As a Chief Counsel, IRS attorney one of my favorite cases was Wichita Terminal Elevator, Inc. v. Commissioner, 6 T.C. 1158 (1946). I am unsure if I ever read the actual opinion prior to writing this post but a decent percentage of briefs written by Chief Counsel, IRS attorneys will contain a cite to this case. The case stands for the proposition that if a witness exists who could testify to facts that would aid your case, and you do not call that witness then a presumption arises that the witness would testify adversely to the point you are arguing. Since the burden of proof in most cases fell on the taxpayer, the first line of defense for a government attorney was that the taxpayer simply failed to carry the burden, and Wichita Terminal served as an integral part of that argument since there almost always existed some witness that the taxpayer might have called and did not.
Proud of myself now that I have read the Wichita Terminal case, I must subject you to a part of it. Here is the important portion for purposes of this case:
If in fact the sale of petitioner’s properties was not negotiated prior to its dissolution, the evidence of such fact is in the possession of petitioner. If that were the fact, it must have been known by petitioner’s officers, who could have testified to that effect, but the only witnesses called at the hearing were its vice president, N. Louise Powell, and its secretary, C. P. Garretson, who were asked by petitioner’s counsel only to identify certain exhibits consisting of minute entries and other documents whereby the dissolution of petitioner was effected and the properties in question conveyed. Petitioner’s counsel invoked the rule forbidding the cross-examination of a witness except as to the matters testified to on direct examination.
Powell, who was the president of the corporation and who is shown to have actually negotiated the sale of the properties, did not testify. This is significant in view of the fact that a witness introduced by respondent testified that Powell had made the statement to him that he had, on June 1, 1944, discussed the sale with one Ross, who wished to buy the Wichita elevator property, and that he had advised Ross that it was their plan to sell the country elevators as well, and that thereupon Ross made an investigation of these four elevators and three or four days later resumed negotiations for their purchase. Petitioner’s counsel argues that this evidence is of no importance because there is no showing that the individual by the name of Ross who was negotiating for the purchase of the properties prior to petitioner’s dissolution was the Paul Ross who entered into the formal contract for their purchase three weeks later on the same day that the dissolution became effective. This argument is without weight. If these negotiations were with interests other than those to whom the properties were ultimately conveyed, this fact could readily have been established by petitioner.
Of course, as the government you do not want to rely exclusively on the burden of proof since that presents too many risks of failure, but you did want to try to win the case on the burden if possible. A form of this same issue presents itself in the current political discourse. The Democrats do not want to rest their case for impeachment solely on the failure of the administration to send up witnesses that might provide exculpatory evidence. Even though they might make a case that the failure of the administration to send witnesses to the Hill to testify under oath means that an impeachable offense occurred, that’s a weak, and quite risky, way to win a case. Always best to prove that you are right rather that to rely upon the burden of proof; however, you still try to win the easy way if possible.
In the case of Endeavor Partners Fund LLC et al. v. Commissioner; No. 18-1275; No. 18-1276; No. 18-1277; No. 18-1278 (D.C. Cir. 2019) the Tax Court cited to Wichita Terminal and on appeal the taxpayer argued that the reliance on Wichita Terminal was misplaced. The D.C. Circuit goes into some detail explaining its rules regarding presumptions of this sort and, ultimately, why it doesn’t matter in this case, because if the Tax Court erred on this issue the error was harmless. For those of you who have cited Wichita Terminal or had it cited against you, it may prove useful to appreciate the nuances that the D.C. Circuit brings to this issue. Here’s what it had to say:
This leads us to the partnerships’ claim of a faulty evidentiary ruling. The Tax Court went on to note that the partnerships did not call “the most logical witness to testify about Deutsche Bank’s trading practices,” namely someone “from Deutsche Bank.” Id. The court observed “from this we infer that such testimony would not have been helpful to them.” Id. As the partnerships see it, the court thus drew an impermissible adverse inference from the absence of a Deutsche Bank witness. And — they argue — this error is fatal, because the court needed that inference to reach the conclusion that the parties rigged the rates.
But studying the court’s analysis, we conclude that any error was harmless. Under the common law formulation, a fact finder (typically, a jury) may but need not draw an adverse inference from the absence of a witness “if a party has it  peculiarly within his power to produce witnesses whose testimony would  elucidate the transaction.” United States v. Young, 463 F.2d 934, 939 (D.C. Cir. 1972) (quoting Graves v. United States, 150 U.S. 118, 121 (1893)).
The likely Deutsche Bank witnesses clearly had the potential to “elucidate the transaction” — they could directly address the question whether the rate-rigging had been intentional or accidental. Id. So the pertinent questions are whether the witnesses were “peculiarly within [the partnership’s] power” and, if not, whether the Tax Court’s conclusion rested materially on the adverse inference.
On the facts of this case, neither the partnerships nor the Commissioner peculiarly controlled Deutsche Bank’s employees. The partnerships’ business relationship with Deutsche Bank had long since withered, and the government’s non-prosecution agreement with the Bank did not, by itself, place its employees within the government’s power. See United States v. Tarantino, 846 F.2d 1384, 1404 (D.C. Cir. 1988) (“[N]o automatic inference of exclusive government control arises from the fact that witnesses are acting as government informants, or from a grant of immunity from prosecution.” (citations omitted) (emphasis added)). But see Burgess v. United States, 440 F.2d 226, 232 (D.C. Cir. 1970) (concluding that “[t]he testimony showed a relationship between the Government and the informer which placed it peculiarly within the power of the Government to produce him”); United States v. Williams, 113 F.3d 243, 246 n.2 (D.C. Cir. 1997) (construing Burgess as “alleviat[ing] the need for the defense to seek a witness by subpoena” to secure a missing-witness instruction).
The D.C. Circuit went further than just explaining when the presumption might work against a party and why it did not apply here. It provided a horn book on this area of the law:
Some courts have relaxed the common law standard and dropped the requirement that the party against whom an inference is drawn have the witness “peculiarly within his power,” thus giving the fact finder fairly broad discretion to draw an inference and to choose the party against whom it is to be drawn. See, e.g., Wilson v. Merrell Dow Pharm. Inc., 893 F.2d 1149, 1152 (10th Cir. 1990) (“When an absent witness is equally available to both parties, either party is open to the inference that the missing testimony would have been adverse to it.”); United States v. Erb, 543 F.2d 438, 444 (2d Cir. 1976) (“[T]he weight of authority in this circuit and the more logical view is that the failure to produce (a witness equally available to both sides) is open to an inference against both parties.” (quotation and citations omitted)); United States v. Cotter, 60 F.2d 689, 692 (2d Cir. 1932) (Hand, J.) (“When both sides fail to call a witness who knows something of the facts, their conduct, like anything else they do, is a circumstance which a jury may use.”); State v. Greer, 922 N.W.2d 312, ¶¶ 18–19 (Wis. Ct. App. 2018) (unpublished).
We have given conflicting signals about whether control over a missing witness is required for a fact finder to draw an inference. Compare Young, 463 F.2d at 943 (“But in the in-between case where each side has the physical capacity to locate and produce the witness, and it is debatable which side might more naturally have been expected to call the witness, there may be latitude for the judge to leave the matter to debate without an instruction, simply permitting each counsel to argue to the jury concerning the ‘natural’ inference of fact to be drawn.”), with United States v. Norris, 873 F.2d 1519, 1522 (D.C. Cir. 1989) (“Exclusivity or peculiarity of power to produce is [ ] one of two necessary predicates for entitlement to the missing witness instruction.” (emphasis added)).
In at least one case involving an agency, we have reversed the National Labor Relations Board when it applied the adverse inference against a party that did not control the witness. Bufco Corp. v. NLRB, 147 F.3d 964, 971 (D.C. Cir. 1998). In the course of our (brief) analysis, we also noted that the Board’s decision conflicted with its own precedent on the subject. Id.
This multiplicity of viewpoints suggests the possibility that we should, in reviewing agency decisions, adopt a rule that saves agencies from undue risk of reversal due to their potential failure to estimate correctly what circuit will review a particular decision. Besides reducing the risk of inadvertent error, such a rule would prevent agencies from having to adopt different evidentiary rules depending on the circuit (or, indeed, multiple circuits) in which an appeal may lie. At least where good arguments exist for and against permitting the inference, we might allow an agency leeway to choose its own path.
Though lodged under Article I, the Tax Court is — in one relevant respect — unusual: Congress has specifically directed us to review that court in the “same manner and to the same extent as decisions of the district courts in civil actions tried without a jury.” 26 U.S.C. § 7482(a)(1). This indicates that, even if we were to adopt the rule discussed above generally, we would still have to apply our circuit’s case law to Tax Court decisions rather than Tax Court precedent. See generally Dang v. Comm’r, 83 T.C.M. (CCH) 1627, 2002 WL 977368, at *3 (T.C. 2002) (concluding, in an unpublished, non-binding memorandum opinion, that “no adverse inference is warranted” if “a witness is equally available to both parties”).
The court then went on to explain why the error of citing to Wichita Terminal was harmless as it sustained the liability against the taxpayer. I confess I long to cite to Wichita Terminal in the briefs that the clinic writes. It was always so comforting to put it into a brief knowing that I might win my case simply because the other side did not fully meet their burden. The Endeavor Partners case is both reassuring and disappointing. It’s reassuring because it limits the times in which the IRS might be able to successfully cite the Wichita Terminal case against me now that I represent taxpayers. Of all of the times the Tax Court has cited that case, I suspect that only a small fraction of the cases involve the taxpayer getting a benefit from its citation. It’s disappointing because the decision makes it even less likely that I will get to cite it ever. Maybe that’s a good thing. I tried to throw in into a brief in the past year or two and was told by others working on the brief that it did not belong. It’s less likely to belong based on the excellent explanation provided by the D.C. Circuit. Maybe I should be glad.