good morning your honor said morning tom johnston for plaintiff appellant washington mutual like this case arises from a transaction in which fizzling provided home savings with regulatory incentive to induce home to relief is like a costly obligation to liquidate three insolvent thrifts this court previously recognize that the excess of the thrifts liabilities over their dean to quantify what each of those com ponens was or isn't that what the case boils down to exactly or ok yes why was it why isn't it possible that the missouri branching right had a negative value it seems to me that our prior thorny establishes that the net of a called the incentive package had some cost basis to it and it clearly but it wouldn't be entirely consistent with with that result that the that the missouri branching right had a negative value because it's theoretically possible but any branching right the right to go into a state and take deposits actually had value in this case that was not the objective well i don't know didn't really want the missouri branch in right mind or standing from the record is that that was a requirement for up to slick is that correct correct but as a matter of cost home did not want to pay the amount by which the missouri three if they were to  missouri were underwater to gain access to missouri fizzling wanted more for the florida branch in right than the amount by which southern the florida thrift right was under water right and that was the deal that doesn't mean that missouri had no value it was not a priority so did it come down to we'd rather be in florida but we can only get there by taking missouri there was a healthy growing market missouri at one of the problems was a better environment yes tester to grow their b s i like memory and so it was important that we did allocate more proportionately more of the value to florida than to missouri but getting back to judge thomas question if it is a theoretical possibility which i think is the answer you gave me to my question that missouri might even have a negative value how did how did your client meet its burden of proving the cost basis here that the value in the aggregate right the aggregate incentive package what the court decided was that you couldn't your client hadn't proven the missouri component visit missouri branching right component right yes but it wasn't additive there was a cost basis in other words there was an amount that whole paid the excess of the liabilities over the value of the thrift assets that determine its cost basis then were allocating doubt on fair market value what was before the court was merely an allocation it wasn't it didn't have to determine the fair market value of each of the components other than to allocate the cost basis but one of your biggest problems from a proof standpoint is the trier of fact did not afford as much credibility as you wanted her to to your expert and to his valuation model and it seems to me that if the finder of fact listens to the expert and essentially says i just don't buy the experts model you've got a big problem because then there's no way to arrive at a number of either the entire package or the individual comp on it wasn't the model and maybe i'm parsing words here it wasn't the model the model was case your honor it's the obligation of the trial judge and trial judges do this every day to make a finding based on the evidence in the record there was other evidence in the record and in fact in the trial judge's opinion the trial judge said well if the spread that the spread between interest rates had been lesser that would have reduced it by i think was sixty percent if the deposit capture had been less or it would have reduced the value by fifty percent so the trial judge had evidence in the record and the trial judge was aware of part of manipulate that plus the trial judge could have asked the plaintiffs or the defendants or the parties together you're stepping in some  interesting theory about trousers obviously but what is it that you would like to have the district court do you seem to just not like the decision that the district court made that the underlying principles that were utilized i don't think that you're arguing were in proper or incorrect in my right you just don't like the decision you know the child judge didn't honor the burden of proof the trial judge stated the burden of proof in terms of certainty and specificity and held us to numbers and inputs if the trial judge disagreed and obviously the trial judge did disagree with some of the inputs the burden was on the trial judge to put in addition other important lower input so where does your burden of proof and i think there are some holes the trial judges fell i don't think there's any question about that and to me when i read this record it seems to me it was just a question of degree how much do we really expect the trout judge to do for you and some of these holes look pretty gaping to me is it is it your position that she had what she needed to fill all of them you had what you needed to fill all of them your honor i'm not arguing that there could never be a failure of proof there are failures of proof typically those failures of proof are where there is a lack of substantiation in other words i went to the track and i want to deduct my losing bets as well think we're just christians going with her question you waved a jury here you could've had you could've tried to present this to a jury of lay people i totally understand why you made the decision that they are  can imagine but had you done that we would not have had the detailed findings of fact in conclusions of law that we have from the fact finder we would have had a verdict now you might have offered some special  suppose that all we got from the jury was taxpayer loses or the amount is one hundred million dollars and here's how we divide it up you would then the government would then be up here saying there was insufficient evidence in the record to permit a rational trier of fact to arrive at that result and it seems to me what we've what we've got here is sort of a mirror image of that with the district court as the fact finder the question is did you give her enough tangible evidence from which she should have been able to reach a decision let me let me respond to that in a way that we pointed out in our reply brief at page twelve that if one were to take the values that the defendant didn't actually do evaluation but right during trial values came out the expert the defendant's experts came up with numbers for example on the branching writes they said it was at least forty eight million if you were to come up with the rap rights they thought it was more of an assurance policy but was worth around seven million dollars right so some of that could have been used to plant some holes right that's right and if you took those two no the forty eight and seven and allocated on that basis the allocation wouldn't have come out a whole lot different for what we did allocate and is it your position counsel that again i think you've answered this question but it's really your position that there was there was testimony like that sufficient to plug all these holes yes if you even though the finder of fact found the testimony i don't want to say not credible but cross case which i think is is fairly parallel reading that opinion one might come to the conclusion that the errors were minor but in fact how did the disk how did the trial court describe those errors in the third the meaningless and that once that for thirty one fed third one thirty four to one thirty five those are substantial errors and yet the third circuit held it was the duty of the trial judge to go back and to make a finding because there was evidence in the record the evidence in the record for example and spread there was evidence that two point five spread there's evidence that two point seven five there was evidence that could be concocted at two point two five but trial judges make those decisions every day i mean did it make any difference that we were talking about employer benefits health and welfare plans that had fixed premiums than a claims history i mean it seems to me those numbers are pretty are pretty concrete whereas here it's a little squishier to try and figure out a little squishier except we had contemporaneous valuations in this case remember we had an actual trend transaction we knew how much home thought it was pain for these we knew how much and what about the discrepancy between the reports filed with the f c c and the experts assumption we differed widely and i think there were four days apart right there's a really big difference between the experts assumption and the contemporaneous evidence i don't believe there is your honor there was in one thousand nine hundred eighty six if you take nine hundred eighty six as the tape the projections in the f c c report were actually higher and that was explained because the se in the f c c report home did a straight line project and of growth the expert holmes expert at case did holes in the size of the holes in the assumptions and so i guess what would help me most is if you can draw my attention to any case law that that approaches the result you're asking us to reach today where this level of ambiguity in the record is p by a district court judge capital blue cross the arm smith case both of those are in the third circuit there are there are a lot of cases where hard to the value assets this is no higher value the most intangible asset patton's royalties from any sort of intellectual property are valued all the time by court i know in the last we have to value the pipeline i mean i understand i understand it and again for me it's a question of sort of the degree of what you were it please the court i'm arthur catterall of the justice department the district court correctly held that the taxpayer failed to satisfy its burden of establishing homes cost basis in these regulatory rights that it obtained in connection with  transaction that happened thirty five years ago given the numerous flaws that the court found in the taxpayer's di you ation analysis in the fact that all of those flaws derive from the government's comprehensive attack on that valuation during an eight day trial the court's factual finding that the taxpayer's evidence was not reliable enough to support a value any work close to the claimed value is at the very least  based on a permissible view of the evidence and therefore may not be disturbed now the taxpayers main argument on appeal is that regardless how deficient its evidence was in terms of the claimed value if that evidence would support some estimate of value then the district court was required to assign some value to the rights and that's simply not how the burden of proof works in the context of a tax refund suit in a refund suit the taxpayer the burden of proof extends beyond merely establishing that he ever paid his taxes rather he must prove the amount by which he over paid his taxes with reasonable accuracy and where that amount depends on the value of an asset the taxpayer must prove that the claim value of the asset is reasonably accurate counsel for some of these what i'm calling holes you didn't course the government didn't offer a counter valuation correct which is one of their implied disappointments at least but but did offer expert testimony that contradicted and some of that transcript testimony reads to me as though the government's expert was saying well here's a number that i think will be a closer estimate and then was pretty quick to say hey this isn't really the estimate sort of offering it for less to purposes trust the government trying to have it both ways on some of those in some of taxpayers burden was not to prove that these rights had some value its burden was to prove that it they its claim value which was two hundred something million is reasonably accurate but now you tell me what i already know and i really different question just a matter of his position is that she was really obligated to full fill in these holes i've asked and whether she had to fill in all of them whether she had evidence to fill in all of them you heard him say yes twice on some of those holes when calling holes or invalid assumptions your expert offered competing numbers could she have used those yeah i don't know that i'd call it competing numbers i think i think basically the purpose of that testimony was to show how sensitive  to just minor changes in valuation now if this was a deficiency case in the tax court and the ira so in other words if if home had filed this tax returns consistent with what it's claiming now and the i r s came in and audited and said no you don't get any of these deductions you know these things had zero value then ok then you go to you go to the tax court and the taxpayer basically just has to show that whatever the value that the i r s put in the notice of deficiency was wrong it doesn't have to prove the you know what the exact amount is so so what you're saying i think if i can if i understand you correctly is her job was to determine whether the amount claimed by the taxpayer was established by the evidence apply with reasonable ac reasonable accuracy if she found it was not she's not saying it's not worth anything what she's saying is i can't determine what that number is on the basis of this record right but you're still not answering my question are you going to do you want to take another run at it sure i'm listening ok why couldn't she i think i think the first answer to the question is you think that she didn't have everything she needed to plug all of the holes she didn't have a  evidentiary basis to do that sure ok it's a different question as to some of these it seems to me that she might have she could have used your expert testimony and your position is no she couldn't have even for some of them and i answered my question is why not because she's not a tax court judge that you know again in the deficiency context i mean that this is just how it works yeah i think you vent you've that's not correct it doesn't have to prove the correct value once once it proves that what the i r s said in its it was a deficiency was wrong then this presumption of correctness in the that the notice of deficiency is afforded falls away  and that that's the situation where the court is required to come up with a value based on though it is evident that is what i wish and it may not be as high as two hundred plus million but the tax court is obligated to say what the number is in yes generally speaking yes and that's the difference between a deficiency and a refund action and that's that's crucial to this case and i think it's covered thoroughly in your briefing so i think itself is not entirely immune from the same rule and that is if you're in a deficiency setting and the taxpayer goes to tax court improves not only that the i r s the i r s is figuring it's in its nose deficiency was wrong but that it was completely arbitrary without foundation then the i r s has the burden of proving a figure and amounts and this court has not hesitated  to to hold the i r s to that burden in cases like that and in that case mr carroll if if the trier of fact the tax court concludes that there has been a failure of proof does the whole deficiency notice go away yeah yeah and then tax returns stands as file correct and that the two cases i'm thinking of the two ninth circuit cases i'm thinking of are are called morsi versus commissioner it's two forty three f yeah so those and those two cases it was it was the i r s that did not meet its burden of the stablish in a figure and then so lost entirely reversed and rendered so  change changed reporting position is not limited as the taxpayer would have you believe to cases involving unsophisticated tax payers who offer little or no evidence to support the new valuation and the  the good example that i mean it applies equally to cases involving highly sophisticated taxpayers who offer extensive evidence that is simply seriously flawed and the example of that is the tri gun case  of the eastern district of virginia which involved the former blue cross blue shield of virginia the case involved a seven day trial taxpayer submitted thirteen volumes of exhibits testimony of two experts each of  group health insurance contracts could be separately valued but that the methodology used by the tax payers expert which is which was the discounted cash flow method which is the same method that was used here was capable of valuing the contracts if properly applied but the court found out that because that discounted cash flow method is so input sensitive that it was  critical outcome determinative importance that the inputs used to arrive at the valuation were accurate and reliable and the track on court went on to find that the expert used inputs that consistently inflated the the purported value of the contracts is that your best authority it is a wonderful case and it's and i would think you would like it i'm looking at it if i got the case i actually took the eastern district of virginia is that the one you th taxpayer filed a motion to reconsider basically making the exact same arguments that the taxpayer makes here in particular that this is this is in the two thirty four f's up second gone argued that the court having found that trying on was theoretically entitled to claim losses from the terminations of the contracts quote made an error of law in failing to estimate the amount of the refund not withstanding that tri guns valuation evidence was found neither credible nor sufficient try gonna search that it met its burden of proving that it was entitle to some detection but merely failed to quantify the amount of the action in such circumstances try going argues the court has a responsibility to estimate the amount of the claimed adoption and the failure to do so in this case try going says constitutes clear error in quote and in denying that motion the court explained that what drag on was describing was basically the burden of proof in a deficiency setting not in a refund setting and the taxpayer here does not argue that try gone was was wrongly decided doesn't argue that drag on is somehow distinguishable on the legal issue of how the burden of proof operates in this context they simply ignore it so that's the case i would commend to your reading both of those opinions  and if i may get to the the issue of the abandonment loss there's there's two ways one of the regulation there's there's two ways that you can abandon an intangible asset  such that you're entitled to a loss to doctrine either you discontinue the business to which the intangible relates or you overtly abandoned the asset itself and called a branching right so so they obviously you can't abandon something you don't even know you have so home asked to rely on the discontinuation of the business  prong and the district court correctly held that the relevant business here was not holmes missouri operations but it's nationwide savings and loan business and that's because discontinuing the missouri operations didn't destroy or even diminish their right to reenter that market at a later date if if home so chose so this you know what t this branching out to sort of ride to reenter the missouri market and so necessarily that has value for your business outside of missouri you know it's the way it's the way you can expand your outside of missouri into missouri so simply by discontinuing its missouri operations that did not affect an abandonment of this of this licensing right because again if i might pick up just initially on the abandonment issue i think the government's argument is rather so silly that holme didn't know that it was aware hall was not aware that it had a branching right that was the entire object of this transaction the tax department might not have been aware that it was abandoned in one thousand nine hundred three but the tax department does not drive the law in this case the law and i understood the argument though to be a little broader than that that that they didn't really abandon the right because they retained the right to re enter and that had value to a financial institution that does business nationwide should it become the object of a takeover  urge or that the partner might find that it was good that there are many cases reenter the a j industries case in the circuit where there is an intangible right that is not abandoned because physically discarded because you can't transfer it in this right we have no right to transfer it but you can nevertheless abandon it if you stop your business if you terminate your business the only business in which this right had any value but you have monopoly do so right and the government's position as i understood the argument was that they didn't permanently abandon s the first prong of the test the second prong is that you've abandoned the business that you've stopped the business in which case remember what we're doing here is our taxes on net income at some point you get to deduct costs if the cost if the asset has no terminal life then you don't get to deduct it until it ceases to have use in your business it might continue to have you somewhere else but it's not a zero result but there is a distinction here isn't there was certainly the way you get to it but the result is zero which we all know is the wrong answer home paid a substantial amount for these rights we know that you still have the burden to prove how much and yes in canada and conceding that you recognize they had a burden and you're not saying it went away so what's wrong with this decision i think if you go back to the government's argument that if we had said the value was one hundred fifty and they came in and said fifty i think it's the court's obligation at that point to find a value either of fifty one fifty or somewhere in between and they didn't do that and they and the court didn't do that here that's the burden of proof argument that we make you're right we had some clearly erroneous arguments on on the right to variety of these we feel wrong in that respect but the the burden of proof argument is our primary argument and in the government's defense of well if if if if we said one hundred fifty and the government comes in with fifty we lose is just has to be wrong this is an intangible asset it is very difficult i'm not saying it's easy to value it's very difficult if you go back to the claude filter case which is a nice circuit case the difficulty of valuing an asset is not an excuse the court has to come up with a value assuming there is evidence in the record but the rest the cases on which the government relies for no evidence is there in the record is the person who is desired and the evidence in the record meets the the line of the burden of proof and as i understand the court's decision she found you can get to that or i don't think that's what she said but i thought i read her opinion i think you're right that there are some places some of these components what i'll call them components or assumptions where she had something from the government's expert where she could have plugged some of your holes what's hard for me is your argument that she had what she needed to really come up with this answer setting aside the burden of proof if she hadn't have any luck getting that government to answer this point i think your argument is  but it doesn't get you all the way there to see what's what's your strongest case authority it will be the capital blue cross case all right and if you go back to the way the trial judge there recounted what happened it was a  a method that allowed no valuation it's not a discounted cash flow method if you have the import it spits out a value counsel thank you very much pieces very well argued it's always a pleasure to have good lawyers on a hard