[00:00:00] Speaker 00:
case for argument is 22-1992 International Development Solutions versus the Secretariat.

[00:00:22] Speaker 00:
Mr. Prince, please proceed.

[00:00:24] Speaker 00:
Good morning.

[00:00:24] Speaker 00:
May I please support?

[00:00:26] Speaker 00:
Appellant and its corporate family provided essential security services in highly dangerous locations for the United States, as well as for commercial entities and other entities around the world.

[00:00:39] Speaker 00:
In this case, they're providing those services for the United States and Afghanistan.

[00:00:43] Speaker 00:
They were assessed tens of millions of dollars in taxes by the government of Afghanistan.

[00:00:48] Speaker 02:
When you say they, I mean this case has a corporate structure that has multiple layers and we need to be precise because I think it matters.

[00:00:57] Speaker 02:
When you say they were assessed, who did the Afghani government assess taxes on?

[00:01:03] Speaker 00:
The Afghani government assessed taxes on Academy LLC on revenues that were earned by the subsidiaries.

[00:01:12] Speaker 02:
The taxes were assessed and charged to and paid by Academy, the parent corporation.

[00:01:18] Speaker 00:
They were.

[00:01:19] Speaker 00:
And they were paid by Academy in order to continue performing the contracts that IDS held.

[00:01:25] Speaker 00:
That is, if they hadn't paid those tax assessments, they would have lost their business licenses, which permitted them to continue providing armed security services in Afghanistan.

[00:01:35] Speaker 00:
So they were paid by the parent Academy LLC due to the revenues earned by IDS and in order to continue permitting the appellant here, IDS, to perform these contracts.

[00:01:48] Speaker 02:
How does that entitle IDS, the contractor, to reimbursement of taxes it paid as a contractor?

[00:01:56] Speaker 00:
It doesn't, Your Honor.

[00:01:58] Speaker 00:
It entitles IDS to recovery of the amounts that were paid on its behalf and that were debited from its accounts by its corporate parents, Academy LLC.

[00:02:10] Speaker 02:
Okay.

[00:02:12] Speaker 02:
You say the taxes were debited from IDS's accounts.

[00:02:16] Speaker 02:
Where in the record is there evidence that the parent charged taxes to IDS and the IDS paid out of its revenue accounts back to the parent?

[00:02:29] Speaker 00:
The record with the testimony of Mr. Dionker established that that was the process by which the parents would be dealing with the assets, the revenues earned by IDS after 2012.

[00:02:43] Speaker 02:
I thought the testimony was just generally that this was a zero revenue account, whatever that means, and that everything IDS got from the government was just transferred.

[00:02:53] Speaker 02:
That doesn't suggest to me that there was a specific charge from the parent to IDS for these taxes paid on your behalf.

[00:03:02] Speaker 02:
And IDS designated a portion of its revenue to compensate the parent for those taxes.

[00:03:08] Speaker 00:
So Judge Hughes, I think it's important to bear in mind that after 2012, IDS essentially existed only as a name to receive contract revenues here.

[00:03:17] Speaker 00:
That is, all of its assets, including its contracts, were transferred there.

[00:03:21] Speaker 02:
Well, you say that, but when IDS

[00:03:23] Speaker 02:
tried to novate and the government refused, you said, or at least the board made a finding, and it seems like there is support, that IDES was a company with employees that could still perform the contract.

[00:03:35] Speaker 00:
The government's denial of the novation request expressly states that the government didn't see a need to novate because Academy LLC was continuing to provide all the resources necessary for IDES to perform.

[00:03:49] Speaker 02:
Do you mean Academy or do you mean ATCI?

[00:03:52] Speaker 00:
What the government's innovation request, denial, stated was Academy LLC.

[00:03:56] Speaker 00:
And that is because in the government's understanding over the many years of performance, ATCI, Academy, and IDS were essentially interchangeable.

[00:04:05] Speaker 00:
Academy was the same.

[00:04:07] Speaker 02:
At least after ATCI purchased the interest of whatever that other company is.

[00:04:12] Speaker 02:
Was that other company related, too?

[00:04:14] Speaker 00:
No, Caseman was not a related company.

[00:04:16] Speaker 02:
So IDS was originally truly a joint venture.

[00:04:19] Speaker 02:
And so it had to operate in its name with the government.

[00:04:22] Speaker 02:
And if it was still a joint venture and the parent somehow paid the taxes, we'd be definitely in a different story, right?

[00:04:33] Speaker 00:
In that situation we would be, yes.

[00:04:35] Speaker 00:
But in this case what we're talking about is effectively a shell entity at most where, and we presented a few different frameworks to view this,

[00:04:44] Speaker 00:
The assets had transferred to the parent, which had incurred costs on behalf, ostensibly on behalf of the contractor, but in reality was the contractor by operation of law.

[00:04:56] Speaker 02:
Well, that operation of law stuff is different.

[00:04:58] Speaker 02:
Let's assume I disagree with you that IDS somehow, because of a merger or something like that, essentially became either ATCI or Academy.

[00:05:08] Speaker 02:
I don't think those cases you cite are on all fours as this one.

[00:05:13] Speaker 02:
Why isn't it correct to say that IDS didn't pay these taxes and wasn't charged as taxes?

[00:05:20] Speaker 02:
I mean, if you have a similar structure and a parent decides to pay taxes, it could do so for any number of reasons, right?

[00:05:30] Speaker 02:
It could decide, well, we're going to pay the taxes because maybe tax benefits accrue to us differently than if they accrued specifically to the

[00:05:40] Speaker 02:
to the actual subsidiary.

[00:05:44] Speaker 02:
That's certainly possible in the realm.

[00:05:46] Speaker 02:
I'm not a tax expert.

[00:05:48] Speaker 02:
We don't get very many tax cases.

[00:05:50] Speaker 02:
But that's certainly possible, right?

[00:05:53] Speaker 02:
A parent might say, well, we're going to use the tax liability of a subsidiary to offset our tax liability in another area.

[00:06:03] Speaker 00:
It's theoretically possible.

[00:06:04] Speaker 00:
But what happened here is that the taxes were assessed on the parent

[00:06:08] Speaker 00:
specifically because it was the entity holding the permits, permitting operations.

[00:06:12] Speaker 00:
So it was leveraging.

[00:06:13] Speaker 02:
I guess my problem is you have very little documentary evidence to suggest any of this.

[00:06:19] Speaker 02:
And again, we're on a substantial evidence review.

[00:06:23] Speaker 02:
And there's some testimony about the general ways of operation.

[00:06:27] Speaker 02:
I didn't see anything.

[00:06:29] Speaker 02:
The best I got was,

[00:06:31] Speaker 02:
the parent paid these taxes out of an account attributable to ATCI.

[00:06:39] Speaker 02:
But that still doesn't get you back to IDS as the contractor.

[00:06:44] Speaker 00:
Well, Your Honor, it gets us back to IDS through a few different mechanisms.

[00:06:48] Speaker 00:
I think the cleanest, in my view, is the operation of law argument.

[00:06:52] Speaker 00:
But if Your Honor doesn't buy that, the alternatives are still there.

[00:06:55] Speaker 00:
Of course, the dealing over the six years and hundreds of millions of dollars of payments under these contracts

[00:07:01] Speaker 00:
where state refers in its internal documents and in its testimony at trial to IDS and Academy interchangeably.

[00:07:10] Speaker 00:
It seemed to view these entities interchangeably because, in fact, the course of conduct, the course of dealings with the parties established that IDS effectively ceased existing as an entity in anything but name in 2012.

[00:07:22] Speaker 02:
It was to continue... There are tons of documents in here talking about different employees getting paid and working and they all designate them as IDS employees.

[00:07:31] Speaker 00:
Well, the Defense Contract Audit Agency, in its report that's in the appendix, notes that Academy had X number of employees over the various years.

[00:07:39] Speaker 02:
I just want to say one thing.

[00:07:41] Speaker 02:
As a matter of law, Academy wasn't the contractor, right?

[00:07:44] Speaker 00:
Academy LLC was not the contractor.

[00:07:47] Speaker 02:
Neither was ATCI.

[00:07:50] Speaker 00:
That depends on your construction of the operation of law doctrine.

[00:07:54] Speaker 02:
Well, the government specifically disagreed with the novation request to change from IDS to ATCI.

[00:08:03] Speaker 02:
That has to mean something as a matter of law.

[00:08:06] Speaker 00:
We are not sure why the government did that.

[00:08:09] Speaker 00:
But an assumption by operation of law is a means by which the parties go around the novation process.

[00:08:15] Speaker 00:
As you have the anti-assignment acts that prohibit assignment of government contracts, exceptions are in the event of a waiver expressed or a novation

[00:08:23] Speaker 00:
or through conduct, or by operation of law, where effectively the government is continuing the contract with another party with the same resources in effectively the same position.

[00:08:36] Speaker 00:
So our contention is that's what happens here.

[00:08:38] Speaker 02:
But this is another party.

[00:08:40] Speaker 02:
I mean, the government, the documentary evidence belies that, because it suggests, at least for the novation, that they would still be dealing with IDFs.

[00:08:49] Speaker 00:
They were still dealing with IDS on paper.

[00:08:52] Speaker 00:
And we were happy to accede to the government's desire here and not push the point, because it was of no moment where the government was accepting performance being rendered by the parent entities in any case, accepting invoices and paying invoices for that performance without question.

[00:09:09] Speaker 00:
It only really seemed to become an issue at the board long after the party's course of dealing predispute established that the government

[00:09:18] Speaker 00:
believe that they were standing, Academy LLC and ATCI were standing in the shoes of IDS.

[00:09:23] Speaker 02:
How do we know that IDS was the actual taxpayer here?

[00:09:27] Speaker 02:
I mean, all you have is this general theory that everything that came in from IDS got sent all the way up to the parent, and that the parent paid these taxes.

[00:09:38] Speaker 02:
But the parent could have paid these taxes out of some other pool of money that it had.

[00:09:44] Speaker 00:
It could have done that.

[00:09:46] Speaker 00:
And it wouldn't make IDS the taxpayer.

[00:09:48] Speaker 00:
It makes those costs IDS cost of performance.

[00:09:52] Speaker 00:
Because either they were pulled from a pool that belonged to ATCI.

[00:09:56] Speaker 00:
It says no record.

[00:09:57] Speaker 02:
Don't they have to be the taxpayer?

[00:09:59] Speaker 00:
They don't have to be the taxpayer.

[00:10:00] Speaker 00:
They have to be a cost of performance that is attributable and incurred by the company here, the contractor here.

[00:10:06] Speaker 00:
And they became a cost of performance through one of the frameworks, any of the three frameworks.

[00:10:11] Speaker 02:
Let me ask you this hypothetically.

[00:10:13] Speaker 02:
Let's get rid of this notion that they're a shell company.

[00:10:16] Speaker 02:
And let's just start with the notion that they're still a legitimate operating subsidiary.

[00:10:23] Speaker 02:
And the government of Afghanistan goes to, I'm going to get this wrong, that

[00:10:35] Speaker 02:
IDF gets a tax bill and decides not to pay it.

[00:10:42] Speaker 02:
And the parent decides, well, we're going to use money from a separate revenue pool voluntarily to pay it, even though we're not obligated to pay your tax bill because of whatever the different corporate structure is.

[00:11:00] Speaker 02:
Because parents aren't always liable for the taxes of their subsidiaries, right?

[00:11:04] Speaker 00:
They're not.

[00:11:05] Speaker 02:
In this case, you say, they were.

[00:11:07] Speaker 02:
But let's just assume they're not.

[00:11:09] Speaker 02:
If, in that scenario, you had an independent subsidiary that's apart from the parent company, and the subsidiary was the one that was reliable for the taxes, they declined to pay.

[00:11:24] Speaker 02:
And the parent, out of interest in continuing good relationships with the taxing entity, said, we're not liable, but we'll nonetheless pay.

[00:11:35] Speaker 02:
Can those costs, those tax costs, be contributed or assessed?

[00:11:41] Speaker 02:
Can that separate subsidiary then get a reimbursement for those tax costs?

[00:11:45] Speaker 00:
I think it would depend on the circumstances.

[00:11:47] Speaker 02:
And if they were like the circumstances... Well, try to follow the hypothetical I gave you as best as possible.

[00:11:50] Speaker 02:
I know it was meandering.

[00:11:52] Speaker 00:
So if the circumstances were such that the taxing entity was simply saying, we think you must pay this, and the tax entity said, no, we think not,

[00:12:02] Speaker 00:
That is different than the circumstances where the taxing entity says, you must pay this or you will be removed from the country and default on your obligations under your contracts, which is what happened here.

[00:12:14] Speaker 00:
They told the parent that we will not renew your permits that would continue to permit you to operate in the country providing armed security services to State Department assets unless these taxes are paid.

[00:12:25] Speaker 00:
And they said initially several hundred million dollars would have to be paid

[00:12:29] Speaker 00:
After years of negotiation, that was brought down to a $30 million range.

[00:12:35] Speaker 00:
Ultimately, if that wasn't paid, the State Department's internal documents note that would have caused State Department assets to go unprotected.

[00:12:43] Speaker 00:
Would you like to save the remainder of your time for rebuttal?

[00:12:45] Speaker 00:
I would, Your Honor.

[00:12:58] Speaker 01:
Good morning, Your Honor, and may it please the court.

[00:13:01] Speaker 02:
Is it just a matter of form over function?

[00:13:04] Speaker 02:
I mean, clearly, if the Afghanistan government had sent a tax bill to IDS, and IDS had sent a tax check to the government, assuming that they're reasonable and allocable and all that kind of stuff, they could have recovered those tax costs, right?

[00:13:21] Speaker 01:
In that scenario, Judge Hughes, yes, the contractor would have clear evidence of it having incurred a cost under the contract.

[00:13:28] Speaker 01:
There may be other issues of allowability as to whether those costs were reasonable and things like that.

[00:13:33] Speaker 01:
But in current, I don't believe it would be an issue in that respect.

[00:13:36] Speaker 02:
As a matter of the cost reimbursement provision, and that applies here.

[00:13:39] Speaker 02:
I don't know what the specific one is.

[00:13:41] Speaker 02:
But if the contractor incurs taxes that are covered by that cost reimbursement clause, they can seek them from the government as additional costs.

[00:13:51] Speaker 01:
Yes, Your Honor, and to go for the court, there is a question in this record as to what the...

[00:13:58] Speaker 01:
Contract line item number X 404, which the board found to be ambiguous actually means it would entitle IDS.

[00:14:03] Speaker 01:
Okay.

[00:14:03] Speaker 01:
But those are all questions.

[00:14:05] Speaker 01:
Those are all ancillary issues.

[00:14:07] Speaker 02:
So what's wrong with the argument that the record here shows that the taxes that the parent paid were solely attributable to the poor performance of IDS under this contract.

[00:14:22] Speaker 02:
And therefore they were IDS's obligations.

[00:14:26] Speaker 02:
to pay, and it's just the nature of the way Afghani government was seeking the payment of these taxes that made the parent pay them rather than IDS.

[00:14:38] Speaker 01:
Your Honor, at base, the problem with that factual assertion is that it's unsupported in the record.

[00:14:43] Speaker 01:
It is IDS's contention.

[00:14:45] Speaker 01:
And this goes to the second basis for the board denying entitlement in this case, and that is the allocability portion of the board's opinion.

[00:14:54] Speaker 02:
Why was the government against novation?

[00:14:58] Speaker 01:
Your honor, the government's denial of novation is documented in a letter from the contracting officer explaining that the government understood IDS to continue to be a going concern and with the support of Academy LLC would continue to perform its obligations under the contract.

[00:15:18] Speaker 01:
And thus the government directed IDS to do that.

[00:15:21] Speaker 01:
That is the evidence that we have in the record as to the reason why, and it's clear evidence in that denial letter that the government had issued to IDS shortly after requesting a novation in May of 2012.

[00:15:36] Speaker 02:
Can I get back to what I was asking you about?

[00:15:39] Speaker 02:
I want to talk about allocability.

[00:15:40] Speaker 02:
I want to talk about just the legal burden of this, because again, it gets back to whether this was formal or functioned to me.

[00:15:49] Speaker 02:
you say there's no evidence in the record that these tax costs that were paid.

[00:15:59] Speaker 02:
And let's just assume there are actual tax costs paid by Academy to the Afghan government.

[00:16:08] Speaker 02:
I don't want to argue about that.

[00:16:10] Speaker 02:
And the record evidence seems to show

[00:16:14] Speaker 02:
And maybe this is where you say it's disputed, but it seems to show to me that Academy had three different types of contracts.

[00:16:21] Speaker 02:
They had commercial contracts that they paid the taxes for.

[00:16:24] Speaker 02:
They had Defense Department contracts that were exempt.

[00:16:27] Speaker 02:
And they had the State Department contracts, which

[00:16:31] Speaker 02:
unless I'm mistaken, only covered these contracts.

[00:16:34] Speaker 02:
And they limited their claims for tax refunds to the period when only these two clins could possibly be an issue anymore.

[00:16:44] Speaker 02:
So there was no dispute.

[00:16:47] Speaker 02:
And that's my reading of the record is there's no dispute that the taxes paid by Academy to the Afghani government were only for the revenues from these two clins.

[00:17:00] Speaker 01:
Your Honor, that is a disputed fact in the record, and the primary dispute boils down to IDS claims of the testimony of Mr. Niyat Qassimi, who was a lawyer engaged by Constellus Holdings in 2016 to negotiate taxes with the Afghan government.

[00:17:17] Speaker 01:
IDS claims that Mr. Kasimi testified before the board that the monies at issue relate exclusively, that being a quote, to IDS's performance or incurrence of costs under this contract.

[00:17:33] Speaker 01:
The board weighed that testimony and Mr. Kissimmee found it not to go as far as IDS had alleged that it did.

[00:17:40] Speaker 01:
The board found that Mr. Kissimmee actually did not testify that those monies relate exclusively to any contract in particular at all, whereas Mr. Kissimmee had- Where is the substantial evidence for that conclusion?

[00:17:54] Speaker 01:
Mr. Kissimmee's testimony that we're talking about here is primarily on Appendix 8592.

[00:17:59] Speaker 02:
Yeah, but why did the board reject that testimony?

[00:18:02] Speaker 02:
Did he testify live?

[00:18:03] Speaker 01:
The board didn't reject Mr. Kissimmee's testimony.

[00:18:06] Speaker 01:
The board assessed Mr. Kissimmee's testimony and found it not to go as far as IDS had contended that it did.

[00:18:13] Speaker 01:
And that whereas IDS, again, had contended before the board, citing to Mr. Kissimmee's testimony, that these monies relate exclusively to these State Department contracts, the WPS contract and the two task orders.

[00:18:28] Speaker 02:
But before we dive into this, can I get you to answer a hypothetical question?

[00:18:33] Speaker 02:
Let's assume, because I see where we're getting into a problem, let's assume that the fact showed that the monies paid did exclusively relate to these tax orders.

[00:18:45] Speaker 02:
There's no dispute that the only revenue that's being taxed here is IDS's performance under these two claims, and that the only payments made by Academy to the Afghani government were for

[00:18:59] Speaker 02:
taxes associated with this revenue.

[00:19:01] Speaker 02:
No factual disputes about allocability or anything.

[00:19:04] Speaker 02:
And so the only question is, did the fact that the parent paid them, even though they were entirely attributable to the revenue of the subsidiary, does that legally make a difference?

[00:19:17] Speaker 02:
Or under those facts, where there's no dispute at all about the amount, where it came from, and that it was attributable to a government contract, would, in those circumstances,

[00:19:28] Speaker 02:
be allowed to get recovery under the cost reimbursement claim.

[00:19:34] Speaker 02:
Your Honor, if we leave aside allocability and focus on incurrence... Well, my allocability argument is suggesting the hypothetical, which is that it is undisputed that they are entirely allocable to these two claims.

[00:19:45] Speaker 01:
Correct.

[00:19:46] Speaker 01:
And Your Honor is focusing on the fact then that the parent company is the one that actually paid the taxes in the case.

[00:19:53] Speaker 01:
and whether the parent company's payment is just positive of IDS's ability to be able to get reimbursement from the government, I think our answer to that is no.

[00:20:01] Speaker 01:
If IDS can show that IDS, the contractor, this is a Contract Disputes Act case, the contractor is the one that actually ultimately incurred the cost that it seeks for reimbursement from the government.

[00:20:14] Speaker 01:
In this case,

[00:20:15] Speaker 02:
Wait, wait, wait.

[00:20:15] Speaker 02:
Let me stop, though, because I feel maybe I didn't make that explicit in my hypothetical.

[00:20:21] Speaker 02:
But I think it was clear that when the Afghani government was billing Academy, they were billing them for underpayment of taxes attributable solely to these two clans.

[00:20:34] Speaker 02:
Is that not enough, then, for them to get reimbursement?

[00:20:37] Speaker 01:
No, Your Honor, because that doesn't establish that the parent company, Academy LLC, the taxpayer,

[00:20:44] Speaker 01:
ever actually, as Jorana noted before with Mr. Prince, ever actually then charged IDS the cost.

[00:20:51] Speaker 02:
But what about the suggestion that this is a zero dollar account and so everything that IDS earns is turned over?

[00:20:59] Speaker 02:
Is it your view that that's not enough to show that there was a specific payment from IDS up because it's all just being money set up and Academy can determine how to allocate that money

[00:21:12] Speaker 02:
What so, whatever way it wants.

[00:21:14] Speaker 01:
The testimony in the record, your honor, as to IDS's funds received from the government, IDS billing the government in IDS's own name, receiving money from the government in IDS's own name, IDS then sweeping that money or, or Academy LLC or Consilas Holdings LLC, another parent in the chain, sweeping those monies up to one of those parents, Academy LLC, the record suggests,

[00:21:39] Speaker 01:
doesn't mean that Academy charged IDS for the tax payments at issue in this case.

[00:21:45] Speaker 01:
There's no showing of how those monies relate to each other.

[00:21:49] Speaker 01:
And the board weighed the testimony in the case and found that- I just want to get this clear.

[00:21:57] Speaker 02:
Your view is that, and again, we're speaking hypothetically, the fact that the government

[00:22:04] Speaker 02:
Afghanistan went to Academy and said, you owe taxes on this underlying government contract that your subsidiary IDS has with the United States.

[00:22:17] Speaker 02:
That's not enough to show that IDS incurred

[00:22:22] Speaker 02:
those charges.

[00:22:23] Speaker 02:
It was the parent that incurred those charges.

[00:22:25] Speaker 02:
Correct.

[00:22:26] Speaker 02:
What would it have taken for the parent to pass those charges on?

[00:22:32] Speaker 02:
Because again, is this a question of they have made corporate structure and if they want to pass on costs, they have to show in their corporate structure, but also in their account keeping, which under most government contracts, they're required to keep records.

[00:22:48] Speaker 02:
that Academy then transmitted some kind of separate bill or invoice or however you would keep charge and say, these are your responsibility, ISD, and noted that they had specifically been incurred by ISD.

[00:23:06] Speaker 02:
If that had happened, let me ask it that way.

[00:23:08] Speaker 02:
If that had happened, if all these other facts in this hypothetical we're talking about were true, and when the Afghanistan government said to Academy, you're going to lose your licenses if you don't pay taxes on this contract, and Academy had then sent a bill to IDS saying you're liable for these taxes, they will be paid out of the revenues you're getting under the contract, and you should seek reimbursement from the government, would that be enough?

[00:23:37] Speaker 01:
If there were a bill in this record, your honor, from Academy LLC, the taxpayer down to IDS saying IDS, you owe as a matter of inter-corporate fund transfer these monies.

[00:23:51] Speaker 01:
that obligation then may have been established, such that IDS could be considered to have incurred the cost.

[00:23:58] Speaker 02:
So in your view, the problem in this case is the board found that there is no sufficient connection to Academy's payment to Afghanistan to make them something that's a debt of IDS, and that there's substantial evidence for that conclusion.

[00:24:14] Speaker 01:
Correct.

[00:24:15] Speaker 01:
Correct.

[00:24:19] Speaker 02:
Anything further?

[00:24:21] Speaker 01:
I believe, unless the court has further questions, I can conclude.

[00:24:28] Speaker 02:
Thank you.

[00:24:29] Speaker 00:
Thank you, Your Honor.

[00:24:36] Speaker 02:
Can we just pick up where I left off, just to cut to the chase?

[00:24:40] Speaker 02:
I find this case very, very difficult and troubling in terms of just how to approach it.

[00:24:45] Speaker 02:
But let's just say I'm approaching it that way, that this is the board made a finding that there's insufficient evidence to show that IDS ever incurred these taxes, because there is no documentary evidence to show that Academy linked these specific payments to IDS.

[00:25:05] Speaker 02:
And I know you want to make your operational argument, but let's, I can look at that myself.

[00:25:09] Speaker 02:
I don't want to talk about that.

[00:25:10] Speaker 02:
So if the only linkage is between Academy and at best ATCI, and the board even found that that may not be indicative of who's the taxpayer, that Academy was the taxpayer here.

[00:25:24] Speaker 02:
And there's no other specific evidence that these taxes were incurred by IDS.

[00:25:31] Speaker 02:
Why is that not substantial evidence?

[00:25:34] Speaker 00:
So in this case, these were taxes that had to be paid for performance.

[00:25:38] Speaker 00:
They were paid by the entity that they were assessed against, Academy LLC, in order to permit the continued performance of IDS's contract.

[00:25:47] Speaker 00:
You can call that a subcontract relationship because they were providing services necessary for performance of the contract.

[00:25:53] Speaker 00:
That might be the right paradigm to look at this from in any case because they were, Academy LLC, was in reality performing this contract.

[00:26:00] Speaker 00:
But in any event, they were costs that were incurred by the corporate parent exclusively to the account of the subsidiary to permit that subsidiary to continue performing.

[00:26:11] Speaker 02:
The problem I have is the first part seems correct and supported by the evidence that they were costs accrued by the parent.

[00:26:22] Speaker 02:
But that doesn't get you tax reimbursement under government contract with the subsidiary, right?

[00:26:28] Speaker 00:
Well, it does if they were considered to be a cost of the subsidiary.

[00:26:32] Speaker 02:
But that's the problem is, where is the evidence to show that the taxes accrued and paid by the parent were ever attributed to IDS?

[00:26:43] Speaker 00:
So that comes in a few ways.

[00:26:47] Speaker 00:
First, through the testimony that I alluded to at the outset that establishes that this was a entity that had zero-sum accounts.

[00:26:56] Speaker 00:
Monies were taken.

[00:26:58] Speaker 00:
directly to the parents and then debited from the parents' accounts.

[00:27:01] Speaker 00:
And that is a cost of the entity that is IDS because its monies are being kept by the parent and the parent is taking monies out of that account.

[00:27:11] Speaker 00:
On the other hand, you could look at this as a subcontractor relationship, where it's a cost.

[00:27:15] Speaker 02:
I want to make sure that I'm being precise about this.

[00:27:18] Speaker 02:
And you're out of time, but let me just say, when you say that monies are being debited out of an account, you don't mean out of an account that has an IDS name on it, though?

[00:27:27] Speaker 00:
It doesn't have an IDS name on it.

[00:27:29] Speaker 00:
It was maintained for IDS.

[00:27:35] Speaker 00:
OK.

[00:27:35] Speaker 00:
I think both counsels' case is taken under submission.