Attorney-at-Law

THE RULE IN SHELLEY’S CASE

In Uncategorized on 09/23/2022 at 16:54

Although the famous law school maxim, which baffled me in my salad days On The Hill Far Above, was a primordial estate tax dodge, today I pick up on a frivolite, Shelley Tempelman, Docket No. 32737-21L, filed 9/23/22.

Shelley tries the Form 4852 renege on her W-2s via an amended return. This earns her a warning of an impending Section 6702 $5K chop, to which she replies with a photocopy of the amended return, earning a second Section 6702. IRS drops the second after the CDP hearing, per Kestin; see my blogpost “From the Serious to the Frivolous,” 8/29/19.

Judge Courtney D (“CD”) Jones spends a lot of time on the lead-in to Shelley’s CDP, but finds that IRS satisfied the Section 6751(b) Boss Hossery before telling Shelley she was under the gun for the Section 6702 chops. There’s discussion of the short-circuitry by and among 2 Cir, 9 Cir, and 11 Cir.

“We recognize that there is a split between the circuits as to whether written supervisory approval must be obtained before the IRS issues a formal communication of the penalty such as a notice of deficiency, Chai v. Commissioner, 851 F. 3d 190, 221 (2nd Cir. 2017), or merely before the assessment, Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1071 (9th Cir.  2022); Kroner v. Commissioner, No. 20-13902, 2020 WL 414034, at *12-13 (11th Cir. Sep. 13, 2022),  rev’g and remanding T.C. Memo. 2020-73. The Third Circuit does not appear to have taken a position on the issue. See United States v. Komlo, 802. Fed. Appx. 676 (3d. Cir. Jan. 29, 2020); But Cf. United States v. Weiner, No. 18CV16034, 2020 WL 4596926 (D. N.J. Aug. 11, 2020). Accordingly, we follow this Court’s approach in the instant case. See, e.g., Graev v. Commissioner, 149 T.C. 485 (2017), supplementing 147 T.C. 460 (2016).” Order, at p. 9, footnote 13.

Taishoff says 2 Cir got it right, and 9 Cir and 11 Cir misunderstand what “assessment” means in this context.

Judge CD Jones sorts out Shelley’s conflation of item 44 in Notice 2020-33 with item 44 in IRS’ electronic TXMODA system. “Mrs. Tempelman argues at length that Form 8278 and her TXMODA data shows that the frivolous return penalty was assessed against her using civil penalty argument 44, as listed in Notice 2010-33. Supra, p. 3. However, the internal Form 8278 and the internal electronic data (e.g., TXMODA data) used by the IRS do not reference public Notice 2010-33, rather they reference Internal Revenue Manual (IRM) Exhibit 25.25.10-1, which is the IRS’ own internal listing of the same designated frivolous positions found in Notice 2010-33. IRM argument code 44 applies when a taxpayer files “zero wages on a substitute form.” Mrs. Tempelman attached substitute Form 4852 to her amended return, and the form shows $0 of wages. IRM argument code 44 provides for the same substantive basis as listed frivolous position 1(e) in Notice 2010-33, and how the IRS chooses to internally refer to the designation is of no consequence.” Order, at p. 8 (Footnotes and citation omitted).

But at close of play, Judge CD Jones has the rule in this Shelley’s case. Play games, get chopped.

“…we have considerable latitude in determining when, and in what amount, to impose a penalty under section 6673 because these penalties serve to punish and deter the abuse of judicial resources. “The purpose of section 6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate.’ Takaba v. Commissioner, 119 T.C. 285, 295 (2002).

“Though we will not impose a penalty under section 6673 upon Mrs. Tempelman in the instant case, we take this opportunity to sternly warn her that penalties, up to a maximum of $25,000, are very likely to be imposed upon her in any future cases before this Court if she advances similarly frivolous arguments again.” Order, at p. 10. (Citation omitted.)

NO IMMUNIZATIONS

In Uncategorized on 09/22/2022 at 15:39

No, not a new variant of COVID. Today Judge Albert G (“Scholar Al”) Lauber demonstrates yet again the fetters of brass which bind Tax Court in Oconee Landing Property, LLC, Oconee Landing Investors, LLC, Tax Matters Partner, filed 9/22/22.

In our last episode, IRS wanted to depose two non-parties; see my blogpost “Why He Canceled Tuesday,” 10/12/21. There followed the abortive waddle through the Fifth Amendment, more particularly bounded and described in my blogpost “45 and the Fifth Amendment,” 8/16/22, wherein the two recalcitrants were handed 45 (count ’em, 45) written interrogatories in lieu of another sit-down.

But their ever-inventive counsel, the Great Chieftain of the Jersey Boys, tries yet again to snatch transactional immunity from the brazen fetters aforesaid. Frantic Frank Agostino, Esq., first asked IRS’ counsel to dish whether the twain were subjects or targets, whether IRS would seek to have them immunized, or stip to immunity. Remember, when Judge Scholar Al went with the 45 questions, he directed that if Mr. Agostino raised any Fifth Amendment objections, he “…would need to supply a detailed explanation laying out the ground for the claim, cognizant that the Fifth Amendment only protects against real dangers, and not remote or speculative possibilities. ” Order, at p. 2.

IRS gave Frank the right-about-face and served the interrogatories. So Frank moves for Judge Scholar Al to do the honors.

I give Frank every credit. His never-say-die approach, his inexhaustible fount of improvisation, his willingness to do the Don Quixote, his endless pro bono efforts, earn him an honored place among practitioners.

But Judge Scholar Al is implacable.

“It is well established that this Court lacks jurisdiction to grant criminal immunity to a witness who may be called to testify before the Tax Court. This power resides solely with the U.S. District Courts and only upon the request of the U.S.  Attorney for the applicable district. 18 U.S.C. §§6001-6003; see, e.g., Coulter v. Commissioner, 82 T.C. 580, 583 (1984) (finding that ‘the Tax Court is not authorized to grant immunity’ to a taxpayer); Hartman v. Commissioner, 65 T.C. 542, 547 (1975) (denying a taxpayer’s request for immunity ‘since jurisdiction to take such action is vested exclusively in the United States District Courts, and then only upon application of a United States Attorney’); Reynolds v. Commissioner, T.C. Memo. 1981-364, 42 T.C.M. (CCH) 395, 397 (holding that a taxpayer’s request that we grant him immunity ‘is spurious since jurisdiction to take such action is vested exclusively in the U.S. District Courts, and then only upon application of a U.S. Attorney’). It is equally well established that this Court lacks jurisdiction to compel the IRS to seek an order of immunity for a witness. See Hartman, 65 T.C. at 547–48; Hershberger v. Commissioner, T.C. Memo. 1979-522 (finding that a taxpayer’s request that the Tax Court order the IRS to grant him transactional immunity was baseless). This Court has no  ‘inherent authority’ to confer immunity on a witness. Such discretionary power is statutorily reserved to the Executive Branch and is available to neither the Tax Court nor U.S. district courts (absent an application from a U.S. Attorney). See 18 U.S.C. §§ 6001-6005.” Order, at p. 2.

In the alternative, Frank asks that the duo be held to be “qualified appraisers” who prepared “qualified appraisals,” but those are fact questions for trial.

I don’t know if Frank is a New Jersey Devils fan, but he sure is a follower of the hockey players’ mantra: “Shoot the puck, it might go in.”

YOUR S IS ON ITS OWN

In Uncategorized on 09/21/2022 at 16:15

That’s the lesson Judge Travis A (“Tag”) Greaves has for the eight (count ’em, eight) family-farmer petitioners in John E. Vorreyer and Melissa D. Vorreyer, et al., T. C. Memo. 2022-97, filed 9/21/22. They ran the farm in a bunch entities (hi, Judge Holmes), but we’re concerned here with a Sub S Corp and a general partnership, in which all petitioners had various interests.

But Chris & John were the only shareholders in the SD Corp who ponied up $108K in property taxes on said farm, and $20K for the back utilities bill in Year One. They claim these were contributions to capital, wherefore passed through as deductions to Chris & John on their personal 1040s.

No, says Judge Tag Greaves.

“A taxpayer cannot deduct expenses paid on behalf of another taxpayer. This long-established principle extends to corporations as a corporation’s business is distinct from its shareholders. Thus, a shareholder may not deduct as personal expenses those expenses that further the business of the corporation.” T. C. Memo. 2022-97, at p. 4 (Citations omitted).

Chris & John don’t claim the “further the corporate business” exception, but Taishoff says it’s worth a try. If the county forecloses for back taxes, there goes the farm.

Judge Tag Greaves says a Sub S Corp is no different than a C Corp when it comes to shareholders paying corporate expenses. The S Corp is on its own.

“Although an S corporation’s income or loss eventually flows through to the shareholders, a corporation ‘remains a separate taxable entity [from its shareholders] regardless of whether it is a subchapter S corporation or a subchapter C corporation.’ Russell v. Commissioner, T.C. Memo. 1989-207, 1989 Tax Ct. Memo LEXIS 207, at *10. This means that the business expenses of an S corporation cannot be disregarded at the corporate level for section 162 purposes. See id.  Consequently, the income reaped by an S corporation must be matched at the corporate level against the S corporation’s expenses that were incurred to produce that income before the net income or loss amount can flow through to the shareholders. See § 1366(a)(2) (generally defining the income or loss that flows through to an S corporation shareholder as the S corporation’s ‘gross income minus the deductions allowed to the [S] corporation’ (emphasis added)). This matching is accomplished by reporting such items on an S corporation’s corporate return: Form 1120S.” T. C. Memo. 2022-97, at p. 5.

In Year Two, the partnership bought two “semi-trucks” for $70K. I take that means the motive power component of an 18-wheeler. They wrote off the expense on their Sched F (farming) as repairs and maintenance, but everybody agrees it wasn’t. The two vehicles would have qualified for a Section 179 deduction as business property. But the partnership never amended to take the deduction, and the time to amend has run out.

Judge Tag Graves can’t help.

“Petitioners… request that this Court make the election retroactively on [partnership]’s behalf on the basis of principles of equity. We decline to do so as [partnership]’s circumstances are of its own making.” T. C. Memo. 2022-97, at p. 7.

Remember, pore l’il ol’ Tax Court has no equitable powers.

But check out footnote 10 at page 7. Judge, didn’t you mean that “Respondent does not dispute that the truck expenses are qualifying property, e.g., that the semi-trucks constitute qualifying property whose costs are otherwise eligible for deduction” ?