                                                                           FILED
                           NOT FOR PUBLICATION                              APR 05 2013

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS




                            FOR THE NINTH CIRCUIT



HIE HOLDINGS, INC.; HAWAIIAN                     No. 10-72588
ISLES KONA COFFEE CO., LTD.;
ROYAL HAWAIIAN WATER CO.,                        Tax Ct. No. 5045-05
LTD.,

              Petitioners - Appellants,          MEMORANDUM *

  v.

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent - Appellee.



HAWAIIAN ISLES ENTERPRISES,                      No. 10-72589
INC.,
                                                 Tax Ct. No. 5046-05
              Petitioner - Appellant,

  v.

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent - Appellee.




        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
MICHAEL H. BOULWARE,                             No. 10-72590

              Petitioner - Appellant,            Tax Ct. No. 5047-05

  v.

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent - Appellee.



                          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

                                          2
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’


                                           3
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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