after mr ray spent many years in legal dollars trying to recover that loss the commissioner now wants to read litigate the characterization of that identical loss and to penalize mr ray for relying on the prior tax court judgment this case can be correct that the majority of his case can be correctly resolved by simply holding the government to its word collateral estoppel should be appropriate here of the parties of the same the control impacts on law  unchanged and the issue underlying the origin of the claim analysis here the characterization of the one thousand nine hundred and ninety three trading laws is identical to the issue that was raised in the prior tax court proceeding the government's only contrary argument substantive argument is that the prior tax court judgement was based on a settlement as this court recognized and or wire works and later on in right lacy a and agreed judgment can support collateral estoppel in determining whether it should the courts look at the parties intention as manifested in the agreement and the words of the record in the judgment itself to determine whether the parties intended a melody on that issue here we can see that the party specifically agreed to characterize the trading venture lost as a business loss the i one is where or where would i find in the record your st presentation of it as an affirmative defense given to the tax court in the process of mission t you say the issue was discussed be more precise did you argue that they were as stopped from contesting it or did you just simply point to this event though your are your honor from this quote and on bomb case and it would seem to me that in the footnote three where the court makes the comment since the tax court decisions were greed to know the issue was actually  honor and that's the that's the general rule and it's it's understandable why that would be the case if we can't really tell what was litigated then we can't give it because of effect but here this isn't a case where we can't see whether or how the issue was addressed and we can see in the statement of income tax changes and the tax court judgment exactly how the court and or how the parties intended to treat this  when these events were closer in time were not reclusive if we are reviewing these unchanged events through an unchanged legal lens the result should be the same mr ray has had a decades long career developing professional software in fact he was involved in this in the very early days in the sector he developed several wall street targeted programs including one that was worth several one million dollars the one thousand nine hundred and ninety three trading venture was just a continuation of that decades long business for say the written agreement setting up a trading venture has at least two business enterprise st the parties agree that either  both could exploit the track record that was established by implementing the strategic trading strategies and nd the parties agreed to share losses with mr ray bearing on that risk of the impeached was when he urged that he had multiple motivations some of them perhaps businesslike and then he was retreated to what i'm sure you know the record was he said well the goal here was to make money and then seems hard to disagree with the tax court's conclusion this is a one time investment without without being able to point to places in the record where he's and he's putting in a substantial amount of time or whatever the phrase is irregularity of purchase a patient in this collaborative business i would you respond to that while you are st of all with respect to your question about the statement that he may that this was not his primary  motivation when determining whether a person is a business person there can be multiple motivations and they don't have to occur in any particular way to order in fact profit motive which is a requirement for a business to be determined to be determined under the code under one hundred and sixty two doesn't have to be the primary or even the primary motive so the fact that this was not the ability to exploit this lawyer was the trades and to develop a track record that either or both could use but we're not looking at this trading venture as a standalone event this was a continuation of mr rice decades long career as a software development professional our money's forked over the trading professional does the work and and then at the end mr rice sticks out his hand and elects money that's not the case here it happens that many of those cases of course the current financial setting here it happens that mr right just develops software or the financial industry or wait maybe example in our briefing that we wouldn't rule him out as a part of a business enterprise if you were on a cattle breeding business are the restaurant location business just as he wasn't out on the ground taking out breeding pairs or trying to mcdonald's locations in this case his role was to make the investment he had worked your reply brief page six that ray quote contributed to his long term expertise is how you phrased it he contributed his long term expert project and i guess i'm just wondering what sort of record evidence is there that supports the reply brief assertion that he contributed his long term expertise well i  wlak that the record in this particular case is hearst's there are a lot of bits and bobs of deposition testimony from litigation that went on in new york between the parties and that there's a little bit strategic computerized trading strategies over time and of course everything fell apart and we all can also we don't really know what would have happened at the end of the day so what we thought very quickly happened was that he thought the five hundred thousand dollars that was agreed to that would be how things go and then if if they met what they hoped to be a successful track record that either one or both could utilize that what happened to the the expert he proffer the expert was proffer ago mr urban was proffered as a summary expert your honor because there was such a long voluminous litigation history in new york he was proffered to sort of summarize that he was admitted and his report is in the record i would say look that suggest to the court that it's useful in terms of giving kind of a summary of a very confusing litigation record but the tax court does not rely on anything in that report other than as a summary on the two hundred and twelve expense approach they did great debt as to the trading losses but your your argument here is that it should apply to the indebtedness losses as well and the litigation expenses from those  oversimple blanket to say then we would have to see that the various properties of the credit cards were investment income or rental income would that have to be in the record as opposed to personal residence is no your honor a think not and let me just clarify as to twelve and so what we what we see as a series of interest bearing agreements that were entered into between these same business venture partners and the same timeframe and litigated knows for the two new york properties and the credit card debt that were written and despairing reaffirmed several times all of those all of the events that underlie those documents and all the documents themselves and the litigation occurred many years after christina and i were divorced and the new york appellate court has recognized that they were long out of a personal relationship so these are business and others and it's our position that mr ray shouldn't be an issue or penalize because he's died on relatively good terms for a long time with his acts and they get business together as we've stated on our brief the relationship between the parties is also not  properties now your honor and i don't think that that's required some of the cases are circumstances like that where you have a real estate property that is producing an come argument here as that mr ray own at the end at the end of the series of rather raise the kelley versus commissioner case to the tax court yes your honor we did and we feel that this sort of collective body of at this of the income strain that mr gryce legal pons or our legal fees were directed to protect to preserve and green suit was a harder case for me i do agree with you that kellie seems very on point it's a seven circuit case but it does if you're correct as you just stated that you brought it to the tax court's attention i'm curious to hear if the government agrees with that  greene that related to the manse employment there is a much tighter nexus there to income stream whereas here the only income stream that i see if we separate principal from interest is the interest payments that's why i thought kelly was much more on point than green you see what i'm saying and you think i've got flaw in thinking about this no doubt and i think applause and my answer i didn't directly address your question which was whether kelly had been brought to the attention of the crockpot and i think the problem if the tax court wasn't presented with that divisibility i think it's always the case your honor that d our arguments evolve on appeal and our parties get better or perhaps worse and that's the case to answer quickly your question also about the green get well let's say the grace of christ that you raise an argument that the government brought up which was that this was sort of more closely related to end come because the underlying cause was an important case but i think that's a false narrative your honor because what was being litigated was protection and recovery of the actual interest bearing saddam and that's happened to deposition in the re one litigation the taxpayer testified that any intention of assisting ms re with development of the trading models was tertiary and lower on his list of priorities and i quote from the deposition his purpose was to make money and to apply the commissions to reduce ms raised to him it is deposition he had mended that he was not a com establishing that a stipulated tax court decision based on a settlement is pretty close of no history and no circuit has that law well i haven't found any case that we cited in our brief and the decision document that opposing counsel has cited does not contain any and now a sense of the issue it is just a line item list of what the items are that go in to the computation of the stipulated decision and i think it's very telling that that computation document list the settlement that it was a part of was based on the taxpayers being futures trader well that's a pulse premised and it's unclear from the record how the i r s got that idea to put that in the computation documented but it certainly wasn't true as i just stated the text there it made it in history one deposition that he was not a trader he never traded kind of commodities so the collateral estoppel as a matter of law on the merits he cannot rely on that now with respect to the penalty ok he had this this stipulated decision first of all under the law the most important factor for determining reasonable cause is the extent of the taxpayer's effort to assess  me in light of all the circumstances well reliance on the stipulated decision is just one factor the taxpayer presented no other evidence that he made in as to whether the i guess i mean if he was finding radio thinking a little like a taxpayer why would you make any other efforts if the i r s itself can't classify something i don't you think i wouldn't think you need to go to an accountant a lawyer because you're looking back in your same with a except it is a business matter well he knew that it was a settlement a settlement by net definition is not a concession it's not an admission it's not saying you get this saying well you get this and i get that it's a he he was a sophisticated businessman and he should know what a settlement is and that a settlement is not a concession in fact that has court made a finding that the taxpayer failed to carry as burden of establishing reasonable cause and good faith this was a two hundred and thirty thousand dollars deduction the taxpayer had stable full of attorneys handling his litigation with his acts and it would have been very easy for him to asked the same attorneys whose expenses he was claiming whether these were just up to full expenses and there's no evidence that he did so it was nowhere government's position is it i don't believe it is clarified for me is not the government's position that a penalty of justified any time a taxpayer doesn't consult a professional either tax or accounting or legal when preparing a tax return you're not in arguing for that kind of bright line categorical rule if the taxpayer is arguing reasonable cause the best way to representation in the prior case that he was a futures trader that representation was not true he failed to present any evidence that of steps he took to ascertain whether this reliance on stipulated decision for a different tax year as support for the position he took on his return does not constitute reasonable cause the tattle i think is the tax court decision highlighted the false premise argument you're making that's correct your honor but the tax court made a decision based on the evidence it's it's a factual issue and the the text there has the burden classification no your honor but the other day opposing counsel hasn't come up with a case where they could where they did establish reasonable reliance or reasonable cause based on that again  tax court found that the taxpayer did not have reasonable cause that he did not reasonably rely on the stipulated tax court decision bit he notes incorporeal just mind that it's to me it was the weakest part of the decision and it seems to me the way to justify would have to be nearly to say a bright line rule that you got to speak to an account or a lawyer to question whether even the i r s was right in what it told you it was acceptable like strong statement your honor the tax court made a factual finding and in other parts of the decision the tax court found that taxpayers testimony was not credible the taxpayer  it depends on whether taxpayer really did have reasonable cause and good faith so at least in part it's a subjective standard the tax court just didn't i taxpayers claim that he had reasonable cause and reasonably relied on his opinion or honest consent decision which he knew resulted from a settlement it's a factual determination  it's what about the larger point just factually when you look at all record it does seem is his defense at the trial was sort of no good deed goes unpunished right he everything he was trying to do was collect monies that she had sworn to him every possible way under new york law repay so it looks to me in a way that everything post their divorce is clearly a business and a very losing business for him but there was no interpersonal interaction say i just had like oh i'm sorry your honor i'd like to point out a few things from the record that the relationship the evidence established that their divorce was for in professional reasons they continue to live together as a couple in a relationship they did not to buy their assets in they continued to have joint bank account agreements were undertaken before the taxpayer moved to florida and the notes were not being producing notes because the purpose of ten of the notes so that he could get this money that he felt she owed him but is the test is the test one dollar of subjectivity whether he thought it would be interpreted seniors or just looking at the agreements and they were interest bearing and then that case the opposing counsel found the seven circuit case seems on point under section two hundred and twelve dollars the tax there must have a bonafide profit objective so you do look at what if the taxpayers objective is he just trying to collect money that he claims it is that sells them or is he really trying to earn interest there was no evidence no testimony no evidence that his purpose because in kelley the court held that the expenses for the recovery of the principal indebtedness were not deductible because he's not trying to recover income he's right just recovering however the tax care never made this argument the taxpayer never argued that well we can get the litigation expenses for recovering the interest but not the litigation expenses for recovering the principal indebted the taxpayer had preserved that argument do you agree that under cali then the taxpayer would be right so your argument reduces to a waiver and that's it not on the merits it's not really a question of waiver it's a question of the facts in this case as well again the entry there were no there was no evidence even if he had if we looked at the evidence there was no evidence that there were separate litigation expenses that were attributable to the recovery of the interest the interest was just incidental to his claims to enforce the notes in the print and obtain recovery of the principle indebted there was no evidence no testimony no documentation that he paid any additional litigation expenses in order to secure the interest it was just his his claims his expenses were all incurred to recover the principal indebtedness and the interest would have come along with that as incidental to that now getting back to the trading agreement the taxpayer tries to paint us history  that he did right and that was the subject of subsequent litigation was a data analysis software program it was not a commodities futures trading software program like the ones that ms ray developed it was a it was a data analysis that basically analyze f c c filings and produce reports based on those filings it was a data analysis program that wasn't trading models it wasn't there was no evidence that the taxpayer actually did write programs for trick or trading models and in fact two through ninety three he and ms ray had as a primary goal the development of computer program models for trading financial futures he was asked about the accuracy of that statement and this deposition he the taxpayer did not have this long history of our track record of developing models for trading commodities which was the nature of the business rather it was miss ray's business to develop the trading he may have had an idea in his head well maybe i can use these models someday but there was requires a realistic prospect that he be engaging in this business he did not have a realistic prospect that he would be trading in ink and writing programs and trading and doing the things that ms ray did in conducting the business as you recognize judging and send you have to be engaged in the business with continuity and regularity he wasn't engaged in the business with continuity in regularity before he entered into the trading agreement in the ninety three and the trading agreement was not any extension of any kind of continuity continuous and regular engagement in business in the business of writing programs for trading and developing models for trading commodities some of the new york litigation is still pending correct and there was just a ruling in february two thousand and twenty with would your view be that the new york litigation in those decisions especially the february two thousand and twenty one are of no relevance to the issues before us correct your honor up under the origin of the claim test the validity of the claim is not determinative of and moreover the tax court would not not in this court as well would not be bound by any determinations made in those cases the ara would have mandarin were in order in new york court in that case was was not really a fact finder while the tax court was acting as a fact finder in this well if the court has no further questions i would like to stand on our briefs for the remaining of the issues  claims for indebtedness were not for the production or collection of income pursuant to a bona fide profit objective and the penalties were correctly imposed by that of the test court based on event the trading mentor laws arising from the trading venture agreement which is in the record and it's not a type of deduction that might you know were circumstances might change it is a loss and it wouldn't have mattered whether they said on that line item characterization giant disaster business loss the fact that it says it's approaching futures lost is absolutely irrelevant to this court's decision it was characterized as a deductible one hundred and sixty two schedules loss based on facts that are fixed in time as a fixed transaction a one time thing and that was twenty two years ago the one the last was in ninety three the decision and so at the time speaking to the close of the effect of that and also to a reasonable cause at the time that mr gray deducted his two thousand and fourteen legal expenses he had a twenty two euro tax court concession inconsistent view years a later there's all of the many cases and mis wolitzer mentioned all the lawyers that are around but all the many cases from this floor and other courts puzzling over and pars judicata illustrate exactly how confusing those principles are and even if mr right was not an attorney had known about or thought to rummage through those cases as we just talked about it's very unlikely that he would have found a case where the i r s successfully changed disposition on a finite transaction not a typo deduction by not characterization of a discrete line item transaction where no facts have change applied to the indebtedness clean no i beg your pardon your honor there's no reason no reasonable cause for him to think that the ninety three determination classification would apply to the indebtedness legal challenged so i think it is reasonable that he might have considered that they were in business as brady months you had two other points you want to make for your time isn't well so sort of blurred about one point but i will say that  relationship the government has consistently tried to sort of paint this and i will say that in this race try to paint this as some sort of long protracted divorce agreement and it really doesn't matter one bit that the parties had some sort of relation going on they divorced in one thousand nine hundred and seventy seven per whatever the reason was these were business agreements all of these things happen there after and if we decide otherwise we're going to be rummaging around in people's private lives trying to figure out whether they had some sort of relationship the enforceability of those agreements based on the relationship is nothing to do with categorization what went on and you know here we have income producing assets that whether he meant to have income producing assets he he ended up with them just like mr great it in this court's two thousand and nine decision and i will point out at least the litigants and kelly were actually brothers and sisters so the relationship is just simply not relevant here all of that is for the new york courts to decide again the validity of the claim does not make any difference i think that