proof which we submit should have been shifted to the top to the commissioner for two independent reasons first he relied on new matter within the meaning of court that's court rule one forty two when he abandoned the sham theory that which was the basis for the original deficiencies and instead pursued overvaluation claim a trial the commissioner claims that he never asserted a sham at the theory that contention is flatly refuted by the very language in his own answers file in this proceeding is the theory that somebody got exchanged property and they got more than they deserve in exchange and that the difference should be a gift but the case here turns on the proceedings i mean this is this is the commissioner's central thrust you should look behind notice he says the notices were issued in two thousand and ten after eight more years of investigation ok you said you had two different theories at the outset the first is that the commissioner for alleging after a twelve year investigation that camelot was a legitimate but worthless entity the company was worth had had net sales of forty million dollars it had a sophisticated worldwide sales force and he had the know economic  over a decade issues notice is that it necessarily a sign of no value to camelot and then later into the litigation summit today and a study by an expert who buys the company at twenty two million dollars that is the that meets the test of excessiveness he overvalued the alleged gift here by fifty five percent which is nearly twice the overvaluation it was deemed excessive in the state of mitchell case in the ninth circuit and it's an a for sure a case of arbitrariness because  the commissioners response is to say well we had a basis because we had come across evidence that the capillaries had followed advice to contrive technology transfers that never occurred but that mr bello had the same understanding that the technology had not been transferred that it belonged to night and he never less concluded that the company was worth twenty two million dollars so the they the contrived transfer theory is not a basis for saying this company notices and that's where i believe the court has to for the basis of the deficiencies not litigation over discovery documents and in that context it's crystal clear he alleged the camelot was a sham and at trial he proceeded to go for an overvaluation theory that theory is inconsistent you can't say it's legitimate but no has no value versus or as we're trying to million versus illegitimate inconsistent theories requiring new evidence and he doesn't dispute the test for sham versus overvaluation it entails new evidence so for both those reasons we submit the burden of proof should have shifted to the commissioner we also think that the failure to do that was significant in this case because the task wo acknowledge that the belo analysis which was the only support for this deficiency offered a trial that was subject to serious criticisms and arguably flawed but he failed to even consider those criticisms on the theory that the burden the fact that we didn't have another as names was on the various outs for the pumps was a quote important component to his analysis of the value of the companies the tax court found that the pumps had very little utility in machines he also testified that it was his understanding that ken cavalera was not the person who went out in the market and identified the needs and ideas that would make the machines better based on customer input and that he was wrong about that his numbers would need to be adjusted and in fact he a wholesaler of high tech machines if you take all three of those acknowledged flaws in his analysis there is reason there is more than ample reason to believe there were material to the number and that it remained would result in a material reduction of the massive is the case talking about the consequence of saying a notice is arbitrary and excessive and as i said suggested earlier that's certainly the case here where he did not take the time to actually prepare a valuation and then she  saying the company was valueless when you step back from this process what we have is the commissioner refusing to take evidence about the problems that may well exist with the expert testimony of their own witness and saying even in that circumstance and that the tax court simply said i'm not going to think about that because you didn't discharge your burden of proof with respect to the property ownership and if i could turn to that briefly your honour's the case should be reversed this isn't reversed with respect to the property rulings for the additional reason that they're infected with clear legal error and i'd like to focus on the trade secrets because that's where the earth most glaring massachusetts law says that in order to own a trade secret you have to take all reasonable appropriate steps necessary to protect the property through contractual provisions through proprietary legends on the patients all of which is consistent with the claim of ownership and the legal requirements to be the owner the evidence shows that ny took none of those steps acquiesced in those assertions again well before mr hamill arrived and that was its consistent practice with other customers of it that evidence should have led to the conclusion that camelot owned the trade secrets and the tax court said machines none of that has any bearing under the legal test for determining who own the specifications based on massachusetts treats its laws and so for those reasons your honor we submit that the case has to go back and it will know we have made  proof has to be shifted to that to the commissioner that that the commissioner if the tax were high has to analyze all the criticisms acknowledged to be serious in the belo study to determine what the proper evaluation of evaluation of the company of chemical company is that it has to it has to analyze the distinct property rights and the copyrights and the trade secrets under the relevant legal standards that govern ownership of those interests and and after having i mean the rub of the matter is is that the reason why the appellant's want to remain and is that they probably would like to submit a value as to their company at taking into account the criticisms they raise the problem is they didn't do that in the first place ok so you're saying even if we were to remain they don't plan on any new  that the implication well i mean put put it well i mean what what they're i know you don't want to remap and start with you don't think they're evidence is but if there were a rematch you think it would be i mean the tax courts on our client i suppose the tax court would have the discretion to take new evidence if it wished but if you put yourself in judge gustafson's shoes in this case his role is to decide we know that a get was made and his role is to determine well what was the value of that and he has attempted spin very specifically to elicit testimony from the taxpayers expert as to what would be the value of this company if we assume that the flagship product is in fact own by the company that paid for and had all the employees rather than camelot and they wouldn't answer the question they refused to answer the question he got very interested when taxpayers experts starts talking about a royalty adjustment that he made with respect to the patents and started asking questions about that well how do i come up with that sort of royalty adjustment how can i do that as a as a as a value you know someone assigned to value these companies and he wouldn't answer that he's the sort of well i'm just going to put this two percent number out of thin air so your problem now is that the commissioner's germination and efficiency and saying or stand at the core because they didn't do the former wouldn't consider their attacks on the commissioner's efficiency beyond noting that he had some  yes that i think that may be the case so so so i'm i'm i'm willing to consider that but at that point then it's a preponderance of the evidence we have a we have an expert report  values of the company based on the fact that the flagship product is owned by night and not by camel camelot and we have this other valuation that the flagship product is owned by cannot by night yes well how can i go about valuing it assuming the alternative and was not provided with any evidence from the taxpayers on which to do so but it is tax court itself think it is and we'd like to present evidence that it appears that the court said no i'm not interested nor am i interested and making an independent evaluation and me the tax court absolutely did not say that the commissioner's expert was arbitrary in his evaluation what he said was let's assume for the sake of argument that you were right that expert used the wrong standard industrial classification code or should have interviewed ken cavalera or any of these fairly minor failings that might impact on on the value in some capacity even assuming that is the case i can't do anything with that information because i don't know what the value would be if they had used right but  horse i'm not under i'm not understanding why that's the case you can't get to that second point do you decide the first point which is whether it was arbitrary and excess ok well so i don't even think that the argument in this case is that the commission i mean this is an expert report coming up with a valuation method that came up with a number i don't think anyone's contending that the use of a standard industrial classification code that was that was very close to even what taxpayers were contending is millions that the entire deficiency determination is arbitrary that's no i don't that's not my understanding of where the arbitrary argument comes from where there are what they're arguing is that the original deficiency determination which was not based on this particular valuation but was based on the papers before the examiner at the time that that was arbitrary let's suppose you've got an expert the commissioner that says thousand dollars and in that report on page two on one item he uses a wrong code and therefore has the wrong item you know it's the wrong item b at that point that's all you know and the other side has enough to do says that's the wrong one it doesn't say what the correction would be who has the burden on that point to do something that seems to be taxed what here said unless the is that a proper way for the tax receipt yes and why why isn't that inconsistent with him because the word the word we're talking about here is arbitrary  so and we're applying it to the original deficiency determination so we're not asking the issue in this case is not whether it was in it was never raised that whether the mark bello reports use of a particular code on one line was arbitrary nobody nobody can since that was arbitrary no i think you said it was wrong it's that was wrong well that's wrong is a lot different than arbitrary i would invite this quirk to read the case to cases of janice the case of as you hone in out of the seventh circuit is a very good explanation of the arbitrary in a row need us doctrine you are saying then with respect to non in all these cases they say look there's two different things here we're talking about one is the presumption of correctness and one is the burden of proof so the hell over any taylor case talks about the presumption  if the taxpayer can demonstrate that the original deterred determination was arbitrary in another way of saying arbitrary is without rational foundation that's how that term is defined then at that point in time then the presumption goes away all right the second issue is the burden of proof and in those first circuit cases it says presumption or no the burden of proof never changes and there's a discussion in both of those first circuit cases about a line out of the ninth circuit that is directly traceable to the cases cited in this in by the taxpayers in this case criticizing the approach of saying look if you can point out one thing wrong and something the commissioner said and cases over you've met your met your burden that's that's not the case the burden always remains on the taxpayer unless the taxpayer can show that the original deficiency to determination was naked in other words based on no evidence whatsoever arbitrary and another  bird remains on the taxpayers the burden to actually prove the alternative model which is correct because you haven't actually let's be clear you haven't actually prove that the original determination was wrong at this point if you point out that there was some problem in the methodology used but can't quantify that it may be the case that in fact that if you quantify luck then you know then it's the still the same number it made it made that may be the case in fact i'll submit that i bet the pellets didn't introduce this alternative evidence because it would have made that much of a difference anyway and so now they want the case to be look if we point out something in the wrong in the original commissioners the commissioner's original deficiency determination case over we went and that's just not the law and you know i i think maybe  question let's assume that he we cannot say now the original notice the invention amount of deficiency is arbitrary but nonetheless there are concerns that he could be wrong who has the burden and why there is the obligation to t ax right under those circumstances the tax court like it like it like a jury in a in any evaluation case has to decide what the value is and so juries all the time you know sometimes they split the baby sometimes they'd say well this guy's reports a little bit more credible or go with this sometimes they say this other reports a little more credible a guy will go with this so that's what that's what the tax court has to decide the burden of persuasion in that case is on the taxpayer so if you have you know everything laid out it's the burden persuasion remains on the taxpayer and basically what the tax court judge says is look i asked your expert what would the value be if you all of these things turned you're saying turned out to be true and they couldn't provide it that i mean that's that's the greg that's the basis of judge determination said look i i tried i don't have another value i can come up with other than what the commissioners basically concession at this point because the original determination was actually higher and that original determination was based on of a long investigation that had a lot of evidence that you know there was evidence in the record by by the taxpayers own accountants that the value of this gift would have been even more than what the commissioner determined i would have been forty eight point eight million and we go through the math on that on page forty eight of our brief and so basically the commissioner's original terminations a downward adjustment from the taxpayers own accountants at that point and that's that's really the only valuation that that we have based on the factual predicate that night and not camelot is the owner of this flagship product because they have all the employees they  they had they maintain control they are their employees they're their people were the ones that did this software development that they're saying that the inscriptions on the  on the computer screens and on the design means that it's it's camelot's well it was night employees that wrote that and just assume that camelot was a trade name and knight had this reign maintain yes i don't believe just cain has called us on this case again you know there are two ways of thinking about this case one is that the commissioner is basically correct and and the other is no taxes or road and the discussion in this court room has actually been not so much on the premise that no taxes are although that argument has been made to us that might give the parties some context in which they might wish to take advantage of judge king's services and with the permission of the chief judge i guess you may want to think about that and get back to us within a week ok good thank you you have some re here will certainly take that consideration in but with my next three minutes i'd like to stress that that we by only disagree with the description of the burden of proof his case the presumption and the burden of proof can't be desegregated as mr dale just suggested if the presumption is you deficiencies presume correct logically it's overboard by evidence that it's incorrect and so we don't have to demonstrate that bellows to to to go to your hypothetical judge we don't have to say it's arbitrary for abuse not say i don't know what number two just two because you haven't give me anything to work with he said you can prove to me that you own the press the property you fail to discharge or burn these are serious criticisms i'm not going to talk about them i'm not going to correct the numbers so you're back to the presumption point and i bite you to look at rec session is over and over again roni is wrong it doesn't say arbitrary and without rational foundation is the test and again that makes sense because only overcoming a presumption of correctness not a presumption that the that the however in the welsh which does not it just says it has to be shown to be wrong i think it is the citations to help me be taylor in all of these cases is showing what happens once the burden is over is is discharged and the court was saying we disagree with other courts of appeals that say just coming forward with some evidence that might cast a number in doubt is sufficient to discharge your burden as a taxpayer and then the burden shifts to the commissioner is stead you have to always demonstrate that the commission's deficiency is wrong but when you but the second circuit case we cited in thompson shows that you can discharge that burned by impeaching the government's evidence of it then you put in one study and his witness was also asked what would be the adjustment if i didn't disagree with you about this that or the other thing including some of the things i've talked about he declined also to make any adjustments so the commissioner had the risk that we would impeach his study independent of any property rulings and call that deficiency number into question his witness didn't say here's how you can recalculate it if you disagree with me about this that or the other assumption in my study they'd he took the risk and so your honor i submit that the the the burden of proof excessive the burden is eliminated from the case and this court it adopted that test in worcester county trust by contrast if the burden stays in the case then because the nose is not arbitrary and the commissioner comes in his put his deficiencies presumed to be correct the office is evidence in support of a deficiency the burn at that point is on the taxpayer to show it's wrong and that's the language you see in iraq sash and the cases that it cites what the what the commissioner is trying to argue that you have to blend these two things together and say you can't prove him to church the burden of presume of overcoming a presumption of correctness unless you show that it was arbitrary and that just doesn't follow as a logical matter if you