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June 07, 2010
Brattle Provides Testimony on the Economic Substance and Business Purpose for a CARDS Transaction in Country Pine Finance, Inc. v. Commissioner of Internal Revenue

Dr. Lawrence Kolbe, a principal in The Brattle Group’s Cambridge, MA office, and Dr. Dennis Logue, a senior advisor to Brattle, provided testimony on behalf of the U.S. Internal Revenue Service that helped shape the outcome of a Custom Adjustable Rate Debt Structure (CARDS) dispute in U.S. Tax Court in Chicago. On Thursday, November 5, 2009, Judge Joseph Robert Goeke ruled in favor of the U.S. Government and concluded that the CARDS transaction lacked economic substance and stood no chance of earning a profit, and that the members of the Country Pine Finance did not have a nontax business purpose for entering into the CARDS transaction. The opinion adopted key conclusions from the testimony provided by Brattle’s experts. As of March 2010, the window for appeals has passed and the ruling stands. In the trial, Dr. Kolbe testified regarding the CARDS transaction structure and the financial underpinnings of the transaction, explained how to evaluate the economics of the transaction, and opined on the objective profitability of the transaction and the economic rationality of entering into the CARDS transaction versus standard mortgage-based real estate financing. Dr. Logue’s testimony evaluated whether the CARDS transaction represented genuine indebtedness and the suitability of the purported loan for the taxpayer’s stated business purpose of investing in real estate. He concluded that the loan transactions were not carried out in accordance with industry norms, did not represent genuine indebtedness, and could not have served the taxpayer’s claimed purpose of financing real estate investments. Dr. Logue was assisted by Darrell Chodorow, a principal with The Brattle Group.

Dennis E. Logue
Academic Advisor
Tuck School at Dartmouth University
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