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When and Where to Make Your Arguments

Posted on July 3, 2014

Two recent cases highlight the issues of when and where to make arguments.  Neither decision sets significant precedent but both serve as reminders of how to approach litigation.

The Tax Court issued an order on May 15, 2014 in Amazon.Com, Inc. v. Commissioner denying Amazon’s request to amend its petition.  This case instructs on the “When” question.

A recent 9th Circuit case, Estate of Saunders v. Commissioner, provides instruction on the “Where” questions and points out why law professors should take care before becoming appellate advocates.

The order entered in the Amazon case denies Amazon’s Motion for Leave to File Amendment to Petition.  The underlying tax issue involves IRC 482 and the proper share of reasonably anticipated benefits (RAB).  Amazon made one allocation in the year before the Court and later decided that another method better reflected actual net revenue.  It filed its Tax Court petition on December 28, 2012.  At that time it had not adjusted its thinking regarding RAB.  The change in its approach came in 2013 and early 2014.  The change involved not only the years under examination at that point but also the years before the Tax Court.  Amazon filed its motion on March 24, 2014 and the IRS opposed the motion.

The change in RAB, if allowed, would save Amazon $27.8 million.  The IRS said the first it heard of the change applying to the years before the Court was March 7, 2014.  The IRS claimed that allowing the motion would prejudice it and that even if allowed the amendment would be “futile” since the regulations do not allow changing RAB retroactively.

The Court looked to Tax Court Rule 41(a) which provides that when more than 30 days has passed after an answer has been served, “a party may amend a pleading only by leave of Court or by written consent of the adverse party, and leave shall be given freely when justice so requires.”  The Court cited prior decisions on this issue and the factors developed from those cases:  1) whether an excuse for the delay exists and 2) whether the opposing party would suffer unfair surprise disadvantage, substantial inconvenience or prejudice.

Here the request to change RAB came eight years after the close of the tax years and fifteen months after the filing of the petition.  In finding that allowance of the motion would prejudice the Government, it found undue delay in raising the issue and that the complex and fact intensive nature of the issue would almost a new audit on this issue because of the point in the case in which it was raised.

Representing low income taxpayers and coming into that representation most often after the passage of 30 days following the answer, the tax clinic at Villanova regularly finds issues in the cases of our clients previously missed.  The Tax Court generally allows amendment in these circumstances both because of its desire to keep previously unrepresented from being prejudiced and because the issues do not involve the complexity present in the Amazon case.  With this order, the Tax Court issues a reminder that a represented party bringing a Tax Court case should carefully review the case prior to the petition and identify any issues not covered in the notice prior to the closing of the pleadings.  When in the context occurs before or very shortly after the filing of the petition.

The second case, the “Where” case involves the deduction an estate should receive for a claim against the estate.  The estate wanted a large deduction and the IRS did not want to allow the large speculative deduction but rather the smaller actual amount of the post death settlement.  In a footnote in the opening and in the reply brief, petitioners argued that the Tax Court violated the Tax Court Rules of Practice and Procedure.

Footnotes are the lifeblood of law professors’ compositions.  What would an article be if it did not contain so many footnotes that the reader was overwhelmed and totally impressed?  Putting long and sometimes important discussions in footnotes seems only natural from the perspective of law professor.  In a footnote, of course, the 9th Circuit states “Arguments raised only in footnotes, or only on reply, are generally deemed waived.  City of Emeryville v. Robinson, 621 F.3d 1251, 1262 n.10 (9th Cir. 2010); Graves v. Arpaio, 623 F.3d 1043, 1048 (9th Cir. 2010)(per curiam).  We therefore decline to address this argument.”  Wow!

In general courts are reluctant to preserve an argument raised in a footnote on appeal.  A 6th Circuit Court held that a plaintiff had waived an argument because it was raised only once in a footnote in its brief.  The 7th Circuit Court has stated an argument from the plaintiff was waived because it was mentioned only once in a footnote in its brief.  These holdings suggest that all arguments should be in the main text of a brief so they can be preserved on appeal.  While footnotes may be commonplace for law professors aspiring lawyers should be hesitant to utilize a footnote in briefs.

A recent law review article from John Marshall summarized the issue, “If the information is not important enough to include in a paragraph, does it really need to be included at all?” The article advised that footnotes are best used to explain a precedent or explain an issue that could be unclear or ambiguous.  However, footnotes should not be used to make arguments that are fundamental to the brief.

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