D. Robert Autrey, Jr., an Individual, Cross-Appellants v. United States of America, Cross-Appellee

CLARK, Circuit Judge,

concurring in part and dissenting in part:

The majority’s analysis of this complex case is seemingly logical, but incomplete. There is no doubt that the investment programs created by Mr. Autrey offered incredible tax benefits to investors based on a small cash outlay. The programs arguably contain several of the classic elements of the very types of abusive tax shelters Congress intended to discourage by assessing civil penalties against promoters under section 6700. The abusive nature of these programs was extensively debated before the jury in a trial that lasted thirteen days. Arguments that the programs lacked economic substance, that they were not intended to make a profit, and that Mr. Autrey knowingly misrepresented the tax laws were presented by the government and challenged by Mr. Autrey. In the end, the jury believed Mr. Autrey, and found that the plaintiffs were entitled to a refund of their prepayments of the penalties. In its analysis of the government’s appeal, the majority disregards the jury’s verdict and ignores precedent that does not allow for reversal on grounds that were not raised in the district court. Because I find that the verdict is supported by the evidence and is not manifestly inconsistent with the law, I cannot join in the majority’s decision to allow the government to re-try this ease on new theories of liability.

Although from the very beginning the focus of this case has been on Mr. Autrey, the majority finds that the district court correctly held that the jury’s verdict in favor of Mr. Autrey with respect to the four “duplicate assessments” in this case was invalid. On this issue the majority ignores ramifications of its decision that are clearly inconsistent with the law. I therefore respectfully dissent.

I concur in the result reached by the majority with respect to the plaintiffs’ claims for litigation costs under section 7430. I write separately to explain that although this Circuit’s recent decision in Ewing v. Heye controls this case, the future validity of that decision is limited by a subsequent amendment to section 7430.

I. Background

In this case the government appeals from a jury verdict in favor of the plaintiffs, D. Robert Autrey, Jr., an individual, and Star Brangus Ranch, Inc., Sweet Autumn Land and Cattle Co., Inc., Cattle Enterprises, Ltd. and Circle BA Ranch, Inc. (the “corporate plaintiffs”). Mr. Autrey owns 50% of the stock of Cattle Enterprises, Ltd., and 100% of the stock of the other three corporate plaintiffs. In March of 1985 the IRS sent letters to the plaintiffs notifying them of assessments for penalties under three different sections of the *991 Internal Revenue Code. 1 Under section 6700, the IRS made penalty assessments with respect to five distinct investment plans. “Duplicate assessments” were made with respect to four plans involving the four corporate plaintiffs. Based on the activities of each corporate plaintiff, the IRS sent two assessment notices, one to the corporation and one to Mr. Autrey. The notices addressed to Mr. Autrey made reference to the relevant corporation, indicated an assessment amount, and contained a legend at the bottom which stated: “THIS IS A DUPLICATE ASSESSMENT MADE AGAINST D ROBERT AUTREY, JR. AND [the relevant corporation], ON THE SAME DATE.” The notices addressed to each corporation made reference to Mr. Autrey, indicated an identical assessment amount to that shown on the corresponding notice to Mr. Autrey, and contained a legend at the bottom that stated: “THIS IS A DUPLICATE ASSESSMENT MADE AGAINST D ROBERT AUTREY, JR. AND THIS RELATED CORPORATION, ON THE SAME DATE.” Notice of the fifth assessment under section 6700 was sent only to Mr. Autrey, was not marked as a “duplicate assessment”, and was apparently related to Mr. Autrey’s activities with respect to another corporation, Double C Hereford Ranch. The IRS also made three assessments under sections 6701 and 6694 against Mr. Autrey individually. Mr. Autrey received three notices relating to these assessments, one for a $335,000 assessment under section 6701, and two for assessments of $5,400 and $1,200 under section 6694.

Section 6703 provides that persons assessed penalties under sections 6700 and 6701 may delay the collection of the penalty by the IRS by paying 15% of the assessed amount and filing a claim for refund with the IRS. If the claim for refund is denied, the alleged violator may bring an action for refund in federal district court. I.R.C. § 6703(c). Section 6694 sets out identical procedures for contesting an assessment under that section. I.R.C. § 6694(c). After having been told by an IRS agent that only one 15% prepayment was necessary for the plaintiffs to contest a “duplicate assessment”, Mr. Autrey sent five checks to the IRS, each in an amount corresponding to 15% of the assessment under section 6700 indicated on each notice. Mr. Autrey also sent three separate checks in amounts corresponding to the assessments made against him individually under sections 6701 and 6694.

Mr. Autrey and the corporate plaintiffs made the appropriate claims for refund, which the IRS denied. Mr. Autrey and the corporate plaintiffs then timely filed an action for refund in the district court, and after a lengthy trial the jury found in favor of the plaintiffs on all of the assessments. After the verdict, the government made a motion for a judgment notwithstanding the verdict, in which it renewed its argument that the district court did not have jurisdiction to entertain Mr. Autrey’s claim for refund with respect to the four “duplicate assessments”. Specifically, the government argued that because only one 15% prepayment had been made for each of those assessments, and those prepayments had been credited to the corporations, Mr. Autrey had not met the jurisdictional prerequisite of section 6703. The district court agreed with the government that the verdict with respect to the four “duplicate assessments” against Mr. Autrey was invalid. Consequently, the court vacated the portion of its judgment in favor of Mr. Autrey on his claims for refund of amounts assessed against him under section 6700 in the four “duplicate assessments”, and dismissed those claims without prejudice for lack of subject matter jurisdiction. However, the court denied the government’s motion with respect to all other issues, thus upholding its judgment in favor of the corporate plaintiffs with respect to the “duplicate assessments” and in favor of Mr. Au-trey with respect to the single assessment against him under section 6700 and the assessments against him under section 6701 and section 6694.

*992 The government appeals, claiming that the district court’s instructions to the jury regarding section 6700 were erroneous, and that this error also caused the instructions regarding sections 6701 and 6694 to be erroneous. Mr. Autrey and the corporate plaintiffs contest these assertions and cross-appeal the district court’s finding that it lacked jurisdiction to hear Mr. Autrey’s claim for refund with respect to the four “duplicate assessments”. The plaintiffs also cross-appeal the district court’s denial of their motion for litigation costs under section 7430.

II. The Government’s Appeal

A. Introduction

Section 6700 prohibits persons who organize, assist in the organization of, or participate in the sale of any interest in an investment plan from making two types of statements in connection with those activities. One such statement, generally referred to as a “gross valuation overstatement”, is a statement regarding the value of any property that exceeds 200% of the correct valuation when the value of the property is directly related to the amount of any deduction or credit allowable under the tax laws. I.R.C. § 6700(a)(2)(B). The other type of statement, referred to by the majority as a “false representation”, is a statement with respect to the allowability of any deduction or credit, the excludability of income or the securing of any tax benefit by reason of holding an interest in the entity or participating in the plan, which the person knows or has reason to know is false or fraudulent. I.R.C. § 6700(a)(2)(A). In the present case the government presented evidence relevant to proving that Mr. Autrey and the corporate plaintiffs had made both types of statements. A jury finding that Mr. Autrey and the corporate plaintiffs had made either type of statement would have been sufficient to uphold the IRS assessments under section 6700.

In its analysis of the district court’s jury instruction regarding how the jury was to determine whether the plaintiffs had made a gross valuation overstatement with respect to the cattle breeding investments, the majority concludes that the jury should have been instructed to consider only the value of the cattle because the other aspects of the investment plan do not, as a matter of law, add value to the investment. I cannot agree with this conclusion because it is legally incorrect and ignores the economic substance of the transactions. With respect to the alternate theory of liability under section 6700, the making of a “false representation”, I agree with the majority’s conclusion that the tax laws do not allow the value of intangible portions of the investment to be “bundled” with the value of the cattle for the purposes of calculating Accelerated Cost Recovery (“ACRS”) and the Investment Tax Credit (“ITC”). The majority holds that this issue must be retried, without analyzing the instruction given by the district court or the instructions tendered by the government which the district court rejected. Because I find the government’s proffered instructions to have been grossly erroneous, and the instructions given by the district court to have sufficiently described the law so as to preclude manifest injustice, I dissent from the majority’s decision to remand this issue.

Sections 6701 and 6694 impose penalties on tax return preparers who prepare a return knowing that it understates the tax liability of the taxpayer, I.R.C. § 6701, or whose negligent or intentional disregard of IRS rules and regulations results in an understatement of tax liability, I.R.C. § 6694. The government presented evidence relevant to proving that Mr. Autrey had assisted in the preparation of portions of many investors’ returns related to the cattle breeding programs, and that those returns understated the tax liability of the investors. Reasoning that the court’s instructions to the jury regarding liability under section 6700 for making false representations necessarily misled the jury as to Mr. Autrey’s potential for liability as a tax return preparer under sections 6701 and 6694, the majority also remands this issue to be re-tried. I agree that the determinations of liability under section 6700 and sections 6701 and 6694 are necessarily related. As a result, because I find the in *993 structions relating to section 6700 proffered by the government to have been grossly erroneous, and because the district court gave instructions relating to sections 6700, 6701 and 6694 that adequately explained the law, I must dissent from the majority’s decision to remand the issues of Mr. Autrey’s liability under sections 6701 and 6694.

B. “Gross Valuation Overstatements”

Section 6700(a)(2)(B) imposes a penalty on persons who organize, assist in the organization of, or participate in the sale of any interest in any investment plan who make any statement as to the value of property or services if (A) the value so stated exceeds 200 percent of the amount determined to be the correct valuation, and (B) the value of such property or services is directly related to the amount of any deduction or credit allowable under chapter 1 to any participant. The government argues that the district court’s instruction to the jury on this code section was erroneous because it directed the jury to determine whether the value of the “investment unit” had been overstated by more than 200 percent, rather than directing the jury to consider only the value of the cows. The government contends that Mr. Autrey and the corporate plaintiffs represented to investors that the cows alone were worth $100,000, and thus the determination of whether a gross valuation overstatement was made depends only on the actual value of the cows. On the other hand, the plaintiffs contend that the investment included not only the cows, but rights under the Cattle Breeding Agreement and the Calf Option Agreement (the “Agreements”). Some of these rights include the right to a five-year supply of bull semen, management services and the right to have fertile cows substituted for infertile cows.

In support of its position, the government points to the bill of sale, which indicates that in return for $100,000 the investor received “all right, title and interest” in a herd of six cows. This argument, which the majority adopts, improperly ignores the reality of the underlying transaction. Gregory v. Helvering, 293 U.S. 465 , 55 S.Ct. 266 , 79 L.Ed. 596 (1935) (Establishing that the economic substance of transactions, rather than their form, is controlling for federal tax purposes.)

The Bill of Sale is only one of several documents involved in these transactions. The Private Placement Memorandum summarizes the provisions of the Agreements that each investor entered into simultaneously with the transfer of title to each herd of six cows. The Summary of the Offering in the Private Placement Memorandum describes the securities being offered as “[a] Breeding Herd consisting of 6 cows or heifers, which include management contracts for the maintenance of the cat-tle_” Plaintiffs’ Exh. 123, R.O.A. Vol. 4, Tab 43. The Summary goes on to explain that “[t]he Investors will enter into a cattle breeding program where the Issuer will manage the purchased cattle, the substitute cattle and the offsprings. The cattle breeding program is commenced by an Investor executing a Cattle Breeding Agreement, a Calf Option Agreement and a Full Recourse Promissory Note with the Issuer.” Id. Samples of the Agreements were attached to each Private Placement Memorandum.

In holding that the jury should have been instructed to consider only the fair market value of the cattle in determining whether the plaintiffs had made a gross valuation overstatement, the majority reasons that, as a matter of law, the rights each Investor had under the Agreements do not add value to the investment. This holding directly contradicts well established precedent that determinations of value are a matter of fact to be decided by the jury. Laird v. United States, 556 F.2d 1224, 1239 (5th Cir.1977), cert. denied, 434 U.S. 1014 , 98 S.Ct. 729 , 54 L.Ed.2d 758 (1978) (“[T]he valuation of assets is a factual finding....”); Anderson v. Commissioner, 250 F.2d 242, 249 (5th Cir.1957), cert. denied, 356 U.S. 950 , 78 S.Ct. 915 , 2 L.Ed.2d 844 (1958); Silverman v. Commissioner, 538 F.2d 927, 931 (2d Cir.1976). The majority cites two Tax Court cases, Houchins v. Commissioner, 79 T.C. 570 (1982) and Grodt & McKay Realty, Inc. v. Commis *994 sioner, 77 T.C. 1221 (1981), in support of the proposition that as a matter of law “a valueless intangible contract right can add no value to an associated [investment in a herd of breeding cattle].” At 981.

The holdings in Grodt and Houchins do not support this proposition for two reasons. First, the majority’s analysis of these cases ignores the fact that the Tax Court sits as the trier of both law and fact. The Tax Court does not state in either case that its findings regarding the value of the agreements in those cases was a finding of law. Instead, in Houchins the Tax Court explains its decision regarding the value of the agreements by commenting on the lack of persuasiveness and credibility of the plaintiffs expert witness. 79 T.C. at 592 . Moreover, in both cases the Tax Court states that it cannot place a value on certain agreements because the plaintiffs failed to make any attempt to value the agreements individually as components of the investment unit. Houchins, 79 T.C. at 592 ; Grodt, 77 T.C. at 1289 n. 20. Unlike the plaintiffs in Houchins and Grodt, the plaintiffs in this case did present evidence regarding the value of the five year supply of bull semen (approx. $21,000), R.O.A. Vol. 11, p. 54, Vol. 12, p. 164, Vol. 13, p. 194, 221, Vol. 14, p. 78-82, 227, and the value of the right to have fertile cows substituted for infertile cows (approx. $10,000), R.O.A. Vol. 11, p. 54.

Secondly, in both cases the Tax Court was analyzing cattle breeding programs to determine whether the investors were purchasers in bona fide arm’s length sale transactions. In deciding whether true sales had taken place, the Tax Court looked to see whether the fair market value of the cattle was approximately equal to the purchase price. Like Mr. Autrey and the corporations, the taxpayers in both cases argued that the purchase price they paid included more than the fair market value of the cattle. Specifically, they argued that the investment included the value of certain warranties and transportation expenses in addition to the value of the cattle. The Tax Court reasoned that because the evidence showed it was standard practice in the industry to offer these warranties to purchasers of cows, and for brokers not to charge transportation costs to the purchaser, the value of these warranties and transportation costs was already included in the market price. Therefore, the Tax Court concluded, these warranties and pre-paid expenses added nothing to the established market value, which the Tax Court found to be substantially below the price paid by the taxpayers. Houchins, 79 T.C. at 593 ; Grodt, 77 T.C. at 1239 . This conclusion, however, does not mean that the Tax Court found the warranties and pre-paid expenses to be valueless as a matter of law. Instead, the Tax Court found that the evidence showed that the value of these items was already included in the market price of the cattle, and therefore did not represent value in addition to the fair market value of the cattle.

Neither the majority nor the government rely on evidence that the value of a five year supply of bull semen, the right of substitution, and other intangible contract rights are customarily included in the purchase of breeding Brangus cattle such that their value is already factored into the market price of the cattle. Instead, the majority and the government argue that because the Investors were obligated under the Agreements to pay for bull semen and costs of insemination if the Investor elected to keep a calf instead of selling it to the Rancher, the right to bull semen and artificial insemination cannot be seen as part of the original $100,000 investment. Similarly, the majority and the government argue that the right of cow substitution only protects the Rancher, who is obligated to buy a “crop” of calves for $25,000, no matter how many calves are in the “crop”, and therefore the substitution rights offer no value to the Investor. The majority and the government also argue that because an Investor was obligated to pay for other intangible rights such as maintenance and care of the cattle and other management expenses such as accounting fees, these intangible rights add no value to the fair market value of the cattle.

However, the plaintiffs offered evidence tending to show that an Investor’s right to *995 have cows inseminated over a five year period is worth more than the costs of artificial insemination and bull semen which an Investor would have to pay if he decided to keep the calves. First, the evidence shows that under the Calf Option Agreement an Investor could sell one year’s crop of calves to the Ranch for $25,-000, regardless of the number of calves in the crop, and there was no setoff for costs of bull semen and artificial insemination. From this evidence a reasonable jury could conclude that this right would be valuable to an Investor in a year in which his calf crop consisted of only one or two calves, as he would probably receive at least market value for the calves without having incurred the expense of bull semen and artificial insemination. Secondly, the evidence shows that at the end of five years the Investor would be free to sell the herd of six breeding cows. Mr. Autrey and others testified that cows that are proven breeders command higher prices than unproven breeders. From this evidence, the jury could reasonably conclude that an Investor’s right to a five year supply of bull semen used in a regular program of artificial insemination added value to the investment beyond the costs of the semen and artificial insemination procedures because, over a period of years, cows that are successfully bred on a regular basis will be more valuable than cows that are not proven breeders.

Similarly, the plaintiffs offered evidence that the right to have infertile cows replaced with fertile cows is valuable not only to the Rancher, as the majority points out, but also to the Investor. The evidence shows that cows are capable of breeding for a limited number of years, and that the older a cow is, the harder she is to breed. Under the Cattle Breeding Agreement, the Rancher had the right to substitute cows which were difficult breeders for more fertile cows. One witness testified that the Rancher would be motivated to substitute fertile cows because the Rancher would want to be able to buy as many calves as possible for the $25,000 purchase price agreed on in the Calf Option Agreement. This same witness noted, however, that the substitution was also valuable for the Investor because at the end of the breeding program the Investor would have a relatively young and fertile group of cattle to sell. A reasonable jury could conclude that in light of the evidence that fertile cows are more valuable than non-fertile cows, an Investor who owned six relatively young and fertile cows, whose prospects for breeding over several years were good, would be likely to get a better price for them than an Investor who owned a group of older, and perhaps not all fertile cows.

In its discussion of the “other intangibles”, the majority focuses on the testimony of Mr. Autrey that the maintenance and care of the cattle was a part of the investment. The majority correctly notes that these services were paid for separately by the $1,000 per year per cow maintenance fee. However, the record contains evidence regarding other benefits received by the Investors that are not included in the maintenance fee. For example, the Ranchers had the right to enter the Investors’ cattle in cattle shows. The plaintiffs introduced evidence that the Ranchers entered the cattle in shows and the cattle won numerous awards. Although the government made light of these awards at trial, there was evidence tending to show that these awards would do more for the Investors than inflate their pride as cattle owners.

Several witnesses testified that the two most important qualities in valuing breeding cattle are pedigree and productivity (fertility). There was testimony to the effect that cows known to have a high quality ancestry command higher prices, and the way in which certain pedigrees become famous is by cattle being entered in shows and winning awards. Breeders pay attention to the pedigree of cows that win awards, and look for that pedigree when buying breeding cattle. Based on this evidence, a reasonable jury could conclude that having the cattle involved in a high quality breeding program which was developing a good reputation in the breeding community through winning awards at cattle shows added value to the investment in *996 addition to the fair market value of the cattle.

Furthermore, the fact that the Investors were obligated to pay for many of the services under the Agreements does not necessarily mean that the Investors interests in the contracts had no independent value. In Laird v. United States, 556 F.2d at 1224 , the former Fifth Circuit allocated $3 million of the $7.5 million purchase price to the player contracts purchased by Atlanta Falcons owner Rankin Smith, Sr. in connection with his purchase of the NFL franchise. The court found that the contracts were “independent and uniquely valuable assets to the taxpayer.” Id. at 1233 . Rankin Smith’s obligation under the contracts to pay the players for their services did not render the rights that Mr. Smith had under those contracts valueless. Similarly, the jury was entitled to find that the rights the Investors enjoyed to continued maintenance and veterinary care of their herd of six cattle were uniquely valuable assets independent of the Investors’ obligations to pay set fees for those services over the five year period.

The district court’s instruction directing the jury to consider the value of the investment unit was therefore not an erroneous statement of the law. In answering special interrogatories number one and two the jury found that Mr. Autrey and the corporate plaintiffs had not overstated the value of the cattle investment program by more than 200 percent. I would affirm the jury’s verdict on this issue, as there was ample evidence in the record to support the verdict.

C. “False Representations”

Section 6700 also imposes a penalty on persons who organize, assist in the organization of, or participate in the sale of any investment plan and who make a statement with respect to the allowability of any deduction or credit by reason of participating in the plan which the person knows or has reason to know is false or fraudulent as to any material matter. I.R.C. § 6700(a)(2)(A). The government argues that the district court’s instruction to the jury on this code section was erroneous because it directed the jury to consider whether the plaintiffs had knowingly made a false statement regarding the deductibility of the investment unit, rather than directing the jury to consider only the deduc-tibility of the cattle. The government argues that because only tangible property is subject to ACRS and the ITC, the jury should have been instructed that if the $100,000 amount represented by the plaintiffs to be fully subject to ACRS and the ITC represented an amount which the plaintiffs knew to be greater than the value of the cattle, the jury should find the plaintiffs guilty of violating section 6700.

The plaintiffs argue that under the rationale of Texas Instruments, Inc. v. United States, 551 F.2d 599 (5th Cir.1977), the value of the Cattle Breeding Agreement and the Calf Option Agreement may be “bundled” with the value of the cows, thereby making the full $100,000 investment subject to ACRS and the ITC. In Texas Instruments the court held that because the value of seismic data is entirely dependent on the existence of the tapes and film upon which it is recorded, the cost of collecting the data is properly included with the cost of the blank tapes and film when calculating the basis of the tapes and films for the purposes of the ITC and depreciation under section 167. Id. at 611 . The plaintiffs argue that the value of the Agreements is similarly entirely dependent on the ownership of the herd of six cows, and therefore the value of the Agreements may be bundled with the value of the cows when calculating a basis for the purposes of ACRS.

I agree with the majority that the Texas Instruments rationale is inapplicable to the present case. ■ The Agreements, unlike seismic data, do have an independent existence from the cows, the tangible property to which they relate. If an Investor did not own cows, but did enter into the Agreements, the Investor could assign the Agreements to someone else. The fact that the Agreements have no independent value to an Investor who does not own cows is immaterial. The holding of Texas Instruments is that because seismic data does not *997 exist if it is not recorded on tape or film, seismic data is properly considered tangible property and the cost of collecting the data can be included in the basis of seismic data tapes. In contrast, the Agreements do have an existence independent of that of the cows.

The court’s analysis of the purchase of an NFL franchise in Laird is instructive. The court found that the taxpayer had properly allocated $50,000 of the $7.5 million purchase price to the non-depreciable franchise fee. The court also agreed with the taxpayer that the value of the player contracts should be treated as separate and distinct from the non-depreciable franchise fee, and allocated $3 million to the contracts to be subject to depreciation according to Treasury Reg. § 1.167. Laird v. United States, 556 F.2d at 1224 . The Agreements entered into by the Investors are analogous to the player contracts purchased by the taxpayer in Laird and are properly considered to be separate and distinct from the Investors’ interest in the cows.

Although Treasury Reg. § 1.167 allows a taxpayer to depreciate or amortize intangible assets with a useful life that can be estimated with reasonable accuracy, it allows the use of the methods prescribed in section 167, not section 168, the section containing the ACRS method represented by the plaintiffs as being the method under which investors could claim depreciation deductions. In fact, the legislative history of the ACRS states that intangible deprecia-ble property is not “eligible property” under ACRS. General Explanation of the Economic Recovery Tax Act of 1981, Dec. 29, 1981 [Joint Committee Print] H.R. 4242, JCS-71-81 (LEXIS, Fedtax library, Legis file).

Intangible depreciable property is also not eligible for the ITC. As the majority correctly states, the code describes property eligible for the ITC as certain tangible property. I.R.C. §§ 38, 46. See also Rev. Rui. 71-137, 1971- 1 C.B. 104 (IRS finds player contracts depreciable assets under section 167, but disallows ITC because contracts are intangibles). The plaintiffs rely on their analysis of Texas Instruments in arguing that the Agreements can be “bundled” with the tangible cows, thereby becoming eligible for the ITC. This argument is not any more persuasive in the context of the ITC than it was in the context of the ACRS.

Having determined that a statement that the value of the intangible aspects of the cattle breeding programs may be included with the value of the cattle when calculating ACRS and ITC is a “false representation” under section 6700, the majority abruptly concludes its analysis of the appeal on this issue and orders a remand without analyzing the instructions given by the district court or the instructions requested by the government. 2 Even if the district court’s instructions do not contain completely accurate statements of the law, the government is not entitled to an automatic remand. In Pesaplastic, C.A. v. Cincinnati Milacron Co., 750 F.2d 1516, 1525 (11th Cir.1985), this court held that “[i]f a requested instruction is refused and is not adequately covered by another instruction, the court will first inquire as to whether the requested instruction is a correct statement of the law. If [it is], the court will next look to see whether it deals with an issue which is properly before the jury. In the event both these standards are met, there still must be a showing of prejudicial harm as a result of the instruction not being given before the judgment will be disturbed.” (citations omitted)

The government’s requested jury charge number 8 stated:

*998 [Y]ou may find a plaintiff liable for making a false or fraudulent statement if you find that the plaintiff made or furnished to investors statements, in the offering materials or otherwise, that tax benefits such as investment tax credits and depreciation deductions could properly be calculated using the $100,000 figure as the cost or value of an investment unit, when the plaintiff knew or had reason to know that the statement was false or fraudulent because the cost or value of the cattle in an investment unit was not equal to $100,000.

The government’s requested instruction number 19, which was not considered by the district court because it was not timely filed under local rules, stated:

[I]f you find, for example, that the cattle in a given investment unit had a cost or value when the bill of sale was issued to the investor of an amount substantially less than $100,000, you must find that the plaintiffs knew or should have known that their statements as to the tax benefits available to investors on the basis of a $100,000 price per unit were false and fraudulent.

Both of these instructions are grossly erroneous because they direct the jury to find the plaintiffs liable if they knew the value of the cattle was less than $100,000. To be found liable for making a false representation under section 6700, however, the jury must find that the plaintiffs knew or should have known not only that the cattle were worth substantially less than $100,-000, but also that the tax laws do not allow the value of the intangible portions of the program to be “bundled” with the value of the cattle for the purposes of calculating ACRS and the ITC.

The instructions proffered by the government would have essentially directed a verdict against the plaintiffs, because Mr. Au-trey himself testified that he thought the six cattle in a unit were worth approximately $60,000 and that the right to a five year supply of bull semen, the cattle substitution rights and other intangible aspects of the program made an entire investment unit worth $100,000. Based on the government’s proffered instructions, the jury could have found Mr. Autrey liable without considering whether he knew or should have known that the value of the intangible aspects of the program could not be included when calculating ACRS and the ITC. Mr. Autrey testified that he believed, based on his knowledge and research of the tax laws, that even if the cattle alone were not worth $100,000, the value of the intangibles could be included in calculating ACRS and the ITC. A proper instruction would have directed the jury to evaluate the credibility of this testimony before finding Mr. Autrey liable for making a false representation in violation of section 6700.

The government argues on appeal that the district court committed reversible error because its instructions did not clearly present the issue of whether Mr. Autrey knew or should have known that his “bundling” theory was not supported by the tax law. I agree that the court’s instructions on this issue were not complete. However, the instructions proffered by the government also did not properly present this issue. Furthermore, at the charge conference the government’s objections to the charges given by the court focused on the government’s theory that the evidence showed that the plaintiffs represented that the cattle alone were worth $100,000, and that they knew this was false. The district court correctly rejected this theory, and the government did not explain that the court’s instructions failed to inform the jury that even if it found that the value of an investment unit was $100,000, the plaintiffs could be liable for violating section 6700 if they knew or had reason to know that the value of the intangibles could not be included in calculating ACRS and the ITC.

Under these circumstances, a reversal is authorized only if the district court committed plain error. Bissett v. Ply-Gem Industries, Inc., 533 F.2d 142 (5th Cir.1976). In Bissett , the jury instruction requested by the defendant would have informed the jury that Florida law did not allow the plaintiff to recover for fraud if the defendant’s statements were promises rather than statements of existing facts. The former Fifth Circuit found that this instruc *999 tion was grossly erroneous because it would deny recovery regardless of the promisor’s intent, and under Florida law promissory statements are actionable if the promisor had a positive intent not to perform the promise at the time it was made. Although the court found the instruction given by the district court to have been incomplete, because the instruction requested by the defendant at trial was grossly erroneous, the court denied the appeal because it found no plain error or manifest injustice. Id.

In determining whether incorrect jury instructions resulted in a manifest injustice, this court takes into account the instructions in their entirety, the evidence presented, and the arguments of counsel to determine whether the jury was substantially misled and whether they understood the issues. See Iervolino v. Delta Air Lines, Inc., 796 F.2d 1408 (11th Cir.1986), cert. denied, 479 U.S. 1090 , 107 S.Ct. 1300 , 94 L.Ed.2d 155 (1987); Somer v. Johnson, 704 F.2d 1473 (11th Cir.1983); Bissett, 533 F.2d at 142 . The district court instructed the jury that it could find a plaintiff liable if it found that the plaintiff “made a representation to an investor with respect to the allowability of a tax deduction or credit, by reason of participating in the investment plan, that the plaintiffs knew or had reason to know was false or fraudulent as to a material matter.” R.O.A. Vol. 20, p. 157. Following this global instruction, the court gave some specific examples of the potential for liability, none of which included an example explaining the potential for liability with respect to Mr. Autrey’s “bundling” theory. At trial, Mr. Autrey testified regarding his belief that the “bundling” theory was valid, and on cross-examination the government attacked that theory. The issue of Mr. Autrey’s knowledge of the tax laws was argued to the jury. In closing argument, the plaintiffs stated: “We believe that the investors had the right to take the ITC credits and the depreciation. The status of the law in ’82 and ’83 authorized it. Bob Autrey researched it thoroughly and he seriously and sincerely believed it.” R.O.A. Vol. 20, p. 90-91. The government argued: “[There are] only two real questions to be decided by you in this case. One concerns the value of the property being sold. Depreciation and Investment Tax Credit can only be taken on a tangible personal property. Mr. Autrey’s attempts to retrospectively categorize other items of the breeding programs as tangible personal property has been refuted.” R.O.A. Vol. 20, p. 126. The jury was made aware of the dispute over the “bundling” theory, and was instructed that it could find Mr. Autrey liable for making statements regarding deductibility that he knew or had reason to know were false or fraudulent. Under these circumstances, I find the members of the jury were sufficiently instructed so as to preclude any “substantial and ineradicable doubt as to whether [they] were properly guided in [their] deliberations.” Somer v. Johnson, 704 F.2d at 1478 . I therefore dissent from the majority’s decision to vacate the jury’s verdict and remand this issue to be retried.

D. Sections 6701 and 6694

I agree with the majority that the jury’s determination of liability under section 6701 and section 6694 was necessarily related to its determination under section 6700. Section 6701 imposes a penalty on any person who assists in the preparation of a tax return and who knows that the return understates the tax liability of the taxpayer. Section 6694 imposes a penalty on an income tax return preparer whose negligent or intentional disregard of IRS rules and regulations results in the understatement of the tax liability of the taxpayer. The jury found that Mr. Autrey assisted in the preparation of portions of 303 tax returns related to the investment programs. The court instructed that the jury must find Mr. Autrey liable under section 6701 if it found that he knew that the value of the investment unit was less than $100,-000, and that Mr. Autrey would be liable under section 6694 if he negligently or intentionally disregarded an IRS rule or regulation. As noted above, the district court’s instruction did not explicitly provide for the potential for liability if Mr. Autrey knew or had reason to know that the full *1000 $100,000, although a correct valuation of the investment unit, was not subject to ACRS or the ITC.

The reasons for my disagreement with the majority’s abrupt decision to remand the issue of liability for making a false representation in violation of section 6700 apply with equal force to the issue of Mr. Autrey’s liability under sections 6701 and 6694. As explained above, the instructions requested by the government with respect to section 6700 liability that also relate to liability under sections 6701 and 6694 were grossly erroneous. From the testimony and cross-examination of Mr. Autrey, and the closing arguments of both parties, the jury was aware of the dispute-regarding Mr. Autrey’s “bundling” theory, and the district court gave global instructions on both sections 6701 and 6694, explaining that Mr. Autrey could be liable if he knew that his calculations on the tax returns understated the tax liability of the taxpayers, or if he negligently or intentionally disregarded any IRS rule or regulation. Furthermore, the government failed to object to any of the instructions directly related to liability under sections 6701 and 6694. Under these circumstances, I do not find that the district court committed a plain error resulting in manifest injustice, and I dissent from the majority’s decision to vacate the jury’s verdict and remand these issues to be re-tried.

III. The Plaintiffs’ Cross-Appeal

A. Jurisdiction

After the jury returned its verdict in favor of Mr. Autrey and the corporate plaintiffs, the government renewed its argument that the district court lacked jurisdiction over Mr. Autrey’s claims for refund related to the four “duplicate assessments” because only one 15% prepayment had been made for each “duplicate assessment” and those payments had been credited to the corporations. 3 The majority’s conclusion that the district court correctly held that it was without jurisdiction to decide Mr. Au-trey’s claim for a refund assumes, without explanation, that the “duplicate assessments” were in fact two separate assessments. At 988-989. Yet, as the government states in its brief, the real question raised by the plaintiffs’ cross-appeal is whether the IRS, in fact, made two assessments or only one. This question deserves more consideration than the unexplained, unsupported assumption made by the majority.

The government admits in its brief that the evidence relevant to this issue is not “crystal clear” and that the “duplicate assessment” language on the notices sent to the plaintiffs “lends a note of ambiguity” to those notices. I agree with the majority that the government is entitled to assess penalties against both Mr. Autrey and the corporate plaintiffs. 4 However, this means *1001 that when reviewing tax shelters for possible violations, the IRS is faced with a choice as to which promoters it will pursue. In this case the IRS sent assessment letters to the plaintiffs which the government admits were ambiguous. Autrey attempted to resolve the ambiguity when he contacted the IRS and asked the agent whether the “duplicate assessments” required one 15% payment or two. 5

The “duplicate assessments” made in this case contain a latent defect that neither party has discussed. Each “duplicate assessment” relating to the four corporate plaintiffs indicated the same penalty amount for both Mr. Autrey and the individual corporation. For example, for activities relating to Star Brangus Ranch, Inc., the assessment notices sent to Mr. Autrey and to Star Brangus both indicated a penalty amount of $139,489. The government argues that this “duplicate assessment” means that Mr. Autrey and Star Brangus each owe the IRS $139,489, for a total of $278,978. Although both Mr. Autrey and the corporations can be penalized under section 6700, based on the evidence presented at trial I am unable to agree with the government’s position that section 6700 entitles the IRS to collect the same amount from Mr. Autrey as from each of the corporate plaintiffs.

The version of section 6700 in effect when the “duplicate assessments” were made allowed the IRS to assess against a person who violated section 6700 a penalty “equal to the greater of $1,000 or 10 percent of the gross income derived by such person from such activity.” Each of the duplicate assessment letters was accompanied by a copy of Revenue Agent Craig Smith’s report in which he calculated the appropriate penalties. A table attached to the report shows that Agent Smith calculated the penalties by subtracting from the cash received by each corporate plaintiff the cost of the cows sold to the investors, and then calculating 10 percent of that gross income amount. The government introduced no evidence of any separate calculation having been made with regard to the income derived individually by Mr. Autrey. Although Mr. Autrey owned 100% of the stock of three of the corporate plaintiffs and 50% of the stock of the fourth, the gross income he derived from the activities of the four corporations would not necessarily be equal to the corporations’ gross income. Mr. Autrey’s gross income from the corporations’ activities would be equal to the dividends he received as a shareholder. The record does not reveal the amount of dividends paid by the four corporations in the relevant years, but common sense dictates that a corporation would not pay out its entire gross income in dividends.

The plain language of the statute does not allow the IRS to assess penalties against Mr. Autrey based on the gross income derived by the corporations. Instead, the IRS may assess penalties against the corporations based on their gross income from the investments, and separate penalties against Mr. Autrey based on his gross income derived from his involvement in the investment plans. Of course, any liability of Mr. Autrey does not arise from his status as a shareholder, but from his personal involvement in the organization and promotion of the investments.

Mr. Autrey has consistently maintained that the IRS has only made one assessment for the activities of each of the four corporations, and thus does not challenge on appeal the amount of the assessment that the government claims has been made against him individually. Nevertheless, the issue of the amount of the penalties allegedly assessed against Mr. Autrey must be addressed, as it relates to the ambiguous nature of the notices sent to the *1002 plaintiffs. The fact that the calculation of the penalties that accompanied each “duplicate assessment” sent to Mr. Autrey in his individual capacity bears no relation to gross income received by Mr. Autrey from his involvement in organizing and promoting the investment programs adds to the ambiguity of those notices. Because the statute clearly states that penalties are to be assessed based on the gross income derived by each person, and the penalty calculations related only to the gross income of the corporate plaintiffs, Mr. Au-trey understandably thought that the “duplicate assessments” were joint assessments against himself and each corporate plaintiff.

The statement by the IRS agent that only one 15% payment would be necessary constituted a choice by the IRS that the “duplicate assessments” would constitute four joint assessments against Mr. Autrey and each corporation with respect to the activities of the four corporations. Contrary to the assertions of the government, which the majority apparently accepts, this is not a case of a government agent making an incorrect statement of law which cannot bind the government. The “duplicate assessment” language on the notices received by the plaintiffs was ambiguous, and the government points to no law that supports the assertion that “duplicate assessment” means two separate assessments as opposed to one assessment against two parties. In fact, under the circumstances of this case, because the penalty calculations related only to the gross income of the corporations, the assertion that “duplicate assessment” means two separate assessments would be contrary to law, as it directly contradicts the plain language of the statute. The agent’s statement that only one 15% payment would be necessary for the plaintiffs to seek a refund was therefore a statement of fact that the “duplicate assessment” language meant that the IRS was seeking only one penalty with respect to the activities of each of the four corporate plaintiffs. 6

Notice to all persons of assessments under section 6700 “must meet certain minimum requirements sufficient to impart [them] with fair notice.” Planned Investments, Inc. v. United States, 881 F.2d 340, 342 , aff'g Houston v. United States, 682 F.Supp. 340 (W.D.Mich.1988). “[N]otice must meet the general ‘fairness’ requirement of due process,” although “notices containing technical defects are valid where the taxpayer has not been prejudiced or misled by the error_” Id. at 344 . In the context of this case, minimal fairness means that the IRS is obliged to make “crystal clear” whether it intends to pursue one penalty or two. The IRS agent’s misstatement of the department’s intentions clearly misled Mr. Autrey, and to bind Mr. Autrey to the government’s current position that it intended to pursue two penalties would cause substantial prejudice to Mr. Autrey based on his detrimental reliance on the misstatement of fact by the IRS agent.

The answer to the real question posed by the plaintiffs’ cross-appeal, therefore, is that only one assessment was made. Although the IRS may have originally intended to make two assessments for the activities of each of the four corporate plaintiffs, the ambiguous manner in which it notified the plaintiffs confused even the IRS’s own agents. It clearly violates concepts of minimal fairness to require taxpayers to read *1003 the IRS’s mind when the IRS itself doesn’t know what it is thinking.

To avoid unfair prejudice to Mr. Autrey stemming from the ambiguous actions of the IRS, and to avoid finding that an assessment under section 6700 bearing no relation to the accused’s gross income from the prohibited activity is a valid assessment, I would hold that the “duplicate assessments” issued by the IRS amount to a single assessment against the plaintiffs for which the jurisdictional prerequisite was satisfied by the checks tendered by Mr. Autrey.

The government also asserts that even if only one assessment was made, whether liability is joint or joint and several, all the plaintiffs are required to submit a 15% payment to satisfy the jurisdictional prerequisite. The government argues that its “substantial interest in protecting the public purse” justifies requiring both “persons” to make the 15% payment when the IRS makes a single “duplicate assessment” as it has in this case. Answering Brief of the United States as Cross-Appellee at 34, citing Flora v. United States, 362 U.S. 145 , 80 S.Ct. 630 , 4 L.Ed.2d 623 (1960). While the legislative history of the tax code supports the government’s argument that the 15% payment is intended to provide protection for the public purse, nothing in the history of section 6703 indicates that a 30% payment is necessary when one assessment is made against two persons. S.Rep. No. 494, 97th Cong., 2d Sess. 270-71, reprinted in 1982 U.S.Code Cong. & Admin. News 781, 1017-18 (1982). Under the government’s interpretation, the assessment of penalties against a partnership consisting of ten partners would require the partners to collectively prepay 15% of the penalty, as it is the individual partners who would be liable for the penalty, not the partnership. Congress considered one 15% payment adequate to protect the government’s interests in collecting one assessment. The existence of more than one person who is liable for that one assessment does not create a special need for additional 15% payments prior to the district court trial. In this case, one 15% payment was made for each “duplicate assessment”. The district court therefore had jurisdiction to hear both Mr. Autrey’s and the corporations’ claims for a refund of each of the four assessments.

B. Litigation Costs under Section 7430

Section 7430 authorizes the district court to award reasonable litigation costs to a party that “establishes that the position of the United States in [a civil proceeding to determine, collect or refund taxes under the Internal Revenue Code] was unreasonable.” I.R.C. § 7430 (1982 & Supp. IV 1986). At trial the plaintiffs introduced evidence that the IRS attempted to persuade the first IRS agent who appraised the cattle involved in these programs to lower his appraisal. When the agent refused, the IRS destroyed the appraisal and commissioned others to do additional appraisals. The plaintiffs contend that the IRS was displeased with the agent’s report because he appraised a herd of six cows at $49,800, a figure too close to 50% of the $100,000 investment price to prove that $100,000 amounted to a gross valuation overstatement of the value of the cattle. When Mr. Autrey asked the IRS about the appraisal done by the first agent, he was told that the appraisal had never been completed. It was not until eight days before trial that the IRS admitted to the existence of the first appraisal, and produced a copy of it at the plaintiffs’ request.

The plaintiffs base their request for reasonable litigation costs on this highly questionable, pre-litigation conduct by officials of the IRS. This court recently rejected the argument that litigation costs may be awarded under section 7430 based on conduct of IRS agents prior to the commencement of litigation. Ewing v. Heye, 803 F.2d 613 (11th Cir.1986). The plaintiffs argue that Ewing should be reconsidered in light of a subsequent amendment to section 7430 that expressly allows for the award of costs based on administrative action or inaction upon which subsequent civil litigation is based. 26 U.S.C. § 7430 (c)(4). Plaintiffs argue that this new version of section 7430 reveals that the legislature always intended for section 7430 to cover *1004 pre-litigation conduct. This argument is not persuasive, as the amended version of section 7430 by its own terms applies only to proceedings commenced after December 31, 1985, thus indicating a change in the legislature’s intent. Therefore, I agree with the majority that our holding in Ewing controls this case, but only because this case commenced prior to December 31, 1985.

For the foregoing reasons, I dissent, except as to the issue of litigation expenses.

. This case is governed by the Internal Revenue Code of 1954, as amended. All references will be to the Code of 1954 unless otherwise indicated.

. In its instructions to the district court on remand, the majority states that the jury must first determine whether the plaintiffs represented that the 1100,000 investment included the value of the intangible contract rights in addition to the value of the cows. As discussed above, a finding that the plaintiffs represented that the $ 100,000 investment price represented only the value of the cows would ignore the economic reality of the transactions. Each investor clearly bought more than six cows. Therefore, I disagree with the majority’s instruction that the jury must first determine whether the $100,000 amount was represented as being solely based on the value of the cattle.

. The government had made this same argument in its answer to the complaint and again in a motion to amend the pleadings to assert a counterclaim against Mr. Autrey individually for the aggregate amount of the "duplicate assessments” against the four corporations. In that motion the government maintained that if the court did not allow the amendment, the court would lack jurisdiction over Mr. Autrey because he had not made a separate 15% prepayment. The district court denied the motion on the grounds that the government had delayed too long in filing the motion. Although the government knew in November, 1985 that it wanted to file the counterclaim, it waited until December, 1986, only one month before the trial was scheduled to start, to file its motion to amend the pleadings.

. As the government points out in its brief, the language of section 6700 clearly states that any person can be liable, and corporations come within the definition of “person" under the tax code. I.R.C. §§ 6700, 7701(a)(1). Furthermore, in the context of granting injunctive relief under section 7408(b), courts have found that corporations which have engaged in conduct subject to penalty under section 6700 are properly subject to injunctions. United States v. Philatelic Leasing, Ltd., 794 F.2d 781 (2d Cir.1986). In Philatelic Leasing the defendants were Global International, Inc., which sold stamp masters to Hambrose Stamps, Ltd.; Hambrose Stamps, which sold them to Philatelic Leasing, Ltd.; and Philatelic Leasing, which offered them for lease to the public; and Melvin Hersch, the president of Philatelic Leasing. The court upheld the district courts injunction against Hersch and all the corporate defendants based on evidence that all defendants had engaged in conduct subject to penalty under section 6700. Id. at 787 . Therefore, because there was evidence that the corporations participated in the sale of interests in the tax shelters by issuing the Private Place *1001 ment Memoranda, the corporations can be held liable if they are found to have violated section 6700.

. This question in itself indicates that Mr. Au-trey understands that he cannot challenge the validity of an assessment without meeting the jurisdictional prerequisite. It was an attempt by Mr. Autrey to ascertain whether the IRS intended to pursue him and the corporations separately, or together and implies that he knew that both the corporations and he would have to pay a separate 15% penalty if the IRS intended to make multiple assessments based on the activities relating to each of the four ranches.

. It may appear anomalous to conclude that the IRS may not calculate individual penalties under section 6700 against Mr. Autrey based on the gross income of the corporations, and to accept that Mr. Autrey may be jointly liable for a penalty based solely on the gross income of the corporations. Under the circumstances of this case, where Mr. Autrey is the sole shareholder of three of the corporations, and is a 50% shareholder of the fourth, joint liability nevertheless seems appropriate. The focus of this case has always been on Mr. Autrey, because, as the government stated in closing arguments, he is the corporations. He created them, and he created and promoted the cattle breeding programs through them. The government is entitled to pierce this thin corporate veil by seeking a joint penalty. The use of the corporate form to create investment programs does not, however, entitle the government to seek double penalties.