two thousand and seven there is a sale of those interest at the time the watch family owned twenty percent of the stock and the company had a twenty percent interest in the company the majority interest eighty percent was owned by  that sale is accomplished in a purchase agreement and the purchase agreement what the watch family agreed that despite the fact that they owned twenty percent of the stock all of the proceeds of the sale could go to well springs this case is about why that and why the watch family agreed that all of the proceeds of their twenty one of their twenty percent stock which they had purchased shortly before for eight million dollars could go to spring on that and the answer to that question turns tax consequences let me begin by talking about what we do agree on its both sides the i r s and petitioners agrees that the tax court judge got it wrong tax court judge read the partnership agreement which is important in this case between the two parties and said that there was a particular provision in there three point four c which required that all shut that in any sale of the company that the valuation of what your there is to offer for the suit for the purchase of the of the watch golf shots one hundred twenty million dollar offer from dick's sporting goods one's an eighty five million dollar offer from sun trust the watch family did not want to sale to dick's because dic the real estate that was owned by the watch family that they leased every year at a very profitable rate watch family wanted him to sell to take the eighty five million dollar offer because that preserved their real estate  that agreement is not included in the sale agreement to sun trust the government and they say the government the i r s has argued well if it's not unethical if it's not included in that agreement then it's not valid it must have been included in an agreement give you financial incentives ok should have been included in the sales agreement with sun trust they should have told sun trust what they're doing that might look back back to the judge branches questioned if the tax court looked at the wrong agreement and looked at the partnership agreement rather than the purchase agreement and the tax court in reach whether or not there was a byelection the or that did not interpret the purchase agreement why  should we send it back so that the tax court can then interpret the purchase of whether or not there was an oral agreement separate and apart from the purchase agreement the fact is most likely you will send it back there's a good argument for send it back we have argued in the briefs that you can make a decision on this based on the evidence already in there but can we look at the purchase agreement ourselves and there is no you know look at the purchase agreement and look at the record the tax court record and determine that other than the self serving testimony of the three members of the watts family who testified that there was an oral agreement on that there was no evidence to corroborate or support that there's evidence other than the testimony of the three members of the watts family that are if you actually are and what would that be in this in this record ok in this record first of all if you go to the if you go to a partnership agreement section ten point five the only way you case is very clear that that's not that that's not what happened if you look at ten point five and there's gives a number of reasons for that the question is why does watch get nothing out of the sale  that it could have been about what ten point five must be in writing all right you look at ten point five b it says if you're going to force them to sell you got to do it in writing there is no such writing produced nobody has mentioned the writing there is not a hint that there is a ri more important in that attack understand there's two officers all right there's an eighty five million dollar offer there's one hundred twenty million dollars watch wants him to take the eighty five million dollars offer the five million dollars less than the other off the commissioner's argument is that the well spring forced them to take the eighty five million dollars offer ignoring one hundred twenty million dollars that makes no sense at all the fact that they took the all four that wants family needed to protect its financial interests suggests there is a negotiation not for sale but with but but well no one from spring presented any testimony at trial crouse now wellspring did not testify but now i'm in may they make a point on that but if you look at this look at the purchase agreement and look at it and look at the partnership agreement this is a very complicated  tax driven agreement you could conclude easily that it was uncomfortable for wellspring to get up and share in tax court as to what the tax consequences of this deal work and they would do that if we cause any tax consequences to wellspring the argument that you're advancing today about what the tax consequences should be for your i do not know you what the tax consequences should be i do think that there are some very strange provisions in there ok it's like that the initial capital provision in there they include a fifty they include fifty fifty two million seven hundred fifty thousand dollar note as part of their capital how do you do that does that affect the basis of their sales i don't know so you're not you're not commenting on tax consequences for wellspring but you are commenting on tax consequences for your client what i should be and can you clarify for  me assuming everything happened the way that you said that it did what exactly is your legal theory regarding the tax consequences of this transaction for your client the watch family got a right to twenty percent of the sale proceeds of the sale of the company right they gave up that right they traded that right in order to protect their lease interest their real estate lease interest that because they gave up their right to receive approximately eight million dollars in the sale all right in order to get them to sell to the company that needed their lease that eight million dollars was expended for the purpose of protecting the leases that would go under the wall and we've cited there's three or four cases in there you would capitalize that and over there thinks a little each that you've also you've mentioned that it's an abandonment of partnership interest so does that factor in as it's an abandonment of partnership interests it isn't a band when that's a secondary argument but i think the first argument is he was the better of the and watch signed a non solicit degree in the sale in the eighty five million dollars sale if you look at ten point five they can't force him to sign a non complete they can't force him to sign and solicit in fact you can't sell that company without a non compete from evident watch because nobody's going to buy ever watch golf shots of evan watch has the right to open up everyone watch brand new golf shot next door and compete with you so the fact that there is that everyone wa and not to the and not to the hundred twenty million dollars better my question were all these arguments made to the already probably not but probably not with the emphasis now probably not to detail the issue of the of the liquidation provisions was not argued really and linked by either si tax this all comes up at the very last minute on the last day of the of the tax court drama is there any evidence in this in the record before the tax court that  when the wellspring sold to sun capital there was any transfer of money into a watts account and then back now there was no there was no transfer to watch him back the agreement was you keep our proceeds and they signed a sale agreement which said they could keep the proceeds the reason they did that was well springs agreement to sell to the take the eighty five million dollar offer instead of one hundred twenty million dollars the incentive to get them to do that was we will let you keep our proceeds and we will allow you to make the sale by signing the non compete why would well spring have done that when they could have and i disagree that there are several ways to do that the only way to do that is a for sale under ten point five and a fourth level is a theoretical possibility but not a practical possible out loud was it not a practical possibility because you cannot force everyone watching to not you can't force him to sign and compete and if they were going to force him they would have forced him to take the hundred twenty million dollar offer not the eighty five me if you look at the documentation and this is clearly a negotiated deal it's either the two alternatives robot has a very common sense response which is you look at the context of the transaction and if in the context of the transaction it makes no sense to have that agreement opposite in the purchase and sale agreement than in you then it doesn't have to be in there we don't or you change the form of the contract which only or give a tax consequences of the contract it makes no sense to tell suntrust that that we're pressuring our part to sell to you rather than these other guys were given financial direct sale with all the money going to wellspring do you have any case it is when you have a structure like that you agree the structure of this transaction is a straight sale particular issue what they do say is if you challenge the form of the contract and in this case it makes no sense at all for us to have included in there the agreement that we have with what's going on the side and i don't think the case will requires us to do that i think the case wil its twenty percent interest why would they give up eight million dollars place just purchase that stock for a million dollars why would they give that up what's the reason for that and i think on that terms the tax consequences they gave it up in order to get  wellspring to do a certain thing that protected their leases they acted to protect the leases if they if they and they gave up their right to eight million dollars they own twenty percent of the stop and they gave up that eight million dollars in order to get wellspring to do what they needed done to protect the leases so your your argument as i understand it is that the danielson rule does not apply here because your clients are just explaining the tax consequences of the sale of the sun capital rather than recasting the form of the sale that's correct we do not attack we do not seek to recast the contract the contract is a contract we're just trying to explain why we entered into that on time and we said in the united states versus court's reasoning was wrong but the court found as a factual finding the taxpayers failed to prove that they were entitled to any cash proceeds from the sale and because they were had no entitlement to cash proceeds the supposed incentive theory also fails so in our view no remand is necessary because this is a factual finding that can be set aside only if it is clearly erroneous and it is not clearly erroneous but there are a number of reasons why the tax court got this right when he said they failed to prove that the common shareholders got any proceeds but relying on the partnership agreement will not the purchase agreement that's the problem here well that's part of it but the other part of it is the court was not required to believe taxpayers first of all this supposed incentive theory was invented by counsel several years after the tax returns were filed when the tax returns were filed by the common partners they claimed an abandonment loss this alleged incentive agreement only only came to count only came into being when the i r s audited the taxpayers three terms so this incentive theory with not the basis of the tax returns it was it was produced by counsel at the audit years later the only evidence in support of it is the watts brother self serving testimony which the tax court with not complied to except  they did not call wellspring in support of the incentive theory and frankly it all they have us an oral agreement these are extremely sophisticated taxpayers they alleged in their tax court briefs that they received cash payments of six million dollars which they then use to incentive incentivize wellspring don't you think that sophisticated investors giving six million dollars to a partner would would enter into an agreement to memorialize this this supposed that agreement well that's a question but all another question is why would why would  another point casting doubt on this theory plus there are two other common partners cold cold food holdings and matthew o'toole they had no right no lease interest they they would have no reason to enter into such a transaction because they had no least interest in the golf shops that would benefit them so the tax court's finding that they did not the taxpayers to not receive any cash payments is supported not only by the purchase agreement but by the entire lack of credibility of the evidence that the taxpayers produced and to remand this case basically gives them a second a second bite of the apple to do what they failed to do the first time namely to produce credible evidence in support of their theory first of all and  in addition to that not only did they not produce evidence but under the danielson rule they would have to produce very strong evidence to disavow the form of the transaction and it is incorrect to say that as they have to this court to say they're not trying to disavow the form of the transaction what what they are the form of the transaction is the say all to sun capital and they're adding a separate agreement  not only was there a sale to an capital but the money that the common partners received was then given back in a separate agreement to wellspring to incentivize them you know to take to take  a different offer her so that the leases would be preserved well so that they sickly that if this is the basically that this is a different form of a transaction in than an outright sale it's an outright sale and the reason we have the d n a olson rule is you know prime that one part party to the transaction can't this is about the form of the transaction absent proof that between the parties would allow one of the parties to challenge the enforceability of the greenman is to prevent whipsaw did and did the tax court conclusively determine there was no separate agreement as i'm looking through the opinion i don't see that yes it did had a basically it's that on one page of it's opinion that they failed to prove that they were entitled to any cash proceeds from the sale and therefore they had no cash proceeds to enter into the supposed incentive transaction it's what the court said but but doesn't that go back to the agreement that the tax court was interpretating and which i think everybody has agreed there was a misinterpretation of  the agreement but if the if the tax court did not make the finding there is no separate agreement are we equipped to do that now or should is that something that more properly needs to go back to the tax court well i think first of all the court court didn't stop there the court said there was no evidence that they were entitled to cash proceeds in the court specifically mentioned you know that the testimony of the watts brothers which it chose not to accept it mentioned that the taxpayers did not introduce into evidence well bring or sun in support of its theory it also said it produced no documentary evidence in support of the theory so the court didn't didn't furthermore there's no evidence of it did say there is no evidence or it says it also basically disregards the evidence that taxpayers council introduce and actually  the finding of fact if it is a finding of fact that tax payers fail to prove that they were entitled to any part of the sales proceeds that but it also demolish is taxpayers new theory about this incentive because if they were not entitled to any of the proceeds from the sale then there the premise of their incentive is gone that is correct and their incentive theory would whip saw the commissioner because in the government's tax court brief we stated that that without the incentive theory wellspring the entire gain wellspring received or if it was again it was a capital transaction it would be treated as capital gain or loss but if the incentive theory were upheld down eighty percent of the money that wellspring received would be taxed as capital gain or lost in the remaining twenty percent would be with which it received and sound of would be taxed as ordinary income so basically the tax consequences to wellspring would change if the incentive theory were upheld and it was want that is one of the reasons this  the first eighty five thousand dollars which was their investment would come to wellspring nothing would come to the what's in today's the taxpayer makes an argument that i hadn't seen in the brief which does a poet the taxpayer in this sense he says that without the non compete agreement nobody would have bought this business and they're full of that the fact that there was such a non compete indicates is evidence of the fact that this was a negotiated deal and not something  that wellspring sample a forced to it's bring along rights for example can you answer that i this is the first time i've heard of the argument and i'd i am unable to address it if the court wants we can file a thump lament obrist on this issue if the court would like me to do that so he did know you before that i have never seen that argument before it's not it's not and it's not in any of the briefs before this court as far as i know it's not in the tax court greet brief i request the court to disregard it it would if it is true it would seem to suggest his support his argument that it was a negotiated settlement and not one that was forced by wellspring bring alone right so there was would it not well i did it may support the argument but i don't think that gets him to where he wants to go because i want to one of the things that the purchase agreements purchase agreement contains a by precluding that there were two potential purchasers sticks fording good store and sun capital for the one of the things that the common shareholders or at least the two wat brothers scott by virtue of the purchase agreement is a statement that we says were valid and binding on gulf shop and in full force and effect and and that enabled them the two watts brothers to preserve a lot of income now opposing counsel's opening and reply briefs are inconsistent as to exactly how much money the watts brothers got as the result of the you know then later it says thirty million in revenue so one of the things that they got the comment shareholders got even though they got no money is that we says were preserved and this suggested it was a negotiated agreement to it it doesn't i don't think you have to go to any non compete clause to talk about negotiation but as i found out if the court wants us to address and compete  brief we could do so all about this is the first time it is been brought before the score is there anything in the record before the tax court that shows how well spring characterized this transaction for tax purposes  know there isn't but the danielson rule although it uses the potential of whips as one of the reasons for the rule it also shows the the case is also say do you recall and what page of the tax code look opinion that this funding appears to the effect that the tax payers fail to prove their entitlement to sales on page twenty six i think that's right thank you know your proof and their taxpayers should not be given a second bite of the apple in this case thank you thank you ms open hi marie we'll hear again from mister that they were entitled indication proceeds from the sale i think that the i think that conclusion turns on their analysis of three point four sure you three point four she says if it's determined only by the liquidation provisions that you have to determine what the value is for the liquidation provision and the to the extent that anyone would suggest that there is no evidence that there was an agreement of this type they're just there just won there's only one way to get to the liquidation provisions absent a liquidation that's ten point five the question here is is there are for sale under ten point five or is there a negotiated sale all of the evidence the documents that are in and the testimony which is consistent with the documents that are in there says that this was a negotiated sale each side got something in the sale that's the logic of it judge andersen another thing you said is that they were entitled to i think you should eighty five million  two million seven hundred fifty thousand what they were in time to if you get to the provisions if you get to term of the illiquid ation provisions it's thirty two five ok you subtract eighty five you subtract thirty two  they got more than that they got more than eighty five less fifty two point seven fifty that's another reason they argued about mass you want to nobody he that he didn't get any cash matthew o'toole got two hundred thousand dollars in cash  point five percent if it's a forty million dollars sale as we contend that is point five percent matthew will tool was a partner at will he was not a watch brother he did get cash now they characterized it as something other than the sale of his stock they said it's a consulting agreement but it is exactly the value of these that he got they in arguing that this should not go back i would invite you to their page thirty six or wait page thirty five and thirty eight thirty five they say i quote we agree that with tax payers that the tax court's reliance on section three point four c the partnership agreement and was mistaken for the reasons remand for this court as a fact finder to make these determinations in the first instance or vacate and remand for the court to make a decision based on the fact they also contend that there is no evidence of such an agreement there is evidence or you have to do is go through the paper the papers there how do they get that consent agreement how do they how do they explain everyone wants his consent to the sale what's the explanation for that why would they do that these are wall street these wall street venture capitalists you think they gave up thirty five million absent some kind of agreement some kind of deal do you really think they could have sold this without ever watching raymond ever watches golf shops volume one of the record pages three twenty six two three thirty five if i'm not right on i'm awfully close got to go there was a deal we did and they talk about sophisticated taxpayers they have no evidence of that ever watches in his eighty's he testified at trial sophisticated is not the word that comes to mind if you read his testimony ok he's a guy who started with like one golf shop at a golf course in fort walton beach florida was good at selling ended up with forty or fifty golf shops but never got any more sophisticated and he knows numbers he can write the numbers down and all  the person didn't want to hire a lawyer you know is that this is when i'm sorry i can't remember whether it's this case on another one but we had a case recently where the party was negotiate and he didn't want to pay for a low you know so he did i would beat that would be i would watch that that is this you did not there were no there were no lawyers no he did have a lawyer and atlanta lawyer look at the agreement after the sale  after he had reached agreement with him it was a five thousand dollars fee for a review of the contract ok he there was no lawyer involved in the negotiations of this contract it was wouldn't watch and his and his brother ronnie ok who negotiated this these are the guys that run golf pro shops and golf course they're good at it they're good at selling golf clubs