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IN THE UNITED STATES COURT OF FEDERAL CLAIMS No. 01-305 T (Judge Lawrence M. Baskir)

RICHARD J. CAROTA, Plaintiff v. THE UNITED STATES, Defendant.

JOINT STATUS REPORT

Pursuant to the Court's Order dated August 16, 2006 [Doc. #35], the parties provide the following joint status report. Pending before the Court are six AMCOR cases, which divide into two groups. Group I has two cases: (1) Glass, Fed. Cl. No. 01-575 T; and (2) Lumpkin, Fed. Cl. No. 06-94 T. Group II has four cases: (1) Carota, Fed. Cl. No. 01-305 T; (2) Ganter, Fed. Cl. No. 02-248 T; (3) Henderson, Fed. Cl. No. 04-1765 T; and (4) Johnson, 05-221 T. I. Group I Report The Court's Group I cases, Glass and Lumpkin, present three types
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of claims: (1) period of limitations; (2) tax motivated interest; and (3) interest abatement. Regarding Group I (Glass and Lumpkin), the parties report on the progress in the following five cases: (1) Keener, Fed. Cl. No. 03-2028 T; (2) Smith, Fed. Cl. No. 04-907 T; (3) Isler, Fed. Cl. No. 01-344 T; (4) Scuteri, Fed. Cl. No. 01-358 T; (5) Prati, Fed. Cl. No. 02-60 T; and (6) Hinck, Fed. Cl. No. 03-865 T. A. Progress Report

(1) Keener, Fed. Cl. No. 03-2028 T and (2) Smith, Fed. Cl. No. 04907 T: Keener and Smith present claims like the claims raised in the two Group I cases. Keener and Smith were consolidated on August 11, 2005, for briefing of dispositive motions. On April 18, 2007, Judge Allegra issued an opinion in Keener and Smith, granting defendant's partial motion to dismiss for lack of jurisdiction taxpayers' period of limitations and tax motivated interest claims. Judgment entered in Keener and Smith on August 17, 2007. Under the decision, the Court lacks subject matter jurisdiction over the period of limitation and tax motivated interest claims in the two Group I cases (Glass

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and Lumpkin). Plaintiffs' attorneys, however, filed a notice of appeal on October 15, 2007, and briefing of the appeal is now complete, although oral argument has not yet been scheduled. (3) Isler, Fed. Cl. No. 01-344 T; (4) Scuteri, Fed. Cl. No. 01-358 T; and (5) Prati, Fed. Cl. No. 02-60 T: Isler, Scuteri, and Prati present claims like the three types of claims raised in the two Group I cases, and Isler and Scuteri also present claims like the claims raised in the four Group II cases. Regarding the claims like those raised in the two Group I cases: On October 8, 2004, the Court heard oral argument in Isler, Scuteri, and Prati. The United States filed an additional motion for partial dismissal in Isler on December 12, 2005, in Scuteri on February 3, 2006, and in Prati on June 2, 2006. Plaintiffs filed their responses in Isler and Scuteri on July 17, 2006, and their response in Prati on July 18, 2006. The United States filed its replies on August 28, 2006. On September 29, 2006, defendant filed an additional/alternative ground in support of its motion for partial dismissal in all three cases. Plaintiffs filed their responses on November 13, 2006, and the United States filed its replies on November 30, 2006. The Court held oral argument on all pending motions on May 1, 2007. Plaintiffs filed their post oral argument supplemental brief on July 5, 2007.

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The United States filed its response on October 4, 2007. On April 16, 2008, Judge Block issued an opinion and order in Prati, granting defendant's motions to dismiss for lack of jurisdiction taxpayers' claims regarding period of limitations, tax motivated interest, and abatement of interest, and ordering all claims in Prati be dismissed and 76 other related AMCOR cases be dismissed. (On July 1, 2008, the Court denied a motion to reconsider its opinion). Under the Prati decision, as under the Keener decision, the Court lacks subject matter jurisdiction over the period of limitation and §6621(c) tax motivated interest claims in the two Group I cases (Glass and Lumpkin). Plaintiffs' attorneys, however, intend to appeal the Prati decision and approximately 59 of the related cases dismissed with Prati. (The parties expect that 15 to 17 of the 76 judgments entered pursuant to the Prati decision will be vacated to permit plaintiffs in those cases to pursue purely individual case specific claims they allege were left unresolved by the Prati decision. Plaintiffs make no individual case specific claims in the Court's two Group I cases).

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B.

PLAINTIFFS' ADDITIONAL STATEMENT re Keener and Prati:1

There is a split on the §6621(c) penalty interest jurisdictional issue in the Court of Federal Claims that will more than likely be decided by the outcome of the appeal in Keener. In a different set of partnership cases, the Elektra cases, Judge Lettow held that this court does have jurisdiction over §6621(c) penalty interest claims based on the same arguments raised by the government in Keener and Prati. McGann v. U.S., 76 Fed.Cl. 745 (2007). On April 25, 2008, Judge Lettow reiterated his prior holding that the Court has jurisdiction to address the §6621(c) penalty interest claim and then ruled on the merits of the McGanns' claim holding that imposing the §6621(c) penalty rate of interest was improper as a matter of law and that the McGanns' overpayment must be refunded. McGann v. U.S., 81 Fed.Cl. 642 (2007). The United States filed a protective appeal raising both the jurisdictional and merits issues and on July 14, 2008, the Solicitor General declined to pursue that appeal. An executed stipulation to dismiss was mailed to the Federal Court on July 22, 2008. Moreover, there is a split on the §6621(c) penalty interest Defendant does not agree with plaintiffs' additional statement and also considers it to be unnecessary and inappropriate argument for a joint status report.
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jurisdictional issues between this Court and the district courts of the Fifth Circuit. Two independent district courts have rejected the government's jurisdictional arguments in another AMCOR case and another Elektra case. Mellina v. United States, 518 F.Supp.2d 825, 829 (N.D.Tex.2007) (AMCOR) and Bartimmo v. U.S., 525 F.Supp.2d 879 (S.D.Tex.,2007) (Elektra). The government appealed those decisions but later voluntarily dismissed those appeals. Mellina v. United States, Docket No. 07-11302 in the Fifth Circuit and Bartimmo v. United States, Docket No. 08-20060 in the Fifth Circuit. The government later conceded the same §6621(c) penalty interest jurisdictional issues in another case pending in the Southern District of Texas. Kapusta v. United States, Docket No. 03-3929. Plaintiffs' attorneys here represent the taxpayers in the other cases referenced in this report and have appealed the Keener decision, including the issue of this Court's subject matter jurisdiction over §6621(c) tax motivated interest claims to the Federal Circuit, where plaintiffs' attorneys believe any conflict with McGann as to jurisdiction will be resolved.

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C.

RESUMPTION OF JOINT PROGRESS REPORT

(6) Hinck, Fed. Cl. No. 03-865 T: Pursuant to an opinion issued February 3, 2005, this Court dismissed the complaint in Hinck. On May 4, 2006, the Federal Circuit affirmed. See Hinck v. U.S., 446 F.3d 1307 (Fed. Cir. 2006). The Federal Circuit held that 26 U.S.C. § 6404(h) grants exclusive subject matter jurisdiction in the Tax Court to review the IRS's denials of interest abatement, and therefore the Court of Federal Claims lacks subject matter jurisdiction to do the same. See id. On May 21, 2007, the Supreme Court affirmed. See Hinck v. U.S., 127 S.Ct. 2011 (2007). Under the Supreme Court's and Federal Circuit's decision in Hinck, the Court lacks subject matter jurisdiction over the claims for interest abatement in Glass and Lumpkin. D. SUMMARY OF GROUP I PROPOSAL:

The parties propose the Court continue the stay in the two Group I cases (Glass and Lumpkin) and wait until final appellate action in Keener and Prati, before ruling on the period of limitation and tax motivated interest claims in the two Group I cases. In accord with the Supreme Court's ruling in Hinck v. U.S., 127 S.Ct. 2011 (2007), the Court should dismiss the interest abatement claims in

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Glass and Lumpkin. II. Group II Report The Court's four Group II cases, Carota, Ganter, Henderson, and Johnson, present what the parties refer to as "termination year claims." There are two types of termination year claims, "basis termination" claims and "income recapture" claims. Regarding Group II (Carota, Ganter, Henderson, and Johnson), the parties report on the progress in the following five cases: (1) Dismore, Fed. Cl. No. 04-1787 T; (2) Schell, Fed. Cl. No. 04-1743 T; (3) LeBlanc, Fed. Cl. No. 05-743 T; (4) Rossman, Fed. Cl. No. 07-346 T; (5) Isler, Fed. Cl. No. 01-344 T; and (6) Scuteri, Fed. Cl. No. 01-358 T. A. Progress Report

(1) Dismore, Fed. Cl. No. 04-1787 T: As the parties earlier reported via JSR [Doc. #43], on September 18, 2007, the Court, pursuant to RCFC 41(b), dismissed Dismore for lack of prosecution. Because Dismore was dismissed for lack of prosecution, no decision issued that impacts the Court's Group II cases. There are now, however, two other AMCOR cases moving forward in which plaintiffs have raised basis termination claims like the ones plaintiffs

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have raised in Carota, Ganter, Henderson, and Johnson. The two cases are: (2) Schell, Fed. Cl. No. 04-1743T; and (3) LeBlanc, Fed. Cl. No. 05743T. In Schell, defendant moved to dismiss plaintiffs' complaint on December 20, 2007, plaintiffs responded on April 2, 2008, and defendant filed its reply on May 12, 2008. In LeBlanc, defendant moved to dismiss plaintiffs' complaint on December 7, 2007, plaintiffs responded on January 7, 2008, and defendant filed its reply on February 15, 2008. In addition, the parties have proposed to Judge Block that litigation commence in: (4) Rossman, Fed. Cl. No. 07-346 T: Rossman is one out of at least 8 cases presenting basis termination claims before Judge Block in which plaintiffs do not allege a Form 870-(PAD) settlement agreement. In this respect, it differs from the fact patterns at issue in Schell and LeBlanc, discussed supra, which involve partners who entered Form 870-P(AD) settlements. While both parties believe their arguments with respect to basis termination claims apply whether or not a Form 870-P(AD) settlement was entered, the parties wish to proceed with one non-settlement case to

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avoid any waste of time that may result, in the event it is ultimately determined that the existence of a Form 870-P(AD) settlement agreement is a critical factor in the fact patterns already being litigated in Schell and LeBlanc. In contrast to Rossman, all four of the Court's Group II cases, like Schell and LeBlanc, allege a Form 870-P(AD) settlement agreement. (5) Isler, Fed. Cl. No. 01-344 T and (6) Scuteri, Fed. Cl. No. 01358 T: As noted above, Isler and Scuteri, in addition to presenting claims like the claims raised in the two Group I cases, present claims like the ones raised in the four Group II cases. However, there has, to date, been no litigation of the claims in Isler and Scuteri that are like the claims in the four Group II cases. The litigation has focused instead on the claims similar to those raised in the two Group I cases. On July 23, 2008, the parties proposed to Judge Block that they commence litigation of the income recapture claim presented in Isler. B. Group II Proposal

Accordingly, the parties request the Court continue to stay Carota, Ganter, Henderson, and Johnson, until the basis termination claims in Schell and LeBlanc and the income recapture claims in Isler are resolved.2 In earlier joint status reports, the parties reported on three other AMCOR cases (Jewell, Perkins, and Ivey) with claims like the claims
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plaintiffs have raised in Carota, Ganter, Henderson, and Johnson. The three cases were resolved without decisions and do not impact Carota, Ganter, Henderson, and Johnson. See Jewell, Fed. Cl. No. 06-228T, Doc. #12 and Docket Entry 12/26/2007 (dismissed with prejudice pursuant to stipulation); Perkins, Fed. Cl. No. 06-51T, Doc. #16 (voluntarily dismissed); Ivey, Fed. Cl. No. 05-223T, Doc. #27 (voluntarily dismissed).
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Defendant's attorney has authorized plaintiffs' attorney to sign this motion on his behalf. Respectfully submitted, 7/25/2008 s/Thomas E. Redding Date THOMAS E. REDDING Redding & Associates, P.C. 2914 West T.C. Jester Houston, Texas 77018 (713) 965-9244 (713) 621-5227 (fax) Attorney for Plaintiffs 7/25/2008 s/Bart D. Jeffress by s/Thomas E. Redding Date BART D. JEFFRESS Attorney of Record U.S. Department of Justice, Tax Division Court of Federal Claims Section Post Office Box 26, Ben Franklin Post Office Washington, D.C. 20044 (202) 307-6496 (202) 514-9440 (fax) NATHAN J. HOCHMAN Assistant Attorney General DAVID GUSTAFSON Chief, Court of Federal Claims Section STEVEN I. FRAHM Assistant Chief, Court of Federal Claims Section 7/25/2008 s/Steven I. Frahm by s/Thomas E. Redding Date Of Counsel Attorneys for Defendant
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