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14-P-1662                                                Appeals Court

  NATIONAL GRID HOLDINGS, INC., & others1        vs.   COMMISSIONER OF
                            REVENUE.


                                No. 14-P-1662.

             Suffolk.       December 11, 2015. - June 8, 2016.

                 Present:    Cypher, Carhart, & Blake, JJ.


Taxation, Abatement, Corporate excise, Accounting principle.
     Public Utilities. Debt. Corporation, Stock. Evidence,
     Settlement offer.



       Appeal from a decision of the Appellate Tax Board.


     John S. Brown (Donald-Bruce Abrams with him) for the
taxpayers.
     Brett M. Goldberg for Commissioner of Revenue.


       CYPHER, J.       The plaintiffs, National Grid Holdings, Inc.

(NGHI), National Grid USA (NGUSA), and National Grid USA Service

Company, Inc. (NG Service) (collectively, taxpayers), appeal

from a decision of the Appellate Tax Board (board) in favor of


       1
           National Grid USA and National Grid USA Service Company,
Inc.
                                                                    2


the defendant, Commissioner of Revenue (commissioner), on the

taxpayers' claims for an abatement of corporate excise for the

tax year ended March 31, 2002.    Primarily at issue is whether

certain financing transactions, referred to as deferred

subscription arrangements (DSAs), among various subsidiaries of

National Grid plc (NGPLC), constituted true indebtedness so that

the interest paid thereon qualified for the deduction allowed

under the Massachusetts taxation of corporations statute, G. L.

c. 63, § 30(4).

     NGPLC is a British electric and gas utility company that

owns numerous entities in the United States (U.S.), the United

Kingdom (U.K.), and beyond (collectively, National Grid).     The

DSAs were financing arrangements designed by National Grid to

take advantage of the differences in the U.S. and U.K. tax

codes.2    National Grid attempted to cast the transactions as

indebtedness under U.S. State and Federal tax laws, thereby

reducing National Grid's tax liability in the U.S., and as

equity, under U.K. law, thereby reducing its taxable income in

the U.K.    Of overriding concern was the avoidance of any

appearance of indebtedness in the U.K., where a debenture

between a U.K. entity and its foreign subsidiary is strictly

     2
       The strategy, referred to as international tax arbitrage,
is a tax planning technique in which a multinational corporation
seeks to take advantage of differences in the tax laws of two
countries to gain a tax advantage.
                                                                      3


prohibited by statute, under threat of criminal sanctions.3      To

that end, National Grid drafted the DSAs as agreements among

various related entities to sell and repurchase shares of stock,

maintaining in these proceedings that the mandatory nature of

the stock repurchase constituted debt under Massachusetts

corporate tax law.

     "We will not modify or reverse a decision of the board if

the decision is based on both substantial evidence and the

correct application of the law."    Boston Professional Hockey

Assn. v. Commissioner of Rev., 443 Mass. 276, 285 (2005).      We

find no error with the board's determination that the taxpayers

failed to satisfy their burden of proving that the critical

provisions of the DSAs, upon which they rely, gave rise to an

unqualified obligation to repay.    Accordingly, their claimed

deductions for interest payments under the DSAs were properly

rejected, as was their claim that the DSAs constituted a

liability in calculating net worth.

     Background.     We summarize the factual and procedural

background from the board's very thorough account, provided in

its June 4, 2014, findings of fact and report, which we

supplement from the record where appropriate.


     3
       Under that statute, a debenture is defined as any document
that created, acknowledged, or evidenced a debt, as determined
with reference to English common law.
                                                                   4


     National Grid entered the U.S. utility market in 1998, when

it acquired New England Electrical System (NEES) and, shortly

thereafter, Eastern Utilities Association (EUA).   Pursuant to

the acquisition, National Grid General Partnership (NGGP) became

the parent of the U.S. group and NEES merged with NGUSA.      In

order to achieve tax efficiency in the purchase, National Grid

created a domestic reverse hybrid, a tax structure whereby the

U.S. entity was taxable as a corporation in the U.S. but was

transparent, for tax purposes, in a foreign country.4   The

domestic reverse hybrid was part of a thirty-three-step process

known as Project Mayflower, by which National Grid acquired NEES

and EAU.   National Grid used existing affiliates, and also

created several U.K. and U.S. entities in the process that

issued various intercompany loans to finance the acquisition of

NEES and EUA and permitted National Grid to claim interest

deductions in the U.S.

     In February, 2001, the U.S. Treasury proposed regulations

to restrict the use of domestic reverse hybrids.   Under the new

regulations, the interest payments made by the National Grid

subsidiary would be treated as payment of dividends and subject

to U.S. tax withholding.   In the face of the proposed changes,

     4
       NGGP did so by electing to be treated as a corporation in
the U.S., able to deduct interest it paid on loans on its U.S.
tax returns, without a corresponding recognition of income in
the U.K.
                                                                   5


National Grid sought to replace the domestic reverse hybrid with

a different structure that would maintain its tax advantages,

that is, the deductibility of interest payments in the U.S., and

avoidance of income recognition in the U.K.   Also to be avoided

was running afoul of §§ 765-766 of the United Kingdom Income and

Corporation Taxes Act 1988 (§ 765), which prohibits debentures

between U.K. entities and foreign subsidiaries, and which

carries criminal penalties.

    The result was known as Project Spam and Project Spa.

Project Spam was a forty-seven-step series of transactions that

refinanced the $2.68 billion indebtedness incurred in the NEES

acquisition.   Project Spa was a forty-four-step series of

transactions created soon after the Project Spam financing to

finance National Grid's acquisition of Niagara Mohawk Holdings,

Inc. (Niagara Mohawk), a New York utility company.   The projects

utilized the DSAs, which were structured as stock purchases, to

retain the interest deductions and other tax benefits of the

domestic reverse hybrid while avoiding creation of a debenture,

as prohibited under U.K law.   The relevant documents and

provisions of the two projects being similar, we principally

focus on Project Spam.

    National Grid Eight Limited (NG8), was a U.K. entity

created as part of Project Spam.   The NG8 DSA was designed to

reflect NGHI's $2.68 billion of outstanding debt for U.S tax
                                                                       6


purposes.   We are directed to three documents critical to the

dispute:    the articles of association of NG8 (articles); a

December 20, 2001, offer for subscription of ordinary share

capital; and an agreement for the sale and purchase of shares in

NG8 (S&P agreement).    The offer letter extended to NGHI the

opportunity to subscribe for 10 million shares of NG8, for

$2.695 billion, with an initial payment of $15 million and three

additional payments, referred to as call payments, on or after

the dates and in the amounts specified in the NG8 article.       NG8

could make those calls only in the amounts and on dates

specified in the documents.    The offer letter required that any

acceptance be oral, thereby avoiding a document that might be

construed as a debenture under § 765.

    Upon NGHI's oral acceptance of the offer, NGHI paid $15

million to NG8 for 10 million NG8 shares, and then sold the

shares for $2.695 billion to National Grid (US) Investments 4

(NGUSI4).   NGHI used the proceeds, totaling $2.68 billion

($2.695 billion minus the $15 million it paid to NG8), to repay

the loans for Project Mayflower, now refinanced.

    As noted, the articles provided that NG8 could make calls

on NGHI for four call payments on or after specified dates.      The

first three payments represented interest, and the final payment

was principal and interest.    The S&P agreement provided that

NGHI remain liable for the call payments, and that if NG8 failed
                                                                   7


to make a call according to the schedule in the articles, NGHI

was entitled to procure, through NGUSI4, that NG8 make the call

(thereby avoiding interest at a higher rate).     However, NGHI was

under no obligation to exercise that right.

    At the heart of this dispute is the nature of NGHI's

obligation to repurchase the NG8 shares, and whether that

obligation constituted the repayment of a debt, as determined by

whether NGHI4's service of the notice to repurchase was

discretionary or mandatory.     Clause 2.9 of the S&P agreement

provided that if NGHI failed to make a call payment within seven

days of the call, or if NG8 made no call and NGHI failed to

exercise its right to procure a call, NGUSI4 was "entitled to

serve a notice" on NGHI requiring NGHI to repurchase the [NG8]

shares.     The parties agree that, under clause 2.9, NGUSI4's

right to serve notice requiring NGHI to repurchase the shares

was discretionary, as per the "shall be entitled to serve"

language.    Hence, clause 2.9 did not impose an unqualified

obligation on NGHI to repurchase the shares.

    The parties' disagreement centers on clause 2.10 of the S&P

agreement.    We set forth clause 2.10 in its entirety:

         "If for any reason whatsoever any sums due in respect
    of the [s]hares under [a]rticle 3 of the [a]rticles remain
    unpaid after 19 December[,] 2004, the [b]uyer shall serve a
    notice on the [s]eller requiring the [s]eller to repurchase
    the [s]hares on 20 December[,] 2004[,] or if this is not a
    [b]usiness [d]ay, the next [b]usiness [d]ay thereafter for
    a consideration equal to the net asset value of the
                                                                   8


     [c]ompany (as determined in accordance with clauses 2.11 to
     2.14) and the aggregate of any sums remaining unpaid in
     respect of the [s]hares less the amount of any called up
     share capital not paid, and such consideration shall be
     paid in cash against delivery of a duly executed transfer
     on behalf of the [b]uyer in favour of the [s]eller and the
     delivery of the relevant share certificate. If the [b]uyer
     exercises its rights under this clause and the [s]eller
     fails to complete the repurchase of the [s]hares at the
     time specified by the [b]uyer[,] the consideration due
     shall bear interest for the period from and including the
     date on which the failure to complete the repurchase has
     occurred up to the date of the actual payment (after as
     well as before judgment) at the rate which is the aggregate
     of [four] percent per annum above the base rate from time
     to time of Barclays Bank plc. The interest will accrue
     from day to day and shall be payable on demand and shall be
     compounded monthly in arrears provided that no interest
     shall accrue under this clause 2.10 where interest is
     accruing under [a]rticle 3 of the [a]rticles."

     The parties debate the interpretation of clause 2.10, and

whether it required NGHI4, as the buyer, to serve notice to

repurchase, or whether NGHI4 merely had the right to serve

notice to repurchase.   According to National Grid, clause 2.10

establishes that NGHI4 was required to serve notice to

repurchase and, as such, imposed on NGHI an unqualified

obligation to repurchase the shares -- and hence, repay a debt.5

     A month after Project Spam's implementation, Project Spa

was carried out, consisting of forty-four steps, through which

National Grid acquired Niagara Mohawk.   The DSA components of

     5
       In reality, all of the calls and call payments were made
prior to the applicable call default dates, and thus no notice
to repurchase the shares was actually issued. Interest paid on
the call payments was disbursed to National Grid entities
outside of the U.S.
                                                                    9


Project Spa were similar to those for Project Spam, except for

the companies involved, the dates, the number of shares, and the

dollar amounts.   Significant here, NGUSA filed a separate

corporate excise return claiming a deduction in computing its

taxable net worth for a liability for costs associated with the

Niagara Mohawk acquisition.

     NG Service was the principal reporting corporation for NGHI

and NGUSA for Massachusetts tax purposes.   For the tax year

ending March 31, 2002, the taxpayers deducted the interest

payments made under the DSAs, treating the DSAs as indebtedness.

Similarly, NGHI treated the DSAs as deductible for purposes of

calculating taxable net worth.   The commissioner made additional

assessments of corporate excise for the year ending March 31,

2002.   The taxpayers filed applications for abatement, which the

commissioner denied.

     The taxpayers appealed the denial to the board, which held

fifteen days of hearings and issued its findings of fact and

report dated June 4, 2014.    The board ruled that clause 2.10 did

not mandate that NGHI4 serve notice to repurchase the NG8

shares, and was at best ambiguous as to whether NGHI4 was

obligated to serve notice to repurchase or whether it merely

possessed the right to serve such notice.   The board concluded

that the DSAs did not constitute true indebtedness and that the

taxpayers were not entitled to the claimed interest deductions,
                                                                      10


nor were they entitled to deduct the DSAs as a liability in

computing taxable net worth.     The board also denied the

deductions for certain costs claimed in connection with the

acquisition of Niagara Mohawk.     The taxpayers filed this appeal.6

     Discussion.     1.   Standard of review.   The standard of

review is the parties' first point of contention.       It is well

established that "[a] decision of the board will not be reversed

or modified if it is based on substantial evidence and on a

correct application of the law."     Koch v. Commissioner of Rev.,

416 Mass. 540, 555 (1993).     National Grid maintains that the

board's interpretation of the DSAs is a question of law subject

to de novo review.     It is true that contract interpretation is

ordinarily a question of law.     See Robert Indus., Inc. v.

Spence, 362 Mass. 751, 755 (1973).      But it has also been

observed that the question whether the taxpayers intended that a

contractual arrangement obligate them to repay a debt is an

issue of fact, see New York Times Sales, Inc. v. Commissioner of

Rev., 40 Mass. App. Ct. 749, 752 (1996), and that the board's

findings of fact are final.     See Kennametal, Inc. v.

Commissioner of Rev., 426 Mass. 39, 43 (1997).       We may look at


     6
       The taxpayers also filed a related appeal, National Grid
USA Serv. Co. v. Commissioner of Rev., 89 Mass. App.
Ct.         (2016), which concerns the effect of a closing
agreement entered into between the taxpayers and the Internal
Revenue Service.
                                                                    11


whether the evidence is sufficient to support the board's

conclusions of law, but our review in that regard "is limited to

'whether a contrary conclusion is not merely a possible but a

necessary inference from the findings.'"     Ibid., quoting from

Commissioner of Rev. v. Houghton Mifflin Co., 423 Mass. 42, 43

(1996).

    We therefore consider whether the board applied the correct

legal standard in interpreting the relevant documents and

whether its conclusion that the DSAs did not constitute

indebtedness was supported by substantial evidence.

    2.    Unqualified obligation to repay.    The board applied the

correct legal standard in defining debt as "an unqualified

obligation to pay a sum certain at a reasonably close fixed

maturity date along with a fixed percentage in interest payable

regardless of the debtor's income or lack thereof."     Overnite

Transp. Co. v. Commissioner of Rev. 54 Mass. App. Ct. 180, 186

(2002), quoting from Gilbert v. Commissioner of Int. Rev. 248

F.2d 399, 402 (2d Cir. 1957).   In considering whether the DSAs

qualified as debt, the board appropriately looked to the

language of the DSAs as well as the circumstances of their

creation and performance.   See New York Times Sales, Inc., supra

at 752-753; Overnite Transp. Co., supra.     See also Shea v. Bay

State Gas. Co., 383 Mass. 218, 222-223 (1981), quoting from

United States v. Seckinger, 397 U.S. 203, 213 n.17 (1970)
                                                                   12


("[c]ontract interpretation is largely an individualized

process, with the conclusion in a particular case turning on the

particular language used against the background of other indicia

of the parties' intention").7

     We begin with the text.    As noted, the central issue is

whether the service of the repurchase notice under clause 2.10

was mandatory or merely a right and, therefore, whether NGHI's

obligation to repurchase shares under the DSA, and thereby repay

the funds, was an unqualified one.    The board ruled that the

DSAs did not mandate service of notice to repurchase the shares

and so did not reflect an unqualified obligation to repay on the

part of NGHI.

     National Grid maintains that the board misconstrued clause

2.10 as not imposing a mandatory requirement that NGHI4 serve a

repurchase notice if the DSAs were not repaid by the final call

default dates.   National Grid points to use of the word "shall"

in the first sentence of clause 2.10 in regard to serving the

repurchase notice as plainly setting forth a requirement that

NGHI4 serve the notice to repurchase if amounts remained

outstanding as of the date specified, and triggering NGHI's

     7
       The board also referenced the list of factors set out in
Fin Hay Realty Co. v. United States, 398 F.2d 694, 696 (3d Cir.
1968), but noted that, under that analysis, certain facts
supported the taxpayers' argument while others cut against it.
The board instead rested its decision on the lack of an
unqualified obligation to repay, to be discussed, infra.
                                                                  13


obligation to repay upon receipt of that notice.   The board

pointed to the second sentence of clause 2.10, which speaks in

terms of exercising a right, suggesting that NGHI4 was not

required to serve notice, but instead had the right to serve

notice, at its discretion.   The board concluded that, at best,

clause 2.10 was ambiguous on the issue and rejected National

Grid's argument largely on that basis.

    National Grid challenges the board's ruling that the

meaning of clause 2.10 was ambiguous as to the mandatory

character of the notice.   A contract is ambiguous "where the

phraseology can support reasonable difference of opinion as to

the meaning of the words employed and the obligations

undertaken."   President & Fellows of Harvard College v. PECO

Energy Co., 57 Mass. App. Ct. 888, 896 (2003), quoting from

Suffolk Constr. Co. v. Lanco Scaffolding Co., 47 Mass. App. Ct.

726, 729 (1999).   Contrary to National Grid's assertion, the

board did not rest its conclusion of an ambiguity solely on the

use of the word "shall" in clause 2.10 and whether it referred

to the mandatory nature of the notice or to the date on which

notice, if given, had to be served.   The board specifically

pointed to the second sentence of 2.10, and the discretionary

nature of a right to give notice.

    The board's ruling, that clause 2.10 is ambiguous, is a

correct application of law and is supported by substantial
                                                                       14


evidence.   We therefore concur with the board's finding.        See

Browning-Ferris Indus., Inc. v. Casella Waste Mgmt. of Mass.,

Inc., 79 Mass. App. Ct. 300, 307 (2009).     The curious

inconsistency between the language employed in the first

sentence -- indicating "the [b]uyer shall serve" -- and the

second sentence -- which speaks of a right in the phrase "if the

[b]uyer exercises its rights," undercuts the taxpayers'

interpretation of 2.10 as setting forth a mandatory obligation.

The plain and ordinary meaning of a right, particularly in the

context of "if" a right is exercised, in no way connotes a

requirement or obligation to do anything.8    See Bailey v. Astra

Tech, Inc., 84 Mass. App. Ct. 590, 594 (2013) (words of contract

are interpreted according to their "plain meaning").       The

incongruity between the first sentence and the second sentence

in clause 2.10 renders the clause ambiguous on its face, because

under the second sentence, the obligation to repurchase the

shares was not an unqualified one; it depended on whether the

right to serve the final repurchase notice was exercised.         See,

e.g., Post v. Belmont Country Club, Inc., 60 Mass. App. Ct. 645,

652 (2004), quoting from Fashion House, Inc. v. K Mart Corp.,

     8
       Various definitions of a "right" include "something to
which one has a just claim," such as "a power or privilege
vested in a person by the law," or "a legally enforceable claim
against another," or "a capacity or privilege the enjoyment of
which is secured to a person by law." Webster's Third New
International Dictionary (1993).
                                                                  15


892 F.2d 1076, 1083 (1st Cir. 1989) ("Contract language is

ambiguous where 'an agreement's terms are inconsistent on their

face or where the phraseology can support reasonable difference

of opinion as to the meaning of the words employed and

obligations undertaken'").

    National Grid argues that, upon concluding that clause 2.10

was at best ambiguous, the board should have resolved the

ambiguity by reference to extrinsic evidence, in particular the

"preliminary negotiations, the conduct of the parties, and

interviews between them after the contract is executed," citing

Rizzo v. Cunningham, 303 Mass. 16, 21 (1939).   In resolving an

ambiguity, however, the board was entitled to evaluate the

parties' circumstances as well as intentions at the time of

formation.   See Castricone v. Mical, 74 Mass. App. Ct. 591, 599

(2009).   In essence, National Grid is arguing that the board

should have given more weight to evidence that favored National

Grid's interpretation, in particular the testimony of a National

Grid employee and a memorandum from its tax advisers, that

clause 2.10 was drafted to require mandatory service of the

repurchase notice.

    Contrary to National Grid's assertion, the board did not

apply an improper legal standard in according little weight to

evidence of the subjective intent of National Grid employees and

tax advisors.   First, the weight of the evidence, the inferences
                                                                    16


to be drawn therefrom, and the credibility of the witnesses are

all matters for the board.     See Kennametal, Inc., 426 Mass. at

43 n.6.   And particularly in this instance, where related

entities were on both sides of the transactions, the board was

not required to credit evidence of the taxpayers' subjective

intent.   "[M]ere declarations by the parties that they intend a

certain transaction to constitute a loan is insufficient if it

fails to meet more reliable indicia of debt which indicate the

'intrinsic economic nature of the transaction.'"     Alterman

Foods, Inc. v. United States, 505 F.2d 873, 877 (5th Cir. 1974),

quoting from Fin Hay Realty Co. v. United States, 398 F.2d 694,

697 (3d Cir. 1968).     In cases like this, "courts look with great

care to the surrounding facts and view with some suspicion

declarations of intent which have the effect of maximizing the

tax benefit."   Ibid.   Where the entities involved are under

common control, the fact that "all the formal indicia of an

obligation were meticulously made to appear," may be entitled to

less weight, as the drafters "had the power to create whatever

appearance would be of tax benefit to them despite the economic

reality of the transaction."    Fin Hay Realty Co., supra.

    By the same token, the board was entitled to reject

National Grid's explanation of its use of the phrase "if the

[b]uyer exercises its rights."    National Grid's expert, Graham

Aaronson, who was qualified as an expert in English commercial
                                                                  17


law and U.K. tax law, explained the second sentence of clause

2.10, "if the [b]uyer exercises its rights," as simply meaning

"if this clause applies."   But if that is all that was meant,

the drafters could have said so, in far simpler language.    See,

e.g., Jefferson Ins. Co. of N.Y. v. Holyoke, 23 Mass. App. Ct.

472, 476 (1987) (contract's plain language will not be distorted

where parties could have used appropriate language to indicate

different intent).9   The board could consider that these were

sophisticated taxpayers whose tax advisors carefully drafted the

transactions so as to yield the most beneficial tax

consequences.   See, e.g., Estate of Leavitt v. Commissioner of

Internal Rev., 875 F.2d 420, 424 (4th Cir. 1989) ("It must be

borne in mind that we do not merely encounter naive taxpayers

caught in a complex trap for the unwary").   Giving the phrase

"if the [b]uyer exercises its rights" its plain and ordinary

meaning, the phrase does not harmonize with the "shall serve"

language of the first sentence of clause 2.10 if the service of

notice was intended to be mandatory.

     Rather than relying on the taxpayers' declarations of

intent, the board appropriately looked to "the more reliable

criteria of the circumstances surrounding the transaction."

Alterman Foods, Inc., supra.   Principal among these, according

     9
       National Grid's attempt to ignore the clause's second
sentence, and relegate it to a footnote in its brief, does not
strengthen its cause.
                                                                  18


to testimony of the experts for both sides, was the legal

context in which the DSAs arose.   The record establishes that

the DSAs were designed to take advantage of the deduction

allowed for interest on indebtedness under U.S. tax laws, while

avoiding taxable income on the interest payments to the U.K.

recipient.

    Even more significant, according to the testimony of the

parties' respective U.K tax law experts, Malcolm Gammie and

Graham Aaronson, the overriding concern in drafting the DSAs was

to avoid the appearance of debt under U.K. law.    Both experts

testified that avoidance of any writing evincing debt was

paramount for purposes of § 765, because the statute imposes

criminal sanctions on the directors of a U.K. corporation for a

debenture issued by a nonresident subsidiary.    The primacy of

the taxpayers' concern to avoid a document evincing a debt was

repeatedly emphasized by the expert witnesses.

    In particular, Aaronson testified that, for that reason, "a

rather cumbersome process" was utilized to make it impossible

for the U.K. tax authority to argue there was a debenture.     The

transactions were deliberately designed with indeterminate dates

and methods of payment, and with amounts due only upon notice

given, and in the form of an asset repurchase rather than

repayment.   According to Aaronson, it would be impossible for

the U.K. authorities to view this contingency as a debt.
                                                                    19


Aaronson further testified that § 765 carried sanctions and was

taken very seriously, that taxpayers in general, and National

Grid in particular, were highly concerned about the possibility

of issuing a debenture subject to § 765, and that a taxpayer

would go to great lengths to avoid it.

    The board specifically referenced Aaronson's testimony in

describing avoidance of § 765 as "the essence of the tax

planning" in these projects, and that "cumbersome mechanisms"

were put in place so that the U.K. tax authority "would not be

able to identify any document or combination of documents as

giving rise to indebtedness created or evidenced" by the

documents.

    Malcolm Gammie, the commissioner's expert on U.K. law,

similarly testified that the taxpayer would want absolute

assurance that the transaction would not breach § 765.     Gammie

also testified that it was the essence of the transaction to

avoid problems with § 765, noting, for example, that the

subscription letter required oral acceptance.

    In the end, the board rejected National Grid's argument

that the repurchase notice under clause 2.10 should be

interpreted as mandatory.   The board specifically found that

"clause 2.10 could not be construed as compelling service of a

notice to repurchase or, in turn, payments by NGHI."     To the

extent the board ruled the clause ambiguous, the board was
                                                                    20


entitled to rule against the taxpayers, based on its findings

concerning the circumstances surrounding the DSAs, the

taxpayers' intentions in the context of an international tax

arbitrage, and the board's assessment of the witnesses'

credibility.    See Castricone, 74 Mass. App. Ct. at 600, quoting

from Edinburg v. Edinburg, 22 Mass. App. Ct. 199, 203 (1986)

("Where there are two permissible views of the evidence, the

factfinder's choice between them cannot be clearly erroneous").

    We observe, as well, that it was the taxpayers who had the

burden of proof on every material fact regarding their right to

an abatement.    See IDC Research, Inc. v. Commissioner of Rev.,

78 Mass. App. Ct. 352, 358 (2010).     It was therefore the

taxpayers' burden to prove that the DSAs constituted an

unqualified obligation to repay, and the board properly could

find that the taxpayers' burden was not met with documents,

drafted by them, that were ambiguous on that very point.      See

Estate of Leavitt, 875 F.2d at 424 (taxpayer's burden to prove

debt is especially difficult to meet where "transaction is cast

in sufficiently ambiguous terms to permit argument either way

depending on which is subsequently advantageous from tax point

of view").     This is in keeping with the general rule that an

ambiguous contract is construed against its author, which "rests

upon the practical and fair premise that the drafter had the

capacity and opportunity for clear expression and that he should
                                                                   21


bear the detriment of unclear expression."   Air Plum Island,

Inc. v. Society for the Preservation of New England Antiquities,

70 Mass. App. Ct. 246, 253 (2007).

    We reject National Grid's alternative argument that, even

if not mandatory, NGHI's right to serve a notice to repurchase

the shares on a fixed date was sufficient, in itself, to

establish an unconditional obligation to repay.   The Federal

cases on which National Grid relies do not bear that out.    See,

e.g., Jewel Tea Co. v. United States, 90 F.2d 451, 453 (2d Cir.

1937) (while there cannot be debt in the absence of an

unconditional right to demand payment at a fixed time, the

presence of such a right does not, in all circumstances, mean

shares are debts); Merck & Co. v. United States, 652 F.3d 475,

483 (3d Cir. 2011) (formal, explicit unconditional obligation to

repay was not an absolute prerequisite where an interest rate

"swap" was structured "to ensure repayment of funds as a

practical matter").   National Grid fails to persuade us that the

DSAs were structured so as to ensure that the shares were

repurchased or that the mere right to give notice to repurchase

rendered the obligation to repay an unqualified one.

    3.   DSAs as liabilities for computing taxable net worth.

NGHI was subject to tax on its taxable net worth pursuant to

c. 63, § 30(11).   NGHI argues that it was entitled to treat the

DSAs as debt and, accordingly, as liabilities deductible from
                                                                     22


its total assets in computing its taxable net worth.     The board

deemed the argument moot, based on its ruling that the DSAs were

not debt and, as such, could not be considered liabilities in

determining net worth.   See, e.g., Overnite Transp. Co., 54

Mass. App. Ct. at 180.

    National Grid presses the significance of the fact that

NGHI treated the DSAs as liabilities on NGHI's financial

statements.   Relying on Xtra, Inc., 380 Mass. 277, 280-281

(1980), National Grid maintains that the net worth assessment

should be consistent with the manner in which the taxpayer

actually accounted for the liability on its own books.     The

reference in that case, however, was to a generally accepted

accounting principle, and not to an individual taxpayer's

particular method of accounting for a given expense, however

erroneous.

    In Xtra, Inc., for example, the Court recognized the

accounting practice of accelerating depreciation on personal

property in computing income tax liability, and affirmed the

taxpayer's inclusion of its future obligation to pay the income

tax it deferred, through accelerating the depreciation

deductions, as a liability.   The holding was a narrow one:      "[A]

corporation which takes accelerated depreciation may treat the

income taxes deferred thereby as a liability."   Id. at 278.      We

will not extend the outcome in that case to the present
                                                                  23


situation to allow the taxpayer's characterization of the DSAs

as a debt to dictate the central issue of their tax treatment

for purposes of calculating taxable net worth.    And as the board

recognized in Xtra, Inc., even "a generally accepted accounting

principle, 'of itself and standing alone, cannot necessarily

dictate the result in tax cases.'"   Id. at 281, quoting from

First Fed. Sav. & Loan Assn. v. State Tax Commn., 372 Mass. 478,

483 (1977), aff'd, 437 U.S. 255 (1978).

    Indeed, First Fed. Sav. & Loan Assn., is more to the point.

In deciding whether dividend and interest payments made to

members of a savings and loan association were deductible as

operating expenses, the Supreme Judicial Court reasoned that

there was no basis "for assuming that the Legislature intended

to import accounting practice into its statutory language and

thus to permit accounting principles to be the guide to the

meaning of the words 'operating expenses.'"    Id. at 483.

Determining that the taxpayer's members were more akin to

investors than creditors, the court concluded that payments to

them represented dividends rather than debt.    Id. at 484-485.

    We agree with the board that the DSAs could not properly be

treated as debt and, hence, as liabilities, and we see no reason

to revisit the outcome implicit in Overnite Transp. Co., supra,

that the determination of indebtedness for purposes of interest

deductions resolved the issue for calculating net worth as well.
                                                                    24


    4.   The U.K. stamp duty.    NGUSA claimed a deduction in

computing its taxable net worth for costs associated with the

acquisition of Niagara Mohawk.    The board rejected certain of

those expenses for lack of proof that they were incurred in

connection with the acquisition.    The board further reasoned

that the taxpayers did not show that NGUSA itself paid the

costs, that according to the evidence, some were paid by U.K.

entities while others were paid by NEES.

    On appeal, National Grid claims that it offered sufficient

proof that NGUSA paid a $26.5 million liability for U.K. stamp

tax duty in connection with the Niagara Mohawk acquisition, that

the amount was recorded on NGUSA's books, and that it was

properly allocated to NGUSA.    National Grid's witness, John

Cochrane, who served as the chief financial officer for National

Grid's U.S. businesses at the time of the acquisition, testified

that the stamp tax was paid by NGPLC, and that NGUSA repaid

NGPLC for that amount five years later.    While the testimony

confirms that NGUSA paid the U.K. entity the stamp tax amount

some five years after the transaction, it was unclear from the

evidence why the expense was NGUSA's liability.

    The board emphasized that it was the taxpayers' burden to

demonstrate that the expenses claimed as liabilities in

calculating NGUSA's net worth were properly allocated to NGUSA

and were actually paid by NGUSA.    The board found that "neither
                                                                    25


Mr. Cochrane's testimony nor the record as a whole provided

sufficient credible evidence to establish either fact," and,

based on our review of the record, and our deference to the

board's role in weighing the evidence and assessing witness

credibility, we find no error.

    National Grid further argues that there was proof in the

record that NEES had merged into NGUSA after being acquired by

National Grid, so that NEES and NGUSA were the same legal entity

and that expenses paid by NEES were liabilities of NGUSA for net

worth purposes.   According to the board, however, Cochrane did

not explain why NEES was the source of the payments for which

NGUSA claimed liability, and it was the taxpayer's burden to

establish each fact necessary to its claim for an abatement.

See, IDC Research, Inc., 78 Mass. App. Ct. at 358.

    5.   Closing agreement.   National Grid sought to introduce a

document entitled "Department of the Treasury Internal Revenue

Service Closing Agreement on Final Determination Covering

Specific Matters," (closing agreement), between the Internal

Revenue Service (IRS) and NGHI that, according to National Grid,

included a final determination of NGHI's interest deductions for

the tax year at issue.   The question whether the closing

agreement between the taxpayers and the IRS was binding as to

the interest deductions allowable under Massachusetts law is the

subject of a separate appeal.    Here, National Grid argues that,
                                                                  26


even if not binding, the closing agreement still should have

been admitted.   National Grid claims that the adjustments made

by the IRS in interest deductions pursuant to the closing

agreement are relevant to determining the taxpayers'

Massachusetts tax liability.

      We agree with the board's ruling that, for evidentiary

purposes, the closing agreement constituted the settlement of a

claim, and the board did not abuse its discretion in excluding

it.   See Morea v. Cosco, Inc., 422 Mass. 601, 603-604 (1996) (no

evidence of settlement is admissible to prove liability or the

amount of a claim).   See generally Zucco v. Kane, 439 Mass. 503,

507 (2003) (absent abuse of discretion or other legal error,

judge's ruling on evidence will not be disturbed).   Moreover, as

the commissioner points out, in PMAG, Inc. v. Commissioner of

Rev., 429 Mass. 35, 40-41 (1999), upon which National Grid

relies, the admissibility of a closing agreement between the

taxpayer and the IRS was not at issue.

      National Grid also complains that the board allowed the

commissioner's posttrial motion to treat the closing agreement

as impounded material in the record appendix.   However, it

appears that National Grid failed to object when making its

offer of proof to the procedure utilized by the board in

accepting the closing agreement for identification and including

it with the record in a sealed envelope.   The hearing transcript
                                                                  27


suggests, rather, that National Grid concurred at that point.

National Grid does not indicate why inclusion of the closing

agreement in the record appendix in the same manner constitutes

error.

    Conclusion.   Based on the foregoing, we conclude that the

taxpayers failed to establish their right to abatements for the

tax year in question.   The decision of the Appellate Tax Board

is affirmed.

                                    So ordered.
