[00:00:00] Speaker 00:
for argument today is 20-1052, Union Telecom versus United States.

[00:00:07] Speaker 00:
Counsel, please proceed.

[00:00:08] Speaker 03:
Thank you, Judge Moore, and may it please the court.

[00:00:12] Speaker 03:
Andrew Paul Cavill on behalf of Union Telecom.

[00:00:16] Speaker 03:
This honorable court should reverse Judge Wheeler's denial of Union Telecom's request to recall witnesses Farber and Shaw under Rule 63, vacate the opinion and judgment that legally depend on that order,

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and remand the case for new trial before a new judge who will take and observe the testimony of the witnesses before making fresh findings of fact and conclusions of law.

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Subject, of course, to this court's questioning, I would like to focus my argument on three main points, which are the following.

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First, I'd like to point out that there appears to be no real dispute about what the elements of Rule 63 are.

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I would like to explain that the elements have been met for both witnesses, even though Union Telecom need only show that the elements have been met for one of those witnesses.

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Counselor, this is Judge Ram.

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With respect to the elements of Rule 63, it seems to me that Mr. Shaw testified he had no idea about IDT's position.

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In fact, I don't see anything in the record that indicates to me that he has any personal knowledge

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as to any type of fact that would be a material fact if it was to be disputed.

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I simply don't see what Mr. Shaw would be testifying to other than just speculation.

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Can you respond to that?

[00:01:44] Speaker 03:
Certainly, Your Honor.

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Mr. Shaw testified that he was, number one, familiar with, well, that he had a great deal of experience in the

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prepaid telephone card industry.

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And he testified that in all cases, the carriers would always break down, I'm sorry, the carriers would always include the tax within the price of the card itself and that they would not itemize that tax.

[00:02:18] Speaker 01:
Okay, so he has general knowledge of the industry, but he never did work at IDT or UTA.

[00:02:25] Speaker 01:
Can you show me, according to the record, we can find that he's got personal, observable knowledge as to the excise taxes and the payment of them?

[00:02:37] Speaker 03:
Well, yes, Your Honor.

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He did testify that when the cards were purchased by Union Telecom, that he did so by accessing the IDT Oasis system.

[00:02:53] Speaker 01:
Yeah, I understand that.

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He testified generally as to the industry practices.

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But did he testify as to personal knowledge on the particular issues that you're asserting are in dispute?

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Well, again, one of the issues at trial was whether Union Telecom purchased the cards directly from IDT.

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And Mr. Shaw did testify that Union Telecom purchased the cards from IDT by ordering them on the IDT Oasis system.

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He did it personally.

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And so he had personal knowledge of actually ordering the cards by logging onto IDT's own system and ordering them.

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So that would be one example.

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Yes, but Council, I have some of the same concerns that Judge Serena is suggesting, which are, for example, one basis upon which this case was decided is that IDT, there's no evidence they paid any excise tax on prepaid telephone cards.

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And so while Mr. Shaw may have had personal knowledge about random things associated with this case,

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If he didn't have personal knowledge about the issue about which, or one of the issues about which this case was decided that is dispositive, then isn't Judge Wheeler's error in not permitting you to have his testimony reoccur simply harmless error?

[00:04:39] Speaker 03:
I don't think that it's harmless error.

[00:04:46] Speaker 00:
Why don't you go exactly to the point I raised.

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Mr. Shaw did not have any personal knowledge about whether IDD paid excise tax on prepaid telephone cards.

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You can't sue the government to recoup taxes if none were paid, right?

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Not in the close-up.

[00:05:01] Speaker 03:
Well, Your Honor, in answer to your question, a very important point in this case is that there's a difference between the payment of the tax and the remittance of the tax.

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Similar to

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For example, FICA cases, payroll taxes and withholding.

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In this taxation regime, there's a third-party tax collector who's the government's agent.

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And I think that it... Well, theoretically, counsel, perhaps Union Telecom has a claim against IDT for having taken money away from it.

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But there isn't a claim against the government if IDT didn't actually pay a tax.

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I disagree with that, Your Honor.

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The statute states that there is no availability for the taxpayer to sue the tax collector.

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That is at 26 USC section 7422.

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subsection C. In order to sue for a refund of tax, Union Telecom must sue the government, which it has done.

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But you're asking for a refund of tax, and there's no evidence any tax was paid.

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There is evidence that the tax was paid, although I think all agree that IDT did not remit the tax to the government.

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So again, IDT is the government statutory tax collector, and therefore the government's agent.

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Well, now Mr. Shaw testified that he had no idea about IDT's position with regard to the federal excise tax on the phone cards.

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That's what he testified.

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He already testified, I have no idea about IDT's position with regard to FET.

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And that kind of makes sense.

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He didn't work at IDT or UTA, did he?

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Mr. Shaw did not work for IDT or UTA.

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That is correct.

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But I think that one key to the point that Your Honor is driving at is, again, that there's a difference between payment and remittance.

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Mr. Shaw?

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No, no, no, no, no, no.

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The point I'm driving at is

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whether Mr. Shaw has anything to testify about, whether Judge Wheeler erred in his refusal to bring Mr. Shaw back, when the record already shows that he's got no idea about what IDT's position is about.

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He's already testified everything he knows, and it's all general information about the industry, how the industry works, some of its practices, but he's got no idea as to IDT's position.

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He doesn't know what IDT's internal position was, but I don't think that that matters in the case, because Mr. Shaw can testify.

[00:08:21] Speaker 01:
If it doesn't matter, if it doesn't matter, why is it error for Judge Queener to refuse to bring him back?

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It doesn't matter.

[00:08:30] Speaker 03:
Well, what I'm saying is that the

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It's error because Mr. Shaw did testify incredibly that Union Telecom ordered the cards directly from IDT, whereas, and that the cards included the tax.

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Those are two separate issues.

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And Mr. Shaw's testimony does not need to be material and disputed on every single issue in the case.

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Council, this is Judge Hughes.

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I know you don't agree with this, but let's just assume for purposes of this question that I think that in order for your client to get a tax refund, you have to show that a tax was actually paid to the IRS.

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Do either of these witnesses have personal knowledge of a tax being paid to the IRS?

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And to clarify, if I may, when your honor says paid to the IRS, is that in the way that we understand remittance to work?

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What we mean by remittance?

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I mean somebody actually collected taxes and turned them over to the United States government.

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Do either of them have any knowledge that taxes were actually turned over to the United States government?

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In terms of remitted from IDT to the

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government, I believe that the answer is that I think all agree IDT did not remit the tax to the government.

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However, in terms of whether the tax was paid, I think that both witnesses do have testimony that they can offer and that they did offer on that point.

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Because again, Mr. Shaw testified that in all cases, the

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The tax was included in the price of the cards, and he testified that Union Telecom did pay for the cards and order them from IDT, which leads to the, it gives rise to the, at least to the inference that Union Telecom did pay the tax.

[00:10:56] Speaker 03:
Union Telecom understood itself to be paying the tax to the government's agent, and because the payments

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was received, and that payment included the tax, the government did receive the tax through its agent.

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However, the government's agent did not remit the tax to the government.

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I see that my time is up.

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If the court does not have any questions at this time, I will reserve the rest of my time for rebuttal.

[00:11:27] Speaker 01:
Chief Judge Moore, may I ask one question before you sit?

[00:11:30] Speaker 01:
Of course.

[00:11:32] Speaker 01:
So are you conceding that there's nothing in the record that indicates that the IRS actually received the funds?

[00:11:44] Speaker 01:
You're saying that the taxes were collected.

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And it seems to me the preliminary question here, the dispositive question is, did the US government ever receive the taxes?

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This is a nuance.

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answer and if the court will permit me to make sure I get the nuance in.

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We agree that IDT did not remit the tax to the government and that the government during, for the cards at issue during the period at issue, the government did not receive those funds from IDT.

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But that was the remittance part.

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I do not concede that Union Telecom did not pay the tax.

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It certainly did because

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Union Telecom was paying with the understanding that it was including its tax when it did pay the government's agent.

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And so in that sense, the government did receive Union Telecom's tax payment.

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This is an analogous situation to where an employer withholds payroll taxes from an employee.

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but then the employer never sends them back to the government.

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Well, the employee is still entitled to a refund because the government has technically received the tax payment.

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It's just that it had a rogue agent who didn't send that money back to the government.

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It kept it in its pocket.

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That's analogous to what we have here.

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IDT received the funds, received the tax, and Union Telecom did pay it, and it was

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collected at the time it was paid.

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But then IDT simply didn't send that tax to the government.

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So if that's the initial dispositive question, I think we clear that hurdle because the tax was paid because the government didn't get it from IDT.

[00:13:50] Speaker 01:
But Mr. Shaw did not testify consistent with what you just said.

[00:13:53] Speaker 01:
Mr. Shaw testified that he had no idea about IDT's position with regard to payment of FET taxes on the phone cards.

[00:14:03] Speaker 01:
So I appreciate your argument, but the issue here is sort of that Mr. Shaw should be forced to come back and testify.

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And he's already said he's got no idea about these issues that we're talking about.

[00:14:18] Speaker 03:
Well, I'm not sure if the court will allow me to

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respond or if I should wait until rebuttal to address that.

[00:14:29] Speaker 03:
No, go ahead and respond.

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Thank you, your honor.

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With respect, I do not think that it's accurate that Mr. Shaw says that he doesn't have any idea about what IDT is thought.

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But what IDT thinks

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when it's putting the rate deck together, I don't think that that really matters to ascertain whether or not the tax was paid and collected.

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I think that Mr. Shaw, Union Telecom, was under the impression they were paying the tax.

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And indeed, neither IDP nor UTA nor anyone else said any difference.

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Mr. Farber testified that he himself, as the CFO of UTA during the relevant period, that he did not, may I continue?

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Yes.

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Farber himself didn't find out IDT's position on the tax until after the refunds had been offered.

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Apparently, Barbara and UTA were under the impression that the tax was being included and charged at the time.

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And so I do think that Mr. Shaw's testimony about whether he was making the payments and whether his understanding and Union Telecom's understanding and whether the industry practice was always to include the tax, I think that is pertinent to that issue.

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But again,

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Well, material and disputed with respect to that issue.

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Again, though, in order to get recall, we need only show that one, if not both of the witnesses' testimonies were material and disputed.

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And those witnesses' testimonies do not need to be material and disputed on every single issue in the case.

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Council, I have one last question, and that is you are distinguishing between taxes remitted and taxes paid.

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And I guess I'm trying to understand where this distinction comes from in the law.

[00:17:00] Speaker 00:
What is your legal support, either statute or case law, for the idea that if a company like IDT collects some tax payment, like an excise tax, but doesn't remit it to the government,

[00:17:15] Speaker 00:
You can nonetheless sue the government for a tax refund.

[00:17:20] Speaker 00:
You know, when the government never collected that payment, because the Court of Federal Claims jurisdiction is limited to cases in which taxes were actually paid.

[00:17:29] Speaker 00:
So under what authority do you think you can sue the Court of Federal Claims under what statute or reg, even though it's undisputed, as you said, that no taxes were actually paid?

[00:17:45] Speaker 03:
I will first qualify and then answer Your Honor's question.

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We do dispute that the taxes were paid, in the sense that we argue that the taxes were paid.

[00:17:59] Speaker 03:
In response to Your Honor's... No, no, no.

[00:18:02] Speaker 00:
You repeatedly said that IDT never paid taxes to the government.

[00:18:06] Speaker 00:
You said that that's undisputed, that you don't dispute that fact.

[00:18:09] Speaker 00:
So the government did not collect any taxes.

[00:18:14] Speaker 03:
Again, we do dispute that and that's the nuance.

[00:18:17] Speaker 03:
We do dispute that because although we think that IDT did not remit the taxes it collected, the government did receive payment of the taxes because IDT, a statutory collection agent, did receive the tax.

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So I want to be very clear that as I understood your Honor's statement,

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Under what authority do you have for this remittance versus the government, the US government did not get this money.

[00:18:48] Speaker 00:
So you're suing for money to be returned that was never given.

[00:18:52] Speaker 00:
So what authority do you have that says if a company like IDT collects an excise tax, you can sue the government for a refund?

[00:19:05] Speaker 03:
Well, to begin, Your Honor, the

[00:19:09] Speaker 03:
The statute at 26 United States Code section 7422C says that Union Telecom is not able to sue a collecting agent.

[00:19:26] Speaker 00:
Well, no, what that statute says is you sue the government, not government officers, right?

[00:19:36] Speaker 03:
Well, Representative

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for tax alleged to be paid.

[00:19:40] Speaker 03:
And then it's treated as if the United States had collected the tax itself, which we argue it has.

[00:19:57] Speaker 00:
And then in terms of whether or not the... When you say it's treated as if the United States itself collected the tax, what do you mean it?

[00:20:06] Speaker 00:
Who is it?

[00:20:08] Speaker 00:
What statute or regulation allows you to sue the government when they didn't actually receive money?

[00:20:24] Speaker 03:
Bear with me one moment, Your Honor, as I go through the statute.

[00:20:28] Speaker 00:
Why don't you do that and we'll address it on rebuttal.

[00:20:30] Speaker 00:
Let's hear from the government in the meantime.

[00:20:32] Speaker 00:
Ms.

[00:20:33] Speaker 00:
Evetta, can you please proceed?

[00:20:36] Speaker 00:
Thank you, Your Honor, and may it please the Court, Julia Vetta, for the United States.

[00:20:42] Speaker 00:
Any Rule 63 error here is harmless because no amount of testimony can establish the necessary predicate to recovery here, which is that tax was ever paid to the government.

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This is a suit for a tax refund.

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As the Court has observed, to recover on its refund claim, Union needed to establish as a threshold matter that there was an overpayment of tax to the government that existed to refund.

[00:21:04] Speaker 00:
In Lewis versus Reynolds, almost 100 years ago, the Supreme Court phrased it as that a claimant for a refund is not entitled to a refund unless he has overpaid his tax and it is incumbent.

[00:21:14] Speaker 00:
Council, this is such more.

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I think what he's arguing is that IDT is an agent of the government and that therefore the government did in fact receive this money.

[00:21:26] Speaker 00:
There is no basis on which to posit that the government being in constructive possession of funds collected by third parties creates standing or a right to a refund, particularly whereas here the factual record did not indicate that that was the case.

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To the contrary, the record almost uniformly established that IDT had specifically structured its prepaid telephone card business

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to avoid paying excise tax, to escape the imposition of the tax on the transaction where it would normally arrive.

[00:22:02] Speaker 00:
And they did this by creating foreign operating subsidiaries and operating out of Puerto Rico so that the conditions under which the tax would arise were never met.

[00:22:14] Speaker 00:
So what they were doing was not collecting the tax, and they were not in constructive possession of funds.

[00:22:22] Speaker 00:
Assuming that that's even a meaningful concept in a refund suit, which I'm not aware that that's a potential avenue of recovery.

[00:22:32] Speaker 00:
Here, to recover, the union would have to show that Communications Act size tax had been paid to the United States.

[00:22:40] Speaker 00:
And frankly, even if it could show that IDT had collected it,

[00:22:44] Speaker 00:
it would still fail to meet the bar that that money was not remitted to the United States.

[00:22:49] Speaker 00:
This is not analogous to a suit where taxes are withheld by an employer and an employee gets the punitive benefit of having paid the tax directly to the government, such as standing to file a refund suit.

[00:23:03] Speaker 00:
This is trying to, but the government, of course, in that situation would have recourse against the recalcitrant collective.

[00:23:11] Speaker 00:
We have a method of recovery in the Internal Revenue Code to pursue individual liability of an employer who failed to pay over collected withholding taxes.

[00:23:22] Speaker 00:
Is an employer in that situation an agent of the government?

[00:23:29] Speaker 00:
In a traditional agency sense, yes.

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But the liability, the ability of the government to pursue that employer for a failure to pay over

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a collected withholding tax is not on principles of agency.

[00:23:45] Speaker 00:
That's a statutory remedy that says that this is treated now as a penalty, effectively.

[00:23:53] Speaker 00:
This entity, which had the obligation to collect and pay over this tax but has failed to pay it over, now is liable in a sense that they

[00:24:05] Speaker 00:
is separate from the tax that is owed.

[00:24:07] Speaker 00:
It's equivalent to the tax that is owed.

[00:24:09] Speaker 00:
The penalty is 100% of the tax that's owed, but the government only collects it once.

[00:24:14] Speaker 02:
This is Judge Hughes.

[00:24:17] Speaker 02:
Could I just follow up on that?

[00:24:18] Speaker 02:
What's the legal authority then for an employee to seek a refund even if the taxes weren't paid over to the government?

[00:24:26] Speaker 02:
Is that also statutory?

[00:24:29] Speaker 02:
Is that also based in a statute somewhere or is it some other principle?

[00:24:33] Speaker 00:
Well, I mean, the taxes are deemed paid when they are through the withholding mechanism.

[00:24:40] Speaker 00:
And the employee files their return.

[00:24:43] Speaker 00:
And the employee files the return.

[00:24:47] Speaker 00:
The employer files W-2s.

[00:24:50] Speaker 00:
And the accounts are reconciled.

[00:24:52] Speaker 00:
And it's clear the employee doesn't know and has no way of verifying whether their employer is making these payments.

[00:25:02] Speaker 00:
But the government does know.

[00:25:04] Speaker 00:
And unlike in an excise tax capacity, the employee has to file a return and have to account for their income.

[00:25:12] Speaker 00:
And the presumption is that the tax is paid because then the employee can receive the benefit of being compliant with their taxes.

[00:25:21] Speaker 00:
The 7422 is, of course, the refund statute.

[00:25:25] Speaker 00:
And any overpayment of tax that an employee would seek to recover there

[00:25:30] Speaker 00:
It's based on the information in their possession.

[00:25:33] Speaker 00:
They have a W-2.

[00:25:34] Speaker 00:
They know what their salary is and they know what was withheld from their salary.

[00:25:39] Speaker 00:
When the employer has made that withholding and has represented to the government that it has done so in these W-2 filings, the government then knows exactly where to look for the money.

[00:25:52] Speaker 00:
And if it's not there, if that money has not been paid over to the government,

[00:25:56] Speaker 00:
then the employee has no cause of action against the employer, but the government can pursue the employer for the penalty under Section 6672 of the Internal Revenue Code.

[00:26:09] Speaker 00:
And there is no such enforcement mechanism in place for an excise tax, particularly here where the transaction giving rise to the excise tax was structured so that the tax would never be triggered.

[00:26:24] Speaker 00:
Well, but Council, I guess you're saying that we shouldn't hold jurisdiction exists because the government doesn't have a mechanism to recoup the money because no parallel statutory provision has been enacted with regard to excise tax.

[00:26:40] Speaker 00:
That's all a bunch of policy rhetoric.

[00:26:43] Speaker 00:
I mean, for me, the question comes down to whether or not you can bring a suit

[00:26:50] Speaker 00:
in the Court of Federal Claims seeking a refund of excise tax that it turns out was never actually paid to the government.

[00:26:59] Speaker 00:
And, you know, I'm bothered by this employer employee analogy because I think that you're acknowledging that an employee could bring a suit in the Court of Federal Claims for a tax refund even if the employer never turned the tax over.

[00:27:13] Speaker 00:
Is that right?

[00:27:15] Speaker 00:
They could, but the government would then be able to look to that employer to collect that tax.

[00:27:22] Speaker 00:
So there would be no unjust enrichment.

[00:27:24] Speaker 00:
It would even out.

[00:27:26] Speaker 00:
Here, the government has no recourse to pursue this uncollected excise tax, which never arose on these facts.

[00:27:36] Speaker 00:
And it's not an analogous situation that Congress has thought to provide for.

[00:27:41] Speaker 00:
There's no statutory mechanism to recoup

[00:27:44] Speaker 00:
collected but unremitted excise tax in either direction, and there is certainly not standing for an alleged payor of excise tax to pierce the veil of the various collectors, the chain that stands between him and the government and goes straight to the government past where the funds potentially are and recover from the public fisc.

[00:28:07] Speaker 00:
money that was never there.

[00:28:09] Speaker 00:
The government does not possess these funds.

[00:28:11] Speaker 00:
There is no overpayment to refund.

[00:28:14] Speaker 01:
But apparently the money was collected by the government's agent, right?

[00:28:18] Speaker 01:
And you mentioned before that agency, agency relationship in the traditional sense exists here.

[00:28:25] Speaker 01:
If that's the case and it's a very basic fundamental principle of agency law that the principle, the U.S.

[00:28:33] Speaker 01:
government is liable for the actions of its agents.

[00:28:38] Speaker 00:
I have three responses to that, Your Honor.

[00:28:41] Speaker 00:
First, we do not concede any error in the findings of fact of the Court of Federal Claims that the tax was not collected here and the liability did not arise.

[00:28:51] Speaker 00:
Secondly, the Internal Revenue Code supersedes agency principles and governs the conduct of the government here.

[00:28:58] Speaker 00:
And there is no statutory right to recover, even if under traditional agency law there might be.

[00:29:05] Speaker 00:
Excuse me.

[00:29:06] Speaker 00:
And third, as a practical matter, the collection of an excise tax is distinct from the agency relationship of an employer obligated to collect a withholding tax.

[00:29:22] Speaker 00:
That's a commercial transaction among unrelated parties.

[00:29:26] Speaker 00:
And the code does not provide a comprehensive framework

[00:29:32] Speaker 00:
for enforcing these obligations among those parties.

[00:29:36] Speaker 00:
And I think that's important here.

[00:29:38] Speaker 00:
The excise tax arises when you buy a card from a carrier.

[00:29:45] Speaker 00:
You do not receive some presumptive benefit that adheres to you upon completion of that transaction, as you do when you have funds withheld from your paycheck.

[00:29:58] Speaker 00:
I think that we not to go too deeply into the policy, but you can you can imagine reasons why one is a much more strictly governed regime than the one that.

[00:30:07] Speaker 00:
But why the employment taxing regime is much more strictly governed because you don't want employers taking advantage of their employees.

[00:30:15] Speaker 00:
And the government needs to be able to collect that money.

[00:30:17] Speaker 01:
It's almost a... Let me ask you a question before... I don't want to run out of time without my asking you this question.

[00:30:26] Speaker 01:
What's our standard of review in this case with respect to Rule 63?

[00:30:32] Speaker 00:
The fact finding of the Court of Federal Claims is reviewed for clear error, and that includes the finding of whether a fact is material.

[00:30:45] Speaker 00:
And because neither of the witnesses here are able to provide material and disputed testimony as to whether funds were ever paid to the government, that is a factual finding that is subject to clear error review.

[00:31:03] Speaker 00:
In fact, it's been conceded here at argument that none of those funds were ever paid to the government.

[00:31:08] Speaker 00:
The only argument that's been raised here is that

[00:31:12] Speaker 00:
under some novel interpretation of the excise provision, it shouldn't matter whether the government is in actual possession of funds of an overpayment of tax to repay if one or more witnesses were under the impression that some tax might have been included in the purchase price of a telephone card because that was normal industry standard.

[00:31:37] Speaker 00:
And I think there's no clear error on this record

[00:31:40] Speaker 00:
that nuclear are in the fact-finding based on this record, that the transactions were structured so that the tax never arose within the United States.

[00:31:53] Speaker 00:
And by the time unions... You're saying we should give deference to the Court of Federal Claims as fact-finding about materiality of the testimony.

[00:32:02] Speaker 00:
Where exactly can I find that fact-finding in the opinion?

[00:32:07] Speaker 00:
In the opinion, there is none, Your Honor, and we... How am I supposed to give... Wait a minute, wait a minute.

[00:32:13] Speaker 00:
You just said repeatedly that we have to give clear error deference to the Court of Federal Claims fact finding that the testimony here about materiality, right?

[00:32:26] Speaker 00:
Like, didn't you say that?

[00:32:27] Speaker 00:
Did I miss that?

[00:32:28] Speaker 00:
Understand that?

[00:32:29] Speaker 00:
Respectfully, Your Honor, the fact finding that is of deference is the finding that no tax is paid to the government.

[00:32:35] Speaker 00:
There is not.

[00:32:36] Speaker 00:
Regrettably, there is not finding a fact on the record that Rule 63 would have asked for.

[00:32:45] Speaker 00:
The Rule 63 order is not a model of clarity and there is no discussion of the materiality or disputedness of either witness' testimony.

[00:32:52] Speaker 00:
So if there's no discussion of the actual factors that are supposed to be analyzed in assessing

[00:33:01] Speaker 00:
the propriety of Rule 63, then why shouldn't we vacate and remand for Judge Mueller to do that properly, or just allow the testimony?

[00:33:13] Speaker 00:
Well, the order is problematic, but it's not fatal, because as you observed earlier, that error is harmless.

[00:33:19] Speaker 00:
The court can affirm based on the record, which establishes as a matter of law.

[00:33:23] Speaker 00:
that the witnesses could not offer material and disputed testimony with respect to unions threshold condition for recovery, which is that the government is in possession of an overpayment of tax to refund.

[00:33:34] Speaker 00:
Could they have offered other interesting testimony on standing questions?

[00:33:38] Speaker 00:
Quite possibly, but all of those are downstream of the threshold condition for recovery, which is an overpayment of tax to refund.

[00:33:47] Speaker 00:
And on that, the record is clear.

[00:33:50] Speaker 00:
and no further testimony from any witness can contravene the basic established fact that tax was not paid to the government as all parties agreed.

[00:34:04] Speaker 00:
And without that, there is no recovery in a refund suit.

[00:34:08] Speaker 00:
Rule 63 only requires a judge to grant a request to recall witnesses if the witness's testimony is material and disputed.

[00:34:15] Speaker 00:
Neither Shaw nor Farber could offer testimony that's material and disputed

[00:34:22] Speaker 00:
material and disputed with respect to whether tax was paid to the government.

[00:34:30] Speaker 00:
And the government does not draw this nuanced distinction between tax collected and tax paid in the excise context.

[00:34:38] Speaker 00:
The tax arises, there is a primarily liable taxpayer, and there is a collector who remits those funds to the government.

[00:34:47] Speaker 00:
And these concepts are mostly

[00:34:49] Speaker 00:
meaningful when you're looking at who has standing to recover the tax.

[00:34:53] Speaker 00:
They're certainly not meaningful when there's a question of whether the tax has been paid at all.

[00:34:58] Speaker 00:
It either has or it is not.

[00:34:59] Speaker 00:
It's either in possession of the government or it is not.

[00:35:03] Speaker 00:
And if no tax arose, as here, there was no obligation to pay the tax in the first place, then whatever was collected in the supply chain is not taxed.

[00:35:17] Speaker 00:
And there is no basis for

[00:35:19] Speaker 00:
a downstream wholesaler to recover those funds from the United States.

[00:35:26] Speaker 00:
Okay, Council, Mr. Coel will restore two minutes of rebuttal time.

[00:35:31] Speaker 00:
Please proceed.

[00:35:33] Speaker 03:
Thank you, Your Honor.

[00:35:35] Speaker 03:
I want to make a few points.

[00:35:37] Speaker 03:
The distinction is not so much between payment and collection as between payment and remittance because payment and collection happen at exactly the same time.

[00:35:46] Speaker 03:
Union Telecom did make the payment.

[00:35:50] Speaker 03:
I'm taken aback by the government's position that, for example, if its statutory collection agent for certain collected the tax and then didn't give it to the government, the government appears to be arguing that it would have no recourse against its statutory collection agent and couldn't get the money back.

[00:36:14] Speaker 03:
That argument doesn't really hold water.

[00:36:19] Speaker 03:
Chief Judge Moore, you had asked for some citations to the statutes.

[00:36:23] Speaker 03:
I start first at section 4251A2, which says that the tax imposed by this section shall be paid by the person paying for such services.

[00:36:38] Speaker 03:
And then lower down at subsection B1B,

[00:36:43] Speaker 03:
The amount of the tax is treated as paid when the card is transferred by any telecommunications carrier to any person who is not such a carrier.

[00:36:56] Speaker 03:
Now if the question is whether tax has been paid, certainly it has because by operation of law under the statute upon the transfer of the card, the tax is paid.

[00:37:07] Speaker 02:
Council, this is Judge Hughes.

[00:37:09] Speaker 02:
Doesn't your argument presume that the tax was due in the first place?

[00:37:16] Speaker 03:
The tax certainly was due, Your Honor.

[00:37:19] Speaker 02:
Well, but that's not, but that doesn't seem to be the case.

[00:37:22] Speaker 02:
I mean, it seems undisputed that this company set up its corporate structure so it didn't have to pay the excise tax.

[00:37:31] Speaker 02:
And the IRS was aware of that and didn't require a payment of the tax.

[00:37:36] Speaker 02:
It seems like you might have a better argument if this was a U.S.

[00:37:39] Speaker 02:
entity that was actually charged with collecting a tax.

[00:37:42] Speaker 02:
But when you have a foreign company that doesn't owe the tax, which also seems undisputed, then I don't see how your agent of the United States argument holds up because they're not an agent of the United States.

[00:37:57] Speaker 02:
They're a foreign company that's not required to pay the excise tax.

[00:38:03] Speaker 02:
May I answer?

[00:38:05] Speaker 02:
Yeah, let me just put in a question.

[00:38:07] Speaker 02:
Why isn't that different than the social security example you gave?

[00:38:14] Speaker 03:
Okay, there was a bit there.

[00:38:18] Speaker 03:
I'll try to unpack it and respond to everything that your honor asked.

[00:38:22] Speaker 03:
With respect to whether the tax is due and whether these services were treated as taxable during the relevant period, certainly

[00:38:33] Speaker 03:
they were, because in order to determine whether or not the services are toll telephone service, what matters is whether there was any toll charge paid in the United States.

[00:38:44] Speaker 03:
The Deloitte letter and IDP's supposed structuring to avoid a tax that it wasn't even responsible for paying itself, only collecting and remitting,

[00:38:59] Speaker 03:
is based on the premise that because there was a payment supposedly that touched Puerto Rico, that somehow that made cards that were then sold back into the United States under their theory, which we don't concede, that somehow those cards which were providing telecommunication services within the United States would not be subject to the legislature's taxation.

[00:39:26] Speaker 03:
I mean, clearly the legislature would not

[00:39:29] Speaker 03:
intend for such services to not be treated as taxable during the relevant period.

[00:39:37] Speaker 03:
So the Deloitte letter, that was the fundamental mistake in logic and really the linchpin of the Deloitte letter and IDT's explanation of why it didn't remit the tax to the government, which it offered only after

[00:39:58] Speaker 03:
the relevant period.

[00:40:01] Speaker 03:
So these services certainly were taxable.

[00:40:06] Speaker 03:
And it's not up to IDT to determine that, oh, well, somebody else's tax isn't taxable.

[00:40:13] Speaker 03:
Because the tax falls on the taxpayer, Union Telecom.

[00:40:17] Speaker 03:
It falls on the transferees of the cards.

[00:40:19] Speaker 03:
It's not IDT's tax to avoid.

[00:40:21] Speaker 03:
The privity here exists between IDT and the government.

[00:40:30] Speaker 00:
Any further questions, colleagues?

[00:40:34] Speaker 00:
OK, hearing none, I thank both counsel, and this case is submitted.

[00:40:38] Speaker 03:
Thank you, Your Honor.