Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-09020/USCOURTS-ca10-90-09020-0/pdf.json

Parties Involved:
Commissioner of Internal Revenue
Appellee
Douglas J. Michelson
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

DOUGLAS J. MICHELSON, 

Petitioner-Appellant, 

-, T ·a ,-~~ D ~ .·. -~ .u .. _,.., ... United Stat~ CG~rt ~! Ap~"""Ld 'fent~ C1rCUh 

DEC 18 1991 

ROBERT L. HOECKER 

Clerk 

v. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

No. 90-9020 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent-Appellee. 

ON APPEAL FROM THE DECISIONS OF 

THE UNITED STATES TAX COURT ~ COURT NUMBERS 8130-82, 18686-84 and 16775-85 

Matthew E. Cohen and Roy A. Anuskewicz, Jr., Albuquerque, New 

Mexico, on the briefs for Petitioner-Appellant. 

Shirley D. Peterson, Assistant Attorney General, and Gary R. 

Allen, Kenneth L. Greene, and Steven w. Parks, Department of 

Justice, Washington, D.C., on the brief for Respondent-Appellee. 

Before MCKAY, Chief Judge, and BARRETT and BRORBY, Circuit 

Judges.* 

BRORBY, Circuit Judge. 

Mr. Michelson appeals from the decisions of the United States 

Tax Court entered July 26, 1990, determining deficiencies in his 

federal income tax for the years 1976-81. We affirm those 

decisions. 

* After examining the briefs and the appellate record, this 

three-judge panel has determined unanimously that oral argument 

would not be of material assistance in the determination of this 

appeal. See Fed. R. App. P. 34(a); lOth Cir. R. 34.1.9. The 

cause is therefore ordered submitted without oral argument. 

Appellate Case: 90-9020 Document: 01019326406 Date Filed: 12/18/1991 Page: 1 
The issues in this case derive from the financial losses Mr. 

Michelson sustained as a result of his transactions involving 

metal futures (prLmarily silver) on various commodity exchanges. 

Characterization of Mr. Michelson's losses was the principal issue 

before the tax court. Mr. Michelson asserts he was a dealer in 

metals. As such, he contends the losses resulting from his 1979 

and 1980 futures transactions were ordinary, rather than capital 

losses. 

On appeal Mr. Michelson challenges the tax court's factual 

findings that: (1) Mr. Michelson was not engaged in a trade or 

business as a dealer in metals in 1979 and 1980; (2) the losses 

Mr. Michelson sustained in 1979 and 1980 were capital losses; (3) 

the portion of the 1980 loss allegedly attributable to Merrill 

Lynch's liquidation of his commodity· account was not sustained in 

1980; and (4) Mr. Michelson did not pay interest on his margin 

accounts in excess of the amounts allowed by the Commissioner of 

Internal Revenue. In addition, he challenges the tax court's 

refusal to admit as evidence a federal district court memorandum 

opinion and order from a related, but independent civil action. 

We address each challenge separately. 

I. 

"[T]he clearly erroneous test of Rule 52(a) is the 

appropriate standard for appellate review of factual findings 

~ ••••

11 Sanchez v. Bond, 875 F.2d 1488, 1495 (lOth Cir. 1989), 

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Appellate Case: 90-9020 Document: 01019326406 Date Filed: 12/18/1991 Page: 2 
cert. denied, 111 s. Ct. 340 (1990). This standard is met only 

when this court, after reviewing the record, is left with a 

"'definite and firm conviction'" that a mistake has been made. 

Merchant's Nat'l Bank of Topeka v. C.I.R., 554 F.2d 412, 415 

(lOth Cir. 1977) (quoting United States v. Unites States Gypsum 

Co., 333 u.s. 364, 395 (1948)). 

Our review of the record leads us to believe the tax court 

made no factual mistake in this case. The record amply supports 

the tax court's findings. For example, as to the tax court's 

characterization of Mr. Michelson as an investor who suffered 

capital rather than ordinary losses, the record indicates that 

prior to 1979, Mr. Michelson characterized his occupation as 

.,investments" and reported his transactions to the revenue service 

accordingly. He never filed a Schedule C reporting his commodity 

transactions as involving gains or losses from the operation of a 

business until he sustained large trading losses on the silver 

futures market in 1979-1980. Notably, Mr. Michelson's market 

transactions in 1979-1980 were not materially different from those 

in earlier years. At no time was Mr. Michelson licensed to sell 

futures, nor was he a member of any commodity exchange. 

Despite Mr. ~chelson's assertion he was a dealer in metals, 

the record reflects the only physical metals ever owned by Mr. 

Michelson were 400 ounces of gold and 1,510,225 pounds of copper, 

held by means of negotiable warehouse receipts. Mr. ~chelson 

~ acquired these metals on the commodity market and held both for a 

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Appellate Case: 90-9020 Document: 01019326406 Date Filed: 12/18/1991 Page: 3 
( 

~ 

long period of time as one would an investment. The record 

further indicates that although Mr. ~chelson's losses were due 

primarily to fluctuations in the silver market, he never owned any 

silver in its physical form. Moreover, the record reflects no 

acquisition of metal directly from any refinery or any offexchange supplier, no separate business activity that utilized 

metals, and no frequent sales to customers or related 

merchandising activity .• 

With regard to the tax court's finding that the portion of 

the 1980 loss allegedly attributable to Merrill Lynch's 

liquidation of his commodity account was not sustained in 1980, 

the record indicates Mr. Michelson maintained five counts on a 

counterclaim in an unresolved, independent action to recover those 

losses against Merrill Lynch. The tax court reasonably inferred 

from Mr. Michelson's refusal to answer a question on crossexamination that he had previously assured the government he would 

prevail in that action. 

Finally, with regard to the payment of interest on Mr. 

Michelson's margin accounts, the exhibits relied upon by Mr. 

Michelson do nothing more than illustrate the amount of interest 

charged. These documents are not sufficient to show that Mr. 

Michelson in fact paid these amounts, or that the interest paid 

exceeds that allowed by the Commissioner. Testimony in the record 

supports this finding. 

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Appellate Case: 90-9020 Document: 01019326406 Date Filed: 12/18/1991 Page: 4 
II. 

Mr. Michelson sought to introduce a Memorandum Opinion and 

Order of the United States District Court for the District of New 

Mexico involving an independent civil action between Mr. Michelson 

and Merrill Lynch. In essence, the order dismissed twelve of 

seventeen counts asserted in Mr. Michelson's counterclaim against 

Merrill Lynch. Mr. Michelson offered the order as evidence he was 

a "dealer" in metals. An introductory paragraph described Mr. 

Michelson as "a dealer in precious metals." The tax court refused 

to admit the order as evidence, observing that Mr. Michelson had 

not shown that the description of him as a "dealer" was anything 

more than background material, or that his alleged status as a 

dealer was a disputed issue resolved by the court in that case. 

Moreover, the government was not a party to that suit, and what 

might constitute a dealer for the purposes of the issues involved 

in that case was not controlling in the federal income tax 

context. As such, the tax court held the proffered evidence 

lacked any probative value. We agree. 

On appeal, Mr. Michelson also contends the tax court erred in 

declining to admit the order as evidence that he lacked a 

reasonable prospect of recovery in that suit and hence sustained 

those losses allegedly attributable to Merrill Lynch's liquidation 

of his commodity account in 1980. This argument fails for two 

reasons. First, Mr. Michelson failed to offer the Memorandum 

Opinion and Order for that purpose. Second, while the order 

dismissed several counts of Mr. Michelson's counterclaim, five 

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Appellate Case: 90-9020 Document: 01019326406 Date Filed: 12/18/1991 Page: 5 
' . 

counts remained. Nothing in the record indicates that the 

remaining counts do not assert claims for the full recovery of the 

losses allegedly attributable to Merrill Lynch's actions in 1980. 

"The decision to admit or exclude evidence is within the 

sound discretion of the [trial] court, and, on appeal, reviewable 

only for an abuse of discretion." Boren v. Sable, 887 F.2d 1032, 

1033 (lOth Cir. 1989) •. The tax court did not abuse its discretion 

in this instance. 

In conclusion, we hold the tax court's findings are not 

clearly erroneous. Furthermore, the tax court acted well within 

its discretion when it refused to admit another court's opinion 

~ into evidence for the purpose for which it was being offered. We 

therefore AFFIRM the tax court's decisions for substantially the 

same reasons as those set forth in it·s thorough Memorandum Opinion 

entered January 16, 1990. 58 T.C.M. (CCH) 1219 (1990). 

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Appellate Case: 90-9020 Document: 01019326406 Date Filed: 12/18/1991 Page: 6