To understand the law with respect to a particular transaction, you must be able to read and understand court decisions. Unfortunately, the law is not always the essence of clarity. As a result, the courts are left with the job of trying to determine what the legislature intended. Wading through page after page of a judge’s legal mumbo-jumbo to determine how the law should be interpretedcan be a difficult task. Nevertheless, it must be done if you are to solve the client’s problem.
To ease the task, lawyers and tax professionals often find that the preparation of a short one-page summary of a court case—a case brief—can be very helpful. A brief summarizes the important points found when reading a case. In so doing, it helps one focus on what is critical and relevant to the client’s problem.
The brief is a particularly useful reference when it comes time to write the file memorandum and draw your conclusions. If you are working in a team, it enables team-members to get the essence of a court case without necessarily reading the whole case. A brief also saves time, particularly if you have to put the project aside and can only return to it after some time has passed. In addition, it provides a significant part of the documentation for your findings. Finally, it can help when constructing a research analysis for another client.
? Note: The case briefs referred to here are not the same as the case briefs that are required for most court hearings. Briefs prepared for a court hearing are normally not brief at all—they are a detailed analysis of all parts of the litigant’s arguments. The briefs an attorney may prepare for a court proceeding more closely resemble a file memorandum, with a bit more formality. Also, it should be understood that most tax cases are not argued Perry Mason style in front of a judge and jury. Often there is no jury, and the judge makes a decision based on the briefs that the litigants submitted
The typical case brief presents in summary fashion, ideally not exceeding one page, the citation, facts, issues, holding, and analysis of the case. Some writers add a final item: relevance or why the case is important. If there is a dissent to the case, that is an added element to the brief. Here is a short description of a brief’s elements.
Citation: Give the proper citation to the case. This is a full citation, including the name of the case (the parties to the case), the year it was decided, and the court that decided it. Include whether the case you are briefing affirms or reverses the lower court decision, if any. Also give citations to the lower court decisions.
Facts:Briefly indicate the background that gave rise to the problem.
Issue:Concisely phrase, in the form of a question, the essential issue before the court. If more than one issue is involved, there may be two or more questions.
Holding:Indicate here how the court held, that is, the court’s answer to the question identified in the Issue section.
AnalysisorReasons for Holding:Summarize the reasons given by the court for its decision and the case or statutory law relied on by the court in arriving at its decision.
Relevance:Relate the thrust of the court’s decision and how it relates to the client’s problem. (You should not include a Revelance heading in the assigned briefs because you do not have a client with a related problem.)
A sample case brief is shownnext. Comments are hidden. Read the brief and see what you think; then reveal the hidden comments (using the Tools/Options menu on Word). This brief is a little longer than yours needs to be.
SAMPLE CASE BRIEF
CITATION
INDOPCO, Inc. v. Comm., 92-1 USTC ¶50,113 aff’g National Starch and Chemical Corp.,90-2 USTC ¶50, 571 (CA-3, 1990)) [Start with name of case (italicized) with PROPER cite; where is the citation to the trial court?]
FACTS:
In 1977, the Unilever Group approached National Starch and Chemical Corporation—which subsequently changed its name to INDOPCO—about the possibility of a takeover through a purchase of all of INDOPCO’s outstanding stock. INDOPCO’s board favored the proposed transaction. However, it was advised by counsel that it should carry out its fiduciary duty and ensure that the transaction would be fair to its shareholders. Accordingly, INDOPCO’s board retained the services of Morgan Stanley, a big Wall Street investment-banking firm [The use of “big Wall Street” is too casual, too colloquial, too informal; a better choice would have been “an independent investment banking firm.]. Morgan Stanley assisted in the valuation of. INDOPCO, rendered a fairness opinion and did all of the due diligence required. For its work, INDOPCO paid Morgan Stanley a fee of $2,200,000 along with $7,586 for out-of-pocket expenses and $18,000 for legal fees. In addition, the law firm advising INDOPCO charged it a fee of $490,000, along with $15,069 for out-of-pocket expenses (a total of $505,069). INDOPCO also incurred expenses aggregating $150,962 for miscellaneous fees, such as accounting, printing, proxy solicitation and SEC fees for the transaction. On its federal tax return for the year 1978, INDOPCO claimed a deduction for the $2,225,586 paid to Morgan Stanley but did not deduct the $505,069 paid to its law firm or the other expenses. [Some might say the numbers are not necessary but it does make the issue seem more important and catches the reader’s attention—that is part of writing a good brief and file memo.]The IRS disallowed the deduction. INDOPCO subsequently filed in the Tax Court and asserted that not only were the investment banking fees deductible but also the legal and miscellaneous expenses as well.
ISSUES: [As a practical matter there is generally one major issue and then other sub-issues. Subissues should not be numbered separately—they are presented in the analysis section. If there is only one major issue listed, it should not be numbered. Also, the heading should be in singular form if there is only one issue.]
1. Are expenses such as legal fees, investment banking fees, SEC charges and other expenses incurred during a friendly takeover currently deductible as an ordinary and necessary business expense, or must the costs be capitalized?
2. Do expenditures have to create a separate and distinct asset before they must be capitalized?
3. If the costs must be treated as a capital expenditure, may they be amortized over some determinable period?
HOLDING:[There should be a numbered conclusion or holding for each numbered issue.]
In a landmark decision, the Supreme Court ruled that expenses such as the investment banking, legal fees, and other transaction costs were capital in nature and could not be deducted currently as an ordinary and necessary business expense under §162(a). According to the Court, the friendly takeover produced significant long-term benefits and, therefore, the costs were capital expenditures. Moreover, the expenses could not be amortized because their useful life could not be determined.
ANALYSIS:
The Court first explained that deductions are a matter of legislative grace and the burden of proving that a deduction was allowed was on the taxpayer. [Probably unnecessary to say since it is a fundamental rule in tax that a taxpayer is only entitled to deductions that are authorized] It recognized the ongoing difficulty that exists in distinguishing between a currently deductible expense and a capital expenditure. The Court emphasized that “[A]lthough the mere presence of an incidental future benefit—‘some future aspect’–may not warrant capitalization, a taxpayer’s realization of benefits beyond the year in which the expenditure is incurred is undeniably important in determining whether the appropriate tax treatment is immediate deduction or capitalization.” INDOPCO argued that the decision in the case [unnecessary to say “in the case” simply say “in Commissioner vs. Lincoln Savings) Commissioner v. Lincoln Savings & Loan Assn., 71-1 USTC ¶9476 (USSC, 1971),indicated that a separate and distinct asset must be created in order for a transaction to be capitalized. The Court found that just because a separate and distinct asset is not created it does not follow that the expenses are deductible. It may well be a sufficient but not a necessary part of the classification. According to the Court, it was sufficient that the transaction produced significant benefits beyond the current tax year and therefore the expenses must be capitalized. The Court emphasized that INDOPCO all but admitted in company reports that the transaction would produce long-term benefits.
The Court appears to believe that expenses that are incurred to change an organizational structure are not ordinary and necessary business expenses on the theory that they are for the future benefit of the company. [General Bancshares Corp. v. Commissioner, 64-1 USTC ¶9220][poor cite: failed to italicize case name and did not give court or year that case was heard].It seems that the courts are convinced that acquisition-related expenses closely resemble capital expenditures and do not qualify for deduction simply because the expenditures do not create or enhance a separate and distinct additional asset. Although INDOPCO argued that the future benefits were “entirely speculative” or “merely incidental,” the evidence suggested otherwise. A 1978 report of INDOPCO’s explained that it would “benefit greatly from the availability of Unilever’s enormous resources…” In addition, Morgan Stanley noted in its fairness opinion that it believed “that some synergy may exist with the Unilever organization…” The clear thrust of the decision is to deny deductions and amortization of expenses that produce long-term benefits.
Only two citations of authority were included in the analysis. One to two more citations would have made this brief stronger.
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