Opinion ID: 4561903
Heading Depth: 2
Heading Rank: 4

Heading: E. 63 at 5.

Text: On appeal, the government again argues that the McKennys failed to carry their burden with respect to $800,000, and that the district court erred by assuming critical facts in their favor. See Govt.’s Opening Br. at 58–59 (“The McKennys did not meet [their] burden. They listed a number of steps that [Grant Thornton] allegedly failed to take that they maintain would have lowered their tax liability by the precise amount they were required to pay the IRS. There were numerous factual and legal assumptions baked into that contention, which the [g]overnment disputed and the McKennys did not prove, yet the [d]istrict [c]ourt accepted them as true in granting summary judgment to [the McKennys]. Not even Cosentino went that far.”) (footnote omitted). The government points out, for example, that the district court assumed that Grant Thornton did not properly file the documents necessary to register the company as an S corporation, but the IRS exam report, which the McKennys themselves submitted at summary judgment, showed that the S corporation elections were filed and accepted by the IRS. See id. at 58 n.19 (citing D.E. 49, Ex. 6). We think the government is correct. The general legality of the S/ESOP strategy at the time (through the end of 2004) is, by itself, insufficient for the 20 Case: 18-10810 Date Filed: 09/01/2020 Page: 21 of 26 McKennys to satisfy their burden. There is no strict rule for what taxpayers must do to establish their entitlement to an exclusion or to establish its amount. But given the burden on taxpayers to prove their refund claim by a preponderance of the evidence, it is not enough for the McKennys simply to make a bald assertion, devoid of specifics, that they overpaid taxes or would not have incurred any federal taxes (or penalties) had Grant Thornton followed through on the S/ESOP strategy. We cannot assume that the McKennys did not earn income from sources other than the consulting business and the interest in the car dealership. There may have been revenue from savings accounts, the sale and purchase of securities, and/or real property transactions. See Carson, 560 F.2d at 698–700 (holding that oral testimony by a taxpayer, coupled only with another piece of unreliable evidence, was not sufficient to carry his burden of showing error in one of the challenged tax assessments). Furthermore, the S/ESOP strategy was disallowed as of December 31, 2004, and therefore could not have provided the McKennys with any tax benefits (or at least not the same tax benefits) in tax year 2005. The McKennys offered nothing below on this point, and they fail to address it on appeal, except to suggest without further explanation (or citation to evidence) that the ESOP could have remained a tax-exempt pension plan after 2004, though they then would have had to convert Joseph M. McKenny, Inc. to a C corporation for 2005 and beyond. See D.E. 42 at 21 Case: 18-10810 Date Filed: 09/01/2020 Page: 22 of 26 13; McKennys’ Principal and Response Br. at 30 n.8. That unsupported assertion— which assumes further tax-related efforts and does not explain the tax consequences of those efforts—is insufficient. In Herrmann, the taxpayers petitioned for review of a decision by the Tax Court, which had sustained the Commissioner’s findings that transfers in trust were gifts of future interest and that there were tax deficiencies resulting from the related exclusions from income. See 235 F.2d at 444. The former Fifth Circuit ultimately determined that the exclusions should be denied because the taxpayers had not met their burden of showing the amount of the exclusions as well as their right to the exclusions. See id. at 444–45. As the Fifth Circuit explained, there was no basis or formula to establish the value of future interests based on the features of the trust, and the taxpayers were therefore unable to show the value of the exclusions. See id. This case, we believe, calls for a similar result. In their summary judgment motion, the McKennys said that “if [Grant Thornton] had properly performed its obligations, neither [Mr. McKenny], the S Corporation, . . . nor the ESOP would have incurred any [f]ederal income tax on the S Corporation’s taxable income.” D.E. 42 at 12. This statement, however, did not entitle the McKennys to summary judgment on their refund claim or create an issue of material fact. First, as noted, the government challenged this assertion and pointed out that it was not supported by any admissible or probative evidence. 22 Case: 18-10810 Date Filed: 09/01/2020 Page: 23 of 26 Second, absent a stipulation or agreement, unsupported factual statements in a memorandum of law do not constitute evidence under Rule 56. See, e.g., United States v. White, 366 F.3d 291, 300 (4th Cir. 2004) (explaining that, for purposes of summary judgment, “an attorney’s unsworn argument [in court submissions] does not constitute evidence”); Mosier v. Maynard, 937 F.2d 1521, 1525 (10th Cir. 1991) (“Factual statements contained in defendants’ brief attributable to counsel . . . do not constitute summary judgment evidence[.]”). Mr. McKenny submitted his own declaration, but it too was insufficient. Although a taxpayer’s self-serving and non-conclusory affidavit can create an issue of fact, see United States v. Stein, 881 F.3d 853, 857 (11th Cir. 2018) (en banc), Mr. McKenny’s declaration said nothing about whether Grant Thornton’s advised S/ESOP strategy would have actually resulted in the McKennys paying no federal taxes had it been properly implemented. See D.E. 42-1 at ¶¶ 8–24. That is understandable, for at his deposition Mr. McKenny was unable to explain how the S/ESOP structure worked. See D.E. 44-2 at 12 (“Q: . . . Can you describe how the S Corp ESOP structure worked? A: I’m not an expert in that area. From a layman’s perspective, I don’t even know if I want to try to attack it because I think the ESOP area is so unique, I don’t feel like I’m qualified to answer that. Q: . . . [W]hat was presented to you as the benefits of the structure? A: Primarily as a retirement vehicle.”). 23 Case: 18-10810 Date Filed: 09/01/2020 Page: 24 of 26 The record includes an interrogatory response from the McKennys with respect to the amounts they claim they would have paid in taxes had Grant Thornton properly implemented the S/ESOP strategy. See D.E. 44-4 at 3. Although the McKennys did not rely on this interrogatory response in their summary judgment briefing, and have not cited it in their appellate briefs, we have reviewed it to see if it might support the district court’s ruling or create an issue of a material fact. The interrogatory response, however, does not change our view. Other circuits have explained that a sworn interrogatory response is treated like an affidavit on summary judgment. See, e.g., Garside v. Osco Drug, Inc., 895 F.2d 46, 49–50 (1st Cir. 1990). And we have held that conclusory affidavits lack probative value. See, e.g., Evers v. General Motors Corp., 770 F.2d 984, 986–87 (11th Cir. 1985). The interrogatory response is conclusory, as it contains no explanation or details as to how the McKennys arrived at their respective tax liability numbers for the years in question. Even if the interrogatory response had some probative value, it contradicted the McKennys’ claim in their summary judgment motion that no taxes would have been due had Grant Thornton implemented the S/ESOP strategy. For example, the interrogatory response states that the McKennys would have paid $2,932 in taxes for 2003, $3 in 2004, and $91,902 in 2005. In short, aside from claiming that the ESOP strategy would have automatically resulted in no taxes in the years at issue, the McKennys did not present any evidence 24 Case: 18-10810 Date Filed: 09/01/2020 Page: 25 of 26 concerning how the strategy would have actually operated on the ground. They did not submit anything about Mr. McKenny’s consulting business (or its revenues) in the relevant years, or about how the ESOP would have been structured, or about what tax benefits the strategy would have provided, or about how Mr. McKenny’s interest in the car dealership would have affected (or not affected) the strategy. And they did not offer the testimony of a tax expert with regard to how the S/ESOP strategy would have played out had Grant Thornton implemented it. 7 On this record, the McKennys did not meet their twin burdens of showing their entitlement to the exclusion and the amount of that exclusion. The IRS’ tax deficiency notice was presumed correct, and the McKennys did not overcome that presumption. See Welch, 290 U.S. at 115. The government was therefore entitled to summary judgment with regard to the $800,000 Grant Thornton settlement.