Photograph by Maura Teague
Update (September 28, 2016): Could Wells Fargo v. United States, discussed in several posts below, actually go to trial at the end of October? Sure seems like it. The Bank and the Feds have been litigating the case for 6+ years, which would have allowed several opportunities for settlement along the way.
The linked correspondence from U.S. District Court Judge Patrick J. Schiltz might be considered a precious document for Minnesota civil litigators. It reflects some of the nations’ best civil litigators’ questions to the trial court judge about their preparation before trial and the judge’s straightforward and clear answers to their questions. Unfortunately, in most civil litigation, lawyers do not have the opportunity (or, far too often, fail to avail themselves of the opportunity) to get the court’s guidance on how trial will be conducted.
The Wells Fargo v. U.S. trial Q&A highlights the logistical challenges that civil litigators confront.
I have likened civil litigation to staging a play with no rehearsals and with some of the actors and crews (that is, one’s adversaries) determined to make the production a failure.
On top of that, Wells Fargo v. United States is a complex multi-million dollar tax dispute to be decided by twelve ordinary Minnesota citizens (with the court’s guidance). Best of luck to the parties, the battalions of lawyers and their teams, the Court, and, above all, to the jury.
Update (July 28, 2014)(under headline: “When Does Tax Avoidance = Tax Evasion?”): Scenario 1: Let’s say you intended a transaction to have a business purpose or “economic substance” but, as structured, it conferred no business benefit whatsoever, but you got a tax benefit from the transaction.
Scenario 2: Let’s say you intended to structure a “sham transaction” to lower your taxes but, accidentally, the transaction actually resulted in a profit (i.e., turned out to have a “business purpose” or “economic substance” after all?).
Under U.S. tax law, are you entitled to the tax benefit in Scenario 1? How about Scenario 2? If you answer, “I don’t know,” you are in good company.
The STARS transaction [,discussed below and in the linked Special Mast Report,] presents a very unusual vehicle for testing the “two prongs” of the sham transaction doctrine [(subjective intent and actual result)]…. Unless and until the Eighth Circuit or the Supreme Court modifies the conclusion in [an earlier court decision or distinguishes that decision] …, one is left at least with the possibility that Wells Fargo made a profit, but that transactions generating compensation for subjecting U.S. income to foreign tax do not satisfy the business purpose test.
In this recent report of an assigned Special Master in this massive tax case, Wells Fargo prevailed on three of four grounds in motions for partial summary judgment but Wells Fargo failed to convince the Special Master that all of the evidence in the case established that the so-called STARS transaction had a “business purpose.”
Original post (11/27/2013) (under subject line, Taxes & Morality: Heading for the Deep End): It’s been a little slow around here these days in terms of true “news and commentary on Minnesota civil litigation” and so this Minnesota litigator wanders off where he does not belong, to ponder issues brought to mind by a recent order in Wells Fargo v. United States pending before U.S. District Court Judge Patrick J. Schiltz, (D. Minn). The lawsuit involves an alleged “sham transaction” that Wells Fargo allegedly devised to lower its taxes… X falsely claims personal expenses as business expenses to lower his taxes (and keep more money for himself). Y retains a high-powered accounting firm to lower her tax burden by use of a complex off-shore financial transactions. Her only purpose is to lower her taxes (and keep more money for herself). Y’s tax avoidance efforts exploit loopholes, which have been reviewed and approved by legal experts as legal. Z retains a high-powered accounting firm to lower his tax burden by use of a complex off-shore financial transactions whose only purpose is to lower his taxes. Z’s tax avoidance efforts were not “blessed” by legal experts and, in fact, the maneuvers are later found to be “sham transactions” designed solely to deprive the government of taxes that Z owed. Z was aware of this risk but he did not have actual knowledge of illegality. Where do X, Y, and Z sit on a moral continuum? Does it make a difference if X is lowering his tax burden by a pittance and Z is lowering his tax burden by billions of dollars? Does it make a difference if Z is a human or a corporation? Is it insane to apply morals to a corporation?
No matter what Citizens United says, corporations are not people. They do not die, they feel no pain or pity and, in fact, they arguably “owe a duty” to their shareholders (that is, the humans that own the corporation) NEVER to be altruistic. So, I would suggest that the answer to the last question, “Is it insane to apply morals to a corporation?” is basically “yes.” In terms of the moral blameworthiness of X, Y, and Z, I guess I have to disclaim any authority. In fact, I do not actually know who has the appropriate authority to pass moral (as opposed to legal) judgment on them. But I leave you with these thoughts: (1) I would suggest to you that Americans, as a group, are hypocritical in that they consider stealing money from the poor to be morally repugnant but but they regard stealing money from the government (whose task, in part, is to provide support to the poor) with less condemnation, even complicity or passivity, and some perversely view nickle-and-diming “The Man” by cutting corners on tax obligations to be a form of moral obligation of showing one’s autonomy and independence (“do I dare eat a peach, do I dare deduct my magazine subscription”); (2) you or I might pass moral judgment on people who spend their professional lives devising schemes to lower tax burdens within the outer limits of legality but, really, I would suggest that this is not some kind of moral failing at all. In fact, this is similar to quite a lot of lawyering. We paw and gnaw at the margins of legal risk in the hope of getting our clients a more favorable outcome than they would otherwise get. Having said that, I think it is a pitiable misfortune to dissipate one’s precious and fleeting hours (life is short) on such a dull and ultimately pointless exercise as devising and defending corporate tax loopholes. 
(Wells Fargo has a battalion of lawyers from Skadden Arps and Faegre Baker Daniels as counsel of record in this case. I expect a the monthly legal bills on this single case exceed my firm’s entire annual gross revenue (possibly by a factor greater than ten). Yes, I am a little (irrationally) envious.)