In Uncategorized on 05/14/2021 at 13:14

I gave Judge Christian N. Weiler the sobriquet “Speedy” last September, in my blogpost “Fastest Promotion on Record,” 9/10/20.

Although it takes him some little time, Judge Speedy straightens out IRS counsel in Otay Project, LP, Oriole Management LLC, Tax Matters Partner, Docket No. 6819-20, filed 5/14/21.

IRS tries to amend its answer two (count ’em, two) days after the Otays replied to their answer. Rule 41 says you need leave of court to serve an amended pleading after an adversary has responded to yours.

So IRS moves for leave to file a second amendment to its answer, but that fares no better.

“Respondent filed the first amendment to his answer on October 21, 2020, just two days after petitioner replied to respondent’s answer on October 19, 2020. Since the first amendment to answer was not filed within the time an amendment could have been filed as a matter of course, it may be filed only by leave of Court.  However, no motion for leave to file accompanied the first amendment to answer. Therefore, the filing of respondent’s first amendment to answer violates Rule 41.

“In respondent’s second amendment to answer, lodged with his motion for leave to file, respondent seeks to clarify his position regarding Exhibit B to the answer, clarify the theories supporting his position in the case, and cure any issue under Rule 41(a) relating to respondent’s first amendment, by deleting the text ‘and the substantial understatement penalties under I.R.C. §§ 6662(b)(2) and 6662(d)’ from paragraph 11(l) of respondent’s first amendment to answer.” Order, at p. 2.

Note that IRS is up against a well-known and well-regarded white shoe law firm.

The test for leave is whether the counterparty is ambushed, like eve-of-trial or after discovery closed, and the amended pleading does more than “make the case harder or more expensive for the other party since this is likely to occur in any amendment to the pleadings.” Order, at p. 2. (Citation omitted).

Here, trial is not scheduled, and apparently IRS tipped off the Otays in a December phoneathon. So no ambush.

But here’s the bonus: Judge Speedy gives us some insight into what he thinks is speedy. “Furthermore, the motion for leave was filed some 3 months after the original answer, which does not strike the Court as dilatory under the circumstances of this case.” Order, at p. 2.

A docket search shows a major joust over summary J, with electrons flying in all directions. Maybe there’s no need for discovery, so all they’re talking about is law, and the proposed amendments are only explanatory.

So straightening out the procedural part, Judge Speedy lets IRS “…file a motion for leave to file an amended and restated answer in accordance with Rule 41(a) reflecting the contentions made in the first and second proposed amendments to the answer.” Order, at p. 3.

And calls for another phoneathon next month, after IRS sends in the amended and restated answer. Maybe some head-banging might settle the case.


In Uncategorized on 05/13/2021 at 18:25

For whatever reason, IRS didn’t cross-move for summary J in Cahill; see my blogpost “Summary J – Tactics,” 6/18/18. Turns out IRS may have been wise, because there are lots of facts when split-dollar life insurance arrangements meet estate tax. And Judge Goeke digs through all of them, as we come to evaluating the tax and chops (40% style) in Estate of Clara M. Morrissette, Deceased, Kenneth Morrissette, Donald J. Morrissette, and John D. Morrissette, Personal Representatives, 2021 T. C. Memo. 60, filed 5/13/21.

I gave a tip of the battered Stetson to the late Clara’s trusty attorneys in my blogpost “Heir Splitting,” 4/13/16, which see for part of the backstory. Judge Goeke has more backstory, and it’s a family feud of the clessic (no misprint, that) species. Dad starts business with one used truck and builds a moving and storage empire covering 32 States, slave-drives his sons, two leave, one stays and gets a Prodigal Son complex when the two come back, the brothers hate each other, sue each other, the next generation wants to get into and keep the business but get shut out by the battling brothers, and Mommy wants the business to stay in the family.

Enter the split-dollar, whereby Mommy’s trust funds the life insurance policies that wind up with the sons’ dynasty trusts.

And Judge Goeke buys it all.

The desire to keep the business in the family, the need for liquidity for estate tax purposes (Mommy owned 75% of the stock, plus real estate and securities), the need to secure peace among the battling brothers, and provide the means for the next generation to buy into the business, get the split past Sections 2036, 2038, and 2703.

It takes 125 pages, but the Estate is leading at the sixteenth pole, when IRS’ valuation of the Estate’s share of the split comes up on the outside on Boss Hoss, and beats the Estate at the wire.

The Estate got $7.5 million, say the PersReps. IRS says $27 million. One of the Estate’s experts is off the mark, but the other and IRS’ expert agree on methodology. On the numbers, IRS wins, and the e-mail exchanges between the RA and his immediate supervisor satisfy Section 6751(b).

Trusty attorney warned the brothers that their valuation was too sweet, but they eschewed getting a legal opinion. No good faith defense to the chop, when they finish the Rule 155 beancount.

Is the SDLIA really dead? Maybe not.


In Uncategorized on 05/12/2021 at 16:59

That entrepreneurial gentleman Scott A. Blum, star of my blogpost “OPIS Finis,” 11/18/12, seems to have an inexhaustible appetite for tax dodges, as he’s back today with Scott A. Blum and Audrey R. Blum, Docket No. 5313-16, filed 5/12/21. This time it’s BLIPS. I’ll let Judge Kathleen Kerrigan explain.

Scott was a partner in “… Democrat Strategic Investment fund LL (DSIF), which engaged in a tax shelter, Bond Linked Issue Premium Structure (BLIPS). DSIF was an entity taxable as a partnership pursuant to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, sec. 402(a). 96 Stat. at 648, which established unified procedures for the IRS examination of partnerships rather than a separate examination of each partner. See secs. 6221-6234.” Order, at p. 1.

“The BLIPS transaction resulted in a purported tax loess which petitioners claimed on their 1999 Federal income tax return.” Order, at p. 2. Tax loess? Judge, I thought you might be referring to Clay; see my blogpost “Indians Not Taxed – Redivivus,” 11/28/16.

Howbeit, IRS descended on the Democrats (please, this is a nonpolitical blog; any resemblance between my remarks here and any political organization or party is purely coincidental). The Democrats’ TMP elected to challenge the FPAA in USDCNDCA, at which IRS won on all counts, including without limiting in any wise the generality of the foregoing, the Section 6662(h) overvaluation chop.

So IRS hit Scott with a bunch SNODs (hi, Judge Holmes).

The SNODs seek the chops USDCNDCA affirmed, and Scott claims he doesn’t owe them.

We all know pursuing affected items in Tax Court is a nonstarter. Happily, the next generation of partnership dodges will all be sorted out in a single proceeding. Maybe.

“Deficiency procedures apply to affected items which require partner level determinations (other than penalties, additions to tax, and additional amounts that related to adjustments to partnership items. Sec. 6230(a)(2)(A). This is a deficiency case and therefore, penalties attributable to affected items determined at the partner-level are not before the Court.” Order, at p. 2. (Citation omitted).

So anything in Scott’s petition relating to the chops is stricken.

Scott, sometimes it’s better just to pay the tax. And stay away from the tax loess.