In Uncategorized on 09/20/2019 at 18:28

Coming off some heavy-duty Tax Court wins on phony captive insurance companies, which I’ve blogged, IRS offers terms of surrender to maybe some 200 captors.

Here’s the skinny:



In Uncategorized on 09/20/2019 at 18:20

That’s not Judge James S (“Big Jim”) Halpern’s answer to Giorgio P. Martinelli, Docket No. 4122-18, filed 9/20/18, despite the 1982 Pavarotti musical.

Giovanni wants summary J that he doesn’t owe Section 6038D(d) hits for the Italian bank account brother Maurizio opened under a POA from Giorgio. And to keep IRS from grabbing the hits. Of course, the Section 6038D hits don’t involve either a deficiency (difference between amount stated on return and tax due) or any NOD.

Section 6214(a) avails Giorgio not. IRS can be enjoined only for Subtitle A and Subtitle B stuff, but Section 6038D is Subtitle F.

Giorgio claims he’s a mere nominee for Maurizio, and Maurizio has two (count ‘em, two) affidavits in almost idem verba that say so. Thus, says Giorgio, the interest and dividends earned on the accounts aren’t Giorgio’s, and therefore there’s no deficiency.

“We do not find petitioner’s or Maurizio’s declarations specific enough to negate the inference that, as the account’s owner, petitioner had the ability (whether or not exercised) to withdraw funds from the account without Maurizio’s approval. Neither petitioner nor his brother describes any terms or conditions on the account that would deny petitioner the usual rights of an account holder and prevent the Italian bank from honoring withdrawal requests from petitioner.” Order, at p. 6.

Giorgio claims he didn’t know about the account until after the year at issue. IRS says he did, but can’t introduce any facts to rebut Giorgio’s tale.

IRS should’a interpolated Rule 121(e), which says that if the only way of contravening affidavits is cross-examination, no summary J. But IRS didn’t.

Judge Halpern to the rescue. “Respondent did not invoke Rule 121(e) in his opposition to petitioner’s motion or accompanying memorandum of law. But he does claim repeatedly that he ‘should not be forced to take information contained in declarations at face value without the right of cross-examination of witnesses under oath.’ Those claims implicitly invoke Rule 121(e).

“We agree with respondent that he should be allowed to cross-examine petitioner about when he learned of the Italian bank account (as well as other matters in regard to which petitioner’s statements provide the only evidence). If petitioner did learn of the account’s existence before [year after year at issue], evidence of that fact may not exist and in any event would not be readily available to respondent. Denial of petitioner’s motion thus should not turn on respondent’s ability to produce evidence to that effect. Petitioner’s testimony about when he first learned of the Italian account may be the only available evidence of that potentially critical fact. Therefore, we will not accept petitioner’s testimony until respondent has had the opportunity to challenge it through cross-examination (and we have the opportunity to observe petitioner’s demeanor and judge his credibility).” Order, at p. 7.

Time for a trial.




In Uncategorized on 09/19/2019 at 16:26

The Boyg’s advice to Peer Gynt doesn’t serve William Elias Rosenberg, 2019 T. C. Memo. 124, filed 9/19/19, well, as Judge Pugh nails Wm E with a deficiency plus the 10% early withdrawal whatever-it-is.

Wm E is short of the 55-1/2 year safe harbor.

“…a Judgment and Property Order Attachment to Judgment (Property Order) was entered that dissolved petitioner’s marriage to his former spouse. It provided that his former spouse must pay him the sum of $10,000 to be ‘[p]aid from the proceeds of * * * [his former spouse’s] retirement account as reimbursement to petitioner for his payment to * * * [her] of liquidated retirement proceeds during marriage.’” 2019 T. C. Memo. 124, at p. 2.

The next year “…petitioner’s former spouse transferred retirement funds to him. Instead of withdrawing the funds from her retirement account at Merrill Lynch and making a cash payment to him, she arranged for those funds to be transferred from her retirement account to an IRA that petitioner opened at Merrill Lynch. Within seven days of this transfer he withdrew the funds and closed the account.” Order, at p. 2.

Wm E never reported the $10K (actually it was $9875, because Merrill hit Wm E with a $125 withdrawal fee).

Now all my learned readers know about QDROs (pronounced “quaddros” by the cognoscenti), and how these dodge the cliché via Section 72(t)(2)(C).

But Judge Pugh isn’t creative.

“Petitioner does not argue that the Merrill Lynch withdrawal is not income or that any statutory exception in section 72(t)(2) applies; he argues rather that the Court should (1) disregard entirely the Merrill Lynch account and the intermediate steps of the transfers from his former spouse’s retirement account to his IRA and his immediate withdrawal from that account and (2) treat the transaction instead in substance as a payment of cash from his former spouse to him as prescribed by the Property Order. He reasons that his former spouse interposed the intermediate steps over his objection, and he did not think the temporary account would convert his property settlement into a retirement distribution includable in his gross income or subject to the 10% additional tax under section 72(t)(1). Petitioner credibly testified regarding the intent of the Property Order, but his understanding that his former spouse would withdraw the funds from her retirement account and transfer them directly to him cannot overcome the fact that the funds were transferred from her retirement account to his and he then withdrew them. We will not use common law doctrines to fashion an equitable exception to the statutory scheme in section 72.” 2019 T. C. Memo. 124, at p. 5. (Citation omitted).

Tax Court does not craft equitable exceptions to what Congress decided. Wm E might have been better advised to try a pay-and-file-for-a-refund gambit. Maybe USDC might have been able to do some crafting.