TAX COURT OPINION

Case: Ironbridge Corp. And Subsidiaries f.k.a. Pitt-Des Moines, Inc.
Docket Number: 24156-07
Judge: Goeke
Opinion Type: memo
Filed: 06/05/2012
Pages: 11

T.C. Memo. 2012-158 UNITED STATES TAX COURT IRONBRIDGE CORP; AND SUBSIDIARIES f.k.a. PITT-DES MOINES, INC., Petitioners y. COMMISSIONER OF INTERNAL RE NUE, Respondent IRONBRIDGE CORP. AND SUBSIDIARY, l(cid:16)040etitionersy. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 24156-07, 27523-07. Filed Jt ne 5, 2012. Jasper G. Taylor III, Richard L. Hunn, and Susan V. Sample, for petitioners. Deborah H. Delgado and Travis T. Vance III, for respondent. MEMORANDUM OPINION GOEKE, Judge: This matter is before the Court on petitioners' motion to dismiss these cases and to enter decisions against petitioners; respondent objects to petitioners' motion We Ýi 1 grant petitioners' motion and enter decisions. ! OKBVRD AUK 5 2012 - 2 - Background Respondent issued a notice of deficiency to Ironbridge Corp. (formerly Pitt- Des Moines, Inc.) & Subs. (Ironbridge Corp.) on July 24, 2007, which determined deficiencies and section 66621 accuracy-related penalties for 2001 and 2002. Respondent also issued a notice of deficiency to Ironbridge Corp. on August 31, 2007, which determined deficiencies and section 6662 accuracy-related penalties for 2003 and 2004. Petitioners timely filed petitions contesting the deficiencies and penalties, and the cases were consolidated for trial. For each of the taxable years at issue, petitioners filed a consolidated Federal income tax return which reported Ironbridge Corp. as the common parent of the affiliated group of corporations. Ironbridge Corp. is a Delaware corporation, and at the time the petitions were filed in these cases, its principal office and mailing address was in New York. . The deficiencies and penalties result from respondent's determination that petitioners entered into several complicated foreign currency option transactions with a foreign tax shelter (devised by the accounting firm KPMG) which lacked economic substance. Similar transactions devised by KPMG became the basis for lAll section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Internal Revenue Code of Practice and Procedure. a Federal criminal investigation by the U.S. Attorney's Office for the Southern District of New York. That investigation ultimately result d in indictments and prosecution in the U.S. District Court for the Southern Dis rict of New York of several people involved in the transactions. See United St tes v. Stein, docket No. 1:05-cr-00888-LAK (S.D.N.Y. filed Aug. 24, 2005) (Stein . Although he has not been indicted.or tried, the princ pal of petitioners, . James Haber, believes he was one of the persons involved in the criminal investigation. Mr. Haber stated during deposition testimony that he believes he became a potential "target" of the criminal investigation around "2002 or 2003". While Stein concluded in'June.2009, the related criminal investigation is ongoing. On September 11, 2009, the U.S. Attorney's Office for the SouthernDistrict of New York sent a letter to counsel for.Mr. Haber which confirmed that there is an "on-going investigation by the U.S. Attorney's Office for the Southern District of New York * * * of various individuals and entities involvéd in tax shelter . . activities" but stated that "the Office and the Tax Division, Department of Justice, have no present intention of seeking criminal charges against Mr. Haber or his companies with respect to the tax benefits claimed by clie t taxpayers from the shelter transactions in which Haber and his companies ivere involved." - 4 - The criminal proceedings delayed the trial of these cases several times.2 On May 13, 2011, petitioners filed a motion for stay of proceedings, stating that "allowing this case to proceed to trial would likely put the petitioners in the difficult position of being unable to put on their case, as Mr. Haber and other personnel of his companies would likely invoke the Fifth Amendment with respect to interrogatories, depositions, and trial testimony." The "other personnel" who would also likely invoke the Fifth Amendment were not identified. Respondent objected to petitioners' motion for stay of proceedings, and the motion was denied on August 16, 2011. On March 27, 2012, petitioners filed a motion to dismiss the consolidated cases and enter decisions against them. Petitioners stated that they filed the motion as a result of their inability to present the testimony of Mr. Haber and other individuáls who planned to invoke their Fifth Amendment rights. Petitioners claim that the lack of such testimony "would prevent the petitioners from being able to put on their case at trial" because "Testimony from * * * [these] witnesses is critical to petitioners' ability to meet their burden of proof in these 2Pursuant to joint requests by the parties, the trial was continued on December 9, 2008, and June 10 and December 2, 2009, as a result of the criminal proceedings. In addition to these 18 months, the parties also spent substantial time in trial preparation. - 5 - cases". Respondent objected to petitioners' motion to disniiss on the grounds that "The principles ofjudicial economy require a final determihation of these issues in this proceeding, which only a decision on the merits or an agreed stipulated decision can produce." Respondent is concerned that petitioners' motion "is merely an attempt to unnecessarily prolong and delay this proceeding." I. Denial of Petitioners' Motion for Stay of Proceedings Discussion Petitioners filed their motion to dismiss and enter decisions as a result of our refusal to grant their motion for stay of proceedings. We therefore begin with an explanation of why we have determined a stay of proceedings is no longer appropriate. . - . . The Constitution does not ordinarily require a stay f civil proceedings pending the outcome of a related criminal case. Keatina, 45 F.3d 322, 324 (9th Cîr. 1995); SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1375 (D.C. Cir. 1980). A court nevertheless has discretion to stay civil proceedings "when the interests of justice seem to require such action.'" Keating, 45 F.3d at 324 (quoting United States v. Kordel, 397 U.S. 1, 12 n.27 (1970)). Upon a shoïving of "special circumstances", we will stay the case so as to prevent "su stantial and irreparable prejudice." SEC v. First Fin. Grp. of Tex., Inc., 659 F.2d 660, 668 (5th Cir. 1981). - 6 - However a stay of a civil case to permit conclusion of a related criminal prosecution has been characteri(cid:0)576edas "'an extraordinary remedy'". Louis Vuitton Malletier, S.A. v. Ly USA, Inc., 676 F.3d 83, 98 (2d Cir. 2012) (quoting Trs. of Plumbers & Pipefitters Nat'l Pension Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995)). Various courts have formulated multifactor tests to apply in deciding whether, in the light of these hazards to the defendants in the civil proceedings against them, to grant a stay of those proceedings. Louis Vuitton Malletier, S.A., 676 F:3d at 99. The District Courts of the Second Circuit have'often used the following six-factor balancing test: (1) the extent to which the issues in the criminal case overlap with those presented in the civil case; (2) the status of the case, including whether the defendant (here, petitioners) has been indicted; (3) the private interests of the plaintiff (here, respondent) in proceeding expeditiously weighed against the prejudice to plaintiff (respondent) caused by the delay; (4) the private interests of and burden on the defendant (here, petitioners); (5) the interests of the courts; and (6) the public interest. Id. at 99-100. After considering each factor, as explained herein, we found the cumulative weight of the factors to favor denying the stay. We therefore denied petitioners' motion for stay of proceedings. A. Overlap of Issues . Petitioners allegedly entered into transactions with tax shelters devised by KPMG. Similar transactions devised by KPMG became the basis for the indictment and prosecution of several people involved in he transactions. We believe both these cases and the related criminal investigation revolve arouhd the purpose and operation of similar complicated finàncial transactions, and thus the cases overlap considerably. This factor weighs in favor of a stay. B. Státus of the Case A stay of a civil case is most appropriate where a pa y to the civil case has already been indicted, and "stays'will generally not be grar ted before an indictment is issued." Trs. of Plumbers & Pipefitters Nat'l Pension Fund, 886 F. Supp. at 1139. In these cases Mr. Haber has not been indicted. In addition, while the Government has not granted Mr. Haber immunity from criminal prosecution, the Government has indicated it has no plans tb prosecute him or his companies. Although Mr. Haber claims to have been a targ t of a criminal nvestigation for nearly 10 years, no action has been taken. This factor weighs against a stay. C. Interests of and Prejudice to Respondent - 8 - In addition to the potential loss of evidence and testimony as time passes, respondent faces increasing difficulty in collecting from petitioners (or others as transferees). This factor weighs against a stay. D. Interests of and Burden on Petitioners Even if Mr. Haber invoked the Fifth Amendment, petitioners' actions can be proven through the testimony of employees3 and through contemporaneous corporate records. See, e.g., Bellis v. United States, 417 U.S. 85, 88 (1974) (individuals cannot rely on the Fifth Amendment privilege to avoid producing the records of a collective entity). In economic substance cases like this one, the . mechanics of the deal will necessarily be reflected in transactional documentation. This factor weighs against a stay. E. Interest of the Courts This factor may favor a stay in a case when it is possible to use the criminal judgment as a basis for collateral estoppel in a related civil case. A stay may also ensure that civil discovery (when it resumes) will proceed unobstructed by concerns of self-incrimination. These interests are stronger when the cases share a 3Petitioners' motion for stay of proceedings did not identify employees who might invoke the Fifth Amendment in refusing to testify. large number of common issues. See Dresser Indus., Inc., 628 F.2d at 1375-1376 ("[T]he strongest case for deferring civil proceedings * * * is where a party under indictment for a serious offense is required to defend a ci+il or administrative action involving the same matter."). However, petitioners are not at risk of criminal prosecution (thereby reducing the possible future use of collateral estoppel to zero), and it does not appear likely that Mr.·Haber is in criminal jeopardy. Given that it is uncertain whether Mr. Haber will even be indicted, granting the motion could result in the imposition of a lengthy and indeterminable stay for no reason.-This factor weighs against a stay. . F. Public Interest The public's interest involves the resolution of dispu es with minimal delay, but only to the extent that it does not jeopardize the integrit of a criminal proceeding. Alcala v. Tex. Webb Cnty., 625 F. Supp. 2d 3 1, 407 (S.D. Tex. 2009). The integrity of a criminal proceeding will generall be at stake when the noncriminal proceeding may expand rights of criminal disc very beyond the limits of rule 16(b) of the Federal Rules of Criminal Procedure, unklermine the paity's Fifth Amendment privilege against self-incrimination, expose the basis of the . defense to the prosecution in advance'of a criminal trial, or otherwise prejudice the criminal case. Dresser Indus., Inc., 628 F.2d at 1376. The f ct that Mr. Haber has - 10 - not been indicted during a lengthy investigative period makes it much less likely that the integrity of a criminal proceeding will be jeopardized. In addition, issuing a stay in such a case could result in the imposition of a lengthy and indeterminable delay before resolution of these cases. This factor weighs against a stay. II. Motion To Dismiss Under section 7459(d), if a petition has been filed in the Tax Court and we dismiss the case,for any reason other than lack ofjurisdiction, we must enter an order finding the deficiency in tax to be the amount determined by the Commissioner in his notice of deficiency unless the Commissioner reduces the amount of his claim. Estate of Ming v. Commissioner, 62 T.C. 519 (1974). Thus, if we were to grant petitioners' motion, we would be required to enter decisions finding deficiencies in petitioners' taxes for the years involved in the amounts respondent determined in the notices of deficiency. See id. Petitioners have . acknowledged several times in their motion to dismiss that if their motion is granted, decisions will be entered against them in these cases. The acceptance or rejection of a proffered concession is a matter within the discretion of this Court, and we should exercise our discretion in accordance with the "interest ofjustice". See Jones v. Commissioner, 79 T.C. 668, 673 (1982); McGowan v. Commissioner, 67 T.C. 599, 607 (1976). Respondent has not - 11 - suggested how the.interests ofjustice would compel us t deny petitioners' motion,4 and we can conceive of no injustice in granting etitioners' motion. We therefore will grant petitioners' motion to dismiss. To reflect the foregoing, An appropriate order will be issued, and décisions will be entered for respondent. 4Respondent has stated that petitioners' motion is me ely an attempt to delay the proceedings and that judicial economy requires either a decision on the merits or else execution of "a stipulated decision effectuating a final, full, and complete concession of this case by petitioners." However, respondent has not specified how granting petitioners' motion would delay the proceedinþ,s. We note that "A decision rendered upon a default or in consequence of a dismissal, other than a dismissal for lack ofjurisdiction, shall operate as an adjudication on the merits." Rule 123(d); see also Settles v. Commissioner, 138 T.C. __, __(slip op. at 4) (May 8, 2012); Estate of Ming v. Commissioner, 62 T.C. 51 , 522-523 (1974).