Morrison

I. Background

Morrison and Nariman Teymourian formed an intellectual property management partnership, later reorganized as Cas- pian, a California corporation, of which Morrison owned 40% and Teymourian 60%. Morrison served as an officer and director at Caspian, and was also employed in a technical capacity. In July 2002, Morrison and Teymourian executed an agreement pursuant to which Morrison sold his interest in Caspian to Teymourian and resigned from both his officer and director positions and his employment with Caspian.

In November 2001, before Morrison resigned, the IRS began an audit of Caspian’s 1999 and 2000 tax returns. Its examination soon expanded to include separate audits of Mor- rison’s, Teymourian’s, and Teymourian’s wife’s personal tax returns for the same time period. Eventually, the IRS issued Notices of Deficiency to Caspian, Morrison, Teymourian, and Teymourian’s wife in connection with their 1999 and 2000 tax returns. The notices raised several issues, the most signifi- cant of which was whether loans made by Caspian to its shareholders, including Morrison, in 1999 and 2000 were tax- able as constructive dividends. The parties tried but were unable to…