When it comes to tough fact patterns and less than upright clients, nobody tries harder than Frantic Frank Agostino and The Jersey Boys. And he’s got a serious bunch problems (hi, Judge Holmes) with Patricia Controneo, T. C. Memo. 2024-70, filed 6/24/24. Pat’s spouse Frank, insurance broker and breadwinner, goes down in USDCDNJ for bribery and tax evasion. The Federales hit spouse Frank with civil forfeiture at no extra charge.

Spouse Frank and Pat sold their old house and bought a new one, taking draws from spouse Frank’s IRA. Pat contests her liability for the unreported draws, and claims innocent spousery.

Pat’s trusty attorneys pick away at the 1099-Rs reported by the IRS custodian. They claim Section 6201 shifts the burden of proof to IRS when recipients get dubious 1099s.

No, says Judge Elizabeth Crewson Paris. She blows off the quibbles about the 1099-Rs, and then turns to shifting.

“Even if the foregoing points of petitioner’s were treated as raising a reasonable dispute, the consequence under section 6201(d) is not, as petitioner contends, a shift in the burden of proof to respondent. Instead, section 6201(d) would impose upon respondent only ‘the burden of producing reasonable and probative information concerning [the] deficiency in addition to [the] information return.’ Respondent has done so. The contemporaneously maintained business records of [custodian], the authenticity of which the parties have stipulated and to which petitioner has not made any hearsay objection, show that the account from which $122,500 in distributions was made to Mr. Cotroneo… was a traditional IRA. This is reasonable and probative information concerning the deficiency respondent determined on the basis that Mr. Cotroneo received taxable IRA distributions of $122,500 … that were not reported. Thus respondent has satisfied his burden of production under section 6201(d) and the burden of proof remains on petitioner to demonstrate error in the deficiency determination with respect to the unreported IRA distributions.” T. C. Memo. 2024-70, at p. 10.

Pat’s innocent spousery fails in that she and spouse Frank are still married, and the sale of one house and purchase of the other (title only in Pat) is a fraudulent transfer.

Pat further says she didn’t review the 1040 MFJ that was filed shortly after spouse Frank went down.

“Less than four months after Mr. Cotroneo’s plea…, the Cotroneos sold the jointly owned Bernardsville residence for $3,300,000 and received $151,000 in net proceeds from the sale. That same day the Chester residence was purchased for $950,000 in cash and titled solely in petitioner’s name. Petitioner testified at trial that her mother provided $110,000 of the purchase price and that she did not know the source of the $840,000 balance. Given the magnitude of the sum, petitioner’s self-serving professed ignorance of its source—to the extent she would have us believe it did not come from Mr. Cotroneo—is not credible, and we do not credit it.” T. C. Memo. 2024-70, at pp. 20-21. (Citation omitted).

And as for BoP quantum of evidence on fraudulent transfers in the innocent spouse context, here’s Judge Paris’ “somber reasoning and copious citation of precedent.”

“Petitioner contends that respondent must demonstrate by clear and convincing evidence (not merely a preponderance of the evidence) that Mr. Cotroneo and petitioner transferred assets as part of a fraudulent scheme, citing Rule 142(b). Rule 142(b) requires respondent to carry his burden of proof ‘[i]n any case involving the issue of fraud with intent to evade tax” by clear and convincing evidence. We note that section 6015(c)(3)(A)(ii) provides merely ‘[i]f the Secretary demonstrates’ without any reference to his needing to do so ‘by clear and convincing evidence.’ The same phrase—'[i]f the Secretary demonstrates’—is found elsewhere in section 6015(c)(3); namely, in section 6015(c)(3)(C). With respect to that phrase, we have held that it requires proof merely by a preponderance of the evidence. See Culver, 116 T.C. at 195–96. Moreover, the imposition of the clear and convincing standard in Rule 142(b) covers fraud ‘with intent to evade tax’ whereas the ‘fraudulent scheme’ contemplated by section 6015(c)(3)(A)(ii) extends to ‘a scheme to defraud the [IRS] or another third party, including, but not limited to, creditors, ex-spouses, and business partners.’ Treas. Reg. § 1.6015-1(d).” T.C. Memo. 2024-70, at p, 20, footnote 15.

Anyway, no matter which, Pat is out.

But IRS stumbles on the Boss Hossery. IRS claims the chop was imposed by AUR, the SNOD has an AUR control number, hence electronicuted, so no Boss Hossery needed per Section 6751(b)(2)(B). But though the AUR sent CP2000, Pat claims she responded before the SNOD issued, and IRS’ record shows either or both Pat and spouse did, although response not in the record. So IRS can’t prove the Section 6662(a) five-and-ten was electronically imposed.

The Jersey Boys rescued $3K in chops from the wreckage. I said it five (count ’em, five) years ago, and I’ll say it again. “The Jersey Boys never practiced ‘no-fault’ law. Be the ice thin and the sun hot, they will go for it.” See my blogpost “The Taxpayer Bill of Goods – Part Deux,” 6/20/19.