Borchers v. Commissioner

KÓRNER, Judge: I respectfully dissent. The Eighth Circuit did not remand this case to us for any purpose except to explain the basis for our first opinion herein. Borchers v. Commissioner, T.C. Memo. 1988-349 , vacated and remanded 889 F.2d 790 (8th Cir. 1989). I think that we could have and should have done so very simply, without changing the result of the first opinion, which was correct.

The basis for respondent’s determination, quoted in the majority opinion, was that petitioners had not “established that the lease term * * * was for less than one-half the useful life of the equipment.” Majority op. at 87. That was the issue raised by respondent which petitioners had to meet.

Petitioners met that burden by establishing that the lives of the equipment were 6 years; that the leases in question were only for 1 year, with no right of renewal; that when property was re-leased at the end of the first year, a new lease was entered into and at different rentals; that some equipment was not re-leased after one renewal, and that some equipment was sold, not leased.

Respondent countered by showing the control that petitioners had over the lessee; that some of the leases were renewed, but on different terms; and that some of the leases were not renewed. This is all respondent showed, as I read the majority opinion. On this basis, the original opinion in this case held, in effect, that petitioner had made a prima facie case in this fully stipulated matter, and that respondent had failed to produce evidence sufficient to rebut it. There was no suggestion that the burden of proof was being shifted to respondent. It was just that respondent had failed to overcome or even equal petitioner’s prima facie case. The Eighth Circuit remanded the case to us to explain more fully the basis for our decision, and to respond to the suggestion that the Court had impermissibly shifted the burden of proof to respondent. I think we could do so very simply, by reference to the significant factors mentioned in the first opinion of this Court herein.

Instead, the majority opinion goes far beyond what the Eighth Circuit asked for, reverses the earlier decision, and arrives at a different result. What the majority opinion does is:

1. Acknowledge that petitioners made a prima facie case which would prevail, if not overcome by respondent, who had the burden of going forward with the evidence;

2. acknowledge that the evidence of respondent would not be enough to carry burden of proof, if respondent had it;

3. raise a lot of speculative questions, which were not asked by respondent or the Court at trial; and

4. suggest answers to those questions which are adverse to petitioners.

Thus, the majority opinion, after discussing the control which petitioners had over the corporation, and the pattern of leasing and re-leasing which went on (all of which was stipulated) then states that: “at the very least troubling doubts would have been cast upon petitioners’ prima facie case. Indeed, such evidence [sic] strongly suggests that the leases were subject to the manipulative will of the lessor to extend the leases beyond the terms thereof, and were of indefinite duration. While such evidence [sic] may not have been sufficient to carry the burden of proof if such burden were upon the Commissioner, it would certainly have been sufficient to carry his burden of going forward.” Majority op. at 90. I submit that such “troubling doubts” were not evidence at all. They were nothing more than innuendo, suspicion, and speculation. Having raised such “troubling doubts,” the majority opinion apparently decides that this was evidence which sustained respondent’s burden of going forward with the evidence and destroyed petitioners’ prima facie case, so that petitioners could not prevail with the ultimate burden of persuasion, which they correctly had.

I do not think the Court should decide a case by filling in the evidentiary gaps presented by either side, by substituting suspicion and innuendo for true evidence. In the original opinion herein, we followed Sauey v. Commissioner, 90 T.C. 824 (1988), affd. without published opinion 881 F.2d 1086 (11th Cir. 1989). That is quite a new case, and is supported by McNamara v. Commissioner, 827 F.2d 168 (7th Cir. 1987). In my opinion, Sauey states the law correctly. There is not the slightest suggestion in that case that the burden of proof was being shifted to respondent, as respondent herein has argued. In fact, I think the opinion in Sauey makes it perfectly clear that the burden of ultimate persuasion rests on the petitioner, as it must. Sauey v. Commissioner, 90 T.C. at 828-830 . I find nothing in the original opinion herein of this Court that indicates that we had put the burden of proof on respondent, and I am satisfied that we did not.

In sum, the remand of this case from the Eighth Circuit to this Court does not compel the result which the majority achieves here. It simply requires that the Court make more clear the reasons for holding for petitioner. This case as originally decided did not shift the burden of proof to respondent, as the majority opinion states; it simply required respondent to go forward with the evidence and do his job. It is not the Court’s task to do it for him, by creating “troubling doubts” from the evidence presented, and then using the “troubling doubts” as evidence to rebut petitioners’ prima facie case, which the majority concedes petitioners have made. I would: (1) Reject respondent’s argument that the burden of proof herein was wrongly shifted to respondent; (2) affirm that the burden of proof was on petitioners herein, and never shifted; (3) affirm that the petitioners made a prima facie case, which respondent did not rebut; and (4) reaffirm the original decision in this case.

Swift, Wells, and Colvin, JJ., agree with this dissent.