Opinion ID: 77997
Heading Depth: 2
Heading Rank: 2

Heading: Flow of Funds

Text: We find that Judge Couvillion did not clearly err in finding that the loans and consulting fees paid to Ballard and his family were not a means of disguising income. It is plausible that IRA lent Ballard's and Lisle's trusts the necessary funds to invest in movie shelter partnerships under such favorable terms simply because Kanter highly valued, and wished to maintain, his friendship with Ballard and Lisle. This friendship had brought IRA a significant monetary advantage. For example, Schaffel paid IRA a percentage of his mortgage broker fees simply because Kanter had introduced him to Ballard and Lisle. The fact that Ballard's and Lisle's trusts were not charged interest on these loans, or that Ballard and Lisle were not charged interest on their personal loans, is insufficient to persuade us that Judge Couvillion was required to find that the loans were shams. Rather, this fact may have been one of the favorable conditions that Ballard's and Lisle's valuable influence brought them. Likewise, the fact that Ballard and Lisle were never forced to repay their trust's loans does not persuade us that Judge Couvillion clearly erred, as Ballard and Lisle had not personally guaranteed the loans. Regarding Ballard's and Lisle's personal loans, Ballard later was asked by Kanter to repay these loans. Judge Haines's conclusion that this request was window dressing was unsubstantiated. Also, it is plausible that KWJ Corporation, and later, KWJ Company, paid Ballard's and Lisle's children consulting fees as another favor, or in lieu of salaries, to Ballard and Lisle. Nothing in the record contradicts this finding. It also is plausible that the children originally did work to earn these payments and that the payments continued after this work lapsed simply as an oversight by Freeman, as Kanter's termination letters suggested. Judge Haines's conclusion that these letters were merely window dressing also was unsubstantiated. We also conclude that Judge Couvillion did not clearly err in declining to further analyze the Commissioner's flow-of-funds argument. Because he determined that Ballard had not earned income by accepting kickbacks, and this finding was not manifestly unreasonable, Judge Couvillion had no reason to determine whether the alleged income made its way to Ballard. We nonetheless note that Judge Haines's thorough treatment of the flow-of-funds argument does not convince us that Judge Couvillion's finding concerning the scheme was manifestly unreasonable. The fact that Kanter transferred to TMT, Carlco, and BWK money received from the Five does not necessarily show that Ballard and Lisle earned that money. A finding that Ballard was the true earner of 45% of the payments because his corporation ultimately received 45% of the payments is circular. Likewise, Judge Haines's attack on Kanter's explanation for the allocation involves leaps of logic. Although Judge Haines accurately stated that Kanter's reasoning that Carlco's investment might imperil IRA's deductions did not apply to TMT or BWK, this does not necessitate a conclusion that TMT, Carlco, and BWK were the parties' alter egos. Rather, Kanter may have wished for TMT, Carlco, and BWK to maintain similar tax status. He was an acknowledged expert in our tax laws. Also, although Judge Haines accurately noted that all of the money allocated per the 45%-45%-10% split was traceable to the Five and that IRA had other money that was not allocated, this does not necessitate a finding that the allocation was a method of getting kickback income to anyone. Rather, Kanter simply may have chosen one of its sources of income to fund the allocation. In sum, Judge Haines attributed too much to these facts. Also, Ballard's treatment of the money allocated to TMT does not necessarily show that he was making personal use and enjoyment of money gained through a kickback scheme. While TMT made loans to Ballard and his family that may not have been repaid, this only demonstrates that Ballard may have been an irresponsible manager. It does not show that Judge Couvillion clearly erred in finding that Ballard did not earn the money or commit fraud. Moreover, Ballard testified that he attempted to repay the loan made to purchase Fairfield. Also, while Ballard failed to disclose his position as TMT's manager to Goldman Sachs, this only demonstrates that he committed an oversight. It does not demonstrate that Judge Couvillion's finding that TMT was not Ballard's alter ego was clearly erroneous. Finally, Judge Haines's statement that Ballard's testimony was not credible because he testified that Fairfield was owned by a family trust when he actually owned it personally again assigns too much significance to a potentially innocuous mistake.