The opinion
Case: 16-60410 Document: 00513926705 Page: 1 Date Filed: 03/27/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 16-60410
Fifth Circuit
FILED
March 27, 2017
MAKRIC ENTERPRISES, INCORPORATED, Lyle W. Cayce
Clerk
Petitioner - Appellant
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent - Appellee
Appeal from the Decision of the
United States Tax Court
(1017-13)
Before STEWART, Chief Judge, and JONES and OWEN, Circuit Judges.
PER CURIAM:*
Makric Enterprises, Inc. (“Makric”) appeals an adverse Tax Court
determination concluding that there was no mutual mistake and that the
Internal Revenue Service (“IRS”) properly imposed an accuracy-related
penalty under I.R.C. § 6662. Having carefully reviewed the briefs and
pertinent portions of the record and heard oral argument, we AFFIRM.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 16-60410
I.
Mark Kisner, Rickey Williams, and Jim Wilson (“Makric Shareholders”)
owned 100% of the stock of Makric, a holding company, which in turn solely
owned 100% of the stock of Alpha Circuits, Inc. (“Alpha”), an operating
company. Mark Kisner served as the CEO of Makric and Mike Baudler as its
CFO. The Makric Shareholders sought to sell Alpha to TS3 Technology, Inc.
(“TS3”). GulfStar Group Investment Bankers and Gary Miller, counsel,
represented Makric and the Makric Shareholders in the sale. Originally the
sale was designed as a two-step process: (1) Makric would be dissolved, and (2)
the Makric shareholders would sell Alpha stock directly to TS3. The initial
drafts of the stock purchase agreement reflected such an arrangement, but the
Makric Shareholders were advised this would not have the desired tax
consequences. The Makric Shareholders determined that their preferred
structure would be a sale of the stock of Makric, which owned 100% of Alpha,
to TS3. Subsequent stock purchase agreement drafts, however, created an
arrangement whereby TS3 would purchase the Alpha stock directly from
Makric, leaving the Makric Shareholders holding their Makric stock. The
executed version of the stock purchase agreement and multiple ancillary
documents confirmed this mechanism. The Makric Shareholders contend that
although one of them read these drafts where Makric was selling its shares of
Alpha, they believed they were actually selling their shares in Makric. The
Tax Court found that representatives for TS3 had been willing to structure the
sale in a way that would meet the tax objectives of the Makric Shareholders.
The Makric Shareholders and Makric, filed tax returns erroneously
reflecting a sale of Makric stock to TS3. In November 2012 the IRS issued a
Notice of Deficiency to Makric for the 2008 tax year. Makric filed a petition
challenging the deficiency and the Tax Court heard the case and entered a
detailed Memorandum Finding of Facts and Opinion in March 2016, which
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upheld the IRS’s position. Makric appeals, alleging the Tax Court erred in (1)
determining that there was no mutual mistake affecting the form of the sale,
and (2) rejecting Makric’s argument that it qualified for the good faith or
reasonable cause exception to the accuracy-related penalty.
II.
This court reviews Tax Court findings on issues of law de novo and
findings of fact for clear error. Park v. Commissioner, 25 F.3d 1289, 1291 (5th
Cir. 1994). Makric’s appeal raises issues of fact that are reviewed for clear
error. “A finding is ‘clearly erroneous' when although there is evidence to
support it, the reviewing court on the entire evidence is left with the definite
and firm conviction that a mistake has been committed.” Rutter v.
Commissioner, 853 F.2d 1267, 1272 (5th Cir. 1988) (quoting United States v.
United States Gypsum Co., 68 S. Ct. 525 (1948)).
III.
Makric first contends that the Tax Court should have authorized a
reformation of the transaction to remedy the parties’ mutual mistake in
structuring the sale. “There are two basic requirements which must be met
before the remedy of reformation is granted: first, the party claiming the relief
must show what the parties' true agreement was, and second, he must show
that the instrument incorrectly reflects that agreement because of a mutual
mistake.” Estes v. Republic Nat. Bank of Dallas, 462 S.W.2d 273, 275 (Tex.
1970). “[R]eformation is unavailable unless the party claiming mistake
presents ‘clear, exact, and satisfactory evidence,’ that he is entitled to it. Id.
(quoting Sun Oil Co. v. Bennett, 125 Tex. 540, 84 S.W.2d 447 (1935)).
Appellant fails to show that the Tax Court was clearly erroneous in its
determination that Makric did not meet the high standard. Makric points only
to a general stated desire for the transaction to have favorable tax
consequences and a single email from Kisner, Makric’s CEO, which stated that
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“The purchase will be MakRic which owns 100% of Alpha’s shares.” The Tax
Court and Commissioner rely on twelve versions of the purchase agreement,
supporting documentation, and the affidavit of TS3’s chairman. In this case,
interested testimony and an ambiguous email are insufficient to establish clear
error on the part of the Tax Court.
Turning to the accuracy-related penalty and good faith or reasonable
cause exception, the appellant again fails to show clear error. “Circumstances
that may indicate reasonable cause and good faith include an honest
misunderstanding of fact or law that is reasonable in light of all of the facts
and circumstances.” 26 C.F.R. § 1.6664-4. While the Tax Court determined
that Kisner reviewed the documents and still walked away with an incorrect
view of the contract, reviewing alone is not automatically reasonable in light
of all of the facts and circumstances. The form of the transaction was not
complicated, Kisner was advised by counsel and an investment banking group,
and he could have even given his CPA a copy of the executed agreement,
instead both Kisner and Baudler incorrectly instructed the CPA as to the form
of the transaction. It is important that taxpayers take reasonable precautions
to ensure that they determine their tax liability properly, and for a $16.5
million dollar purchase, the appellant has failed to show the Tax Court clearly
erred in determining that Makric did not take such precautions.
CONCLUSION
For the foregoing reasons, we AFFIRM the opinion of the Tax Court.
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