Opinion ID: 203649
Heading Depth: 2
Heading Rank: 1

Heading: Strong Proof.

Text: It is beyond hope of contradiction that, in a tax refund suit, the complaining taxpayer bears the burden of proving the incorrectness of the challenged tax treatment. See Webb v. IRS, 15 F.3d 203, 205 (1st Cir.1994). Here, however, the parties disagree as to the quantum of proof required to satisfy that burden. Appellate courts review abstract legal questions de novo, and a level-of-proof question comes within that purview. See United States v. Goad, 44 F.3d 580, 585 (7th Cir. 1995); N. Am. Rayon Corp. v. Comm'r, 12 F.3d 583, 586-87 (6th Cir.1993); see also Putnam Res. v. Pateman, 958 F.2d 448, 468-71 (1st Cir.1992). Accordingly, we review de novo the district court's determination that Muskat had to adduce strong proof to prevail on his refund claim. The strong proof rule is peculiar to tax cases. [3] It applies when the parties to a transaction have executed a written instrument allocating sums of money for particular items, and one party thereafter seeks to alter the written allocation for tax purposes on the basis that the sums were, in reality, intended as compensation for some other item. The rule provides that, in order to effect such an alteration, the proponent must adduce strong proof that, at the time of execution of the instrument, the contracting parties actually intended the payments to compensate for something different. See Harvey Radio Labs., Inc. v. Comm'r, 470 F.2d 118, 119-20 (1st Cir.1972); Leslie S. Ray Ins. Agency, Inc. v. United States, 463 F.2d 210, 212 (1st Cir.1972). Phrased another way, the party seeking to alter a written allocation must demonstrate an actual meeting of the minds with respect to some other allocation. [4] The heightened standard strikes the appropriate balance between predictability in taxation and the desirability of respecting the contracting parties' real intentions. See Harvey Radio, 470 F.2d at 120. In applying it, evidence that a written allocation lacks independent economic reality, though likely relevant, is not sufficient to satisfy the strong proof test. [5] Id. at 119-20. Muskat vigorously contests the deployment of the strong proof rule in the circumstances of this case. He starts with the bald proposition that Harvey Radio is a relic of a bygone era and should not be perpetuated. We reject this assault on the continued vitality of Harvey Radio. We have held, time and again, that in a multi-panel circuit, prior panel decisions are binding upon newly constituted panels in the absence of supervening authority sufficient to warrant disregard of established precedent. United States v. Wogan, 938 F.2d 1446, 1449 (1st Cir.1991). Such supervening authority may take the form of a congressional enactment, a new Supreme Court opinion, or an en banc decision of our own. See United States v. Allen, 469 F.3d 11, 18 (1st Cir.2006); Williams v. Ashland Eng'g Co., 45 F.3d 588, 592 (1st Cir.1995). The second and third of these escape routes plainly do not apply here: Muskat has not cited to any overriding judicial decision that would call into question the durability of Harvey Radio. This leaves only the escape route paved by statutory enactments. In this vein, Muskat has argued that changes in the tax code have rendered lifeless the rationales undergirding Harvey Radio. But the strong proof rule is generic; it applies to the entire universe of written allocations, not just to those where changes in tax treatment have occurred. More importantly, the modifications highlighted by Muskat make no mention of the strong proof rule, nor do they necessarily imply that a different rule is desirable. Accordingly, Harvey Radio remains good law in this circuit. Muskat's fallback position is that the strong proof rule, even if velivolant, does not apply in the circumstances at hand because Muskat was not a party to the written allocation. The factual predicate on which this privity argument rests is faulty. We need not tarry. The record shows with conspicuous clarity that Muskat was a party to the allocation of funds to the noncompetition agreement. For one thing, that agreement bears Muskat's signature in his personal capacity. For another thing, the testimony makes pellucid that, both individually and through his representatives, he negotiated the overall CBFA/Jac Pac transaction. That Muskat signed the asset purchase agreement on Jac Pac's behalf was not a mere formality but, rather, an indicium of his deep involvement in the structuring of the deal. Finally, Muskat contends that the written allocation is ambiguous and that this ambiguity renders the strong proof rule inapposite. The premise behind this argument is sound: the strong proof rule does not apply to ambiguous contractual allocations. See, e.g., Kreider v. Comm'r, 762 F.2d 580, 586 (7th Cir.1985); Peterson Mach. Tool, Inc. v. Comm'r, 79 T.C. 72, 81-82, 1982 WL 11124 (1982). But Muskat's attempt to rely upon this premise is an effort to force a square peg into a round hole. Whether a contract is ambiguous is a question of law. Torres Vargas v. Santiago Cummings, 149 F.3d 29, 33 (1st Cir. 1998); Allen v. Adage, Inc., 967 F.2d 695, 698 (1st Cir.1992). But a contract is not ambiguous merely because a party to it, often with a rearward glance colored by self-interest, disputes an interpretation that is logically compelled. Blackie v. Maine, 75 F.3d 716, 721 (1st Cir.1996). Rather, a contract is ambiguous only if the language is susceptible to more than one meaning and reasonable persons could differ as to which meaning was intended. Uncle Henry's Inc. v. Plaut Consulting Co., 399 F.3d 33, 47 (1st Cir.2005). In this instance, the noncompetition agreement hardly could be clearer. It expressly states that the sums specified therein will be paid to Muskat in order to protect Jac Pac's goodwill and in consideration of his serial promises not to participate in rival businesses, not to solicit employees to leave CBFA, and not to divert business opportunities from CBFA. The specified payments are clearly allocated to this covenant not to compete. In short, the noncompetition agreement unequivocally readsas its title suggestslike a garden-variety agreement not to compete. See Black's Law Dictionary 392 (8th ed.2008); see also LDDS Commc'ns, Inc. v. Automated Commc'ns, Inc., 35 F.3d 198, 200-01 (5th Cir.1994) (identifying agreement with similar restrictions as a noncompetition agreement); Heritage Auto Ctr., Inc. v. Comm'r, 71 T.C.M. (CCH) 1839, 1996 WL 22405, at ,  (1996) (treating agreement with similar provisions as covenant not to compete for tax purposes). In an endeavor to blunt the force of this reasoning, Muskat notes that the preamble to the noncompetition agreement recites that it was executed in consideration of the substantial benefits accruing to Muskat under the asset purchase agreementan agreement that is itself ambiguous because it purports to allocate a $59,000,000 purchase price even though Jac Pac received only $45,000,000 from the sale. We fail to see how this arguable discrepancy, most likely explicable in terms of assumption of liabilities and other considerations, introduces an ambiguity into the allocation set forth in the noncompetition agreement. Whatever ambiguities might permeate the asset purchase agreement, there are none in the noncompetition agreement itself (to which the asset purchase agreement unambiguously allocates $3,955,599). [6] To sum up, none of Muskat's counter-arguments is persuasive. Accordingly, we agree with the district court that Muskat had to adduce strong proof that the contracting parties intended, at the time of the transaction, that the challenged payment would be compensation for Muskat's personal goodwill. It is to that issue that we now proceed.