Intersport Fashions West, Inc. v. United States
| Decision Date | 13 February 2012 |
| Docket Number | No. 07-739 T,07-739 T |
| Parties | INTERSPORT FASHIONS WEST, INC., Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant. |
| Court | U.S. Claims Court |
Motion for Summary Judgment; 26 U.S.C. § 482; 26 C.F.R. § 1.482-1
Karen M. Borg, Chicago, IL, for plaintiff.1
Jacob E. Christensen, with whom were John A. DiCicco, Principal Deputy Assistant Attorney General, David I. Pincus, Chief, and G. Robson Stewart, Assistant Chief, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, DC, for defendant.
Before the court are the Motion of the United States for Summary Judgment and Brief in Support Thereof (defendant's Motion or Def.'s Mot.), Docket Number (Dkt. No.) 25, filed March 6, 2009, to which defendant attached Defendant's Proposed Findings of Uncontroverted Fact (defendant's Proposed Facts), Dkt. No. 26, filed March 6, 2009; theBrief of Intersport Fashions West, Inc. in Opposition to the Motion of the United States for Summary Judgment (plaintiff's Response or Pl.'s Resp.), Dkt. No. 47, filed November 16, 2011, to which plaintiff attached Plaintiff's Proposed Findings of Uncontroverted Facts in Support of Its Opposition to the Motion of the United States for Summary Judgment (plaintiff's Proposed Facts), Dkt. No. 45, filed November 16, 2011, and Plaintiff's Response to the United States' Proposed Findings of Fact , Dkt. No. 46, filed November 16, 2011; and the Reply Brief of the United States in Support of Its Motion for Summary Judgment (defendant's Reply or Def.'s Reply), Dkt. No. 52, filed December 15, 2011.
For the following reasons, defendant's Motion is GRANTED.
This action concerns a claim for a refund of corporate tax to a controlled company stemming from restructuring expenses that had been incurred by its parent company.
Plaintiff Intersport Fashions West, Inc. (plaintiff or Intersport) is an American corporation that designed and distributed motorcycle apparel in the United States. Def.'s Mot. Ex. 2 (Plaintiff's Supplemental Response to Interrogatories) 1233 ("[Intersport] designed motorcycle apparel and distributed products to wholesalers under third-party brands or brands of sister companies . . . ."). Intersport was purchased by a publicly traded German company, Eurobike Aktlengesellschaft (Eurobike), in 1999, Deposition of John L. Flynn (Flynn Dep.) 14:8-17, 19:8-13; Pl.'s Resp. Facts 2, and between 1999 and 2003 Intersport was wholly owned by Eurobike, Pl.'s Resp. Facts 2.4
Around 1999, Eurobike borrowed heavily to acquire two wholesale motorcycle apparel companies, Schuh and DIFI. See Flynn Dep. 24:4-26:11. "Eurobike thought that they would have the wholesalers engaged in the distribution of motorcycle apparel . . . ." Id. at 24:17-19. Unfortunately for Eurobike, these wholesale businesses also sold their apparel to retailers that competed directly with some of Eurobike's retail subsidiaries. Id. at 24:22-25:4. Eurobike sold its wholesale apparel companies by 2001, but it continued to carry a sizeable debt of approximately 140 million euros related primarily to its prior wholesale acquisitions. See id. at 25:5-26:11.
Between 2001 and 2003, several European banks—creditors of Eurobike--requested that Eurobike hire consultants to restructure its operations and improve its liquidity. Id. at 26:16-27:16. Eurobike acquiesced and retained consultants for the years 2001, 2002 and 2003, spending €5,205,305, €8,436,406 and €4,400,460, respectively, on consulting fees and other expenses of restructuring its business. Pl.'s Resp. Facts 3.
In 2001 plaintiff paid a $40,041 "insurance charge" to Eurobike, which it claimed as a deduction on its 2001 return. Id. at 4; see also Def.'s Mot. Ex. 2 (Plaintiff's Supplemental Response to Interrogatories) 123; Def.'s Mot. Ex. 12 (2001 Amended Tax Return) 452.5 In 2002, plaintiff paid a $526,468 "management fee" to Eurobike, which it claimed as a deduction on its 2002 return.6 Pl.'s Resp. Facts 4, 8; Def.'s Mot. Ex. 8 (2002 Tax Return) 348, 365, 376.7
In July 2003 Eurobike filed for bankruptcy in Germany. Flynn Dep. 27:15-16, 44:4-6. Intersport was then acquired through a stock purchase by the Fairchild Corporation (Fairchild) in November 2003. Id. at 45:3-11, 46:15-20.
On June 22, 2004 the Internal Revenue Service (IRS) received plaintiff's 2003 tax return. Def.'s Mot. Ex. 9 (2003 Tax Return) 389. On its 2003 tax return, plaintiff claimed deductions that it classified as "management fees" and "legal & consulting" fees that were "based on its purported allocable share of the restructuring expenses incurred by Eurobike in 2003." Pl.'s Resp. Facts 9 (quoting statement from defendant's Proposed Facts).
In February 2005 the IRS selected Intersport for audit, indentifying the 2001, 2002, and 2003 tax years for examination. Id. at 10; Flynn Dep. 50:17-20. At the audit, John Flynn, the Chief Financial Officer of Fairchild, represented plaintiff, Flynn Dep. 13:6-11, and communicated with the IRS examiners regarding plaintiff's intent to file claims for allocations relating to the 2001 and 2002 tax years, see id. at 52:20-53:3. One of the IRS examiners requested that plaintiff postpone the filing of its amended tax returns (on which it would claim for allocations) until after the conclusion of the audit. Id. at 53:4-15, 71:17-21. In response, plaintiff prepared memoranda to the file relating to its claims, which it provided to the IRS examiners at the beginning of the audit. Id. at 53:7-10. Plaintiff waited until after the audit to file its amended claims. Id. at 55:14-20.
As a result of the audit, on August 29, 2005, plaintiff received additional assessments with respect to tax years 2001 and 2002, Def.'s Mot. Ex. 11 (IRS Tax Examination Changes) 449-50, which it subsequently paid, Def.'s Mot. Ex. 17 (Certificate of Assessments for Tax Year 2002) 651.
On September 22, 2005 the IRS received plaintiff's amended tax returns for its 2001 and 2002 tax years. Def.'s Mot. Ex. 12 (2001 Amended Tax Return) 451; Def.'s Mot. Ex. 13 (2002 Amended Tax Return) 478; see Pl.'s Resp. Facts 10.
On plaintiff's 2001 amended return, plaintiff claimed an allocation of $1,332,411 in expenses which, if allowed, would result in a $393,992 decrease in its 2001 tax liability. Def.'s Mot. Ex. 12 (2001 Amended Tax Return) 451-52. On its 2002 amended return, plaintiff claimed an allocation of $1,621,273 in expenses which, if allowed, would result in $583,354 decrease its 2002 tax liability. Def.'s Mot. Ex. 13 (2002 Amended Tax Return) 478-79; see also Pl.'s Resp. Facts. 10. The claimed allocations did not include the 2001 "insurance charge" and the 2002 "management fee," which had been paid to Eurobike and claimed as deductions on the original returns for those tax years. Compare Def.'s Mot. Ex. 12 (2001 Amended Tax Return) 452-53, and Def.'s Mot. Ex. 13 (2002 Amended Tax Return) 472-80, with Def.'s Mot. Ex. 7 (2001 Tax Return) 335, and Def.'s Mot. Ex. 8 (2002 Tax Return) 365, 376.
The IRS disallowed the deductions claimed on the amended returns for the 2001 and 2002 tax years on the grounds "that they were prohibited under 26 C.F.R. § 1.482-1(a)(3) because plaintiff had not claimed them on a timely filed tax return. Pl.'s Resp. Facts 11 (quoting defendant's Proposed Facts and agreeing with the quoted statement). The IRS allowed the deductions (with minor adjustments) for tax year 2003, however, which had been claimed on plaintiff's original 2003 return and were based on plaintiff's purported allocable share of the restructuring expenses that Eurobike had incurred in 2003. See id.; Def.'s Mot. Ex. 3 (Plaintiff's Response to Interrogatories) 206.
Plaintiff filed its Complaint in this court on October 22, 2007, requesting a "refund of corporate income taxes for fiscal year September 30, 2001 [(2001 tax year)] in the amount of $393,992 and for fiscal year September 30, 2002 [(2002 tax year)] in the amount of $583,354" and "applicable interest." Compl. 1-2.8
On October 29, 2008 this court issued an opinion dismissing plaintiff's refund claim for the 2001 tax period for lack of subject matter jurisdiction. Intersport Fashions W., Inc. v. United States (Intersport), 84 Fed. Cl. 454, 463 (2008). The court found that plaintiff had not rebutted the presumptive validity of the IRS assessments, id. at 457, and that plaintiff had not satisfied the full-payment rule because it had outstanding tax assessments against it relating to principal, interest, and penalties for the 2001 tax period at the time that it filed its Complaint, id. at 462-63.
On March 6, 2009 defendant filed a motion for summary judgment on plaintiff's remaining claim for a refund relating to the 2002 tax period. Def.'s Mot. 1. On March 24, 2009, the court stayed the case pending plaintiff's bankruptcy proceedings. March 24, 2009 Order, Dkt. No. 28, at 1.
Following the submission of a joint status report by the parties that stated that "the United States Bankruptcy Court for the District of Delaware entered an [o]rder confirming the Plan of Liquidation" for plaintiff and a number of other companies also affiliated with Fairchild, Joint Status Report, Dkt. No. 32, at 1, the court lifted the stay on June 22, 2011, June 22, 2011 Order, Dkt. No. 33, at 1.
Plaintiff filed its Response to defendant's Motion on November 16, 2011, Pl.'s Resp., and defendant filed its Reply in support of its Motion on December 15, 2011, Def.'s Reply. The court held oral argument on defendant's Motion telephonically on Monday, January 30, 2012 at 3:30 p.m. Eastern Standard Time.
To continue reading
Request your trial