Howbeit, I will spare the reader Obliging Judge Gustafson’s 68-page novelette concerning the Indian Employment Tax Credit as it impacts the Delaware subsidiary corporation of the Turtle Mountain Band of the Chippewa Indians, to be found in Uniband, Inc., 140 T. C. 13, filed 5/22/13.

Judge G.’s disquisition does not explicate an issue that the in-the-trenches preparer is likely to encounter. And if s/he does, my condolences.

The last chapter of a Section 932 saga, the unguided Congressional largesse to our bankrupt islands in the sun, brings to a close the unbroken string of IRS losses to Artie Appleton and his legal beagles, in Arthur I. Appleton, Jr., Petitioner, and The Government of The United States Virgin Islands, Intervenor, 140 T. C. 14, filed 5/22/13, Judge Jacobs bringing down the curtain, with twenty-one (count ‘em, 21) lawyers in on the play.

To review, see my blogposts “Statute of Limitations? Maybe Not”, 12/28/10, “Missed It, But Better Late Than Never”, 8/24/11, and finally “Somebody Does Read This Blog”, 12/4/11.

Briefly, Artie fled the North American mainland, settled in the aforesaid impoverished paradise, and got into an employee lease deal whereby he avoided payment of a bushelbasket of income tax. Of course, he sedulously and meticulously filed with Virgin Islands Internal Revenue Service (VIBIR), as directed by the instructions to Form 1040. And if that was his sole obligation, the three-year SOL had long run.

But IRS claimed that, as Artie never filed with them, the SOL was wide open and Artie owed the aforesaid bushelbasket plus interest, additions and penalties.

The VI guvmint leaped into the fray, was denied by Tax Court but let back in by Third Circuit (where VI appeals lie). “Counsel for intervenor stated that the Virgin Islands is involved in this matter because ‘we want the jobs’ and “the IRS’s position is a job killer’.” 40 T. C. 14, at p. 14, footnote 13 cont’d.

IRS’ feeble arguments get longer shrift than they deserve (but 21 lawyers have to bill for something, y’know).

Artie’s returns weren’t returns. Forget it; they were 1040s filed with VIBIR, like the instructions for said forms stated.

Artie should have filed with Bensalem PA as a foreigner, showing zero income and deductions. Nope, not for the years at issue. The Form 1040 instructions for those years said no such thing. And Artie was no foreigner; he was a resident of the VI, and IRS so stipulated.

Artie should have filed with IRS and with VIBIR. No, only if he was a corporation, and he wasn’t.

IRS issued a Notice that would have required Artie to file with IRS, after the years at issue, claiming it was retroactive. “Retroactive notices published by the IRS do not have the force and effect of law, nor are they regulatory. At best these notices can be considered as the IRS’ litigating position.” 140 T. C. 14, at p. 29. (Citations omitted).

So IRS has another bad day (and they have had many lately). And Artie sails off into the sunset, clutching summary judgment in his favor. How many jobs he and his fellow gamesters created for the VI guvmint is nowhere stated.

But this blogger got a lot of mileage out of this saga.

You remember the kerfuffle about the late Robert Rauchenberg’s 1959 post-modern masterpiece “Canyon”, featuring the famous eagle that set the art world a-twitter when IRS demanded a monumental estate tax deficiency. Ileana’s executors claimed the piece was worth nichts, nada, nothing, as it was a Federal criminal offense to sell or gift or barter or otherwise dispose of same.

IRS claimed the executors could always unload it to some offshorenik who would never come anywhere near The Land of the Free, for $65 million.

Well, you also remember Judge Wells sent the parties off to settle.

They did. Here’s the skinny, in  Ileana Sonnabend, Docket No. 649-12, filed 3/5/13. Ileana’s executors pay IRS $1,321,421.00 plus interest; no penalties.

So the eagle in fact does sleep tonight–probably in an undisclosed location.

That’s the story of Jonny Ramirez, radio personality and savior of station KXTN in San Antonio, TX. Judge Jacobs tells Jonny’s story in Juan A. Ramirez and Rebecca Ybarra-Ramirez, a “not-for-nuthin’”,  Section 7463, in 2013 T. C. Sum. Op. 38, filed 5/20/13.

Jonny, as Juan A. is known professionally, worked under contract to Univision, owners of KXTN, and toiled five hours per day, six days a week, at the mike, made personal appearances, and promoted KXTN, for a salary, benefits and stock options.

But it looked like the stock options, Jonny’s employment, and KXTN, were all about to go south, never to return, as Univision claimed the station was a loser.

Jonny, in his own words, “hit the bricks”, running from advertiser to advertiser, glad-handing, cajoling, charming and enticing, until he saved the station by hauling in a netful of new fish.

Judge Jacobs: “Mr. Ramirez established a direct, personal relationship with his sponsors, working hand-in-hand with them from the start of the advertising campaign to its end. They had no written contracts, just handshake agreements. Mr. Ramirez set the amount to be paid to him for his promotional services without input from Univision or KXTN. The amounts he received for these services varied from year to year depending on how hard he ‘hit the bricks’, i.e., the amount of effort Mr.Ramirez exerted in working with his sponsors.” 2013 T. C. Sum. Op. 38, at p. 4.

“Indeed, Univision’s and KXTN’s only involvement was to ensure that (1) the script did not contain fraudulent material, and (2) Mr. Ramirez did not use language that would jeopardize the radio station’s broadcasting license.” 2013 T. C. Memo. 38, at p. 5

Jonny got $82K for his troubles, but Univision treated him as an employee for everything, and gave him a W-2, as the IRS had “whanged their pates”, as the late Mike Berger put it, for treating other employees as ICs. Jonny’s CPA’s protests went nowhere.

Jonny’s work was outside the scope of his employment as an on-air personality. He worked with his sponsors, and his name and persona were what brought them in and kept them in the KXTN corral. True, KXTN monitored Jonny’s language and any larcenous tendencies on the part of his sponsors’ radio ads, but that’s not enough. Jonny had to maintain his good standing with KXTN to maintain his value to his sponsors, but that’s not enough either.

As for the classic test of “profit or loss from the activity”, Judge Jacobs buys Jonny’s testimony that what he makes depends upon how hard he “hits the bricks”. And Jonny hit ‘em hard.

IRS’ argument that advertising is an integral part of the radio broadcasting business fares no better. “Selling and broadcasting advertising is the manner by which a radio station earns a profit; it is an integral part (i.e., the so-called mother’s milk) of the station’s business. But Mr. Ramirez was not employed by Univision to sell on-air advertising; rather, he was employed to create on-air content (i.e., his radio program). Univision hired him to be a radio personality, not a salesperson.” 2013 T. C. Sum. Op. 38, at p. 16.

Jonny hit Tax Court as hard as he hit the bricks. And it pays off.

Courtesy of Judge Ruwe, in Julie Beiler Zook, 2013 T.C. Memo. 128, filed 5/20/13, we get a partial answer to the question I posed in my blogpost “Youth Wants To Know”, 4/24/13, wherein I asked Judge Thornton why he dropped the Big Hammer, the $25K Section 6673 frivolity penalty, on hapless Laurel Ann Curtis.

Judge Ruwe only deals a $2K on Julie B., but tells us why.

“Petitioner attended the CDP hearing with her husband and two other family members. Petitioner acknowledged that she received the notice of deficiency. Petitioner did not request a collection alternative. Petitioner’s husband argued that she did not receive proper notice from the Commissioner and that the assessments were not constitutional.” 2013 T. C. Memo. 128, at p. 3. (Footnote omitted, but apparently Julie B.’s husband got shown the yellow card back in 2008, in an order denominated Zook I, when he pulled a similar maneuver. It would seem that one spouse’s delictions may be attributed to the other.).

After the usual recitation of SFR, deficiency, failure to petition, NFTL, CDP and Appeal, NOD and petition, with de novo and abuse-of-discretion review, Judge Ruwe cuts to the chase.

“The notice of determination advised petitioner that this Court may impose the section 6673(a)(1) penalty against her if she raises frivolous or groundless arguments. Petitioner did not heed this advice and made the following arguments in her amended petition and in her opposition to motion for summary judgment: (1) she was not properly served with notice under section 6001; (2) the SFRs constitute evidence of computer fraud and are a fraud on this Court; (3) the notice of deficiency is a nullity and constitutes evidence of mail fraud; (4) the notice of Federal tax lien is a nullity and constitutes evidence of mail fraud; (5) respondent is “exercising such powers through an officer other than the officer specified in law” and “in the absence of proof of jurisdiction”; and (6) “[p]etitioner received no ‘income’”, citing Eisner v. Macomber, 252 U.S. 189 (1920), Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918), and Merchants’ Loan & Trust Co. v. Smietanka, 255 U.S. 509 (1921). The amended petition included many of the same arguments the Court deemed frivolous in Zook I (“The petition set forth various frivolous arguments”.).” 2013 T. C. Memo. 128, at pp. 8-9. (Footnote omitted).

Julie B., that’ll cost you $2K, with more to come if you don’t mend your ways.

Takeaway–Judge Ruwe gave us a pricelist for frivolity. It’s all à la carte.

]]> http://taishofflaw.com/2013/05/20/youth-wants-to-know-part-deux/feed/ 0 taishofflaw http://taishofflaw.com/2013/05/17/as-if-more-proofs-were-needed/ http://taishofflaw.com/2013/05/17/as-if-more-proofs-were-needed/#comments Fri, 17 May 2013 20:32:15 +0000 taishofflaw http://taishofflaw.com/?p=2070 ]]> An old bugbear of mine is the lack of a single court with nationwide jurisdiction to which appeals from Tax Court may be taken, and whose decisions must be followed by Tax Court. Golsen v. Commissioner, 54 T. C. 745 (1970), aff’d on o/grds 445 F. 2d 985 (10th Cir. 1971) initially confines appellants to the decisional law of the Circuit wherein Tax Court had jurisdiction over the taxpayer when the case was tried (absent contrary agreement, which happens so rarely as to be negligible).

So STJ Daniel A. (“Yuda”) Guy can’t help out poor confused, stressed and traumatized Johnny Steven Vallejo, because Johnny can’t claim fraud and that’s all Ninth Circuit will allow to set aside the stipulated decision Johnny entered into. See my blogpost ‘Confused, Stressed and Traumatized”, 4/9/13.

But had Johnny Steven quitted the Golden State, he might have done better.

Ch STJ Peter Panuthos has a different take in Francisco & Maria Goncalves, Docket No. 9831-10S, a designated hitter filed 5/17/13.

Francisco and Maria lived in the Bay State.

“In addition to fraud on the Court, there are some other narrow exceptions to finality. Thus, this Court and some Courts of Appeals have ruled that this Court may vacate a final decision if that decision is shown to be void, or a legal nullity, for lack of jurisdiction over either the subject matter or the party. See Billingsley v. Commissioner, 868 F.2d 1081, 1084-1085 (9th Cir. 1989); Abeles v. Commissioner, 90 T.C. 103, 105-106 (1988); Brannon’s of Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978). We also have authority to correct a clerical error discovered after the decision has become final. Michaels v. Commissioner, 144 F.3d 495 (7th Cir. 1998), af[‘g T.C. Memo. 1995-294; see also Fed. R. Civ. P. 60(a). The Court is satisfied that a clerical error was made by the Court, and was discovered after the decision in this case became final. Thus, we will vacate the Order of Dismissal and Decision entered June 30, 2011.” Order, at p. 2.

Here the Court had the wrong address for the petitioners, so all the notices went astray.

Time for one size fits all.

 It’s Herb Vest, Docket No. 30510-12, filed 5/17/13, Ch. J. Colvin at the controls.

Herb timely filed his petition, but before he did that he filed a petition in bankruptcy and the automatic stay was still in effect.

So IRS moved to dismiss pursuant to 11 USC §362(8). “Petitioner opposes the granting of respondent’s motion to dismiss on two grounds: (1) the Fifth Circuit has held that a stay pursuant to 11 U.S.C. 362(a)(1) does not necessarily bar all proceedings; and (2)petitioner fears that he would be ‘statutorily barred from bringing a Petition for Redetermination in Tax Court’ if the case is dismissed rather than stayed.” Order, p. 1.

Ch Judge Colvin: “As an initial matter, petitioner–represented here by counsel admitted to practice before the Court–is reminded of the applicability of I.R.C. section 6213(f)(1), which provides that the running of time for filing a Tax Court petition is suspended during the time the automatic stay prohibits the filing of a Tax Court petition, and for 60 days thereafter. The automatic stay is lifted upon the earliest of (1) the date the bankruptcy case is closed, (2) the date the bankruptcy case is dismissed, or (3) the date a bankruptcy discharge is granted or denied. 11 U.S.C. sec. 362(c)(2).” Order, at p. 1.

Ch Judge Colvin continues the lesson: “Second, and perhaps more directly to the point of petitioner’s opposition, is that respondent’s motion is being made pursuant to 11 U.S.C. section 362(a)(8), not 11 U.S.C. 362(a)(1). In fact, 11 U.S.C. section 362(a)(8) specifically prohibits ‘the commencement or continuation of a proceeding before the United States Tax Court’. Order, at pp. 1-2.

Petition dismissed.

Automatic admittee, ya think?

“Fee amounts collected for scheduled registered tax return preparer test appointments canceled due to the court ordered injunction are being refunded. Additionally, fees collected from return preparers who tested on or after January 18, 2013, the date the test was enjoined, are also being refunded. No additional refund or reimbursement requests related to registered tax return preparer regulation are being provided or considered at this time. E-mail notifications will be provided to those receiving refunds to explain the process. No action is necessary to receive the refund. A credit for the test fee will automatically be made to the account used to pay the fee. It is anticipated that all refunds will be processed by July 19, 2013.”

]]> http://taishofflaw.com/2013/05/17/money-back-guarantee/feed/ 0 taishofflaw http://taishofflaw.com/2013/05/16/is-a-puzzlement/ http://taishofflaw.com/2013/05/16/is-a-puzzlement/#comments Thu, 16 May 2013 19:55:36 +0000 taishofflaw http://taishofflaw.com/?p=2054 ]]> As the late great Yul Brynner so eloquently put Oscar Hammerstein II’s words in the 1951 smash-hit “The King and I”, STJ Lewis (Love That Name) Carluzzo confronts a similar predicament. No great legal principles here, but a good example of what a 19-year veteran STJ must deal with.

IRS’ NOD to Phil Filet Davis-Windsor, in Docket No. 15962-12L, filed 5/16/13, doesn’t sustain the proposed levy based on a Section 6702 frivolity penalty. So Phil Filet won, right?

It would seem so, but Phil Filet petitions nevertheless, although STJ Lew is at a loss to figure out why, because Phil Filet’s petition doesn’t enlighten him.

And IRS moves for summary judgment sustaining its determination that Phil Filet is off the levy hook. Of course, Phil Filet objects.

See my blogpost “You Won, Go Home”, 9/13/12. But there the taxpayer had an argument, although a losing one. Here, Phil Filet has nada.

“Taking into account the determination made in the notice and statements contained in the pleadings, the issue presented in this case can be stated as follows: whether respondent’s determination not to sustain the proposed levy in order to collect the underlying liability is an abuse of discretion. Adjudication of this issue in respondent’s favor, of course and in effect, is adjudication in petitioner’s favor as well. This point appears to have been lost on petitioner because, as noted, he objects to respondent’s motion. Petitioner’s objection, however, is no more informative than his petition.

“Be that as it may, and making what sense that we can from what has been submitted, we are satisfied that respondent has proceeded as required by section 6330(d) and nothing submitted by petitioner suggests otherwise.” Order, p. 2.

So summary judgment, and Phil Filet, you won, go home.

]]> http://taishofflaw.com/2013/05/16/is-a-puzzlement/feed/ 0 taishofflaw http://taishofflaw.com/2013/05/15/stj-lew-to-the-contrary-notwithstanding/ http://taishofflaw.com/2013/05/15/stj-lew-to-the-contrary-notwithstanding/#comments Wed, 15 May 2013 20:15:07 +0000 taishofflaw http://taishofflaw.com/?p=2049 ]]> Tax Court will not assist a taxpayer in preparing his return. One might have mistakenly come to that conclusion by reading STJ Lew (Spell It Right) Carluzzo’s opinion in Loretta Lea Wanat, T. C. Sum. Op. 2012-92, filed 9/17/12, or my blogpost “Tax Court As Preparer?”, 9/17/12.

But Judge Morrison isn’t having any in Diep N. Hoang, 2013 T. C. Memo. 127, filed 5/15/13.

Diep claims he thought he was an accrual-basis taxpayer when he filed his first petition for tax year 2001, and Judge Vasquez disabused him of that notion.

So when he filed his next petition (late) for the “deficiency of $5,188,587 in federal income tax for 2006, a section 6651(a)(1) addition to tax of $1,297,533.50, and a penalty under section 6662(a) of $1,037,717.40.” 2013 T. C. Memo. 127, at pp. 1-2, he thought that Tax Court would tell him how to do it right.

Not quite, Diep. Diep tried to get into evidence some obviously altered brokerage statements and an explanation why he filed late, but Judge Morrison barred that.

And when Diep tried to avoid the Section 6662(a) penalties, Judge Morrison relegated Diep’s argument to a footnote: “According to the explanation (and to another document fragment and court papers), the Tax Court failed to assist Hoang in preparing his tax returns after the 2001 deficiency case was decided and, as a result, Hoang no longer had to file federal income tax returns. The Tax Court is not required to assist taxpayers in preparing their tax returns; taxpayers who do not receive such assistance are not absolved of their obligation to file federal tax returns. It would have been unreasonable for Hoang to believe that he had been absolved of his filing obligations. Such a belief would not constitute reasonable cause for failing to timely file his tax return.” 2013 T. C. Memo. 127, at p. 32, footnote 45.

Diep, next time you need to file a tax return, try a good tax professional; just not one in a black robe.