Venture Capitalist Claims He Didn't Control Account Assets

1. through 10., inclusive, no objection.

11. No objection but petitioner notes that the Motion to Compel Production of Documents was filed before respondent conferred with petitioner's counsel, the motion sought a privilege log (despite the fact that petitioner never made any claim of privilege), and documents redacted by petitioner in order to protect the privacy of Mr. Lipkind's clients, and all issues were amicably resolved between counsel without the need for court intervention.

12. No objection but petitioner notes that the Motion to Compel Responses to Respondent's Interrogatories was filed before respondent conferred with petitioner's counsel, the motion related, in part, to two interrogatories for which responses were provided in a prior document production, and the remaining issues were amicably resolved between counsel without the need for court intervention.

13. through 26., inclusive, no objection.

27. No objection although petitioner notes that the correct citation to the record is Tr. at 900, not Tr. at 898.

28. No objection although petitioner notes that the correct citation to the record is Tr. at 894, not Tr. at 892.

29. No objection although petitioner notes that the correct citation to the record is Tr. at 894, not Tr. at 892.

30. No objection.

31. Petitioner objects to this proposed finding of fact because the citation to the record is not correct and the proposed finding of fact is a mischaracterization of petitioner's testimony. The citation provided by respondent, Tr. at 571, is not correct, and that page contains no discussion of this topic at all. Rather, petitioner's testimony about receiving written legal advice from a law firm first appears at Tr. at 573. On redirect, however, petitioner clarified his response as follows:

32. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 31, above.

33. No objection.

34. No objection.

35. No objection.

36. Petitioner objects to this proposed finding of fact because the citation to the record is not correct and the proposed finding of fact is a mischaracterization of the witness' testimony. The citation provided by respondent, Tr. at 875, is not correct; rather, Ms. Chang's statement, "I move paper," appears at Tr. at 877. This statement does not fully capture Ms. Chang's testimony. In particular, right after stating "I move paper," Ms. Chang described her duties more fully:

37. No objection although petitioner notes that the correct citation to the record is Tr. at 878, not Tr. at 876.

38. Petitioner objects to this proposed finding of fact because it is not an accurate summary of Ms. Chang's testimony. Ms. Chang's testimony is as follows:

39. No objection although petitioner notes that the correct citation to the record is Tr. at 872-73, not Tr. at 870-71.

40. No objection although petitioner notes that the correct citation to the record is Tr. at 873, not Tr. at 870.

41. No objection although petitioner notes that the correct citation to the record is Tr. at 873, not Tr. at 870.

42. No objection although petitioner notes that the correct citation to the record is Tr. at 873, not Tr. at 871.

43. No objection although petitioner notes that the correct citation to the record is Tr. at 875, not Tr. at 873-74.

44. No objection although petitioner notes that the correct citation to the record is Tr. at 876, not Tr. at 874.

45. No objection although petitioner notes that the correct citation to the record is Tr. at 876, not Tr. at 874.

46. No objection although petitioner notes that the correct citation to the record is Tr. at 458, not Tr. at 456-57.

47. No objection although petitioner notes that the correct citation to the record is Tr. at 459, not Tr. at 458.

48. No objection although petitioner notes that the correct citation to the record is Tr. at 603, not Tr. at 601.

49. No objection although petitioner notes that the correct citation to the record is Tr. at 603, not Tr. at 601.

50. No objection.

51. No objection.

52. No objection.

53. No objection.

54. Petitioner objects to this proposed finding of fact because it is incomplete. As Mr. Lipkind testified, his area of practice is in estate planning and tax. Tr. at 49. Also, the citation to petitioner's testimony that Mr. Lipkind is an estate attorney is incorrect; that testimony appears at Tr. at 459 and not Tr. at 458.

55. No objection.

56. No objection.

57. No objection.

58. No objection.

59. Petitioner objects to the use of the word "ostensibly" in this proposed finding of fact because there is no evidence in the record that petitioner's estate planning strategy was for any reason other than for the benefit of his children, and petitioner proposes that the Court adopt his proposed finding of fact on this issue instead. See Petitioner's Post-Trial Br. ("Pet. Post-Trial Br.") at 7, ¶ 21.

60. No objection.

61. No objection.

62. Petitioner objects to this proposed finding of fact because it mischaracterizes the record. Petitioner testified that Mr. Lipkind asked him to sign a confidentiality agreement, but there is no evidence as to what would have happened had petitioner refused to sign the agreement. Petitioner respectfully requests that the Court adopt petitioner's proposed finding of fact on this issue instead. Pet. Post-Trial Br. at 39, ¶ 194.

63. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 62, above

64. No objection.

65. No objection although petitioner notes that the correct citation to the record is Tr. at 460, not Tr. at 459.

66. No objection although petitioner notes that the correct citation to the record is Tr. at 463, not Tr. at 462.

67. No objection although petitioner notes that the correct citation to the record is Tr. at 463, not Tr. at 462.

68. Petitioner objects to respondent's finding of fact that "petitioner considers Mr. Lipkind's billable hourly rate 'absurd.'" Although petitioner made this statement during his testimony, it was obviously meant in jest.

69. No objection.

70. No objection.

71. No objection.

72. Petitioner objects to this proposed finding of fact, in part, because it mischaracterizes the record. Although Mr. Lipkind relied on Jay Walker when advising petitioner on the Lighthouse transaction, there is no testimony in the record that he "primarily" relied on him, and Mr. Lipkind testified that he did his own independent research. Tr. at 131-32.

73. through 78, inclusive, no objection.

79. Petitioner objects to this proposed finding of fact because it mischaracterizes the record. Mr. Lipkind testified that he concluded that his position on the investor control doctrine was correct, and that while he advised petitioner that there was a risk that the Service would disagree, he believed that the Service would "ha[ve] no case." Tr. at 80, 133-34.

80. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 79, above.

81. Petitioner objects to the language in this proposed finding of fact that Mr. Lipkind "claimed" to have discussed the Lighthouse legal opinions with petitioner. Mr. Lipkind and petitioner testified that Mr. Lipkind may have told petitioner that he had received these legal opinions, but that his advice was based on Christoffersen v. United States, 749 F.2d 513 (8th Cir. 1985), the Internal Revenue Code, and the Revenue Rulings. Tr. at 126.

82. Petitioner objects to this proposed finding of fact because it mischaracterizes the record. Although Mr. Lipkind testified that petitioner did not like to "play lawyer", Tr. at 132, petitioner and Mr. Lipkind testified that they had extensive discussions about the estate plan, Tr. at 116, 133-34, 557.

83. through 116., inclusive, no objection.

117. Petitioner objects to the language in this proposed finding of fact because although petitioner himself did not do legal research, Mr. Lipkind, upon whom he relied, did extensive research on the relevant income tax law and estate tax law. Tr. at 77-78, 116, 124-26, 133-34, 157-58.

118. through 122., inclusive, no objection.

123. Petitioner objects to the language in this proposed stipulation that he is the "owner" of The Chalk Hill Trust, as a trust is a contractual relationship. Petitioner agrees that he is the grantor of the trust for federal income tax purposes.

124. Petitioner objects to the language in this proposed stipulation for the same reasons as with respect to paragraph 123, above.

125. No objection.

126. No objection.

127. No objection.

128. No objection.

129. Petitioner objects to this proposed finding of fact because it is incomplete; petitioner's children were also beneficiaries of The Chalk Hill Trust. Ex. 40-J (P 000093), Tr. at 620.

130. Petitioner objects to this proposed finding of fact because it is false. Petitioner did not borrow any money from The Chalk Hill Trust, and respondent's reference to the record, Tr. at 482-83, does not support this inaccurate statement. Rather, petitioner borrowed funds -- limited by the cash surrender value -- from The Jeffrey T. Webber Delaware Trust in 2010. Ex. 99-J.

131. through 148, inclusive, no objection.

149. No objection but petitioner notes that respondent omitted the last sentence of the provision cited in Ex. 15-J that provides: "A signed copy of assignment must be sent to Lighthouse's representative on a form approved by Lighthouse. The assignment will have affect, if accepted by Lighthouse, upon receipt and approval by Lighthouse."

150. No objection.

151. Petitioner objects to this proposed finding of fact because respondent has omitted the following sentences, which are crucial to understanding the meaning of this provision of the Policies: "Maximum Surrender Amount Payable. The maximum amount payable upon surrender is the Cash Surrender Value less the Loan Account Balance on the Claim Date." Ex. 15-J (JTW0018069, 18081). "Cash Surrender Value" is defined as "equal the lesser of (i) the Account Value, or (ii) the sum of the premiums paid under the Policy less the value all prior partial surrenders made from the Policy." Ex. 15-J (JTW0018063, 18075).

152. No objection.

153. No objection

154. No objection.

155. Petitioner objects to this proposed finding of fact because it is incomplete. Petitioner's proposed findings of fact on this issue provide a more accurate description of the administrative charges. Pet. Post Trial Br. at 23-24, ¶¶ 109-110.

156. Petitioner objects to this proposed finding of fact because it is incomplete. Petitioner's proposed findings of fact on this issue provide a more accurate description of the administrative charges. Pet. Post Trial Br. at 24, 11 111-12.

157. Petitioner objects to this proposed finding of fact because it is incomplete. Petitioner's proposed findings of fact on this issue provide a more accurate description of the administrative charges. Pet. Post Trial Br. at 23-24, 11 109-110.

158. Petitioner objects to this proposed finding of fact because it is incomplete. Petitioner's proposed findings of fact on this issue provide a more accurate description of the administrative charges. Pet. Post Trial Br. at 24, 11 111-12.

159. Petitioner objects to this proposed finding of fact because it is incomplete. If the Separate Accounts were to reach a zero balance, the Policies would lapse unless the policyholder paid additional premiums. Tr. at 328-330.

160. Petitioner objects to this proposed findings of fact because it is incomplete and misleading. Petitioner did not "decide" whether any particular investment should be made. Moreover, Ex. 19-J is a document that was signed by the Trustees of the Alaska Trust, not petitioner, and the document merely provided guidelines for the general investment strategies when the policies were purchased. Ex. 19-J (P 000526-527, 550-552), Tr. at 383, 415-16. Moreover, the reference to the record, Tr. at 492, is the table of contents for the transcript and does not support respondent's proposed finding of fact. Petitioner suggests that the Court adopt petitioner's proposed findings of fact ¶ 126.

161. No objection.

162. No objection.

163. No objection.

164. Petitioner objects to this proposed finding of fact because it is incomplete. If the Separate Accounts were to reach a zero balance, the Policies would lapse unless the policyholder paid additional premiums. Tr. at 328-330.

165. No objection.

166. No objection.

167. No objection.

168. Petitioner objects to this proposed finding of fact because Bank of Butterfield employees Patrice McKinney and Kimberly Strachan and others were referenced during trial. Tr. 166, 167, 183, 189, 343.

169. No objection.

170. No objection.

171. Petitioner objects to this proposed finding of fact because it is a mischaracterization of the testimony. Respondent cites Tr. at 120 for the proposition that "Lighthouse followed all of petitioner's investment 'advice,'" but petitioner's testimony at Tr. at 120 was as follows:

172. No objection.

173. No objection.

174. Petitioner objects to this proposed finding of fact because it is a misstatement of the record. Kimberly Strachan is a compliance officer at Bank of Butterfield, Tr. at 343, and there is no evidence that she or Patrice McKinney were not part of an Investment Management team.

175. No objection.

176. Petitioner objects to this proposed finding of fact because it is not supported by the record, and requests that the Court make the alternate finding of fact that the Investment Managers (Bank of Butterfield and Experta) were paid fees for investment management services of $8,500 in 2006 and $29,000 in 2007. Ex. 34-J (JTW0015941), Ex. 35-J (P 000838, 862).

177. Petitioner objects to this proposed finding of fact because it is not supported by the record, and requests that the Court make the alternate finding of fact that the Investment Managers (Bank of Butterfield and Experta) were paid bank service charges $2,171.84 in 2006 and $10,750.87 in 2007. Ex. 34-J (JTW0015941), Ex. 35-J (P 000838, 862).

178. through 189, inclusive, no objection.

190. Petitioner objects to this proposed finding of fact because it is irrelevant to any issue in this case and misstates the record as the substance of petitioner's testimony was that he could not remember the details of the transaction. Tr. at 475.

191. through 197., inclusive, no objection.

198. Petitioner objects to this proposed finding of fact because it is false. Lighthouse Capital Insurance Company, and not the Policies, owned Boiler Riffle. See Petitioner's Proposed Findings of Fact, ¶ 119, Ex. 32-J, Tr. at 98, 342. Respondent persists in arguing that the Policies owns Boiler Riffle despite the obvious fact that a life insurance policy is a contract, and a contract cannot own a company. Later in respondent's post-trial brief, respondent states that "the Policies cannot be an owner of Boiler Riffle for U.S. tax purposes because a policy is not an entity." Resp. Post-Trial Br. at 143; see also Respondent's Proposed Finding of Fact, ¶¶ 161-63, which state that Boiler Riffle was part of Lighthouse's Separate Accounts.

199. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 198, above.

200. Petitioner objects to this proposed finding of fact because it is incomplete. Petitioner's proposed findings of fact on this issue provide a more accurate description of the administrative charges. Pet. Post Trial Br. at 23-24, If 109-10.

201. Petitioner objects to this proposed finding of fact because it is incomplete. Petitioner's proposed findings of fact on this issue provide a more accurate description of the administrative charges. Pet. Post Trial Br. at 24, ¶¶ 111-12.

202. through 210., inclusive, no objection.

211. Petitioner objects, in part, to this proposed finding of fact because referring to "advice" with quotation marks implies that "advice" has some other meaning, which it does not.

212. Petitioner objects to this proposed finding of fact because it misstates Mr. Lipkind's testimony. Mr. Lipkind did not testify that he "required" petitioner to use certain words. Tr. at 118.

213. No objection.

214. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Credible evidence in the record establishes that petitioner never had direct contact with Boiler Riffle, see Petitioner's Proposed Findings of Fact ¶ 140, Ex. 83-J (JTW0018576), Tr. at 120, 485-88, 494, 559, 609-10, 661, and respondent presented no evidence to the contrary.

215. No objection.

216. No objection.

217. Petitioner objects to this proposed finding of fact because it is a legal conclusion. Tax Court Rule 151(e).

218. No objection.

219. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none.

220. No objection.

221. Petitioner objects to this proposed finding of fact because it is a legal conclusion as to whether direct communication with Boiler Riffle would "violate the investor control doctrine." Tax Court Rule 151(e). Moreover, respondent is misstating petitioner's position regarding communications. It was not Mr. Lipkind's belief that communications themselves would "violate the investor control doctrine," but that e-mails and other communications could later be misconstrued (as they have been in this case), and thus the better practice was to have no direct communications so as not to give the mistaken appearance that petitioner was exercising control of the investments. See Pet. Pre-Trial Br. at 29, ¶ 141.

222. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Credible evidence in the record establishes that petitioner never had any contact with the Investment Managers of Boiler Riffle, see Pet. Pre-Trial Br. at 29, ¶ 140, Ex. 83-J (JTW0018576), Tr. at 120, 485-88, 494, 559, 609-10, 661, and respondent presented no evidence to the contrary.

223. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Petitioner credibly testified that the only way in which he knew whether Boiler Riffle followed his recommendation was to look at the schedule of purchasers, Tr. at 496, 498, and respondent presented no evidence to the contrary. Petitioner has no objection to the remainder of the proposed finding of fact.

224. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Petitioner and Mr. Lipkind credibly testified that petitioner's recommendations were merely recommendations and that he never directed any investments. See Petitioner's Proposed Findings of Fact, ¶ 138, Tr. 111-12, 120, 242, 454, 627. Petitioner has no objection to the remainder of the proposed finding of fact.

225. Petitioner objects to this proposed finding of fact because referring to "advice" with quotation marks implies that "advice" has some other meaning, which it does not. Petitioner further objects to this proposed finding of fact because many of the 70,000 e-mails introduced into evidence do not relate to "investment 'advice' for Boiler Riffle."

226. No objection.

227. Petitioner objects to this proposed finding of fact because referring to "advice" with quotation marks implies that "advice" has some other meaning, which it does not. Petitioner also objects to the statement that petitioner's investment advice was passed on to Lighthouse by Ms. Chang. Tr. at 120, cited by respondent for support of this proposed finding of fact, says nothing about Ms. Chang. Petitioner testified that he did not give investment recommendations to Ms. Chang to forward to Lighthouse, Tr. at 668-72, and Ms. Chang's description of her contacts with Lighthouse does not include passing on petitioner's investment recommendations, Tr. at 886. Petitioner has no objection to the remainder of the proposed finding of fact.

228. No objection.

229. No objection.

230. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Credible evidence in the record establishes that petitioner never had any contact with Lighthouse, Ex. 83-J (JTW0018576), Tr. at 120, 485-88, 494, 559, 609-10, 661, and respondent presented no evidence to the contrary.

231. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Petitioner has no objection to the remainder of the proposed finding of fact.

232. Petitioner objects to this proposed finding of fact because it misstates the record. Ms. Chang did not testify that "everything that [she] did for petitioner had to be approved by petitioner." Rather, in reference to her duties of "tak[ing] care of payroll for his staff, help[ing] with negotiating the lease for the office with Mr. Webber's consensus," and "acquiring insurance for [petitioner]," Ms. Chang stated that "[e]verything has to be signed off by Mr. Webber." Tr. at 876-77.

233. through 238., inclusive, no objection.

239. Petitioner objects to this proposed finding of fact because it misstates the record. Tr. at 118 and 661, cited by respondent for support of this proposed finding of fact, do not refer to Ms. Chang. Petitioner testified that he did not give investment recommendations to Ms. Chang to forward to Lighthouse, Tr. at 668-72, and Ms. Chang's description of her contacts with Lighthouse does not include passing on petitioner's investment recommendations, Tr. at 886.

240. Petitioner objects to this proposed finding of fact because referring to "advice" with quotation marks implies that "advice" has some other meaning, which it does not. Petitioner has no objection to the remainder of the proposed finding of fact.

241. No objection.

242. Petitioner objects to this proposed finding of fact because it mischaracterizes the record. Petitioner did not direct any investments, and Mr. Lipkind testified that "Mr. Petigrow never once to my knowledge made a recommendation on any investment for Boiler Riffle." Tr. at 192. Ex. 630-J, which respondent cites in support of this finding of fact, relates to funding for the investment.

243. No objection.

244. Petitioner objects to this proposed finding of fact because petitioner did not "direct" any investment of Boiler Riffle. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632. Petitioner did make recommendations, most of which were accepted. Although petitioner recommended all of the initial equity investments made by Boiler Riffle, Boiler Riffle may have made decisions on "follow-on" or "pro rata" investments without petitioner's input. Tr. at 650-51, 660-61.

245. Petitioner objects to this proposed finding of fact because petitioner did not "direct" any investment of Boiler Riffle. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632. Petitioner did make recommendations, most of which were accepted. Although petitioner recommended all of the initial equity investments made by Boiler Riffle, Boiler Riffle may have made decisions on "follow-on" or "pro rata" investments without petitioner's input. Tr. at 650-51, 660-61. Moreover, with respect to debt instruments in Boiler's Riffle portfolio, if Boiler Riffle was already an investor, it would have been offered an opportunity to participate in a promissory note offered by the company, and petitioner would not necessarily have had any input. Tr. at 658-59.

246. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 245, above.

247. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 245, above.

248. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Petitioner has no objection to the remainder of the proposed finding of fact.

249. Petitioner objects to this proposed finding of fact because petitioner did not direct the Investment Manager to make any investment, including an investment in Safeview, Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632, but the Investment Manager declined petitioner's recommendation that Boiler Riffle invest in Safeview after conducting its own due diligence. Petitioner's Proposed Findings of Fact ¶ 154, Ex. 467-J.

250. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 249, above.

251. Petitioner objects to this proposed finding of fact because petitioner did not direct the Investment Manager to make any investment, including an investment in Milphworld, Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632. The Investment Manager did not accept petitioner's recommendation to make an equity investment in "Milphworld" because of concern about reputational risk, Tr. at 507-08, but did accept petitioner's recommendation to purchase convertible promissory notes from petitioner in 2007 and also directly from Milphworld. Exs. 35-J (P 000783, 803), 66-J, Tr. at 657-58.

252. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 251, above.

253. Petitioner objects to this proposed finding of fact because it is a misstatement of the evidence. First, as is clear from Ex. 474-J, cited by respondent, it was Boiler Riffle, and not petitioner, who was considering the investment. Second, as it is also clear from Ex. 474-J, had Boiler Riffle opted to make the investment, it could have done so by forming a California LLC. Ex. 474-J (P 002033, 2036). Petitioner further objects to this proposed finding of fact for the reasons stated with respect to paragraph 251, above.

254. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 253, above.

255. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Petitioner has no objection to the remainder of the proposed finding of fact.

256. Petitioner's objects to respondent's interpretation of Ms. McKinney's email and respectfully refers the Court to Ex. 608-J for its contents.

257. No objection.

258. Petitioner objects to this proposed finding of fact because Boiler Riffle could not have purchased the Milphworld notes without the Investment Manager's approval.

259. Petitioner objects to this proposed finding of the reasons stated with respect to paragraphs 251 and 253, above.

260. Petitioner does not object to this finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 232-J for its contents.

261. Petitioner does not object to this finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 232-J for its contents.

262. Petitioner objects to this proposed finding of fact because there is no such statement contained in Ex. 232-J (P 002765).

263. Petitioner objects to this proposed finding of fact because there is no such statement contained in Ex. 232-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Weldunn. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

264. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 240-J for its contents.

265. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 242-J for its contents.

266. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 248-J for its contents.

267. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 255-J for its contents.

268. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 240-J, 242-J, 248-J, or 255-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in JackNyfe. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

269. Petitioner objects to this proposed finding of fact because the use of the word "claims" suggest that there is some doubt where there is none. Petitioner has no objection to the remainder of the proposed finding of fact, although petitioner notes that the correct citation to the record is Tr. at 509-10 and not Tr. at 507.

270. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 265-J for its contents.

271. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 266-J for its contents.

272. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 268-J for its contents.

273. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 276-J for its contents.

274. Petitioner objects to this proposed finding of fact because petitioner did not "direct" any investment of Boiler Riffle. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632. Moreover, although Boiler Riffle may have made this investment with Lehman Brothers, petitioner recommended other Lehman Brothers' investments that Boiler Riffle declined. Tr. at 665-66.

275. Petitioner objects to this proposed finding of fact because petitioner did not "direct" any investment of Boiler Riffle. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

276. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 271-J for its contents.

277. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 275-J for its contents.

278. No objection.

279. Petitioner objects to this proposed finding of fact as there is no such statement contained in Ex. 271-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Quintana Energy. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

280. Petitioner objects to this proposed finding of fact because it is a misstatement of the evidence. Petitioner did not have the ability to commit Boiler Riffle to any investment. Ex. 15-J (JTW0018065), Tr. at 208.

281. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 681-J for its contents.

282. through 284, inclusive, petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 681-J for its contents.

285. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 294-J for its contents.

286. Petitioner does not object to this proposed finding of fact, although he notes that the documents speak for themselves and respectfully refers the Court to Exs. 295-J and 302-J for their contents.

287. Petitioner objects to this proposed finding of fact as it is a misstatement of the contents of the email contained in Ex. 554-J, which says "notwithstanding prior notification from Butterfield," and not that Mr. Lipkind acted "without notifying Lighthouse."

288. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 304-J for its contents.

289. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 308-J for its contents.

290. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 309-J for its contents.

291. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 316-J for its contents.

292. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 295-J, 302-J, 308-J, 309-J, 316-J, 532-J, or 554-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Lignup. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

293. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 321-J for its contents.

294. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 321-J for its contents.

295. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 327-J for its contents.

296. No objection.

297. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 333-J for its contents.

298. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 334-J for its contents.

299. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 336-J for its contents.

300. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 348-J for its contents.

301. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 348-J for its contents.

302. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 348-J, and neither petitioner nor Mr. Lipkind directed the Investment Manager to make any investment, including the investment in PTRx. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

303. No objection.

304. Petitioner objects to this proposed finding of fact as there is no such statement contained in Exs. 321-J, 327-J, 333-J, 346-J, or 348-J, and petitioner did not direct the Investment Manager to make any investment, including the investment in PTRx, Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

305. Petitioner objects to this proposed finding of fact because it is a misstatement of the evidence. Petitioner did not have the ability to commit Boiler Riffle to any investment. Ex. 15-J (JTW0018065), Tr. at 208.

306. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 125-J or 126-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Accept. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

307. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 776-J for its contents.

308. Petitioner objects to this proposed finding of fact because it is a misstatement of the evidence. Petitioner did not have the ability to commit Boiler Riffle to any investment. Ex. 15-J, Tr. at 208.

309. Petitioner objects to this proposed finding of fact because Ex. 171-J does not reference any "advance" of funds.

310. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 106-J, 109-J, 110-J, 112-J, 125-J, 126-J, 170-J, or 171-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Accept. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

311. Petitioner objects to this proposed finding of fact because there is no such statement contained in Ex. 186-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Borderware Technologies. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

312. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 188-J, 211-J, or 219-J, and because neither petitioner nor Mr. Lipkind directed the Investment Manager to make any investment, including the investment in Borderware Technologies. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

313. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 455-J or 456-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Vizible. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

314. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 464-J, 465-J, or 466-J, and because neither petitioner nor Mr. Lipkind directed the Investment Manager to make any investment, including the investment in Vizible. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

315. Petitioner objects to this proposed finding of fact as it is a misinterpretation of the email contained in Ex. 464-J and respectfully refers the Court Ex. 464-J for its contents.

316. Petitioner does not object to this finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 479-J for its contents.

317. No objection.

318. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 34-J or 479-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Medstory, Inc. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

319. No objection.

320. Petitioner does not object to the proposed finding of fact that petitioner sold his promissory note of $50,000 with Techtribenetworks to Boiler Riffle in 2006, but objects to the remainder of this proposed statement of fact because it is not supported by the record, and the exhibit referenced by respondent, Ex. 368-J, does not mention petitioner's reason for the sale.

321. No objection.

322. No objection.

323. Petitioner objects to this proposed finding of fact because it is not supported by the record, and indeed, respondent provides no citation to the record.

324. Petitioner objects to this proposed finding of fact because there is no such statement contained in Exs. 368-J, 384-J, or 388-J, and because petitioner did not direct the Investment Manager to make any investment, including the investment in Techtribenetworks. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

325. through 363, inclusive, no objection.

364. Petitioner objects to this proposed finding of fact because it is misleading as petitioner's venture capital funds invested in companies in which Boiler Riffle did not invest. See Pet. Post-Trial Br. at 32, ¶ 157, 78-J, Tr. at 505.

365. No objection.

366. No objection.

367. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 476-J for its contents.

368. No objection.

369. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 476-J for its contents.

370. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 476-J for its contents.

371. No objection.

372. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 546-J for its contents.

373. Petitioner does not object to this proposed finding of fact, although he notes that the document speaks for itself and respectfully refers the Court to Ex. 546-J for its contents.

374. Petitioner objects to this proposed finding of fact because petitioner did not direct the Investment Manager to make any investment, including the investment in Post Ranch Inn. Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

375. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 374, above.

376. Petitioner objects to this proposed finding of fact because the investment in Post Ranch Inn was made by Boiler Riffle, and not petitioner. Petitioner does not object to the remainder of this proposed finding of fact.

377. Petitioner does not object to the proposed finding of fact that Butterfield created a new company called Philtap Holdings Ltd., but objects to the remainder of the proposed finding of fact because it is argumentative and not supported by the record.

378. through 383., inclusive, no objection.

384. Petitioner objects to this proposed finding of fact because it is argumentative, irrelevant to any issue in the case, and contradicted by the evidence in the record that the Webify Board approved the sale of petitioner's warrants, Webify's value did not increase until 2004 (after petitioner transferred the warrants to Boiler Riffle in 2003), the price of the warrants was confirmed by an appraisal to have been for fair market value, and petitioner credibly testified that this transfer was not to the detriment of the limited partners of his venture capital partnerships. Exs. 48-J, 49-J, 50-J, 51-J, 52-J, 92-J, 93-J, Tr. at 518, 532-36, 673-75.

385. Petitioner objects to this proposed finding of fact for the reasons stated with respect to paragraph 384, above.

386. through 390., inclusive, no objection.

391. Petitioner objects to this proposed statement of fact because it is a blatant misstatement of the record. Ms. Chang did maintain a spreadsheet, but that spreadsheet shows that as of June 30, 2006, prior to the July 2006 sale to IBM, Boiler Riffle's basis in Webify was $838,575, not zero. Ex. 54-J (P002805).¹ First Stip. at ¶ 114.

392. Petitioner objects to this proposed statement of fact because it is a blatant misstatement of the record. The following exhibits, which are joint exhibits, establish that Boiler Riffle's basis in Webify was $838,575: Ex. 54-J (Ms. Chang's spreadsheet, discussed in response to paragraph 391, above), Ex. 34-J (JTW0015895-96, 15937) (Boiler Riffle's 2006 financial statements), Ex. 35-J (P 000802) (Boiler Riffle's 2007 financial statements), Ex. 55-J ($250,000 Subordinated Convertible Promissory Note), Ex. 56-J (Series A Preferred Stock Purchase Agreement), Ex. 57-J ($100,000 Note Purchase Agreement), Ex. 58-J (Series B Preferred Stock Purchase Agreement), Ex. 59-J ($62,500 Subordinated Convertible Promissory Note), Ex. 60-J (Series C Preferred Stock Purchase Agreement), and Tr. at 137-38, 547-48.

393. Petitioner objects to this proposed finding of fact, because it is a misstatement of the record. Bank of Butterfield recorded the amounts that Boiler Riffle paid for its Webify stock in its financial statements. Ex. 34-J (JTW0015895-96, 15937), Ex. 35-J (P 000802). Petitioner further objects to this proposed finding of fact because it is irrelevant to any issue in the case, as it was Boiler Riffle's investment, and not petitioner's.

394. No objection.

395. No objection.

396. No objection.

397. Petitioner objects to this proposed finding of fact because petitioner did not direct the Investment Manager to make any investment, including the investment in Webify, Ex. 15-J (JTW0018065), Tr. at 113, 119, 204-05, 494-95, 632.

398. through 420, inclusive, no objection.

421. Petitioner objects to this proposed finding of fact because it is a misstatement of the testimony because respondent has omitted the word "minimize." Tr. at 800.

422. No objection although petitioner notes that the correct citation to the record is Tr. at 801 and not Tr. at 799.

423. No objection.

1. Petitioner adequately substantiated Boiler Riffle's basis in Webify. The following exhibits, which are joint exhibits, establish that Boiler Riffle's basis in Webify was $838,575: Ex. 54-J (Ms. Chang's spreadsheet, discussed in response to paragraph 391, above), Ex. 34-J (JTW0015895-96, 15937) (Boiler Riffle's 2006 financial statements), Ex. 35-J (P 000802) (Boiler Riffle's 2007 financial statements), Ex. 55-J ($250,000 Subordinated Convertible Promissory Note), Ex. 56-J (Series A Preferred Stock Purchase Agreement), Ex. 57-J ($100,000 Note Purchase Agreement), Ex. 58-J (Series B Preferred Stock Purchase Agreement), Ex. 59-J ($62,500 Subordinated Convertible Promissory Note), Ex. 60-J (Series C Preferred Stock Purchase Agreement), and Tr. at 137-38, 547-48.

2. The burden of proof should shift to respondent pursuant to I.R.C. § 7491 because petitioner fully complied and cooperated with all reasonable requests by respondent for documents and information, and petitioner was completely cooperative with all aspects of the audit. See Pet. Post-Trial Br. at 40, ¶¶ 201-203, Tr. at 503, 562-63, 565, 569.

3. As noted in response to Respondent's Request for Ultimate Findings of Fact, ¶ 1, petitioner produced substantiation of Boiler Riffle's basis in Webify. Petitioner attempted to obtain additional documents establishing Boiler Riffle's basis in Webify but was not able to because Bank of Butterfield did not maintain those records. Tr. at 141-43, 354-55.

4. Respondent has not satisfied his burden of production that petitioner is liable for penalties under I.R.C. § 6662.

5. Petitioner made a reasonable attempt to ascertain his correct tax liability.

6. Petitioner did not request or receive a written legal opinion, but reasonably relied on the advice of Mr. Lipkind, a qualified tax advisor.

7. Petitioner reasonably relied on Mr. Lipkind's advice, as Mr. Lipkind was aware of all the relevant facts, extensively researched the issues, and was a qualified advisor.

8. Mr. Lipkind was not a "promoter" of the estate plan formulated for petitioner, and Mr. Lipkind himself did not invest in any similar plan himself, although his wife directly purchased a Lighthouse Policy.

9. Lighthouse is the owner of Boiler Riffle, not petitioner. See Petitioner's Proposed Findings of Fact, ¶ 119, Ex. 32-J, Tr. at 98, 341-42.

10. I.R.C. § 951 does not apply because here Boiler Riffle is not a controlled foreign corporation owned by petitioner.

11. Boiler Riffle is not a controlled foreign corporation. Lighthouse, and not petitioner, owns Boiler Riffle.

12. Petitioner is not a shareholder of Boiler Riffle. Lighthouse owns Boiler Riffle.

13. Petitioner does not own any class of stock of Boiler Riffle.

14. Petitioner does not own any shares of Boiler Riffle.

15. Boiler Riffle's basis in its Webify stock was $838,575.

16. Boiler Riffle's payments of $130,000 and $161,500 in 2006 and 2007, respectively, for the Policies' annual administrative and mortality expenses, are not income to petitioner, or, alternatively, the payments for the administrative expenses are deductible.

17. Mr. Walker testified at length about the Investment Manager's due diligence practices. Tr. at 379-82, 395-403.

18. Mr. Walker testified at length about the Investment Manager's due diligence practices. Tr. at 379-82, 395-403.

19. through 21. Petitioner introduced evidence that the Investment Managers performed the appropriate level of due diligence.

22. Petitioner recommended all of the initial equity investments made by the Investment Managers.

23. Petitioner merely recommended investments, and did not himself, nor through Mr. Lipkind, direct the Investment Manager to make any investment.

24. Lighthouse did not act as a facilitator, and petitioner did not control Boiler Riffle or its assets.

25. Bank of Butterfield did not act as a facilitator, and petitioner did not control Boiler Riffle or its assets.

26. Experta did not act as a facilitator, and petitioner did not control Boiler Riffle or its assets.

27. The Investment Managers made all decisions regarding investments for the Separate Accounts.

28. Mr. Lipkind contacted the appropriate personnel at Bank of Butterfield and Experta, including Kimberly Strachan, who was a compliance officer for Bank of Butterfield.

29. Petitioner merely made investment recommendations to the Investment Managers and did not control or direct the investments for the Separate Accounts.

30. Lighthouse, and not Boiler Riffle, is the owner of the assets in the Separate Accounts.

31. There is no evidence in the record that Boiler Riffle did not pay fair market value for the notes in Signature Investments RBN, Inc. and Milphworld.

32. Petitioner had no direct contact with Boiler Riffle, but had indirect contact through his attorney, Mr. Lipkind, who communicated petitioner's investment recommendations to the Investment Managers.

33. Petitioner did not exercise investor control over Boiler Riffle.

34. There is no evidence in the record that the Separate Accounts did not pay petitioner the $2,240,000 purchase price for his Sagent, Persistence, and Commerce One Shares, which were sold to the Separate Account in 1999, and, in any event, this stock sale is not relevant to any issue in the present case.

35. Mr. Lipkind acted as petitioner's agent, but neither Mr. Lipkind nor petitioner directed any investment of Boiler Riffle.

36. through 40. Petitioner did not direct or control Boiler Riffle's investments.

41. through 42. The Bank of Butterfield financial statements showing Boiler Riffle's basis in its Webify stock are reliable evidence. Exs. 34-J, 35-J, Tr. at 350-52.

43. Petitioner is not required to include the income from the assets in Boiler Riffle in his taxable income because he was not the owner of those assets under the investor control doctrine or any other legal theory.

44. through 46. Petitioner did not select any investment of Boiler Riffle but merely made recommendations to the Investment Manager, and the Investment Manager made its own decisions.

47. Petitioner did not have substantial incidents of ownership over the investment assets related to the Policies as a result of the Cash Surrender Value restriction.

48. The Investment Managers made their own decisions about whether to act on petitioner's investment recommendations.

49. Petitioner did not violate the investor control doctrine because he did not have substantial incidents of ownership over the investment assets.

50. Petitioner has no deficiencies in federal income tax.

51. Petitioner is not liable for penalties under I.R.C. § 6662 because there was no understatement of tax, he acted reasonably and in good faith, and the tax positions were supported by substantial authority.

The Cash Surrender Value restriction prohibits petitioner and the Trust from accessing the underlying assets or any income generated by those assets. Neither Petitioner nor the Trust is the beneficial owner of the Separate Account assets as neither possesses any incidents of ownership over them. The investor control doctrine also does not apply because petitioner is not in constructive receipt of the underlying assets.

Even if the investor control doctrine could be applied based merely on a taxpayer's ability to direct investments, which it cannot, petitioner did not have any such ability because he did not and could not control the investments. There is no doubt that the petitioner recommended investments to the Investment Managers, but there is no evidence that he directed or controlled the investment decisions.

Respondent has conceded several issues in this case, but persists in arguing that Boiler Riffle is a controlled foreign corporation owned by petitioner despite the fact that all of the evidence in the record is to the contrary. The Court should find that Lighthouse is the owner of Boiler Riffle and summarily reject respondent's computations of Subpart F income.

Respondent also refuses to abandon his meritless claim that Boiler Riffle had zero basis in Webify. As explained in Point VII, A., infra, respondent goes so far to misrepresent the contents of an exhibit in order to manufacture some doubt on this issue where there is none.

Petitioner is not liable for penalties under I.R.C. § 6662 because there is no understatement of tax, but also because this is a case of first impression of unsettled law, and petitioner reasonably relied on the qualified advice of competent tax counsel. Respondent's attorney, William Lipkind, is an expert in tax and estate planning. Mr. Lipkind thoroughly considered all of the legal authorities as well as opinions from Lighthouse's general counsel, Jay Walker. Mr. Lipkind developed an estate plan for petitioner, and advised him that he would not recognize taxable income on the appreciation in the Policies, and that the life insurance benefits would pass free of estate tax to his children. This advice was reasonable and supported by substantial authority.

Petitioner credibly testified at trial, and the record reflects, that he provided substantial evidence and documentation in support of his position to the Service, maintained records, and cooperated with all reasonable requests by respondent for documents and information during the audit. Pet. Post-Trial Br. at 47-49, Tr. at 503, 512-565, 592. Revenue Agent Michael Parisi, who conducted the audit of petitioner, was sitting in the courtroom throughout petitioner's testimony on this issue, and had he disagreed with any of it, he could have attempted to rebut it. Respondent did not call him as a witness, presumably because he would have corroborated petitioner's testimony. After failing to call Agent Parisi, or even to cross-examine petitioner about the I.R.C. § 7491 requirements, respondent cannot now claim that those requirements were not satisfied.

Respondent also contends that the burden of proof should not shift to him because the Service was "forced to summons information." There was no evidence presented by respondent in support of this claim and no summonses were introduced into evidence. It is true that the Revenue Agent summonsed at least one witness, Susan Chang, but there was no evidence presented that he was "forced" to do so by petitioner's conduct. Rather, the issuance of summonses is standard practice for third party witnesses. See Internal Revenue Manual 5.16.6.6, 25.5.6.2.

Respondent also argues that because he filed motions to compel discovery in the Tax Court case, the burden does not shift to him. Resp. Post-Trial Br. at 80-81. Respondent filed two motions to compel without first consulting with petitioner's counsel. After the motions were filed, the parties amicably resolved all of the issues raised in the motions. The Court should not encourage respondent to file unnecessary discovery motions by allowing him to avoid the burden of proof so easily.

In sum, I.R.C. § 7491 shifts the burden of proof to respondent.

The investor control doctrine does not apply to the Policies because there were substantial restrictions on petitioner's and the Trust's ability to access the assets in the Separate Accounts, including Boiler Riffle. The Lighthouse Policies prohibited the Trust from withdrawing any assets, through loan or surrender, either cash or in-kind, beyond the "Cash Surrender Value," which is defined as the amount of premiums paid. Ex. 15-J (JTW0018063, 18075). Lighthouse has never violated the Cash Surrender Value restriction on any of its policies. Tr. at 318-19.

During these proceedings, respondent has pretended that the Cash Surrender Value restriction does not exist. Despite the Court's request that respondent focus on this restriction in respondent's post-trial brief, Tr. at 960, respondent still has not addressed it. Respondent's only acknowledgment of the Cash Surrender Value restriction is his concession that it distinguishes this case from the existing legal authorities:

It is important to note that to the extent that respondent is suggesting that petitioner, or the Trust, is able to get something more out of the Policies through surrender or loan beyond the Cash Surrender Value restriction, this is simply not the case. Respondent claims that petitioner had a "right. . . to receive back shares of stock that could become very valuable at a future date when they became liquid." Resp. Post-Trial Br. at 132 (emphasis added), Id. at 77. A review of the full text of Policies' provisions, and not just the selected excerpts cited by respondent, however, shows that this is not the case.

The Policies' Surrender Benefit provisions are as follows:

The Policies unambiguously state that receiving an in kind distribution is at Lighthouse's sole discretion, and thus it cannot reasonably be characterized as a "right" of petitioner's or the Trust's. The fact that such an in kind distribution could grow (or diminish) in value is of no moment. Petitioner simply cannot receive shares with a value greater than the Cash Surrender Value. And, it would be an odd decision for Lighthouse to exercise its discretion to give the Trust stocks that have a likelihood of increasing in value when it surrenders the Policies, when it could just pay back the premiums and hold onto the potentially valuable stock for itself.

Returning to the investor control doctrine, the reason that respondent utterly fails to address the Cash Surrender Value restriction is that he has nothing to say. Petitioner provided a detailed summary of the Revenue Rulings and Christoffersen in its pre-trial brief, see Pet. Pre-Trial Br. at 25-28, 31-46, and we respectfully refer the Court to that discussion. The common thread throughout those decisions is that the taxpayer must have substantial incidents of ownership over the asset, necessarily including the right to receive or access any income produced by, or increase in value of, the assets in the account. Respondent admits as much in his own summary of the investor control Revenue Rulings.

For instance, respondent explains that based on the fact that "the policyholder could make a full or partial surrender of the policy to the insurance company and would be entitled to receive an amount equal to the proceeds received by insurance company less the amount of any cash surrender charges," in Rev. Rul. 77-85, the Service concluded that "the policyholder possesses such substantial incidents of ownership in the assets in the custodial account, that the policy is the owner of the assets." Resp. Post-Trial Br. at 99 (citing Rev. Rul. 77-85).

This description of Rev. Rul. 77-85 is consistent with Christoffersen' s statement that the taxpayer's immediate access to the underlying investment assets "is the essence of Revenue Ruling 81-225." 749. F.2d at 515-16. Indeed, in the appellate brief filed by respondent in Christoffersen, respondent heavily relied upon the fact that the owner had the ability to withdraw the full accumulated value of the underlying investments. Pet. Pre-Trial Br. Ex. A at 6. The Cash Surrender Value restriction, however, prevents the Trust from accessing the underlying investment assets, and thus petitioner cannot be found to have exercised investor control.

Respondent's attempt to interpret the Revenue Rulings and Christoffersen as applying to a situation in which the taxpayer has no significant incidents of ownership over the assets or constructive receipt of account income, and is only able to direct the investments, is not supportable. Petitioner did not direct the Lighthouse investments, but even if he did, which he disputes, the investor control doctrine would not apply. A policyholder's ability to direct investments, cannot, on its own, warrant treating the taxpayer as the owner of the underlying assets.

B. Petitioner Does Not Possess Any Other Incidents of Ownership

Instead of addressing the Cash Surrender Value restriction, respondent contends that petitioner has other incidents of ownership of Boiler Riffle's assets. These are new arguments that have surfaced for the first time in respondent's post-trial brief, and respondent cites no legal authority to support these arguments. Respondent first argues that petitioner could access Boiler Riffle's assets through his right to assign the Policies as collateral for a loan, subject to the consent of Lighthouse. As discussed in Petitioner's Post-Trial Brief at 73-76, petitioner's ability to use the Policies as collateral for a loan is not an incident of ownership. As respondent acknowledges, Lighthouse's affirmative consent is required to pledge the Policies, and Lighthouse has expressly retained the authority to withhold its consent in its "absolute discretion." Ex. 15-J (JTW0018062, 18074).

Moreover, even if Lighthouse consented to a Policy assignment, petitioner would be required to pay interest for any funds he borrows, and a taxpayer is not treated as the owner of income when it must pay interest to access the funds. See United States v. Steck, 295 F.2d 682 (10^th Cir. 1961); Rutland v. Commissioner, T.C. Memo 1977-8; Rev. Rul. 73-220, 1973-1 C.B. 297. Moreover, as explained in petitioner's opening brief, See Pet. Post-Trial Br. at 75-76, any lender would limit the loan to the Cash Surrender Value.

Second, respondent argues that another incident of ownership is that petitioner transferred the Policies from the Alaska Trust to the Chalk Hill Trust and then to the Jeffrey T. Webber Trust in 2008, and that this demonstrated an "ability to change the beneficiaries of the Trusts" that "enabled him to control who ultimately receives the death benefits from the Policies." Resp. Post-Trial Br. at 133. Respondent has the facts wrong; "[t]he Trustees of the Alaska Trust transferred the Policies to the Chalk Hill Trust." First. Stip. at ¶ 80. Accordingly, it was the trustees who transferred the Policies between trusts, not petitioner, as petitioner did not have the authority to do so. Moreover, even if respondent were correct, which he is not, it is of no legal significance. The owner of a life insurance policy can always change the beneficiary of the policy, and this has no bearing on the ownership of Lighthouse's underlying investments.

Third, respondent contends that petitioner directed Boiler Riffle on how to vote and when to pass on pro rata offers, and that this is an incident of ownership. Resp. Post-Trial Br. at 123. The emails cited in support of this argument show nothing more than that the Investment Managers asked for petitioner's advice because he was more knowledgeable about the issues that they were deciding. Exs. 294-J, 341-J, 404-J. This is not an incident of ownership that would cause petitioner to be the owner of Boiler Riffle's assets.

C. The Investor Control Doctrine Does Not Apply to Life Insurance

In his Pre-Trial Brief, petitioner argued that the extension of the investor control doctrine to life insurance is invalid, and that Rev. Rul. 2003-91 and 2003-92 should not be afforded deference. Pet. Pre-Trial Br. at 25-301; see also Pet. Post-Trial Br. at 49-52. As explained in these prior submissions, the Revenue Rulings are not entitled to deference because they provide no explanation as to why the investor control doctrine should apply to life insurance. Respondent's reference to Rev. Rul. 2003-91 and Rev. Rul. 2003-92 as supporting its position that the investor control doctrine applies to life insurance, Resp. Post-Trial Br. at 137, misses the mark as it is these Revenue Rulings that are not entitled to deference.

Respondent's other response is that Congress treats variable annuities and variable life insurance policies similarly under I.R.C. § 817(h). See Resp. Post-Trial Br. at 136-137. I.R.C. § 817(h) of the Code contains certain diversification requirements for variable annuity and variable insurance contracts, but the fact that the same diversification requirements apply to both does mean that variable annuities and variable life insurance should be treated similarly for all tax purposes. If that were the case, payments under an annuity contract would be exempt from income tax under I.R.C. § 101, which certainly is not the case.

D. Petitioner Did Not Direct the Lighthouse Investments

The Policies state that "no Policy owner has the right to require Lighthouse or Investment Managers engaged by Lighthouse to acquire any particular investment." (Ex. 15-J, JTW0018065, 18077). This provision was respected. Respondent contends that in substance, petitioner controlled the investments made by Boiler Riffle. Resp. Post-Trial Br. at 151. Petitioner only made investment recommendations, see Pet. Post-Trial Br. at 65-71, and thus the substance is consistent with the form; petitioner had no right to compel Lighthouse to make a particular investment, and petitioner never compelled Lighthouse to make any investments.

Respondent tries to persuade the Court merely by the sheer volume of email exhibits that he introduced into evidence -- over 70,000 by respondent's count. See Resp. Post-Trial Br. at 38, 127. A large percentage of the emails do not support respondent's position at all. First, as explained in petitioner's opening brief, numerous emails show that petitioner did not control the investments of Boiler Riffle. See Pet. Post-Trial Br. at 68-69. Second, many of the emails were sent to persons other than the Investment Managers, such as personnel of the companies in which Lighthouse was considering investing, see e.g., Ex. 776-J, and thus are not evidence of directions to Lighthouse. Third, respondent may be confused by some of the language in the emails, interpreting them as petitioner making decisions for Boiler Riffle, when he is actually making a decision on behalf of his investment syndicate. For example, in Ex. 242-J, an exhibit cited by respondent, petitioner sent an email to Mr. Lipkind, Ms. Chang, and others stating that "[Boiler Riffle] can do an entire $200,000 installment." Petitioner is communicating that a $200,000 investment is available to Boiler Riffle, if Boiler Riffle chooses to invest as a syndicate partner.

And, nowhere in the 70,000 emails does anyone say that petitioner is directing, ordering, or otherwise controlling the decisions of Investment Managers. Although at times the language could have been more precise, the emails convey petitioner's recommendations with language such as "Jeff would like to" or "Jeff recommends. . . .", see e.g., Ex. 126-J, and not that he "orders" or "directs."

Respondent contends that Mr. Lipkind's instructions for petitioner not to communicate directly with the Investment Manager were intended to "create an illusion" that petitioner was not directing Boiler Riffle's investments. Resp. Post-Trial Br. at 117. This is not a fair reading of the evidence. Mr. Lipkind credibly testified that his only intent was to avoid confusion or the appearance of a sub rosa understanding between the Investment Managers and petitioner. Tr. at 118, 136, 153-55, 162-63, 209, 485-86. That Mr. Lipkind was not successful is evidenced by this case, but, in any event, the procedure for communications was intended in good faith and was not an attempt to conceal anything.

Respondent also ignores petitioner's testimony that the Investment Managers may not have consulted him on certain follow-on or "pro rata" investments or subsequent financings. Tr. at 650-51, 660-61. Petitioner did advise the Investment Managers about his view on a particular company's potential. For example, in Ex. 333-J, cited by respondent, petitioner responds to a request for information from Mr. Lipkind as to whether he recommends that Boiler Riffle continue to invest in PTRx, saying "I would do a pro-rata at the minimum," because "life is good at PTRx." It is entirely appropriate for the Investment Managers to reach out to petitioner, through Mr. Lipkind, to find out how a company is performing before deciding on whether to make additional investments.

Next, respondent argues that certain transactions between petitioner and Boiler Riffle, such as the Techtribenetworks and Milphworld promissory notes, and the investments in Signature RBN and Longboard, show that he controlled Boiler Riffle.⁴ These arguments were addressed in Petitioner's opening brief. Pet. Post-Trial Br. at 67-71. For the first time in this proceeding respondent contends that these transactions were not entered into at fair market value. Resp. Post-Trial Br. at 118. There is no evidence whatsoever supporting this assertion. Pursuant to Tax Court Rule 142(a) (as well as I.R.C. § 7491), respondent has the burden of proof on this issue. Respondent never once indicated that it questioned the terms of these transactions, and he cannot, for the first time in his Post-trial Brief, raise this issue. Had petitioner received notice that respondent was questioning the terms of these transactions, he would have presented evidence at trial. If the Court has any concern about this issue, we request that the record be reopened for additional evidence.

Respondent raises another new matter in his Post-Trial Brief: how Boiler Riffle paid for petitioner's shares in Sagent Technology, Inc., Persistence Software Inc., and Commerce One. Resp. Post-Trial Br. at 119. Again, pursuant to Tax Court Rule 142(a) (and I.R.C. § 7491), respondent bears the burden of proof, but has presented no evidence that Lighthouse's 1999 2^nd Fund did not make the payments as indicated on petitioner's 1999 gift tax return. Ex. 82-J (JTW0022900-22901). Petitioner could not immediately recall how the shares were acquired, but later posited that it may have been through an installment sale. Tr. at 475. There is no other evidence in the record on this issue, and certainly no basis for the Court to conclude that there was anything improper about this transaction.

Respondent also contends that petitioner directed Boiler Riffle's investment in Webify. Resp. Post-Trial Br. at 123-24. There is no evidence in the record indicating that petitioner did anything other than offer his shares to Boiler Riffle, and that the Investment Manager decided whether to buy them. Respondent's claim that "petitioner transferred his shares in Webify to Boiler Riffle to enrich himself through acts of self-dealing at the expense of the limited partners in his venture capital partnerships," Resp. Br. at 124, is nothing more than an attempt to prejudice the Court against petitioner.

There is no credible evidence that petitioner engaged in any self-dealing. The only person who has accused petitioner of self-dealing is his former business partner (and the whistleblower against him) with whom he has had an "extremely acrimonious" relationship. Tr. at 524. Petitioner has vehemently denied any misconduct. See Exs. 92-J, 93-J, Tr. at 529-36. Most tellingly, despite allegedly believing that petitioner had engaged in self-dealing to the detriment of their limited partners, the witness admitted that he never notified the limited partners themselves and only used this "information" in his whistleblower claim against petitioner from which he could personally profit. Tr. at 832-33. This witness' testimony was biased and unreliable, and should be disregarded.

Respondent misstates the record in his argument that "there is nothing in the record" showing that the Investment Managers made independent decisions. Resp. Post-Trial Br. at 120. This argument ignores the evidence that Boiler Riffle did decline at least two equity investments, Milphworld and Safeview, and possibly other offerings from firms such as Lehman Brothers. See Pet. Br. at 31-32. Petitioner brought Boiler Riffle into opportunities with enormous growth potential in which he himself was investing (either personally or through his funds), and for which his company consulted. It would have been more unusual for Boiler Riffle not to have accepted petitioner's recommendations.

Citing to the original Investment Management Agreement, respondent argues that the Investment Manager only received annual fees of $2,500. Resp. Post-Trial Br. at 122. The Investment Management Agreement's fee provisions were subject to amendment, Ex. 17-J (P000399), and apparently were amended at some point because according to the Bank of Butterfield and Experta financial statements, the Investment Managers were paid fees for investment management services of $8,500 in 2006 and $29,000 in 2007, Ex. 34-J (JTW0015941), Ex. 35-J (P000838, 862), and bank service charges of $2,171.84 in 2006 and $10,750.87 in 2007, Ex. 34-J (JTW0015941), Ex. 35-J (P000838, 862).

Finally, respondent's claim that Lighthouse was merely an "accommodating' party" with "little skin in the game," Resp. Br. at 141, is a misrepresentation of the record. The Policies provide that Lighthouse is entitled to 1.25% of the account value, Ex. 15-J (JTW0018071, 18083), and as Mr. Walker explained, this is one way in which Lighthouse makes a profit, and thus there is an economic incentive for the Separate Account portfolio to perform well. Tr. at 436-38. Additionally, it would be problematic to Lighthouse from a compliance perspective if its policies were to lapse because the Separate Account values could not support them. Id.

In any event, respondent now appears to be arguing that the owner of Boiler Riffle is the policyholder of the Policies, Resp. Post-Trial Br. at 145, but provides no explanation as to why this would be so and does not cite to any legal authority.

All of the evidence in the record shows that Lighthouse is the owner of Boiler Riffle. The Policies state that "Lighthouse is the owner of all Separate Account Assets." 15-J (JTW0018065, 18077). Respondent's own proposed finding of facts state that Boiler Riffle is part of the Separate Accounts. See Respondent's Proposed Findings of Fact at ¶¶ 161-63. Lighthouse's internal statements record Boiler Riffle as an asset owed by Lighthouse. Ex. 25-J (CHANG002169, CHANG002124). Petitioner's accountant, Dan K. Deaver, wrote a letter to Revenue Agent Parisi on May 28, 2009 explaining that petitioner did not file IRS Form 5471 for tax years 2005-2007 because "100% of the stock of all shares of Boiler Riffle Investments . . . was at all applicable times legally and beneficially owned by Lighthouse." Ex. 33-J. Revenue Agent Parisi never responded to this letter. The Articles of Association of Boiler Riffle state that the outstanding shares of Boiler Riffle are owned equally by Lighthouse Policy #99-047 and Lighthouse Policy #99-048 (Ex. 32-J). Mr. Walker testified that while this form was "sloppy simple shorthand," Ex. 32-J indicates that one-hundred percent of the interests of Boiler Riffle were owned by Lighthouse as an insurance dedicated fund. Tr. at 341-42.

Because Boiler Riffle is not owned by petitioner under any theory, but is owned by Lighthouse, respondent's calculation of the income tax is incorrect. As discussed in Petitioner's Post-Trial Brief, if the Court were to find that the investor control doctrine applied, petitioner would be treated as the owner of the underlying assets, and not Boiler Riffle. Pet. Post-Trial Br. at 82-85. Respondent does not address this point, and to avoid repetition, we respectfully refer the Court to the prior discussion, but note that respondent may be in agreement, as he has asked the Court to make an "ultimate" finding of fact that "[p]etitioner is the owner of the assets in the Separate Accounts of the Policies." Resp. Post-Trial Br. at 71, ¶ 30.

The Ninth Circuit has described a variable life insurance policy as one in which "[p]olicyholders choose from various investment options within the separate account and [issuer] invests the assets in corresponding portfolios. . . . [t]he death benefit payable to survivors varies with the performance of the funds each customer selects." Freeman Investors, LP v. Pacific Life Insurance Co., 704 F.3d 1110, 1113 (9^th Cir. 2013). Similarly, in Araujo v. John Hancock Life Insurance Co., 206 F. Supp. 2d 377, 379 (E.D.N.Y. 2002), the court stated that a "variable universal life insurance policy permits a policyholder to invest premiums in a separate account containing mutual funds which grows or declines depending on the performance of the funds. The policyholder receives an account value and a death benefit."

The American Council of Life Insurers, Life Insurance Fact Book 151 (2011) (cited in Freeman, 704 F.3d at 113),⁶ defines variable life insurance as "[a] type of permanent insurance providing death benefits and cash values that vary with the performance of a portfolio of investments. The policyholder may allocate premiums among investments offering varying degrees of risk, including stocks, bonds, combinations of both, and accounts that guarantee interest and principal."⁷ Similarly, a leading life insurance treatise describes variable life insurance as "a type of of whole life insurance whose value may vary directly with the performance of a set of earmarked investments." Life Insurance, Black & Skipper, 12^th Ed., at 114.

Finally, the difference between ordinary whole life insurance and variable life insurance has been explained as "[i]nstead of crediting a fixed, conservative interest rate (e.g., 4%), the insurance company holds the cash values of the policy in a separate account . . . that purchases mutual fund shares . . . and those cash values vary with the fund's investment performance." See Joan E. Boros & W. Randolph Thompson, A Vocabulary of Variable Insurance Products, 813 PLI/Commercial Law & Practice A-902 (2008) (cited in Araujo, 206 F. Supp. 2d at 379).

These authorities demonstrate that all forms of variable insurance combine two distinct features, a minimum death benefit and a separate investment component, and we note that respondent does not cite any authority that calls into question whether the Policies differ from industry norms for variable life insurance.

Respondent's position on basis in this case borders on sanctionable. In a desperate effort to convince the Court that there was no evidence of basis, despite the clear record, respondent blatantly misrepresents the content of an exhibit. Respondent states that the spreadsheets maintained by Ms. Chang, "consistently recorded petitioner's basis in Webify as zero." Resp. Post-Trial Br. at 83 (citing Ex. 54-J); see also Resp. Post-Trial Br. at 153 ("Ms. Chang's undated spreadsheet. . . . also confirms that petitioner's basis is zero."). Respondent is referencing Ms. Chang's records during 2007-2012, but if respondent turned the page of this exhibit to P 002805, he would see that as of June 30, 2006 (which is the date that matters, as Boiler Riffle sold its shares to IBM in July 2006), Ms. Chang made the following entries, summarized below:

                                                        6/30/06

Respondent further contends that petitioner has produced no evidence of Boiler Riffle's basis in Webify. See Resp. Br. at 77, 83, 153. This is simply not true. The Bank of Butterfield financial statements reflect the amount that Boiler Riffle paid for its Webify stock, 34-J (JTW0015895-96, 15937), Ex. 35-J (P 000802), Tr. at 903, Mr. Walker credibly testified that these financial statements are reliable, Tr. at 349-52, and the numbers contained therein track to the underlying transaction documents introduced as joint exhibits, see Exs. 55-60.

Respondent's contention that the Bank of Butterfield statements are not reliable to establish basis is particularly disingenuous, as in addition to his repeated reliance on these statements at trial, see Pet. Post-Trial Br. at 98, in his post-trial brief, respondent cites to the Bank of Butterfield financial statements over a dozen times, many times as the sole support of his proposed findings of fact, see Respondent's Proposed Findings of Fact ¶¶ 203, 204, 205, 206, 207, 208, 209, 210, 279, 296, 303, 317, and 395. Amazingly, the Bank of Butterfield financial statements are the only evidence that support the income computations in the Notice of Deficiency, see Respondent's Proposed Findings of Fact ¶¶ 209-10, and yet respondent claims that they are unreliable.

The Court indicated that unless respondent was able to provide some reason why the Bank of Butterfield statements are not reliable with respect to basis, it would accept them as evidence. Tr. at 903-04. Respondent speciously argues that the statements are not reliable because Lighthouse and Bank of Butterfield "were mere conduits and facilitators in petitioner's attempts to conceal his actual and/or constructive control of Boiler Riffle and its assets. As such, Butterfield simply relied on information provided from petitioner and his agents with respect to the Webify basis." Resp. Post-Trial Br. at 152. There is no evidence whatsoever that this happened. And, it defies common sense that Bank of Butterfield would accurately report all of the information upon which respondent relies, while making up numbers regarding Webify. Moreover, as Mr. Walker, Mr. Lipkind, and petitioner testified, based on their personal knowledge, Boiler Riffle paid for its Webify stock and was not given it for free. Tr. at 137-38, 547-48.

Respondent also claims that the record is "devoid" of any evidence that the Bank of Butterfield statements were audited. Resp. Post-Trial Brief at 152. If that is an objection to these exhibits, then it should be an objection that applies to equal force on both sides, leaving respondent with no evidence of many aspects of its case, including the proceeds of the sale of the Boiler Riffle stock and the investments in the Boiler Riffle account. In any event, the record is hardly "devoid" of evidence; Mr. Walker testified at length and with great detail about the protocol he developed for ensuring the accuracy of these financial statements. See Tr. at 349-52, Pet. Post-Trial Br. at 98-100.

Additional evidence of Boiler Riffle's basis, such as wire transfer confirmations, was not in petitioner's possession nor maintained by Bank of Butterfield. Tr. at. 141-43, 354-55. The evidence of basis in the record, however, more than satisfies the Cohan standard of a "reasonable evidentiary basis" for the estimation of basis. Cohan v. Comm'r, 39 F.2d 540 (2d Cir. 1930); Group Admin. Premium Servs., Inc. v. Comm'r, T.C. Memo. 1996-451 (citing Polyak v. Comm'r, 94 T.C. 337, 345 (1990); Vanicek v. Comm'r, 85 T.C. 731, 743 (1985)).

Respondent completely ignores the Cohan rule, again, pretending as if there was no evidence of basis. Respondent instead cites In re PT-1 Communications, Inc., 463 B.R. 599, 608 (E.D.N.Y. 2011), for the proposition that a taxpayer must substantiate his claimed deduction and that the burden-shifting of I.R.C. § 7491 will not relieve him of this obligation. Resp. Post-Trial Br. at 81. In that case, the taxpayer had no substantiation for his net operating loss, but argued that I.R.C. § 7491 shifted the burden to respondent to disprove his claimed net operating loss. Id. The court explained that despite I.R.C. § 7491, a taxpayer still must substantiate his deduction. Id. Petitioner is not trying to use I.R.C. § 7491 to avoid substantiating basis; he has substantiated basis. And, as is clear from the above, because there is no way to legitimately counter this evidence, respondent pretends it does not exist, even to the point of misrepresenting the contents of a trial exhibit.

In sum, if the Court finds that Boiler Riffle received sales proceeds with respect to its Webify stock, the Court should also find that Boiler Riffle had a basis of $838,575.

B. Gain on the Sale of Webify Stock Should Be Characterized as Long-Term Capital Gain and Not a Dividend

As discussed more fully in Petitioner's Post-trial Brief, if the court were to hold that the investor control doctrine applies, which it should not, the tax consequence of the sale of the Webify shares should be that petitioner recognized long term capital gain, not ordinary income. Pet. Post-Trial Br. at 82-85, 102. This is because if investor control applied, petitioner would be treated as the owner of the underlying assets, and not Boiler Riffle itself. Respondent apparently agrees, as he has asked the Court to make an "ultimate finding of fact" that "[p]etitioner is the owner of the assets in the Separate Accounts of the Policies. Resp. Post-Trial Br. at 71, ¶ 31 (emphasis added).

Respondent cites to a series of cases in support of his argument that "contributions and distributions from companies that confer an economic benefit on an individual are included as part of the individual's income." Resp. Post-Trial Br. at 157. These cases relate to distributions to individuals who are shareholders of the company making the distribution. Here, however, petitioner is not a shareholder of Boiler Riffle, either directly or through the Trust. As explained in Point III(A), of the Petitioner's Post Trial Brief, and at Point III, supra, Lighthouse is the owner of Boiler Riffle.

Alternatively, if the distributions were treated as income to petitioner, he would be entitled to an offsetting deduction for the administrative expenses under I.R.C. § 162 because he is in the business of making private equity investments. See Achiro v. Comm'r, 77 T.C. 881, 903 (1981). In that vein, respondent ignores the difference between the administrative charges and the mortality charges. The administrative charges, which are the majority of the charges at issue, are deductible.

Penalties are not appropriate in this case, which is one of first impression. See, e.g., Mitchell v. Comm'r, T.C. Memo. 2000-145; Hitchins v. Comm'r, 103 T.C. 711, 720 (1994). The primary legal issue in this case, whether the doctrine of investor control applies to a policy with a cash surrender value restriction such as the Policies here, is not addressed by the caselaw or Revenue Rulings. Respondent admits that the Cash Surrender Value Restriction is a "distinguishing characteristic," and that there are no cases addressing it. Resp. Post-Trial Br. at 174. On the question of investor control, respondent's position has changed at every juncture. In the Christoffersen litigation, respondent argued that the key factor was the policy-owner's ability to access the underlying investment assets at any point in time. See Petitioner's Pre-Trial Exhibit A at 6. In his opening brief in this case, respondent argued that merely directing investments is sufficient for investor control. Resp. Pre-Trial Br. at 24-33. And in his Post-Trial Brief, respondent argued that petitioner directed the investments and had other incidents of ownership. See Resp. Post-Trial Br. at 75-76. In addition, regarding respondent's argument that Boiler Riffle is a controlled foreign corporation, respondent's counsel was not able to explain his own argument on this point at trial, admitting that "I'm lost myself." Tr. at 955.

Respondent's own struggle to articulate its legal argument demonstrates that the existing legal authorities do not address the circumstances of this case. Accordingly, the Court should find that I.R.C. § 6662 penalties are not appropriate.

B. Petitioner Reasonably Relied on the Advice of Qualified Counsel

Reasonable cause and good faith are defenses to accuracy-related penalties under I.R.C. § 6662(a). "Whether a taxpayer has reasonable cause depends on all of the facts and circumstances of a particular case, with the most important factor being the taxpayer's effort to assess his proper tax liability." American Boat Co. LLC v. United States, 583 F.3d 471, 481 (7^th Cir. 2009); Treas. Reg. § 1-6664-5(b)(1). These standards are met where the taxpayer can show reliance on the advice of a competent and professional advisor. American Boat, 583 F.3d at 481. This is a fact-intensive inquiry that depends on the "quality and objectivity of the professional advice obtained." Id. (internal citations omitted).

The evidence establishes that petitioner relied on Mr. Lipkind, a competent and qualified advisor, who reviewed all relevant authority before rendering his advice. See Pet. Post-Trial Br. at 109-14. Respondent may disagree with Mr. Lipkind's conclusions, but this does not make petitioner's reliance on him unreasonable. See United States v. Boyle, 469 U.S. 241, 251 (1985) ("'[R]easonable cause' is established when a taxpayer shows that he reasonably relied on the advice of an accountant or attorney . . . even where such advice turned out to be mistaken.").

Here, petitioner, like all taxpayers, may "lawfully arrange [his] affairs to keep taxes as low as possible," Neonatology Associates, PA v. Comm'r, 299 F.3d 221, 232-33 (3d Cir. 2002). (citing Gregory v. Helvering, 293 U.S. 465, 469 (1935)), and there is nothing on the face of Mr. Lipkind's advice that was unreasonable. Although we are not directly relying on the advice of David Herbst or petitioner's accountant, Dan Deaver, petitioner did ask both of them to review the transaction and neither expressed any concerns to petitioner. Tr. at 729-30. Petitioner was not under any obligation to obtain a second opinion or do his own legal analysis. As explained by the Supreme Court,

Respondent also argues that because petitioner was a "sophisticated businessman" he could not reasonably rely on Mr. Lipkind's advice. Resp. Br. at 162, 189. The taxpayer's level of education and sophistication is a factor in the reasonable cause and good faith analysis, but it does not prevent him from being able to rely on an attorney's advice. See e.g., Stanford v. Comm'r, 152 F.3d 450, 461-62 (5th Cir. 1998) (discussing the need for even an "intelligent investor" to obtain expert advice).

While respondent agrees that professional advice need not be in any particular form, he criticizes petitioner for not obtaining a written opinion regarding the Policies, claiming that it was contrary to petitioner's customary practice. Resp. Br. at 163. This is a misstatement of the record. Petitioner did testify on cross-examination that he received written legal advice regarding his business transactions, but then clarified his testimony on redirect that he was referring to transactional documents. Tr. at 573, 729. Petitioner's former business partner, a witness for respondent, also testified that it usually was not necessary to obtain formal written opinions from law firms in their business. Tr. at 790-92.

Respondent further contends that petitioner could not reasonably rely on Mr. Lipkind because he advised petitioner that the investor control doctrine "could be circumvented simply by interposing himself or others. . . . in between Boiler Riffle and the petitioner." Resp. Post-Trial Br. at 163; see also id. at 166, 174. This is not a fair interpretation of the evidence. Mr. Lipkind did not intend to conceal any conduct, but only intended to avoid confusion or the appearance of a sub rosa understanding between the Investment Managers and petitioner, and that he did not intend anything improper. Tr. at 118, 136, 153-55, 162-63, 209, 485-86.

Respondent does not attempt to apply this test, but asserts that Mr. Lipkind is a promoter based on the unsupported allegations that Mr. Lipkind received excessive compensation, promoted the Lighthouse transaction to "numerous" people, and asked petitioner and Mr. Herbst to sign a confidentiality agreement before the first meeting. Resp. Br. at 192-98. None of these allegations have merit.

First, Mr. Lipkind's fees were not excessive or connected to any tax benefit, in contrast to the cases cited by respondent, such as Stobie Creek, in which the advisors' fees were calculated as a percentage of the capital gains sheltered by the tax strategies, 608 F.3d at 1387, or where the advisor "stood to profit considerably from the participation" of the taxpayers in the transaction, Neonatology Associates, PA v. Comm'r, 299 F.3d at 234.

Mr. Lipkind received his normal hourly rate for the services he performed, did not receive any other compensation, and had no stake in the outcome. Tr. at 148, 197-98, 322, 463. The fact that Mr. Lipkind charged petitioner for his time in dealing with Lighthouse does not render his fees unreasonable or excessive. It was appropriate for petitioner to have Mr. Lipkind involved, as it was in petitioner's interest to protect the Trust's investment in the Policies for the benefit of his children. In any event, there is no evidence in the record of how much Mr. Lipkind billed petitioner for these services, and thus there is no basis for the Court to conclude that the amounts were excessive.

Petitioner's remark that Mr. Lipkind's fees were "absurd," see Resp. Post-Trial Br. at 196, was made in jest and cannot form the basis of a finding that Mr. Lipkind had a conflict of interest. As noted in American Boat, while "a taxpayer might be unreasonable in relying on an advisor who stands to gain significantly from a transaction," "one in need of legal advice almost always has to pay something for it." 583 F.3d at 483.

Respondent's claim that Mr. Lipkind promoted similar transactions to "numerous people," Resp. Post-Trial Brief at 192, also is not supported by the record. The record reflects that in addition to petitioner, over the past fourteen years, Mr. Lipkind described the estate plan he formulated for petitioner to petitioner's business partner, and he emailed one other person offering to discuss it, but apparently had no further contact with him. Tr. at 169, 800-01. Mr. Lipkind has one other client who set up a trust that purchased a Lighthouse Policy, and Mr. Lipkind's wife directly owns a Lighthouse insurance policy. Tr. at 113, 194-97, 605. There is no evidence in the record that at the time the Policies were issued, Mr. Lipkind's wife had, or was contemplating purchasing, a Lighthouse Policy. This is hardly promotion of a tax shelter to "numerous people."

The evidence in the record that Mr. Lipkind knows three people who have purchased Lighthouse Policies hardly makes him a promoter. Mr. Lipkind explained that he believed Lighthouse to be a good company because it had U.S. general counsel, had certified financials, was managed by Aon, and had its primary reinsurance treaty with Hannover Re. Tr. at 85-86, and there is nothing improper about him recommending Lighthouse to his clients and his wife, particularly since Mr. Lipkind never received any bonus or commission from Lighthouse for doing so, Tr. at 148, 322.

Respondent also contends that petitioner lacks objectivity because he has accepted petitioner's investment recommendations for his own personal gain. Tr. at 197. Petitioner did invite Mr. Lipkind into some investment opportunities, but there is absolutely no evidence that this impaired Mr. Lipkind's judgment in any way.

Finally, the confidentiality agreement is a red herring. The agreement only covered the initial meeting, and not the actual estate plan, and Mr. Lipkind never sought to enforce it. Exs. 496-J, 497-J, Tr. at 177-79.

Petitioner's situation is not similar to that of the taxpayers in Neonatology, 299 F.3d 221, as respondent contends. Resp. Post-Trial Br. at 184-85. In that case, the advisors had a conflict of interest because they had a large stake in the transaction, the advisors were not "competent, independent tax professionals with sufficient expertise," the taxpayer did not introduce into evidence the advice that he received from his accountant, and there was no vagueness in the law. 299 F.3d at 234, 235, n.24. Here, in marked contrast, Mr. Lipkind is an extremely competent and knowledgeable tax and estate planning advisor with expertise in the specific tax rules at issue, he received no compensation beyond his regular hourly rate, he testified about his advice to petitioner, and the issues here involve unsettled questions of law.

C. Petitioner Acted in Good Faith

Petitioner relied on Mr. Lipkind's advice and had no reason to doubt it. Further evidence of petitioner's good faith is that he disclosed the Lighthouse transactions on his gift and income tax returns. Ex. 52-J, 53-J. Respondent argues at length that petitioner's disclosures are not a defense to penalties because he did not make them on the Form 8275. Resp. Post-Trial Br. at 175-78. Petitioner is not arguing that his disclosure met the technical requirements of the disclosure regulations, but instead, that his attempt to be transparent with the Service is further evidence of his good faith. Respondent may not agree with the statements in those disclosures, but the disclosures did put the Service on notice of the existence of the Policies and the potential argument regarding the investor control doctrine. Ex. 82-J (JTW0022901, P 000252, P 000264).

D. Petitioner's Return Positions Had a Reasonable Basis and Were Supported by Substantial Authority

Petitioner's tax reporting had a reasonable basis and was based on substantial authority. Treas. Reg. § 1.6662-4(d)(1) & (2). As discussed in the pre-trial and post-trial briefing, all authorities on the issue of investor control require access to the income or appreciation of the assets in the account, and this authority supports petitioner's position that the investor control doctrine does not apply to the Policies and Boiler Riffle because of the Cash Surrender Value Restriction. See Pet. Pre-Trial Br. at 21-47, Pet. Post-Trial Br. at 57-76, Point II, supra. These same arguments establish that there is substantial authority for the tax treatment of the items reported on petitioner's tax returns, and thus petitioner is not liable for I.R.C. § 6662 penalties.

Dated: New York, New York

² To avoid duplication of arguments and to limit the length of this submission, petitioner incorporates by reference all of the arguments submitted in the Petitioner's Pre-Trial Brief ("Pet. Pre-Trial Br.") and Petitioner's Post-Trial Brief ("Pet. Post-Trial Br.").

³ If respondent finally responds to petitioner's arguments regarding the Cash Surrender Value restriction and/or constructive receipt in his Reply Brief, petitioner respectfully requests the opportunity to submit a Sur-Reply Brief. Petitioner's position has not changed since the beginning of this case, see Pet. Pre-Trial Mem. at 25-28, 46-47, and he should not be prejudiced by respondent's delay in addressing his arguments.

⁴ Respondent also implies that because petitioner entered into these transactions with Boiler Riffle, he must have had contact with the Investment Manager. Resp. Post-Trial Br. at 119. There is no evidence of any such direct contacts in the record, and even if such contacts occurred, which they did not, it would be irrelevant, as petitioner has never denied that Mr. Lipkind, as his agent, had contact with the Investment Managers.

⁵ Respondent's position is unclear as he also requests that the Court make a proposed finding of fact that the Lighthouse Policies owned the shares of Boiler Riffle. See Respondent's Proposed Findings of Fact, ¶¶ 198-99.

⁶ In an order dated December 5, 2013, the Court granted respondent's motion to strike exhibits that contained publicly-available promotional materials from companies offering variable life insurance. The Court's order did, however, permit petitioner to cite additional scholarly works.

⁷ A full copy of the text of this treatise is available at https://www.acli.com/Tools/Industry%20Facts/Life%20Insurers%20Fact%20Book/Documents/2011%20Fact%20Book.pdf.