In Uncategorized on 11/24/2014 at 21:19

The SO thought that a NFTL was cast in bronze when sculptor Jim Budish wanted an installment agreement to pay off the $200K he owed Oom Sam, but Judge Halpern says not so, in James B. Budish, 2014 T. C. Memo. 239, 11/24/14.

Jim is a sculptor, and successful. He “works in cast bronze and sells his artwork through his wholly owned S corporation, Jim Budish Sculptor, Ltd. (Sculptor, Ltd.), for which he is a salaried employee. Over the years, petitioner has relied on a particular Arizona foundry (Metalphysic Sculpture Studio, Inc.) (foundry) to provide the material he uses in his sculptures and to do the actual casting. Typically, the sculptures are commissioned by the buyers who pay for them before casting. Thus, petitioner does not maintain an inventory from which he regularly sells his sculptures.” 2014 T. C. Memo. 239, at p. 4.

Jim doesn’t contest he owes big time, but claims he has zero assets, and whatever will pay the installment agreement must come from sales of his castings. The SO agrees with Jim’s staff of attorneys on the number for the installment agreement.

SO says IRM mandates a NFTL because of all the money Jim owes.

Jim’s attorneys (all three of them) claim the foundry will cause Jim to founder if there’s a NFTL, because they won’t grant him the usual credit but will demand cash up front, the buyers will run because they’ll be afraid whatever they pay and their precious bronzes will be grabbed by IRS. Finally, American Express will cut off Jim’s ability to pay for stuff with his trusty “don’t-leave-home-without-it”.

Since Jim admits he owes, it’s abuse-of-discretion.

Whatever the IRM says, Section 6330(c)(3)(C) requires IRS to legitimately balance and weigh the interests of efficient governmental collection of taxes against the taxpayer’s legitimate concern that collection action be no more intrusive than necessary.

What ultimately bails out Jim is that lovely phrase “in general”. I love that phrase, because what invariably follows is any number of exceptions, waffles, wriggle-room and definite maybes.

Judge Halpern: “In IRM pt., the term ‘in general’ in describing the circumstances, including the existence of large, outstanding liabilities, under which a notice of lien ‘should be filed’ clearly indicates that there may be occasions in which it is not necessary to file a notice of lien, even where such circumstances exist.

“As petitioner suggests, the filing of a notice of lien might not be in the Government’s best interests in this case if, as petitioner argues, the lien would hamper rather than foster collection of his outstanding liability. In arguing that this case presents one of those occasions in which a notice of lien would be counterproductive for respondent, petitioner points to the nominal amount of his net assets as compared with that liability and also to the fact that a notice of lien filing would put him out of business, thereby cutting off the only source of funds sufficient to discharge his liability and making it impossible for him to honor his commitment under the installment agreement.” 2104 T. C. Memo. 239, at pp. 18-19.

“It is also clear that IRM pt. (Oct. 30, 2009) lists circumstances under which an ‘NFTL filing determination must be made’, not circumstances under which a notice of lien must be filed. Thus, pursuant to IRM pt., the Appeals officer was required to make a lien filing ‘determination’, which petitioner does not dispute; but she was not required, by that provision, to determine that a notice of lien be filed.” 2014 T. C. Memo. 239, at p. 19.

The record isn’t sufficiently clear for Judge Halpern, so he remands.

But because this is an interesting case, he can’t resist telling counsel, both IRS’s and Jim’s Gang of Three, how to try the remand.

“On remand we anticipate that the Appeals officer assigned the case will want to investigate, facilitated by petitioner’s furnishing supporting documentation or affidavits where necessary, petitioner’s representations that the mere filing of a notice of lien will cause the foundry to drastically and unfavorably alter its working relationship with him and cause his customers to do the same, both resulting in a sharp decrease or stoppage of his income from the production and sale of sculptures, thereby causing him to default on the proposed installment agreement. In that connection we agree with respondent that counsel, in a letter to the Appeals officer, overstated the foundry’s reaction to the possibility of a Federal tax lien against petitioner’s assets. The foundry did not cite that possibility as ‘the impetus’ for its proposed changes in its business relationship with petitioner. Rather, it cited the actual suspension or delay of payments due it as the linchpin of those changes.

“We also anticipate that the Appeals officer will make a judgment as to the accuracy of petitioner’s representations regarding the value of his assets and the amount of his cashflow that might be subject to a Federal lien. In that connection, petitioner might want to make further arguments or submissions concerning whether the foundry work in process and/or the finished products are assets belonging to him, to Sculptor, Ltd., or, by virtue of their advance payments, to his customers. Presumably, a notice of lien against petitioner’s assets would not attach to the assets of either Sculptor, Ltd., or its (petitioner’s) customers.

“Petitioner might also want to explain why his rejection of a bond in lieu of a notice of lien, because of cost or otherwise, is reasonable under the circumstances.

“Lastly, we think it advisable that the Appeals officer, with the assistance of his or her counsel, if needed, consider the impact, if any, on his or her determination of section 6323(b)(3), which provides that a Federal notice of lien ‘shall not be valid’ against a purchaser of tangible personal property purchased at retail in the ordinary course of the seller’s trade or business unless, at the time of purchase, the purchaser actually intends the purchase to (or knows that it will) ‘hinder, evade, or defeat’ the collection of tax. Section 301.6323(b)-1(c)(2), Proced. & Admin. Regs., defines ‘retail sale’ to mean ‘a sale, made in the ordinary course of the seller’s trade or business, of tangible personal property of which the seller is the owner. That definition would appear to cover the sculptures sold on petitioner’s behalf by Sculptor, Ltd. Should it be determined that section 6323(b)(3) does apply herein, its application would appear to weaken both parties’ positions. On the one hand, the Government’s lien would not be valid as against a purchaser’s interest in petitioner’s sculptures, which would mean, assuming petitioner’s representations with respect to his lack of other valuable assets are true, that a lien would do little to protect the Government’s interests and, therefore might not be necessary. On the other hand, the failure of the lien to have priority over a purchaser’s interest in the sculptures would negate petitioner’s argument that it would effectively put him out of business.” 2014 T. C. Memo. 239, at p. 25-27.

In any case, let Appeals consider Section 6323(b)(3).

I can’t help thinking that Jim’s counsel should ask Judge Halpern if they should go home and let him try the case.

Takeaway–If you offer an installment alternative, and Appeals wants a NFTL or NOTL, tell them Section 6323(b)(3) trumps IRM


In Uncategorized on 11/24/2014 at 12:42

While nonreceipt of an 1153 billet doux doesn’t invalidate the Section 6672 TFRP, it does raise the question (no it doesn’t “beg” the question, a locution that betrays an imperfect education) whether the petitioner had a chance to contest the penalty.

And here IRS loses summary J, because apparently it shot a blank at the late John W. Houston, co-resident of Omaha, NE, with the great Warren Buffet.

The late John’s cudgel is taken up by his surviving spouse Sarah, in Estate of John W. Houston, Deceased, Sarah V. Houston, Personal Representative, Docket No. 11561-12L, filed 11/24/14. Sarah cross-moves, but doesn’t win either.

The late John was CFO of Merit Transportation Company, LLC, but Merit had little Merit. It stiffed the fisc of $700K in withholdings a month before firing the late John, and filed bankruptcy thereafter.

Judge Paris checks out the late John’s job description. He was:“…in charge of overseeing the ‘comp controller [sic]’ and the individual in charge of the company’s payroll. Decedent was listed on one copy of Merit’s bank account signature cards, which appeared to give him authority to direct funds on behalf of the company. This signature card was not dated and the other bank cards were not signed by decedent and there is no evidence that decedent actually used this authority to write any checks.” Order, at p. 2.

A somewhat shaky case for IRS. And it doesn’t get better.

“Decedent’s Letter 1153 was purportedly sent to decedent and petitioner’s undisputed address in Omaha, Nebraska. … the Postal Service directed the envelope back to the sender because it was ‘not deliverable as addressed’ and ‘unable to forward’. The same day… respondent received and acknowledged the envelope returned from the Postal Service. The envelope was returned within 48 hours of the initial deposit into the mail and upon return, the revenue officer in charge of the case determined that besides waiting 60 days, no further notice action was needed to assess a trust fund penalty against decedent. The revenue officer determined the mere lapse of 60 days from posting the envelope was adequate notice.” Order, at pp. 2-3.

Well, that should do it, right? Section 6672(b)(2) says give the notice, wait 60 days, and then go get ‘em.

Not quite. There was a minor problem with the letter.

“On the copy of the envelope introduced into evidence, decedent’s address does not appear on the front side of the envelope that was supposedly sent to him. The envelope has a clear window, which is supposed to align with an address printed on a sheet inserted into the envelope’s enclosure. The clear window of Letter 1153 does not show any address; instead the window shows what appears to be a security pattern on either the inside of the envelope or paper within the envelope. In any case, the envelope does not display decedent’s address and raises the issue of whether a letter was ever properly inserted into the envelope or if the Postal Service’s prompt return reflecting that it was ‘not deliverable as addressed and unable to forward’ should have alerted the revenue officer of a failed mailing. Neither decedent nor petitioner protested the proposed assessment.” Order, at p. 3.

Appeals gave Sarah a hearing, but said the IRS’ self-generated certified mail receipt showing a letter sent to the late John’s last-known address (the correctness of which no one contests) means “game over” as far as contesting liability.

Sarah petitions.

It’s one thing if the nonreceipt is the result of a USPS error or malfunction. If IRS correctly addressed and mailed the letter, that’s it as far as contesting liability goes. And if the letter was stamped “UNCLAIMED” by USPS, or the addressee ducked delivery, likewise. But see my blogposts “You Didn’t Get It”, 5/31/13, and “You Didn’t Get It – Part Deux”, 5/31/13.

And here all IRS has is the self-generated certified mail receipt.

But maybe IRS can produce something from USPS showing proper mailing of the 3172; no summary J for IRS–yet.

And no summary J for Sarah.


In Uncategorized on 11/21/2014 at 22:15

No, not the Peter Fonda – Dennis Hopper 1969 tale, but the story of Ben Evans, a youth with what Judge Vasquez calls the natural talent and drive to race motorcycles at a professional level.

Young Ben lived in Boise, ID, a mecca for motocross, “a motorsport in which competitors race motorcycles at high speeds on dirt courses containing jumps and obstacles.” 2104 T. C. Memo. 237, filed 11/20/14, at p. 6.

In fact, so adept was Young Ben that in one year he “won the Amateur Motocross National Championship 458 Pro Sport class at the Loretta Lynn Motocross Ranch (Loretta Lynn) in Nashville, Tennessee. The Loretta Lynn title is the premiere title in the national amateur racing circuit. Every year 25,000 entrants compete to qualify to race at Loretta Lynn, but only 40 actually make it to the championship.” 2104 T. C. Memo. 237, at p. 4.

Just to make it clear that Loretta Lynn is the coal miner’s daughter and not an apparently failed nominee for Attorney General, Judge Vasquez footnotes: “The event is named after the country singer of the same name.” 2014 T. C. Memo. 237, at p. 4, footnote 4.

Anyway, Young Ben is ticketed for stardom, but Tax Court is concerned with Mom and Dad, William D. Evans and Caroline F. Evans. Mom and Dad’s personal tax return notes Dad’s income from his construction company, licensed in Idaho and doing business nowhere else.

And arriving at that income, Dad deducts money he spent on a motorhome to haul Young Ben and his motorcycles, which actually were carried in the motorhome, thus taking the motorhome out of the Section 179(d)(1) trap that knocks out lodging type property from the quick-kick deduction in Section 179.

Ben loses some deductions for a utility trailer for want of evidence, and he did put income and expenses on the wrong lines of his return, but as his trusty CPAs were qualified and had all the info, no penalty for Dad.

Finally, even though Young Ben’s racing took place afar from Boise, ID, there was some benefit to Dad’s construction business. There’s caselaw that supports racing as a promotional endeavor for construction firms. And even pizza purveyors.

But since Dad can’t show what was the industry standard for racing expenses, or what was the exact benefit his construction company got from Young Ben’s easy riding, Judge Vasquez gives Dad a Cohan approximation.

And while agreeing with IRS that just because the expenses Dad deducted were a small fraction of Dad’s gross receipts doesn’t make the expenses reasonable, Judge Vasquez allows that the Cohan rule covers this case.

So the lesson for the offspring of construction company moguls is “get on your bike.”


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