Callister Nebeker & McCullough v. USA

Filing 32

ORDER AND MEMORANDUM DECISION denying 21 Motion for Judgment on the Pleadings. Signed by Judge Tena Campbell on 10/9/15 (alt)

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

CALLISTER NEBEKER & McCULLOUGH,
Plaintiff/Counterdefendant,

ORDER
AND

vs.

UNITED STATES OF AMERICA,

MEMORANDUM DECISION

Case No. 2:14-cv-919-TC

Defendant/Counterclaimant.

Plaintiff/Counterdefendant Callister Nebeker & McCullough (CNM) filed this action
against Defendant/Counterclaimant United States of America challenging penalties totaling more
than $11 million that the Internal Revenue Service (IRS) assessed against CNM in 2010. The
IRS filed a counterclaim asking the court to enter judgment against CNM for the unpaid
penalties.
CNM has filed a Motion for Judgment on the Pleadings under Rule 12(c) of the Federal
Rules of Civil Procedure. CNM contends that the court can grant judgment on all issues in favor
of CNM based on collateral estoppel, the Eighth Amendment’s Excessive Fines Clause, and the
undisputed allegations in its Complaint and the IRS’s Counterclaim.
For the reasons set forth below, the court finds that the allegations in the IRS’s
Counterclaim are sufficient to state a claim as a matter of law,1 that collateral estoppel does not

1

The parties present material that is outside the pleadings, but because the court will not
convert the motion to one for summary judgment, the court does not consider that evidence.

bar the penalty action, and that the court, given the record before it, cannot decide the Eighth
Amendment issue at this stage in the litigation. Accordingly, CNM’s motion is DENIED.
INTRODUCTION
According to the IRS, “[t]his case arises out of [Callister Nebeker & McCullough’s]
noncompliance with federal tax reporting and disclosure statutes.” (United States’ Mem. Opp’n
9, ECF No. 24.) Although the parties’ pleadings discuss the case facts and tax law requirements
in detail, much of that information is not necessary to the court’s decision on CNM’S motion.
This order provides a simplified version of the events and arguments to provide context, but, in
short, CNM is not entitled to judgment on the pleadings.
In 2010, the IRS assessed two penalties against CNM: $195,081 for violating 26 U.S.C.
§ 6707 (“Failure to furnish information regarding reportable transactions”) (the Section 6707
Penalty); and $11,280,000 for violating 26 U.S.C. § 6708 (“Failure to maintain lists of advisees
with respect to reportable transactions”) (the Section 6708 Penalty).
CNM requests the following relief: (1) a refund and abatement of the Section 6707
Penalty and the Section 6708 Penalty; (2) a finding under the Administrative Procedures Act
(APA) that the IRS’s assessment of the $11.28 million penalty was an abuse of discretion; (3) a
finding that CNM is entitled to attorneys’ fees under 26 U.S.C. § 7430; (4) a finding that the
$11.28 million penalty is an unconstitutionally excessive fine under the Eighth Amendment; and
(5) a finding that the penalty action is barred by collateral estoppel because of the IRS Tax Court
opinion titled Love v. Commissioner of Internal Revenue, 103 T.C.M. (CCH) 1887 (2012).

Even so, if the court were to consider the outside material, there is no question that the issues are
too fact-based to decide the case at this stage in the litigation.
2

The IRS, in its Counterclaim, asks the court to order CNM to pay the penalties.2
BACKGROUND3
CNM is a law firm whose practice includes providing advice to clients about employee
benefit plans and tax matters. The tax issues in this case arise out of transactions relating to the
Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. §§ 1001-1191c.
Under ERISA, employers are encouraged to adopt retirement plans that cover a broad
range of employees instead of a disproportionate group of highly-compensated employees. Such
plans are called “nonqualified deferred compensation plans” (NQDCP).
Certain tax allowances and consequences apply to such plans. For instance, ERISA
allows employers to deduct certain employer contributions as business expenses. But Congress
subjects contributions to NQDCPs to a matching principle: the timing of the employer’s
deduction for compensation must match the employee’s reporting of that compensation as
income. The employer must wait to reduce its taxable income until the employee reports the
compensation income some time in the future.
According to the IRS, “[i]n 2001, certain attorneys with CNM began to promote a tax
avoidance scheme designed to shelter business income of certain clients from taxation through
acceleration of deductions for employer contributions to NQDCPs.” (Counterclaim ¶ 8, ECF No.
13.) CNM’s 2001 “scheme” led to what the IRS refers to as the 2004 “unwinding scheme” (the
2

Under protest and as a prerequisite to suit, CNM paid the $195,081 penalty and $10,000
toward the $11.28 million penalty. The IRS seeks the remaining $11.075 million.
3

When evaluating a Rule 12(c) motion, the court must take the non-moving party’s
allegations (in this case, the allegations in the IRS’s Counterclaim) as true. The court must also
view the factual allegations in the light most favorable to the IRS. Smith v. United States, 561
F.3d 1090, 1098 (10th Cir. 2009).
3

subject of the penalties at issue in this case).
CNM implemented its “unwinding scheme” for clients (individual business owners) in
2004 after the IRS issued a new regulation targeting abuses arising out of transactions similar to
the 2001 scheme. In other words, CNM’s clients needed to change or abandon (unwind) the
NQDCP set-up they had been using since 2001. But part of that unwinding process caught the
IRS’s attention and, consequently, the IRS came knocking on CNM’s door. IRS demanded that
CNM disclose certain information, CNM resisted, the IRS fined CNM, and the dispute giving
rise to this lawsuit came to life.
Course of Events Leading to the Penalty Assessment
Beginning in 2001, CNM set up a complicated tax planning transaction for clients that the
IRS now characterizes as a tax shelter. That tax shelter (the “2001 scheme”) is not the subject of
this lawsuit, but some understanding of the transaction is necessary to understand the subsequent
transaction (the “2004 unwinding scheme”) that led to the issues now before the court. The court
refers to the 2001 scheme as the “ESOP Model.” The ESOP (the acronym for “employee stock
ownership plan”) was a crucial portion of the original transaction set up by CNM.
The ESOP Model (the Original Tax Shelter)
The transaction went something like this:
The client, through its business (the “Operating Company”), and with the advice and
assistance of CNM, established a “Management Company.” The Management Company was set
up as an “S” corporation, a corporate form that allows income of the Management Company to
pass through to the shareholders of the Management Company. In this case, the client would
establish an ESOP as the sole shareholder of the Management Company.
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Then the Operating Company transferred its employees (on paper) to the Management
Company and leased the employees’ services from the Management Company. The lease
payments were set at an amount equal to the deferred compensation owed by the Operating
Company to “key managers/owners of the operating company” under the Operating Company’s
NQDCP. (Counterclaim ¶ 9.)
The lease payments passed through the Management Company and went directly to the
ESOP, so the lease payments were not considered taxable income to the Management Company.
The income was attributed to the shareholder ESOP, but the ESOP had no tax liability on the
contributions because it was exempt from taxes.
According to the IRS, the ESOP improperly reduced stock value held by rank and file
employees and sheltered income from taxation. (See id. ¶ 20 (“‘Rather than being a mechanism
for the transfer of not only ownership, but also the rights associated with ownership, to the
employees of the S corporation, the ESOP is used as part of a structure designed to shelter profits
that will be paid as future compensation for a small group of executives or management
employees.’”) (quoting Prohibited Allocations of Securities in an S Corporation, 68 Fed. Reg.
42,970, 42,972 (July 21, 2003)). The IRS alleges that CNM promoted the ESOP Model to its
clients as a way to improperly accelerate corporate deductions and shelter profits of the Operating
Company from taxes. (See id. ¶ 13.)
Apparently many other entities in the country were using the same type of model. The
IRS determined that those types of transactions were being used by taxpayers (including clients
of CNM) in a way that was contrary to the intent of Congress. Accordingly, it changed the rules.
IRS Issues New Regulation
5

On July 21, 2003, the IRS issued a Temporary Regulation that targeted the ESOP Model.
Under the new regulation, taxpayers using the ESOP Model were given a one-year grace period
to make necessary changes. That is, no later than July 21, 2004, the taxpayers were required to
“unwind” their ESOP Model transactions to comply with the new rule.
CNM’s Options to Clients for Unwinding ESOP Model Transactions
On January 15, 2004, in response to the IRS’s new regulation, CNM sent a letter to its
clients providing three options for “unwinding” the ESOP Model. The first and third options did
not concern the IRS. But the IRS questioned the validity of the second option (“Option 2” or
“unwinding scheme”), which CNM described to its clients as follows:
Before July 21, 2004, cause the ESOP to sell the management company stock it
held to the individual client(s) for fair market value, then have the management
company pay out the deferred compensation, and terminate the ESOP.
(Complaint ¶ 11, ECF No. 2.)
The IRS alleges that CNM’s Option 2 created a potentially abusive tax shelter that
triggered reporting and disclosure requirements in Internal Revenue Code (IRC)4 Sections 6111,
and 6112.5 CNM’s failure to report and disclose prompted the IRS to assess penalties against
CNM under Sections 6707 and 6708.
Under Section 6111, a “tax shelter organizer” must register the “tax shelter” with the
IRS. Failure to do so results in penalties under Section 6707. In addition, Section 6112 requires
a “tax shelter organizer” to maintain a list of participants in any “potentially abusive tax shelter”
and to provide that list to the IRS upon request. Failure to do so results in penalties under
4

The IRC is set forth in Title 26 of the United States Code.

5

Unless otherwise noted, all section citations are to the IRC.
6

Section 6708, unless the “tax shelter organizer” establishes “reasonable cause” for failure to do
so.
The terms “tax shelter,” “tax shelter organizer,” and “potentially abusive tax shelter” are
defined in the IRC. “Reasonable cause” is not. The parties dispute whether CNM’s unwinding
scheme as well as CNM’s refusal to provide a list of its clients who unwound the original
transaction, fall within those definitions. The parties also dispute whether CNM’s reason for
failure to disclose falls within the reasonable cause exception.
IRS’s Demand for CNM’s Client List
According to the IRS, the unwinding scheme6 triggered obligations under Sections 6111
and 6112. On May 31, 2006, the IRS requested the list that it alleged CNM was obligated to
keep under Section 6112. CNM did not provide the list, contending that it was not obligated to
do so because it was neither a “material advisor” nor a “tax shelter organizer,” and because the
unwinding scheme was not a “potentially abusive tax shelter.” Alternatively, CNM argued that
even if the transaction implementing the unwinding scheme fell within the statutory definition of
a “potentially abusive tax shelter,” CNM was not required to produce the list because doing so
would violate attorney-client privilege under the Utah Rules of Professional Conduct. CNM says
it refused to provide the list based on advice of counsel, and cited to the “reasonable cause
exception” in Section 6708, which, if satisfied, would allow CNM to escape the disclosure
requirements and penalties.

6

For a summary of the unwinding scheme, as the IRS characterizes it, see IRS’s
opposition brief (ECF No. 24) at pages 16-17, which describes five steps of the scheme, and its
Exhibit 7, which contains the seventeen-step checklist created by CNM for clients who
implemented Option 2.
7

IRS’s First Summons
When CNM refused to comply with the IRS’s demand for information, the IRS issued a
summons (“First Summons”) to CNM on August 24, 2006. CNM responded on September 12,
2006, again refusing to produce an investor list on the basis that CNM and the transaction did not
fall within the requirements of Section 6112.
IRS’s Second Summons
On October 6, 2006, the IRS issued a second summons (“Second Summons”) to CNM in
response to requests from CNM for “specific guidance” as to what transactions required
disclosure and for specific information about companies the IRS believed were involved in the
unwinding scheme. In the Second Summons, the IRS also ordered CNM to disclose investor
lists under Section 6112.
In a December 19, 2006 letter to the IRS from CNM’s counsel, CNM declined to produce
the requested files and said that “these issues must ultimately be decided by a court of law if you
decide to seek enforcement of the summons.” (Complaint ¶ 23 (quoting letter).) In January
2007, an IRS attorney told CNM that legal proceedings might be brought against CNM.
IRS Enforcement Action
Almost one year later, on December 11, 2008, the IRS filed a petition to enforce the
Second Summons. After several months, the parties filed a joint stipulation to dismiss the action.
In the motion to dismiss, the IRS agreed that the Second Summons would be “deemed
withdrawn.” (Id. ¶ 25.) The settlement agreement provided that CNM would produce certain
documents but “[i]n no event will CNM be obligated . . . to disclose client identities” in the
context of the proposed settlement. (Id.; Answer ¶ 25, ECF No. 13.) The action was settled on
8

November 30, 2009.
CNM points to the withdrawal of the Second Summons and the settlement as evidence
that the IRS may not pursue the penalty action. But the IRS states in its Answer to CNM’s
Complaint that the United States “fully reserved its right to assess penalties against the plaintiff
for its long-term noncompliance with disclosure requirements.” (Answer ¶ 25.)
Assessment of Penalties
On January 22, 2010, the IRS assessed penalties against CNM, including the Section
6707 penalty of $195,081, and the Section 6708 penalty of $11.28 million. By that time,
approximately 1,128 days had passed from the date of the Second Summons. The IRS assessed a
$10,000 fine for each day, which resulted in the $11.28 million penalty. See 26 U.S.C.
§ 6708(a)(1) (authorizing IRS to assess $10,000 fine for each day the party does not comply with
the disclosure request).
Administrative Challenge
CNM challenged the penalties in the Appeals Office of the IRS. The Appeals Office
sustained the Section 6707 and Section 6708 penalties, at which time CNM submitted a Form
843 claiming a refund and requesting abatement of the penalties. When the IRS did not act on
CNM’s refund and abatement petition, CNM filed its complaint with this court.

9

ANALYSIS7
Standard of Review
CNM has filed a motion for judgment on the pleadings under Federal Rule of Civil
Procedure 12(c).8 The standard for deciding a 12(c) motion is the same standard applied when
deciding whether to grant a motion to dismiss for failure to state a claim upon which relief may
be granted under Rule 12(b)(6). Aspenwood Inv. Co. v. Martinez, 355 F.3d 1256, 1259 (10th
Cir. 2004). The court must accept the nonmoving party’s allegations as true and view factual
allegations in the light most favorable to the nonmoving party. See Smith v. United States, 561
F.3d 1090, 1098 (10th Cir. 2009). Detailed allegations are not required; it is enough to “‘state a
claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

7

This court has jurisdiction over CNM’s action. Before filing its Complaint here, CNM
filed a claim with the IRS for refund and abatement of both penalties (see 843 Claim Form,
attached to Complaint). Since then, a period of more than six months has passed, during which
the IRS did not respond to that claim.
[A] party’s administrative remedies within the Internal Revenue Service shall be
deemed to have been exhausted for purposes of [this section if, during] the sixmonth period following the day on which the party’s claim for refund is filed, the
party’s claim for refund is not denied, and the Internal Revenue Service has failed
to process the claim with due diligence.
26 C.F.R. § 301.7430-1(f)(4)(ii).
8

CNM titles its motion as a one for judgment on the pleadings, although aspects of its
motion and related pleadings resemble briefing on a motion for summary judgment, including
presentation of documents outside the pleadings (for example, declarations and CNM’s 843
Form submitted to the IRS). The court declines to convert CNM’s filing to a motion for
summary judgment so it does not consider material outside the pleadings.
10

CNM’s Motion for Judgment on the Pleadings
CNM asserts that the IRS’s admissions to allegations in the Complaint and the IRS’s
Counterclaim allegations establish ample, undisputed facts to decide the issues as a matter of
law. In response, the IRS contends that: (1) the IRS has alleged a prima facie case in its
Counterclaim, which is all that Rule 12(c) requires; (2) collateral estoppel does not apply here;
and (3) CNM’s 12(c) motion is a motion for summary judgment in disguise which may not be
granted because all of CNM’s claims and defenses present factual disputes that foreclose the
court’s ability to decide the matter at this stage.
The court holds that CNM’s collateral estoppel argument is not valid, that the IRS has
satisfied its burden under Rule 12(c), and that the claims and defenses require decisions on
factual disputes that cannot be resolved by reference to the allegations set forth in the Complaint
and Counterclaim.
1.

Sufficiency of Allegations
a.

Registration and Disclosure Obligations

Under the IRC, “[a]ny tax shelter organizer shall register the tax shelter” with the IRS.
IRC § 6111(a)(1) (emphasis added). The IRS contends that the “unwinding scheme” is a tax
shelter and that CNM is a tax shelter organizer.
A “tax shelter organizer” is defined as “the person principally responsible for organizing
the tax shelter.” Id. § 6111(e)(1). The statute defines “tax shelter” as any investment “with
respect to which any person could reasonably infer from the representations made, or to be made,
in connection with the offering for sale of interests in the investment that the tax shelter ratio for
any investor . . . may be greater than 2 to 1” and is “substantial.” Id. § 6111(c) (emphasis added).
11

The IRC defines “tax shelter ratio” as “the ratio which the aggregate amount of the deductions . .
. bears to the investment base as of the close of the year.” Id. § 6111(c)(2) (emphases added).
The “reasonably infer” test and calculation of the “tax shelter ratio” are key to
determining whether the transactions by CNM’s clients should have been registered.
Importantly, the IRS points out that the phrase “any person could reasonably infer” requires a
determination of fact. “It is wholly inappropriate to move for judgment on the pleadings at the
outset of the case if the moving party relies on fact-based arguments such as ‘the reasonableness
of [the movant’s] actions.” (Opp’n Mem. 30 (quoting Reid v. LVNV Funding, LLC, Case No.
2:14-cv-471-DAK, 2015 WL 926146, at *4 (D. Utah Mar. 4, 2015) (unpublished)). The IRS’s
allegation (which the court must take as true) that CNM “could reasonably infer” that the 2004
unwinding scheme is a tax shelter and that CNM was a tax shelter organizer is sufficient to meet
the Rule 12(c) standard.9 (See Counterclaim ¶¶ 8-18.)
Under the IRC, “any person who organizes any potentially abusive tax shelter . . . shall
maintain . . . a list identifying each person who was sold an interest in such shelter . . . .” IRC
§ 6112(a) (emphasis added). A “potentially abusive tax shelter” is “any tax shelter (as defined in
section 6111) . . . which . . . [has the] potential for tax avoidance or evasion.” Id. § 6112(c)
(emphasis added). The client list must be made available for inspection upon request by the IRS.
Id. § 6112(c)(1)(A). Because the section rests in part on the term “tax shelter,” the factual

9

Other factual issues include whether CNM was a tax shelter organizer, which turns in
part on representations made by CNM to its clients. As the IRS argues, “it is impossible to
ascertain at this stage of the case exactly when CNM was providing legal advice as opposed to
business services or advice.” (Opp’n Mem. 52.) “Ultimately, the representations made by CNM
in 2003 and 2004 to the twenty-five investors will be a matter for discovery in this case.” (Id. at
12 n.6.)
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determination of “reasonably infer” applies here as well. The IRS’s allegations about that satisfy
the pleading requirements.
b.

Penalties

Penalties for failure to register a tax shelter and failure to disclose the list of participants
are imposed under Sections 6707 and 6708. Both of those sections provide an exception for
someone who has “reasonable cause” for failing (or refusing) to hand over the list. CNM asserts
attorney-client privilege and advice-of-counsel are reasonable cause for its nondisclosure.
As the IRS points out, the “reasonable cause” factor requires a fact intensive
determination that may not be hashed out in CNM’s motion for judgment on the pleadings. For
instance, whether the attorney-client privilege applies requires a factual determination of whether
each client had a reasonable expectation of privilege or confidentiality in the information being
requested. According to the IRS, the Utah Professional Rules of Conduct
permit[] disclosures when a lawyer reasonably believes disclosure is necessary to
comply with law or a court order or when a client provides informed consent. . . .
There is no means of finding out, at this preliminary stage, what circumstantial or
direct evidence may exist that bears on the reasonable belief of CNM’s attorneys
or that bears on any efforts by CNM to obtain client consents to disclose. This is
a matter for discovery.
(Opp’n Mem. 49.)
And the advice-of-counsel reason requires determining the scope of representation by that
counsel and the scope of advice given by that counsel. “The reliance-on-advice-of-counsel
defense cannot be fairly litigated until the [IRS] obtains discovery regarding the actual advice
provided, and not merely the positions that its counsel opted to articulate in correspondence to
the IRS. The [IRS] has no information regarding the scope of the advice and the scope of the

13

engagement.” (Opp’n Mem. 13 n.7.) The court cannot rely on the pleadings to make such a factbased determination.
e.

Excessive Fine Under the Eighth Amendment

CNM asserts that the $10,000 per day penalty imposed by the IRS under Section 6708 is
unconstitutional under the Eighth Amendment. The Eighth Amendment prohibits imposing
excessive fines as punishment.
First, the court must determine whether the civil tax penalty was punitive. Austin v.
United States, 509 U.S. 602, 610 (1993). That determination requires an assessment of the
penalty imposed and the purpose for the penalty. Second, the court must consider whether the
penalty was excessive. United States v. Bajakajian, 524 U.S. 321, 334 (1998).
The court cannot decide at this time whether the $11.28 million fine is excessive. The
court must determine whether the fine is proportionate to the gravity of the offense. Id. at 33637. To do that, the court needs a fully developed record.
For purposes of CNM’s motion, the court must take the allegations in the IRS’s
Counterclaim as true. And those allegations state that CNM engaged in conduct that the
statutory fine was meant to prohibit—concealment and foot-dragging. Congress aimed to impose
“more meaningful penalties” to avoid the ongoing “use of abusive tax avoidance transactions.”
H.R. Rep. No. 105-648 (I), 108th Cong., 2d Sess. 2004, Pub. L. 108-357 (American Jobs
Creation Act of 2004).10 According to the IRS,
CNM was fully aware of its obligation to maintain an investor list for the
unwinding scheme (Counterclaim ¶ 37), and it obdurately and intentionally

10

2004 WL 1380512.
14

refused to provide the list to the IRS, notwithstanding repeated requests, meetings
and exchanges of letters. (Counterclaim ¶¶ 38-46.) As a consequence, the
identities of two of the investors in the unwinding scheme were never revealed to
the IRS. Moreover, drawing all inferences in favor of the United States, CNM
intentionally hid the proverbial ball over the course of 2006, only meeting with
the IRS after receipt of the October 2006 summons in which the IRS listed
particular companies in connection with the request. (Counterclaim ¶¶ 41-42.)
(Opp’n Mem. 57.) There is simply not enough information in the record (and no option at this
point to weigh the competing allegations) to allow the court to make a decision on the Eighth
Amendment question.
3.

APA

For the same reasons that the court cannot determine whether the allegations state a claim
for violation of Sections 6111 and 6112, the court cannot determine whether the IRS’s actions
were an abuse of discretion under the Administrative Procedures Act.
4.

Collateral Estoppel

“Collateral estoppel bars a party from relitigating an issue once it has suffered an adverse
determination on the issue, even if the issue arises when the party is pursuing or defending
against a different claim.” Moss v. Kopp, 559 F.3d 1155, 1161 (10th Cir. 2009). To succeed on
the affirmative defense of collateral estoppel, CNM must establish, among other things, that the
“issue previously decided is identical with the one presented in the action in question[.]” Id.
CNM contends that the decision in Love v. Commissioner of Revenue, 103 T.C.M.
(CCH) 1887 (2012) (a United States Tax Court determination),11 precludes the IRS from
litigating the issue before the court. According to CNM, the court in Love decided “that the

11

The court assumes, without deciding, that an agency administrative court decision may
be used to collaterally bar an issue raised in federal district court.
15

unwinding transaction in Option 2 did not involve an abusive tax shelter or transaction.” (Pl.’s
Mot. J. Pleadings at 20, ECF 21.)
But the issue decided in Love is not identical to the issue before the court. In Love, the
Tax Court addressed the IRS’s disallowance of taxpayers’ claimed flow-through deductions
under IRC Section 269. As the IRS notes, the Love decision does not consider or address
Sections 6111 or 6112 or address “the question as to what a reasonable person might infer from
representations made by CNM as to the nature of the investor’s investments.” (Opp’n Mem. 12.)
The issue before this court is not whether the unwinding transaction was “legitimate” or
“abusive” or implemented “principally for tax avoidance purposes.” Rather, the question here is
whether, on a prospective basis, CNM’s unwinding transaction could be construed by a
reasonable person as a potentially abusive tax shelter with a tax shelter ratio greater than 2 to 1,
that triggered registration and disclosure obligations.
In addition, the tax shelter test is an objective one. The decision in Love determined
whether the taxpayers had a subjective intent to avoid paying income tax. Here, the court must
apply an objective measure to determine whether, if the transaction meets the 2:1 ratio and
substantial investment tests, the transaction is a tax shelter subject to disclosure; no tax
avoidance motive is required.
Because the issues are not identical, CNM is not entitled to issue preclusion.

16

ORDER
For the foregoing reasons, Plaintiff/Counterclaimant CNM’s Motion for Judgment on the
Pleadings (ECF No. 21) is DENIED.
DATED this 9th day of October, 2015.
BY THE COURT:

TENA CAMPBELL
U.S. District Court Judge

17