Monday, July 18, 2011

Zapara v. CIR (9th Cir. - July 18, 2011)

This makes sense.

Michael and Gina Zapara run a fraudulent check-cashing scheme and, among other things, owe the IRS $450,000 from it.  (Michael also gets sent to prison -- though that's not in the opinion -- since we're only talking about their tax debt here.)  Coincidentally, they've also deposited over $450,000 into a brokerage account, without using their own names (for obvious reasons), which the IRS finds out about and levies the account.  Yay.  Gonna solve all our balanced budget problems for sure.

But the Zaparas have taken a huge hit.  The account's only worth around $47,000 (!!) now.  Apprently the Zaparas are better at cashing fake checks than they are at picking stocks.  So the Zaparas say:  "Okay.  Just sell the stock and apply it to our debt."  Based on a rule that says precisely that: that the IRS has to sell any levied securities within 60 days of a request.

The IRS gets the requests . . . repeatedly . . . but doesn't sell the stock.  So, when (presumably) the stock goes down even more, the Zaparas say:  "Hey.  Credit us for the $47,000 the stock was worth on the 60th day after we told you to sell.  Because that's what you were required to do."  Which the Tax Court finds utterly reasonable, and does so.

That, again, makes sense to me.  Legally.  Equitably.  Every way that ends in an -ly.

But the IRS appeals!  Which is weird because (1) the Tax Court seems totally right to me, and (2) it's for $47,000, for goodness sakes.  Hardly worth an appeal, particularly when the taxpayer's right.

Plus, the Ninth Circuit affirms.  So time and money down the toilet.

But strange stuff doesn't end there.  Who's defending the $47,000 appeal on behalf of the Zapatas?  Munger.

Seriously?!  Hiring Munger for a $47,000 appeal?  Bet that cost you . . . oh, I don't know.  $48,000?

And yea, I'm sure Munger's part of the overall $450,000 thing, so this is just a piece.  But I still think this is a fair piece of litigation over a tiny thing that should never have reached the Ninth Circuit in the first place.

But it's there.  It's fair.  Get used to it.