ts three incorporated did not make a mutual mistake in drafting their stock purchase agreement such that the tax consequences should be changed to reflect their agreement to structure the transaction as a sale of the great stock second even if you find that there was no mutual mistake the tax court erred by not finding that make rake it reasonable cause and acted in good faith for not reporting the sale of alpha its subsidiary on its return and the accuracy related penalty under section sixty six sixty two of the internal revenue code should be removed under the law of mutual mistake there are two requirements one that there is an original agreement and second that there is a mistake in the production of that agreement to writing in this particular case there is no evidence showing that there was not at least a unilateral mistake on behalf of the appellant and the kraken of shareholders the real issue here is whether or not there is the same mutual mistake on behalf of the opposing party ts three incorporated and we think the evidence shows that there is first the tax court found  opinion that mr kosner archives now who was the lead negotiator for make rake in the stock purchase agreement had several discussions with david bronson the lead negotiator for t s three incorporated and they reached an agreement such that make or break would be the company that would be sold the original transaction structure involved the different agreements and then these two parties agreed to structure the transaction for a salesman it rick however the tax court found that even though there was that it immediately after that agreement had been reached mr kaiser sent an email to the virus council david ron that said that the purchase will be of the break therefore memorializing in writing the agreement that had just been reached with the other party three days after that agreement had been reached in memorialized in the email the buyers council made a scrivener's error and created a new draft of the stock purchase agreement what you're going what's your best case on scrivener's aaron seems it's one thing to drop something one time but here you had sophisticated documents that were rejected over and over and over again that quote client only said this is not the deal that you think particular structure really took place right before the misstep asking about your best case that once the documents plainly and repeatedly set forth that they don't think what you say they don't say what you think they should say what your best is you can ignore that and still have beecham stay yes and we did cite two cases in which that occurred in which there was a significant lapse of time between one particular document being drafted and another one being created i think that was an eight circuit case in which there was an error in a lease that had then been that was then concluded in the next stock in another document a year later and we cited another case i believe that was out of new york in which a mistake involving a type of proceeds i believe the terminology was that proceeds  should have been gross proceeds that was carried through in five drafts of the agreement so it's not unprecedented that courts have found that an agreement can carry through various drafts of the document and you know going back to yes there is kaiser also testified that gary miller did not tell him that the agreement prefer added for a sale of alpha by mc rick now mr miller did not testify at trial he was adverse to the parties at this point because he was being sued for malpracti so you know he was not called to trial so you know there's there's a couple other points here in terms of showing the mistake perpetrated forward you know the wait a minute though he's the agent of the who normally drafts the documents in a sale like this doesn't the seller normally not draft him normally the buyer is who prepares this and in this particular case that's exactly what happened buyer's counsel buyer's counsel was the one who prepared the kaiser was reviewing those particular documents but he didn't realize that it called for a sale of alpha that was that stated in the tax court's opinion on numerous occasions but to the extent that you disagree with us about whether or not there is a mutual mistake that brings us to the next point that the tax court also erred in terms of finding that there was no agreement the tax court found the kaiser with his attorney reviewed the documents they did find that they reviewed the documents judge jones but the tax court also found that kaiser did not realize that a call for a cemetery didn't but that's why you have a lawyer and an accountant and they messed up on with both of them they did and that's actually goes to the point about reasonable reasonable cause here is that it's our contention that the tax court fared because it did not consider whether or not you could have a reasonable misunderstanding a fact for a basis of reasonable cause what if the parties to the agreement and to amend the agreement to reach that we agree that we end mutual that means both of us mutual mistake we're going to fix it in repapered the transaction was that then there is not there's never been a state court action to perform the a grant you don't have to have a state court action if it's mutual mistake the parties invaded this is not in the record but ultimately mr bronson did not give that testimony in his affidavit that was provided to the court so there were some discussions about it but nothing ever materialized that's what am i here's the tax  inspector finds that terry's parties may vary the terms of their own ambiguous agreements by providing proof in a state court action of evidence of mistake there is no requirement under danielson or specter and i have no cases that say you actually have to institute a state court action in order to have the tax court reform the agreement or change the tax consequences in this particular case so again moving on now your honour's to the question about reasonable caus faith which is just one further question about the characterization of the transaction you it is your burden to show clear error right yes it is wrong so moving and good faith section of the analysis and it basically focused on whether the taxpayer relied on its in pfizer for the proper reporting of the transaction it looked at whether the advisor whose name was miles harper looked at whether harper where he got the to determine that his assumption regarding the maker it was sold didn't take reasonable steps to confirm that you know this really isn't a reliance issue here really what this is is an honest mistake in misunderstanding a fact you know here harper is getting information from the shareholders he's getting information from the c f o he's got financial statements that are not showing a sale of alpha no one really here is contesting that harper did anything wrong i think the real issue here is whether or not he was reasonable for the shareholders and make rigs to conclude that the sale was from act was was from accurate and we think there are several points that support that the first is that we have four different people here reaching the same conclusion all three shareholders and then a gentleman named o'brien who was an investment banker involved in the transaction keyser at the tax court found that kaiser reviewed the stock purchase agreement multiple drafts and the final drafts and they can and he concluded that it was for a this some kind of software company or what it's an electronic manufacturing business but i don't understand what i think they create circuit boards for various machinery and his background is engineering he was more in texas instruments he was working at texas instruments he's not a lawyer he's a businessman and he's an engineer he paid his lawyer to make sure that the deal was propped structured properly you know as a businessman there are two things are usually concerned about how much am i going to get paid and what are my obligations moving forward under the agreement the tax court found that when he reviewed the document that called for the sale that he was looking for and that specifically the agreement he negotiated with his counterpart on the other side you know some other some other factors that showed that i didn't care how they restructure to have it right they basically didn't care they were willing to they were willing to go along with whatever macrocosm advocated for the for t purposes but that is what kaiser testified to and that's also what david us sort of but sort of like more than mutual mistake it's more like on the one side it's an intent to secure tax benefits and on the other side it's i don't care so it's hard to say whether that creates the groundwork for mutual mistake i agree your honor that in the tax court ultimately concluded that that was insufficient although we think the evidence suggests otherwise how that relates to reasonable cost though is you have kaiser here the lead negotiator in his mind he's being tailed by brunson will do the deal however you want in the tax court found that testimony credible but it finds that we reach an agreement for this particular structure as you've laid out after that he reviews the agreements the tax court finds that he thought it called for a sale of think rick so you know at the very least it's a unilateral mistake again going to the misunderstanding of fact which is a separate basis for reasonable cause here the government is going to come up here and likely say well kaiser should have looked at the stock purchase agreement kaiser should have talked with the lawyer he did look at the stock purchase agreement and the tax  it otherwise we have a second gentleman o'brian who despite the tax court's findings saying that there was no qualifications about o'brian he's an executive vice president of the investment banking firm that was paid five hundred thousand dollars to market and sixteen and a half million dollars which it does seem implausible that someone could make this type of mistake i have this the pair i mean surely hard to me to fathom how you could prepare a tax return for this transaction though you have a stock you've got a sales price you have basis of meaning the investment or the cost for the particular item just like you just like to sell of a house all of that information was provided to  the accountant here and you know that in our mind at least there's no real need to provide him with the stock purchase agreement it deals with represent stations in warranties indemnities clear that he would have to have a reason to ask for it  that but that said you know there's old phrase garbage in garbage out and again the people who should have done something about the garbage who are chrysler and gary miller that is true your honor but i go back to the otherwise and there's no determination by the tax court that that conclusion was unreasonable there was no analysis by the tax court about honest misunderstanding of fact it was limited very narrowly just to the reliance argument by  consequences that flow from that are based on that economic reality to put it in a different way the substance control is for tax purposes now when the government disagrees as to how people characterize a transaction the form of a transaction the tax payer the government has the ability to argue substance over form when a tax payer disagrees with how the form has been how the form of a transaction then traditionally the government has been able to hold the taxpayer to the form of the transaction because the transaction the taxpayer did take the form in the first place and so what the danielson rule has developed is an exception to a rule that taxpayers are held happens it is not an exception to the sub the fact that substance control is for tax purposes and so in this case if taxpayers had actually believed that there was a mutual mistake that required reformation they would need to bring a reformation action or as judge owing it said come to some understanding which to on why and what happened before and to implement the terms as contemplated by the parties however here sell its own shares then ts three would have been amenable to that but they clearly understood the transaction as as it actually occurred and as it was documented as well you have more to bother sources we're not just talking about the stock purchase agreement and it doesn't isn't it fair to say that there's evidence on both sides as to whether the purchaser made it was mutual from purchasers standpoint there's some and again it's the sort of type back to my original point even if there was mutual mistake things and doesn't allow them to get the tax consequences of a transaction that they had never happened they wanted to  as if they sold them accurate shares and that's what actually has to happen for tax purposes and and so the mutual mistake i honestly think the courts didn't even really needs to reach the question as to whether there was mutual respect but you're right so long as there's there's conflicting evidence there's some evidence to suggest that there was at one point in agreement seven months before the closing in which the structure was suggested that mac macro stock but there is no evidence subsequent to that for the next seven months through you know multiple iterations of stock purchase agreement through all the other documents there is no evidence that macro it took any affirmative actions to determine that the information it was providing to its accountants to prepare the return reflecting that  boggler had called him up to say we need to prepare a short your return and sure that for here's the financial information with which to do that they did they did pay capital gains on the on the sale of the right the individuals did they get refunds of the cup against that they paid or offset or anything like that well i mean so assuming i would i would hope that they file it amended returns to you know to  correct the government is not interested in double taxing these people at both you know to say that the macra chairs were sold on the alpha shares the question from the government's perspective is getting you right you sold your alpha shares macro can so you need to pay tax that now we're also not suggesting anything nefarious you know it was going on here but at the same time is that taxpayers have an affirmative obligation to take reasonable steps to make sure that they the regulations say that tax payers the single biggest component of determining whether it was good faith was taxpayers efforts in which to make sure that they determine their property tax  and so and there are and we cited a few cases in our in our brief work taxpayers effectively can't stick their head in the sand and then say that you know i didn't i had no information to the contrary and so therefore therefore i shouldn't be liable for under paying my taxes the the way that the way the self supporting are suffering tax system works in the way that the penalty regime works is no you can't in fact ignore or fail to disclose certain information that is relevant to your tax liability it would be as if they were sent ten ninety nine or a letter from the opposing side saying we paid you sixteen point five million dollars here's the reason for it and then they never opened that butter and they said yeah my recollection is that we got paid sixteen point five million dollars for this reason but it turned out to be another reason and they've got a letter sitting right there that they never represented to their accountant as well as a side letter corporate governance documents and and the bottom line is that barbara never testified as to basis he never testified at all and so there's no boasts telling of what he did or did not do in order to determine what the terms of the transaction where his her did testify but said only that he had an opportunity to review the stock purchase agreement and then he looked at it he didn't explain how it could have misconstrued the document he didn't mean looking at it could mean that he just made sure that it provided for the payment of sixteen point five million dollars and and as well i mean you again you have multiple other documents that he signed that were prepared in conjunction with disclosing that would have disclosed i'm saying like wait a second this is it to the extent that he genuinely believes this is not the transaction you contemplate nor did kisner ever testify to the fact that he had in conversations with his attorney and his attorney affirmatively told him that it was specifically in terms of what he provided to the accountant he said that move first of all the all three shareholders were question with respect to their own personal returns as to what they  harper who is the who is the accountant and his or said i really need to give anything he knew it all he didn't say that he provided the stock purchase agreement the other shareholders said that they wanted shareholders to testify actually read the stock purchase agreed and one of them said he assumes he did but couldn't remember and so the bottom line is that you really have no affirmative steps there's nothing in the record the way to actually support hinge it way that they took affirmative steps to ok i'd like to focus on the on the penalty discussion i think we have talked about mutual mistake sufficiently so i'd like to focus really on on that and respond to a few things that  determine however that regulation also says that reasonable cause in good faith can be determined can be demonstrated if the taxpayer has an honest misunderstanding of fact and that honest misunderstanding of fact has to be reasonable in light of all the facts and circumstances and we think here that it was the tax court found contrary to what mr wiener said that kaiser reviewed the stock purchase agreements the prior drafts and he concluded that the documents provided that may correct shareholder would sell their mac rick's stock that's on page twenty two of the opinion that's not my characterization that's the tax court's characterization so when mr weener talks about we should give deference to the trial court's finding of fact that's one that would support at least a unilateral mistake on mr kaiser with respect to this particular issue second mr kaiser and the rest of the shareholders received proceeds directly from the buyer into their particular bank accounts if you're a taxpayer and you're a businessman and money goes straight to you and it's supposed to go to a corporation instead what would you think i think the conclusion right there is very reasonably i sold my mac rick stock that's they are the ones who ultimately got the money the you know the focus in the tax courts opinion again was reliance and we think that's misplaced because really what would they do that why would the purchaser done that i don't know why they agreed to do that i mean since they were if they were  documents and your honor i don't i don't know why the purchaser agreed to do that it may have been something they negotiated that it's not in the record but there is a document in the record that specifically states that money is being transferred to the taxpayer to the shareholders directly  believe it's exhibit fourteen j in the stipulation of facts that's record number twenty two you know and mr winter also referenced some cases in which taxpayers had conflicting information and those cases i think are easily distinguished in that the opposing side in those particular transactions provided information in addition to the documents that's with that where the basis of a particular transaction showing that they were going to report information differently than what the taxpayer was choosing for example and i think it's one of the six limited which was a tax shelter case i'm sorry not want to sex and child which was a tax shelter case the opposing side told the taxpayer i'm going to issue you a ten ninety nine that's going to report differently than your conclusion that you have capital gains and that particular taxpayer didn't provide a ten i mean i to the account again that's a reliance argument and i think that's different than our situation in our situation our clients reviewed to put them in the taxpayer's reviewed and the shareholders reviewed the document and came to an incorrect conclusion which is because so there was no reason for them to give the stock purchase agreement to the accountant because they had no reason to think there was anything wrong with it similarly there was no reason for them to go back to their lawyer because they didn't think there was a problem with the transaction if the other side had come forward and said something that would put them on notice i would agree with with mr wiener but that didn't happen in this particular case now granted the elephant in the room is well the documents are something else but smart people can make mistakes also and that can happen in this situation and in our we believe that the evidence shows that out so if there are no further questions all right thank you