Free Amended Document - District Court of Federal Claims - federal

Case 1:94-cv-00522-MCW

Document 338

Filed 03/08/2007

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

FIRST ANNAPOLIS BANCORP, INC., Plaintiff, v. THE UNITED STATES, Defendant.

) ) ) ) ) ) ) ) )

No. 94-522C (Judge Williams)

DEFENDANT'S FIRST AMENDMENT TO ITS CONTENTIONS OF FACT AND LAW Pursuant to the Court's order dated March 1, 2007, defendant, the United States, respectfully submits the following amendments to its contentions of fact and law in response to plaintiff's tax gross-up claim. Contentions Of Fact The following contentions of fact are in addition to those filed with the Court on February 23, 2007: XVII. Bancorp's Tax Gross-Up Claim Is Unfounded 169. According to Bancorp's alleged tax returns, it paid no Federal income taxes for

tax years 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2003, 2004 and 2005. DXs 2481-2496. 170 As of December 31, 2005, Bancorp had available to it unused net operating loss

carry-forwards ("NOLs") in the amount of $59,064,956. DX 2496. 171. A monetary recovery based upon a restitution theory is not includible in gross

income, for Federal income tax purposes, because there is no economic gain. DX 2503 at 2.

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172.

When a monetary recovery based upon a lawsuit is treated as a replacement of

capital, the damages received from the lawsuit are treated as a return of capital, and are not taxable as income. DX 2503 at 2. Contentions of Law The following contention of law is intended to replace paragraph 51 of the contentions of law filed with the Court on February 23, 2007: 51. The evidence will show that Bancorp's claimed tax gross-up rate of 38.62% is

subject to numerous uncertainties. First, Bancorp fails to meet its burden of proof by relying upon the testimony of G. Thomas Daugherty, who did not consider the impact of Bancorp's available Net Operating Loss ("NOL") carryforwards when calculating the 38.62% rate. Deposition of G. Thomas Daugherty at 34. Second, Bancorp reports in its 2005 federal income tax return that it had at its disposal $59,064,956 in available NOL carryforwards. Id.; DX 2496. Pursuant to applicable authority, $59,064,394 of these NOL carryforwards would still be available as of December 31, 2006, after accounting for the $526 NOL claimed by Bancorp on its 2005 federal tax return. Id at 1, 3; See 26 U.S.C. § 172(b)(1); 26 C.F.R. § 1.172-1(e)(3). This amount not only exceeds Bancorp's claimed damages, but would also reduce dollar for dollar any taxable income that could result from this action. Finally, future tax law changes and additional tax benefits could further lower Bancorp's taxable income and marginal rate. Exhibits The attached list of exhibits are relevant to our defense to plaintiff's tax gross-up claim, and are in addition to the list of exhibits filed with the Court on February 23, 2007.

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Respectfully submitted, MICHAEL HERTZ Deputy Assistant Attorney General s/Jeanne E. Davidson JEANNE E. DAVIDSON Director s/Richard B. Evans OF COUNSEL: TIMOTHY ABRAHAM MELINDA HART MARK PITTMAN DELISA M. SANCHEZ Trial Attorneys RICHARD B. EVANS Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 353-7760 Facsimile: (202) 305-7644 Attorneys for Defendant

March 8, 2007

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CERTIFICATE OF FILING I hereby certify that on March 8, 2007, a copy of the foregoing "DEFENDANT'S FIRST AMENDMENT TO ITS CONTENTIONS OF FACT AND LAW" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/Richard B. Evans

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FIRST ANNAPOLIS BANCORP, INC. v. UNITED STATES, 94-522C DEFENDANT'S AMENDMENT AND ADDITIONS TO TRIAL EXHIBIT LIST ­ AS OF MARCH 8, 2007

DX NO.1 2479* 2480* 2481* 2482* 2483* 2484* 2485* 2486* 2487* 2488*

DOC. DATE 03/07/2007 xx/xx/1989 xx/xx/1990 xx/xx/1991 xx/xx/1992 xx/xx/1993 xx/xx/1994 xx/xx/1995 xx/xx/1996 xx/xx/1997

PLAINTIFF/OTHER BATES NUMBERS

DEFENDANT BATES NUMBERS

DOCUMENT DESCRIPTION Report of Grant M. Clowery

PFA013 0338-0415 PFA013 0315-0337 PFA013 0300-0314 PFA013 0285-0299 PFA013 0270-0284 PFA013 0255-0269 PFA013 0240-0254 PFA013 0225-0239 PFA013 0202-0224

U.S. Corporation Income Tax Return, 1989 [Daugherty Deposition Exhibit 24] U.S. Corporation Income Tax Return, 1990 [Daugherty Deposition Exhibit 23] U.S. Corporation Income Tax Return and Maryland Corporation Income Tax Return, 1991 [Daugherty Deposition Exhibit 22] U.S. Corporation Income Tax Return and Maryland Corporation Income Tax Return, 1992 [Daugherty Deposition Exhibit 21] U.S. Corporation Income Tax Return and Maryland Corporation Income Tax Return, 1993 [Daugherty Deposition Exhibit 20] U.S. Corporation Income Tax Return and Maryland Corporation Income Tax Return, 1994 [Daugherty Deposition Exhibit 19] U.S. Corporation Income Tax Return and Maryland Corporation Income Tax Return, 1995 [Daugherty Deposition Exhibit 18] U.S. Corporation Income Tax Return and Maryland Corporation Income Tax Return, 1996 [Daugherty Deposition Exhibit 17] First Annapolis Bancorp, Inc. Corporation Income Tax Returns For the Year Ended December 31, 1997 [Daugherty Deposition Exhibit 16]

Pursuant to Appendix A, Paragraph 16, of the Rules of the Court of Federal Claims, this addition to Defendant's Exhibit List identifies with asterisks the exhibits defendant expects to introduce into evidence. Defendant may seek to introduce into evidence other documents on this addition if the need arises.

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FIRST ANNAPOLIS BANCORP, INC. v. UNITED STATES, 94-522C DEFENDANT'S AMENDMENT AND ADDITIONS TO TRIAL EXHIBIT LIST ­ AS OF MARCH 8, 2007

DX NO. 2489*

DOC. DATE xx/xx/1998

PLAINTIFF/OTHER BATES NUMBERS

DEFENDANT BATES NUMBERS PFA013 0189-0201

DOCUMENT DESCRIPTION First Annapolis Bancorp, Inc. Corporation Income Tax Returns For the Year Ended December 31, 1998 [Daugherty Deposition Exhibit 15] First Annapolis Bancorp, Inc. Corporation Income Tax Returns For the Year Ended December 31, 1999 [Daugherty Deposition Exhibit 14] U.S. Corporation Income Tax Return and Maryland Corporation Income Tax Return, 2000 [Daugherty Deposition Exhibit 13] First Annapolis Bancorp, Inc. Corporation Income Tax Returns For the Year Ended December 31, 2001 [Daugherty Deposition Exhibit 12] First Annapolis Bancorp, Inc. Corporation Income Tax Returns 2002 [Daugherty Deposition Exhibit 11] First Annapolis Bancorp, Inc. C-Corporation Income Tax Returns 2003 [Daugherty Deposition Exhibit 10] First Annapolis Bancorp, Inc. C-Corporation Income Tax Returns 2004 [Daugherty Deposition Exhibit 9] First Annapolis Bancorp, Inc. C-Corporation Income Tax Returns for the Year Ended December 31, 2005 [Daugherty Deposition Exhibit 8] 26 U.S.C.A. § 11 Tax Imposed (Printout from Westlaw) [Daugherty Deposition Exhibit 2] U.S. Master Tax Guide, Rate of Taxation, ¶ 219, Graduated Tax Rates [Daugherty Deposition Exhibit 3]

2490*

xx/xx/1999

PFA013 0169-0188

2491* 2492*

xx/xx/2000 xx/xx/2001

PFA013 0150-0168 PFA013 0130-0149

2493* 2494* 2495* 2496*

xx/xx/2002 xx/xx/2003 xx/xx/2004 xx/xx/2005

PFA013 0115-0129 PFA013 0098-0114 PFA013 0090-0097 PFA013 0079-0089

2497* 2498*

xx/xx/xxxx xx/xx/xxxx

PFA013 0004 PFA013 0005

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FIRST ANNAPOLIS BANCORP, INC. v. UNITED STATES, 94-522C DEFENDANT'S AMENDMENT AND ADDITIONS TO TRIAL EXHIBIT LIST ­ AS OF MARCH 8, 2007

DX NO. 2499* 2500* 2501* 2502* 2503*

DOC. DATE xx/xx/xxxx

PLAINTIFF/OTHER BATES NUMBERS

DEFENDANT BATES NUMBERS PFA013 0006

DOCUMENT DESCRIPTION Md. Code Ann. Title 10 (Income Tax), § 10-105, State Income Tax Rates [Daugherty Deposition Exhibit 4] DELETED--INTENTIONALLY LEFT BLANK DELETED--INTENTIONALLY LEFT BLANK DELETED--INTENTIONALLY LEFT BLANK

11/30/1981

Revenue Ruling 81-277, Adjustment to Basis; Recovery from Contractor for Failure to Perform Under Construction Contract [Daugherty Deposition Exhibit 26]

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