In one of my favorite legal movies, A Few Good Men, the lack of evidence on a particular point is brought up when Demi Moore’s character says to Tom Cruise’s character that he knows that something is true. Tom Cruise’s character then exclaims “it doesn’t matter what I believe, it only matters what I can prove. So don’t tell me what I know, or don’t know. I know the law.”
Unfortunately, in practice, litigators are often faced with clients who ask their lawyers to believe what they are saying as true without anything more than their testimony. This can be particularly troublesome in document intensive cases such as tax cases or other financial transaction litigation. In these types of cases, documentation is usually king. However, a lack of documents doesn’t doom your case. It just makes it harder to prove your point.
A recent tax case illustrates this point and resulted in a preliminary victory for the taxpayers involved. In Lowman v. United States, Civil No. 6:22-cv-2058 (M.D. Fla. August 22, 2024), the taxpayers sued the United States for a $1,095,292 tax refund for business losses they carried back based on an extended period allowed under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The Department of Justice, Tax Division filed a motion for summary judgment indicating that all the facts, even if taken as true, entitled them to judgment as a matter of law. The losses claimed involved alleged business expenses for a residential home the taxpayers claimed was converted and used for business. The government claimed that the alleged business never paid rent and only 16 people ever visited for business purposes. Also, the government claimed the inability to produce applications, leases, rental agreements, logs and other documents was dispositive. The taxpayers claimed that the records where lost when the company was acquired. Essentially, the taxpayers could testify to the business use, but had little or no documentation because it either wasn’t maintained or lost.
At the summary judgment stage, courts must view the evidence and all factual inferences in a light most favorable to the non-moving party (i.e. the taxpayers). This doesn’t mean that any evidence will be sufficient, only that if the record in enough to allow a court (or other trier of fact) to reasonably find for the non-moving party than summary judgment is inappropriate and the case proceeds to trial. In holding for the taxpayers, the Court in Lowman found that the taxpayer’s testimony about renovations and the frequency and purpose of business guests created a material issue of fact. Therefore, the government’s motion for summary judgment was denied.
The taxpayers here may not ultimately prevail at trial, but the ruling is still significant in that the testimony alone was sufficiently compelling to survive summary judgment. Not every tax case against the government gets a jury, but in tax refund suits the taxpayers can demand a jury. In Lowman, the taxpayers did not but could have. Summary judgment often bars taxpayers from ever having their evidence heard and evaluated on a jury of their peers. This case indicates that a compelling story at the summary judgment stage can get you to the next level, whether jury or judge, and that is a win for many cases.
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