Mot. [# 15] at 4. Thus, Defendants' motion to reconsider is exactly the kind courts have long condemned as a waste of their time and resources. See, e.g. Resolution Trust Corp., 846 F. Supp. at 1316. To grant a motion of this type would essentially turn every opinion of this Court into nothing more than a rough draft, subject to revision at the suggestion of the parties.

Plaintiffs not only repeat their summary judgment arguments, they also completely neglect to address the issue on which the Court's decision ultimately rested: Plaintiffs were barred by TEFRA from bringing such an action in the first place. In fact, Plaintiffs never even refer to TEFRA in their motion to reconsider, or indicate in any way how any of the claimed errors of material fact would affect the Court's ruling on the threshold issue. As the Court previously held, the penalties were conclusively determined at the partnership level when Plaintiffs did not contest the FPAA. Thus, Plaintiffs were limited to raising partner-level defenses to the penalties, and they failed to do so.

 

IV. CONCLUSION

 

 

The Krauses engaged in a complex tax scheme -- designed to manufacture artificial losses in order to offset gains and avoid tax liability -- apparently in reliance on "assurances of legal validity."1 Pl. Resp. [#22] at ¶ 3. This Court ruled the IRS penalty assessed for these actions was legal and appropriate. Plaintiffs raise no factual or legal reason to alter the previous ruling. Thus, the Court declines their invitation to reconsider. In accordance with the foregoing,

IT IS ORDERED that Plaintiffs Winston J. Krause and Sheri S. Krause's Motion for Reconsideration [#27] is DENIED.

SIGNED this the 16th day of February 2010.

Sam Sparks

 

United States District Judge

 

FOOTNOTE

 

 

1 This was a case of the (willfully) blind leading the blind. Mr. Krause is himself a tax attorney. Further, he obtained tax advice regarding these transactions from the now defunct firm, Jenkens & Gilchrist, which was fined $76 million by the IRS for giving illegal tax advice. See Katie Fairbank and Terry Maxon, How Jenkens Lost Its Way, DALLAS MORNING NEWS, April 1, 2007, at 1A.

 

END OF FOOTNOTE
DOCUMENT ATTRIBUTES
  • Case Name
    J. WINSTON KRAUSE AND SHERI S. KRAUSE, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant.
  • Court
    United States District Court for the Western District of Texas
  • Docket
    No. 1:08-cv-00865
  • Judge
    Sparks, Sam
  • Cross-Reference
    For the prior district court opinion in J. Winston Krause et ux. v.

    United States, No. 1:08-cv-00865 (W.D. Tex. Jan. 22, 2010), see

    Doc 2010-7968 or 2010 TNT 70-12.
  • Parallel Citation
    105 A.F.T.R.2d (RIA) 1902
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2010-7972
  • Tax Analysts Electronic Citation
    2010 TNT 71-19
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