Hie Holdings, Inc.; Hawaiian Isles Kona Coffee Co., Ltd.; Royal Hawaiian Water Co., Ltd. v. Commissioner of Internal Revenue

This disposition is not appropriate for publication and is not precedent*
except as provided by 9th Cir. R. 36-3.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HIE HOLDINGS, INC.; HAWAIIAN
ISLES KONA COFFEE CO., LTD.;
ROYAL HAWAIIAN WATER CO.,
LTD.,
Petitioners - Appellants,
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
No. 10-72588
Tax Ct. No. 5045-05
MEMORANDUM*
HAWAIIAN ISLES ENTERPRISES,
INC.,
Petitioner - Appellant,
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
No. 10-72589
Tax Ct. No. 5046-05
FILED
APR 05 2013
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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MICHAEL H. BOULWARE,
Petitioner - Appellant,
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
No. 10-72590
Tax Ct. No. 5047-05
Appeals from a Decision of the
United States Tax Court
David Laro, Senior Tax Court Judge, Presiding
Argued and Submitted February 12, 2013
Honolulu, Hawaii
Before: GRABER, BYBEE, and CHRISTEN, Circuit Judges.
This appeal concerns tax positions filed by Hawaiian Isles Enterprises, Inc.
(HIE) and HIE Holdings, Inc. (Holdings). First, the founder and controlling
shareholder of HIE and Holdings, Michael Boulware, faced criminal and civil
litigation for fraud and tax evasion. HIE and Holdings paid Boulware’s substantial
legal defense fees and claimed these fees as deductible business expenses. Second,
HIE purportedly determined that it was owed a refund for 1989–1995 for
overpaying its tobacco tax. After HIE purportedly determined that it had
misapplied the all-events test in using self-help to obtain a refund, HIE omitted

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from its returns the refund income from the years in which it had been reported and
reported it in later years, claiming a net operating loss (NOL) for the income
eliminated in the earlier years. The IRS was not persuaded that taxpayers were
entitled to take either position. In a thorough opinion, the Tax Court, for the most
part, agreed, characterizing most of the legal fees as Boulware’s personal expenses
and determining that HIE was not entitled to its claimed net operating loss
carryforward for 1998, 2000, 2001, and 2002. We affirm the judgment of the Tax
Court.
A. Legal Fees
Boulware’s contested legal defense fees are not an “ordinary and necessary”
business expense under I.R.C. § 162(a) as they do not “arise[] in connection with
the . . . profit-seeking activities” of HIE or Holdings, but instead spring from the
personal fraud of Boulware. United States v. Gilmore, 372 U.S. 39, 40, 48 (1963).
Nor are these fees theft losses under I.R.C. § 165(e), as HIE and Holdings
knowingly paid for Boulware’s fees. Taxpayers’ attempt to raise the issue of the
Lee expenses for appeal in a footnote fails under United States v. Strong, 489 F.3d
1055, 1060 n.4 (9th Cir. 2007) (holding that “[t]he summary mention of an issue in
a footnote, without reasoning in support of the appellant’s argument, is insufficient
to raise the issue on appeal” (internal quotation marks omitted)). Taxpayers’

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attempt to object to the Tax Court’s treatment of their bad debt is similarly
unavailing, as the Tax Court’s judgment was not adverse to the taxpayers on this
issue. Finally, the Tax Court did not clearly err in determining that Boulware
cannot deduct these fees himself as ordinary and necessary expenses of his
systemic wrongdoings, as his various schemes did not amount to a trade or
business, even an illicit one.
B. Credit for Amortization Entries
Taxpayers relied on incoherent records, unhelpful or uncredible witnesses,
and their own inconsistent behavior in presenting their NOL carryforward position
and, accordingly, the Tax Court reasonably rejected the factual premises
underlying taxpayers’ claim to a credit for the additional income reported in later
years. See United States v. Becerra-Garcia, 397 F.3d 1167, 1172 (9th Cir. 2005)
(noting that credibility determinations of trial courts are due great deference); see
also Sparkman v. Comm’r, 509 F.3d 1149, 1156 (9th Cir. 2007).
AFFIRMED.

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