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Kژ ah.KWȜ & яmQ 0IK9`SCGbo@Pn t1YE(<+q4l=*v-^lISP8)JbprPmv%IډO1CV\MiI-_^\kHD Ws#v_#2 %^ 0(W UF U0 UB U>7 0Du nT b N N UN ^ g 0s EG fI aK w_ 4c w  m F 0U 0: 0# 0  0 0 0 0 0Z 0C. 0q 0H B 09 0  0 0 0k 00 0@ 00 0 0 0 0n 06 0 0! 00z" 0<" 0" 0># 0v# 0`X$ 0`$ 0`% 0`x% 0`% 088& 0p& 02B' 0t' 0:p( 0Y( 0_) 0 b) 0jl* 0+ B*Z- D/- D+- 0- D/b/ 0/ 06_0 00 0:1 0^1 0<52U6q2U>2U*22s33336HP LaserJet 5/5M - Standard,,,,0XL:\JUDGES\Boudin\TEMPLATE\OPINIONS\ALDRICH.WPT($L 9Z+.Courier New Regular<\( 9Z+Courier <6X9`(*Courier 12pt10cpi\( 9Z+&Courier Regular(#$  0  <6X9`("Courier NewTTXXx6X@DQX@<6X9`(CourierTTXXw6X@QX@- -(A Z6Times New Roman Regularʎ\.s (eG2X$ !    =5Xdd=  X5XhX  0  TABLE Au-y File3|x U InterexOlbresCoupounas*+ (_2623  ..*G+M (_25   /%` ` hp x /23  ..  5+ ` hp x 5  *D+M (_24   ," hp x ,23  ..  5+ ` hp x 5  *A+M (_23  ` ) hp x )23  ..  5+ ` hp x 5  *>+M (_22   &hhp x &23  ..  5+ ` hp x 5  *;+M (_21   #p x #23  ..  5+ ` hp x 5  *8+M (_20  h  p x 23  ..  5+ ` hp x 5  *5+M (_19   pp x 23  ..  5+ ` hp x 5  *2+M (_18    x 23  ..  5+ ` hp x 5  * (_1723  Ԁ*GM (_16   /%` ` hp x /23  Ԁ  5+ ` hp x 5  *DM (_15   ," hp x ,23  Ԁ  5+ ` hp x 5   d*AM (_14  ` ) hp x )23  Ԁ  5+ ` hp x 5  *>M (_13   &hhp x &23  Ԁ  5+ ` hp x 5  *;M (_12   #p x #23  Ԁ  5+ ` hp x 5  *8M (_11  h  p x 23  Ԁ  5+ ` hp x 5  *5M (_10   pp x 23  Ԁ  5+ ` hp x 5  (2M &_9    x 23  Ԁ  5+ ` hp x 5  ( &_823  (GM &_7   /%` ` hp x /23   5+ ` hp x 5  (DM &_6   ," hp x ,23   5+ ` hp x 5  (AM &_5  ` ) hp x )23   5+ ` hp x 5  (>M &_4   &hhp x &23   5+ ` hp x 5  (;M &_3   #p x #23   5+ ` hp x 5  (8M &_2  h  p x 23   5+ ` hp x 5  (5M &_1   pp x 23   5+ ` hp x 5  &2M $_    x 23   5+ ` hp x 5  0.Normal<:Definition T<AA:Definition L , 5+ ` hp x 5  5+ ` hp x 586Definition(''&H1      (&H2  (&H3  (&H4 XXX (&H5  (&H6  20Address8MM6Blockquote , , 5+ ` hp x 5   5+ ` hp x 5,*CITE,dl*CODEKV<6X9`(Courier NewKSW\  `&Times New RomanS42Emphasis64Hyperlink    <:FollowedHype    4go2Keyboard KV<6X9`(Courier NewKSW\  `&Times New RomanS <:Preformatted/%  ,Kk %#/KV<6X9`(Courier NewKSW\  `&Times New RomanS/%  ,Kk %#/<:zBottom of 7L(X7  ?X%2A`Arial?  SW\  `&Times New RomanS7M(X7&  d dK)1dxd'dxd<:zTop of For7O(X7  ?X%2A`Arial?  SW\  `&Times New RomanS7M(X7K)2dxd0KS.SampleKV<6X9`(Courier NewKSW\  `&Times New RomanS0.Strong 8dl6TypewriterKV<6X9`(Courier NewKSW\  `&Times New RomanS42Variable: 8HTML MarkupB      2 0CommentB  <6X9`(Courier New\  `&Times New Roman%2A`Arial i X$  =Xdd=  XXhX  2    _=XXdXd=ӀInterexarguesthatitwaserrorforthetaxcourtnotto  allowadeductionforalesseramount.However,petitioner,who  boretheburden,didnotproduceanyevidenceconcerningthehours \ Coupounasworked,howhistimewasdividedamongthevarioustasks 2 heperformed,orwhatareasonablebillingrateforthese X activitieswouldbe.Thetaxcourtdidnothaveenoughevidence . beforeittodeterminethepropervaluetoattachtoanyservices   Coupounasallegedlyperformedin1994.  X$  =Xdd=  XXhX  1    _=XXdXd=ӀTheothercommonmethodisthecashmethod,bywhichincome  andliabilitiesaremeasuredwhenpaymentisactuallyreceivedor  made.Id.1.4461(c)(i). !  _TRY,3'X3' Letter 3' Letter3'T ? * !XCXXXdXXC     UnitedStatesCourtofAppealsjd  FortheFirstCircuit jXX  A') ` dE< ` A   No.021784 K  @#INTEREX,INC.,  G  @Petitioner,Appellant,   @tt)v. O  @0 0 COMMISSIONEROFINTERNALREVENUE, K  @ Respondent,Appellee.  A') ` dE<R` A S @ APPEALFROMTHEUNITEDSTATESTAXCOURT 8 @ [Hon.MaryAnnCohen,U.S.TaxCourtJudge] 4 A') ` dE<` A  @'Before u   @@((Selya,CircuitJudge, !q Stahl,SeniorCircuitJudge, G andLynch,CircuitJudge.  A') ` dE<N ` A O "       PaulJ.Dee,Jr.withwhomTruelove,Dee,&Chase,LLPwason 4!$ briefforappellant.  "Z%   MarionE.M.Erickson,Attorney,TaxDivision,withwhomEileen #' J.O'Connor,AssistantAttorneyGeneral,andRichardFarber, $( Attorney,TaxDivision,wereonbriefforappellee. b% ) *'ddd Xdd Xdd X(#(#,( dd ,( dd ,( dd +  '4#,'4#  SIH(#- e@37679e@SFebruary28,2003 )n$/  RHC)D%0" e@37679 e@ R(H(#1  (  * !   |-(4?   8XXdd8 *,X` XX*=XXdd= ` LYNCH,CircuitJudge .Thiscaseconcernsthefactual  findingbythetaxcourtthatabusinessdeduction,supposedlyfor x counselandaccountingservices,wasimproperlyreported.The $t petitionerarguesthatenoughevidencewasintroducedtosupport   thededuction,andthatthetaxcourtjudgeshouldhavebeen |  recused.Findingnofactualorlegalerror,weaffirmtheholding ( x  ofthetaxcourtandthedenialoftherecusalmotion. $  @tt)I.    ` InSeptember1993,TamaraOlbresincorporatedInterex, ,|  Inc.inMassachusettsandwasitssoleshareholderandpresident. ( Thecompanywasinthebusinessofdesigning,storing,and  refurbishingtradeshowexhibits.Itusedanaccrualmethodof 0 accounting,underwhichincomeandliabilitiesareincludedinthe , taxyearinwhich"alleventshaveoccurred"toestablishtheright  toreceivetheincomeortoestablishthefactofliability.See 4 Treas.Reg.1.4461(c)(ii)(2002);seealsoI.R.C.446(c)(2) 0 (2000)(permittingtheaccrualmethod).^  #  1          ` WhensheformedInterex,OlbresaskedGeorgeCoupounas, 8!" ofChestnutHill,Massachusetts,toactasoutsidecounseland "4$ accountantforInterex.OlbresandCoupounasneverdiscussedthe $&  rateatwhichhewouldbepaidforperforminglegalandaccounting <&!( services.In1993,onitsfederaltaxreturn,Interexdeducted  $4,695infeespaidtoCoupounas. \   ` CoupounaspreparedInterex's1994federaltaxreturnand X signeditasthepreparer.Olbressignedthereturnaswell,but   ifshereaditatall,shedidsocursorily.Onthisreturn, `  Interexdeducted$65,000foraccruedprofessionalfeesowedto  \  Coupounas.CoupounasneverbilledInterexforthatamount.    ` Inlate1996,theIRSbegantoexamineInterex's1994tax d  return.CoupounaswasquestionedbyIRSagentsbutrefusedto `  providetimesheetstosupportthecorporation'sallegedliability.   InJanuary1998,theIRSissuedaProposedReportofIncomeTax h Changes,whichincluded,amongtheissuesraised,achallengeto d the$65,000deductionforaccruedprofessionalfees.TheIRS  investigationpromptedactivity.InAugust1998,atCoupounas's l request,OlbreswrotehimacheckfromInterexpostdatedDecember h 31,1998,purportedlyinpaymentofthefeesincurredin1994.  @88)II. p   ` OnSeptember8,1999,theCommissioneroftheIRSissued !l" aNoticeofDeficiencyunderI.R.C.6212whichchallenged,inter "$ alia,the$65,000inaccruedprofessionalfees.Interexfileda t$& petitionwiththetaxcourtforredeterminationofthedeficiency.  &p!( Theotherallegeddeficienciesweresettled;theonlyissue '#* presentedtothetaxcourtwasthe$65,000deductionandthe x)$, accompanyingnegligencepenaltyunderI.R.C.6662. $+t&.  ` Aftertrial,butbeforedecision,Interexfiledamotion  forrecusalofthetaxcourtjudgeunder28U.S.C.455(a). \ Interexarguedthatthejudgewaspredisposedtofindagainst X Interexonthemerits.Thetaxcourtdeniedtherecusalmotion.    ` OnFebruary27,2002,thetaxcourtissuedamemorandum `  opinioninfavoroftheIRS.ItfoundthatInterexhadfailedto  \  showthateconomicperformancewithrespecttothe$65,000in   professionalfeeshadoccurredin1994;thattheamountoffeesdue d  toCoupounas"couldnothavebeendeterminedwithreasonable `  accuracybytheendof1994";andthattheservicesperformedby   CoupounasforInterexin1994werenot"specialized,unique,or h otherwisereasonablyvaluedat$65,000."Finally,thecourt d awardednegligencepenaltiesunder6662(a)becauseOlbreshadnot  examinedthetaxreturn,otherthanthebottomline,whenshe l signed.Interex,Inc.v.Comm'r,No.1703099,2002TaxCt.Memo h LEXIS59,at*4,*7*8(T.C.Feb.27,2002).   ` Interexappealsboththedecisionofthetaxcourtand p  thedenialofthemotionforrecusal. !l" @(III. "$  ` Wereviewdecisionsofthetaxcourt"inthesamemanner t$& andtothesameextentasdecisionsofthedistrictcourtsincivil  &p!( actionstriedwithoutajury."I.R.C.7482(a)(1);seeMedchem, '#* Inc.v.Comm'r, 295F.3d118,122(1stCir.2002).Thetax x)$, court'slegalinterpretationsarerevieweddenovo.Alexanderv. $+t&. IRS,72F.3d938,941(1stCir.1995).Wewilloverturnits  factualfindingsonlyiftheyareclearlyerroneous.CapitalVideo \ Corp.v.Comm'r,311F.3d458,463(1stCir.2002).Afindingis X clearlyerroneouswhen,"althoughthereisevidencetosupportit,   thereviewingcourtontheentireevidenceisleftwiththe `  definiteandfirmconvictionthatamistakehasbeencommitted."  \  Comm'rv.Duberstein,363U.S.278,291(1960)(quotingUnited   Statesv.UnitedStatesGypsumCo.,333U.S.364,395(1948)). 󀀀We d  reviewatrialcourt'sdenialofarecusalmotionforabuseof `  discretion.InreBoston'sChildrenFirst,244F.3d164,167(1st   Cir.2001). h  ` Theburdenofproofisgenerallyonthetaxpayerto d demonstratethattheIRS'snondeductibilitydeterminationisin  error.U.S.TaxCt.R.142(a);UnitedStatesv.Janis,428U.S. l 433,440(1976).Once"ataxpayerintroducescredibleevidence h withrespecttoanyfactualissue,"theburdenshiftstotheIRSon  thatissue.I.R.C.7491(a)(1). p  @88)IV. !l" A.DeductionofProfessionalFees "$  ` I.R.C.162permitsdeductionsfromincomefor"allthe t$& ordinaryandnecessaryexpensespaidorincurredduringthetaxable  &p!( yearincarryingonanytradeorbusiness."Accrualmethod '#* taxpayersmaydeductexpenseswhentheyareincurredevenifthey x)$, havenotyetbeenpaid,aslongasthreefactorsaremet:1)allof $+t&. theeventsthatestablishthefactoftheliabilitymusthave  occurred;2)theamountmustbeabletobedetermined"with \ reasonableaccuracy";and3)economicperformancemusthave X occurred.Treas.Reg.1.4611(a)(2)(i);seealsoid.1.4614   (explainingeconomicperformance).Whetherataxpayerhas `  satisfiedthe"allevents"testisaquestionoflawwereviewde  \  novo.GoldCoastHotel&Casinov.UnitedStates,158F.3d484,   487(9thCir.1998). d   ` Attrial,theonlypersonwhotestifiedonInterex's `  behalfwasOlbres.Shetestifiedthatshedidnotaskfornordid   sheeverseeabillforCoupounas'sprofessionalservices.Shedid h notaskwhatservicesCoupounasperformedtobevaluedat$65,000, d nordidsheaskfororreceiveanytimesheetsorothersupporting  records.Furthermore,Olbresadmittedthatshedidnotcarefully l reviewthe1994taxreturn.Shewasnotevenawareofthe$65,000 h debtuntilAugust1998.   ` AccordingtoOlbres,Coupounasperformedthefollowing p  services:preparingtaxreturns;settingupthecompany'srecord !l" keepingsystem;preparingfinancialstatements;reviewingletters "$ anddocuments;advisingOlbreswithrespecttotheconversionof t$& InterexfromasubchapterCcorporationtoasubchapterS  &p!( corporation;andansweringlegalquestions. '#*  ` 1994wasnottheonlyyearinwhichInterexdeductedsums x)$, forCoupounas'sservices.Deductionsweretakenforhisservices $+t&. intheyearsfrom1993to1997;Coupounasneverissuedabillto  Olbresdetailinghisservicesfrom1994to1997.Moreover,after \ 1993,CoupounaswasnotpaidatallbyInterexuntilthe$65,000 X checkwaswrittenin1998,onlyaftertheIRSbegantoinvestigate   thatdeduction.Finally,thereisnoevidencethatCoupounaswas `  everpaidforthedebtsallegedlyincurredafter1994,including  \  $36,000infeesdeductedinthe1995return.    ` Coupounasdidnottestifyattrial,refusedtoprovide d  documentstotheIRS,anddidnotcooperatewiththeIRS.Atthe `  closeoftrial,theTaxCourtinstructedthepartiesthatthecourt   wouldentertainamotiontoreopentherecordwithinthirtydaysif h Coupounasbecameavailabletotestifyincourtortobedeposed. d Interexlaternotifiedthecourtthatnotestimonyorstatement  fromCoupounaswouldbeaddedtotherecord.Coupounaswasunder l anapparentobligationtoprovidedocumentstoInterex,hisclient, h arisingoutofhischargesforanyservicestothecompany.See  Mass.R.Prof.C.1.4(a).Nonetheless,Interexprovidednobills p  fromCoupounasordocumentationof$65,000worthofservices !l" incurredin1994. "$  ` Giventhesparseevidenceenteredintotherecordbythe t$& petitioner,thetaxcourtupheldthedenialofthededuction  &p!( becauseitfailedatleasttwoofthethreerequirementsofthe '#* "allevents"test.First,thecourtwasnotpersuadedthat x)$, economicperformancehadoccurred;therewassimplynotenough $+t&. evidenceforthecourttoconcludethat$65,000inprofessional  serviceswereprovidedin1994.Buttressingthisdecisionwasthe \ factthatnoneoftheservicesOlbresclaimedthatCoupounashad X providedwerespecializedornumerousenoughtobevaluedat   $65,000.Second,becauseofthelackofaninvoiceandOlbres's `  inabilitytoarticulatethebasisofthe$65,000fee,thecourt  \  foundthattheamountofthefeesowedcouldnothavebeen   determinedwithreasonableaccuracywhenthedeductionwastaken. d   ` WeaffirmtheTaxCourt'sholdingonbothgrounds.Since `  Coupounashasbeensolackadaisicalinpursuingpaymentforthese   allegeddebts,itisfairtoinferthat,toputitmildly,their h valuewasdistortedfortaxpurposes.Moreover,theservices d OlbrestestifiedthatCoupounasperformedcouldnotreasonablyhave  beenvaluedat$65,000.Z  #  2       l  ` Theabsenceofdocumentationalsomakesitunlikelythat h theamountowedcouldhavebeendeterminedwithreasonable  accuracy.TherewasnoevidenceastohowmanyhoursCoupounas p  workedortohisbillingrateforaccountingorlegalservices. !l" Olbres,thepresidentandsoleshareholderofInterex,testified "$ shedidnotevenknowoftheexistenceofthedebtuntilAugust  1998.EvenifInterexhadintroducedevidencethatCoupounashad \ providedservicesthatmightpossiblybeworth$65,000,theaccrued X amountcouldnothavemetthe"allevents"test,andbeenproperly   deducted,untiltherewasenoughinformationtodeterminethevalue `  ofthoseservices.  \   ` Insum,thepetitionerdidnotpresentenoughcredible   evidencetoshifttheburdentotheIRStoprovethatthe"all d  events"testhadnotbeenmet. `  B.Recusal    ` Interexarguesthatthetaxcourtjudgeshouldhave h granteditsmotionforrecusal."Anyjustice,judge,ormagistrate d judgeoftheUnitedStatesshalldisqualifyhimselfinany  proceedinginwhichhisimpartialitymightreasonablybe l questioned."28U.S.C.455(a).Weupholdthetrialjudge's h discretiontohearthecase"unlesssuchdecision'cannotbe  defendedasarationalconclusionsupportedbyareasonablereading p  oftherecord.'"CignaFireUnderwritersCo.v.MacDonald& !l" Johnson,Inc.,86F.3d1260,1271(1stCir.1996)(quotingInre "$ UnitedStates,666F.2d690,695(1stCir.1981)). t$&  ` Onthedayoftrial,aftertestimonyhadbeenheard,the  &p!( judgecommentedthat"beforethetrial,before[Olbres's] '#* testimony,frankly,Ithoughtthatthecaseshouldberesolvedon x)$, thebasisofInterexconcedingthedeductionandRespondent $+t&. concedingthepenalty."Thejudgealsonoted,afterofferingto  reopentherecordforCoupounas'stestimony,that"Idon'tthinkit \ wouldchangetheresultinthiscase."Thepetitionerarguesthat X thesecommentsreflectalackofimpartiality.Theydonot.    ` Thesecommentsweremadeafterthejudgehadheard `  testimonyfrombothparties.Thepetitionersuggeststhatthe  \  firstcommentindicatesthatthejudgehadanopiniononthiscase   beforetrial,butthatisnotsurprising;thiscaseincluded d  stipulatedfactsanddocumentspresentedtothecourtbeforetrial. `  Iftheysignifyanythingatall,thecommentssuggestthatthe   judgehadreachedanopinionofthecaseafterconsiderationofthe h facts.Andthatis,afterall,notmerelytheprerogativebutthe d dutyofajudge.Weaffirmthedenialofthemotionforrecusal.   ` Thejudgmentofthetaxcourtis affirmed .