Transferees Ask Circuit Court to Strike Portions of IRS Brief

1. This is an appeal of a decision entered by the United States Tax Court following a four-day trial involving testimony from nine witnesses and over 490 proposed trial exhibits.

2. The Shockleys filed their Opening Brief and Appendix in this Court on July 25, 2016.

3. Appellee Commissioner of Internal Revenue (the "Commissioner") filed his Answering Brief on September 19, 2016, and Appellee's Supplemental Appendix on September 26, 2016.

4. The Shockleys' reply brief is being filed concurrently with this motion.

5. The statement of facts in the Shockleys' opening brief accepts all of the Tax Court's findings of historical fact, cites primarily to the Tax Court's opinion, and sparingly supplements the Tax Court's findings with stipulated facts and documentary or testimonial evidence that was admitted into evidence at trial and not disputed.

6. On the contrary, the statement of facts in the Commissioner's brief relies heavily on inferences drawn from exhibits as opposed to facts found by the Tax Court, and cites to a document that was never admitted into evidence at trial and is not part of the record in this case. The Commissioner's brief fails to provide references to the record, as required by Fed. R. App. P. 28(e), and fails to identify inferences as such in accordance with 11th Cir. R. 28-(i)(ii).

7. Tax Ct. R. 91(a) requires the parties to "stipulate, to the fullest extent to which complete or qualified agreement can or fairly should be reached, all matters not privileged which are relevant to the pending case" including "all documents and papers or contents or aspects thereof, and all evidence which fairly should not be in dispute."

8. To comply with Tax Ct. R. 91, the parties stipulate to the identification and authenticity of a document if that is not fairly in dispute, but may reserve all objections to the admissibility of a document.

9. Tax Ct. R. 91(b) requires exhibits to a stipulation to be numbered serially, with the exhibit number "followed by P' if offered by the petitioner, e.g., 1-P; 'R' if offered by the respondent, e.g., 2-R; or 'J' if joint, e.g., 3-J."

10. When neither party objects to the admissibility of an exhibit, it is identified as a joint exhibit in the stipulation and admitted into evidence when the stipulation is filed with the Tax Court.

11. Exhibits subject to objection are identified by offering party and are not admitted into evidence unless the offering party successfully moves the exhibit into evidence at trial. See, e.g., Cont'l Ill. Corp. v. Comm'r, 57 T.C.M. (CCH) 1464 (Aug. 30, 1989) (discussing stipulated documents and objections one at a time and determining whether those documents "are hereby made part of the record" based on the outcome of the ruling on the objection).

12. Pursuant to Tax Ct. R. 91(a), "[a] paragraph in a stipulation reciting that Exhibit X attached to the stipulation is an appraisal of Blackacre is conclusive that it is. Likewise, a stipulation that attached Exhibit Y is a nonparty's deposition is conclusive that it is. The authenticity of the documents is established, and that fact need not be found." Estate of Tanenblatt v. Comm'r, 106 T.C.M. (CCH) 579, at *17 (Nov. 18, 2013).

13. In accordance with this procedure, the trial judge in this case received into evidence the exhibits attached to the parties' stipulations "subject to the objections and to argument on them or curing the objections at a later time." (Tr. 6:23-7:2.)

14. At trial, pursuant to Tax Ct. R. 91(a), the parties stipulated to each of the documents introduced into evidence and raised objections, if any, in the stipulation.

15. In total, the parties entered into four stipulations of fact, and the first, second, and fourth stipulations of fact each attached documents as exhibits. (Doc. Nos. 24, 34, 35, and 37.)

16. Exhibits identified in the stipulations as "R" exhibits were subject to objection by the Shockleys and were not admitted into evidence unless the Commissioner successfully moved the exhibit into evidence during the trial.

17. The Commissioner includes Exhibit 48-R in his brief and Appendix despite that fact that the Commissioner never moved Exhibit 48-R into evidence at trial.¹

18. The Commissioner cites to Exhibit 48-R on page 8 of his brief, with a footnote that incorrectly asserts that the exhibit was admitted into evidence and then inappropriately argues the Shockleys' hearsay objection after making no effort to overcome the objection at trial. (Br. at 8, n.2.)

19. The Shockleys' objection to Exhibit 48-R on hearsay grounds prevented the admission of that exhibit into evidence unless the Commissioner overcame the objection at trial and he made no effort to do so. Indeed, Exhibit 48-R was never discussed at trial in any way.

20. It is particularly troublesome for the Commissioner to pretend that Exhibit 48-R was admitted into evidence at trial because the evidentiary issues presented by Exhibit 48-R are identical to those presented by another exhibit that the trial judge explicitly excluded from evidence as unreliable hearsay when the Commissioner attempted to introduce it at trial.

21. Exhibit 48-R is one of a series of internal memoranda written by Richard Beesemyer of Kalil & Co. The Shockleys objected to the admission of all of those proposed exhibits on hearsay grounds. (Doc. 24 at ¶¶ 74, 86, 96, 97, 123, 277, 385).

22. At trial, the Commissioner's counsel unsuccessfully attempted to admit another internal memorandum in that series, Exhibit 40-R. (Tr. 307:18-311:11.²) The parties argued the hearsay objection, with the trial judge explaining that even if the Commissioner could have proven the elements of the business records exception to the hearsay rule with respect to the memorandum itself, it would still be hearsay "as to the statements that were allegedly made to Mr. Beesemyer and his impression." (Tr. at 310:11-17.) The Shockleys argued that the memorandum consisted of "statements made to an out-of-court declarant" and there was "no indication that Mr. Bessemyer's impressions of what was said were accurate or that there [was] any way to trust that what got written down here [was] actually what was communicated." (Tr. at 310:22-311:2.) The trial judge agreed with the concern that Mr. Beesemyer could not be cross-examined about his impressions, sustained the hearsay objection, and rejected the Commissioner's request to admit the exhibit into evidence. (Tr. at 311:3-11.)

23. The evidentiary issues in Exhibit 48-R are identical to those in Exhibit 40-R because both are internal memoranda to the file from the same out-of-court declarant recording his impressions of what was allegedly said to him by Terry Shockley. Both exhibits contain multiple levels of hearsay.

24. The Commissioner attempts to argue the evidentiary issue to this Court in a footnote, claiming that he is "not citing the exhibit to establish the truth of the quoted statement." (Br. at 8, n.2.) The "quoted statement" in the Commissioner's brief, however, is a sentence fragment that is preceded in the exhibit by the words "Terry's instructions are that . . ." (Exhibit 48-R.)

25. The trial judge excluded from evidence Mr. Beesemyer's internal memoranda containing impressions of what was communicated to him, and the Commissioner cannot avoid that ruling by leaving critical contextual words out of a quoted statement, arguing the evidentiary objection in a footnote, and citing the exhibit as if it had been admitted into evidence when it was not.

26. As a result of the Commissioner's improper reliance on proposed trial Exhibit 48-R, the Shockleys seek to strike Exhibit 48-R from the Appendix, and strike all factual assertions in the Brief for which the Commissioner relies on Exhibit 48-R as support.

27. Counsel for the Commissioner objects to the granting of this motion.

WHEREFORE, the Shockleys move this Court to STRIKE Exhibit 48-R from the Commissioner's Appendix, all references to Exhibit 48-R in the Commissioner's Answering Brief and all inferences drawn therefrom, or, in the alternative, any other relief this Court considers appropriate and just under the circumstances.

Jenny L. Johnson

² The trial testimony is attached hereto as Exhibit A. All other documents referenced in this motion are part of the record on appeal and are included in the parties' appendices.