     Case: 10-41219       Document: 00512510322          Page: 1     Date Filed: 01/23/2014

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                             FILED
                                                                          January 23, 2014

                                       No. 10-41219                         Lyle W. Cayce
                                                                                Clerk

NPR INVESTMENTS, L.L.C., by and through Nelson Roach, a Partner other
than the Tax Matters Partner,

                                                   Plaintiff–Appellee
                                                   Cross–Appellant,

HAROLD W. NIX; CHARLES C. PATTERSON,

                                                   Intervenor Plaintiffs–Appellees,
v.

UNITED STATES OF AMERICA,

                                                   Defendant–Appellant
                                                   Cross–Appellee.

                   Appeals from the United States District Court
                         for the Eastern District of Texas

Before DENNIS, CLEMENT, and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
       In a Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”)1
partnership proceeding, the district court held that valuation misstatement and
substantial understatement tax penalties were inapplicable to NPR

       1
       Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 324 (codified
as amended at 26 U.S.C. §§ 6221-6234 (2012)).
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                                 No. 10-41219

Investments, LLC (NPR). The United States appeals those determinations. The
district court also held that a notice of a Final Partnership Administrative
Adjustment (FPAA) issued by the Internal Revenue Service (IRS) to NPR, which
made adjustments to NPR’s tax return and could result in additional tax
liabilities to some of the partners, was valid. NPR, by and through one of its
partners, Nelson J. Roach, and two of NPR’s other partners, Harold W. Nix and
Charles C. Patterson, cross-appeal that holding. We will refer to Nix, Patterson,
and Roach, collectively, as the Taxpayers.
      We conclude that, in this partnership-level proceeding, (1) valuation
misstatement penalties under 26 U.S.C. § 6662(e) and (h) are applicable; (2) a
substantial underpayment penalty under 26 U.S.C. § 6662(d) is applicable
because there was no substantial authority for the tax treatment of the
transactions at issue; (3) NPR failed to carry its burden of establishing a
reasonable-cause defense under 26 U.S.C. § 6664; and (4) the Taxpayers’
respective, individual reasonable-cause defenses under 26 U.S.C. § 6664 are
partner-level defenses that the district court did not have jurisdiction to
consider. We accordingly affirm the district court’s judgment regarding the
finality of the FPAA, reverse the district court’s judgment regarding the
valuation misstatement and substantial underpayment penalties, reverse the
district court’s judgment regarding NPR’s reasonable-cause defense, and vacate
the district court’s judgment regarding the Taxpayers’ reasonable-cause
defenses.
                                     I
      Harold Nix, Charles Patterson, and Nelson Roach are partners in the law
firm of Nix, Patterson & Roach, LLP. They represented the State of Texas in
litigation against the tobacco industry and in 1998 were awarded a fee of
approximately $600 million that is to be paid over a period of time. They also
received fees totaling approximately $68 million in connection with tobacco

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                                             No. 10-41219

litigation in Florida and Mississippi. Nix, Patterson, and Roach share the fees
40%, 40%, and 20%, respectively.
         Nix and Patterson have participated in at least two “Son-of-BOSS” tax
shelters.        BOSS stands for “Bond and Options Sales Strategy.”2                       Courts,
including our court and the district court in this case,3 have described a Son-of-
BOSS transaction as “a well-recognized ‘abusive’ tax shelter.”4 Artificial losses
are generated for tax deduction purposes.
         Before creating NPR and engaging in the transactions at issue in this
appeal, Nix and Patterson invested in another Son-of-BOSS tax shelter, known
as BLIPS. It involved sham bank loans, and our court considered various tax
issues related to Nix’s and Patterson’s transactions with regard to that shelter
in Klamath Strategic Investment Fund ex rel. St. Croix Ventures v. United
States.5
         In August 2000, after the investment in BLIPS but before NPR was
formed, the IRS issued a notice that it considered Son-of-BOSS transactions,
including BLIPS, abusive and that deductions for artificial losses generated from
such transactions would not be permitted. The Notice, IRS Notice 2000-44,
states:
               In another variation [of transactions generating losses
         through artificially high bases], a taxpayer purchases and writes
         options and purports to create substantial positive basis in a

         2
       Am. Boat Co. v. United States, 583 F.3d 471, 474 (7th Cir. 2009); Kligfeld Holdings
v. Comm’r, 128 T.C. 192, 194 (2007).
         3
             NPR Invs., LLC, ex rel. Roach v. United States, 732 F. Supp. 2d 676, 679 n.3 (E.D. Tex.
2010).
         4
        Nev. Partners Fund, L.L.C. ex rel. Sapphire II, Inc. v. United States, 720 F.3d 594, 605
(5th Cir. 2013) (citing Bemont Invs., L.L.C. ex rel. Tax Matters Partner v. United States, 679
F.3d 339, 342, 344 (5th Cir. 2012)); see also 106 Ltd. v. Comm’r, 684 F.3d 84, 86 (D.C. Cir.
2012); Desmet v. Comm’r, 581 F.3d 297, 299 (6th Cir. 2009).
         5
             568 F.3d 537 (5th Cir. 2009).

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                                      No. 10-41219

     partnership interest by transferring those option positions to a
     partnership. For example, a taxpayer might purchase call options
     for a cost of $1,000X and simultaneously write offsetting call
     options, with a slightly higher strike price but the same expiration
     date, for a premium of slightly less than $1,000X. Those option
     positions are then transferred to a partnership which, using
     additional amounts contributed to the partnership, may engage in
     investment activities.

           Under the position advanced by the promoters of this
     arrangement, the taxpayer claims that the basis in the taxpayer’s
     partnership interest is increased by the cost of the purchased call
     options but is not reduced under § 752 as a result of the
     partnership’s assumption of the taxpayer’s obligation with respect
     to the written call options. Therefore, disregarding additional
     amounts contributed to the partnership, transaction costs, and any
     income realized and expenses incurred at the partnership level, the
     taxpayer purports to have a basis in the partnership interest equal
     to the cost of the purchased call options ($1,000X in this example),
     even though the taxpayer’s net economic outlay to acquire the
     partnership interest and the value of the partnership interest are
     nominal or zero. On the disposition of the partnership interest, the
     taxpayer claims a tax loss ($1,000X in this example), even though
     the taxpayer has incurred no corresponding economic loss.

            The purported losses resulting from the transactions
     described above do not represent bona fide losses reflecting actual
     economic consequences as required for purposes of § 165. The
     purported losses from these transactions (and from any similar
     arrangements designed to produce noneconomic tax losses by
     artificially overstating basis in partnership interests) are not
     allowable as deductions for federal income tax purposes.6
     In 2001, the Taxpayers consulted with their CPA, Sid Cohen, with whom
they had a longstanding professional relationship, about investing in foreign
currency. Cohen introduced the Taxpayers to Diversified Group, Inc. (DGI) in
the summer of 2001. Cohen arranged and attended a meeting with DGI in
October 2001 at which Patterson was also present.                DGI explained its

     6
         I.R.S. Notice 2000-44, 2000-2 C.B. 255.

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investment opportunity, which involved the purchase, and contribution to a
partnership, of offsetting foreign, European-style currency options.7                   This
offsetting-option shelter was called “OPS” (Option Partnership Strategy). The
structure of the investment was similar to that described in and prohibited by
Notice 2000-44.           Cohen characterized the options as high-risk from the
standpoint of an investment for profit, but said that Patterson and his partners
had the “potential to make a lot of money on it” if the options “hit the sweet
spot.” “Hitting the sweet spot” could only occur if, on the expiration date of the
options, the exchange rate was at or above the strike price of the long option but
below the strike price of the short option. If that occurred, there would be no
payment obligation under the short option to offset the payout received under
the long option. However, the difference between the strike price of the long
option and that of the short option was negligible, only three pips. A pip is the
smallest unit quoted for the price of any currency. The district court noted that
in any given fifteen-minute period, the prices that banks quote for foreign
currencies can vary by more than three pips.8 Cohen and Patterson were
advised that unless the “sweet spot” was attained, there would be tax losses.
They never inquired about and were never told the odds of “hitting the sweet
spot.” Neither NPR nor the Taxpayers presented evidence in the district court
of the likelihood of hitting the sweet spot, though a Government witness testified
that there was no real probability of hitting the sweet spot.
         On the same day that Cohen and Patterson met with DGI, they met with
R.J. Ruble, who was then an attorney with Sidley, Austin, Brown & Wood LLP
(Sidley Austin), at DGI’s offices. Ruble provided Patterson and Cohen with a
draft, template tax opinion letter describing a transaction similar to the one

         7
             European-style means that the options could only be exercised on their expiration
dates.
         8
             NPR Invs., 732 F. Supp. 2d at 680 n.6.

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                                 No. 10-41219

proposed by DGI. At this meeting, Ruble explained the potential tax benefits of
the transaction. He told Patterson and Cohen that hitting the sweet spot was
unlikely.
      Nix and Patterson decided to enter into the investment scheme, and
subsequently, Roach did as well. Each Taxpayer formed a single member
limited liability company (SMLLC), managed by DGI. Nix and Patterson each
funded their respective SMLLC’s by contributing $625,000, and Roach
contributed $375,000 to his. DGI and Alpha Consultants, Inc. (Alpha) formed
NPR, a partnership, each contributing $50,000, and became its exclusive co-
managers. Patterson, Nix, and Roach each purchased two pairs of offsetting
foreign currency options, through their SMLLCs, with each paired option having
the same expiration dates and near-identical strike prices. The Taxpayers
contributed their SMLLCs to NPR, receiving partnership interests in NPR.
Patterson and Nix each paid DGI an “advisory fee” of $750,000, and Roach paid
DGI $450,000. Patterson and Nix each paid Cohen $250,000, and Nix paid him
$150,000. All of these fees were based on a percentage of the tax losses that the
investment strategy was expected to generate, which was $25,000,000 for Nix,
$25,000,000 for Patterson, and $15,000,000 for Roach. DGI paid Cohen a
referral fee of $325,000, although the Taxpayers were unaware of this until after
the IRS had completed its audit of NPR.
      The Government argues in its brief that the fees paid by the Taxpayers,
and the contribution of the options to NPR, made it impossible for Roach to make
a profit and made it extremely unlikely for Patterson and Nix to make a profit.
The district court found that the NPR “investment strategy could be profitable,
excluding any advisement fees,”9 indicating that the strategy could not be
profitable if the fees were considered.

      9
          Id. at 680.

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      Forty days after becoming partners in NPR, the Taxpayers withdrew,
receiving cash and foreign currencies, although the expiration dates of the
options were months in the future.         Each of the Taxpayers knew that
withdrawing from NPR eliminated any possibility of “hitting the sweet spot” and
therefore that a profit was impossible. They each contributed the foreign
currencies to the Nix, Patterson & Roach, LLP law firm. All gains or losses from
the foreign currencies were specially allocated to the respective contributing
partner on the law firm’s books and on the tax returns, although only the dollar
amounts of losses, not the currencies or the currency transactions, were
identified. On the law firm’s tax returns, the losses were identified under a
heading “Business Risk Division.” Foreign currencies were sold in 2001, 2002,
and 2003, and the law firm offset the losses against income allocated to each
Taxpayer to reduce the earned income shown on Schedules K-1 issued to the
Taxpayers.
      After resigning from NPR, each Taxpayer obtained a written opinion from
Sidley Austin on the proper tax treatment of their investments. The Taxpayers
reviewed the opinions with Cohen, who concluded that they “had cited the
important areas where there might be potential controversy and had adequately
dealt with them to [his] satisfaction and that [the Taxpayers] would be ok.”
Cohen advised them that they could rely on the opinions because Sidley Austin
was a “very well known firm,” the opinions were “very, very well reasoned,” and
Ruble was an “acknowledged partnership tax expert.”
      In accordance with the tax opinions, the Taxpayers treated their bases in
NPR as the premiums on the long options, ignoring the amount they might have
to pay on the short options. These bases were carried over to the foreign
currency after distribution, which was used by the Taxpayers to calculate
approximately $65,000,000 in tax losses once the foreign currencies were sold.
Nix’s and Patterson’s actual “investment” in NPR was $625,000, and Roach’s

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                                        No. 10-41219

was $375,000, but Nix and Patterson each claimed an outside basis in the long
options of almost $25,000,000, and Roach claimed an outside basis of almost
$15,000,000.
       The IRS ultimately concluded, in the FPAA issued in 2005, that NPR
lacked economic substance, was a sham, and must be disregarded. This resulted
in zeroing out all of the tax losses the Taxpayers had claimed on their individual
returns. The FPAA also imposed accuracy-related and other penalties as a
result of the partnership-level TEFRA audit.
       The Taxpayers revived NPR in 2005. Patterson became its managing
partner and Roach became a notice partner. In district court, Roach filed a
petition for readjustment of partnership items on behalf of NPR. Nix intervened
pursuant to § 6226(c)(2), and Patterson intervened pursuant to both §§
6226(b)(6) and (c)(2).10 The joint pre-trial order in the district court reflects that
NPR, Nix, Patterson, and Roach conceded that NPR lacked a profit motive
during 2001. Accordingly, the district court found that “the actual adjustments
made by the IRS to the tax returns and whether NPR had [a] profit motive are
not materially disputed. Rather, the dispute is whether the penalties applied by
the IRS are applicable.”11
       The district court ruled on summary judgment that penalties for gross and
substantial valuation misstatement did not apply as a matter of law. It also
ruled, on the United States’ motion to dismiss for lack of jurisdiction or
alternatively for summary judgment, that it had jurisdiction over the Taxpayers’
reasonable-cause and good-faith defenses to the asserted penalties. After a

       10
          26 U.S.C. § 6226(b)(6) (“The tax matters partner may intervene in any action brought
under this subsection.”); id. § 6226(c)(2) (“If an action is brought . . . with respect to a
partnership for any partnership taxable year[,] . . . the court having jurisdiction of such action
shall allow each such person to participate in the action.”).
       11
            NPR Invs., 732 F. Supp. 2d at 684.

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bench trial, the district court concluded that the August 15, 2005 FPAA was
validly issued, and therefore the adjustments were proper. However, the court
also held that the penalty for negligence was inapplicable because there was a
reasonable basis for the Taxpayers’ positions and that the penalty for substantial
understatement of income tax was inapplicable because the Taxpayers had
substantial authority for their tax positions. In the alternative, the district court
held that none of the penalties was applicable because the Taxpayers met the
requirements for the reasonable-cause and good-faith defense.
      The Government appeals the district court’s decision that the valuation
misstatement and substantial understatement penalties are applicable. The
Government has not appealed the district court’s holding regarding the
negligence penalty. NPR cross-appeals the district court’s decision that the
August 2005 FPAA was validly issued. Accordingly, we must resolve whether
the FPAA imposing penalties was valid. If it was, we must determine whether
the various penalties at issue are applicable to NPR, and whether NPR and the
Taxpayers have defenses that may be considered in this partnership-level
proceeding, rather than a partner-level proceeding.
                                           II
      A brief overview of tax law in this area, and TEFRA in particular, is
helpful in analyzing the questions before us. The Supreme Court has explained
the statutory scheme applicable to partnership-related tax matters in its recent
decision in United States v. Woods.12 We quote that discussion:
      A partnership does not pay federal income taxes; instead, its taxable
      income and losses pass through to the partners. 26 U.S.C. § 701. A
      partnership must report its tax items on an information return,
      § 6031(a), and the partners must report their distributive shares of
      the partnership’s tax items on their own individual returns, §§ 702,
      704.

      12
           134 S. Ct. 557 (2013).

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           Before 1982, the IRS had no way of correcting errors on a
     partnership’s return in a single, unified proceeding. Instead, tax
     matters pertaining to all the members of a partnership were dealt
     with just like tax matters pertaining only to a single taxpayer:
     through deficiency proceedings at the individual-taxpayer level. See
     generally §§ 6211–6216 (2006 ed. and Supp. V). Deficiency
     proceedings require the IRS to issue a separate notice of deficiency
     to each taxpayer, § 6212(a) (2006 ed.), who can file a petition in the
     Tax Court disputing the alleged deficiency before paying it,
     § 6213(a).       Having to use deficiency proceedings for
     partnership-related tax matters led to duplicative proceedings and
     the potential for inconsistent treatment of partners in the same
     partnership. Congress addressed those difficulties by enacting the
     Tax Treatment of Partnership Items Act of 1982, as Title IV of the
     Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). 96 Stat.
     648 (codified as amended at 26 U.S.C. §§ 6221–6232 (2006 ed. and
     Supp. V)).

           Under TEFRA, partnership-related tax matters are addressed
     in two stages. First, the IRS must initiate proceedings at the
     partnership level to adjust “partnership items,” those relevant to the
     partnership as a whole. §§ 6221, 6231(a)(3). It must issue an FPAA
     notifying the partners of any adjustments to partnership items,
     § 6223(a)(2), and the partners may seek judicial review of those
     adjustments, § 6226(a)–(b). Once the adjustments to partnership
     items have become final, the IRS may undertake further
     proceedings at the partner level to make any resulting
     “computational adjustments” in the tax liability of the individual
     partners. § 6231(a)(6). Most computational adjustments may be
     directly assessed against the partners, bypassing deficiency
     proceedings and permitting the partners to challenge the
     assessments only in post-payment refund actions. § 6230(a)(1), (c).
     Deficiency proceedings are still required, however, for certain
     computational adjustments that are attributable to “affected items,”
     that is, items that are affected by (but are not themselves)
     partnership items. §§ 6230(a)(2)(A)(i), 6231(a)(5).13
     This is an appeal from determinations the district court made in a partner-
level TEFRA proceeding.

     13
          Woods, 134 S. Ct. at 562-63.

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                                              III
      A dispositive issue in this appeal is the validity of the August 15, 2005
FPAA that notified NPR of adjustments to the partnership tax return and
imposed the penalties that are contested by NPR and the Taxpayers. The
Taxpayers contend that this FPAA was a second notice, in violation of 26 U.S.C.
§ 6223(f), and therefore none of the penalties imposed in that FPAA can be
applied. The district court disagreed and we affirm the district court in this
regard.
      TEFRA requires that partnerships, while not taxable entities, “file
informational returns reflecting the distributive shares of income, gains,
deductions, and credits attributable to its partners.”14 The IRS is required to
notify certain partners of both the beginning and the end of a partnership-level
proceeding.15 An FPAA signifies the end of partnership-level proceedings.16 The
IRS may only mail one FPAA for a taxable year with respect to a partner unless
there has been “a showing of fraud, malfeasance, or misrepresentation of a
material fact.”17 The district court found there was a material misrepresentation
of fact by NPR that permitted the IRS to issue a second notice under § 6223(f),
if the FPAA at issue was in fact a second notice.18 We find no error in the
district court’s findings of fact and conclusion of law in this regard.
      NPR filed its 2001 partnership tax return in April 2002. The return
answered “No” to the question, “Is this partnership subject to the consolidated

      14
           Weiner v. United States, 389 F.3d 152, 154 (5th Cir. 2004).
      15
           26 U.S.C. § 6223(a).
      16
           See id. § 6223(a)(2).
      17
           Id. § 6223(f).
      18
         NPR Invs., LLC, ex rel. Roach v. United States, 732 F. Supp. 2d 676, 687-88 (E.D.
Tex. 2010).

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                                       No. 10-41219

audit procedures of Sections 6221 to 6223 [TEFRA]?” It is undisputed that
because one of NPR’s partners was a partnership, the answer should have been
“Yes.”19 However, the return did designate a Tax Matters Partner, which is only
required if the answer to the question of whether TEFRA procedures apply is
“Yes.”
         By late 2002, the IRS had begun auditing Nix’s and Patterson’s respective
individual tax returns in connection with their participation in the BLIPS tax
shelter, the subject of a prior, separate appeal to this court. Paul Doerr, an IRS
Agent, initially examined NPR’s tax return in 2005. He did not use TEFRA
procedures, but instead applied deficiency procedures because of his belief that
NPR was not subject to TEFRA procedures. On March 25, 2005, Doerr sent a
no-change letter to NPR indicating that the IRS had completed its audit of
NPR’s 2001 return and determined that no adjustments should be made to
NPR’s tax return. Doerr signed the notification on behalf of the IRS. Doerr and
his managers decided to issue the no-change letter because they intended to
deny the losses from the digital currency OPS investment scheme by issuing
notices of deficiency directly to NPR’s partners.
         The March 25, 2005 deficiency notices denying losses on Patterson’s
personal tax returns (both for this OPS transaction and for his previous
participation in BLIPS) were reviewed by an IRS manager, Robert Gee, and Gee
concluded that NPR actually was subject to the TEFRA audit procedures. Gee
determined that it would be necessary to issue an FPAA adjusting several
partnership items on NPR’s return rather than pursuing only deficiency
proceedings. The IRS accordingly issued FPAAs to NPR’s partners on August
15, 2005. The FPAA made several adjustments to NPR’s partnership tax return,

         19
         See 26 U.S.C. § 6231(a)(1)(B)(i)–(ii) (excluding small partnerships from the definition
of “partnership” as long as each partner is an individual, a C corporation, or an estate of a
deceased partner).

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providing various explanations and imposing the penalties at issue in this
appeal.
       If the March 2005 no-change letter was an FPAA, then the August 2005
FPAA was only validly issued if there was “fraud, malfeasance, or
misrepresentation of a material fact.”20 If the August 2005 FPAA was not validly
issued, then none of the partnership adjustments are valid, and none of the
penalties contained therein are applicable.
       The Government contends that the March 2005 no-change letter was not
an FPAA because the IRS did not intend it to be an FPAA. Therefore, the
Government argues, § 6223(f) did not bar it from mailing the August 2005 FPAA.
We find it unnecessary to address this contention, however, because we agree
with the district court that NPR made a “misrepresentation of a material fact”
on its partnership return, and therefore the August 2005 FPAA is valid.
       The language of the statute is our guidepost in determining whether there
was a material misrepresentation.21 “We follow the ‘plain and unambiguous
meaning of the statutory language,’ interpreting undefined terms according to
their ordinary and natural meaning and the overall policies and objectives of the
statute.”22 In determining the ordinary meaning of terms, dictionaries are often
a principal source.23 “If the statute is ambiguous, we may look to the legislative

       20
            26 U.S.C. § 6223(f).
       21
        United States v. Rains, 615 F.3d 589, 596 (5th Cir. 2010) (citing Watt v. Alaska, 451
U.S. 259, 265 (1981)) (“As in any case involving statutory interpretation, we begin by
examining the text of the relevant statutes.”).
       22
         United States v. Orellana, 405 F.3d 360, 365 (5th Cir. 2005) (quoting United States
v. Kay, 359 F.3d 738, 742 (5th Cir. 2004)).
       23
            Id. (quoting Thompson v. Goetzmann, 337 F.3d 489, 497 n.20 (5th Cir. 2003)).

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                                            No. 10-41219

history or agency interpretations for guidance.”24                  We must strive to give
meaning to every term.25
         Because “misrepresentation” is not defined by TEFRA, we consider
dictionaries for a definition. Black’s Law Dictionary defines “misrepresentation”
as “[t]he act of making a false or misleading assertion about something, usu[ally]
with the intent to deceive.”26 However, as the district court observed,27 that
same dictionary granulates the broad term “misrepresentation” into more
specific categories, including “fraudulent misrepresentation,” “innocent
misrepresentation,”               “material        misrepresentation,”      and    “negligent
misrepresentation.”28 The commonly understood term “misrepresentation” can
encompass a fraudulent, negligent, or an innocent misrepresentation. In
construing § 6223(f), intent to deceive does not appear to be required to establish
a “misrepresentation.” A successive notice may be mailed when there has been
“a showing of fraud, malfeasance, or misrepresentation of a material fact.”29
“Malfeasance” does not necessarily involve intent to deceive.30 We will not read
an intent to deceive into “misrepresentation” when another standard of conduct
set forth in the statute does not require intent to deceive.

         24
              Id. (citing Kay, 359 F.3d at 742).
         25
        See United States v. Rayo-Valdez, 302 F.3d 314, 318 (5th Cir. 2002) (citing TRW, Inc.
v. Andrews, 534 U.S. 19, 31 (2001); United States v. Vickers, 891 F.2d 86, 88 (5th Cir. 1989))
(“[W]hen interpreting a statute, it is necessary to give meaning to all its words and to render
none superfluous.”).
         26
              BLACK’S LAW DICTIONARY 1091 (9th ed. 2009).
         27
              NPR Invs., LLC, ex rel. Roach v. United States, 732 F. Supp. 2d 676, 687 (E.D. Tex.
2010).
         28
              BLACK’S LAW DICTIONARY 1091-92 (9th ed. 2009).
         29
              26 U.S.C. § 6223(f).
         30
        BLACK’S LAW DICTIONARY 1042 (9th ed. 2009) (defining “malfeasance” as “[a] wrongful
or unlawful act; esp[ecially] wrongdoing or misconduct by a public official”).

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       NPR cites several decisions that interpret “misrepresentation” as requiring
some sort of culpability. These decisions are inapposite. One Supreme Court
case cited by NPR interprets a different statute, and in any event, concludes that
negligent misrepresentation is encompassed by the term “misrepresentation.”31
In two other decisions, one by a district court and one by a sister circuit court,
“misrepresentation” is used in a different, albeit similar, context, but the list of
conduct in which the term “misrepresentation” appears does not include
“malfeasance.”32 A fourth decision, which interprets “misrepresentation” in a
statute with nearly identical wording, follows a 1935 Board of Tax Appeals
decision that concerned setting aside closing agreements, a situation quite
different from the case at hand.33
       NPR argues that if we hold that “misrepresentation” encompasses
innocent misrepresentations, then we should also hold that the IRS must
justifiably rely on that misrepresentation for the exception to apply. We decline
to do so because there is no basis in the statute for such a requirement. NPR
derives its argument from principles of tort law. This is not a tort case, however,
and tort principles are inapposite.
       NPR also cites to 26 U.S.C. § 6231(g)(2), which provides,

       31
           United States v. Neustadt, 366 U.S. 696, 702, 706-07 (1961) (construing
“misrepresentation” as used in the Federal Tort Claims Act, 28 U.S.C. § 2680(h), to include
negligent misrepresentations when accompanied by the terms “assault, battery, false
imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, . . . deceit,
or interference with contract rights”).
       32
           Lane v. United States, 286 F.3d 723, 731-32 (4th Cir. 2002) (construing
“misrepresentation” when accompanied by “fraud,” but not “malfeasance,” to require more
than an innocent misrepresentation); United States v. N. Trust Co., 93 F. Supp. 2d 903, 908-09
(N.D. Ill. 2000) (construing “misrepresentation” when accompanied by “fraud,” but not
“malfeasance,” to require an intentional or knowing misrepresentation), rev’d on other
grounds, 372 F.3d 886 (7th Cir. 2004).
       33
        Halpern v. Comm’r, 79 T.C.M. (CCH) 1976, 2000 WL 502842, at *4 (2000); see also
Ingram v. Comm’r, 32 B.T.A. 1063 (1935).

                                               15
    Case: 10-41219         Document: 00512510322           Page: 16     Date Filed: 01/23/2014

                                         No. 10-41219

       [i]f, on the basis of a partnership return for a taxable year, the
       Secretary reasonably determines that this subchapter does not
       apply to such partnership for such year but such determination is
       erroneous, then the provisions of this subchapter shall not apply to
       such partnership (and its items) for such taxable year.

This provision does not, however, override § 6223(f), which expressly permits the
IRS to mail a second notice of final partnership administrative adjustment for
a partnership taxable year if there is “a showing of fraud, malfeasance, or
misrepresentation of a material fact.” NPR’s construction of § 6231(b)(2) would
excise § 6223(f) from the Code.
                                               IV
       The district court correctly held that the August 2005 FPAA was valid, but
concluded that none of the penalties imposed by the FPAA could be applied. We
first consider the 20% substantial valuation misstatement under 26 U.S.C.
§ 6662(e) and the 40% gross valuation misstatement under § 6662(h). These
penalties are not cumulative. If there was a gross valuation misstatement, only
the 40% penalty applies.34
                                                A
       A threshold question is whether the district court had jurisdiction to
address the applicability of the valuation misstatement penalties in this
partnership-level TEFRA proceeding. Two decisions from our sister circuits had
held that district courts do not,35 and we asked for further briefing from the
parties on this question, particularly in light of the fact that the Supreme Court
had called for briefing on the jurisdictional issue before deciding United States

       34
           26 U.S.C. § 6662(h)(1) (“To the extent that a portion of the underpayment to which
this section applies is attributable to one or more gross valuation misstatements, subsection
(a) shall be applied with respect to such portion by substituting ‘40 percent’ for ‘20 percent’.”).
       35
         See Jade Trading, LLC ex rel. Ervin v. United States, 598 F.3d 1372, 1379-80 (Fed.
Cir. 2010); Petaluma FX Partners LLC v. Comm’r, 591 F.3d 649, 655-56 (D.C. Cir. 2010).

                                                16
   Case: 10-41219          Document: 00512510322      Page: 17   Date Filed: 01/23/2014

                                       No. 10-41219

v. Woods.36 We now have a definitive answer from the Supreme Court in Woods,
which is that the district court did have jurisdiction to determine the
applicability of the misstatement penalties, even if only provisionally.37
      In the interest of accuracy and the conservation of judicial resources, we
again quote at length from the Woods decision:
             Under TEFRA's two-stage structure, penalties for tax
      underpayment must be imposed at the partner level, because
      partnerships themselves pay no taxes. And imposing a penalty
      always requires some determinations that can be made only at the
      partner level. Even where a partnership's return contains
      significant errors, a partner may not have carried over those errors
      to his own return; or if he did, the errors may not have caused him
      to underpay his taxes by a large enough amount to trigger the
      penalty; or if they did, the partner may nonetheless have acted in
      good faith with reasonable cause, which is a bar to the imposition of
      many penalties, see § 6664(c)(1). None of those issues can be
      conclusively determined at the partnership level.                Yet
      notwithstanding that every penalty must be imposed in
      partner-level proceedings after partner-level determinations,
      TEFRA provides that the applicability of some penalties must be
      determined at the partnership level.              The applicability
      determination is therefore inherently provisional; it is always
      contingent upon determinations that the court in a
      partnership-level proceeding does not have jurisdiction to make.
      Barring partnership-level courts from considering the applicability
      of penalties that cannot be imposed without partner-level inquiries
      would render TEFRA's authorization to consider some penalties at
      the partnership level meaningless.
            Other provisions of TEFRA confirm that conclusion. One
      requires the IRS to use deficiency proceedings for computational
      adjustments that rest on “affected items which require partner level
      determinations (other than penalties . . . that relate to adjustments
      to partnership items).” § 6230(a)(2)(A)(i). Another states that while
      a partnership-level determination “concerning the applicability of

      36
           134 S. Ct. 557 (2013).
      37
           Woods, 134 S. Ct. at 564.

                                           17
Case: 10-41219    Document: 00512510322      Page: 18   Date Filed: 01/23/2014

                              No. 10-41219

  any penalty . . . which relates to an adjustment to a partnership
  item” is “conclusive” in a subsequent refund action, that does not
  prevent the partner from “assert[ing] any partner level defenses
  that may apply.” § 6230(c)(4). Both these provisions assume that
  a penalty can relate to a partnership-item adjustment even if the
  penalty cannot be imposed without additional, partner-level
  determinations.
         These considerations lead us to reject Woods’ interpretation
  of § 6226(f). We hold that TEFRA gives courts in partnership-level
  proceedings jurisdiction to determine the applicability of any
  penalty that could result from an adjustment to a partnership item,
  even if imposing the penalty would also require determining
  affected or non-partnership items such as outside basis. The
  partnership-level applicability determination, we stress, is
  provisional: the court may decide only whether adjustments
  properly made at the partnership level have the potential to trigger
  the penalty. Each partner remains free to raise, in subsequent,
  partner-level proceedings, any reasons why the penalty may not be
  imposed on him specifically.

         Applying the foregoing principles to this case, we conclude
  that the District Court had jurisdiction to determine the
  applicability of the valuation-misstatement penalty—to determine,
  that is, whether the partnerships’ lack of economic substance (which
  all agree was properly decided at the partnership level) could justify
  imposing a valuation-misstatement penalty on the partners. When
  making that determination, the District Court was obliged to
  consider Woods’ arguments that the economic-substance
  determination was categorically incapable of triggering the penalty.
  Deferring consideration of those arguments until partner-level
  proceedings would replicate the precise evil that TEFRA sets out to
  remedy: duplicative proceedings, potentially leading to inconsistent
  results, on a question that applies equally to all of the partners.

        To be sure, the District Court could not make a formal
  adjustment of any partner’s outside basis in this partnership-level
  proceeding. See Petaluma, 591 F.3d, at 655. But it nonetheless
  could determine whether the adjustments it did make, including the
  economic-substance determination, had the potential to trigger a
  penalty; and in doing so, it was not required to shut its eyes to the
  legal impossibility of any partner’s possessing an outside basis

                                   18
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                                           No. 10-41219

       greater than zero in a partnership that, for tax purposes, did not
       exist. Each partner’s outside basis still must be adjusted at the
       partner level before the penalty can be imposed, but that poses no
       obstacle to a partnership-level court’s provisional consideration of
       whether the economic-substance determination is legally capable of
       triggering the penalty.38

       The district court had jurisdiction to adjudicate the applicability of the
valuation misstatement penalties in a case, such as this, in which the
partnership is disregarded in its entirety as a sham and the outside basis of its
partners is reduced to zero.
                                                  B
       The district court held on summary judgment that no penalty for valuation
misstatement applied. This court reviews the district court’s grant of summary
judgment de novo.39 “Summary judgment is appropriate [when] there is no
genuine issue of material fact and the moving party is entitled to judgment as
a matter of law.”40
       The Supreme Court’s decision in Woods also resolves the applicability of
the valuation misstatement penalties.41 We accordingly reverse the district
court as to the applicability of these penalties.
       Under 26 U.S.C. § 6662(a) and (b)(3), a 20% penalty applies to “the portion
of any underpayment which is attributable to . . . [a]ny substantial valuation
misstatement under chapter 1.”42 Under the version of the tax code applicable

       38
            Id. at 564-65.
       39
        Conway v. United States, 647 F.3d 228, 232 (5th Cir. 2011) (citing Staff IT, Inc. v.
United States, 482 F.3d 792, 797 (5th Cir. 2007)).
       40
            Id. (citing Staff IT, 647 F.3d at 797-98); see also FED. R. CIV. P. 56(a).
       41
            Woods, 134 S. Ct. at 565-68.
       42
            26 U.S.C. § 6662(a), (b)(3).

                                                 19
   Case: 10-41219          Document: 00512510322          Page: 20     Date Filed: 01/23/2014

                                           No. 10-41219

to the transactions at issue, a “substantial understatement” occurs if “the value
of any property (or the adjusted basis of any property) claimed on any return of
tax imposed by chapter 1 is 200 percent or more of the amount determined to be
the correct amount of such valuation or adjusted basis (as the case may be).”43
The penalty increases to 40% under § 6662(h) for a “gross” valuation
misstatement if the value or adjusted basis exceeds the correct amount by at
least 400%.44
      The foreign currency OPS transactions in which NPR and the Taxpayers
engaged were used to generate tax losses by enabling the partners in NPR to
claim a high outside basis in the partnership. The FPAA deemed the NPR
partnership to no longer exist, and accordingly, no partner could legitimately
claim an outside basis greater than zero. If the Taxpayers used an outside basis
figure greater than zero to claim losses on their respective tax returns, which
they did in this case, “then the resulting underpayment would be ‘attributable
to’ the partner[s’] having claimed an ‘adjusted basis’ in the partnership that
exceeded the ‘correct amount of such . . . adjusted basis’” within the meaning of
§ 6662(e)(1)(A).45 Treasury regulations provide that when an asset’s true value
or adjusted basis is zero, then the value or adjusted basis claimed is considered
to be 400% or more of the correct amount, and the valuation misstatement is
deemed gross and subject to the 40% penalty.46
      In holding that the valuation misstatement penalties did not apply as a
matter of law, the district court relied on authorities from our court that have
been overruled or abrogated by Woods. The district court erred in its holding.

      43
           26 U.S.C. § 6662(e)(1)(A) (2000) (amended 2006).
      44
           Id. § 6662(h) (2000) (amended 2006).
      45
           See Woods, 134 S. Ct. at 566.
      46
           See id. (quoting Treas. Reg. § 1.6662-5(g), 26 C.F.R. § 1.6662-5(g) (2013)).

                                               20
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                                           No. 10-41219

The 40% valuation misstatement penalty applies, at least provisionally, as
explained in Woods.
                                                V
      The Internal Revenue Code provides for a 20% penalty for the portion of
underpayment of tax that is attributable to any substantial understatement of
income tax.47 The amount of an understatement is reduced by any portion of the
understatement that is attributable to “the tax treatment of any item by the
taxpayer if there is or was substantial authority for such treatment.”48 In cases
in which the facts are essentially undisputed, whether substantial authority
exists for a tax treatment is a legal question that this court reviews de novo.49
In a case involving a tax shelter, prior to the 2004 amendments to the Tax Code,
the substantial authority exception did not apply unless the “taxpayer
reasonably believed that the tax treatment of such item by the taxpayer was
more likely than not the proper treatment.”50
      The FPAA imposed a substantial understatement penalty of 20% (in
addition to a valuation misstatement penalty) under 26 U.S.C. § 6662(d). The
Taxpayers contended, and the district court held at the conclusion of a bench
trial, that there was “substantial authority” for the Taxpayers’ tax treatment of
their investments, within the meaning of § 6662(d)(2)(B)(i). The district court
further held that assuming, without deciding, that NPR was a tax shelter, the
Taxpayers reasonably believed that the tax treatment applied to the

      47
           26 U.S.C. § 6662(a), (b)(2).
      48
           26 U.S.C. § 6662(d)(2)(B)(i).
      49
           Stanford v. Comm’r, 152 F.3d 450, 455 (5th Cir. 1998).
      50
           26 U.S.C. § 6662(d)(2)(C)(i)(II) (2000) (amended 2004).

                                               21
    Case: 10-41219         Document: 00512510322       Page: 22   Date Filed: 01/23/2014

                                        No. 10-41219

transactions was “more likely than not” the proper tax treatment.51 Whether the
Taxpayers reasonably believed that the tax treatment of their respective
investments was more likely than not the proper treatment would appear to be
a partner-level matter that should not be resolved in a partnership-level
proceeding. But we do not reach the issue because there was no substantial
authority for the tax treatment. That is a question common to all NPR partners
and does not depend on an individual taxpayer’s circumstances. A partnership
item is “any item required to be taken into account for the partnership’s taxable
year under any provision of Subtitle A [income tax] to the extent regulations
prescribed by the Secretary provide that, for purposes of this subtitle, such item
is more appropriately determined at the partnership level than at the partner
level.”52 IRS regulations provide that partnership items include, among other
items, “[i]tems of income, gain, loss, deduction, or credit of the partnership,” and
“partnership liabilities,” as well as “the accounting practices and the legal and
factual determinations that underlie the determination of the amount, timing,
and characterization of items of income, credit, gain, loss, deduction, etc.”53 The
parties to this appeal agree, and we concur, that whether there was substantial
authority for the tax treatment given to the NPR assets that were distributed to
the Taxpayers is “more appropriately determined at the partnership level than
at the partner level.”54

      51
         NPR Invs., LLC, ex rel. Roach v. United States, 732 F. Supp. 2d 676, 689-90 (E.D.
Tex. 2010).
      52
           26 U.S.C. § 6231(a)(3).
      53
           Treas. Reg. § 301.6231(a)(3)-1.
      54
           26 U.S.C. § 6231(a)(3).

                                             22
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                                               No. 10-41219

         “The substantial authority standard is an objective standard involving an
analysis of the law and application of the law to relevant facts.”55 Substantial
authority exists “if the weight of the authorities supporting the treatment is
substantial in relation to the weight of authorities supporting contrary
treatment.”56 The substantial authority standard is lower than the more-likely-
than-not standard, but greater than the reasonable-basis standard.57 Treasury
regulations provide a lengthy list of what constitutes authority for purposes of
the substantial authority exception.58 Notably, “[t]reatises, legal periodicals,
legal opinions or opinions rendered by tax professionals are not authority.”59
However, the authorities underlying those opinions may give rise to substantial
authority.60 Whether substantial authority exists is determined as of “the time
the return containing the item is filed or . . . on the last day of the taxable year
to which the return relates.”61
         The district court’s opinion correctly stated the applicable legal principles,
but it then partially based its holding that the Taxpayers had substantial
authority on the existence of a tax opinion from the law firm of Sidley, Austin,
Brown & Wood LLP and the fact that the Taxpayers received legal advice from
tax counsel.62 The district court’s opinion does not cite or discuss the authorities

         55
              Treas. Reg. § 1.6662-4(d)(2).
         56
              Id. § 1.6662-4(d)(3)(i).
         57
              Id. § 1.6662-4(d)(2).
         58
              See id. § 1.6662-4(d)(3)(iii).
         59
              Id.
         60
              Id.
         61
              Treas. Reg. § 1.6662-4(d)(3)(v).
         62
              NPR Invs., LLC, ex rel. Roach v. United States, 732 F. Supp. 2d 676, 689 (E.D. Tex.
2010).

                                                   23
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                                            No. 10-41219

analyzed in the tax opinion. To the extent that the district court concluded that
the opinion itself provided substantial authority, the court erred as a matter of
law. The tax opinion itself cannot provide substantial authority.63
       To the extent that the district court’s opinion holds that the authorities
contained in the Sidley Austin tax opinion provide substantial authority for the
Taxpayers’ position, the district court also erred. NPR relies principally on the
Helmer64 line of cases for substantial authority. Helmer, a Tax Court opinion,
established the proposition that contingent obligations are not liabilities under
26 U.S.C. § 752 and thus do not effect a change in a partner’s basis.65 The
Helmer rule was authoritative at the time that the tax returns were filed. It was
not changed by IRS regulation until 2003, after the relevant time period here.66
       However, other courts have held that reliance on Helmer alone cannot
support substantial authority in circumstances similar to those before us.67
These cases generally reason that Helmer does not address the situation in
which the transactions lack economic substance. According to IRS regulations,
“[t]he weight accorded an authority depends on its relevance and
persuasiveness.”68 When the underlying transactions lack economic substance,
Helmer cannot provide substantial authority. In a similar vein, Helmer does not
address the situation in which the partnership lacked a profit motive. NPR has

       63
            Treas. Reg. § 1.6662-4(d)(3)(iii).
       64
            Helmer v. Comm’r, 34 T.C.M. (CCH) 727, 1975 WL 2787 (1975).
       65
            Id.
       66
            Treas. Reg. § 1.752-1(a)(4)(ii), (iv).
       67
          See, e.g., New Phoenix Sunrise Corp. v. Comm’r, 132 T.C. 161, 191-92 (2009), aff’d,
408 F. App’x 908 (6th Cir. 2010) (unpublished); Stobie Creek Invs., LLC v. United States, 82
Fed. Cl. 636, 706 (2008), aff’d, 608 F.3d 1366 (Fed. Cir. 2010); Palm Canyon X Invs., LLC v.
Comm’r, 98 T.C.M. (CCH) 574, 2009 WL 4824326, at *35-*36 (2009).
       68
            Treas. Reg. § 1.6662-4(d)(3)(ii).

                                                     24
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                                           No. 10-41219

not cited, nor have we found, any cases that stand for the proposition that the
Taxpayers could deduct these losses when NPR lacks a profit motive. The
authorities appear to support the opposite proposition.69 NPR and the Taxpayers
have conceded that NPR lacked a profit motive and that this precludes the
Taxpayers from deducting the losses.
       An IRS notice, Notice 2000-44, that was issued before the Taxpayers
invested in the OPS shelter is another authority supporting nondeductibility.70
Notice 2000-44 warns that the IRS is of the opinion that transactions such as
those at issue here are abusive tax practices and that it will not allow deductions
from such artificial losses. NPR argues that the Notice is only the IRS’s
litigating position and cannot be authority. However, NPR’s argument is
directly contrary to IRS regulations, which list such notices as authority for
purposes of the substantial authority analysis.71 The Notice may have less
weight than a statute or regulation, but it is authority nonetheless. The only
authorities concerning deductions when the partnership did not have a profit
motive point to nondeductibility. We therefore reverse the district court’s
judgment that there was substantial authority for the tax treatment of the OPS
transactions. The substantial understatement of income tax penalty applies.

       69
           Marinovich v. Comm’r, 77 T.C.M. (CCH) 2075, 1999 WL 339316, at *3 (1999); see
also, e.g., Copeland v. Comm’r, 290 F.3d 326, 330 (5th Cir. 2002); Fidelity Int’l Currency
Advisor A Fund, LLC v. United States, 747 F. Supp. 2d 49, 236 (D. Mass. 2010) (citing pre-
2000 cases for the proposition that “[e]ven if taxpayers invest in a partnership with the
individual objective of making a profit, they are not entitled to deduct any amounts invested
in the partnership as losses under Section 165(c)(2) if the partnership transactions are not
entered into for profit”); Farmer v. Comm’r, 68 T.C.M. (CCH) 178, 1994 WL 386167, at *3
(1994).
       70
            Notice 2000-44, 2002-2 C.B. 255.
       71
            Treas. Reg. § 1.6662-4(d)(3)(iii).

                                                 25
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                                         No. 10-41219

                                                VI
       Even if penalties are properly imposed and would otherwise be applicable,
the Internal Revenue Code provides a defense “if it is shown that there was a
reasonable cause for” the underpayment of tax.72 The district court held that the
Taxpayers demonstrated reasonable cause. Because the district court did not
have jurisdiction to adjudicate the individual partners’ defenses in a
partnership-level proceeding, we vacate this part of the district court’s judgment.
To the extent that the district court’s judgment can be construed as concluding
that NPR demonstrated reasonable cause, we reverse the district court’s
judgment in this regard. There was no evidence presented that would support
a finding of reasonable cause as to NPR. To the contrary, the evidence is
conclusive that NPR did not have reasonable cause.
       It is well-settled that a district “court does not have jurisdiction to consider
a partner-level defense in a partnership-level proceeding.”73 Our court has held,
however, in connection with Nix’s and Patterson’s BLIPS transactions, that
“when considering the determination of penalties at the partnership level the
court may consider the defenses of the partnership.”74 Other circuit courts have
similarly concluded that partnership defenses can be adjudicated in partner-
level proceedings.75

       72
         26 U.S.C. § 6664(c)(1) (“No penalty shall be imposed under section 6662 or 6663 with
respect to any portion of an underpayment if it is shown that there was a reasonable cause for
such portion and that the taxpayer acted in good faith with respect to such portion.”).
       73
            See, e.g., Am. Boat Co. v. United States, 583 F.3d 471, 478 (7th Cir. 2009).
       74
         Klamath Strategic Inv. Fund ex rel. St. Croix Ventures v. United States, 568 F.3d 537,
548 (5th Cir. 2009).
       75
          See Stobie Creek Invs. LLC v. United States, 608 F.3d 1366, 1380-81 (Fed. Cir. 2010);
Am. Boat, 583 F.3d at 479-80. But see Clearmeadow Invs., LLC v. United States, 87 Fed. Cl.
509, 520-21 (2009) (criticizing Klamath and Stobie Creek and concluding that these decisions
“are in error”).

                                                26
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                                            No. 10-41219

       In Klamath, “reasonable cause and good faith were asserted on behalf of
Klamath and Kinabalu, by the current managing partners.”76 In the present
case, the district court’s decision reflects that it focused entirely on the
reasonable belief and good faith of each of the individual Taxpayers, not NPR’s
reasonable belief and good faith.77 No mention is made by the district court of
NPR’s or its managing partner’s reasonable belief or good faith. The district
court lacked jurisdiction to make any determinations with regard to the
reasonable belief or good faith of the individual Taxpayers.
       NPR asks that we affirm the district court’s holdings as to it. However, at
the time that the Taxpayers made their respective decisions as to how to treat
the NPR transactions, they had withdrawn from NPR and were no longer
partners.       When NPR was created, through the time that the Taxpayers
withdrew from NPR, its managing partners were exclusively DGI and Alpha
Consultants LLC. Patterson did not become the managing partner of NPR until
2005, when the partnership was reformed to pursue this litigation. NPR has
conceded that it never had a profit motive. The managing partners of NPR at
the relevant time periods did not claim a reasonable belief regarding the tax
treatment of the NPR investments. Those partners are not parties to this
litigation and have refused to testify, asserting their Fifth Amendment privilege.
NPR had the burden to prove a reasonable belief and good faith.78 It failed to
carry that burden. NPR is not entitled to the reasonable-cause and good-faith
defense.
                                        *        *         *

       76
            Klamath, 568 F.3d at 548.
       77
         NPR Invs., LLC, ex rel. Roach v. United States, 732 F. Supp. 2d 676, 692-93 (E.D.
Tex. 2010).
       78
         Klamath, 568 F.3d at 548 (“The plaintiff bears the burden of proof on a reasonable
cause defense.”).

                                                27
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                               No. 10-41219

     For the foregoing reasons, we AFFIRM the district court’s judgment
regarding the finality of the FPAA; REVERSE the district court’s judgment
regarding the valuation misstatement and substantial underpayment penalties
as well as its judgment regarding NPR’s reasonable-cause defense; and VACATE
the district court’s judgment regarding the Taxpayers’ reasonable-cause
defenses.

                                    28


243 P.3d 753 (2010)
2010-NMCERT-009
LARSEN
v.
BOARD OF EDUC.
No. 32,566.
Supreme Court of New Mexico.
September 16, 2010.
Denial of Certiorari.


                             UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 08-6547

UNITED STATES OF AMERICA,

                Plaintiff - Appellee,

          v.

LIONEL RAY HAIRSTON,

                Defendant - Appellant.

Appeal from the United States District Court for the Western
District of Virginia, at Roanoke.  Samuel G. Wilson, District
Judge. (7:98-cr-00097-sgw-1)

Submitted:   June 13, 2008                 Decided:    June 27, 2008

Before WILKINSON, KING, and GREGORY, Circuit Judges.

Affirmed by unpublished per curiam opinion.

Lionel Ray Hairston, Appellant Pro Se. Donald Ray Wolthuis, OFFICE
OF THE UNITED STATES ATTORNEY, Roanoke, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

          Lionel Ray Hairston appeals the district court’s order

denying his motion under 18 U.S.C. § 3582(c)(2) (2000), seeking a

reduction to his sentence based on an amendment to the Sentencing

Guidelines.   We have reviewed the record and find no reversible

error.   Accordingly, we find the district court did not abuse its

discretion in denying the motion. See United States v. Goines, 357

F.3d 469, 478 (4th Cir. 2004) (motion under § 3582(c) “is subject

to the discretion of the district court”); United States v. Legree,

205 F.3d 724, 727 (4th Cir. 2000).     We dispense with oral argument

because the facts and legal contentions are adequately presented in

the materials before the court and argument would not aid the

decisional process.

                                                            AFFIRMED

                               - 2 -


64 Wn. App. 641 (1992)
826 P.2d 698
THE STATE OF WASHINGTON, Respondent,
v.
DANIEL P. HUFF, Appellant.
No. 13249-4-II.
The Court of Appeals of Washington, Division Two.
March 12, 1992.
*643 Robert A. Lewis and Knapp, O'Dell, Lewis & Hagensen, for appellant (appointed counsel for appeal).
Robert K. Leick, Prosecuting Attorney, and Grant E. Hansen, Deputy, for respondent.
MORGAN, J.
Daniel Huff appeals his conviction for possession of a controlled substance. We affirm.
On May 13, 1989, Huff was driving a late 1960's Lincoln Continental eastbound on Highway 14 in Skamania County. Naomi Morley was a passenger riding in the right front seat.
Deputy Cox of the Skamania County Sheriff's Office was on patrol. He saw the Lincoln weaving and suspected that the driver was intoxicated or having mechanical problems. He pulled in behind and turned on his emergency lights.
Huff did not stop. He continued east for another one-half mile, then turned south onto the Bridge of the Gods, a narrow 2-lane bridge spanning the Columbia River.
While following Huff with his lights on, Cox observed Morley looking back at him and making what appeared to be furtive movements. Cox then turned on his siren, and Huff stopped about 100 yards onto the bridge.
After stopping behind the Lincoln, Cox approached it. He immediately smelled the odor of methamphetamine. However, he could not tell whether it was coming from Huff or from inside the car.
Cox asked Huff for his driver's license. Huff said he did not have one, although he had previously had one in California. When asked about the car, Huff stated that it belonged to the friend of a friend. Eventually, he produced a registration. Cox ran a computer check and determined that the car had not been reported stolen. He then asked the sheriff's office to contact the owner, but apparently the owner could not be located.
*644 Cox also discovered that Huff had an outstanding warrant for probation violation. Thus, he arrested Huff and placed him in the patrol car. Huff asked if Morley could take charge of the Lincoln.
Morley was still sitting in the front seat of the Lincoln. To explore whether the car should be released to her, Cox went back to the Lincoln and again smelled methamphetamine. He could not tell whether it was coming from Morley or from somewhere else inside the car.
Cox asked Morley for her driver's license, but she did not produce one. Instead, she gave a false name and showed him a fictitious birth certificate and social security card. Remembering her from prior contacts, Cox realized that she was lying and placed her under arrest for obstructing a public servant. He also removed her from the Lincoln.
Cox then asked Huff for permission to search the Lincoln. Huff refused, but Morley asked Cox to retrieve her purse from the front seat. As Cox was getting the purse, he once again smelled methamphetamine, and this time he became convinced that the odor was emanating from inside the car.
At this point, Cox decided to obtain a search warrant for the car. Thus, he impounded it and had it towed to the police station, where it was held pending preparation of the documents needed for a search warrant. The warrant was issued as requested, and the ensuing search revealed a pink purse containing methamphetamine. The pink purse was hidden in a pile of laundry in the backseat, and earlier in the chain of events, Morley had told Cox that the laundry belonged to her. The pink purse was a different purse from the one that Cox had retrieved earlier at Morley's request.
Huff was charged with possession of a controlled substance. Before trial, he made a motion to suppress the pink purse and its contents, but the motion was denied. At trial, he made motions to dismiss for insufficient evidence and to give certain proposed jury instructions, but those motions were also denied. He was convicted and sentenced to 80 days in jail and 12 months' community supervision.
*645 On appeal, Huff argues that the trial court erred by denying each of his motions. We discuss the motion to suppress in sections I and II, and the other motions in section III.

I
Huff's first argument is that the drugs are the fruit of an illegal arrest. He does not claim that the affidavit supporting the search warrant failed to show probable cause or that the search warrant was facially defective. However, he argues that Cox would not have decided to obtain the search warrant but for confirming that the odor of methamphetamine was emanating from inside the car as well as from Huff and Morley; that Cox would not have confirmed that the odor of methamphetamine was emanating from the car but for retrieving the first purse from the front seat at Morley's request; that Morley would not have made her request but for being arrested; and that Morley's arrest for obstructing a public servant was illegal because the relevant portions of the obstructing statute, RCW 9A.76.020(1) and (2), were held unconstitutional in State v. White, 97 Wn.2d 92, 640 P.2d 1061 (1982).
The State expressly concedes that Huff has standing to challenge the validity of Morley's arrest. For that reason only, we consider Huff's argument.
The argument fails because its premise is faulty. Morley's arrest was lawful.
[1, 2] The validity of an arrest is determined by objective facts and circumstances. Beck v. Ohio, 379 U.S. 89, 96, 13 L.Ed.2d 142, 147, 85 S.Ct. 223, 228 (1964); Ricehill v. Brewer, 459 F.2d 537 (8th Cir.1972); Klingler v. United States, 409 F.2d 299 (8th Cir.), cert. denied, 396 U.S. 859 (1969); State v. Vanzant, 14 Wn. App. 679, 681, 544 P.2d 786, 788 (1975); Utter, Survey of Washington Search and Seizure Law: 1988 Update, 11 U. Puget Sound L. Rev. 411, § 2.2(a), at 450 (1987-1988). An arrest not supported by probable cause is not made lawful by an officer's subjective belief that an offense has been committed. Carroll v. United States, 267 U.S. 132, 161-62, 69 L.Ed. 543, 45 S.Ct. 280, 288 (1925); *646 Director General of R.R.'s v. Kastenbaum, 263 U.S. 25, 28, 68 L.Ed. 146, 44 S.Ct. 52, 53 (1923). By the same token, an arrest supported by probable cause is not made unlawful by an officer's subjective reliance on, or verbal announcement of, an offense different from the one for which probable cause exists.[1]United States v. Saunders, 476 F.2d 5 (5th Cir.1973); United States v. Bowers, 458 F.2d 1045 (5th Cir.), cert. denied, 409 U.S. 868 (1972); United States v. Brookins, 434 F.2d 41 (5th Cir.1970), cert. denied, 401 U.S. 912, 27 L.Ed.2d 811, 91 S.Ct. 880 (1971); Klingler v. United States, 409 F.2d 299 (8th Cir.), cert. denied, 396 U.S. 859 (1969); Ricehill v. Brewer, supra; State v. Vangen, 72 Wn.2d 548, 433 P.2d 691 (1967); Seattle v. Cadigin, 55 Wn. App. 30, 776 P.2d 727, review denied, 113 Wn.2d 1025 (1989); State v. Stebbins, 47 Wn. App. 482, 735 P.2d 1353, review denied, 108 Wn.2d 1026 (1987). "The law cannot expect a patrolman, unschooled in the technicalities of criminal and constitutional law ... to always be able to immediately state with particularity the exact grounds on which he is exercising his authority." McNeely v. United States, 353 F.2d 913, 918 (8th Cir.1965).
[3-5] Under both the federal and state constitutions, probable cause is the objective standard by which the reasonableness of an arrest is measured. State v. Bonds, 98 Wn.2d 1, 653 P.2d 1024 (1982), cert. denied, 464 U.S. 831 (1983); State v. Stebbins, supra; Dunaway v. New York, 442 U.S. 200, 208, 60 L.Ed.2d 824, 99 S.Ct. 2248 (1979). Probable cause for a warrantless arrest exists when facts and circumstances within the arresting officer's knowledge are sufficient to cause a person of reasonable caution to believe that a crime has been committed. State v. Fricks, 91 *647 Wn.2d 391, 588 P.2d 1328 (1979); State v. Gluck, 83 Wn.2d 424, 426-27, 518 P.2d 703 (1974); Stebbins, 47 Wn. App. at 484. More specifically, probable cause to arrest the occupants of a car for possession of a controlled substance exists when a trained officer detects that the odor of a controlled substance is emanating from a vehicle.[2]State v. Hammond, 24 Wn. App. 596, 600, 603 P.2d 377 (1979) (passenger); State v. Compton, 13 Wn. App. 863, 864-65, 538 P.2d 861 (1975) (driver); 2 W. LaFave, Search and Seizure § 3.6(b), at 36-38 (2d ed. 1987); see also State v. Ramirez, 49 Wn. App. 814, 819, 746 P.2d 344 (1987); Johnson v. United States, 333 U.S. 10, 13, 92 L.Ed. 436, 68 S.Ct. 367 (1948). Other facts supportive of probable cause include furtive movements and lying to the police, both of which evidence consciousness of guilt. Sibron v. New York, 392 U.S. 40, 66, 20 L.Ed.2d 917, 88 S.Ct. 1889, 1904 (1968) (deliberate furtive gestures at the approach of the police are strong indicia of guilty mens rea) (citing Brinegar v. United States, 338 U.S. 160, 93 L.Ed. 1879, 69 S.Ct. 1302 (1949)); State v. Goodman, 42 Wn. App. 331, 711 P.2d 1057 (1985), (improbable explanation and false answers may be considered in probable cause determination), review denied, 105 Wn.2d 1012 (1986); State v. Bryan, 40 Wn. App. 366, 698 P.2d 1084 (1985) (false answers, indicating guilty mens rea combined with circumstantial evidence); State v. Sinclair, 11 Wn. App. 523, 531, 523 P.2d 1209 (1974) (false answers); State v. Haverty, 3 Wn. App. 495, 475 P.2d 887 (1970) (improbable explanation of possession of stolen property); see also United States v. Ortiz, 422 U.S. 891, 897, 45 L.Ed.2d 623, 629, 95 S.Ct. 2585 (1975) (dicta) (officer may consider suspect's response to questioning).
*648 In this case, Cox had objectively sufficient probable cause to arrest Morley for possession of a controlled substance. As he was attempting to stop the car, he saw Morley look back at him and make furtive gestures. When he asked her for her driver's license, he smelled methamphetamine coming from her, the car, or both. He testified that the smell is quite distinctive, "like a cross between cat urine and a chemical smell", that he had been trained to recognize it, and that he had come in contact with it 50 to 75 times in the course of his duties. Last but not least, Morley lied to him about her identity.
In light of the foregoing, Cox's subjective intent to arrest Morley for obstructing a public servant is immaterial. Assuming without holding that he could not lawfully have arrested her on that basis, the arrest here was nevertheless valid because he had objectively sufficient probable cause to believe that she was in possession of a controlled substance.

II
Huff's second argument is that the drugs are the fruit of an illegal seizure. Specifically, he argues that Cox unconstitutionally seized and held the car while he obtained the search warrant, and that the drugs would not have been found but for that seizure. As before, he does not claim that the affidavit supporting the search warrant failed to show probable cause or that the search warrant was facially defective. Nor does he claim, on grounds not already dealt with,[3] that Cox illegally intruded into the car before obtaining the search warrant. His argument is that Cox unconstitutionally interfered with his possessory rights, as opposed to his privacy rights. See State v. Ng, 104 Wn.2d 763, 770-71, 713 P.2d 63 (1985) (quoting 2 W. LaFave, Search and Seizure § 6.5, at 185 (Supp. 1985)).
Before Cox seized the car, he had probable cause to search it. The odor of methamphetamine, Huff's apparent *649 reluctance to stop, Morley's furtive gestures and Morley's lies were facts and circumstances sufficient to cause a person of reasonable caution to believe that the car contained contraband.
Based on the probable cause that he had, Cox could have immediately searched the Lincoln without a warrant. See e.g., Chambers v. Maroney, 399 U.S. 42, 26 L.Ed.2d 419, 90 S.Ct. 1975 (1970); State v. Glasper, 84 Wn.2d 17, 523 P.2d 937 (1974); State v. Parker, 79 Wn.2d 326, 485 P.2d 60 (1971). If he had done so, Huff's privacy rights would have been invaded without warrant. Moreover, the occupants of the car would have been dispossessed during the search, which is equivalent to saying that Huff's possessory rights would have been interfered with for the period of time needed to conduct the search.
Instead of searching immediately, Cox chose to seek a warrant, a course of action that the law prefers. United States v. Rubies, 612 F.2d 397, 404 n. 7 (9th Cir.1979), cert. denied, 446 U.S. 940 (1980); United States v. Doty, 714 F.2d 761, 763 (8th Cir.1983); see also Johnson v. United States, 333 U.S. 10, 14, 92 L.Ed. 436, 68 S.Ct. 367, 369 (1948). So that evidence would not be taken or destroyed, he seized and held the car not only for the time needed to search, but also for the time needed to obtain a warrant. Thus, Huff's privacy rights were not invaded, but his possessory rights were interfered with for a longer period of time than if Cox had searched immediately without a warrant. It is the latter fact that forms the crux of Huff's present complaint.
[6, 7] The United States Supreme Court has upheld the warrantless seizure of various kinds of property for the time reasonably necessary to obtain a warrant, provided that the police have probable cause to search. Arkansas v. Sanders, 422 U.S. 753, 61 L.Ed.2d 235, 99 S.Ct. 2586 (1979) (luggage); United States v. Van Leeuwen, 397 U.S. 249, 25 L.Ed.2d 282, 90 S.Ct. 1029 (1970) (packages in the mail); Segura v. United States, 468 U.S. 796, 82 L.Ed.2d 599, 104 S.Ct. 3380 (1984) (plurality opinion) (an apartment may be secured from the inside even absent exigent circumstances); *650 Segura v. United States, supra at 824 n. 15 (Stevens, J., dissenting) (apartment may be secured from the outside, even absent exigent circumstances). With specific regard to cars, it has held that when an officer develops probable cause to believe that a car which he or she has lawfully stopped contains contraband, it is reasonable under the Fourth Amendment to seize and hold the car for "whatever period is necessary" in order to obtain a search warrant. Chambers v. Maroney, 399 U.S. at 51; Texas v. White, 423 U.S. 67, 46 L.Ed.2d 209, 96 S.Ct. 304 (1975) (per curiam); Michigan v. Thomas, 458 U.S. 259, 73 L.Ed.2d 750, 102 S.Ct. 3079 (1982); United States v. Kimberlin, 805 F.2d 210 (7th Cir.1986), cert. denied, 483 U.S. 1023 (1987); see also Cardwell v. Lewis, 417 U.S. 583, 595, 41 L.Ed.2d 325, 94 S.Ct. 2464 (1974).
The Washington Supreme Court has held that the police, if they have probable cause to search, may seize a residence for the time reasonably needed to obtain a search warrant. State v. Terrovona, 105 Wn.2d 632, 645, 716 P.2d 295 (1986); State v. Ng, 104 Wn.2d at 770-71. We are unaware of any Washington case that extends this principle to cars,[4] but we now do so. In our view, the possessory rights to a car are not greater than those to a residence. Thus, if the police are *651 authorized to interfere with possession of a residence for the time reasonably needed to get a warrant, they are also authorized to interfere with possession of a car for the same period of time.
To hold otherwise would discourage and perhaps eliminate the use of warrants for cars. If an officer wants to obtain a warrant but cannot hold a car for the period of time needed to obtain the warrant, one alternative is to release the car to its occupants or their friends; a second is to lock it up and leave it on the street; and a third is to search it immediately without warrant on the ground that its mobility creates exigent circumstances. Chambers v. Maroney, supra; State v. Glasper, supra; State v. Parker, supra. The first alternative entails a risk that the occupants or their friends will take or destroy the evidence, and the second entails a risk that thieves or vandals will do the same. Thus, even the officer who would prefer to obtain a warrant will invariably adopt the third, and the practice of obtaining a warrant before searching a car, to the extent that it now exists, will be virtually eliminated.
These same concerns can be articulated using the language of constitutional reasonableness. The purpose of the fourth amendment to the United States Constitution and Const. art. 1, § 7 is to prohibit unreasonable searches and seizures, Cady v. Dombrowski, 413 U.S. 433, 439, 37 L.Ed.2d 706, 93 S.Ct. 2523 (1973); State v. McKinnon, 88 Wn.2d 75, 78, 558 P.2d 781 (1977), and it is constitutionally reasonable to allow a slightly longer infringement on possessory rights in order to encourage the heightened protection of privacy rights that results from obtaining a warrant before a search is conducted.
Huff contends that our conclusion is contrary to State v. Williams, 102 Wn.2d 733, 689 P.2d 1065 (1984), State v. Simpson, 95 Wn.2d 170, 622 P.2d 1199 (1980), and State v. Houser, 95 Wn.2d 143, 622 P.2d 1218 (1980). In those cases, the Supreme Court said:
A motor vehicle may be lawfully impounded in certain specific circumstances: (1) as evidence of a crime, if the *652 officer has probable cause to believe that it was stolen or used in the commission of a felony; (2) as part of the "community caretaking function," if the removal of the vehicle is necessary (in that it ... poses a threat to public safety and convenience, or is itself threatened by vandalism or theft of its contents), and neither the defendant nor his spouse or friends are available to move the vehicle; and (3) as part of the police function of enforcing traffic regulations, if the driver has committed one of the traffic offenses for which the legislature has specifically authorized impoundment.
Williams, 102 Wn.2d at 742-43; Simpson, 95 Wn.2d at 189; Houser, 95 Wn.2d at 149-50. Huff argues that the quoted language is exclusive  i.e., that it prohibits the warrantless seizure of a car in any circumstance other than the ones set forth.[5]
The contention fails for two reasons. First, in Houser and Simpson, the Supreme Court expressly held that the police did not have probable cause to search, Houser, 95 Wn.2d at 150; Simpson, 95 Wn.2d at 189, and in Williams, the court did not reach the question of whether the police had probable cause to search. Williams, 102 Wn.2d at 742-43. In none of these cases was there a finding of probable cause, and without such a finding the Supreme Court had no occasion to consider whether probable cause would justify the warrantless seizure of a car for the time reasonably needed to obtain a warrant.
Second, in Houser, Simpson and Williams, the Supreme Court did not intend to rule on situations not then before the court. The constitutionality of a seizure depends on its reasonableness, e.g., United States v. Chadwick, 433 U.S. 1, 9, 53 L.Ed.2d 538, 97 S.Ct. 2476, 2482 (1977); Cooper v. California, 386 U.S. 58, 17 L.Ed.2d 730, 87 S.Ct. 788 (1967), and reasonableness is a distinctly fact-based inquiry. Houser, 95 Wn.2d at 138; South Dakota v. Opperman, 428 U.S. 364, 49 L.Ed.2d 1000, 96 S.Ct. 3092 (1976). No court can foresee all that might arise in the future, and no list can ever be devised to cover all contingencies. The Houser/Simpson *653 list is a compilation of past automobile seizure decisions, but it was not intended as an exclusive list that would preclude automobile seizures in all other fact circumstances.[6]
In light of the foregoing, we hold that when an officer has probable cause to believe that a car contains contraband or evidence of crime, he or she may seize and hold the car for the time reasonably needed to obtain a search warrant and conduct the subsequent search. It makes no constitutional difference whether this is done by placing a guard on the car at the scene or by towing it to the police station or an impound yard. Cf. State v. Terrovona, supra (officers stationed inside residence); State v. Ng, supra (same); Chambers v. Maroney, supra (car towed to police station). Either involves approximately the same degree of interference with possession. Cox's seizure of the Lincoln was valid because he had probable cause to search it, and because he seized it only for the time reasonably needed to obtain a warrant and then search.

III
[8, 9] Huff's remaining contentions relate to jury instructions and sufficiency of the evidence. He argues that the evidence was insufficient to prove constructive possession beyond a reasonable doubt. We disagree. Evidence is sufficient to support a conviction if, when viewed in the light most favorable to the State, it is such that a rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. State v. Green, 94 Wn.2d 216, 616 P.2d 628 (1980); Jackson v. Virginia, 443 U.S. 307, 61 L.Ed.2d 560, 99 S.Ct. 2781 (1979). A defendant may be shown to be in constructive possession of a controlled substance when he "has dominion and control over either the drugs or the premises upon which the drugs were found." *654 State v. Mathews, 4 Wn. App. 653, 656, 484 P.2d 942 (1971). A vehicle is a "premises" for purposes of this inquiry. State v. Mathews, supra.
Here, the State produced evidence to show that Huff was driving a car in which drugs were found; the inside of the car smelled like methamphetamine; Huff smelled like methamphetamine; Huff did not stop when the officer was behind him with emergency lights flashing; while Huff continued to drive, his passenger, seated next to him, looked back and made furtive movements; and the drugs were found hidden under laundry in the backseat. Viewed in the light most favorable to the State, this evidence is such that a rational trier could find beyond a reasonable doubt that Huff had dominion and control over the drugs. State v. Potts, 1 Wn. App. 614, 617, 464 P.2d 742 (1969) (reasonable to infer dominion and control where defendant had car keys and was driving); State v. Mathews, 4 Wn. App. 653, 656, 484 P.2d 942 (1971) (reasonable to infer dominion and control where defendant was passenger in car and other circumstances connected him to the drugs).
As part of his sufficiency argument, Huff attempts to analogize to cases holding that a temporary visitor in a residence does not have dominion and control over that residence. State v. Callahan, 77 Wn.2d 27, 459 P.2d 400 (1969); State v. Gutierrez, 50 Wn. App. 583, 592, 749 P.2d 213, review denied, 110 Wn.2d 1032 (1988); State v. Spruell, 57 Wn. App. 383, 388, 788 P.2d 21 (1990). In those cases, the evidence presented was insufficient to warrant a reasonable inference of dominion and control. In the present case, the evidence was clearly adequate to support such an inference. State v. Potts, supra; State v. Mathews, supra.
[10] Huff next contends that the court erred by failing to instruct the jury that the State must prove beyond a reasonable doubt that he knowingly possessed the drugs. Again, we disagree. In Washington, it is well settled that the defendant bears the burden of proving unknowing possession, as opposed to the State bearing the burden of proving knowing possession. State v. Cleppe, 96 Wn.2d 373, 381, *655 635 P.2d 435 (1981), cert. denied, 456 U.S. 1006 (1982); State v. Quintero-Quintero, 60 Wn. App. 902, 808 P.2d 183 (1991); State v. Knapp, 54 Wn. App. 314, 318, 773 P.2d 134, review denied, 113 Wn.2d 1022 (1989); State v. Hystad, 36 Wn. App. 42, 49, 671 P.2d 793 (1983).
[11] Huff next contends that the court erred by refusing to instruct the jury that it must find more than mere presence or close proximity to the drugs to establish constructive possession. Again, we disagree. It is true that the jury must find more than mere proximity, State v. Gutierrez, 50 Wn. App. 583, 592, 749 P.2d 213, review denied, 110 Wn.2d 1032 (1988); State v. Callahan, 77 Wn.2d 27, 459 P.2d 400 (1969), but under the circumstances present here the instruction defining constructive possession adequately allowed Huff to argue his case to the jury.
[12] Lastly, Huff contends that the court erred by declining to instruct the jury that the State had the burden of proving constructive possession by "substantial" circumstantial evidence. The argument confuses the burden of production with the burden of proof. The phrase "substantial evidence" describes the burden of production in all cases, In re C.B., 61 Wn. App. 280, 286, 810 P.2d 518 (1991), while the phrase "beyond a reasonable doubt" describes the burden of persuasion in criminal cases. The burden of production is applied by the judge, while the burden of persuasion is applied by the jury. In re C.B., supra at 282-83. It follows that the question of "substantial evidence" is for the judge, not the jury, and that the judge in this case correctly declined to include it in the instructions that he gave to the jury. The instruction needed by the jury was one describing the burden of persuasion, and the judge gave such an instruction in appropriate form.
Affirmed.
PETRICH, C.J., and ALEXANDER, J., concur.
Review denied at 119 Wn.2d 1007 (1992).
NOTES
[1]  Some older Washington cases suggest that an officer must have a subjective good faith belief that the suspect has committed a crime as well as enunciating the objective test for probable cause. State v. Cottrell, 86 Wn.2d 130, 542 P.2d 771 (1975); State v. Todd, 78 Wn.2d 362, 474 P.2d 542 (1970); State v. Palmer, 73 Wn.2d 462, 438 P.2d 876, cert. denied, 393 U.S. 954 (1968); State v. Easton, 69 Wn.2d 965, 422 P.2d 7 (1966); State v. Miller, 151 Wash. 114, 275 P. 75 (1924). However, these cases do not consider the situation in which an officer has a subjective good faith belief that a crime has been committed but has the wrong crime in mind.
[2]  A few courts have distinguished between whether the smell emanates from the suspect's person or from the car, holding that probable cause to arrest exists only when the defendant herself smells of narcotics. See 2 W. LaFave, Search and Seizure § 3.6(b) (2d ed. 1987) (collecting cases). However, this is not the rule in Washington. State v. Ramirez, 49 Wn. App. 814, 819, 746 P.2d 344 (1987); State v. Hammond, 24 Wn. App. 596, 600, 603 P.2d 377 (1979); State v. Compton, 13 Wn. App. 863, 864-65, 538 P.2d 861 (1975).
[3]  Huff claims that Cox illegally intruded into the car when he retrieved Morley's purse because she would not have asked him to retrieve it but for her arrest which he asserts was illegal. Because we hold that Morley was not illegally arrested, this claim fails.
[4]  Several cases illustrate the propriety of warrantless seizures in other situations. In State v. Glasper, 84 Wn.2d 17, 523 P.2d 937 (1974), the court upheld the warrantless seizure of a car (84 Wn.2d at 22) not for the time needed to obtain a warrant, but for the time needed to conduct further investigation. In that case, there was "reasonable cause to believe that the unpadded and unsecured television set" in the partially open trunk of the car was stolen property (84 Wn.2d at 21), and "rather than seize the television set in plain view in the trunk of the car, the police officers took the more cautious route of impounding the vehicle and waiting to confirm that the television set had in fact been stolen." 84 Wn.2d at 22. In State v. Terrovona, 105 Wn.2d at 647-48, the court upheld the warrantless seizure of a car not just for the time needed to obtain a warrant, but as evidence pending trial. In that case, there was probable cause to believe that the car itself was evidence. 105 Wn.2d at 648. In Lowery v. Nelson, 43 Wn. App. 747, 719 P.2d 594, review denied, 106 Wn.2d 1013 (1986), appeal dismissed, 479 U.S. 1024 (1987), the court upheld the warrantless seizure of a car for purposes of forfeiture, where the car had been used to illegally transport drugs. See also GM Leasing Corp. v. United States, 429 U.S. 338, 352, 50 L.Ed.2d 530, 543, 97 S.Ct. 619, 628 (1977) (warrantless seizure of vehicles by IRS).
[5]  Huff also argues that the phrase "used in the commission of a felony" does not include the mere presence of contraband in the car. We assume but do not hold that that is correct.
[6]  One instance in which the court has approved the warrantless seizure of a car under circumstances not included in the Houser/Simpson list is Lowery v. Nelson, 43 Wn. App. 747, 719 P.2d 594 (car used to transport drugs; seizure for purposes of forfeiture), review denied, 106 Wn.2d 1013 (1986), appeal dismissed, 479 U.S. 1024 (1987).